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, 1997 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 (972) 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 3, 1997
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Common Stock, $1 par value 7,167,476
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NCH CORPORATION
INDEX
Page No.
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Part I. Financial Information:
Consolidated Balance Sheets --
July 31, 1997 and April 30, 1997 3
Consolidated Statements of Income --
Three Months Ended
July 31, 1997 and 1996 4
Consolidated Statements of Cash Flows --
Three Months Ended July 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 14
Part II. Other Information 15
NCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands Except Share and Per Share Data)
(Unaudited)
July 31, April 30,
1997 1997
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Assets
Current Assets
Cash and cash equivalents $ 22,408 $ 21,273
Marketable securities 64,112 69,700
Accounts receivable, net 149,394 144,664
Inventories 116,356 107,502
Prepaid expenses 8,783 6,228
Deferred income taxes 18,684 18,579
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Total Current Assets 379,737 367,946
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Property, Plant and Equipment 205,230 202,830
Accumulated depreciation 115,871 114,330
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89,359 88,500
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Deferred Income Taxes 30,211 29,637
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Other 12,382 11,508
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Total $511,689 $497,591
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Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 2,270 $ 2,694
Current maturities of long-term debt 3,755 3,767
Accounts payable 53,755 51,057
Accrued expenses 30,914 28,286
Income taxes payable 22,007 19,874
Dividends payable 2,149 2,149
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Total Current Liabilities 114,850 107,827
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Long-Term Debt, less current maturities 1,685 112
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Retirement and Deferred
Compensation Plans 108,376 107,057
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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 9,116 8,708
Retained earnings 453,571 448,513
Foreign currency translation
adjustment (26,779) (25,740)
Unrealized gains on investments 210 40
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447,887 443,290
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Less treasury stock
(4,604,457 and 4,606,705 shares) 161,109 160,695
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286,778 282,595
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Total $511,689 $497,591
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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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1997 1996
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Net Sales $197,996 $192,536
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Operating Expenses
Cost of sales, including
warehousing and commissions 105,887 101,694
Marketing and administrative
expenses 79,309 79,188
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185,196 180,882
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Operating Income 12,800 11,654
Other (Expenses) Income
Revaluation of foreign
currencies (533) (277)
Net interest (163) 130
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Income before Income Taxes 12,104 11,507
Provision for Income Taxes 4,897 4,841
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Net Income $ 7,207 $ 6,666
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Weighted Average Number of
Shares Outstanding 7,164 7,579
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Earnings Per Share $ 1.01 $ .88
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Cash Dividend Paid Per Share $ .30 $ .30
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Cash Dividend Declared Not Paid $ .30 $ .30
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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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1997 1996
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Cash Flows from Operating Activities
Net Income $ 7,207 $ 6,666
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 3,864 3,757
Provision for losses on accounts
receivable 1,533 1,858
Deferred income taxes 809 (1,590)
Retirement and deferred compensation
plans (236) 1,675
Other noncash items 97 72
Change in assets and liabilities,
excluding net assets acquired in the
purchase of business:
Accounts receivable (5,106) (934)
Inventories (7,223) (1,098)
Prepaid expenses (2,482) (2,907)
Accounts payable, accrued expenses
and income taxes payable 6,809 5,074
Other noncurrent assets (140) (245)
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Net cash provided by operating
activities 5,132 12,328
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Cash Flows from Investing Activities
Sales of property, plant and equipment 332 232
Purchases of property, plant and
equipment (4,766) (5,550)
Redemptions of marketable securities 9,767 13,315
Purchases of marketable securities (3,918) (5,581)
Acquisition of business (2,944) 0
Other (1,012) (1,012)
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Net cash (used) provided in
investing activities (2,541) 1,404
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Cash Flows from Financing Activities
Proceeds from notes payable 87 928
Payments of notes payable (495) (3,509)
Additional long-term debt 34 76
Payments of long-term debt (16) 0
Borrowing of cash surrender values 2,060 1,914
Payments of dividends (2,149) (2,280)
Purchases of treasury stock (1,075) (7,897)
Proceeds from exercise of stock options 933 46
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Net cash used in financing activities (621) (10,722)
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Effect of Exchange Rate Changes on Cash
and Cash Equivalents (835) (760)
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Net Increase in Cash and Cash Equivalents 1,135 2,250
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Cash and Cash Equivalents at Beginning of
Year 21,273 21,806
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Cash and Cash Equivalents at End of Period $ 22,408 $ 24,056
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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, 1997, and April 30, 1997, the
results of its operations for the three months ended July 31, 1997 and
1996, 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 1997 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,
1997, 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,
1997 1997
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Raw Materials $ 15,427 $ 14,580
Finished Goods 98,867 90,915
Sales Supplies 2,062 2,007
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$116,356 $107,502
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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, 1997 and
1996, were approximately $418,000 and $564,000, respectively. Cash
payments for income taxes were approximately $3,289,000 and $3,062,000
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
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In the three months ended July 31, 1997, working capital increased
to $264.9 million from $260.1 million at April 30, 1997, and the
current ratio was 3.3 to 1 at July 31, 1997, compared to 3.4 to 1 at
April 30, 1997. The total of cash, cash equivalents and marketable
securities decreased by $4.5 million in the first three months to
$86.5 million at July 31, 1997, as shown on the Consolidated Balance
Sheets. Net cash flows from operations totaled $5.1 million.
Additional cash was provided by net redemptions of marketable
securities of $5.8 million, and the borrowing of cash surrender values
of company-owned life insurance policies on key employees of $2.1
million. Principal uses of cash consisted of net capital expenditures
of $4.4 million, payment of dividends of $2.1 million, and treasury
stock purchases of $1.1 million. During the first quarter, the Company
purchased the net assets of one small business for $2.9 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, 1997, compared to February 28, 1997. This is reflected by the
foreign currency translation component of stockholders' equity, which
changed from a $25.7 million reduction of equity at April 30, 1997, to
a $26.8 million reduction of equity at July 31, 1997.
Accounts receivable increased by $4.7 million and inventories
increased by $8.9 million in the three months ended July 31, 1997, 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 three months was
to decrease 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 increasing by $3.6 million and inventories increasing by
$7.2 million during the quarter. The increase in inventory occurred
primarily in the Company's domestic operations, due to the 10% increase
in sales in the quarter over prior year and to an acquisition which
was made in May. The increase in accounts receivable was also
primarily in the domestic operations due to increased sales.
Accounts payable, accrued expenses and income taxes payable were
similarly affected by currency translation. These liabilities
increased by $6.8 million when measured exclusive of the effect of
exchange rate changes, but increased by $7.5 million as reported on
the Consolidated Balance Sheets. Accounts payable and accrued expenses
increased as a result of normal business activity associated with
timing of payments and due to higher inventory levels. The increase
in income taxes payable was primarily due to normal timing differences
in the amounts of tax payments in the Company's domestic and European
operations in the current quarter compared to the preceding quarter.
Net expenditures for property, plant and equipment amounted to $4.4
million for the three months ended July 31, 1997, and consisted of the
installation and update of worldwide computer systems and normal
additions of 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 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, and exclusive of indebtedness
acquired in the purchase of a business, by $.4 million during the
three months ended July 31, 1997. The decrease was due primarily to
the maturation and repayment of short-term loans in the Company's
European subsidiaries. The bank indebtedness shown on the Consolidated
Balance Sheets was also affected by currency translation, and shows an
increase of $1.1 million, including indebtedness acquired in the
purchase of a business.
A regular quarterly dividend of $.30 per share, declared by the
directors of the Company on April 2, 1997, was paid on June 16, 1997,
amounting to $2.1 million. The directors of the Company declared a
regular quarterly dividend of $.30 per share on July 24, 1997,
payable September 15, 1997, to shareholders of record September 2,
1997.
Operating Results
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First Quarter Comparison - Prior Year
Net sales for the first quarter increased 3% to $198.0 million in
the current year as compared with $192.5 million reported in the same
quarter of the last fiscal year. Domestically, net sales in the first
quarter of the current year increased 10% over the first quarter of
the prior year. International net sales decreased 5% 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, increased approximately 4% as compared to the first
quarter of the prior year.
Operating expenses as a percent of net sales decreased slightly in
the current quarter to 93.5% of net sales compared to 93.9% in the
first quarter last year. The decrease as a percent of sales is due to
lower marketing expenses in the Company's international subsidiaries,
partially offset by increased administrative costs in the domestic
operations. As a result, operating income before other expenses and
income taxes for the quarter ended July 31, 1997, was 6.5% of net sales
compared to 6.1% of net sales for the quarter ended July 31, 1996.
In the quarter ended July 31, 1997, net interest expense was $.2
million compared to net interest income of $.1 million in the same
quarter of the prior year. Revaluation of foreign currencies was a
loss of $.5 million in the first quarter of the current year compared
to a loss of $.3 million in the same period of the prior year.
Provision for income taxes was 40.5% of pre-tax income in the first
quarter of the current year compared to 42.1% of pre-tax income in the
prior year. This decrease is primarily due to variations in individual
country income levels and tax rates in the international subsidiaries.
Net income for the quarter ended July 31, 1997, was 3.6% of net sales
compared to 3.5% of net sales in the quarter ended July 31, 1996.
First Quarter Comparison - Preceding Quarter
Net sales of $198.0 million for the first quarter of fiscal 1998 were
5% higher than the $188.3 million net sales reported in the fourth
quarter of fiscal 1997. International net sales were 4% 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 6% higher than the fourth quarter of the prior
year.
Operating expenses as a percent of net sales were 93.5% in the
current quarter compared to 92.5% in the fourth quarter of the last
fiscal year. Operating expenses increased as a percent of sales due
to higher administrative costs in the Company's domestic operations,
higher product costs, and higher marketing costs in both the domestic
operations and international subsidiaries. As a result, operating
income before other expenses and income taxes for the quarter ended
July 31, 1997, was 6.5% of net sales compared to 7.5% of net sales
for the quarter ended April 30, 1997.
Net interest expense in the three months ended July 31, 1997,
amounted to $.2 million compared to net interest income of $.3
million in the three months ended April 30, 1997. The revaluation of
foreign currencies resulted in a loss of $.5 million in the first
quarter of the current year compared to a loss of $1.5 million in
the fourth quarter of the prior year.
Provision for income taxes in the quarter ended July 31, 1997,
amounted to 40.5% of pre-tax income compared to 35.5% of pre-tax
income in the quarter ended April 30, 1997. The lower overall tax
rate in the fourth quarter of the prior year 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, 1997, was 3.6% of net sales compared to 4.4% of net sales in the
quarter ended April 30, 1997.
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, 1997.
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 8, 1997 /s/ Tom Hetzer
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Tom Hetzer
Vice President - Finance
(Principal Accounting Officer)