FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended January 31, 1994 Commission file number 1-5838
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NCH CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 75-0457200
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 152170
2727 Chemsearch Blvd.
Irving, TX 75015-2170
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, include area code (214) 438-0211
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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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at March 7, 1994
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Common Stock, $1 par value 8,279,419
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NCH CORPORATION
INDEX
Page No.
Part I. Financial Information:
Consolidated Balance Sheets --
January 31, 1994 and April 30, 1993 3
Consolidated Statements of Income --
Three Months and Nine Months
Ended January 31, 1994 and 1993 4
Consolidated Statements of Cash Flows --
Nine Months Ended January 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 12
Part II. Other Information 13
NCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands Except Share and Per Share Data)
(Unaudited)
January 31, April 30,
1994 1993
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Assets
Current Assets
Cash and cash equivalents $ 35,974 $ 28,620
Marketable securities 83,071 94,877
Accounts receivable, net 129,061 133,014
Inventories 80,478 72,191
Prepaid expenses 7,534 6,426
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Total Current Assets 336,118 335,128
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Property, Plant and Equipment 176,485 170,720
Accumulated depreciation 92,556 87,579
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83,929 83,141
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Deferred Income Tax Benefit 33,903 29,434
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Other 14,516 19,673
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Total $468,466 $467,376
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Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 2,287 $ 3,241
Current maturities of long-term debt 1,777 2,101
Accounts payable 46,757 45,374
Accrued expenses 22,962 21,330
Income taxes payable 16,738 18,127
Dividends payable 2,068 2,081
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Total Current Liabilities 92,589 92,254
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Long-term Debt, less current maturities 6,746 8,795
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Retirement and Deferred Compensation Plans 83,457 80,026
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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 6,304 6,065
Retained earnings 386,610 378,518
Foreign currency translation adjustment (22,849) (17,022)
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381,834 379,330
Less treasury stock
(3,495,612 and 3,447,153 shares) 96,160 93,029
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285,674 286,301
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Total $468,466 $467,376
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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,
-------------------- -------------------
1994 1993 1994 1993
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Net Sales $170,615 $168,736 $503,424 $513,200
-------- -------- -------- --------
Operating Expenses
Cost of sales, including
warehousing & commissions 91,746 85,331 264,026 257,033
Marketing & administrative
expenses 69,573 70,854 203,149 209,748
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161,319 156,185 467,175 466,781
-------- -------- -------- --------
Operating Income 9,296 12,551 36,249 46,419
Other (Expenses) Income
(Loss)/gain on revaluation of
foreign currencies 104 (462) 96 (1,910)
Net interest income 208 893 1,263 3,636
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Income before Income Taxes 9,608 12,982 37,608 48,145
Provision for Income Taxes 3,882 5,329 15,054 19,628
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Net Income $ 5,726 $ 7,653 $ 22,554 $ 28,517
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Weighted Average Number of
Shares Outstanding 8,273 8,302 8,278 8,291
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Earnings Per Share $ .69 $ .92 $2.72 $3.44
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Cash Dividend Paid Per Share $1.25 $1.25 $1.75 $1.75
===== ===== ===== =====
Cash Dividend Declared Not Paid $ .25 $ .25 $ .25 $ .25
===== ===== ===== =====
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,
--------------------
1994 1993
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Cash Flows from Operating Activities
Net Income $ 22,554 $ 28,517
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,977 9,834
Provision for losses on accounts receivable 5,384 6,702
Deferred income taxes (3,239) (1,617)
Retirement and deferred compensation plans 5,399 4,153
Changes in assets and liabilities, excluding net
assets acquired in the purchase of businesses:
Accounts receivable (5,200) (2,774)
Inventories (8,528) (1,457)
Prepaid expenses (1,352) (1,484)
Current liabilities (except short-term debt) 1,207 (5,057)
Other 1,103 535
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Net cash provided by operating activities 27,305 37,352
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Cash Flows from Investing Activities
Sales of property, plant and equipment 528 633
Purchases of property, plant and equipment (10,919) (13,006)
Redemptions of marketable securities 34,273 36,815
Purchases of marketable securities (22,467) (27,095)
Acquisitions of businesses (3,654) (1,129)
Purchases of intangible assets (2,203) (1,941)
Other (25) -
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Net cash used in investing activities (4,467) (5,723)
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Cash Flows from Financing Activities
Proceeds from notes payable 1,635 3,242
Payments of notes payable (2,436) (1,297)
Payments of long-term debt (2,065) (4,641)
Borrowing of cash surrender values 7,758 -
Payments of dividends (14,475) (14,518)
Purchase of treasury stock (3,422) -
Proceeds from exercise of stock options 222 1,471
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Net cash used in financing activities (12,783) (15,743)
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Effect of Exchange Rate Changes on Cash
and Cash Equivalents (2,701) (3,955)
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Net Increase in Cash and Cash Equivalents 7,354 11,931
Cash and Cash Equivalents at Beginning of Year 28,620 31,707
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Cash and Cash Equivalents at End of Period $ 35,974 $ 43,638
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The accompanying notes are an integral part of these financial statements.
NCH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Basis of Presentation
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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 January 31, 1994, and April 30, 1993, the results of its
operations for the nine months ended January 31, 1994 and 1993, and cash
flows for the nine months then ended.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the 1993 NCH Corporation Report to
the Shareholders, which is included in Part II of Form 10-K.
The results of operations for the nine month period ended January 31, 1994,
are not necessarily indicative of the results to be expected for the full
year.
2. Inventories
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Inventories consisted of the following (in thousands of dollars):
January 31, April 30,
1994 1993
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Raw Materials $12,683 $12,611
Finished Goods 65,498 57,333
Sales Supplies 2,297 2,247
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$80,478 $72,191
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3. Earnings Per Common Share
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Earnings per common share are based upon the weighted average number of
common shares outstanding during the period.
4. Supplemental Cash Flow Information
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Cash payments for interest for the nine months ended January 31, 1994 and
1993, were $2,691,000 and $1,855,000, respectively. Cash payments for
income taxes were $20,308,000 and $21,757,000 for the same periods,
respectively.
5. Income Taxes
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On May 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." As permitted
under SFAS No. 109, the Company elected not to restate the financial
statements of prior years.
The effect of adoption of SFAS No. 109 was not material to the
Company's financial position as of May 1, 1993.
SFAS No. 109 requires a change from the deferred method under APB
Opinion 11 to the asset and liability method of accounting for income
taxes. Under SFAS No. 109, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on the deferred taxes of a change in tax
rates is recognized in the period that includes the enactment date. The
effect of the recent enacted change in U.S. corporate income tax rates was
recorded in the operating results for the second quarter as an immaterial
increase to net income.
NCH CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
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In the nine months ended January 31, 1994, working capital increased
slightly to $243.5 million from $242.9 million at April 30, 1993, and the
current ratio remained even at 3.6 to 1 at both January 31, 1994, and April
30, 1993. The total of cash, cash equivalents and marketable securities
decreased by $4.5 million in the first nine months to $119.0 million at
January 31, 1994. Net cash flow from operations totaled $27.3 million.
Principal uses of cash consisted of net capital expenditures of $10.4
million, the repurchase of 55,900 shares of the Company's stock for $3.4
million, payment of dividends of $14.5 million and a net repayment of debt
amounting to $2.9 million. Additional funds of $7.8 million were provided
by the borrowing of cash surrender values of company-owned life insurance
policies on key employees. During the third quarter, the Company purchased
the assets of two small businesses amounting to $3.7 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 November 30,
1993, compared to February 28, 1993. This is reflected by the foreign
currency translation component of stockholders' equity, which changed from
a $17.0 million reduction of equity at April 30, 1993, to a $22.8 million
reduction of equity at January 31, 1994.
Accounts receivable decreased by $4.0 million, and inventories
increased by $8.3 million in the nine months ended January 31, 1994, as
measured in U.S. dollars and reported on the Consolidated Balance Sheets.
These changes include the addition of $.9 million of accounts receivable
and $.7 million of inventories acquired in the purchase of the assets of
two small businesses, as well as the effect of exchange rate changes in the
first nine months of fiscal 1994. 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 both assets
and liabilities. The change in accounts receivable and inventories
presented in the Consolidated Statements of Cash Flows is exclusive of the
effect of exchange rates on the reported asset values, and shows that
accounts receivable decreased by $.2 million, while inventories increased
by $8.5 million during the nine months ended January 31, 1994. These
amounts also exclude the accounts receivable and inventories acquired in
the purchase of the assets of two small businesses, which is shown
separately in the Consolidated Statements of Cash Flows as an investing
activity. The decrease in accounts receivable was due primarily to
decreased international accounts receivable as a result of continued weak
economic conditions in many of the countries in which the Company operates.
This was partially offset, however, by an increase in domestic accounts
receivable, as a result of higher domestic sales in the third quarter
compared to the fourth quarter of the prior year. Inventory levels
increased primarily as a result of sales growth in several of the Company's
domestic operations, requiring higher inventory levels.
Accounts payable, accrued expenses and income taxes payable were
similarly affected by currency translation. These liabilities increased by
$1.2 million when measured exclusive of the effect of exchange rate
changes, and increased by $1.6 million as reported on the Consolidated
Balance Sheets. The increase, exclusive of the effect of exchange rate
changes, was primarily in accounts payable and accrued expenses and was the
result of sales growth in several of the Company's domestic operations.
Net expenditures for property, plant and equipment, excluding net
assets acquired in the purchase of businesses, amounted to $10.4 million
for the nine months ended January 31, 1994, and consisted of normal
additions of data processing and operating equipment and completion of a
manufacturing facility in the U.S. Property, plant and equipment acquired
in the purchase of the assets of two small businesses amounted to $.9
million and is included in the Consolidated Statements of Cash Flows as an
investing activity. As with the other assets and liabilities, the effect
of currency translation on the reported U.S. dollar values of property,
plant and equipment was to decrease those reported values.
Total bank indebtedness, comprised of long-term debt, current
maturities of long-term debt and notes payable, decreased exclusive of the
effect of exchange rate changes by $2.9 million during the nine months
ended January 31, 1994. The decrease was due primarily to a scheduled
payment on a French Franc denominated loan made in the U.S., and to the
maturation and repayment of loans in two of the Company's European
subsidiaries. The bank indebtedness presented in the Consolidated Balance
Sheets was also affected by currency translation, and shows a $3.3 million
decrease in bank indebtedness. During the first quarter, the Company
received $7.8 million proceeds from the borrowing of cash surrender values
of company-owned life insurance policies on key employees.
On January 19, 1994, the directors of the Company declared a regular
quarterly dividend of $.25 per share of common stock payable March 15,
1994, to shareholders of record March 1, 1994. On September 14, 1993, the
directors of the Company declared a special dividend of $1.00 per share of
common stock, which was paid on December 15, 1993. Cash dividends paid
during the first nine months of the fiscal year amounted to $14.5 million.
Operating Results
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Third Quarter Comparison - Prior Year
Net sales for the third quarter increased 1% to $170.6 million in the
current year as compared with $168.7 million reported in the same quarter
of the last fiscal year. Domestically, net sales increased 18% from the
prior year. International net sales, when measured on a local country
currency basis, decreased approximately 3%, however, the strength of the
U.S. dollar further reduced comparative net sales, resulting in a decrease
of 13% as reported in U.S. dollars.
Operating expenses, as a percent of net sales, increased in the
current quarter to 94.6% compared to 92.6% in the third quarter last year.
Operating expenses increased as a percent of net sales due to the local
currency sales decrease in the international operations, offset partially
by improved operating ratios in the Company's domestic operations. As a
result, operating income before other expenses and income taxes for the
quarter ended January 31, 1994, was 5.4% of net sales compared to 7.4% of
net sales for the quarter ended January 31, 1993.
In the quarter ended January 31, 1994, net interest income was $.2
million compared to $.9 million in the same quarter of the prior year. The
decrease was primarily due to increased interest expense in Brazil in the
current year, due to higher debt outstanding and extremely high interest
rates. In addition, interest income decreased in the Company's European
subsidiaries, as a result of a decrease in average funds invested. The
revaluation of foreign currencies amounted to a gain of $.1 million in the
third quarter of the current year compared to a loss of $.5 million in the
same period of the prior year, due to a gain on translation in several of
the hyper-inflationary countries as a result of changes in their net
financial position, offset somewhat by exchange losses in several of the
Company's European operations in the current year.
Provision for income taxes was 40.4% of pre-tax income in the third
quarter of the current year compared to 41.0% of pre-tax income in the
prior year. Net income for the quarter ended January 31, 1994, was 3.4% of
net sales compared to 4.5% of net sales in the quarter ended January 31,
1993.
Third Quarter Comparison - Preceding Quarter
Net sales of $170.6 million for the third quarter of fiscal 1994 were
5% higher than the $163.2 million reported in the second quarter. Domestic
net sales were 6% lower in the third quarter than in the second quarter as
a result of normal quarter-to-quarter sales fluctuations. International
net sales in the third quarter were 21% higher than in the second quarter
as a result of normal quarter-to-quarter sales fluctuations, offset
somewhat by the negative effect of currency exchange rate changes on sales
as reported in U.S. dollars. Operating expenses, as a percent of net
sales, increased in the current quarter compared to the preceding quarter
primarily as a result of normal quarter-to-quarter operating ratio
fluctuations in the Company's domestic operations. As a result, operating
income before other expenses and income taxes for the quarter ended January
31, 1994, was 5.4% of net sales compared to 9.0% of net sales in the
quarter ended October 31, 1993.
Net interest income in the three months ended January 31, 1994,
amounted to $.2 million compared to $.3 million in the three months ended
October 31, 1993. The revaluation of foreign currency amounted to a gain
of $.1 million in the third quarter compared to a gain of $.2 million
reported in the second quarter.
Provision for income taxes in the quarter ended January 31, 1994,
amounted to 40.4% of pre-tax income compared to 39.2% of pre-tax income in
the quarter ended October 31, 1993. The increase in the overall tax rate
was due to the impact of variations in individual country income levels and
tax rates on combined international results. Net income for the quarter
ended January 31, 1994, was 3.4% of net sales compared to 5.7% of net sales
in the quarter ended October 31, 1993.
Nine Months Comparison - Prior Year
Net sales for the nine months ended January 31, 1994, decreased 2% to
$503.4 million as compared with $513.2 million reported in the first nine
months of the last fiscal year. Domestically, net sales increased 12% in
the nine months compared to a year ago. International net sales, when
measured on a local country currency basis, decreased approximately 4%,
however, the strength of the U.S. dollar further reduced comparative net
sales, resulting in a decrease of 15% as reported in U.S. dollars.
Operating expenses, as a percent of net sales, increased to 92.8% for
the nine months of the current year compared to 91.0% for the nine months
of the prior year. Internationally, operating expenses increased as a
percent of net sales due primarily to the effect of reduced sales volume.
Domestically, operating expenses as a percent of net sales decreased
slightly due to increased sales volume. As a result, operating income
before other expenses and income taxes for the nine months ended January
31, 1994, was 7.2% of net sales compared to 9.0% of net sales for the nine
months ended January 31, 1993.
In the nine months ended January 31, 1994, net interest income was
$1.3 million compared to $3.6 million in the first nine months of the prior
year. The decrease in net interest income was primarily due to higher
interest expense in Brazil due to higher debt outstanding in the current
year and extremely high interest rates. In addition, interest income
decreased in the Company's European subsidiaries, as a result of a decrease
in average funds invested. The revaluation of foreign currencies amounted
to a gain of $.1 million in the first nine months of the current year
compared to a loss of $1.9 million in the same period of the prior year,
due to a gain on translation in Brazil as a result of changes in the net
financial position of the Company's Brazilian subsidiaries, offset by
exchange losses in several of the Company's European subsidiaries.
Provision for income taxes was 40.0% of pre-tax income in the first
nine months of the current year compared to 40.8% of pre-tax income in the
prior year. Net income for the nine months ended January 31, 1994, was
4.5% of net sales compared to 5.6% of net sales for the nine months ended
January 31, 1993.
On May 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." As permitted
under SFAS No. 109, the Company elected not to restate the financial
statements of prior years.
The effect of adoption of SFAS No. 109 was not material to the
Company's financial position as of May 1, 1993.
SFAS No. 109 requires a change from the deferred method under APB
Opinion 11 to the asset and liability method of accounting for income
taxes. Under SFAS No. 109, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on the deferred taxes of a change in
tax rates is recognized in the period that includes the enactment date.
The effect of the recent enacted change in U.S. corporate income tax rates
was recorded in the operating results for the second quarter as an
immaterial increase to net income.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(b) Reports on Form 8-K -- There were no reports on Form 8-K filed for
the nine months ended January 31, 1994.
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 10, 1994 /s/Tom Hetzer
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Tom Hetzer
Vice President - Finance
(Principal Accounting Officer)