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 fiscal year ended July 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
Class at August 31, 2001
Common Stock, $1 Par Value 5,307,830
NCH CORPORATION
INDEX
Page No.
Part I. Financial Information:
Consolidated Balance Sheets -
July 31, 2001 and April 30, 2001 3
Consolidated Statements of Income -
Three Months Ended
July 31, 2001 and 2000 4
Consolidated Statements of Cash Flows -
Three Months Ended July 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6 - 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 17
Part II. Other Information 18
NCH Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands Except Share and Per Share Data)
July 31, April 30,
2001 2001
------- -------
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 23,735 $ 19,830
Marketable securities 50,564 68,682
Accounts receivable, net 120,156 116,518
Inventories 84,604 82,470
Prepaid expenses 7,540 6,390
Deferred income taxes 12,700 12,788
------- -------
Total Current Assets 299,299 306,678
------- -------
Property, Plant and Equipment 182,875 183,554
Accumulated depreciation 120,572 120,344
------- -------
62,303 63,210
------- -------
Deferred Income Taxes 35,479 36,114
------- -------
Other 16,557 17,620
------- -------
Net assets of discontinued operations - 1,882
------- -------
Total $413,638 $425,504
======= =======
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 1,062 $ 685
Current maturities of long-term debt 7 6,210
Accounts payable 37,688 38,603
Accrued expenses 24,244 24,804
Income taxes payable 8,580 11,090
Dividends payable 1,858 1,858
------- -------
Total Current Liabilities 73,439 83,250
------- -------
Long-Term Debt, less current maturities 13 4,992
------- -------
Retirement and Deferred Compensation Plans 114,649 114,599
------- -------
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 12,782 12,774
Retained earnings 526,693 521,212
Accumulated other comprehensive loss (51,299) (48,700)
------- -------
499,945 497,055
Less treasury stock
(6,461,474 and 6,461,974 shares) 274,408 274,392
------- -------
225,537 222,663
------- -------
Total $413,638 $425,504
======= =======
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Income
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
July, 31
2001 2000
------- -------
Net Sales $169,049 $180,757
------- -------
Operating Expenses
Cost of sales, including
warehousing
and commissions 96,698 100,933
Marketing and administrative
expenses 63,684 67,520
------- -------
160,382 168,453
------- -------
Operating Income 8,667 12,304
Other (Expenses) Income
Revaluation of foreign currencies 11 (174)
Interest income 1,069 716
Interest expense (1,075) (1,154)
Gain on sale of land - 2,836
------- -------
Income from Continuing Operations
before Income Taxes 8,672 14,528
Provision for Income Taxes 1,554 5,668
------- -------
Income from Continuing Operations 7,118 8,860
------- -------
Discontinued Operations:
Income from discontinued operations, net
of income taxes - 213
Income from disposition of
discontinued operations, net
of income taxes 222 -
------- -------
Net Income $ 7,340 $9,073
======= =======
Weighted Average Number of Shares
Oustanding
Basic 5,308 5,367
======= =======
Diluted 5,351 5,367
======= =======
Earnings Per Share from Continuing
Operations
Basic $ 1.34 $ 1.65
======= =======
Diluted $ 1.33 $ 1.65
======= =======
Total Earnings Per Share
Basic $ 1.38 $ 1.69
======= =======
Diluted $ 1.37 $ 1.69
======= =======
Cash Dividend Paid Per Share $ 0.35 $ 0.35
======= =======
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 Flow
(In Thousands)
(Unaudited)
Three Months Ended
July 31,
2001 2000
--------- ---------
Cash Flows from Operating Activities
Income from Continuing Operations $ 7,118 $ 8,860
Adjustments to reconcile income from Continuing
Operations to net cash provided
by Continuing Operations:
Depreciation and amortization 2,820 3,086
Provision for losses on accounts receivable 918 1,057
Deferred income taxes 547 509
Retirement and deferred compensation plans 155 30
Gain on sale of land - (2,836)
Other noncash items (334) (54)
Change in assets and liabilities, excluding net
assets acquired in the purchase of businesses:
Accounts receivable (6,764) (2,843)
Inventories (2,754) (4,458)
Prepaid expenses (1,212) (2,408)
Accounts payable, accrued expenses
and income taxes payable (14,114) 5,708
Other noncurrent assets (351) (241)
--------- ---------
Net cash provided by (used in) Continuing
Operations (13,971) 6,410
--------- ---------
Cash flow from Discontinued Operations 2,651 2,641
--------- ---------
Net cash provided by (used in) operating
activities (11,320) 9,051
--------- ---------
Cash Flows from Investing Activities
Sales of property, plant and equipment 30 6,268
Purchases of property, plant and equipment (1,896) (2,734)
Redemptions of marketable securities 26,029 3,391
Purchases of marketable securities (7,762) (5,933)
Acquisition of businesses (433) -
Other (984) (991)
--------- ---------
Net cash provided by investing activities 14,984 1
--------- ---------
Cash Flows from Financing Activities
Proceeds from notes payable 415 249
Payments of notes payable - (4,152)
Additional long term debt - 132
Payments of long-term debt (5) (151)
Borrowing of cash surrender values 2,435 2,436
Payments of dividends (1,859) (1,893)
Purchases of treasury stock (158) (3,219)
Proceeds from exercise of stock options 130 -
Net cash provided by (used in) financing
activities 958 (6,598)
--------- ---------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents (717) (2,615)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 3,905 (161)
Cash and Cash Equivalents at Beginning of Year 19,830 32,146
--------- ---------
Cash and Cash Equivalents at End of Year $ 23,735 $ 31,985
========= =========
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 (consisting of only normal
re-occurring accruals) to present fairly NCH Corporation's financial position as
of July 31, 2001, the results of its operations and cash flows for the three
months ended July 31, 2001 and 2000.
The accounting policies followed by NCH Corporation (the Company) are set forth
in Note 1 to the Company's consolidated financial statements in the 2001 NCH
Corporation Annual Report to Shareholders, which is included in Part II of Form
10-K.
The results of operations for the three month period ended July 31, 2001, are
not necessarily indicative of the results to be expected for the full year.
2. Discontinued Operations
In the third quarter of fiscal year 2001, 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, consisted of receivables,
inventory, fixed assets and accrued closing costs. The assets were written down
to their estimated net realizable values, and expenses were estimated and
accrued through the estimated closing date. These items, originally estimated to
be liquidated during the fourth quarter of last fiscal year, should be
substantially liquidated by October 31, 2001.
Three Months Ended
July 31,
--------------------------
2001 2000
------------ ------------
Income from Discontinued
Operations before taxes $ - $ 408
Income Taxes - (195)
------------ ------------
Income from Discontinued Operations $ - $ 213
============ ============
Per share - basic and diluted
Loss from Discontinued
Operations $ - $ 0.04
============ ============
Three Months Ended
July 31,
--------------------------
2001 2000
------------ ------------
Income from Disposition of Discontinued
Operations before taxes $ 342 $ -
Income Taxes (120) -
------------ ------------
Income from Disposition of Discontinued
Operations $ 222 $ -
============ ============
Per share - basic and diluted
Loss from Discontinued
Operations $ 0.04 $ -
============ ============
3. Inventories
Inventories consisted of the following (in thousands of dollars):
July 31, April 30,
2001 2001
------------ ------------
Raw Materials $ 14,434 $ 14,561
Finished Goods 68,964 66,634
Sales Supplies 1,206 1,275
------------ ------------
$ 84,604 $ 82,470
============ ============
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 the three month periods ended July 31, 2001 and 2000, options
totaling 212,161 and 401,402, respectively, were excluded as their effect would
have been antidilutive.
<page>
5. Comprehensive Income
The components of comprehensive income, net of related tax, for the three-month
periods ended July 31, 2001 and 2000 are as follows (in thousands):
Three Months Ended
July 31,
--------------------------
2001 2000
------------ ------------
Net income $ 7,340 $ 9,073
Unrealized gain on
available-for-sale securities 97 51
Foreign currency translation
adjustment (2,696) (5,314)
------------ ------------
Comprehensive income $ 4,741 $ 3,810
============ ============
The components of accumulated other comprehensive loss, net of related tax, at
July 31, 2001 and April 30, 2001, are as follows (in thousands):
July 31, April 30,
2001 2001
------------ ------------
Unrealized gain on
available-for-sale securities $ 903 $ 806
Foreign currency translation
adjustment (52,202) (49,506)
------------ ------------
Accumulated other
comprehensive loss $ (51,299) $ (48,700)
============ ============
6. Segment Information
The Company's segments are based on the organization structure that is used by
management for making operating and investment decisions and for assessing
performance. Based on this management approach, the Company currently has four
segments: Chemical Specialties Group, Plumbing Products Group, Partsmaster
Group, and Landmark Direct. 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 segments were realigned during fiscal 2001
to reflect changes in the Company's decision making structure, leaving only N-E
Thing Supply in Other Products Line. N-E Thing Supply was sold September 30,
2000. Information for the quarter ended July 31, 2000, has been restated to
conform to the current segment determination.
The following tables present a summary of the Company's segments for the
three-month period ended July 31, 2001 and 2000 (in thousands):
Net Sales
--------------------------
Three Months Ended
July 31,
--------------------------
2001 2000
------------ ------------
Chemical Specialties $ 109,468 $ 110,338
Plumbing Products Group 28,952 28,837
Partsmaster Group 18,804 19,962
Landmark Direct 11,825 12,613
Other Product Lines - 9,007
------------ ------------
Net Sales $ 169,049 $ 180,757
============ ============
Operating Profit
--------------------------
Three Months Ended
July 31,
--------------------------
2001 2000
------------ ------------
Chemical Specialties $ 7,698 $ 9,513
Plumbing Products Group 686 2,448
Partsmaster Group 1,524 1,721
Landmark Direct (622) (89)
Other Product Lines - 282
------------ ------------
Total segment operating $ 9,286 $ 13,875
profit
Unallocated Corporate expenses (619) (1,571)
Revaluation of foreign currencies 11 (174)
Interest income 1,069 716
Interest expense (1,075) (1,154)
Gain on Sale of Land - 2,836
------------ ------------
Income from Continuing Operations
before Income Taxes $ 8,672 $ 14,528
============ ============
7. Supplemental Cash Flow Information
Cash payments for interest for the three months ended July 31, 2001 and 2000,
were approximately $1,093,000 and $578,000, respectively. Cash payments for
income taxes were approximately $2,352,000 and $3,149,000 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 three months ended July 31, 2001, working capital increased to
$225.9 million from $223.4 million at April 30, 2001, and the current ratio was
4.1 to 1 at July 31, 2001, compared to 3.7 to 1 at April 30, 2001. The total of
cash, cash equivalents and marketable securities decreased by $14.2 million in
the first three months to $74.3 million at July 31, 2001, as shown on the
Consolidated Balance Sheets. Net cash flows from operating activities of
continuing operations totaled a negative $14.0 million. This was primarily due
to payments of an environmental insurance policy of $11.2 million and increases
in Accounts Receivable, net of provision for losses, of $5.8 million. Additional
cash was provided by discontinued operations of $2.7 million and net redemption
of marketable securities of $18.3 million. Principal uses of cash consisted of
capital expenditures of $1.9 million, and payment of dividends of $1.9 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 composite spot rate at May 31, 2001, compared to February 28,
2001. This is reflected in the foreign currency translation component of
accumulated other comprehensive loss, which changed from a $49.5 million
reduction of stockholders' equity at April 30, 2001 to a $52.2 million reduction
of stockholders' equity at July 31, 2001.
Accounts receivable increased by $3.6 million in the three months ended
July 31, 2001 and inventories increased by $2.1 million in the three months
ended July 31, 2001, as measured in U.S. dollars and reported on the
Consolidated Balance Sheets. 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 shows accounts receivable (net of
provisions for losses) increasing by $5.8 million for the three month period.
The increase in accounts receivable, exclusive of the effect of exchange rates
was due to an increase in sales in the domestic operations in the current
quarter compared to the fourth quarter of last year. The Consolidated Statements
of Cash Flows shows inventories increasing by $2.8 million during the three
months ended July 31, 2001, exclusive of the effect of exchange rates. The
increase in inventory was primarily due to seasonal demand in the Landmark
Direct segment.
Accounts payable, accrued expenses and income taxes payable were similarly
affected by currency translation. These liabilities decreased by $2.9 million
when measured exclusive of the effect of exchange rate changes and the payments
of an environmental insurance policy, but decreased by $4.0 million as reported
on the Consolidated Balance Sheets.
Expenditures for property, plant and equipment amounted to $1.9 million for
the three months ended July 31, 2001, and consisted of the installation and
update of worldwide computer systems and normal additions of operating
equipment.
Total indebtedness, comprised of long-term debt, current maturities of
long-term debt and notes payable, which was slightly affected by currency
translation, and shows a decrease of $10.8 million, primarily due to payments of
an environmental insurance policy of $11.2 million, which is shown as a
reduction of accrued expenses payable in the Consolidated Statements of Cash
Flow.
A regular quarterly dividend of $.35 per share, declared by the directors
of the Company on April 19, 2001, was paid on June 15, 2001, amounting to $1.9
million. The directors of the Company declared a regular quarterly dividend of
$.35 per share on July 26, 2001, payable September 14, 2001, to shareholders of
record August 31, 2001.
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. The 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.
Operating Results
First Quarter Comparison - Prior Year
Net Sales decreased 6% to $169.0 million from $180.8 million in the first
quarter last year. Sales from international operations decreased 6% as reported
in U.S. dollars, but increased 1% when measured on a local currency basis. Sales
were still weak in most European countries in which the Company does business.
Domestically, Net Sales decreased 7% in the first quarter compared to the same
quarter last year. Included in prior year's figures, however, are sales from one
business unit and three product lines that were sold during fiscal year 2001
which were not accounted for as a separate segment in the prior year's financial
statements. Domestic sales increased 3% when these sales are excluded from prior
year for comparative purposes. Net Sales for the Partsmaster Group in the first
quarter were 6% below the same period last year with sales being below last year
in both domestic and international operations. Net sales for the Landmark Group
were 6% below the first quarter last year, but included in Net Sales last year
were sales from three product lines that were discontinued and their assets sold
in the fourth fiscal quarter last year. Adjusting last year's reported sales for
comparative purposes, Net Sales for the Landmark Group were 11% higher.
Operating Income decreased 30% from $12.3 million in the first quarter last
year to $8.7 million in the first quarter this year. Operating Income decreased
in each of the Company's four segments. In the first quarter, operating margins
decreased to 5.1% from 6.8% in the first quarter last year. Operating Income for
the Chemical Specialties Group dropped to 7.0% of sales from 8.6% in the first
quarter last year. Operating margins decreased both internationally and
domestically due to higher operating expenses, and lower sales in the
international operations. In the Plumbing Products Group, flat sales combined
with higher product costs resulted in a decrease in Operating Income from the
first quarter last year. The reduction in Operating Income for Landmark Direct
from last year is a result of higher product costs and the loss of income from
the three product lines that were discontinued in the fourth quarter last year.
Provision for Income Taxes was 17.9% of Income from Continuing Operations
compared to 39.0% in the first quarter last year. This reduction is primarily
due to a tax deduction from the disposition of a foreign subsidiary during the
first quarter. There is a nominal book gain from the disposition. Deferred taxes
were not previously provided because management had not made the decision to
dispose of this investment. Net sales for this subsidiary have been
approximately $1 million a year with small operating losses.
The $213,000 income from discontinued operations, net of income taxes in
the first quarter last year was from the closing of Resource Satellite, Inc. The
$222,000 income from disposition of discontinued operations, net of income taxes
is from additional payments for inventory that was transferred on a contingency
basis at the time of sale of Resource Electronics, Inc. Both of these operations
were previously reported as segments.
First Quarter Comparison - Preceding Quarter
Net Sales from Continuing Operations were $169.0 million in the first
quarter compared to $161.5 million in the fourth quarter of fiscal 2001, as
follows:
Net Sales
------------------------------
Three Months Ended
------------------------------
July 31, April 30,
2001 2001
----------- ----------
Chemical Specialties Group $ 109.4 $ 105.3
Plumbing Products Group 29.0 28.2
Partsmaster Group 18.8 19.5
Landmark Direct 11.8 8.5
----------- -----------
$ 169.0 $ 161.5
=========== ===========
Significant changes are in the Partsmaster Group where sales continue to be
weak in both the international operation and domestic operation, and in Landmark
Direct where seasonal sales of first aid supplies increased 39% over the fourth
quarter.
Operating Income in the first quarter was $8.7 million compared to $4.8
million in the preceding quarter. Overall, the increase in Operating Income is
attributable to higher sales. Net Sales in the first quarter were $169.0 million
compared to $161.5 million in the preceding quarter. Operating income for the
Plumbing Products Group decreased from $1.3 million in the preceding quarter to
$.7 million in the first quarter. Contributing factors to this decrease was a
combination of higher product costs and higher general expenses.
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 months ended July 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
-------------------------------
(Registrant)
Date: September 7, 2001 /s/ Tom Hetzer
-------------------------------
Tom Hetzer
Vice President - Finance
(Principal Accounting Officer)
September 7, 2001
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
RE: NCH Corporation
Commission File Number 1-5838
Form 10-Q for Fiscal Quarter Ended July 31, 2001
Ladies and Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-Q for filing by electronic
transmission pursuant to the Commission's EDGAR program.
Sincerely,
/s/ Tom Hetzer
Tom Hetzer
Vice President - Finance