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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 February 28, 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
Incorporation or Organization) Number)
1420 Peachtree Street, N. E., Atlanta, Georgia 30309
(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 - 49,577,654 shares as of April 1, 1994
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS -
FEBRUARY 28, 1994 AND AUGUST 31, 1993 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS AND SIX MONTHS ENDED FEBRUARY 4
1994 AND 1993
CONSOLIDATED STATEMENTS OF CASH FLOWS - 5
SIX MONTHS ENDED FEBRUARY 28, 1994 AND 1993
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATI 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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PART I. FINANCIAL INFORMATION
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
February 28, August 31,
ASSETS 1994 1993
(Unaudited)
Current Assets:
Cash and cash equivalents $ 20,842 $ 15,853
Short-term investments 2,923 4,776
Receivables, less reserves for doubtful
accounts of $8,594 at February 28, 1994
and $7,170 at August 31, 1993 228,401 249,958
Inventories, at the lower of cost (on a
first-in, first-out basis) or market 178,319 171,545
Linens in service, net of amortization 85,831 77,931
Prepaid income taxes 23,076 25,340
Prepayments 13,589 11,513
Total Current Assets 552,981 556,916
Property, Plant, and Equipment, at cost:
Land 32,916 33,303
Buildings and leasehold improvements 190,679 190,276
Machinery and equipment 510,644 500,459
Total Property, Plant, and Equipment 734,239 724,038
Less - Accumulated depreciation and
amortization 373,601 358,853
Property, Plant, and Equipment - net 360,638 365,185
Other Assets:
Goodwill and other intangibles 121,835 127,387
Other 37,443 38,025
Total Other Assets 159,278 165,412
Total Assets $1,072,897 $1,087,513
February 28, August 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
(Unaudited)
Current Liabilities:
Current maturities of long-term debt $ 1,312 $ 1,792
Notes payable 4,059 4,404
Accounts payable 69,892 85,505
Accrued salaries, commissions, and bonuses 26,830 37,103
Self insurance reserves 72,990 71,888
Other accrued liabilities 46,934 42,981
Total Current Liabilities 222,017 243,673
Long-Term Debt, less current maturities 28,074 28,418
Deferred Income Taxes 80,234 84,289
Other Long-Term Liabilities 27,950 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
February 28, 1994 and August 31, 1993 57,919 57,919
Paid-in capital 7,604 7,299
Retained earnings 683,649 673,399
749,172 738,617
Less - Treasury stock, at cost (8,341,324
shares at February 28, 1994 and 8,357,539
shares at August 31, 1993) 34,550 34,594
Total Stockholders' Equity 714,622 704,023
Total Liabilities and Stockholders' Equity $1,072,897 $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 SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
1994 1993 1994 1993
Sales and Service Revenues:
Net sales of products $308,404 $294,663 $633,617 $592,554
Service revenues 130,933 132,330 265,620 268,780
Total Revenues 439,337 426,993 899,237 861,334
Costs and Expenses:
Cost of products sold 204,533 196,936 418,112 391,847
Cost of services 68,722 68,160 139,459 138,644
Selling and administrative expenses 137,842 134,386 279,425 270,324
Interest expense 1,024 1,137 2,170 2,308
Other expense, net 1,067 3,193 3,119 5,672
Total Costs and Expenses 413,188 403,812 842,285 808,795
Income before Provision for Income
Taxes 26,149 23,181 56,952 52,539
Provision for (Benefit from) Income
Taxes:
Current 10,894 7,202 23,485 16,896
Deferred (1,018) 1,345 (1,978) 2,423
9,876 8,547 21,507 19,319
Net Income $ 16,273 $ 14,634 $ 35,445 $ 33,220
Per Share:
Net income $.33 $.30 $.72 $.67
Cash dividends $.27 $.26 $.53 $.51
Weighted Average Number of Shares
Outstanding (thousands) 49,572 49,558 49,568 49,552
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)
SIX MONTHS ENDED
FEBRUARY 28
1994 1993
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 February 28, 1994, the
consolidated results of operations for the three months and six months ended
February 28, 1994 and 1993, and the consolidated cash flows for the six
months ended February 28, 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 six months ended
February 28, 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 February 28
Sales and Service
Revenues Operating Profit
1994 1993 1994 1993
(In thousands)
Lighting Equipment $ 173,799 $ 158,764 $ 9,460 $ 6,801
Textile Rental 130,933 132,330 11,046 10,663
Chemical 75,599 73,315 6,616 5,795
Other 59,006 62,584 1,772 2,583
$ 439,337 $ 426,993 28,894 25,842
Corporate (1,721) (1,524)
Interest Expense (1,024) (1,137)
Total $ 26,149 $ 23,181
Six Months Ended February 28
Sales and Service
Revenues Operating Profit
1994 1993 1994 1993
(In thousands)
Lighting Equipment $ 355,904 $ 321,803 $ 21,359 $ 16,625
Textile Rental 265,620 268,780 22,284 21,657
Chemical 157,881 149,693 15,642 14,925
Other 119,832 121,058 3,285 5,037
$ 899,237 $ 861,334 62,570 58,244
Corporate (3,448) (3,397)
Interest Expense (2,170) (2,308)
Total $ 56,952 $ 52,539
3. INVENTORIES:
Major classes of inventory as of February 28, 1994 and August 31, 1993 were
as follows:
February 28, August 31,
1994 1993
(In thousands)
Raw Materials and Supplies $ 74,416 $ 77,911
Work-in-Process 11,827 11,269
Finished Goods 92,076 82,365
Total $ 178,319 $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' balance sheet remained strong as of February
28, 1994. Net working capital was $331.0 million, compared with $313.2
million at August 31, 1993, and the current ratio was 2.5, compared with
2.3 at year end. Cash and short-term investments were $23.8 million, up
from $20.6 million at August 31. For the six months ended February 28,
1994, the company invested $22.2 million in capital expenditures and
acquisitions. Long-term debt and other long-term liabilities continued at
7.3 percent of total capitalization, unchanged from year end. Cash
provided by operations was $48.9 million, compared with $35.2 million for
the first half last year.
Capital expenditures, exclusive of acquisition spending, were $21.9
million for the six months this year and $13.2 million for the same period
last year. Current-year spending was primarily the result of facilities
and manufacturing process improvements in the lighting equipment division,
facilities additions and information systems improvements 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 $95.3 million in the first half 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 totaled $26.3 million, or 53 cents per share, during the
first six months this year, compared with $25.3 million, or 51 cents per
share, for the same period last year. 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
National Service Industries' net income for the second fiscal quarter ended
February 28, 1994, increased 11.2 percent to $16.3 million on a 2.9 percent
sales increase. Sales for the quarter were $439.3 million, $12.3 million
higher than in last year's second quarter. Earnings per share of 33 cents
were also 11.2 percent higher than last year's 30 cents per share.
For the fiscal first half, sales increased 4.4 percent to $899.2 million
from the $861.3 million reported last year. Net income increased 6.7
percent to $35.4 million, and earnings per share of 72 cents were also 6.7
percent ahead of last year's 67 cents.
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The lighting equipment division had the strongest operating results as
sales increased 9.5 percent to $173.8 million for the second quarter and
10.6 percent to $355.9 million on a year-to-date basis. Despite weak
commercial and industrial construction activity, lighting fixture unit
sales expanded as market share gains continued. Operating profit grew 39.1
percent for the quarter to 5.4 percent of revenues, up from 4.3 percent
last year, and rose 28.5 percent for the six months to 6.0 percent of
revenues, from 5.2 percent the prior year to date. Profit improvements
largely resulted from the higher unit volumes and also benefited from
divisional cost containment measures.
The textile rental division continued to be impacted by sluggish markets
and competitive pressures. Second quarter revenues were down 1.1
percent to $130.9 million, and first half revenues declined 1.2
percent to $265.6 million. Operating profit, however, increased to 8.4
percent of revenues for both the quarter and year to date, up from 8.1
percent for both prior-year periods. The division's cost control efforts
have positioned it to benefit as volume expands.
Chemical segment sales rose 3.1 percent to $75.6 million for the second
quarter and 5.5 percent to $157.9 million for the first half due primarily
to domestic volume gains. Operating profit grew a solid 14.2 percent to
8.8 percent of revenues for the quarter and was 9.9 percent of revenues for
the first half, up 4.8 percent from last year. Domestic results were very
satisfactory, and European profit performance improved due to cost
reduction programs even though sales were somewhat less than anticipated.
Canadian results continued to be disappointing, particularly in the western
provinces.
Of the three businesses reported in NSI's other sector, only the envelope
division did well as volume gains contributed sales increases of 1.8
percent for the quarter and 7.1 percent year to date, and operating profits
increased over 50 percent for both periods due to reduced operating costs.
Corporate income was slightly ahead of last year's second quarter and six
months due mainly to a moderation of foreign currency exchange rate
fluctuations. Interest expense was somewhat less than both prior-year
periods due to reductions in acquisition-related debt.
Consolidated income before taxes improved 12.8 percent. The higher 1994
tax rate, however, created an increased effective tax rate which limited
the net income gain to 11.2 percent. The provision for income taxes was
37.8 percent of pretax income for both the second quarter and the first
half, compared with 36.9 percent and 36.8 percent for the respective
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 February
28, 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 April 13, 1994 /S/ DAVID LEVY
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE April 13, 1994 /S/ J. ROBERT HIPPS
J. ROBERT HIPPS
SENIOR VICE PRESIDENT, FINANCE
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INDEX TO EXHIBITS
Page No.
EXHIBIT 10(iii)A Management Contracts and Compensatory
Arrangements: 12
(a)-Amendment to Restated and Amended
Supplemental Retirement Plan for
Executives of National Service
Industries, Inc. (Supplemental Pension
Plan)
EXHIBIT 11 Computations of Net Income per Share 14
of Common Stock