SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 29, 1999
National Service Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-3208 58-0364900
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1420 Peachtree St., N.E., Atlanta, Georgia 30309-3002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 853-1000
<PAGE>
Page 1
The undersigned registrant hereby amends the following item of its Current
Report on Form 8-K filed on August 3, 1999 as set forth in the pages attached
hereto.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The following audited financial statements of Holophane Corporation,
together with the manually signed independent auditors report thereon and
the notes thereto, are included in Exhibit 99.1 and are incorporated into
this Item 7 by this reference:
(i) Consolidated Statements of Income for the Years Ended December 31,
1998, 1997, and 1996
(ii) Consolidated Balance Sheets as of December 31, 1998 and 1997
(iii)Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997, and 1996
(iv) Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997, and 1996
(v) Independant Auditors' Report
(vi) Notes to Financial Statements
The following unaudited interim financial statements of Holophane
Corporation and the notes thereto are included in Exhibit 99.2 and are
incorporated into this Item 7 by reference:
(i) Condensed Consolidated Statements of Income for the three and six
months ended June 30, 1999 and 1998
(ii) Condensed Consolidated Balance Sheets as of June 30, 1999 and December
31, 1998
(iii)Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998
(iv) Condensed Consolidated Statement of Stockholders' Equity as of
June 30, 1999
(v) Notes to Condensed Consolidated Financial Statements
(b) Pro Forma Financial Information
The following unaudited pro forma financial information of National Service
Industries, Inc. is included in Exhibit 99.3 and is incorporated into this
Item 7 by reference.
(i) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of May 31,
1999 (NSI) and June 30, 1999 (Holophane)
(ii) Unaudited Pro Forma Condensed Consolidated Statement of Income for the
twelve months ended August 31, 1998 (NSI) and June 30, 1998
(Holophane)
(iii)Unaudited Pro Forma Condensed Consolidated Statement of Income for the
nine months ended May 31, 1999 (NSI) and June 30, 1999 (Holophane)
(iv) Notes to Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits
23.1 Consent of Deloitte and Touche LLP
99.1 Audited Financial Statements of Holophane Corporation, as described in
Item 7(a) of this Form 8-K.
99.2 Unaudited Financial Statements of Holophane Corporation, as described
in Item 7(a) of this Form 8-K.
99.3 Unaudited Pro Forma Condensed Consolidated Financial Statements of
National Service Industries, Inc., as described in Item 7(b) of this
Form 8-K.
<PAGE>
Page 2
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: October 12, 1999 By:/s/ Brock A. Hattox
Brock A. Hattox
Executive Vice President and
Chief Financial Officer
<PAGE>
Page 3
EXHIBIT INDEX
23.1 Consent of Deloitte & Touche LLP
99.1 Audited Financial Statements of Holophane Corporation, as described in Item
7(a) of this Form 8-K.
99.2 Unaudited Financial Statements of Holophane Corporation, as described in
Item 7(a) of this Form 8-K.
99.3 Unaudited Pro Forma Condensed Consolidated Financial Statements of National
Service Industries, Inc., as described in Item 7(b) of this Form 8-K.
<PAGE>
EXHIBIT 23.1
INDEPENDANT AUDITORS' CONSENT
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-36980, 33-51339, 33-51341, 33-51343, 33-51345, 33-51355, 33-51351, 33-51357,
33-60715, 333-35609, 333-48835, 333-73133, and 333-73135 of National Service
Industries, Inc. on Form S-8 and in Registration Statement No. 333-59627 of
National Service Industries, Inc. on Form S-3 of our report dated February 19,
1999, relating to the the financial statements of the Holophane Corporation,
appearing in this Current Report on Form 8-K/A Amendment No. 1.
/s/ Deloitte and Touche LLP
Deloitte and Touche
Columbus, Ohio
October 12, 1999
<PAGE>
EXHIBIT 99.1
Page 1
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
HOLOPHANE CORPORATION AND SUBSIDIARIES
(in thousands except per share data) Year Ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $214,875 $205,327 $190,939
Cost of goods sold 129,930 125,133 117,284
- -------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 84,945 80,194 73,655
Selling and administrative 46,617 42,704 39,405
Research and development 6,463 6,037 5,533
Other expense 258 466 700
OPERATING INCOME 31,607 30,987 28,017
Interest expense 1,537 1,719 2,139
Interest income (404) (414) (527)
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 30,474 29,682 26,405
Provision for income taxes 11,265 11,059 9,937
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $19,209 $18,623 $ 16,468
===================================================================================================================
BASIC EARNINGS PER SHARE $1.77 $1.65 $ 1.44
DILUTED EARNINGS PER SHARE $1.72 $1.60 $ 1.40
Weighted Average Number of Shares Outstanding:
Basic 10,848 11,283 11,473
Diluted 11,190 11,663 11,779
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 2
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
HOLOPHANE CORPORATION AND SUBSIDIARIES
($ in thousands except per share data) December 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------------------------------------
Current Assets:
<S> <C> <C>
Cash and equivalents $5,535 $11,709
Accounts receivable (less allowance of $1,331 and $1,087, respectively) 32,992 29,903
Inventories 15,705 12,651
Prepaid and other assets 3,522 3,988
- ---------------------------------------------------------------------------------------------------------------------
Total Current Assets 57,754 58,251
- ---------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, net 49,626 42,102
Goodwill (net of accumulated amortization of $4,171 and $3,124, respectively) 23,156 21,285
Other Assets 6,011 5,158
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $136,547 $126,796
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt $ 278 $ 6,610
Trade payables 9,351 10,366
Compensation and employee benefits 8,305 8,881
Income taxes payable 1,312 1,987
Other accrued liabilities 4,753 3,678
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 23,999 31,522
- ---------------------------------------------------------------------------------------------------------------------
Long Term Debt (less current maturities) 21,249 12,964
Long Term Compensation 4,661 3,522
Other Long Term Liabilities 4,440 3,685
Commitments and Contingencies - -
Stockholders' Equity:
Preferred stock (par value $.01 per share: 1,000,000 shares
authorized; none issued) Common stock (par value $.01 per share:
20,000,000 shares authorized; 11,895,861 shares issued) 119 119
Additional paid-in capital 42,760 43,143
Retained earnings 68,359 49,150
Common shares in treasury, at cost (1998: 1,333,413 shares; 1997: 880,014 shares) (26,706) (15,882)
Accumulated other comprehensive income (deficit) (2,334) (1,427)
- ---------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 82,198 75,103
- ---------------------------------------------------------------------------------------------------------------------
Total $136,547 $126,796
=====================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
HOLOPHANE CORPORATION AND SUBSIDIARIES
(in thousands) Year Ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 19,209 $ 18,623 $ 16,468
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,189 6,905 6,487
Loss on disposal of property, plant and equipment 113 28 232
Provision for deferred income taxes 160 866 253
Change in assets and liabilities net of effects from acquisitions:
Accounts receivable (864) 2,966 (4,053)
Inventories (469) 580 1,568
Prepaid and other current assets 618 (356) (281)
Trade payables (1,491) (536) (1,171)
Compensation and employee benefits (856) 536 (732)
Income taxes payable (1,122) 812 (780)
Other, net 1,491 77 955
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 24,978 30,501 18,946
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------
Purchase of investment securities (1,179) (1,906) (1,551)
Sale of investment securities 39 842 1,005
Capital expenditures (12,379) (8,007) (4,956)
Proceeds from the sale of assets 88 102 42
Acquisitions, net of cash acquired (674) 0 (6,100)
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,105) (8,969) (11,560)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------
Principal payments on long term debt (60,380) (6,381) (9,359)
Proceeds from long term debt 62,002 0 0
Purchase of treasury shares (12,676) (11,645) (3,769)
Payments to pre-acquisition shareholders (7,350) 0 0
Proceeds from the sale of treasury shares 677 214 385
- --------------------------------------------------------------------------------------------------------
Net cash used in financing activities (17,727) (17,812) (12,743)
- --------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 680 (83) 73
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (6,174) 3,637 (5,284)
Cash and equivalents at beginning of year 11,709 8,072 13,356
- --------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 5,535 $ 11,709 $ 8,072
========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,457 $ 1,712 $ 2,160
Income taxes $ 11,057 $ 9,066 $ 10,472
Non-cash investing and financing activity:
Treasury shares used for acquisitions $ 704 $ 1,380 $ 2,145
Additional goodwill relating to contingent purchase price $ 1,020 $ 704 $ 1,381
Trade payables for property, plant and equipment $ 206 $ 687 $ 252
Capital leases for property, plant and equipment $ 0 $ 699 $ 0
Shares exchanged to exercise stock options $ 59 $ 488 $ 0
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' Equity
HOLOPHANE CORPORATION AND SUBSIDIARIES
($ in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Treasury Stock Other
-------------------- Paid-in Retained --------------- Comprehensive Stockholders
Shares Amount Capital Earnings Shares Amount Income(Deficit) Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 11,895,861 $119 $42,969 $14,059 425,148 ($4,529) ($2,229) $50,389
Comprehensive income
Net income 16,468 16,468
Translation adjustments(net of
tax benefit of $0) 1,460 1,460
--------
Comprehensive income 17,928
Shares used for acquisitions 780 (121,629) 1,365 2,145
Purchase of treasury shares 206,000 (3,769) (3,769)
Stock options exercised, including
related tax benefits 52 (36,150) 399 451
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 11,895,861 119 43,801 30,527 473,369 (6,534) (769) 67,144
Comprehensive income
Net income 18,623 18,623
Translation adjustments
(net of tax benefit of $0) (658) (658)
---------
Comprehensive income 17,965
Shares used for acquisitions 13 (71,725) 1,367 1,380
Purchase of treasury shares 544,408 (12,133) (12,133)
Stock options exercised, including
related tax benefits (671) (66,038) 1,418 747
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 11,895,861 119 43,143 49,150 880,014 (15,882) (1,427) 75,103
Comprehensive income
Net income 19,209 19,209
Translation adjustments
(net of tax benefit of $216) (907) (907)
---------
Comprehensive income 18,302
Shares used for acquisitions 91 (28,675) 613 704
Purchase of treasury shares 536,598 (12,676) (12,676)
Stock options exercised, including
related tax benefits (474) (54,524) 1,239 765
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 11,895,861 $119 $42,760 $68,359 1,333,413 ($26,706) ($2,334) $82,198
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 5
INDEPENDENT AUDITOR'S REPORT
TO THE STOCKHOLDERS AND DIRECTORS OF HOLOPHANE CORPORATION
--------------------------------------------
We have audited the accompanying consolidated balance sheets of Holophane
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Holophane Corporation and
subsidiaries at December 31, 1998 and 1997, and results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Columbus, Ohio
February 19, 1999
<PAGE>
Page 6
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The company is engaged in the manufacture and sale of lighting fixtures and
systems primarily for industrial, commercial and outdoor applications. The
company has operations in the United States, Canada, Mexico, United Kingdom,
Germany and Australia.
CONSOLIDATION
The consolidated financial statements include the accounts of Holophane
Corporation and all of its majority owned subsidiaries. All significant
intercompany transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the company's subsidiaries outside the United
States are translated into U.S. dollars at the rates of exchange in effect at
the balance sheet dates. Income and expense items are translated at the average
exchange rates prevailing during the period. Gains and losses resulting from
foreign currency transactions are recognized currently in net income and those
resulting from translation of financial statements are recognized currently in
comprehensive income.
DISCLOSURES REGARDING FINANCIAL
INSTRUMENTS
The carrying value of cash and equivalents, receivables, accrued liabilities and
accounts payable are considered to approximate fair value due to the relatively
short maturity of the respective instruments. For long-term debt, the interest
rates fluctuate with the London Interbank Offered Rate (LIBOR) or Prime Rate and
thus their carrying value is a reasonable estimate of fair value.
CASH AND EQUIVALENTS
The company considers money market funds and all highly liquid debt instruments
with an initial maturity of three months or less to be cash equivalents. At
December 31, 1998 and 1997, the company had approximately $732,000 and
$6,590,000, respectively, invested in bank commercial paper and U.S. treasury
related investments.
INVENTORIES
Inventories are valued at the lower of cost, determined on the first-in,
first-out basis, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
which range from one and one-half to forty years.
GOODWILL
The excess of purchase price over the fair values of net assets acquired is
amortized on a straight-line basis over forty years.
ASSET IMPAIRMENTS
Annually, or more frequently if events or circumstances change, a determination
is made by management, in accordance with Statement of Financial Accounting
Standards (SFAS) 121, to ascertain whether property, plant and equipment,
goodwill and other intangible assets have been impaired based on the sum of
expected future undiscounted cash flows from operating activities. Based upon
its most recent analysis, the company believes that property, goodwill and other
intangibles at December 31, 1998 and 1997 are realizable and the depreciation
and amortization periods are appropriate.
SELF INSURANCE
The company is self-insured for certain health and workers' compensation
programs in the United States. The company purchases insurance to limit exposure
under these programs. Insurance for the health plan provides a stop-loss ceiling
of $100,000 per individual per year and an aggregate annual stop-loss ceiling
(based on enrollment) of $1,720,000, $1,709,000 and $1,585,000 for 1998, 1997
and 1996, respectively. Insurance for the workers' compensation plan contains a
stop-loss ceiling of $300,000 per event. The company accrues for both claims
reported but not yet paid and claims incurred but not yet reported.
<PAGE>
Page 7
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are recognized at the time the products are shipped.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense for 1998, 1997
and 1996 was $2,593,000, $2,447,000 and $2,365,000, respectively.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued and is required to be adopted for the company's 2000
annual financial statements. The company has not yet determined what, if any,
impact the adoption of this will have on its financial statements.
2. ACQUISITION
HOLOPHANE S.A. DE C.V. (HOLOPHANE MEXICO) - On June 1, 1998, the company
acquired the stock of Holophane Mexico for $770,000. Under the terms of the
purchase agreement, the company will make additional payments of up to
$2,023,000, contingent upon Holophane Mexico achieving certain operating results
during the three year period ending December 31, 2000. At the date of
acquisition, the market value of assets acquired was $11,270,000 and liabilities
assumed were $10,770,000.
METALOPTICS, INC. - On September 1, 1996, the company acquired the stock of
MetalOptics, Inc. Under the terms of the purchase agreement, the company will
make additional payments of up to $500,000 and 154,589 additional shares of
common stock, contingent upon MetalOptics, Inc. achieving certain operating
results during the period ending December 31, 2001.
Any future amounts earned under these agreements will be recorded as additional
goodwill and amortized over the remaining life of the goodwill recognized at the
time of acquisition.
Results of operations after the acquisition dates are included in the
Consolidated Statements of Income. The following pro forma information (in
thousands, except earnings per share [EPS] amounts) has been prepared assuming
the Holophane Mexico and MetalOptics, Inc. acquisitions had taken place at the
beginning of 1997 and 1996, respectively. The pro forma information includes
adjustments for interest expense that would have been incurred to finance the
purchase, additional depreciation based on the fair market value of the
property, plant and equipment acquired and the amortization of goodwill arising
from the transaction, net of tax. The pro forma financial information is not
necessarily indicative of the results of operations as they would have been had
the transactions been effected on the assumed dates.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $218,834 $215,652 $204,545
Net Income $19,285 $19,069 $17,088
Basic EPS $1.78 $1.69 $1.48
Diluted EPS $1.72 $1.63 $1.44
==================================================================
</TABLE>
<PAGE>
Page 8
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
DECEMBER 31,
1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Raw materials $8,973 $7,610
Work in process 4,869 3,850
Finished goods 2,498 1,838
- ---------------------------------------------------------------
TOTAL 16,340 13,298
Less valuation allowance (635) (647)
- ---------------------------------------------------------------
TOTAL $15,705 $12,651
===============================================================
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
DECEMBER 31,
1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Land $3,272 $2,322
Buildings and improvements 24,799 23,687
Machinery and equipment 57,822 51,016
Office and computer equipment 13,916 12,464
Construction in progress 3,654 1,670
- -----------------------------------------------------------------
TOTAL 103,463 91,159
Less accumulated depreciation (53,837) (49,057)
- -----------------------------------------------------------------
TOTAL $49,626 $42,102
=================================================================
</TABLE>
5. LONGTERM DEBT AND CREDIT FACILITIES
In March 1998, the company refinanced its debt with an unsecured $30,000,000
revolving credit agreement with National City Bank which matures on April 1,
2001. Under the new agreement, the company can elect to borrow Eurodollars or
domestic funds at .20% to .875% (Applicable Margin) in excess of the LIBOR or
Prime Rate, respectively. The Applicable Margin is determined by the ratio of
debt (as defined in the credit agreement) to the sum of operating income plus
depreciation and amortization. Based on the Applicable Margin, commitment fees
of .15% to .30% are charged on the average daily unused portion of the available
commitment. This credit agreement contains certain financial and operating
covenants.
<PAGE>
Page 9
The old credit agreement consisted of a term loan that reduced semi-annually
until scheduled maturity on September 30, 2000 and a revolving commitment of up
to $15,000,000, collateralized by substantially all of the company's assets.
Interest rates as of December 31, 1998 and 1997 were 5.4% and 6.8%,
respectively.
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------
DECEMBER 31,
1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Revolving Loan $21,000 $0
Term loan 0 18,660
Capital lease obligations (Note 6) 515 883
Other borrowings 12 31
- --------------------------------------------------------------
Total 21,527 19,574
Less current maturities (278) (6,610)
==============================================================
Total $21,249 $12,964
==============================================================
</TABLE>
6. LEASES
The company leases certain computer and plant equipment under capital leases.
The cost of these assets leased under capital leases is approximately $818,000
and $1,326,000 at December 31, 1998 and 1997, respectively. In addition, the
company leases certain equipment and office space under non-cancelable operating
leases.
Future minimum lease payments are as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
CAPITAL OPERATING
LEASES LEASES
- ----------------------------------------------------------------
<S> <C> <C>
1999 $294 $788
2000 256 394
2001 0 154
2002 0 95
2003 0 47
Thereafter 0 224
- ----------------------------------------------------------------
TOTAL MINIMUM LEASE
PAYMENTS 550 $1,702
Less amount representing
interest (35)
- ----------------------------------------
Present value of net minimum
lease payments (Note 5) $515
========================================
</TABLE>
Total rent expense under operating leases for 1998, 1997 and 1996 was
approximately $1,574,000, $1,693,000 and $1,381,000, respectively.
<PAGE>
Page 10
7. INCOME TAXES
The company follows the provisions of SFAS 109. The components of income before
income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Domestic $27,073 $27,068 $24,781
Foreign 3,401 2,614 1,624
- -----------------------------------------------------------
TOTAL $30,474 $29,682 $26,405
===========================================================
</TABLE>
The components of the provision (credit) for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $8,561 $8,366 $7,918
State and local 1,281 1,196 1,279
Foreign 1,263 631 487
- --------------------------------------------------------------
TOTAL CURRENT 11,105 10,193 9,684
Deferred:
Federal 480 550 171
State and local 106 373 37
Foreign (426) (57) 45
- --------------------------------------------------------------
TOTAL DEFERRED 160 866 253
TOTAL $ 11,265 $ 11,059 $ 9,937
==============================================================
</TABLE>
<PAGE>
Page 11
<TABLE>
<CAPTION>
The principal items accounting for the difference in the expected
tax expense on income before income taxes computed at the United
States statutory rate are as follows (in thousands):
- --------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Computed expense
at 35% of pretax
income $ 10,666 $ 10,389 $ 9,242
State and local
taxes (net of
federal and foreign
tax) 979 1.127 905
Elimination of
valuation allowance
on foreign
NOLS 0 (712) 0
Other (380) 255 (210)
- --------------------------------------------------------------
TOTAL $ 11,265 $ 11,059 $ 9,937
==============================================================
</TABLE>
The tax effect of the items comprising the company's net deferred tax asset are
as follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
DECEMBER 31,
1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Intangibles $ 33 $ 365
Reserves 539 1,004
Compensation and employee
benefits 2,933 2,128
Other 1,182 1,184
- ---------------------------------------------------------------
TOTAL 4,687 4,681
Deferred tax liabilities:
Property, plant and equipment 3,258 2,260
- ---------------------------------------------------------------
NET DEFERRED TAX ASSET $1,429 $2,421
===============================================================
</TABLE>
At December 31, 1998 the company had foreign net operating loss carryforwards
(NOLs) totaling $545,000 which the company expects to fully utilize before it
expires in 2007.
At December 31, 1998 unremitted earnings of subsidiaries outside the United
States were approximately $8,420,000. The company intends to indefinitely
reinvest the undistributed earnings of its foreign subsidiaries or to repatriate
them only when it is tax effective to do so. Accordingly, no deferred income
taxes for additional United States federal income taxes from distribution of
foreign earnings have been recorded.
<PAGE>
Page 12
8. EMPLOYEE BENEFIT PLANS
The company has five 401(k) defined contribution savings plans covering
substantially all United States union and non-union employees. The plans, which
provide for both optional and mandatory company contributions of up to 5%, are
intended to qualify under Section 401(k) of the Internal Revenue Code. The
company matches participant contributions of up to 3% of their salary. The
company's Canadian subsidiary has a defined contribution savings plan covering
substantially all employees. The expense charged to operations under these plans
was $2,196,000, $2,530,000 and $2,133,000 for 1998, 1997 and 1996, respectively.
On June 1, 1998, the company acquired Holophane Mexico, including its pension
benefit plan. Holophane Mexico's benefit plan consists of a seniority premium
based on years of service and final salary (as defined under the Mexican Federal
Labor Laws) covering all full time employees and a defined benefit based on
years of service and average salary over the last five years of service covering
all full time non-union employees.
Holophane Europe has a defined benefit plan, covering substantially all of its
employees, in which benefits are based primarily on years of service and
employee compensation near retirement.
The company's funding policy is in accordance with local laws and income tax
regulations. Fund assets consist primarily of common stocks, common trust funds
and government securities.
The following table sets forth the funded status of Holophane Europe's and
Holophane Mexico's plan and amounts recognized in the company's balance sheets
(in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
DECEMBER 31,
1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year $10,552 $8,751
Service cost 734 777
Interest cost 813 709
Actuarial gain 1,307 709
Acquisition 907 0
Exchange (gain)/loss (35) (304)
Benefits paid (1,972) (90)
- ----------------------------------------------------------------
Benefit obligation at end of year 12,306 10,552
- ----------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year 11,417 9,914
Actual return on plan assets 1,924 1,217
Acquisition 868 0
Employer contributions 508 499
Plan participants' contributions 240 236
Exchange (gain)/loss (27) (358)
Benefits paid (1,972) (91)
- ----------------------------------------------------------------
Fair value of plan assets at end
of year 12,958 11,417
- ----------------------------------------------------------------
Funded status 652 865
Unrecognized net actuarial costs 144 173
Unrecognized prior service cost (390) (655)
- ----------------------------------------------------------------
Prepaid benefit cost $406 $383
================================================================
</TABLE>
Weighted average actuarial assumptions used in the accounting for the plans were
as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.41% 7.50% 8.50%
Expected return on plan
assets 8.03% 8.50% 8.50%
Rate of compensation
increase 5.10% 5.25% 6.25%
===============================================================
</TABLE>
<PAGE>
Page 13
Net periodic benefit cost included in the company's Consolidated Statements
of Income consisted of the following components (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 734 $ 777 $ 682
Interest cost 813 709 545
Plan participants'
contributions (240) (236) (222)
Expected return on
plan assets (899) (787) (748)
Amortization of prior
service costs 33 33 1
Recognized net
actuarial loss 10 0 0
- ---------------------------------------------------------------
Net periodic benefit
cost $ 451 $ 496 $ 258
===============================================================
</TABLE>
The company's Supplemental Executive Retirement Plan (SERP) allows participants
to defer up to 50% of their annual bonus. Deferred compensation under the SERP
is used to fund a Rabbi Trust. Gains and losses on participant's accounts
directly offset the SERP liability for each participant. The fair value of the
investment included in other assets and offsetting liability was $4,661,000 and
$3,522,000 at December 31, 1998 and 1997, respectively.
<PAGE>
Page 14
9. STOCK OPTIONS
On April 30, 1998, the stockholders approved an Employee Stock Purchase Plan
(ESPP) within the meaning of Section 423 of the Internal Revenue Code with
300,000 shares of stock for its U.S. and Canadian subsidiaries. The 1997
Offering granted under the plan allows eligible employees to have up to 5% of
their first $50,000 of annual compensation during the two year grant period
withheld from payroll to purchase company stock on December 31, 1999 at an
option price of $20.30 which was established on December 15, 1997 at 85% of the
average trade value. As of December 31, 1998, 69,000 of the 84,000 options
granted were outstanding.
The 1996 and 1993 Holophane Corporation Incentive Stock Plans authorize the
grant of options, restricted stock and awards of performance shares of common
stock to officers, key employees and directors. Options are to be granted at
exercise prices equal to the fair market value of such stock as of the date of
grant. All options granted have a maximum term of 10 years. Employee options
vest ratably over four years and directors' options vest in six months. The
weighted average remaining contractual life of these options is 6.8 years. The
number of authorized options to be granted under these plans are 800,000 and
1,182,000, respectively. Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at
beginning of year 1,097,637 972,825 802,425
Weighted average exercise price $ 14.79 $ 13.14 $ 11.27
Granted 207,800 234,100 209,600
Weighted average exercise price $ 24.84 $ 20.76 $ 19.88
Exercised (56,912) (66,038) (36,150)
Weighted average exercise price $ 12.93 $ 10.64 $ 10.67
Canceled (16,338) (43,250) (3,050)
Weighted average exercise price $ 19.09 $ 16.19 $ 14.15
- -------------------------------------------------------------------------------
Outstanding at end
of year 1,232,187 1,097,637 972,825
Weighted average exercise price $ 16.51 $ 14.79 $ 13.14
===============================================================================
Exercisable at end
of year 768,129 606,091 421,800
Weighted average exercise price $ 13.70 $ 12.45 $ 11.60
===============================================================================
Available for grant at
end of year 612,255 801,329 963,900
===============================================================================
</TABLE>
The company applies Accounting Principles Board Opinion 25 in accounting for its
fixed stock compensation plans. Accordingly, no compensation cost has been
recognized for the plans in 1998, 1997 or 1996.
In accordance with SFAS 123, the fair value approach has not been applied to
stock options granted prior to January 1, 1995. The compensation cost calculated
under SFAS 123 is recognized over the vesting period of the stock options. Fair
value is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
INCENTIVE STOCK PLAN ESPP
1998 1997 1996 1998
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average
fair value $9.87 $7.95 $6.74 $6.68
Risk-free interest
rate 5.73% 6.19% 5.88% 5.68%
Dividend yield 0 0 0 0
Volatility factor .252 .254 .230 .254
Weighted average
expected life (years) 6.5 5.8 5.5 2.0
===============================================================
</TABLE>
<PAGE>
Page 15
Had compensation costs for stock options been determined based on the fair value
at the grant dates for awards under the plan consistent with the method of SFAS
123, the company's net earnings and EPS would have been reduced to the pro forma
amounts indicated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Net Income:
As reported $19,209 $18,623 $16,468
Pro forma $17,895 $17,832 $15,919
Basic EPS:
As reported $1.77 $1.65 $1.44
Pro forma $1.65 $1.58 $1.39
Diluted EPS:
As reported $1.72 $1.60 $1.40
Pro forma $1.60 $1.53 $1.35
===========================================================
</TABLE>
The following table summarizes stock options outstanding and exercisable at
December 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Outstanding Exercisable
- -----------------------------------------------------------
Exercise Average Average Average
Price Remaining Exercise Exercise
Range Options Life Price Options Price
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10-$13 629 5.4 yrs $11.34 574 $11.31
$18-$27 603 8.2 yrs $21.90 194 $20.78
===========================================================
</TABLE>
10. EARNINGS PER SHARE
All share data is presented in accordance with SFAS 128. The reconciliation of
basic and diluted shares outstanding is as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------
<S> <C> <C> <C>
Basic shares
outstanding 10,848 11,283 11,473
Dilutive securities:
Stock options 338 373 281
Contingent shares 4 7 25
- ----------------------------------------------------------
Dilutive shares
outstanding 11,190 11,663 11,779
==========================================================
</TABLE>
The following options to purchase shares of common stock were outstanding during
each year, but were not included in the computation of diluted EPS because the
option's exercise price was greater than the average market price of the common
shares for all quarters during the year and, therefore, the effect would be
anti-dilutive:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Number of options 30,000 0 174,000
Weighted average
exercise price $27.19 $0.00 $20.38
===========================================================
</TABLE>
<PAGE>
Page 16
11. SEGMENT INFORMATION
The company has adopted SFAS 131, "Disclosures about Segments of a Business
Enterprise and Related Information." The company operates predominantly in one
industry segment, that being the design, manufacture and sale of lighting
fixtures. No single customer accounted for as much as 10% of consolidated net
sales. The following table presents information about the company managed by
geographic area (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES TO CUSTOMERS
United States $172,519 $171,749 $157,981
Europe 23,762 23,908 23,376
Other 18,594 9,670 9,582
- ----------------------------------------------------------------------
TOTAL $214,875 $205,327 $190,939
======================================================================
TRANSFERS BETWEEN GEOGRAPHIC AREAS
(eliminated in consolidation)
United States $10,046 $7,268 $7,694
Other 256 271 0
- ----------------------------------------------------------------------
TOTAL $10,302 $7,539 $7,694
======================================================================
OPERATING INCOME
United States $27,813 $27,688 $25,882
Europe 2,286 1,945 1,791
Other 1,508 1,354 344
- ----------------------------------------------------------------------
TOTAL $31,607 $30,987 $28,017
======================================================================
IDENTIFIABLE ASSETS
United States $100,045 $102,934 $101,361
Europe 20,585 20,268 20,166
Other 15,917 3,594 2,440
- ----------------------------------------------------------------------
TOTAL $136,547 $126,796 $123,967
======================================================================
CAPITAL SPENDING
United States $11,172 $7,607 $4,212
Europe 655 291 438
Other 552 109 306
- ----------------------------------------------------------------------
TOTAL $12,379 $8,007 $4,956
======================================================================
DEPRECIATION & AMORTIZATION
United States $7,143 $6,057 $5,615
Europe 684 755 741
Other 362 93 131
- ----------------------------------------------------------------------
TOTAL $8,189 $6,905 $6,487
======================================================================
</TABLE>
<PAGE>
EXHIBIT 99.2
Page 1
<TABLE>
HOLOPHANE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands except per share data)
<CAPTION>
Three Month Period Ended
------------------------
June 30, June 30,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $58,730 $51,453
Cost of Goods Sold 35,751 31,690
------- -------
Gross Margin 22,979 19,763
Selling and Administrative Expenses 13,572 11,109
Research and Development 1,617 1,473
Other Expenses 223 199
------- -------
Operating Income 7,567 6,982
Interest Expense 244 317
Interest Income (36) (40)
------- -------
Income Before Income Taxes 7,359 6,705
Provision for Income Taxes 2,557 2,530
------- -------
Net Income 4,802 4,175
================================================================================
Basic Earnings Per Share $0.45 $0.38
- --------------------------------------------------------------------------------
Diluted Earnings Per Share $0.44 $0.37
- --------------------------------------------------------------------------------
Weighted Average Number of Shares Outstanding:
Basic 10,597 10,910
Diluted 11,028 11,306
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 2
<TABLE>
HOLOPHANE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands except per share data)
<CAPTION>
Six Month Period Ended
----------------------
June 30, June 30,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $111,503 $98,700
Cost of Goods Sold 68,042 60,605
-------- -------
Gross Margin 43,461 38,095
Selling and Administrative Expenses 26,231 22,038
Research and Development 3,152 3,003
Other Expenses 401 689
-------- -------
Operating Income 13,677 12,365
Interest Expense 545 704
Interest Income (142) (189)
-------- -------
Income Before Income Taxes 13,274 11,850
Provision for Income Taxes 4,687 4,411
-------- -------
Net Income 8,587 7,439
================================================================================
Basic Earnings Per Share $0.81 $0.68
- --------------------------------------------------------------------------------
Diluted Earnings Per Share $0.78 $0.66
- --------------------------------------------------------------------------------
Weighted Average Number of Shares Outstanding:
Basic 10,599 10,969
Diluted 10,980 11,343
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 3
<TABLE>
HOLOPHANE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
<CAPTION>
June 30, December 31,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- --------------------------------------------------------------------------------
Cash and Equivalents $ 3,932 $ 5,535
Receivables 36,207 32,992
Inventory 17,916 15,705
Other Current Assets 4,544 3,522
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 62,599 57,754
- --------------------------------------------------------------------------------
Plant, Property and Equipment, Net 54,309 49,626
Intangibles 22,987 23,156
Other Assets 6,254 6,011
- --------------------------------------------------------------------------------
TOTAL ASSETS $146,149 $136,547
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities Excluding Debt $ 27,099 $ 23,721
Current Portion of Long Term Debt 268 278
Long Term Debt 19,625 21,249
Other Long Term Liabilities 9,118 9,101
Stockholders' Equity 90,039 82,198
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $146,149 $136,547
================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Page 4
<TABLE>
HOLOPHANE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<CAPTION>
Six Month Period Ended
----------------------
June 30 June 30
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net cash flow provided by operating activities $10,327 $ 2,702
- --------------------------------------------------------------------------------
Investing activities:
Capital expenditures (8,945) (6,770)
Other (342) (1,292)
------- --------
Net cash used in investing activities (9,287) (8,062)
- --------------------------------------------------------------------------------
Financing activities:
Principal payments of long term debt (9,804) (26,610)
Proceeds from long term debt 8,170 29,752
Purchase of treasury shares (1,004) (5,802)
Proceeds from the sales of treasury shares 230 453
------- --------
Net cash used in financing activities (2,408) (2,207)
- --------------------------------------------------------------------------------
Effects of exchange rate changes on cash (235) (57)
- --------------------------------------------------------------------------------
Net increase/(decrease) in cash and equivalents (1,603) (7,624)
- --------------------------------------------------------------------------------
Cash and equivalents at beginning of period 5,535 11,709
- --------------------------------------------------------------------------------
Cash and equivalents at end of period $ 3,932 $ 4,085
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 5
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
HOLOPHANE CORPORATION AND SUBSIDIARIES
($ in thousands)
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL TREASURY STOCK OTHER
----------------- PAID-IN RETAINED ------------------- COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT INCOME/(DEFICIT) EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 11,895,861 $119 $42,760 $68,359 1,333,413 $(26,706) $(2,334) $82,198
Comprehensive income
Net income 8,587 8,587
Translation adjustments
(net of tax benefit of $0) (381) (381)
-------
Comprehensive income 8,206
Shares used for acquisitions 141 (15,910) 267 408
Purchase of treasury shares 36,100 (1,004) (1,004)
Stock options exercised,
including related tax
benefits (280) (22,008) 511 231
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 11,895,861 $119 $42,621 $76,946 1,331,595 $(26,932) $(2,715) $90,039
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 6
HOLOPHANE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Basis of Presentation - The condensed consolidated balance sheet as of June 30,
1999, the condensed consolidated statements of income for the three months ended
June 30, 1999 and June 30, 1998 and the condensed consolidated statements of
income, cash flows and stockholders' equity for the six months ended June 30,
1999 and June 30, 1998 have been prepared by the Company, without audit. In the
opinion of management, all adjustments, which include only normal recurring
adjustments, necessary to present fairly the financial position, results of
operations, changes in stockholders' equity and changes in cash flows for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's December 31, 1998 annual report on Form 10-K. The results of
operations for the six month period ended June 30, 1999 are not necessarily
indicative of the operating results for the full year.
<TABLE>
Classification of Inventory
- ---------------------------
(in thousands)
<CAPTION>
---------------------------------------------------------------------
(UNAUDITED)
JUNE 30, 1999 DECEMBER 31, 1998
---------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 9,371 $ 8,973
Work in process 5,924 4,869
Finished goods 3,345 2,498
---------------------------------------------------------------------
TOTAL 18,640 16,340
Less valuation allowance (724) (635)
---------------------------------------------------------------------
TOTAL $17,916 $15,705
=====================================================================
</TABLE>
Segment Information - The Company operates predominantly in one industry
segment, that being the design, manufacture and sale of lighting fixtures. The
following table presents information about the Company managed by geographic
area (in thousands):
<PAGE>
Page 7
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
JUNE 30, 1999 JUNE 30, 1998
--------------------------------------------------------------------------
<S> <C> <C>
NET SALES TO CUSTOMERS
United States $ 90,832 $81,337
Europe 11,159 10,580
Other 9,512 6,783
--------------------------------------------------------------------------
TOTAL $111,503 $98,700
==========================================================================
TRANSFERS BETWEEN GEOGRAPHIC AREAS
(eliminated in consolidation)
United States $ 4,051 $ 4,643
Europe 51 176
--------------------------------------------------------------------------
TOTAL $ 4,102 $ 4,819
==========================================================================
OPERATING INCOME
United States $ 12,646 $11,283
Europe 669 646
Other 362 436
--------------------------------------------------------------------------
TOTAL $ 13,677 $12,365
==========================================================================
</TABLE>
No material changes have occurred in total assets since December 31, 1998.
<PAGE>
EXHIBIT 99.3
Page 1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On July 29, 1999, National Service Industries, Inc. ("Parent"), a Delaware
corporation, became the owner of all of the capital stock of Holophane
Corporation, a Delaware corporation (the "Company"), pursuant to the merger (the
"Merger") of NSI Enterprises, Inc. ("Purchaser"), a Delaware corporation and
wholly-owned subsidiary of Parent, with and into the Company with the Company as
the surviving corporation. At the effective time of the Merger (the "Effective
Time"), the Company became a wholly-owned subsidiary of Parent. Prior to the
Merger, Parent consummated a tender offer (the "Offer") to purchase all
outstanding shares of common stock, par value $.01 per share (the "Shares") of
the Company, at a purchase price of $38.50 per Share, net to the seller in cash,
less any required withholding taxes and without interest thereon (the "Offer
Price"), upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated June 25, 1999 (the "Offer to Purchase") and in the related
Letter of Transmittal (which together with the Offer to Purchase constituted the
Offer).
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of May 31, 1999
(NSI) and June 30, 1999 (Holophane) gives effect to the Merger and financing
thereof as if they had occurred on that date. The Unaudited Pro Forma Condensed
Consolidated Statement of Income for the twelve months ended August 31, 1998
(NSI) and June 30, 1998 (Holophane) gives effect to the Merger and financing
thereof as if they had occurred on the first day of the period presented. The
Unaudited Pro Forma Condensed Consolidated Statement of Income for the nine
months ended May 31, 1999 (NSI) and June 30, 1999 (Holophane) gives effect to
the Merger and financing thereof as if they had occurred on the first day of the
respective period presented.
The acquisition has been accounted for under the purchase method of accounting.
The total cost of the acquisition has been allocated to the net assets of
Holophane Corporation based upon the estimated fair values of such assets. The
purchase price allocation is preliminary and further refinements may be
necessary based upon the completion of final valuation studies, however the
Company does not expect the impact of such adjustments to be material to the
Company's financial position or results of operations.
The following unaudited pro forma condensed consolidated financial information
does not purport to reflect the financial position or results of operations that
actually would have resulted had the above transactions occurred as of the dates
indicated or to project the results of operations for any future period. These
financial statements should be read in conjunction with the separate historical
financial statements and notes thereto of National Service Industries, Inc. and
Holophane Corporation.
<PAGE>
Page 2
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of May 31, 1999 (NSI) and June 30, 1999 (Holophane)
(in thousands)
Historical
Historical Holophane Pro Forma
NSI (Reclassified) (A) Adjustments Pro Forma
------------- ---------------- ---------------- ---------------
ASSETS
Current Assets
<S> <C> <C> <C> <C>
Cash $ 62,893 $ 3,932 $ (60,000) (D) $ 6,825
Receivables 333,236 36,207 - 369,443
Inventories and linens in service 260,056 17,916 943 (B) 278,915
Other current assets 19,485 4,416 2,382 (B) 26,283
------------- ---------------- ---------------- ---------------
Total Current Assets 675,670 62,471 (56,675) 681,466
------------- ---------------- ---------------- ---------------
------------- ---------------- ---------------- ---------------
Property, plant, and equipment 292,976 54,309 7,542 (B) 354,827
------------- ---------------- ---------------- ---------------
Goodwill, intangibles and other assets 170,740 28,091 399,538 (B) 625,554
------------- ---------------- 27,185 (E) ---------------
---------------
Total Assets 1,139,386 144,871 377,590 1,661,847
============= ================ ================ ===============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt - - 108,966 (D) 108,966
Notes payable 11,225 - - 11,225
Accounts payable 95,358 11,868 - 107,226
Other accrued liabilities 121,473 15,371 51,764 (D) 188,608
------------- ---------------- ---------------- ---------------
Total Current Liabilities 228,056 27,239 160,730 416,025
------------- ---------------- ---------------- ---------------
LTD, less current maturities 185,628 19,625 (19,500) (C) 435,753
250,000 (D)
Deferred income taxes 41,131 435 49,620 (B) 91,186
Self-insurance reserves, less current portion,
and other long-term liabilities 99,379 7,533 (406) (B) 133,691
27,185 (E)
Stockholders Equity:
Series A preferred Stock - - - -
Preferred Stock - - - -
Common Stock 57,919 119 (119) (B) 57,919
Paid in Capital 29,010 42,621 (42,621) (B) 29,010
Retained Earnings 946,068 76,946 (76,946) (B) 946,068
Accumulated other comprehensive income items (8,867) (2,715) 2,715 (B) (8,867)
------------- ---------------- ---------------- ---------------
1,024,130 116,971 (116,971) 1,024,130
Less: Treasury Stock 438,938 26,932 (26,932) (B) 438,938
------------- ---------------- ---------------- ---------------
Total Stockholders Equity 585,192 90,039 (90,039) 585,192
------------- ---------------- ---------------- ---------------
Total Liabilities & Stockholders Equity $1,139,386 $144,871 $377,590 $1,661,847
============= ================ ================ ===============
See accompanying notes to pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
Page 3
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Twelve Months Ended August 31, 1998 (NSI) and June 30, 1998 (Holophane)
(in thousands except per share amounts)
Historical
Historical Holophane Pro Forma
NSI (Reclassified) (A) Adjustments Pro Forma
------------- ----------------- ---------------- ---------------
Sales & Service Revenues
<S> <C> <C> <C> <C>
Net sales of products $1,718,564 $209,012 $ - $1,927,576
Service revenues 312,746 - - 312,746
-------------- ----------------- ---------------- ---------------
Total Revenues 2,031,310 209,012 - 2,240,322
-------------- ----------------- ---------------- ---------------
Costs & Expenses
Cost of products sold 1,044,215 133,594 261 (F) 1,178,070
Cost of services 183,470 - - 183,470
Selling & administrative expense 634,061 43,361 - 677,422
Interest expense (income), net 749 1,106 (1,272) (H) 26,029
19,154 (I)
6,292 (J)
Gain on sale of businesses (2,449) - - (2,449)
Other (Income) expense, net (1,857) 583 12,655 (G) 11,381
-------------- ----------------- ---------------- ---------------
Total Costs & Expenses 1,858,189 178,644 37,090 2,073,923
-------------- ----------------- ---------------- ---------------
Income before Taxes 173,121 30,368 (37,090) 166,399
Provision for Income Taxes 64,401 11,334 (11,438) (K) 64,297
-------------- ----------------- ---------------- ---------------
Net Income $108,720 $ 19,034 $(25,652) $ 102,102
============== ================= ================ ===============
Basic Earnings per Share $ 2.56 $ 2.40
============== ===============
Basic Weighted Average Number of Shares
Outstanding 42,462 42,462
============== ===============
Diluted Earnings per Share $ 2.53 $ 2.37
============== ===============
Diluted Weighted Average Number of Shares
Outstanding 43,022 43,022
============== ===============
See accompanying notes to pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
Page 4
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Nine Months Ended May 31, 1999 (NSI) and June 30, 1999 (Holophane)
(in thousands except per share amounts)
Historical
Historical Holophane Pro Forma
NSI (Reclassified) (A) Adjustments Pro Forma
-------------- ----------------- ---------------- ---------------
Sales & Service Revenues
<S> <C> <C> <C> <C>
Net sales of products $1,369,808 $167,948 $ - $1,537,756
Service revenues 229,315 - - 229,315
-------------- ----------------- ---------------- ---------------
Total Revenues 1,599,123 167,948 - 1,767,071
-------------- ----------------- ---------------- ---------------
Costs & Expenses
Cost of products sold 836,864 106,497 196 (F) 943,557
Cost of services 134,107 - - 134,107
Selling & administrative expense 499,114 38,441 - 537,555
Interest expense (income), net 8,219 670 (867) (H) 26,655
14,366 (I)
4,267 (J)
Gain on sale of businesses (5,814) - - (5,814)
Restructuring expense, asset impairments,
and other charges (2,216) - - (2,216)
Other (Income) expense, net (143) (54) 9,491 (G) 9,294
-------------- ----------------- ---------------- ---------------
Total Costs & Expenses 1,470,131 145,554 27,453 1,643,138
-------------- ----------------- ---------------- ---------------
Income before Taxes 128,992 22,394 (27,453) 123,933
Provision for Income Taxes 47,985 8,044 (8,442) (K) 47,587
-------------- ----------------- ---------------- ---------------
Net Income $ 81,007 $ 14,350 $(19,011) $ 76,346
============== ================= ================ ===============
Basic Earnings per Share $ 1.97 $ 1.86
============== ===============
Basic Weighted Average Number of Shares
Outstanding 41,030 41,030
============== ===============
Diluted Earnings per Share $ 1.97 $ 1.85
============== ===============
Diluted Weighted Average Number of Shares
Outstanding 41,221 41,221
============== ===============
See accompanying notes to pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
Page 5
Notes to Pro Forma Condensed Consolidated Financial Statements
(in thousands unless otherwise noted)
(A) Certain reclassifications have been made to the Holophane historical
financial statements to conform to the presentation to be used by NSI
upon completion of the acquisition.
(B) The acquisition is to be accounted for as a purchase business
combination. The purchase price includes an adjustment for deferred
income taxes representing the difference between the assigned values
and the tax bases of the assets and liabilities acquired. The
preliminary allocation of the purchase price to the net assets of
Holophane is based upon the estimated fair values of such assets and
is as follows:
<TABLE>
Purchase price:
<S> <C>
Acquisition of outstanding shares of common stock $ 407,358
Settlement of Holophane stock options 31,526
Severance and restrictive covenants 5,450
Acquisition expenses 6,896
Debt assumed 19,500
Book value of net assets acquired (excluding debt assumed) (109,539)
---------------
Increase in basis $ 361,191
===============
Allocation of increase in basis:
Increase in inventory to adjust to fair value $ 943
Increase in the fair value of property, plant, and equipment 7,542
Adjust pension accrual 406
Adjust pension prepaid 96
Increase in the fair value of intangibles 145,725
Current deferred tax asset 2,382
Long-term deferred tax liability (49,620)
Increase in goodwill 253,717
---------------
Increase in basis $ 361,191
===============
</TABLE>
The purchase price allocation is preliminary and further refinements
may be necessary based on the completion of final valuation studies,
however the Company does not expect the impact of such adjustments to
be material to the Company's financial statements or results of
operations.
<TABLE>
(C) Represents the repayment of Holophane's outstanding long-term debt.
(D) Details of acquisition financing:
<S> <C>
Cash on hand $ 60,000
Accrued acquisition costs 51,764
Commercial paper, estimated interest rate 5.336% 358,966
--------------
Total Cash Requirement $ 470,730
==============
</TABLE>
Of the total commercial paper issued to effect the acquisition,
$250,000 is classified as long-term, as the Company intends to and
has the ability, based on existing availability under its long-term
revolving credit facility, to refinance it on a long-term basis. The
remainder is classified as short-term debt. The portion attributable
to accounts payable represents the difference between cash on hand at
the pro forma balance sheet date and the actual cash used to effect
this acquisition in addition to portions of the purchase price to be
paid subsequent to closing.
<PAGE>
Page 6
(E) Represents the portion of the Holophane stock option settlement which
employees elected to defer into a grantor trust maintained by
Holophane.
(F) Represents the additional depreciation expense as a result of the
adjustment to the fair value of property, plant, and equipment using
average lives of 20 years for real property and 5 years for personal
property.
(G) Represents the additional amortization of goodwill and intangibles.
Identified intangibles are being amortized over periods ranging from
2 to 40 years and goodwill is being amortized over 40 years.
(H) Represents the interest expense on Holophane's long-term debt that
was paid off by NSI (see note C).
(I) Represents interest expense related to the commercial paper issued to
effect the transaction as identified in D above.
(J) Represents the foregone interest income on the total cash, excluding
borrowed cash identified in D above, necessary to fund the
acquisition of Holophane. The average interest rate used is 5.63% for
the twelve months ended August 31, 1998 and 5.09% for the nine months
ended May 31, 1999.
(K) Represents statutory effective rate adjusted for goodwill
amortization generated by the Holophane acquisition that is not
deductible for tax purposes.
