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 June 30, 1997
Commission File Number 0-14827
NATIONAL SANITARY SUPPLY COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 31-1079482
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(State or other jurisdiction of (IRS Employer Identification
incorporation of organization) No.)
255 E. 5th St, Suite 2900 Cincinnati, OH 45202-4790
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(Address of principal executive offices) (Zip code)
(513) 762-6500
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(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
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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 Amount Date
- ----- ------ ----
Common Stock 6,269,824 Shares July 31, 1997
$1 Par Value
Page 1 of 9
NATIONAL SANITARY SUPPLY COMPANY
Index
Page No.
Part I. Financial Information: --------
Item 1. Financial Statements:
Consolidated Balance Sheet--
June 30, 1997 and
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income--
Six months ended
June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows--
Six months ended
June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . 8
Page 2 of 9
Part I. Financial Information
Item 1. Financial Statements
NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
(thousands, except share data) 1997 1996
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ASSETS
Current assets:
Cash and cash equivalants $ 1,114 $ 1,425
Accounts receivable, less allowances
(1997- $1,064; 1996- $1,071) 36,080 34,856
Inventories 27,049 27,614
Deferred income taxes 2,230 2,366
Prepaid expenses and other current assets 1,786 1,088
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Total current assets 68,259 67,349
Properties and equipment, at cost, less
accumulated depreciation 23,055 21,992
Goodwill, less accumulated amortization 25,679 25,872
Other assets 1,022 771
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Total assets $ 118,015 $ 115,984
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,467 $ 19,424
Accrued liabilities 11,186 13,349
Loans payable to Chemed Corporation 3,097 540
Current portion of notes to Chemed Corporation 9,000 1,000
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Total current liabilities 42,750 34,313
Notes to Chemed Corporation 6,000 14,000
Deferred income taxes 893 849
Other noncurrent liabilities 1,153 1,298
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Total liabilities 50,796 50,460
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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: 1997- 6,870,288 shares;
1996- 6,644,466 shares) 6,870 6,644
Paid-in capital 29,833 27,658
Retained earnings 35,348 35,499
Treasury stock, at cost (1997- 600,464
shares; 1996- 482,447 shares) (5,832) (4,277)
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Total stockholders' equity 67,219 65,524
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Total liabilities and stockholders' equity $ 118,015 $ 115,984
========== ==========
The accompanying notes are an integral part of the financial statements.
Page 3 of 9
NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
March 31, June 30,
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(thousands, except per share data) 1997 1996 1997 1996
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Sales $ 78,353 $ 77,210 $152,702 $154,487
Cost of sales 52,313 51,585 101,804 103,997
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Gross profit 26,040 25,625 50,898 50,490
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Expenses and other income:
Operating expenses 23,418 22,823 46,616 45,582
Amortization of goodwill 227 224 453 446
Chemed Corporation interest 376 387 747 817
Other income, net (24) (69) (74) (123)
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Total expenses and other income 23,997 23,365 47,742 46,722
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Income before income taxes 2,043 2,260 3,156 3,768
Income taxes 826 939 1,314 1,615
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Net income $ 1,217 $ 1,312 $ 1,842 $ 2,153
========= ========= ========= =========
Earnings per share $ 0.20 $ 0.22 $ 0.30 $ 0.35
========= ========= ========= =========
Cash dividends paid per share $ 0.080 $ 0.075 $ 0.160 $ 0.150
========= ========= ========= =========
Average shares outstanding 6,226 6,140 6,204 6,132
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
Page 4 of 9
NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
June 30,
---------------------
(thousands of dollars) 1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,842 $ 2,153
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,674 1,666
Amortization of goodwill and deferred charges 746 769
Deferred income tax provision 179 (260)
Provision for losses on accounts receivable 292 374
Changes in operating assets and liabilities,
excluding amounts acquired in business
combinations:
(Increase)/decrease in accounts receivable (1,352) 5,497
Decrease in inventories 648 1,765
Increase in other assets (802) (808)
Increase/(decrease) in accounts payable 43 (177)
Decrease in other liabilities (2,335) (2,649)
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Net cash provided by operating activities 935 8,330
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CASH FLOWS FROM INVESTING ACTIVITIES
Business combinations (494) (241)
Capital expenditures (2,791) (2,009)
Other 77 75
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Net cash used for investing activities (3,208) (2,175)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from/(payments on)loans payable
to Chemed Corporation 2,557 (4,538)
Principal payments on other long-term debt (9) (25)
Dividends paid (993) (922)
Proceeds from/(purchase of) common stock 407 (50)
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Net cash provided by/(used for) financing
activities 1,962 (5,535)
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Increase in cash equivalents (311) 620
Cash and cash equivalents at beginning of period 1,425 1,491
--------- --------
Cash and cash equivalents at end of period $ 1,114 $ 2,111
========= ========
The accompanying notes are an integral part of the financial statements.
Page 5 of 9
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 1996 Annual Report on Form 10-K filed with the SEC on March 28, 1997.
NOTE B. 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
Stock Incentive Plans is not material.
NOTE C. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per
Share, effective for reporting periods ending after December 15, 1997. Adoption
of SFAS 128 in December 1997 will not impact the Company's reported earnings per
share.
NOTE D. On August 11, 1997, National announced that it had signed a
definitive merger agreement with Unisource Worldwide Inc. ("Unisource") whereby
National will be merged into a wholly owned subsidiary of Unisource. Chemed
Corporation, owner of 82% of the outstanding common stock of National, consented
to the transaction by a vote of its Board of Directors. The merger, which is
subject to normal and customary conditions as well as completion of due
diligence by Unisource, is expected to be consummated within 90 days. Upon
completion of the transaction National's shareholders will receive a cash
payment of $21 per share.
Page 6 of 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Results of Operations
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National Sanitary Supply Company's sales for the second quarter ended June 30,
1997 were $78,353,000 a 1.5% increase from sales of $77,210,000 in the second
quarter of 1996. Net income for the second quarter of 1997 was $1,217,000, a
7.9% decrease from net income of $1,321,000 in the prior-year second quarter.
Earnings per share of $0.20 for the second quarter of 1997 decreased 9.1% from
earnings per share of $0.22 in the comparable prior-year quarter.
National's second-quarter results reflect the impact of deflationary pricing in
the paper segment and the loss of sales to certain foodservice accounts.
Continued growth in our core sanitary maintenance supply business and tight
expense control, especially in reducing casualty insurance claims cost,
partially offset these adverse factors. Safety meetings and programs initiated
over the past few years are having a favorable impact on our workers' compensa-
tion and automobile liability claims.
The gross profit margin of 33.2% for the second quarter of 1997 was the same as
the gross profit margin of the prior-year period. Operating expenses as a
percentage of sales in the second quarter of 1997 increased 0.3% point from
29.6% in 1996 to 29.9% in 1997.
The effective tax rate for the second quarter decreased from 41.5% in 1996 to
40.4% in 1997, primarily due to lower income in states with higher tax rates.
For the six months ended June 30, 1997, National's sales of $152,702,000
decreased 1.2% from sales of $154,487,000 in the comparable period of 1996. Net
income for the first half of 1997 was $1,842,000, a 14.4% decrease from the
prior-year first half net income of $2,153,000. Earnings per share of $0.30 for
the first six months of 1997 were 5 cents lower than those recorded for the
comparable prior-year period.
The improvement in the gross profit margin for the first six months of 1997
compared with the same period of 1996 was offset by an increase in operating
expenses as a percent of sales. The change in both categories was primarily due
to the loss of sales to certain foodservice accounts.
The decrease in Chemed interest expense from $817,000 in the first six months of
1996 to $747,000 in the first six months of 1997 reflects a reduction in debt
with Chemed Corporation from June 30, 1996 to June 30, 1997 of $354,000.
The improvement in the effective tax rate from 42.9% for the first six months of
1996 to 41.6% for the first six months of 1997 reflects lower state income
taxes.
Liquidity and capital resources
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The reduction in accrued liabilities primarily reflects the payment of 1996
incentive-oriented programs.
Management believes that the company's cash flow from operations and other
sources of liquidity are sufficient for its needs in the forseeable future.
Page 7 of 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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SK 601
Exhibit No. Ref. No. Description Page No.
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1 (11) Statement re: E-1
Computation of
Earnings Per Share
2 (27) Financial Data Schedule E-2
3 (10) Sublease Agreement E-3 through E-8
of March 15, 1991 with
Chemed Corporation
(b) Reports on Form 8-K
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No reports on Form 8-K were filed during the quarter ended June 30, 1997.
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
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(Registrant)
Date August 14, 1997 By /s/Paul C. Voet
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Paul C. Voet
President and
Chief Executive Officer
Date August 14, 1997 By /s/Gary H. Sander
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Gary H. Sander
Senior Vice President,
Treasurer, and
Chief Financial Officer
Page 8 of 9