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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 November 30, 1994 Commission file number 1-3208
NATIONAL SERVICE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-0364900
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1420 Peachtree Street, N. E., Atlanta, Georgia 30309-3002
(Address of Principal Executive Offices) (Zip Code)
(404) 853-1000
(Registrant's Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (applicable only to corporate
issuers).
Common Stock - $1.00 Par Value - 49,051,587 shares as of December 29, 1994.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS -
NOVEMBER 30, 1994 AND AUGUST 31, 1994 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS ENDED NOVEMBER 30, 1994 AND 1993 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED NOVEMBER 30, 1994 AND 1993 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-8
PART II. OTHER INFORMATION
ITEM 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 1994 1994
(Unaudited)
Current Assets:
Cash and cash equivalents $ 82,430 $ 58,619
Short-term investments 2,240 2,579
Receivables, less reserves for doubtful
accounts of $8,705 at November 30, 1994
and $7,385 at August 31, 1994 245,974 256,051
Inventories, at the lower of cost (on a
first-in, first-out basis) or market 188,769 178,590
Linens in service, net of amortization 89,279 90,037
Prepaid income taxes, net 1,638 13,473
Prepayments, etc. 12,648 8,933
Total Current Assets 622,978 608,282
Property, Plant, and Equipment, at cost:
Land 32,210 32,237
Buildings and leasehold improvements 188,867 186,929
Machinery and equipment 512,400 507,408
Total Property, Plant and Equipment 733,477 726,574
Less - Accumulated depreciation and
amortization 386,270 378,262
Property, Plant, and Equipment - net 347,207 348,312
Other Assets:
Goodwill and other intangibles 108,652 112,286
Other 36,078 37,876
Total Other Assets 144,730 150,162
Total Assets $1,114,915 $1,106,756
November 30, August 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1994
(Unaudited)
Current Liabilities:
Current maturities of long-term debt $ 544 $ 667
Notes payable 5,182 5,098
Accounts payable 77,240 81,969
Accrued salaries, commissions, and bonuses 38,371 42,624
Self insurance reserves 81,727 77,680
Other accrued liabilities 49,007 42,716
Total Current Liabilities 252,071 250,754
Long-Term Debt, less current maturities 26,818 26,863
Deferred Income Taxes 77,811 78,814
Other Long-Term Liabilities 22,997 22,940
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,
1994 and August 31, 1994 57,919 57,919
Paid-in capital 7,822 7,684
Retained earnings 713,295 705,504
779,036 771,107
Less - Treasury stock, at cost (8,675,986 shares at
November 30, 1994 and 8,678,666 shares at
August 31, 1994) 43,818 43,722
Total Stockholders' Equity 735,218 727,385
Total Liabilities and Stockholders' Equity $1,114,915 $1,106,756
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
1994 1993
Sales and Service Revenues:
Net sales of products $ 344,882 $ 325,213
Service revenues 136,102 134,687
Total Revenues 480,984 459,900
Costs and Expenses:
Cost of products sold 219,187 213,579
Cost of services 75,846 70,737
Selling and administrative expenses 149,695 141,583
Interest expense 830 1,146
Other expense (income), net 1,691 2,052
Total Costs and Expenses 447,249 429,097
Income before Provision for Income Taxes 33,735 30,803
Provision for Income Taxes:
Current 12,649 12,591
Deferred (28) (960)
12,621 11,631
Net Income $ 21,114 $ 19,172
Per Share:
Net income $.43 $.39
Cash dividends $.27 $.26
Weighted Average Number of Shares
Outstanding (thousands) 49,244 49,562
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
1994 1993
Cash Provided by (Used for) Operating Activities:
Net income $ 21,114 $ 19,172
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,500 15,365
Provision for losses on accounts receivable 1,382 1,381
Loss (gain) on sale of property, plant, and 40 (25)
equipment
Gain on the sale of business (1,117) (467)
Provision for deferred income taxes (28) (960)
Change in assets and liabilities net of effect of
acquisitions and sale of business-
Receivables, net 9,027 4,742
Inventories and linens in service, net (10,153) (6,834)
Prepaid income taxes 11,835 11,465
Prepayments and other (3,876) (819)
Accounts payable and accrued liabilities 1,356 (8,873)
Net Cash Provided by Operating Activities 44,080 34,147
Cash Provided by (Used for) Investing Activities:
Change in short-term investments 339 1,179
Purchase of property, plant, and equipment (11,774) (10,977)
Sale of property, plant, and equipment 409 1,176
Sale of business 3,533 682
Acquisitions (304) (375)
Change in other assets 1,219 (2,632)
Net Cash Used for Investing Activities (6,578) (10,947)
Cash Provided by (Used for) Financing Activities:
Change in notes payable 84 (593)
- -
Repayment of long-term debt (168) (529)
Recovery of investment in tax benefits 458 644
Deferred income taxes from investment in tax benefits (975) (1,178)
Issuance of treasury stock 176 68
Change in other long-term liabilities 57 393
Cash dividends paid (13,296) (12,886)
Net Cash Used for Financing Activities (13,664) (14,081)
Effect of Exchange Rate Changes on Cash (27) (26)
Net Change in Cash and Cash Equivalents 23,811 9,093
Cash and Cash Equivalents at Beginning of Year 58,619 15,853
Cash and Cash Equivalents at End of Period $ 82,430 $ 24,946
Supplemental Cash Flow Information:
Income taxes paid during the period $ 1,171 $ 1,510
Interest paid during the period 739 604
Noncash Investing and Financing Activities:
Noncash aspects of sale of business -
Accounts and notes receivable $ (624) $ (336)
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, 1994 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, 1994, the consolidated
results of operations for the three months ended November 30, l994 and 1993,
and the consolidated cash flows for the three months ended November 30, 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, 1994.
The results of operations for the three months ended November 30, 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 November 30
Sales and Service
Revenues Operating Profit
1994 1993 1994 1993
(In thousands)
Lighting Equipment $203,806 $182,105 $13,690 $ 11,899
Textile Rental 136,102 134,687 11,316 11,238
Chemical 87,952 82,282 9,301 9,026
Other 53,124 60,826 3,069 1,513
480,984 459,900 37,376 33,676
Corporate (2,811) (1,727)
Interest Expense (830) (1,146)
Total $480,984 $459,900 $33,735 $ 30,803
3. INVENTORIES:
Major classes of inventory as of November 30, 1994 and August 31, 1994 were as
follows:
November 30, August 31,
1994 1994
(In thousands)
Raw Materials and Supplies $ 78,510 $ 72,677
Work-in-Process 10,350 9,918
Finished Goods 99,909 95,995
Total $188,769 $178,590
4. POSTEMPLOYMENT BENEFITS
During the quarter ended November 30, 1994, the company adopted Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for
Postemployment Benefits," which requires employers to accrue the expected cost
of benefits to be provided to former or inactive employees after employment but
before retirement. The company's liability relates primarily to severance
agreements and to life insurance coverage for certain eligible disabled
employees. The amount is not material to the consolidated financial statements.
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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 strengthened during the quarter
ended November 30, 1994. Net working capital increased to $370.9 million from
$357.5 million at August 31, 1994, and the current ratio increased to 2.5,
compared with 2.4 at year end. Cash and short-term investments climbed to $84.7
million from $61.2 million at August 31. For the quarter ended November 30,
1994, the company invested $12.1 million in capital expenditures and
acquisitions. Long-term debt and other long-term liabilities were 6.3 percent
of total capitalization, down from 6.4 percent at year end. Cash provided by
operating activities was $44.1 million, compared with $34.1 million for the
first quarter last year.
Capital expenditures, exclusive of acquisition spending, were $11.8 million for
the first quarter this year and $11.0 million for the same period last year.
In the current period, the lighting equipment division invested in
manufacturing equipment replacements and improvements and began construction of
a production facility in Monterrey, Nuevo Leon, Mexico, as part of its North
America manufacturing and distribution strategy. The textile rental division
invested in fleet upgrades and facility improvements to support volume growth.
Prior-year spending was primarily the result of facilities and manufacturing
process improvements in the lighting equipment division and wastewater
compliance projects and fleet upgrades in the textile rental division.
Acquisition spending was minimal in both periods.
Dividend payments totaled $13.3 million, or 27 cents per share, during the
first quarter this year, compared with $12.9 million, or 26 cents per share,
for the prior-year period. Effective January, 1995, the regular quarterly
dividend rate was increased 3.7 percent to 28 cents per share, which is an
annual rate of $1.12 per share.
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.
Contractual commitments for capital spending during the coming twelve months
total $15 million. For the current fiscal year, the company expects actual
capital expenditures to be somewhat higher than levels of recent years, which,
excluding acquisition spending, were $43 million in 1994, $36 million in 1993,
and $43 million in 1992. 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
$152 million, of which $110 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, Inc. earnings per share for the first quarter of
fiscal 1995 increased 10.8 percent to 43 cents per share. Sales for the
quarter increased 4.6 percent to $481 million. Net income of $21.1 million was
10.1 percent higher than the $19.2 million reported in last year's first
quarter. Since an average of 318,000 fewer shares were outstanding during the
quarter, earnings per share increased at the slightly higher rate of 10.8
percent.
The lighting equipment division continued its excellent progress with sales
gains of 11.9 percent to $204 million from $182 million for the first quarter
last year. The improvement was primarily attributable to higher unit volumes.
Operating profit rose 15.1 percent to 6.7 percent of revenues, compared with
6.5 percent the prior-year period, largely as a result of the volume gains and
a small boost from improved product pricing.
The textile rental segment posted a modest revenue gain of 1.1 percent to $136
million, as activity in the hospitality sector showed improvement. Operating
profits were 8.3 percent of related revenues for both periods. Labor and
utility cost improvements were offset by the costs of an increased sales force.
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Chemical segment sales, led by U.S. markets, increased 6.9 percent to $88
million from $82 million the year earlier, primarily due to unit volume gains.
Operating income was 10.6 percent of revenues, down from 11.0 percent in the
first quarter last year. European and Canadian cost structures continued to
dampen overall segment results.
As of the beginning of the fiscal year, those businesses included in NSI's
other segment no longer include Marketing Services. On a comparable-business
basis, sales were relatively flat because volume gains in the envelope business
were offset by declines in the insulation service sector. Significant cost
improvements in the insulation service business and margins on volume gains in
the envelope business led to a doubling of operating income.
Corporate expense was greater than in the first quarter last year due in large
part to the company's adoption of Statement of Financial Accounting Standards
(SFAS) No. 112, "Employers' Accounting for Postemployment Benefits," requiring
the accrual of the estimated cost of benefits provided by an employer to former
or inactive employees after employment but before retirement. The accrual
relates primarily to severance agreements and the liability for life insurance
coverage for certain eligible disabled employees.
Interest expense on European loans was lower than in the prior-year period.
The provision for income taxes in the first quarter was 37.4 percent of pretax
income, compared with 37.8 percent for the same period last year. The change
in the year-to-year effective rate resulted from an increase in the amount of
tax exempt income compared with last year's first quarter.
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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 4, 1995, all
nominees for director were elected to the board without opposition and
Arthur Andersen LLP was appointed as independent auditor for the
current fiscal year. In addition, stockholders voted on the
following:
Votes Cast
Affirmative Negative Abstentions
Proposal to approve the
National Service Industries,
Inc. Management Compensation
and Incentive Plan 38,634,254 2,539,031 392,093
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, 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 January 12, 1995 /s/ David Levy
DAVID LEVY
EXECUTIVE VICE PRESIDENT,
ADMINISTRATION AND COUNSEL
DATE January 12, 1995 /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:
(a)-Second Amendment to Executives' 12
Deferred Compensation Plan,
Effective as of September 1, 1994
EXHIBIT 11 - Computation of Net Income per Share of 14
Common Stock
EXHIBIT 27 - Financial Data Schedules 15