Page 1 of 14
Exhibit Index on Page 12
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For quarter ended May 31, 1995 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 - 48,303,564 shares as of June 26, 1995.
Page 2
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
MAY 31, 1995 AND AUGUST 31, 1994 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS AND NINE MONTHS ENDED MAY 31, 4
1995 AND 1994
CONSOLIDATED STATEMENTS OF CASH FLOWS - 5
NINE MONTHS ENDED MAY 31, 1995 AND 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
Page 3
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
May 31, August 31,
1995 1994 *
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 58,818 $ 58,619
Short-term investments 9,386 2,579
Receivables, less reserves for doubtful
accounts of $9,394,000 at May 31, 1995
and $7,385,000 at August 31, 1994 254,448 256,051
Inventories, at the lower of cost (on a
first-in, first-out basis) or market 198,548 178,590
Linens in service, net of amortization 88,456 90,037
Prepaid income taxes 1,321 7,978
Prepayments 10,691 8,933
Total Current Assets 621,668 602,787
Property, Plant, and Equipment, at cost:
Land 31,830 32,237
Buildings and leasehold improvements 192,862 186,929
Machinery and equipment 499,045 507,408
Total Property, Plant, and Equipment 723,737 726,574
Less - Accumulated depreciation and
amortization 377,043 378,262
Property, Plant, and Equipment - net 346,694 348,312
Other Assets:
Goodwill and other intangibles 104,247 112,286
Other 38,328 37,876
Total Other Assets 142,575 150,162
Total Assets $1,110,937 $1,101,261
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 85 $ 667
Notes payable 6,523 5,098
Accounts payable 85,773 81,969
Accrued salaries, commissions, and bonuses 43,234 42,624
Current portion of self insurance reserves 19,465 16,727
Other accrued li 45,075 42,588
Total Current Liabilities 200,155 189,673
Long-Term Debt, less current maturities 26,807 26,863
Deferred Income Taxes 66,932 73,319
Self Insurance Reserves, less current portion 65,406 61,081
Other Long-Term Liabilities 23,736 22,940
Stockholders' Equity:
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 stock, $1 par value, 80,000,000 shares
authorized, 57,918,978 shares issued at May
31, 1995 and August 31, 1994 57,919 57,919
Paid-in capital 7,951 7,684
Retained earnings 729,912 705,504
795,782 771,107
Less - Treasury stock, at cost (9,615,464 shares at
May 31, 1995 and 8,678,666 shares at August
31, 1994) 67,881 43,722
Total Stockholders' Equity 727,901 727,385
Total Liabilities and Stockholders Equity $1,110,937 $1,101,261
* Certain amounts have been reclassified to conform to current-year
presentation.
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per-share data)
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31 MAY 31
1995 1994 1995 1994
Sales and Service Revenues:
Net sales of products $363,765 $340,562 $1,042,706 $974,179
Service revenues 142,033 140,439 409,886 406,059
Total Revenues 505,798 481,001 1,452,592 1,380,238
Costs and Expenses:
Cost of products sold 233,668 221,069 669,891 639,181
Cost of services 75,227 72,901 225,054 212,360
Selling and administrative expenses 153,085 146,835 447,001 426,260
Interest expense 1,002 867 2,792 3,037
Other expense, net 1,752 2,480 5,024 5,599
Total Costs and Expenses 464,734 444,152 1,349,762 1,286,437
Income before Provision for Income Taxes 41,064 36,849 102,830 93,801
Provision for (Benefit from) Income Taxes:
Current 18,842 15,108 41,973 38,590
Deferred (3,405) (1,187) (3,462) (3,162)
15,437 13,921 38,511 35,428
Net Income $ 25,627 $ 22,928 $ 64,319 $ 58,373
Per Share:
Net income $.53 $.46 $1.32 $1.18
Cash dividends $.28 $.27 $.83 $.80
Weighted Average Number of Shares
Outstanding (thousands) 48,382 49,578 48,813 49,571
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
NINE MONTHS ENDED
MAY 31
1995 1994 *
Cash Provided by (Used for) Operating Activities:
Net income $ 64,319 $ 58,373
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 43,467 45,582
Provision for losses on accounts receivable 3,698 3,442
Gain on the sale of property, plant, and equipment 137 (710)
Gain on the sale of business (1,161) (467)
Provision for deferred income taxes (3,462) (3,162)
Change in assets and liabilities net of effect
of acquisitions-
Receivables (1,547) 12,213
Inventories and linens in service, net (19,178) (22,297)
Prepaid income taxes 6,657 10,820
Prepayments and other (1,970) 221
Accounts payable and accrued liabilities 9,132 (4,213)
Net Cash Provided by Operating Activities 100,092 99,802
Cash Provided by (Used for) Investing Activities:
Change in short-term investments (6,807) 2,405
Purchase of property, plant, and equipment (39,180) (30,117)
Sale of property, plant, and equipment 6,435 2,078
Sale of business 4,626 682
Acquisitions, net of cash acquired (2,668) (375)
Change in other assets (2,487) (7,710)
Net Cash Used for Investing Activities (40,081) (33,037)
Cash Provided by (Used for) Financing Activities:
Change in notes payable 1,425 437
Repayment of long-term debt (638) (2,167)
Recovery of investment in tax benefits 872 1,601
Deferred income taxes from investment in tax benefits (2,925) (2,976)
Issuance (purchase) of treasury stock (23,758) 349
Change in other long-term liabilities 5,121 4,196
Cash dividends paid (40,630) (39,655)
Net Cash Used for Financing Activities (60,533) (38,215)
Effect of Exchange Rate Changes on Cash 721 1,787
Net Change in Cash and Cash Equivalents 199 30,337
Cash and Cash Equivalents at Beginning of Year 58,619 15,853
Cash and Cash Equivalents at End of Period $ 58,818 $ 46,190
Supplemental Cash Flow Information:
Income taxes paid during the period $ 34,620 $ 28,687
Interest paid during the period 2,681 3,023
Noncash Investing and Financing Activities:
Noncash aspects of sale of business -
Receivables incurred $ (893) $ (336)
Noncash Aspects of Acquisitions:
Liabilities assumed or incurred $ 468 $ -
Treasury stock issued (returned)
* Certain amounts have been reclassified to conform to current-year balance
sheet presentation.
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 May 31, 1995, the consolidated results of operations
for the three months and nine months ended May 31, 1995 and 1994, and the
consolidated cash flows for the nine months ended May 31, 1995 and 1994. Certain
prior-year amounts have been reclassified to conform with current-year
presentation. 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 and nine months ended May 31,
1995 are not necessarily indicative of the results to be expected for the full
fiscal year because the company's revenues and income are generally higher in
the second half of its fiscal year and because of the uncertainty of general
business conditions.
2. BUSINESS SEGMENT INFORMATION:
Three Months Ended May 31
Sales and Service
Revenues Operating Profit
1995 1994 1995 1994
(In thousands)
Lighting Equipment $ 215,987 $ 192,129 $ 16,155 $ 13,200
Textile Rental 142,033 140,439 16,005 15,127
Chemical 91,129 85,767 7,407 8,079
Other 56,649 62,666 3,837 3,334
$ 505,798 $ 481,001 43,404 39,740
Corporate (1,338) (1,870)
Interest Expense (1,002) (1,021)
Total $ 41,064 $ 36,849
Nine Months Ended May 31
Sales and Service
Revenues Operating Profit
1995 1994 1995 1994
(In thousands)
Lighting Equipment $ 620,546 $ 548,033 $ 42,425 $ 34,559
Textile Rental 409,886 406,059 34,806 37,411
Chemical 259,273 243,648 23,019 23,559
Other 162,887 182,498 10,597 6,619
$1,452,592 $1,380,238 110,847 102,148
Corporate (5,225) (5,318)
Interest Expense (2,792) (3,029)
Total $ 102,830 $ 93,801
3. INVENTORIES:
Major classes of inventory as of May 31, 1995 and August 31, 1994 were as
follows:
May 31, August 31,
1995 1994
(In thousands)
Raw Materials and Supplies $ 78,240 $ 72,677
Work-in-Process 10,772 9,918
Finished Goods 109,536 95,995
Total $ 198,548 $ 178,590
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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' financial position remained strong at May 31, 1995.
Net working capital was $421.5 million, compared with $413.1 million at August
31, 1994, and the current ratio was 3.1, compared with 3.2 at year end. Cash and
short-term investments grew to $68.2 million, up from $61.2 million at August
31. For the nine months ended May 31, 1995, the company invested $41.8 million
in capital expenditures and acquisitions. Long-term debt and other long-term
liabilities were 13.7 percent of total capitalization, compared with 13.2
percent at year end. Cash provided by operations was $100.1 million, up slightly
from $99.8 million for the nine months last year.
Capital expenditures, exclusive of acquisition spending, were $39.2 million for
the nine months this year and $30.1 million for the same period last year.
During the third quarter, the Lighting Equipment division continued to invest in
manufacturing equipment replacements and improvements and the construction of
its production facility in Monterrey, Mexico. The facility has begun production
since the end of the third quarter. Textile Rental division expenditures
included fleet upgrades, facility improvements, and information systems
enhancements. Prior-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.
Acquisition spending of $2.7 million in the current year was mainly due to the
Lighting Equipment division's acquisition of the assets of Infranor Canada,
Inc., a small high-performance outdoor lighting products company. Acquisition
spending in the prior year was minimal.
Dividend payments for the nine months totaled $40.6 million, or 83 cents per
share, compared with $39.7 million, or 80 cents per share, for the same period
last year. 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.
During the three months ended May 31, 1995, the company purchased 272,000 shares
of its common stock for $7.1 million. For the year-to-date period, approximately
947,000 shares have been purchased at a cost of $24.1 million. The board of
directors, at its regular meeting in March, 1995, increased the company's
standing authority to purchase shares from the previous two million shares per
year to four million shares for the current fiscal year.
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 $10
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' net income for the fiscal third quarter ended May
31, 1995, increased 11.8 percent to $25.6 million. Earnings per share increased
to 53 cents from 46 cents, or 14.7 percent. Approximately 1.2 million fewer
shares were outstanding on average in the latest third quarter.
Sales for the quarter totaled $505.8 million, an increase of $24.8 million or
5.2 percent. Adjusted for the divestiture of the Marketing Services division,
which contributed $8.6 million to third quarter sales a year earlier, the sales
gain was 7.1 percent.
Page 9
Sales for the nine months ended May 31 increased 5.2 percent to $1.45 billion.
Net income was $64.3 million, up $5.9 million or 10.2 percent from the same
period a year ago. Earnings per share increased 14 cents or 11.9 percent to
$1.32. An average of 758,000 fewer shares were outstanding for the nine months.
The Lighting Equipment division again led NSI's quarterly results as sales
increased 12.4 percent to $216.0 million. For the nine-month period, sales rose
13.2 percent to $620.5 million. Increases in both periods resulted largely from
higher unit sales than in the prior year. Operating profit grew 22.4 percent for
the quarter to 7.5 percent of revenues compared with 6.9 percent the prior third
quarter. For the nine months, operating income was 6.8 percent of revenues, up
from 6.3 percent the prior year-to-date. Both fluorescent and non-fluorescent
product segments achieved gains as higher unit volumes more than compensated for
higher product costs.
Textile Rental division revenues reached $142.0 million for the quarter and
$409.9 million year-to-date, ahead about one percent for both periods. Modest
sales increases were recorded in each of the division's market segments with the
exception of healthcare, which continues to be very competitive. For the
quarter, operating income advanced to 11.3 percent of revenues from 10.8 percent
the prior third quarter. For the nine months, operating income declined to 8.5
percent of revenues from 9.2 percent the prior year-to-date. Labor and delivery
cost improvements benefited both current-year periods but were not sufficient to
offset higher merchandise amortization for the year-to-date.
The Chemical sector reported a third quarter sales increase of 6.3 percent to
$91.1 million and a year-to-date increase of 6.4 percent to $259.3 million.
Gains were predominantly the result of higher unit volumes. Operating earnings
declined to 8.1 percent of revenues for the quarter and 8.9 percent year-to-date
from 9.4 percent and 9.7 percent in the comparable periods last year. The
declines resulted from the sector's increased investment in recruiting and
training sales representatives and because of increases in some raw material
costs.
The remaining businesses comprising NSI's other segment, Insulation Service and
Envelopes, combined for revenue increases of 4.9 percent for the quarter and 2.7
percent for the nine months. Operating income, absent the results of the
divested Marketing Services division, rose approximately 27.0 percent for the
quarter to 6.8 percent of revenues, from 5.6 percent the year earlier quarter,
and almost 53 percent year-to-date to 6.5 percent of revenues, from 4.4 percent
a year ago. The Insulation business is benefiting from job tracking
improvements, and the Envelope division gains are resulting from higher unit
volumes.
Corporate expense benefited in both the third quarter and year-to-date from
increased interest income and reduced administrative expenses. Year-to-date
corporate expense reflects the company's adoption in the first quarter 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.
The provision for income taxes was 37.6 percent of pretax income for the third
quarter and 37.5 percent for the nine months, down from 37.8 for the respective
prior-year periods. The slight reduction in the effective tax rate was the
result of the increase in interest income, which is largely nontaxable.
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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 12).
(b) There were no reports on Form 8-K for the three months ended May 31, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL SERVICE INDUSTRIES, INC.
REGISTRANT
DATE July 12, 1995 /s/ DAVID LEVY
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE July 12, 1995 /S/ J. ROBERT HIPPS
J. ROBERT HIPPS
SENIOR VICE PRESIDENT, FINANCE
Page 12
INDEX TO EXHIBITS
Page No.
EXHIBIT 11 Computations of Net Income per Share of Common Stock 13
EXHIBIT 27 Financial Data Schedules 14