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Exhibit Index on Page 11
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 May 31, 1994 Commission file number 1-3208
NATIONAL SERVICE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-0364900
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1420 Peachtree Street, N. E., Atlanta, Georgia 30309-3002
(Address of Principal Executive Offices) (Zip Code)
(404) 853-1000
(Registrant's Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 (applicable only to corporate
issuers).
Common Stock - $1.00 Par Value - 49,579,731 shares as of July 1, 1994.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS -
MAY 31, 1994 AND AUGUST 31, 1993 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS AND NINE MONTHS ENDED MAY 31,
1994 AND 1993 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED MAY 31, 1994 AND 1993 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
May 31, August 31,
ASSETS 1994 1993
(Unaudited)
Current Assets:
Cash and cash equivalents $ 46,190 $ 15,853
Short-term investments 2,371 4,776
Receivables, less reserves for doubtful
accounts of $9,555 at May 31, 1994
and $7,170 at August 31, 1993 234,584 249,958
Inventories, at the lower of cost (on a
first-in, first-out basis) or market 183,145 171,545
Linens in service, net of amortization 88,556 77,931
Prepaid income taxes 14,588 25,340
Prepayments 11,221 11,513
Total Current Assets 580,655 556,916
Property, Plant, and Equipment, at cost:
Land 33,016 33,303
Buildings and leasehold improvements 191,624 190,276
Machinery and equipment 517,139 500,459
Total Property, Plant, and Equipment 741,779 724,038
Less - Accumulated depreciation and
amortization 384,581 358,853
Property, Plant, and Equipment - net 357,198 365,185
Other Assets:
Goodwill and other intangibles 118,596 127,387
Other 44,117 38,025
Total Other Assets 162,713 165,412
Total Assets $1,100,566 $1,087,513
May 31, August 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
(Unaudited)
Current Liabilities:
Current maturities of long-term debt $ 846 $ 1,792
Notes payable 4,841 4,404
Accounts payable 74,283 85,505
Accrued salaries, commissions, and bonuses 35,726 37,103
Self insurance reserves 72,884 71,888
Other accrued liabilities 53,609 42,981
Total Current Liabilities 242,189 243,673
Long-Term Debt, less current maturities 27,197 28,418
Deferred Income Taxes 78,219 84,289
Other Long-Term Liabilities 28,083 27,110
Convertible Preferred Stock:
Series A participating preferred stock, $.05 stated
value, 500,000 shares authorized, none issued
Preferred stock, no par value, 500,000 shares
authorized, none issued
Common Stockholders' Equity:
Common stock, $1 par value, 80,000,000 shares
authorized, 57,918,978 shares issued at May 31,
1994 and August 31, 1993 57,919 57,919
Paid-in capital 7,604 7,299
Retained earnings 693,905 673,399
759,428 738,617
Less - Treasury stock, at cost (8,341,324 shares at
May 31, 1994 and 8,357,539 share at August 31,
1993) 34,550 34,594
Total Stockholders' Equity 724,878 704,023
Total Liabilities and Stockholders' Equity $1,100,566 $1,087,513
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per-share data)
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31 MAY 31
1994 1993 1994 1993
Sales and Service Revenues:
Net sales of products $340,562 $319,567 $ 974,179 $ 912,121
Service revenues 140,439 140,397 406,059 409,177
Total Revenues 481,001 459,964 1,380,238 1,321,298
Costs and Expenses:
Cost of products sold 221,069 210,550 639,181 602,397
Cost of services 72,901 71,465 212,360 210,109
Selling and administrative expenses 146,835 142,224 426,260 412,548
Interest expense 867 1,684 3,037 3,992
Other expense, net 2,480 1,339 5,599 7,011
Total Costs and Expenses 444,152 427,262 1,286,437 1,236,057
Income before Provision for Income
Taxes 36,849 32,702 93,801 85,241
Provision for (Benefit from) Income
Taxes:
Current 15,037 12,887 38,522 28,391
Deferred (1,116) (696) (3,094) 3,119
13,921 12,191 35,428 31,510
Net Income $ 22,928 $ 20,511 $ 58,373 $ 53,731
Per Share:
Net income $.46 $.41 $1.18 $1.08
Cash dividends $.27 $.26 $.80 $.77
Weighted Average Number of Shares
Outstanding (thousands) 49,578 49,559 49,571 49,554
The accompanying notes to consolidated financial statements are an integral
part of these statements.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
NINE MONTHS ENDED
MAY 31
1994 1993
Cash Provided by (Used for) Operations:
Net income $ 58,373 $ 53,731
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 45,582 45,110
Provision for losses on accounts receivable 3,442 3,145
Gain on sale of property, plant, and equipment (710) (308)
Gain on the sale of business (467) (1,379)
Provision for deferred income taxes (3,094) 3,119
Change in assets and liabilities net of effect
of acquisitions-
Receivables, net 12,213 377
Inventories and linens in service, net (22,297) (19,521)
Prepaid income taxes 10,752 (1,087)
Prepayments and other 221 (3,210)
Accounts payable and accrued liabilities (990) (9,893)
Net Cash Provided by Operations 103,025 70,084
Cash Provided by (Used for) Investing Activities:
Change in short-term investments 2,405 2,562
Purchase of property, plant, and equipment (30,117) (22,002)
Sale of property, plant, and equipment 2,078 2,040
Sale of business 682 2,558
Acquisitions (375) (95,449)
Change in other assets (7,710) (8,956)
Net Cash Used for Investing Activities (33,037) (119,247)
Cash Provided by (Used for) Financing Activities:
Change in notes payable 437 12,417
Additions to long-term debt - -
Repayment of long-term debt (2,167) (1,820)
Recovery of investment in tax benefits 1,601 1,489
Deferred income taxes from investment in tax benefits (2,976) (2,512)
Issuance of treasury stock 349 338
Change in other long-term liabilities 973 (1,493)
Cash dividends paid (39,655) (38,154)
Net Cash Used for Financing Activities (41,438) (29,735)
Effect of Exchange Rate Changes on Cash 1,787 (1,395)
Net Change in Cash and Cash Equivalents 30,337 (80,293)
Cash and Cash Equivalents at Beginning of Year 15,853 101,137
Cash and Cash Equivalents at End of Period $ 46,190 $ 20,844
Supplemental Cash Flow Information:
Income taxes paid during the period $ 28,687 $ 24,483
Interest paid during the period 3,023 4,722
Noncash Investing and Financing Activities:
Noncash aspects of sale of business -
Receivables incurred $ (281) $ -
Noncash aspects of acquisitions-
Liabilities assumed $ - $ 32,750
Treasury stock returned - (20)
$ - $ 32,730
The accompanying notes to consolidated financial statements are an integral
part of these statements.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION:
The interim consolidated financial statements included herein have been
prepared by the company without audit and the condensed consolidated
balance sheet as of August 31, 1993 has been derived from audited
statements. These statements reflect all adjustments, all of which are of
a normal, recurring nature, which are, in the opinion of management,
necessary to present fairly the consolidated financial position as of May
31, 1994, the consolidated results of operations for the three months and
nine months ended May 31, 1994 and 1993, and the consolidated cash flows
for the nine months ended May 31, 1994 and 1993. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. The company believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the company's Annual
Report on Form 10-K for the fiscal year ended August 31, 1993.
The results of operations for the three months and nine months ended May
31, 1994 are not necessarily indicative of the results to be expected
for the full fiscal year because the company's revenues and income are
generally higher in the second half of its fiscal year and because of the
uncertainty of general business conditions.
2. BUSINESS SEGMENT INFORMATION:
Three Months Ended May 31
Sales and Service
Revenues Operating Profit
1994 1993 1994 1993
(In thousands)
Lighting Equipment $ 192,129 $ 173,573 $ 13,200 $ 9,464
Textile Rental 140,439 140,397 15,127 16,622
Chemical 85,767 83,007 8,079 7,426 *
Other 62,666 62,987 3,334 2,287
$ 481,001 $ 459,964 39,740 35,799
Corporate (1,870) (1,752)
Interest Expense (1,021) (1,345)*
Total $ 36,849 $ 32,702
* Restated for comparative purposes.
Nine Months Ended May 31
Sales and Service
Revenues Operating Profit
1994 1993 1994 1993
(In thousands)
Lighting Equipment $ 548,033 $ 495,376 $ 34,559 $ 26,089
Textile Rental 406,059 409,177 37,411 38,279
Chemical 243,648 232,700 23,559 22,690
Other 182,498 184,045 6,619 7,324
$1,380,238 $1,321,298 102,148 94,382
Corporate (5,318) (5,149)
Interest Expense (3,029) (3,992)
Total $ 93,801 $ 85,241
3. INVENTORIES:
Major classes of inventory as of May 31, 1994 and August 31, 1993 were as
follows:
May 31, August 31,
1994 1993
(In thousands)
Raw Materials and Supplies $ 75,510 $ 77,911
Work-in-Process 10,751 11,269
Finished Goods 96,884 82,365
Total $ 183,145 $171,545
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes.
Financial Condition
National Service Industries maintained a strong financial position as it
completed the third quarter of fiscal 1994. Net working capital was $338.5
million, compared with $313.2 million at August 31, 1993, and the current
ratio was 2.4, compared with 2.3 at year end. Cash and short-term
investments were $48.6 million, up from $20.6 million at the prior year
end. For the nine months ended May 31, 1994, the company invested $30.5
million in capital expenditures and acquisitions. Long- term debt and
other long-term liabilities were 7.1 percent of total capitalization,
compared with 7.3 percent at August 31, 1993. Cash provided by operations
rose to $103.0 million from $70.1 million for the nine months last year.
The improvement resulted from working capital increases, primarily in
receivable and prepaid income tax reductions.
Capital expenditures, exclusive of acquisition spending, were $30.1
million for the nine months this year and $22.0 million for the prior-year
period. Current-year spending was primarily the result of facilities and
manufacturing process improvements in the lighting equipment division,
facilities additions and information systems enhancements in the chemical
division, and wastewater compliance projects and fleet upgrades in the
textile rental division. Prior-year spending was attributable to
information systems enhancements in the lighting equipment division,
capacity expansion in the chemical division, and cost reduction
expenditures in each of these and the textile rental division.
Acquisition spending of $95.4 million for the three quarters last year
resulted from the chemical division's acquisitions of Kleen Canada, Inc., a
Canadian manufacturer of specialty chemicals, and Graham International, a
privately held, European specialty chemical business, and the textile
rental division's acquisition of Initial Services Investments, Inc., an
industrial uniform and dust control business.
Dividend payments for the nine months totaled $39.7 million, or 80 cents
per share, compared with $38.2 million, or 77 cents per share, for the nine
months. The quarterly dividend rate was increased 3.8 percent to 27 cents
per share effective January, 1994.
For the periods presented, capital expenditures, working capital needs,
dividends, and acquisitions were financed primarily with internally
generated funds, supplemented by short-term borrowings in the European
market. The Initial acquisition was a cash transaction. The Graham
acquisition in Europe was funded primarily through short-term debt
financing, which was repaid during the remainder of the 1993 fiscal year.
Contractual commitments for capital spending during the coming twelve
months total $9 million. For the current fiscal year, the company expects
actual capital expenditures to be consistent with levels of recent years,
which were $36 million in 1993, $43 million in 1992, and $58 million in
1991. Current liquid assets and internally generated funds are expected to
be more than adequate to meet anticipated cash requirements for the next
twelve months, although some interim borrowings might be incurred to meet
short-term needs. The company has complimentary lines of credit totaling
$124 million, of which $82 million has been provided domestically and $42
million is available on a multi-currency basis primarily from a European
bank.
Results of Operations
Net income of National Service Industries rose 11.8 percent, from $20.5
million the prior-year quarter, to $22.9 million in the company's third
fiscal quarter which ended May 31, 1994. Sales for the period increased
4.6 percent to $481 million, compared with $460 million the prior year.
Earnings per share gained 11.7 percent to 46 cents from last year's 41
cents.
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Year-to-date results for the nine months ended May 31 indicated that sales
increased 4.5 percent to $1.38 billion. Net income of $58.4 million led to
earnings of $1.18 per share. Both income measures represented 8.6 percent
increases from the $53.7 million and $1.08 per share reported last year.
The lighting equipment division continued to lead NSI's operatons in the
third quarter as further market share gains were posted. Sales increased
10.7 percent to $192.1 million for the quarter and 10.6 percent to $548.0
million year to date on the strength of increased unit sales.
Non-fluorescent product lines were particularly strong. Operating profit
grew 39.5 percent for the quarter to 6.9 percent of revenues, up from 5.5
percent last year, and rose 32.5 percent for the nine months to 6.3 percent
of revenues, from 5.3 percent the prior year to date. Profit improvements
were largely the result of higher unit volumes.
Results in the textile rental sector were somewhat disappointing as the
quarter's revenues of $140.4 million were flat compared with the prior year
and year-to-date revenues of $406.1 million were a slight decline .
Textile rental demand has not firmed in any meaningful way this year, and
heathcare rental revenue has been weak. Operating profit declined to 10.8
percent of revenues for the quarter and 9.2 percent year to date, compared
with 11.8 percent and 9.4 percent in the comparable periods last year,
primarily due to higher merchandise costs and a prior- year gain on the
sale of a business.
Sales of the chemical segment increased 3.3 percent to $85.8 million for
the third quarter and 4.7 percent to $243.6 million for the nine months due
to pricing gains. Domestic sales have shown satisfactory increases,
however, international demand has been soft. Operating profit was 9.2
percent of revenues for the quarter and 9.7 percent for the year to date,
slightly below the respective prior-year periods. Canadian operations in
particular dampened chemical segment results.
NSI's other businesses combined for a 45.8 percent quarterly increase in
operating income on a small sales decline; year-to-date results
deteriorated minimally. Insulation services rebounded sharply in the
quarter, and the envelope division added to the gains achieved in the first
half of the fiscal year.
Corporate income was less than last year's third quarter and nine months
due primarily to reduced investment income resulting from both lower rates
and lower average investment levels. Interest expense was somewhat less
than both prior-year periods due to reductions in acquisition-related debt.
Consolidated income before taxes improved 12.7 percent for the quarter and
10.0 percent for the year to date. The improvement in net income was
reduced to 11.8 percent and 8.6 percent for the respective periods due to
the higher 1994 tax rate. The provision for income taxes was 37.8 percent
of pretax income for both the third quarter and the nine months, compared
with 37.3 percent and 37.0 percent for the comparable prior-year periods.
The 1994 rate was increased as a result of the Omnibus Budget Act of 1993.
Changes in the year-to-year effective rates also result from variation in
the relative amount of tax exempt income.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits are listed on the Index to Exhibits (page 11).
(b) There were no reports on Form 8-K for the three months ended May 31, 1994.
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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 SERVICE INDUSTRIES, INC.
REGISTRANT
DATE July 14, 1994 /S/ DAVID LEVY
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE July 14, 1994 /S/ J. ROBERT HIPPS
J. ROBERT HIPPS
SENIOR VICE PRESIDENT, FINANCE
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INDEX TO EXHIBITS
Page No.
EXHIBIT 11 Computations of Net Income per Share
of Common Stock 12
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Exhibit 11
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATIONS OF NET INCOME PER SHARE OF COMMON STOCK
(In thousands, except per-share data)
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31 MAY 31
1994 1993 1994 1993
Primary:
Weighted Average Number of Shares
(determined on a monthly basis) 49,578 49,559 49,571 49,554
Net Income $22,928 $20,511 $58,373 $53,731
Primary Earnings per Share $ .46 $ .41 $1.18 $1.08
Fully Diluted:
Weighted Average Number of Shares
Outstanding 49,578 49,559 49,571 49,554
Additional Shares Assuming Exercise
of Options:
Options exercised 717 567 716 567
Treasury stock purchased with
proceeds (636) (493) (656) (493)
Average Common Shares Outstanding
(as adjusted) 49,659 49,633 49,631 49,628
Net Income $22,928 $20,511 $58,373 $53,731
Fully Diluted Earnings per Share $ .46 $ .41 $1.18 $1.08
