SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended January 31, 2001 Commission file number 1-5838
NCH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-0457200
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 152170
2727 Chemsearch Boulevard
Irving, Texas 75015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 438-0211
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Total Shares
Outstanding at
Class March 14, 2001
Common Stock, $1 Par Value 5,307,330
NCH CORPORATION
INDEX
Page No.
Part I. Financial Information:
Consolidated Balance Sheets --
January 31, 2001 and April 30, 2000 3
Consolidated Statements of Income --
Three Months and Nine Months Ended
January 31, 2001 and 2000 4
Consolidated Statements of Cash Flows --
Nine Months Ended January 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6 - 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 23
Part II. Other Information 24
NCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands Except Share and Per Share Data)
January 31, April 30,
2001 2000
----------- -----------
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 27,721 $ 32,146
Marketable securities 56,566 20,429
Accounts receivable, net 116,464 129,767
Inventories 78,446 84,991
Prepaid expenses 8,929 6,203
Deferred income taxes 13,565 13,691
----------- -----------
Total Current Assets 301,691 287,227
----------- -----------
Property, Plant and Equipment 180,970 189,079
Accumulated depreciation 118,332 119,021
----------- -----------
62,638 70,058
----------- -----------
Deferred Income Taxes 35,836 36,714
----------- -----------
Other 17,022 20,211
----------- -----------
Net assets of discontinued operations 3,150 12,939
----------- -----------
Total $ 420,337 $ 427,149
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 906 $ 5,956
Current maturities of long-term debt 6,092 5,971
Accounts payable 36,241 40,112
Accrued expenses 27,338 26,718
Income taxes payable 7,055 6,344
Dividends payable 1,858 1,893
----------- -----------
Total Current Liabilities 79,490 86,994
----------- -----------
Long-term Debt, less current maturities 5,702 12,049
----------- -----------
Retirement and Deferred Compensation Plans 116,782 115,344
----------- -----------
Stockholders' Equity
Common stock, par value $1 per share, authorized
20,000,000 shares, issued 11,769,304 shares 11,769 11,769
Additional paid-in capital 12,714 12,714
Retained earnings 519,257 501,146
Accumulated other comprehensive loss (51,088) (42,389)
----------- -----------
492,652 483,240
Less treasury stock
(6,461,974 and 6,361,081 shares) 274,289 270,478
----------- -----------
218,363 212,762
----------- -----------
Total $ 420,337 $ 427,149
=========== ===========
The accompanying notes are an integral part of these financial statements.
NCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
January 31, January 31,
-------------------- ---------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net Sales $ 158,978 $ 178,091 $ 503,982 $ 532,791
--------- --------- --------- ---------
Operating Expenses
Cost of sales, including
warehousing and commissions 85,449 94,913 273,804 282,713
Marketing and administrative
expenses 64,334 69,287 194,119 212,160
--------- --------- --------- ---------
149,783 164,200 467,923 494,873
--------- --------- --------- ---------
Operating Income 9,195 13,891 36,059 37,918
Other Expenses
Revaluation of foreign currencies (127) (893) (551) (1,796)
Interest income 1,539 769 3,104 1,327
Interest expense (1,565) (1,230) (4,425) (3,232)
Gain on sale of subsidiary - - 5,068 -
Gain on sale of land - - 3,115 -
--------- --------- --------- ---------
Income from Continuing Operations
before Income Taxes 9,042 12,537 42,370 34,217
Provision for Income Taxes 1,333 4,311 14,529 13,353
--------- --------- --------- ---------
Income from Continuing Operations 7,709 8,226 27,841 20,864
--------- --------- --------- ---------
Discontinued Operations:
Income (Loss) from Discontinued
Operations, net of income taxes (157) 452 (1,006) 1,300
Loss on Disposition of Discontinued
Operations, net of income taxes (3,147) - (3,147) (3,309)
--------- --------- --------- ---------
Net Income $ 4,405 $ 8,678 $ 23,688 $ 18,855
========= ========= ========= =========
Weighted Average Number of Shares
Outstanding
Basic 5,307 5,408 5,333 5,408
========= ========= ========= =========
Diluted 5,315 5,408 5,335 5,416
========= ========= ========= =========
Earnings Per Share from Continuing
Operations
Basic $ 1.45 $ 1.52 $ 5.22 $ 3.86
======== ========= ========= =========
Diluted $ 1.45 $ 1.52 $ 5.22 $ 3.85
======== ========= ========= =========
Total Earnings Per Share
Basic $ 0.83 $ 1.60 $ 4.44 $ 3.49
======== ========= ========= =========
Diluted $ 0.83 $ 1.60 $ 4.44 $ 3.48
======== ========= ========= =========
Cash Dividend Paid Per Share $ 0.35 $ 0.35 $ 0.70 $ 1.05
======== ========= ========= =========
Cash Dividend Declared Not Paid $ 0.35 $ - $ 0.35 $ -
======== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
NCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Months Ended
January 31,
---------------------
2001 2000
--------- ---------
Cash Flows from Operating Activities
Income from Continuing Operations $27,841 $ 20,864
Adjustments to reconcile Income from
Continuing Operations to net cash
provided by Continuing Operations:
Depreciation and amortization 8,886 9,900
Provision for losses on accounts receivable 3,500 4,163
Deferred income taxes 339 3,350
Retirement and deferred compensation plans 1,987 3,651
Gain on sale of subsidiary (5,068) -
Gain on sale of land (3,115) -
Other noncash items 127 70
Changes in assets and liabilities, excluding net
assets acquired in the purchase of businesses:
Accounts receivable (1,169) (1,323)
Inventories 1,684 5,773
Prepaid expenses (2,833) 1,285
Accounts payable, accrued expenses and income
taxes payable (1,971) (3,238)
Other noncurrent assets (569) (1,250)
--------- ---------
Net cash provided by Continuing Operations 29,639 43,245
--------- ---------
Cash flow from Discontinued Operations 5,796 (2,585)
--------- ---------
Net cash provided by operating activities 35,435 40,660
--------- ---------
Cash Flows from Investing Activities
Sales of property, plant and equipment 7,438 1,038
Purchases of property, plant and equipment (6,474) (6,520)
Redemptions of marketable securities 29,881 3,985
Purchases of marketable securities (65,275) (22,751)
Acquisitions of businesses - (2,027)
Sale of subsidiary 12,626 -
Sale of discontinued operations - 12,697
Other (991) (1,005)
--------- ---------
Net cash used in investing activities (22,795) (14,583)
--------- ---------
Cash Flows from Financing Activities
Proceeds from notes payable 1,714 2,435
Payments of notes payable (6,288) (2,519)
Additional long-term debt 44 5
Payments of long-term debt (1,032) (244)
Borrowing of cash surrender values 2,436 826
Surrender of insurance contracts - 317
Payments of dividends (5,612) (5,679)
Purchase of treasury stock (3,831) -
--------- ---------
Net cash used in financing activities (12,569) (4,859)
--------- ---------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (4,496) (2,940)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (4,425) 18,278
Cash and Cash Equivalents at Beginning of Year 32,146 19,814
--------- ---------
Cash and Cash Equivalents at End of Period $27,721 $ 38,092
========= =========
The accompanying notes are an integral part of these financial statements.
NCH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly NCH Corporation's
financial position as of January 31, 2001, the results of its operations for the
three and nine months ended January 31, 2001 and 2000, and cash flows for the
nine months then ended.
The accounting policies followed by NCH Corporation (the Company) are set forth
in Note 1 to the Company's consolidated financial statements in the 2000 NCH
Corporation Annual Report to Shareholders, which is included in Part II of Form
10-K.
The results of operations for the three and nine month periods ended January 31,
2001, are not necessarily indicative of the results to be expected for the full
year.
2. Discontinued Operations
In the current quarter, the Company closed the DBS Services Group, due to the
weakness in the direct broadcast satellite equipment market and to increased
competition. Operations for this segment ceased in January 2001. The remaining
net assets at January 31, 2001 consist of receivables, inventory, fixed assets
and accrued closing costs. The assets have been written down to their estimated
net realizable values, and expenses have been estimated and accrued through the
estimated closing date. These items are expected to be liquidated during the
fourth quarter.
In the second quarter of the prior year, the Company sold substantially all the
net assets of Resource Electronics Inc., a subsidiary of the Company. This sale
closed on November 11, 1999. The net assets and liabilities that were sold
consisted primarily of accounts receivable, inventories, fixed assets, and
accounts payable. The selling price for these net assets was $12,697,000 in cash
and was received by the Company in November 1999.
The financial position, operating results, and cash flows of DBS Services Group
and Resource Electronics are shown separately as discontinued operations.
Net sales of DBS Services Group for the three months ended January 31, 2001, and
2000 were $1,081,000 and $5,161,000, respectively. Net sales of DBS Services
Group for the nine months ended January 31, 2001, and 2000 were $9,682,000 and
$16,040,000, respectively. Due to the sale of Resource Electronics in the second
quarter of the prior year, there were no net sales related to Resource
Electronics in the third quarter of the prior year or in the current year. Net
sales of Resource Electronics for the nine months ended January 31, 2000 were
$32,493,000. These amounts are not included in net sales in the accompanying
Consolidated Statements of Income.
As shown on the accompanying Consolidated Statements of Income, amounts relating
to discontinued operations are as follows (in thousands except per share
amounts):
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------- -----------------------
2001 2000 2001 2000
----------- ---------- ----------- -----------
Income (Loss) from Discontinued $(242) $ 737 $(1,531) $ 2,176
Operations before taxes
Income Taxes 85 (285) 525 (876)
---------- ----------- ---------- -----------
Income (Loss) from Discontinued
Operations $(157) $ 452 $(1,006) $ 1,300
=========== ========== =========== ===========
Loss on Disposition of
Discontinued Operations
before taxes $(4,841) $ - $(4,841) $(5,091)
Income Taxes 1,694 - 1,694 1,782
---------- ---------- ---------- ----------
Loss on Disposition of
Discontinued Operations $(3,147) $ - $(3,147) $(3,309)
=========== ========== =========== ===========
Per share - basic and diluted
Income (Loss) from
Discontinued Operations $ (0.03) $0.08 $ (0.19) $ 0.24
Loss on Disposition of
Discontinued Operations $ (0.59) - $ (0.59) $ (0.61)
----------- ---------- ----------- -----------
Total from Discontinued
Operations $ (0.62) $0.08 $ (0.78) $ (0.37)
=========== ========== =========== ===========
3. Inventories
Inventories consisted of the following (in thousands of dollars):
January 31, April 30,
2001 2000
------------ ------------
Raw Materials $11,979 $16,137
Finished Goods 65,107 67,402
Sales Supplies 1,360 1,452
------------ ------------
$78,446 $84,991
============ ============
4. Earnings Per Share
Basic earnings per share are computed by dividing net income for the period by
the weighted average number of shares of common stock outstanding for the
period. Diluted earnings per share are determined by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding. Stock options are the Company's only potential common stock
equivalents and are considered in the diluted earnings per share calculations if
dilutive. For both the three and nine month periods ended January 31, 2001,
options totaling 351,838 were excluded as their effect would have been
antidilutive. For the three and nine month periods ended January 31, 2000,
options totaling 284,474 were excluded as their effect would have been
antidilutive.
5. Comprehensive Income
The components of comprehensive income, net of related tax, for the three-month
and nine-month periods ended January 31, 2001 and 2000 are as follows (in
thousands):
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------- -----------------------
2001 2000 2001 2000
----------- ----------- ---------- -----------
Net income $ 4,405 $ 8,678 $23,688 $18,855
Unrealized gain on
available-for-sale securities 429 155 483 161
Foreign currency translation
adjustment (2,876) (1,213) (9,182) (4,044)
----------- ----------- ---------- ------------
Comprehensive income $ 1,958 $7,620 $14,989 $14,972
=========== =========== ========== ============
The components of accumulated other comprehensive loss, net of related tax, at
January 31, 2001 and April 30, 2000, are as follows (in thousands):
January 31, April 30,
2001 2000
------------- ------------
Unrealized gain on
available-for-sale securities $ 631 $ 148
Foreign currency translation
adjustment (51,719) (42,537)
------------- ------------
Accumulated other
comprehensive loss $(51,088) $(42,389)
============= ============
6. Segment Information
The Company's segments as shown below, are based on the organization structure
that is currently used by management for making operating and investment
decisions and for assessing performance. Based on this management approach, the
Company has five segments: Chemical Specialties, Plumbmaster Group, Partsmaster
Group, Landmark Direct, and Other Product Lines. The Company evaluates the
performance of its segments primarily based on operating profit. All
intercompany transactions have been eliminated, and intersegment revenues are
not significant. In calculating operating profit for individual segments,
administrative expenses incurred at the Company's corporate headquarters that
are common to more than one segment are allocated on a usage basis. The segment
classifications shown below have been realigned to reflect changes in the
Company's decision making structure. Compared to the presentation for the fiscal
year ended April 30, 2000, the operating results of certain chemical specialty
products have been reclassified to Chemical Specialties from Other Product
Lines. Also, the previous year-end disclosures included the DBS Services Group,
which is now included as a discontinued operation. Information for the three and
nine month periods ended January 31, 2001 and 2000 has been restated to conform
to the current segment classifications. Other Product Lines shown below includes
only the results of N-E Thing Supply which was sold on September 30, 2000.
The following tables present a summary of the Company's segments for the
three-month and nine-month periods ended January 31, 2001 and 2000 (in
thousands):
Net Sales Net Sales
-------------------------- -------------------------
Three Months Ended Nine Months Ended
January 31, January 31,
-------------------------- -------------------------
2001 2000 2001 2000
------------ ------------ ------------ -----------
Chemical Specialties $104,092 $111,911 $313,884 $328,530
Plumbmaster Group 27,198 29,318 84,784 89,976
Partsmaster Group 19,025 22,604 57,079 64,787
Landmark Direct 8,663 7,678 33,566 27,302
Other Product Lines - 6,580 14,669 22,196
------------ ------------- ------------ -----------
Net Sales $158,978 $178,091 $503,982 $532,791
============ ============= ============ ===========
Operating Profit Operating Profit
-------------------------- ---------------------------
Three Months Ended Nine Months Ended
January 31, January 31,
-------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------- ------------ -------------
Chemical Specialties $7,868 $9,550 $28,620 $25,072
Plumbmaster Group 358 882 4,264 4,919
Partsmaster Group 1,762 3,609 5,541 8,096
Landmark Direct (340) 335 228 1,231
Other Product Lines - (162) (52) 542
------------ -------------- ------------- -------------
Total segment operating
profit $9,648 $14,214 $38,601 $39,860
Unallocated Corporate
expenses (453) (323) (2,542) (1,942)
Revaluation of foreign
currencies (127) (893) (551) (1,796)
Interest income 1,539 769 3,104 1,327
Interest expense (1,565) (1,230) (4,425) (3,232)
Gain on sale of subsidiary - - 5,068 -
Gain on sale of land - - 3,115 -
------------ ------------- ------------ -------------
Income from Continuing
Operations before
Income Taxes $9,042 $12,537 $42,370 $34,217
============ ============= ============ =============
7. Supplemental Cash Flow Information
Cash payments for interest for the nine months ended January 31, 2001 and 2000,
were approximately $2,437,000 and $772,000, respectively. Cash payments for
income taxes were approximately $11,739,000 and $18,547,000 for the same
periods, respectively.
NCH CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
In the nine months ended January 31, 2001, working capital increased to
$222.2 million from $200.2 million at April 30, 2000, and the current ratio was
3.8 to 1 at January 31, 2001, compared to 3.3 to 1 at April 30, 2000. The total
of cash, cash equivalents and marketable securities increased by $31.7 million
in the first nine months to $84.3 million at January 31, 2001, as shown on the
Consolidated Balance Sheets. Net cash flows from operating activities of
continuing operations totaled $29.6 million. Additional cash of $12.6 million
was provided from the sale of the assets of a subsidiary, and $7.2 million from
the sale of undeveloped surplus land. Principal uses of cash consisted of net
purchases of marketable securities of $35.4 million, capital expenditures of
$6.5 million, payment of dividends of $5.6 million, and net payments of long
term debt and notes payable of $5.6 million. Management expects that operating
cash flows will continue to generate sufficient funds to finance operating
needs, capital expenditures and the payment of dividends.
The Company's international subsidiaries operate on a fiscal year ending on
the last day of February. The reported values of both assets and liabilities of
the Company's international subsidiaries decreased as a result of the change in
the Company's exchange rates at November 30, 2000, compared to February 29,
2000. This is reflected by the foreign currency translation component of
accumulated other comprehensive loss, which changed from a $42.5 million
reduction of stockholders' equity at April 30, 2000, to a $51.7 million
reduction of stockholders' equity at January 31, 2001.
Accounts receivable decreased by $13.3 million in the nine months ended
January 31, 2001, including the $4.3 million reduction from the sale of N-E
Thing Supply, and inventories decreased by $6.5 million in the nine months ended
January 31, 2001, including the $3.5 million reduction from the sale of N-E
Thing Supply, as measured in U.S. dollars and reported on the Consolidated
Balance Sheets. As stated above, the result of exchange rate deviations from the
end of the previous year to the end of the first nine months was to decrease the
reported U.S. dollar values of these assets. The change in accounts receivable
shown in the Consolidated Statements of Cash Flows is exclusive of the effect of
exchange rates on the reported asset values and the sale of a subsidiary, and
shows accounts receivable (net of provisions for losses) decreasing by $2.3
million for the nine month period. The decrease in accounts receivable,
exclusive of the effect of exchange rates, was due to a 6% sales decrease in the
European operations in the current quarter compared to the fourth quarter of
last year. The Consolidated Statements of Cash Flows shows inventories
decreasing by $1.7 million during the nine months ended January 31, 2001,
exclusive of the effect of exchange rates and the sale of a subsidiary.
Accounts payable, accrued expenses and income taxes payable were similarly
affected by currency translation. These liabilities decreased by $2.0 million
when measured exclusive of the effect of exchange rate changes, but decreased by
$2.5 million as reported on the Consolidated Balance Sheets. Accounts payable
decreased as a result of normal business activity associated with timing of
payments. The increase in income taxes payable was primarily due to timing
differences in the amounts of domestic tax payments in the current year compared
to the preceding year.
During the current year, the Company sold two parcels of surplus land,
resulting in a pretax gain of $3.1 million. Expenditures for property, plant and
equipment amounted to $6.5 million for the nine months ended January 31, 2001,
and consisted of the installation and update of worldwide computer systems and
normal additions of operating equipment.
During the second quarter, the Company sold the net assets of a subsidiary,
resulting in a pretax gain of $5.1 million. Sales for this subsidiary were less
than 5% of the Company's consolidated annual sales, and therefore this
transaction is not expected to have a material impact on the Company's future
operations.
Total bank indebtedness, comprised of long-term debt, current maturities of
long-term debt and notes payable, exclusive of the effect of exchange rate
changes, decreased $5.6 million during the nine months ended January 31, 2001.
During the fourth quarter of the prior year, an environmental insurance policy
was purchased and funded by a note payable in a non-cash transaction. Of the
$11.8 million of long-term debt, $11.7 is a note payable related to the
environmental insurance policy. The $0.9 million of notes payable to banks
consist of international subsidiary borrowings in local country currencies used
primarily to finance working capital requirements. The decrease in total bank
indebtedness was due primarily to the repayment of the note related to the
environmental insurance policy and the repayment of loans in the Company's
international subsidiaries. The bank indebtedness shown on the Consolidated
Balance Sheets was also affected by currency translation, and shows a decrease
of $11.3 million.
The directors of the Company declared a regular quarterly dividend of $.35
per share on January 19, 2001, payable March 15, 2001, to shareholders of record
March 1, 2001. Cash dividends paid during the first nine months of the fiscal
year amounted to $5.6 million.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency - the euro. The euro is now trading on
currency exchanges and can be used in business transactions. Beginning in
January 2002, new euro-denominated bills and coins will be issued, and legacy
currencies will be withdrawn from circulation. The Company's operating
subsidiaries affected by the euro conversion have developed plans to address the
systems and business issues affected by the euro currency conversion. These
issues include, among others, the need to adapt computer and other business
systems and equipment to accommodate euro-denominated transactions. The Company
does not expect this conversion to have a material impact on its financial
condition or results of operations.
Subsequent Event
In February 2001, the Company sold the assets of three product lines of
Landmark Direct, which will result in a pretax gain of approximately $2.4
million in the fourth quarter of the current year. These product lines are
unrelated to Landmark Direct's current medical and first aid supply operations.
Net sales for these three product lines were $1.9 million and $6.2 million for
the three and nine months ended January 31, 2001. As these amounts are less than
2% of consolidated net sales, this transaction is not expected to have a
material effect on future operations.
Operating Results
Third Quarter Comparison - Prior Year
Net sales from Continuing Operations for the third quarter of fiscal 2001
decreased 11% to $159.0 million as compared with $178.1 million in the same
quarter of the last fiscal year. Net sales for the third quarter of fiscal 2001
would have decreased 7% over sales for the same quarter of the last fiscal year,
excluding the sales of N-E Thing Supply, which was sold in the second quarter of
the current year. Domestically, net sales in the third quarter of the current
year decreased 7% over the same period in the prior year. International net
sales decreased 15% as reported in U.S. dollars and were negatively affected by
changes in currency translation rates. International net sales, when measured on
a local currency basis, decreased 2% compared to the third quarter of the prior
year, due to continued difficult economic conditions primarily in the European
operations. Net sales for Chemical Specialties decreased $7.8 million, 7%, from
the third quarter of the prior year, due to lower international and domestic
sales. The decrease in net sales for the Plumbmaster Group was due primarily to
lower selling prices. Partsmaster Group's net sales decreased $3.6 million as
compared to the same quarter last year due to lower international and domestic
sales. Net sales for Landmark Direct increased $1.0 million, 13%, from the prior
year's third quarter, due to increased sales of medical and first aid supplies.
Net sales for Other Product Lines for the third quarter of last year includes
only the sales for N-E Thing Supply which was sold September 30, 2000.
Consolidated operating income before other expenses and income taxes was
5.8% of net sales for the quarter ended January 31, 2001, compared to 7.8% of
net sales for the quarter ended January 31, 2000. Operating profit for Chemical
Specialties decreased $1.7 million from the third quarter of last year due to
lower domestic and international sales. Operating profit for the Plumbmaster
Group decreased $.5 million due to lower domestic sales and reduced product
margins. Operating profit decreased $1.8 million, 51%, for the Partsmaster Group
over the third quarter of last year due to lower international sales and lower
domestic margins. The decrease in operating profit for Landmark Direct as
compared to the third quarter of last year is due to increased product cost and
marketing costs.
In the quarter ended January 31, 2001, interest expense was $1.6 million
compared to $1.2 million in the same quarter of the prior year. Interest income
was $1.5 million in the quarter ended January 31, 2001 as compared to $.8
million in the quarter ended January 31, 2000. Revaluation of foreign currencies
resulted in a loss of $.1 million in the third quarter of the current year
compared to a loss of $.9 million in the same period last year.
Provision for income taxes was 14.7% of income from continuing operations
before income taxes in the third quarter of the current year compared to 34.4%
of income from continuing operations before income taxes in the prior year. This
decrease is due to variations in individual country income levels, tax rates in
the international subsidiaries, and to revisions of prior years tax estimates,
including foreign tax credits of $0.9 million. Income from continuing operations
was 4.8% of net sales for the quarter ended January 31, 2001, compared to 4.6%
of net sales in the quarter ended January 31, 2000.
The closing of DBS Services Group in the current quarter resulted in a loss
on disposal of discontinued operations of $3.1 million (net of income taxes of
$1.7 million). The operating loss, net of income taxes, for discontinued
operations was $.2 million in the current quarter as compared to income of $.5
million in the prior year third quarter.
Net income, including the results of discontinued operations, was 2.8% of
net sales for the current quarter compared to 4.9% for the third quarter of last
year.
Second Quarter Comparison - Preceding Quarter
Net sales from Continuing Operations of $159.0 million for the third
quarter of fiscal 2001 were 6% lower than the $168.9 million net sales for the
second quarter. International net sales were 10% higher when measured in U.S.
dollars, as a result of normal quarter-to-quarter sales fluctuations, while
domestic net sales were 15% lower than the previous quarter. Net sales for
Chemical Specialties increased $1.5 million, 1%, from the second quarter due to
higher international sales, partially offset by lower domestic sales. Net sales
for the Plumbmaster Group decreased $1.9 million, 6%, from the prior quarter due
to lower domestic sales. Partsmaster Group's net sales increased $.4 million,
2%, as compared to the second quarter due to lower domestic sales, partially
offset by higher international sales. Net sales for Landmark Direct decreased
$4.3 million, 33%, from the second quarter due to seasonal fluctuations in sales
of medical and first aid supplies. Other Product Lines for the prior quarter
only includes N-E Thing Supply, a subsidiary that was sold September 30, 2000.
Consolidated operating income before other expenses and income taxes was
5.8% of net sales for the quarter ended January 31, 2001, compared to 8.6% of
net sales for the quarter ended October 31, 2000. Operating profit for Chemical
Specialties Group decreased $3.4 million, 30%, from the second quarter due to
lower domestic margins, partially offset by higher international margins.
Operating profit for the Plumbmaster Group decreased $1.1 million from the prior
quarter due to lower product margins. Operating profit decreased $.3 million,
14%, for the Partsmaster Group over the second quarter due to lower domestic
margins, partially offset by higher international margins. Landmark Direct had a
$1.0 million decrease in operating profit as compared to the second quarter due
to seasonal sales fluctuations mentioned above.
Interest expense amounted to $1.6 million in the three months ended January
31, 2001, compared to $1.7 million in the three months ended October 31, 2000.
Interest income was $1.5 million for the current quarter as compared to $.8
million for the prior quarter of this year. The revaluation of foreign
currencies resulted in a loss of $.1 million in current quarter compared to a
loss of $.3 million in the previous quarter.
During the prior quarter of this year, the Company sold the assets of a
subsidiary, resulting in a pretax gain of $5.1 million. Sales for this
subsidiary were less than 5% of the Company's consolidated annual sales, and
therefore this transaction is not expected to have a material impact on the
Company's future operations.
Provision for income taxes amounted to 14.7% of income from continuing
operations before income taxes in the quarter ended January 31, 2001, compared
to 40.0% of income from continuing operations before income taxes in the quarter
ended October 31, 2000. This decrease is due to variations in individual country
income levels, tax rates in the international subsidiaries, and to revisions of
prior years tax estimates, including foreign tax credits of $0.9 million. Income
from continuing operations was 4.8% of net sales for the quarter ended January
31, 2001, compared to 6.7% of net sales for the quarter ended October 31, 2000.
Nine Months Comparison - Prior Year
Net sales from Continuing Operations for the nine months ended January 31,
2001, decreased 5% to $504.0 million compared to $532.8 million for the first
nine months of the last fiscal year. Net sales for the nine months ended January
31, 2001, would have decreased 1% over sales for the same period last year,
excluding the sales of N-E Thing Supply, which was sold in the second quarter of
the current year. Domestically, net sales decreased 1% compared to a year ago.
International net sales were negatively affected by changes in currency
translation rates and decreased 12% as reported in U.S. dollars. When measured
on a local country currency basis, international net sales decreased
approximately 2%. Net sales for Chemical Specialties decreased $14.6 million,
4%, from the nine month period ended January 31, 2000, due to lower local
currency sales in the international operations and to the effect of currency
translation rates. Net sales for the Plumbmaster Group decreased $5.2 million,
6%, as compared to the prior year nine-month period due to lower prices in the
domestic market. Partsmaster Group's net sales decreased $7.7 million, or 12%,
over the first nine months of the prior year due to lower international sales.
Net sales for Landmark Direct increased $6.3 million, 23%, from the same period
of the prior year due to increased sales of medical equipment and first aid
supplies from an expanded product line. Net sales for Other Product Lines,
consisting only of N-E Thing Supply, decreased $7.5 million, due to the sale of
the subsidiary on September 30, 2000.
Consolidated operating income in the nine months this year was 7.2% of net
sales, as compared to 7.1% for the nine month period ended January 31, 2000.
Operating profit for Chemical Specialties increased $3.5 million, 14%, from the
nine month period ended January 31, 2000 due to concentrated efforts to reduce
expenses. Operating profit for the Plumbmaster Group decreased $.7 million, 13%,
due to lower product margins. Operating profit decreased $2.6 million, 32%, for
the Partsmaster Group over the first nine months of the prior year due to lower
international sales and lower domestic margins. Operating profit for Landmark
Direct decreased $1.0 million, as compared to the nine months ended January 31,
2000, due to higher product costs.
Interest expense was $4.4 million in the nine months ended January 31,
2001, compared to $3.2 million in the first nine months of the prior year.
Interest income was $3.1 million in the nine months this year compared to $1.3
million for the nine month period ended January 31, 2000. Revaluation of foreign
currencies resulted in a loss of $.6 million in the first nine months of the
current year compared to a loss of $1.8 million in the same period of the prior
year. As discussed above, the sale of the assets of a subsidiary in the current
year resulted in a pretax gain of $5.1 million. The sales of land in the current
year resulted in a pretax gain of $3.1 million.
Provision for income taxes was 34.3% of income from continuing operations
before income taxes in the first nine months of the current year compared to
39.0% of income from continuing operations before income taxes in the prior
year. This decrease is due to variations in individual country income levels,
tax rates in the international subsidiaries, and to revisions of prior years tax
estimates, including foreign tax credits of $0.9 million. Income from continuing
operations was 5.5% of net sales for the nine months ended January 31, 2001
compared to 3.9% of net sales for the nine months ended January 31, 2000.
The closing of DBS Services Group in the current quarter resulted in a loss
on disposal of discontinued operations of $3.1 million (net of income taxes of
$1.7 million). The sale of the net assets of Resource Electronics Inc. in the
second quarter of the prior year resulted in a loss on disposition of
discontinued operations of $3.3 million (net of income taxes of $1.8 million).
The operating loss, net of income taxes, for discontinued operations was $1.0
million in the nine months ended January 31, 2001 as compared to income of $1.3
million in the nine months ended January 31, 2000.
Net income, including the results of discontinued operations, was 4.7% of
net sales for the first nine months of the current year compared to 3.5% in the
prior year.
Forward-Looking Information
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report contain forward-looking
statements that are based on current expectations, estimates and assumptions
regarding the worldwide economy, technological innovation, competitive activity,
interest rates, pricing, and currency movements. These statements are not
guarantees of future results or events, and involve certain risk and
uncertainties which are difficult to predict and many of which are beyond the
control of the Company. Actual results and events could differ materially from
those anticipated by the forward-looking statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed for the
three or nine months ended January 31, 2001.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NCH Corporation
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(Registrant)
Date March 16, 2001 /s/ Tom Hetzer
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Tom Hetzer
Vice President - Finance
(Principal Accounting Officer)