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 July 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 September 9, 1994
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Common Stock, $1 par value 8,285,834
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NCH CORPORATION
INDEX
Page No.
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Part I. Financial Information:
Consolidated Balance Sheets --
July 31, 1994 and April 30, 1994 3
Consolidated Statements of Income --
Three Months Ended July 31, 1994 and 1993 4
Consolidated Statements of Cash Flows --
Three Months Ended July 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 - 11
Part II. Other Information 12
NCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands Except Share and Per Share Data)
(Unaudited)
July 31, April 30,
1994 1994
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Assets
Current Assets
Cash and cash equivalents $ 23,015 $ 18,754
Marketable securities 99,613 105,784
Accounts receivable, net 137,259 136,178
Inventories 89,317 83,634
Prepaid expenses 9,369 6,431
Deferred income taxes 14,199 12,990
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Total Current Assets 372,772 363,771
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Property, Plant and Equipment 181,436 177,999
Accumulated depreciation 96,721 93,892
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84,715 84,107
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Deferred Income Taxes 22,763 22,332
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Other 14,321 15,013
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Total $494,571 $485,223
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Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 9,097 $ 9,745
Current maturities of long-term debt 1,955 1,875
Accounts payable 46,582 46,775
Accrued expenses 24,945 22,784
Income taxes payable 18,521 18,117
Dividends payable 2,070 2,069
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Total Current Liabilities 103,170 101,365
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Long-term Debt, less current maturities 6,876 6,790
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Retirement and Deferred Compensation Plans 84,849 83,986
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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 6,421 6,369
Unrealized loss on investments (990) -
Retained earnings 398,949 393,193
Foreign currency translation adjustment (20,404) (22,100)
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395,745 389,231
Less treasury stock
(3,489,162 and 3,492,058 shares) 96,069 96,149
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299,676 293,082
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Total $494,571 $485,223
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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 July 31,
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1994 1993
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Net Sales $178,728 $169,649
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Operating Expenses
Cost of sales, including
warehousing & commissions 94,512 86,797
Marketing & administrative expenses 71,156 70,613
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165,668 157,410
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Operating Income 13,060 12,239
Other (Expenses) Income
Loss on revaluation of foreign currencies (419) (204)
Net interest income 640 714
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Income before Income Taxes 13,281 12,749
Provision for Income Taxes 5,455 5,188
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Net Income $ 7,826 $ 7,561
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Weighted Average Number of
Shares Outstanding 8,279 8,287
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Earnings Per Share $ .95 $ .91
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Cash Dividend Paid Per Share $ .25 $ .25
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Cash Dividend Declared Not Paid $ .25 $ .25
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The accompanying notes are an integral part of these financial statements.
NCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended
July 31,
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1994 1993
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Cash Flows from Operating Activities
Net Income $ 7,826 $ 7,561
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,340 3,188
Provision for losses on accounts receivable 1,963 1,834
Deferred income taxes (1,049) (883)
Retirement and deferred compensation plans 669 758
Changes in assets and liabilities, excluding net
assets acquired in the purchase of businesses:
Accounts receivable (1,242) (4,050)
Inventories (5,142) (1,369)
Prepaid expenses (2,831) (2,348)
Current liabilities (except short-term debt) 1,220 1,246
Other (76) 360
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Net cash provided by operating activities 4,678 6,297
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Cash Flows from Investing Activities
Sales of property, plant and equipment 505 293
Purchases of property, plant and equipment (3,477) (4,893)
Redemptions of marketable securities 9,376 7,585
Purchases of marketable securities (4,728) (7,805)
Purchases of intangible assets (345) (1,353)
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Net cash provided (used) in investing activities 1,331 (6,173)
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Cash Flows from Financing Activities
Proceeds from notes payable 1,603 132
Payments of notes payable (2,408) (1,376)
Payments of long-term debt (3) (22)
Borrowing of cash surrender values 690 7,758
Payments of dividends (2,069) (2,070)
Purchase of treasury stock - (3,422)
Proceeds from exercise of stock options 34 29
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Net cash provided (used) in financing activities (2,153) 1,029
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Effect of Exchange Rate Changes on Cash
and Cash Equivalents 405 335
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Net Increase in Cash and Cash Equivalents 4,261 1,488
Cash and Cash Equivalents at Beginning of Year 18,754 28,620
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Cash and Cash Equivalents at End of Period $ 23,015 $ 30,108
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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 July 31, 1994, and April 30, 1994, the results of its
operations for the three months ended July 31, 1994 and 1993, and cash
flows for the three months then ended.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the 1994 NCH Corporation Report to
the Shareholders, which is included in Part II of Form 10-K.
The results of operations for the three month period ended July 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):
July 31, April 30,
1994 1994
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Raw Materials $12,741 $13,849
Finished Goods 74,369 67,676
Sales Supplies 2,207 2,109
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$89,317 $83,634
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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 three months ended July 31, 1994 and
1993, were approximately $424,000 and $1,173,000, respectively. Cash
payments for income taxes were approximately $6,543,000 and $5,016,000 for
the same periods, respectively.
5. Adoption of New Accounting Standards
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The Company implemented Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" as of May 1, 1994.
This statement requires recognition of a liability for certain benefits
provided to former or inactive employees after employment but before
retirement. Implementation of this statement was immaterial to the
Company's financial position and results of operations.
The Company implemented Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" as
of May 1, 1994. This statement requires that certain debt and equity
security investments, other than investments accounted for by the equity
method and investments in consolidated subsidiaries, be categorized as
either trading securities, securities available-for-sale, or securities
held-to-maturity. The Company classifies all of its investments in
securities which do not meet the definition of cash equivalents as
marketable securities available-for-sale. Available-for-sale securities
are reported at fair value with unrealized gains and losses (net of
deferred income taxes) recognized on the balance sheet as a separate
component of stockholders' equity. Fair values are based on quoted market
prices obtained from an independent broker. Realized gains and losses are
included in other income. The cost of securities sold is based on the
specific identification method. In accordance with the provisions of this
statement, prior period financial statements have not been restated to
reflect this change in accounting principle.
The following is a summary of available-for-sale marketable securities as
of July 31, 1994 (in thousands of dollars):
Estimated Unrealized
Fair Gains
Value (Losses) Cost
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U.S. Government Securities $ 1,932 $ 3 $ 1,929
State and Municipal Bonds 97,385 (1,526) 98,911
Certificates of Deposit 296 - 296
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$99,613 $(1,523) $101,136
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The contractual maturities of the marketable securities at estimated fair
value as of July 31, 1994 are as follows (in thousands of dollars): 1995-
$32,081; 1996-$31,252; 1997-$12,729; 1998-$15,192; and 1999-$8,359.
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 fiscal quarter ended July 31, 1994, working capital increased to
$269.6 million from $262.4 million at April 30, 1994, and the current ratio
remained even at 3.6 to 1 at both July 31, and April 30, 1994. The total
of cash, cash equivalents and marketable securities decreased by $1.9
million in the fiscal quarter to $122.6 million at July 31, 1994, as shown
on the Consolidated Balance Sheet. Of this decrease, $1.5 million is due
to unrealized losses on marketable securities as a result of implementation
of the Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Net cash flow from
operations totaled $4.7 million. Principal uses of cash consisted of net
capital expenditures of $3.0 million and payment of dividends of $2.1
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 increased as a
result of the change in the Company's composite spot rate at May 31, 1994,
compared to February 28, 1994. This is reflected by the foreign currency
translation component of stockholders' equity, which changed from a $22.1
million reduction of equity at April 30, 1994, to a $20.4 million reduction
of equity at July 31, 1994.
Accounts receivable and inventories increased by $1.1 million and $5.7
million, respectively, in the quarter ended July 31, 1994, 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 fiscal quarter was to increase the reported
U.S. dollar values of both assets and liabilities. The change in accounts
receivable and inventories 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 decreasing by $.7 million and
inventories increasing by $5.1 million during the quarter. Accounts
receivable decreased during the first fiscal quarter in the domestic
operations, due primarily to lower domestic sales in the first quarter of
the current year compared to the fourth quarter of the prior year.
Inventory levels increased in the Company's domestic operations, due to
higher inventory requirements as a result of a trend of increasing sales.
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, but increased by $2.4 million as reported on the Consolidated
Balance Sheets. Most of the increase, exclusive of the effect of exchange
rate changes, was in domestic income taxes payable due to normal timing
differences in the amounts of tax payments in the current quarter compared
to the preceding quarter, and accrued expenses, primarily in the Company's
European operations, due to routine seasonal fluctuations.
Net expenditures for property, plant and equipment amounted to $3.0
million for the quarter ended July 31, 1994, and consisted of normal
additions of data processing and operating equipment. 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 increase 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 $.8 million during the three months
ended July 31, 1994. The decrease was due primarily to the maturation and
repayment of a short-term loan in one of the Company's European
subsidiaries. The bank indebtedness shown on the Consolidated Balance
Sheets was also affected by currency translation, showing a decrease of $.5
million.
A regular quarterly dividend of $.25 per share, declared by the
directors of the Company on April 13, 1994, was paid on June 15, 1994,
amounting to $2.1 million. On July 28, 1994, the directors of the Company
declared a regular quarterly dividend of $.25 per share, payable September
15, 1994, to shareholders of record September 1, 1994.
Operating Results
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First Quarter Comparison - Prior Year
Net sales for the first quarter of fiscal 1995 increased 5% to $178.7
million in the current year as compared with $169.6 million reported in the
same quarter of the last fiscal year. Domestically, net sales increased
13% from the prior year. International net sales, when measured on a local
country currency basis, increased approximately 3%. However, the strength
of the U.S. dollar reduced comparative net sales, resulting in a decrease
of 3% as reported in U.S. dollars.
Operating expenses as a percent of net sales decreased slightly in the
current quarter to 92.7% of net sales compared to 92.8% in the first
quarter last year. This decrease in operating expenses as a percent of net
sales was primarily attributable to one-time expenditures for the
relocation of a domestic manufacturing facility incurred in the first
quarter of the prior fiscal year. As a result, operating income before
other expenses and income taxes for the quarter ended July 31, 1994, was
7.3% of net sales compared to 7.2% of net sales for the quarter ended July
31, 1993.
In the three months ended July 31, 1994, net interest income was $.6
million compared to $.7 million in the same quarter of the prior year. The
decrease in net interest income was primarily due to lower interest income
from the Company's European subsidiaries, as a result of a decrease in
average funds invested. Loss on revaluation of foreign currencies
increased to $.4 million in the first quarter of the current year from $.2
million in the same period of the prior year.
Provision for income taxes was 41.1% of pre-tax income in the first
quarter of the current year compared to 40.7% of pre-tax income in the
prior year. 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 July 31, 1994, was
4.4% of net sales compared to 4.5% of net sales in the quarter ended July
31, 1993.
First Quarter Comparison - Preceding Quarter
Net sales for the first quarter of fiscal 1995 were 1% higher at $178.7
million as compared with $176.6 million reported in the fourth quarter of
fiscal 1994. International net sales were 9% higher when measured in U.S.
dollars, as a result of normal quarter-to-quarter sales fluctuations and
the effect of exchange rate changes, while domestic net sales were 4% lower
from the fourth quarter of the prior year.
Operating expenses as a percent of net sales were 92.7% in the current
quarter compared to 92.0% in the fourth quarter of the last fiscal year.
Operating expenses in the domestic operations were higher as a percent of
net sales due to normal quarter-to-quarter sales and expense fluctuations.
This was partially offset by lower operating expenses as a percent of net
sales in the international operations, primarily due to increased sales
volume in the first quarter compared to the fourth quarter. As a result,
operating income before other expenses and income taxes for the quarter
ended July 31, 1994, was 7.3% of net sales compared to 8.0% of net sales
for the quarter ended April 30, 1994.
Net interest income in the three months ended July 31, 1994, amounted
to $.6 million compared to $.8 million in the three months ended April 30,
1994. Gross interest income was lower in the current quarter due to lower
interest income from the Company's European subsidiaries, as a result of a
decrease in average funds invested. This lower gross interest income was
partially offset by lower gross interest expense, due primarily to lower
debt outstanding in Brazil in the current quarter, where interest rates are
extremely high. Loss on revaluation of foreign currencies was $.4 million
in both the fourth quarter of the prior year and the first quarter of the
current year.
Provision for income taxes in the quarter ended July 31, 1994, amounted
to 41.1% of pre-tax income compared to 40.2% of pre-tax income in the
quarter ended April 30, 1994. The higher overall tax rate in the current
quarter 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 July 31, 1994, was 4.4% of net sales compared to 4.9% of net
sales in the quarter ended April 30, 1994.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed for the
three months ended July 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 September 12, 1994 /s/Tom Hetzer
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Tom Hetzer
Vice President - Finance
(Principal Accounting Officer)