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Page 1 of 12
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 November 30, 1993 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
Incorporation or Organization) Number)
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 - 49,569,355 shares as of January 4, 1994
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS -
NOVEMBER 30, 1993 AND AUGUST 31, 1993 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 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 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
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PART I. FINANCIAL INFORMATION
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
November 30, August 31,
ASSETS 1993 1993
(Unaudited)
Current Assets:
Cash and cash equivalents $ 24,946 $ 15,853
Short-term investments 3,597 4,776
Receivables, less reserves for doubtful
accounts of $8,295 at November 30, 1993
and $7,170 at August 31, 1993 244,116 249,958
Inventories, at the lower of cost (on a
first-in, first-out basis) or market 173,168 171,545
Linens in service, net of amortization 83,070 77,931
Prepaid income taxes, net 13,875 25,340
Prepayments, etc. 12,451 11,513
Total Current Assets 555,223 556,916
Property, Plant, and Equipment, at cost:
Land 32,991 33,303
Buildings and leasehold improvements 190,360 190,276
Machinery and equipment 502,332 500,459
Total Property, Plant and Equipment 725,683 724,038
Less - Accumulated depreciation and
amortization 363,043 358,853
Property, Plant, and Equipment - net 362,640 365,185
Other Assets:
Goodwill and other intangibles 124,795 127,387
Other 39,459 38,025
Total Other Assets 164,254 165,412
Total Assets $ 1,082,117 $1,087,513
November 30, August 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1993 1993
(Unaudited)
Current Liabilities:
Current maturities of long-term debt $ 1,460 $ 1,792
Notes payable 3,811 4,404
Accounts payable 74,515 85,505
Accrued salaries, commissions, and bonuses 35,390 37,103
Self insurance reserves 70,656 71,888
Other accrued liabilities 48,059 42,981
Total Current Liabilities 233,891 243,673
Long-Term Debt, less current maturities 28,221 28,418
Deferred Income Taxes 82,151 84,289
Other Long-Term Liabilities 27,503 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, authorized 80,000,000
shares, issued 57,918,978 shares at November 30,
1993 and August 31, 1993 57,919 57,919
Paid-in capital 7,355 7,299
Retained earnings 679,658 673,399
744,932 738,617
Less - Treasury stock, at cost (8,354,386 shares at
November 30, 1993 and 8,357,539 shares at
August 31, 1993) 34,581 34,594
Total Stockholders' Equity 710,351 704,023
Total Liabilities and Stockholders' Equity $ 1,082,117 $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
NOVEMBER 30
1993 1992
Sales and Service Revenues:
Net sales of products $325,213 $297,891
Service revenues 134,687 136,450
Total Revenues 459,900 434,341
Costs and Expenses:
Cost of products sold 213,579 194,911
Cost of services 70,737 70,484
Selling and administrative expenses 141,583 135,937
Interest expense 1,146 1,171
Other expense (income), net 2,052 2,480
Total Costs and Expenses 429,097 404,983
Income before Provision for Income Taxes 30,803 29,358
Provision for Income Taxes:
Current 12,591 9,694
Deferred (960) 1,078
11,631 10,772
Net Income $ 19,172 $ 18,586
Per Share:
Net income $.39 $.38
Cash dividends $.26 $.25
Weighted Average Number of Shares
Outstanding (thousands) 49,562 49,547
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)
THREE MONTHS ENDED
NOVEMBER 30
1993 1992
Cash Provided by (Used for) Operations:
Net income $ 19,172 $ 18,586
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,365 14,543
Provision for losses on accounts receivable 1,381 1,122
Gain on sale of property, plant, and equipment (25) (70)
Gain on the sale of business (467) -
Provision for deferred income taxes (960) 1,078
Change in assets and liabilities net of
effect of acquisitions-
Receivables, net 4,742 9,645
Inventories and linens in service, net (6,834) (2,617)
Prepaid income taxes 11,465 2,546
Prepayments and other (819) 3,850
Accounts payable and accrued liabilities (8,873) (19,300)
Net Cash Provided by Operations 34,147 29,383
Cash Provided by (Used for) Investing Activities:
Change in short-term investments 1,179 68
Purchase of property, plant, and equipment (10,977) (11,376)
Sale of property, plant, and equipment 1,176 687
Sale of business 682 -
Acquisitions (375) (95,109)
Change in other assets (2,632) (3,546)
Net Cash Used for Investing Activities (10,947) (109,276)
Cash Provided by (Used for) Financing Activities:
Change in notes payable (593) 36,548
- -
Repayment of long-term debt (529) (448)
Recovery of investment in tax benefits 644 496
Deferred income taxes from investment in tax benefits (1,178) (838)
Issuance of treasury stock 68 261
Change in other long-term liabilities 393 (2,417)
Cash dividends paid (12,886) (12,384)
Net Cash Used for Financing Activities (14,081) 21,218
Effect of Exchange Rate Changes on Cash (26) 996
Net Change in Cash and Cash Equivalents 9,093 (57,679)
Cash and Cash Equivalents at Beginning of Year 15,853 101,137
Cash and Cash Equivalents at End of Period $ 24,946 $ 43,458
Supplemental Cash Flow Information:
Income taxes paid during the period $ 1,510 $ 1,378
Interest paid during the period 604 1,717
Noncash Investing and Financing Activities:
Noncash aspects of sale of business -
Receivables incurred $ (336) $ -
Noncash aspects of acquisitions-
Liabilities assumed $ - $ 29,957
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 November 30, 1993, the consolidated
results of operations for the three months ended November 30, l993 and 1992,
and the consolidated cash flows for the three months ended November 30, 1993
and 1992. 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 ended November 30, 1993 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 November 30
Sales and Service
Revenues Operating Profit
1993 1992 1993 1992
(In thousands)
Lighting Equipment $182,105 $163,039 $11,899 $ 9,824
Textile Rental 134,687 136,450 11,238 10,994
Chemical 82,282 76,378 9,026 9,130
Other 60,826 58,474 1,513 2,454
459,900 434,341 33,676 32,402
Corporate (1,727) (1,873)
Interest Expense (1,146) (1,171)
Total $459,900 $434,341 $30,803 $ 29,358
3. INVENTORIES:
Major classes of inventory as of November 30, 1993 and August 31, 1993 were
as follows:
November 30, August 31,
1993 1993
(In thousands)
Raw Materials and Supplies $ 74,820 $ 77,911
Work-in-Process 11,291 11,269
Finished Goods 87,057 82,365
Total $173,168 $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 completed the first quarter of fiscal 1994 in a
strong financial position. Net working capital was $312.3 million, compared
with $313.2 million at August 31, 1993, and the current ratio increased
slightly to 2.4, compared with 2.3 at year end. Cash and short-term
investments were $28.5 miillion, up from $20.6 million at August 31. For the
quarter ended November 30, 1993, the company invested $11.4 million in
capital expenditures and acquisitions. Long-term debt and other long-term
liabilities were 7.3 percent of total capitalization, unchanged from year
end. Cash provided by operations was $34.1 million, compared with $29.4
million for the first quarter last year.
Capital expenditures, exclusive of acquisition spending, were $11.0 million
for the first quarter this year and $11.4 million for the same period last
year. Current-quarter spending was primarily the result of facilities and
manufacturing process improvements in the lighting equipment division and
wastewater compliance projects and fleet upgrading in the textile rental
division. Prior-year spending was attributable to capacity expansion in the
chemical division, information systems enhancements in the lighting equipment
division, and cost reduction expenditures in each of these and the textile
rental division.
Acquisition spending of $95.1 million in the first quarter 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. The effect of the acquisitions on the consolidated
income statements is further discussed under "Results of Operations."
Dividend payments totaled $12.9 million, or 26 cents per share, during the
first quarter this year, compared with $12.4 million, or 25 cents per share,
for the same period last year. The quarterly dividend rate has been
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 $10 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
National Service Industries' net income for the first fiscal quarter
increased 3.2 percent to $19.2 million. Sales for the quarter, which ended
November 30, 1993, increased 5.9 percent to $460 million. Earnings per share
of 39 cents were 3.1 percent higher than the 38 cents per share reported in
the first quarter last year. Income before taxes advanced 4.9 percent, but
an increase in the effective tax rate reduced the net income advance to 3.2
percent.
The lighting equipment division reported an excellent quarter as sales
improved 11.7 percent to $182 million from $163 million the prior year. The
improvement was entirely the result of volume gains. Operating profit
advanced 21 percent to 6.5 percent of revenues, up from 6.0 percent last
year, due largely to divisional cost containment measures.
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Results of the textile rental division were relatively flat. Revenues of
$135 million were slightly behind the prior-year quarter due to lost volume.
Operating profit was 8.3 percent of revenues, up slightly from 8.1 percent
the same period last year, as a result of lower general and administrative
expenses.
Sales of the chemical segment rose 7.7 percent to $82 million from $76
million the prior year. The improvement came primarily from domestic
markets. The European operation contributed $1.7 million of the increase on a
full quarter's sales versus two months last year. Operating profit was
11.0 percent of revenues, down from 12.0 percent a year ago. European and
Canadian results continued to be soft with operating margins lower than those
in the U.S. The European operation improved due to cost reduction programs.
Sales of the divisions included in NSI's other sector advanced 4.0 percent.
The envelope division reported an excellent quarter resulting from pricing
gains and a reduction in operating costs. The insulation and marketing
services sectors contributed only marginally to earnings due to reduced
volume and higher personnel-related expenses.
Corporate income did not change materially from the first quarter last year
as a reduction in interest income due to lower short-term investments was
virtually offset by less unfavorable foreign currency exchange rate
fluctuations. Interest expense was about even with the prior-year period.
The first quarter provision for income taxes was 37.8 percent of pretax
income, compared with 36.7 percent for the same period last year. The 1994
rate was increased as a result of the Omnibus Budget Act of 1993. Changes in
the year-to-year percentages also result from variation in the relative
amount of tax exempt income.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders held January 5, 1994, all
nominees for director were elected to the board without opposition and
Arthur Andersen & Co. was appointed as independent auditor for the
current fiscal year.
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
November 30, 1993.
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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 January 13, 1994 /S/ DAVID LEVY
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE January 13, 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 12
of Common Stock
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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
NOVEMBER 30
1993 1992
Primary:
Weighted Average Number of Shares
(determined on a monthly basis) 49,562 49,547
Net Income $19,172 $18,586
Primary Earnings per Share $ .39 $ .38
Fully Diluted:
Weighted Average Number of Shares
Outstanding 49,562 49,547
Additional Shares Assuming Exercise of
Options:
Options exercised 746 282
Treasury stock purchased with proceeds (689) (237)
Average Common Shares Outstanding
(as adjusted) 49,619 49,592
Net Income $19,172 $18,586
Fully Diluted Earnings per Share $ .39 $ .37
