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 September 30, 1994 Commission File Number 0-14827 NATIONAL SANITARY SUPPLY COMPANY - - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 31-1079482 - - ------------------------------------------------------------------------------ (State or other jurisdiction of (IRS Employer Identification incorporation of organization) No.) 2900 Chemed Center, 255 E. 5th St., Cincinnati, OH 45202-4729 - - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) (513) 762-6500 - - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) 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 issuer's classes of common stock, as of the latest practicable date. Class Amount Date - - ----- ------ ---- Common Stock 6,011,306 Shares October 31, 1994 $1 Par Value Page 1 of 10 NATIONAL SANITARY SUPPLY COMPANY Index Page No. Part I. Financial Information: -------- Item 1. Financial Statements: Consolidated Balance Sheet-- September 30, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . 3 Consolidated Statement of Income-- Three and nine months ended September 30, 1994 and 1993 . . . . . . . . . . . 4 Consolidated Statement of Cash Flows-- Nine months ended September 30, 1994 and 1993 . . . . . . . . . . . 5 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . 7 Part II. Other Information: Item 6. Exhibits and Reports on Form 8-K . . . . . 9 Page 2 of 10 Part I. Financial Information Item 1. Financial Statements NATIONAL SANITARY SUPPLY COMPANY CONSOLIDATED BALANCE SHEET (UNAUDITED) September 30, December 31, (thousands, except share data) 1994 1993 - - ----------------------------------- ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 1,814 $ 1,110 Accounts receivable, less allowances (1994- $1,190; 1993- $1,290) 40,681 36,607 Inventories 26,690 26,955 Current deferred income taxes 1,971 1,776 Prepaid expenses and other current assets 1,516 1,189 ---------- ----------- Total current assets 72,672 67,637 Properties and equipment, at cost, less accumulated depreciation (1994- $18,889; 1993- $17,451) 21,665 17,383 Goodwill, less accumulated amortization (1994- $ 6,663; 1993- $ 6,008) 27,058 27,513 Other assets 571 1,611 ---------- ----------- Total assets $ 121,966 $ 114,144 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 21,917 $ 18,223 Accrued liabilities 13,576 13,071 Loans payable to Chemed Corporation 10,754 9,702 Current portion of notes to Chemed Corporation 1,000 1,000 ---------- ----------- Total current liabilities 47,247 41,996 Notes to Chemed Corporation 17,000 17,000 Noncurrent deferred income taxes 543 701 Other noncurrent liabilities 1,112 1,299 ---------- ----------- Total liabilities 65,902 60,996 ---------- ----------- Stockholders' equity: Preferred stock - 1,000,000 shares authorized, $1 par value (none issued) - - Common stock - 7,000,000 shares authorized, $1 par value (issued: 1994- 6,396,381 shares; 1993- 6,323,206 shares) 6,397 6,324 Paid-in capital 25,102 24,369 Retained earnings 27,697 25,468 Treasury stock, at cost (1994- 413,697 shares; 1993- 403,984 shares) (3,132) (3,013) ---------- ----------- Total stockholders' equity 56,064 53,148 ---------- ----------- Total liabilities and stockholders' equity $ 121,966 $ 114,144 ========== =========== The accompanying notes are an integral part of the financial statements. Page 3 of 10 NATIONAL SANITARY SUPPLY COMPANY CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- (thousands, except per share data) 1994 1993 1994 1993 - - ---------------------------------- --------- --------- --------- --------- Sales $ 81,232 $ 78,598 $229,667 $223,226 Cost of sales 55,972 54,167 158,031 153,196 --------- --------- --------- --------- Gross profit 25,260 24,431 71,636 70,030 --------- --------- --------- --------- Expenses and other income: Operating expenses 21,857 21,181 63,872 62,762 Amortization of goodwill 219 218 656 653 Chemed interest, net 618 542 1,763 1,683 Interest expense 10 32 11 100 Other income, net (196) (130) (396) (385) --------- --------- --------- --------- Total expenses and other income 22,508 21,843 65,906 64,813 --------- --------- --------- --------- Income before income taxes 2,752 2,588 5,730 5,217 Income taxes 1,098 1,079 2,398 2,257 --------- --------- --------- --------- Net income $ 1,654 $ 1,509 3,332 2,960 ========= ========= ========= ========= Earnings per share $ 0.28 $ 0.26 $ 0.56 $ 0.50 ========= ========= ========= ========= Cash dividends paid per share $ 0.065 $ 0.060 $ 0.185 $ 0.170 ========= ========= ========= ========= Average shares outstanding 5,982 5,899 5,960 5,892 ========= ========= ========= ========= The accompanying notes are an integral part of the financial statements. Page 4 of 10 NATIONAL SANITARY SUPPLY COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, ------------------------ (thousands of dollars) 1994 1993 - - -------------------------------------------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,332 $ 2,960 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,375 2,611 Amortization of goodwill and deferred charges 782 932 Deferred income tax provision (268) 113 Provision for uncollectible accounts receivable 651 899 Changes in operating assets and liabilities, excluding amounts acquired in business combinations: Increase in accounts receivable (4,488) (688) Decrease in inventories 532 1,455 (Increase)/decrease in other assets (171) 196 Increase in accounts payable 3,548 896 Increase/(decrease) in other liabilities 281 (875) Other 64 219 --------- -------- Net cash provided by operating activities 6,638 8,718 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Business combinations (645) (596) Capital expenditures (5,605) (2,235) --------- -------- Net cash used by investing activities (6,250) (2,831) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans payable to Chemed Corporation 1,052 1,592 Principal payments on notes to Chemed Corporation - (5,000) Principal payments on other long-term debt (34) (137) Proceeds from issuance of capital stock 483 20 Dividends paid (1,103) (1,002) Purchase of treasury stock (82) (57) --------- -------- Net cash provided/(used) by financing activities 316 (4,584) --------- -------- Increase in cash and cash equivalents 704 1,303 Cash and cash equivalents at beginning of period 1,110 1,374 --------- -------- Cash and cash equivalents at end of period $ 1,814 $ 2,677 ========= ======== The accompanying notes are an integral part of the financial statements. Page 5 of 10 NATIONAL SANITARY SUPPLY COMPANY Notes to Consolidated Financial Statements (unaudited) NOTE A. The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of SEC Regulation S-X. Consequently, they do not include all the disclosures required under generally accepted accounting principles for complete financial statements. However, in the opinion of the management of National Sanitary Supply Company ("National"), the financial statements presented herein contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position, the results of operations and cash flows of National and its subsidiaries for the periods indicated. For additional information concerning the accounting policies of National, refer to the consolidated financial statements included in the 1993 Annual Report on Form 10-K filed with the SEC on March 28, 1994. NOTE B. Cash equivalents include highly liquid investments with maturities of three months or less when purchased. NOTE C. Earnings per common share are computed on the basis of the weighted average number of shares of common stock outstanding during the respective periods. The dilution that would result from shares issuable under National's 1986 and 1988 Stock Incentive Plans is not material. Page 6 of 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - - --------------------- National Sanitary Supply Company's sales for the third quarter ended September 30, 1994 were $81,232,000, a 3% increase over sales of $78,598,000 in the third quarter of 1993. Net income for the third quarter of 1994 was $1,654,000, a 10% increase over net income of $1,509,000 reported in the prior year third quarter. Earnings per share of $.28 for the third quarter of 1994 increased 8% over earnings per share of $.26 reported in the comparable prior-year quarter. National's third quarter sales improved in most locations throughout the National system. Sales in the large Southern California operation continued to show improvement as this region continues to recover from the January 1994 earthquake. Product line sales were led by sales of equipment, plastic trash liners, and foodservice products. The industry-wide deflationary pricing in the high- volume, commodity-oriented, paper and trash liner product lines slowed significantly in the third quarter. Prices in these product lines for the fourth quarter are expected to be up over the same period of the prior year for the first time in several years. National's third quarter 1994 gross profit margin was unchanged from the prior year. Operating expenses as a percentage of sales in the third quarter of 1994 were the same as in the third quarter of 1993, reflecting tight control over most expense categories. Interest expense to Chemed Corporation ("Chemed"), National's parent company, increased from $542,000 in the third quarter of 1993 to $618,000 in the third quarter of 1994. This increase primarily results from the additional funds necessary to purchase two Los Angeles, California facilities during the second quarter of 1994 at a total cost of $3,282,000. These facilities had been previously leased from the former owners of National since 1983. The leases had included options to purchase the facilities at the fair market value as of November 1983. The effective tax rate for the third quarter of 1994 was 39.9% compared with 41.7% for the third quarter of 1993. The decline primarily reflects lower state taxes in the southwestern part of the country due to the reorganization of the capital structure of the Company's Century Papers, Inc. subsidiary. For the nine months ended September 30, 1994, National sales of $229,667,000 increased 3% over sales of $223,226,000 in the comparable period of 1993. Net income for the first nine months of 1994 was $3,332,000, a 12% increase over the prior-year nine-month net income of $2,960,000. Earnings per share were $.56 for the first nine months of 1994 compared with $.50 for the first nine months of 1993. The sales improvement for the first 9 months of 1994 reflects increased sales of equipment, foodservice and higher margin proprietary chemical products. The gross profit margin for the first nine months of 1994 experienced a small decline of .2% point reflecting the additional sales of low margin foodservice products. Operating expenses as a percentage of sales for the first nine months of 1994 dropped .3% point reflecting the continued emphasis on cost containment. National's efective tax rate for the first nine months decreased from 43.3% in 1993 to 41.8% in 1994. The decrease was due primarily to lower state taxes in the southwestern part of the country. Looking ahead, management continues to be optimistic about our future sales and profit growth. Management is particularly encouraged by the continued sales improvement in the large Southern California market. Profits should continue to be bolstered by very low operating expense increases. Page 7 of 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and capital resources - - ------------------------------- Accounts receivable increased from $36,607,000 at December 31, 1993 to $40,681,000 at September 30, 1994. The increase primarily reflects the additional sales volume recorded in the third quarter of 1994 compared with the fourth quarter of 1993. The decrease in the allowance for doubtful accounts, from $1,290,000 at December 31, 1993 to $1,190,000 at September 30, 1994, reflects a decline in our past due receivables. The decrease in inventory from $26,955,000 at December 31, 1993 to $26,690,000 at September 30, 1994 results from the year-end purchase of selected items in order to avoid price increases and achieve certain discount quotas. The increase in accounts payable at September 30, 1994 compared with December 31, 1993 primarily reflects the timing of certain inventory purchases and scheduled payments. Management believes that the company's cash flow from operations and other sources of liquidity are sufficient for its needs. Subsequent Events - - ----------------- National named Dwight Jackson as the new General Manager of Century Papers. Mr. Jackson brings with him extensive industry experience, primarily with Scott Paper Company where he most recently served as Director of Sales for Scott Paper's Southwest Division. Additionally, Donald Pagel has been promoted to General Manager of the Company's Midwest operating group. Mr. Pagel has an extensive background in sales and operations, most recently serving as National's Area Manager - Central California. Page 8 of 10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- SK 601 Exhibit No. Ref. No. Description Page No. - - ----------- -------- ----------- -------- 1 (11) Statement re: E-1 Computation of Earnings Per Share (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter ended September 30, 1994. SIGNATURES 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. National Sanitary Supply Company -------------------------------- (Registrant) Date By /s/Paul C. Voet ------------------ ---------------------------------- Paul C. Voet President and Chief Executive Officer Date By /s/Gary H. Sander ------------------ ---------------------------------- Gary H. Sander Vice President, Treasurer and Chief Financial Officer Page 9 of 10