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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, 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 - 48,391,636 shares as of January 9, 1996.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS -
NOVEMBER 30, 1995 AND AUGUST 31, 1995 ....... 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS ENDED NOVEMBER 30, 1995 AND 1994 4
CONSOLIDATED STATEMENTS OF CASH FLOWS - ........... 5
THREE MONTHS ENDED NOVEMBER 30, 1995 AND 1994
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 6. EXHIBITS AND REPORTS ON FORM 8-K ......... 9
SIGNATURES .............................................. 10
EXHIBIT INDEX ........................................... 11
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
November 30, August 31,
1995 1995
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 92,569 $ 79,402
Short-term investments .............................. 2,550 3,598
Receivables, less reserves for doubtful
accounts of $7,643 at November 30, 1995
and $6,467 at August 31, 1995 ..................... 255,372 266,056
Inventories, at the lower of cost (on a
first-in, first-out basis) or market .............. 188,581 185,789
Linens in service, net of amortization .............. 91,618 88,605
Deferred income taxes ............................... 9,325 10,221
Prepayments ......................................... 10,833 6,739
Total Current Assets .............................. 650,848 640,410
Property, Plant, and Equipment, at cost:
Land ................................................ 30,469 31,016
Buildings and leasehold improvements ................ 193,442 192,023
Machinery and equipment ............................. 514,498 503,868
Total Property, Plant, and Equipment .............. 738,409 726,907
Less - Accumulated depreciation and
amortization ...................................... 386,309 377,003
Property, Plant, and Equipment - net ............ 352,100 349,904
Other Assets:
Goodwill and other intangibles ...................... 98,834 101,410
Other ............................................... 38,015 39,622
Total Other Assets ................................ 136,849 141,032
Total Assets .................................... $1,139,797 $1,131,346
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ................ $ 83 $ 87
Notes payable ....................................... 6,592 6,399
Accounts payable .................................... 75,121 81,524
Accrued salaries, commissions, and bonuses .......... 37,519 43,944
Current portion of self insurance reserves .......... 16,825 16,276
Other accrued liabilities ........................... 63,729 54,340
Total Current Liabilities ......................... 199,869 202,570
Long-Term Debt, less current maturities ............... 26,745 26,776
Deferred Income Taxes ................................. 64,287 65,756
Self Insurance Reserves, less current portion ......... 66,870 67,830
Other Long-Term Liabilities ........................... 25,454 24,010
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 November
30, 1995 and August 31, 1995 ...................... 57,919 57,919
Paid-in capital ..................................... 9,379 8,065
Retained earnings ................................... 756,834 746,256
824,132 812,240
Less - Treasury stock, at cost (9,540,932 shares at
November 30, 1995 and 9,609,261 shares at August
31, 1995) ......................................... 67,560 67,836
Total Stockholders' Equity .................... 756,572 744,404
Total Liabilities and Stockholders $ 1,139,797 $1,131,346
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
1995 1994
Sales and Service Revenues:
Net sales of products .......................... $ 359,842 $ 344,882
Service revenues ............................... 132,708 136,102
Total Revenues ............................... 492,550 480,984
Costs and Expenses:
Cost of products sold .......................... 227,439 219,187
Cost of services ............................... 74,364 75,846
Selling and administrative expenses ............ 152,383 149,695
Interest expense ............................... 1,079 830
Other expense, net ............................. 190 1,691
Total Costs and Expenses ..................... 455,455 447,249
Income before Provision for Income Taxes.......... 37,095 33,735
Provision for (Benefit from) Income Taxes:
Current ........................................ 14,227 12,646
Deferred ....................................... (401) (25)
13,826 12,621
Net Income ....................................... $ 23,269 $ 21,114
Per Share:
Net income ..................................... $ .48 $ .43
Cash dividends ................................. $ .28 $ .27
Weighted Average Number of Shares
Outstanding (thousands) ........................ 48,343 49,244
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
1995 1994
Cash Provided by (Used for) Operating Activities:
Net income .................................................. $ 23,269 $ 21,114
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................... 14,394 14,500
Provision for losses on accounts receivable ............. 1,161 1,382
Loss (gain) on the sale of property, plant, and equipment (932) 40
Loss (gain) on the sale of business ..................... 63 (1,117)
Change in noncurrent deferred income taxes .............. (401) (28)
Change in assets and liabilities net of effect
of acquisitions-
Receivables ......................................... 9,518 9,027
Inventories and linens in service, net .............. (5,824) (10,153)
Current deferred income taxes ....................... 896 11,835
Prepayments and other ............................... (4,127) (3,876)
Accounts payable and accrued liabilities ............ (2,887) 1,356
Net Cash Provided by Operating Activities ......... 35,130 44,080
Cash Provided by (Used for) Investing Activities:
Change in short-term investments ............................ 1,049 339
Purchase of property, plant, and equipment .................. (14,338) (11,774)
Sale of property, plant, and equipment ...................... 1,548 409
Sale of business ............................................ -- 3,533
Acquisitions, net of cash acquired .......................... (278) (304)
Change in other assets ...................................... 1,154 1,219
Net Cash Used for Investing Activities .................... (10,865) (6,578)
Cash Provided by (Used for) Financing Activities:
Change in notes payable ..................................... 193 84
Repayment of long-term debt ................................. (35) (168)
Recovery of investment in tax benefits ...................... 430 458
Deferred income taxes from investment in tax benefits ....... (1,068) (975)
Issuance (purchase) of treasury stock ....................... 1,590 176
Change in other long-term liabilities ....................... 484 57
Cash dividends paid ......................................... (13,538) (13,296)
Net Cash Used for Financing Activities .................... (11,944) (13,664)
Effect of Exchange Rate Changes on Cash ....................... 846 (27)
Net Change in Cash and Cash Equivalents ....................... 13,167 23,811
Cash and Cash Equivalents at Beginning of Year ................ 79,402 58,619
Cash and Cash Equivalents at End of Period .................... $ 92,569 $ 82,430
Supplemental Cash Flow Information:
Income taxes paid during the period ......................... $ 12,330 $ 1,171
Interest paid during the period ............................. 1,031 739
Noncash Investing and Financing Activities:
Noncash aspects of sale of business -
Receivables incurred ..................................... $ -- $ (624)
Noncash Aspects of Acquisitions:
Liabilities assumed or incurred ............................. $ -- $ --
Treasury stock issued (returned)
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, 1995 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, 1995, the consolidated results of
operations for the three months ended November 30, 1995 and 1994, and the
consolidated cash flows for the three months ended November 30, 1995 and 1994.
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, 1995.
The results of operations for the three months ended November 30, 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 November 30
Sales and Service
Revenues Operating Profit
1995 1994 1995 1994
(In thousands)
Lighting Equipment ....... $ 208,278 $ 203,806 $ 16,378 $ 13,690
Textile Rental ........... 132,708 136,102 9,753 11,316
Chemical ................. 92,107 87,952 9,705 9,301
Other .................... 59,457 53,124 3,090 3,069
$ 492,550 $ 480,984 38,926 37,376
Corporate ................ (752) (2,811)
Interest Expense ......... (1,079) (830)
Total .................... $ 37,095 $ 33,735
3. INVENTORIES:
Major classes of inventory as of November 30, 1995 and August 31, 1995 were as
follows:
November 30, August 31,
1995 1995
(In thousands)
Raw Materials and Supplies ................... $ 83,123 $ 87,470
Work-in-Process .............................. 9,348 9,879
Finished Goods ............................... 96,110 88,440
Total ................................... $188,581 $185,789
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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 at November 30, 1995,
with net working capital of $451.0 million, up from $437.8 million at August 31,
1995, and a current ratio of 3.3, compared with 3.2 at year end. Cash and
short-term investments increased to $95.1 million from $83.0 million at August
31. During the quarter just ended, the company invested $14.6 million in capital
expenditures and acquisitions. Long-term debt and other long-term liabilities
were 13.6 percent of total capitalization, down slightly from 13.7 percent at
August 31. Cash provided by operating activities was $35.1 million, compared
with $44.1 million for the first quarter last year.
Capital expenditures, exclusive of acquisition spending, were $14.3 million for
the first quarter this year and $11.8 million for the same period a year ago.
The lighting equipment division invested in equipment replacement and process
improvements and tooling for new products. Textile rental division spending
consisted of information systems enhancements and replacement and improvement of
facilities, equipment and vehicles. Prior-year spending included the lighting
equipment division's manufacturing equipment replacements and improvements and
construction of the Mexican production facility and the textile rental
division's fleet upgrades and facility improvements. Acquisition spending was
minimal in both periods.
Dividend payments totaled $13.5 million, or 28 cents per share, during the
quarter ended November 30, 1995, compared with $13.3 million, or 27 cents per
share, for the prior-year period. Effective January, 1996, the regular quarterly
dividend rate was increased 3.6 percent to 29 cents per share, or an annual rate
of $1.16 per share.
For the periods presented, capital expenditures, working capital needs,
dividends, acquisitions, and share repurchases were financed primarily with
internally generated funds, supplemented by short-term borrowings in the
European market. Contractual commitments for capital and acquisition spending
during the coming twelve months total $16 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 $59 million
in 1995, $43 million in 1994, and $36 million in 1993. 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' earnings per share for the first quarter of its new
fiscal year increased 12.1 percent to 48 cents. Sales for the quarter, which
ended November 30, 1995, increased 2.4 percent to $493 million. Net income of
$23.3 million was 10.2 percent higher than the $21.1 million reported in last
year's first quarter. Since there were, on average, 901,000 fewer shares
outstanding during this year's quarter, earnings per share increased at the
greater rate of 12.1 percent.
The lighting equipment division continued its growth with first quarter
sales advancing 2.2 percent to $208 million from $204 million last year. Pricing
improvements were offset somewhat by lower unit volumes. Operating income
advanced 19.6 percent to 7.9 percent of revenues, compared with 6.7 percent the
year earlier, as the improved pricing and a more favorable product mix increased
profit margins.
The textile rental sector posted a 2.5 percent decrease in sales, from $136
million to $133 million, largely because of branches divested last year.
However, operating income declined to 7.3 percent of revenues from 8.3 percent
the prior-year first quarter. The decline was due to continued structural
changes in the healthcare market and to somewhat higher processing costs
resulting in part from this year's extended hurricane season.
Chemical segment sales, benefiting from both improved pricing and unit volume
gains, advanced 4.7 percent to $92 million from $88 million the year earlier.
Operating income was 10.5 percent of revenues, just under the 10.6 percent
posted in the first quarter last year.
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Sales of the Other segment (insulation service and envelopes) rose 11.9 percent
overall. However, the excellent first quarter results of Atlantic Envelope,
bolstered by pricing gains, were offset by softness in North Bros.' insulation
service income.
Corporate expense was greater 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," and the resulting
accrual related primarily to severance agreements and the liability for life
insurance coverage for certain eligible disabled employees.
Interest expense on European loans was higher than in the prior-year period due
to increased borrowings at somewhat higher average interest rates.
The provision for income taxes in the first quarter was 37.3 percent of pretax
income, compared with 37.4 percent for the same period last year. Changes in the
year-to-year effective rates resulted from variations in the relative amounts of
tax exempt income.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders held January 3, 1996, 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.
Item 5. Other Information
The board of directors at its regular meeting held December 20, 1995 elected
Chester J. Popkowski as Vice President, Treasurer.
On January 3, 1996 the board of directors named James S. Balloun as chairman and
chief executive officer effective February 1, replacing current chairman and
chief executive D. Raymond Riddle, who is retiring. Mr. Balloun, 57, has spent
his business career with McKinsey and Company, serving most recently as a
director and member of the Shareholders, Principals and MGM Election Committees.
At the January meeting, the board of directors also elected Kenyon W. Murphy as
Vice President, Secretary and Assistant Counsel.
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,
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 January 12, 1996 /s/ DAVID LEVY
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE January 12, 1996 /S/ J. ROBERT HIPPS
J. ROBERT HIPPS
SENIOR VICE PRESIDENT, FINANCE
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INDEX TO EXHIBITS
Page No.
EXHIBIT 11 ............. - Computation of Net Income per Share of 12
Common Stock
EXHIBIT 27 ............. - Financial Data Schedules 13