Page 1 of 100
Exhibit Index on Page 12
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For quarter ended May 31, 1998 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.
Common Stock - $1.00 Par Value - 41,447,354 shares as of June 30, 1998.
Page 2
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS -
MAY 31, 1998 AND AUGUST 31, 1997 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS AND NINE MONTHS ENDED
MAY 31, 1998 AND 1997 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED MAY 31, 1998 AND 1997 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-9
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 10
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, except per-share data)
May 31, August 31,
1998 1997
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 28,929 $57,123
Short-term investments 58 205,302
Receivables, less reserves for doubtful
accounts of $6,830 at May 31, 1998 and
$4,302 at August 31, 1997 288,940 258,689
Inventories, at the lower of cost
(on a first-in, first-out basis) or market 200,969 179,046
Linens in service, net of amortization 59,274 60,805
Deferred income taxes 17,795 13,077
Prepayments 7,964 6,716
Total Current Assets 603,929 780,758
Property, Plant, and Equipment, at cost:
Land 19,852 19,911
Buildings and leasehold improvements 145,874 138,933
Machinery and equipment 481,290 434,194
Total Property, Plant, and Equipment 647,016 593,038
Less-Accumulated depreciation and amortization 383,005 356,308
Property, Plant, and Equipment-net 264,011 236,730
Other Assets:
Goodwill and other intangibles 84,562 50,166
Other 39,298 38,698
Total Other Assets 123,860 88,864
Total Assets $ 991,800 $1,106,352
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $75 $116
Notes payable 56,736 5,773
Accounts payable 92,276 101,512
Accrued salaries, commissions, and bonuses 31,190 34,776
Current portion of self-insurance reserves 12,115 12,540
Accrued taxes payable -- 38,351
Other accrued liabilities 74,285 88,932
Total Current Liabilities 266,677 282,000
Long-Term Debt, less current maturities 26,163 26,197
Deferred Income Taxes 46,308 34,093
Self-Insurance Reserves, less current portion 45,494 57,056
Other Long-Term Liabilities 42,914 35,193
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, $1 par value,
80,000,000 shares authorized,
57,918,978 shares issued 57,919 57,919
Paid-in capital 28,238 25,521
Retained earnings 878,655 841,045
964,812 924,485
Less-Treasury stock, at cost
(16,477,103 shares at May 31, 1998 and 13,719,834
shares at August 31, 1997) 400,568 252,672
Total Stockholders' Equity 564,244 671,813
Total Liabilities and Stockholders' Equity$ 991,800 $1,106,352
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
Page 4
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
1998 1997 1998 1997
Sales and Service Revenues:
Net sales of products ...................... $ 442,144 $ 383,493 $ 1,253,529 $ 1,136,640
Service revenues ........................... 79,464 131,786 235,073 389,768
Total Revenues ........................ 521,608 515,279 1,488,602 1,526,408
Costs and Expenses:
Cost of products sold ...................... 269,019 231,601 765,854 703,518
Cost of services ........................... 45,270 72,814 136,366 223,589
Selling and administrative expenses ........ 161,618 160,842 464,757 474,137
Interest (income) expense, net (1) ......... 1,304 1,102 (1,092) 2,702
Other (income) expense, net (1) ............ (392) 2,112 (1,739) 4,127
Total Costs and Expenses .............. 476,819 468,471 1,364,146 1,408,073
Income before Provision for Income Taxes ......... 44,789 46,808 124,456 118,335
Provision for Income Taxes ....................... 16,650 17,374 46,161 43,722
Net Income ....................................... $ 28,139 $ 29,434 $ 78,295 $ 74,613
Per Share:
Basic earnings per share ................... $ .67 $ .65 $ 1.83 $ 1.64
Weighted Average Number of Shares
Outstanding (thousands) ............... 42,001 44,996 42,763 45,371
Diluted earnings per share ................. $ .66 $ .65 $ 1.81 $ 1.63
Adjusted Weighted Average Number of Shares
Outstanding (thousands) .......................... 42,659 45,348 43,300 45,663
Cash dividends ............................. $ .31 $ .30 $ .92 $ .89
(1) Prior-year amounts have been restated to conform to current year
presentation.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 5
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
NINE MONTHS ENDED
MAY 31
1998 1997
Cash Provided by (Used for) Operating Activities
Net income ........................................... $ 78,295 $ 74,613
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 36,108 44,449
Provision for losses on accounts receivable ...... 3,908 2,654
Gain on the sale of property, plant, and equipment (3,417) (198)
Gain on the sale of businesses ................... (2,402) (972)
Change in noncurrent deferred income taxes ....... 12,216 (2,375)
Change in assets and liabilities net of effect
of acquisitions and divestitures-
Receivables .................................. (28,309) 914
Inventories and linens in service, net ....... (19,683) 3,347
Deferred income taxes ........................ (4,636) (1,994)
Prepayments and other ........................ (971) (1,699)
Accounts payable and accrued liabilities ..... (68,834) (15,067)
Self-insurance reserves and
other long-term liabilities ................ (3,841) (2,306)
Net Cash Provided by (Used for)
Operating Activities .................. (1,568) 101,366
Cash Provided by (Used for) Investing Activities
Change in short-term investments ..................... 205,244 (2)
Purchases of property, plant, and equipment .......... (56,829) (34,215)
Sale of property, plant, and equipment ............... 4,717 3,170
Sale of businesses ................................... 3,011 31,380
Acquisitions ......................................... (39,424) (4,320)
Change in other assets ............................... (6,230) 4,439
Net Cash Provided by Investing Activities .......... 110,489 452
Cash Provided by (Used for) Financing Activities
Change in notes payable .............................. 49,659 (10,796)
Change in long-term debt ............................. (910) 862
Recovery of investment in tax benefits ............... -- 661
Deferred income taxes from investment
in tax benefits ...................................... -- (1,972)
Purchase of treasury stock, net ...................... (145,179) (69,465)
Cash dividends paid .................................. (39,842) (40,657)
Net Cash Used for Financing Activities ............. (136,272) (121,367)
Effect of Exchange Rate Changes on Cash ................ (843) 318
Net Change in Cash and Cash Equivalents ................ (28,194) (19,231)
Cash and Cash Equivalents at Beginning of Period ....... 57,123 58,662
Cash and Cash Equivalents at End of Period ............. $ 28,929 $ 39,431
Supplemental Cash Flow Information:
Income taxes paid during the period .............. $ 76,382 $ 41,744
Interest paid during the period .................. 4,929 4,074
Noncash Investing and Financing Activities:
Noncash aspects of sale of businesses--
Receivables incurred ........................ $ -- $ 391
Liabilities removed ......................... 165 477
Noncash aspects of acquisitions--
Liabilities assumed or incurred ............. $ 4,891 $ 22,440
Treasury stock issued ....................... -- 20,522
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 6
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, 1997 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, 1998, the consolidated results of operations
for the three months and nine months ended May 31, 1998 and 1997, and the
consolidated cash flows for the nine months ended May 31, 1998 and 1997. 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, 1997.
The results of operations for the three months and nine months ended May 31,
1998 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 (Loss)
1998 1997 1998 1997
(In thousands)
Lighting Equipment ........... $ 277,497 $ 237,775 $ 26,123 $ 23,662
Chemical ..................... 119,111 109,813 11,321 9,438
Textile Rental ............... 79,464 131,786 8,707 14,040
Envelope ..................... 45,536 34,404 4,428 2,969
Other ........................ -- 1,501 -- 472
$ 521,608 $ 515,279 50,579 50,581
Corporate .................... (4,486) (2,671)
Interest income (expense), net (1,304) (1,102)
Total ........................ $ 44,789 46,808
Nine Months Ended May 31
Sales and Service
Revenues Operating Profit (Loss)
1998 1997 1998 1997
(In thousands)
Lighting Equipment ........... $ 806,233 $ 688,943 $ 76,649 $ 65,679
Chemical ..................... 332,056 292,990 28,467 26,985
Textile Rental ............... 235,073 389,768 21,525 29,478
Envelope ..................... 115,240 99,165 8,896 7,720
Other ........................ -- 55,542 -- 1,419
$ 1,488,602 $ 1,526,408 135,537 131,281
Corporate .................... (12,173) (10,244)
Interest income (expense), net 1,092 (2,702)
Total ........................ $ 124,456 $ 118,335
Page 7
3. INVENTORIES:
Major classes of inventory as of May 31, 1998 and August 31, 1997 were as
follows:
May 31, August 31,
1998 1997
(In thousands)
Raw Materials and Supplies ................... $ 78,767 $ 71,266
Work-in-Process .............................. 10,452 10,572
Finished Goods ............................... 111,750 97,208
Total ................................... $200,969 $179,046
4. NEW ACCOUNTING STANDARD
During the quarter ended February 28, 1998, the company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 supersedes Accounting Principles Board Opinion No. 15, "Earnings per Share,"
and promulgates new accounting standards for the computation and manner of
presentation of the company's earnings per share. The adoption of SFAS No. 128
did not have a material impact on the computation or manner of presentation of
the company's earnings per share as previously presented under APB 15. Exhibit
11 represents a reconciliation of basic and diluted weighted average shares and
a calculation of earnings per share using the guidelines of SFAS No. 128.
5. ENVIRONMENTAL MATTERS
The company's operations, as well as other similar operations, are subject to
comprehensive laws and regulations relating to the generation, storage,
handling, transportation, and disposal of hazardous substances and solid and
hazardous wastes and to the remediation of contaminated sites. Permits and
environmental controls are required for certain of the company's operations to
prevent air and water pollution, and these permits are subject to modification,
renewal and revocation by issuing authorities. The company believes that it is
in substantial compliance with all material environmental laws, regulations and
its permits. On an ongoing basis, the company incurs capital and operating costs
relating to environmental compliance. Environmental laws and regulations have
generally become stricter in recent years, and the cost of responding to future
changes may be substantial.
Certain environmental laws, such as Superfund, can impose liability for the
entire cost of site remediation upon each of the current or former owners or
operators of a site or parties who sent waste to a site where a release of a
hazardous substance has occurred regardless of fault or the lawfulness of the
original disposal activity. Generally, where there are a number of financially
viable potentially responsible parties ("PRPs"), liability has been apportioned
based on the type and amount of waste disposed of by each party at such disposal
site and the number of financially viable parties, although no assurance can be
given as to any particular site.
The company is currently a party to, or otherwise involved in, legal proceedings
in connection with several state and federal Superfund sites, one of which is
located on property owned by the company. Except for the Crymes Landfill matter
in Georgia, the company believes its liability is de minimis at each of the
sites which it does not own where it has been named as a PRP. At the Crymes
Landfill Site, since the matter is currently in the investigative phase, the
company does not know whether its liability is de minimis but believes that its
exposure at the site is not likely to result in a material adverse effect on the
company. For the property which the company owns on Seaboard Industrial
Boulevard in Atlanta, Georgia, the company has agreed to conduct an
investigation on its and adjoining properties pursuant to the Georgia Hazardous
Site Response Act. Until that investigation is completed, the company will not
be able to determine if remediation will be required, if the company will be
solely responsible for the cost of such remediation or whether such cost is
likely to result in a material adverse effect on the company.
The company is currently evaluating emissions of volatile organic compounds from
its manufacturing operations in the Atlanta area to determine whether it will
need to install pollution control equipment or modify its operations to comply
with federal and state air pollution regulations. Until the current evaluations
are completed, the company is not able to quantify the possible cost of
compliance. However, based upon currently available information, the company
does not expect any expenditures which may have to be made to achieve compliance
to be material.
In connection with the sale of the North Bros. business and 29 of the company's
textile rental plants in 1997, the company has retained certain environmental
liabilities for which it has established reserves. The company has received
notice from the buyer of the textile rental plants of the alleged presence of
perchloroethylene contamination on one of the properties involved in the sale.
The company has since asserted an indemnification claim against the company from
which it bought the property. Inasmuch as the company has only recently received
notice of the buyer's claim, it is too early to quantify the company's potential
exposure in this matter, the likelihood of an adverse result or the possibility
that the company may be fully or partially indemnified.
In November 1997, the Environmental Protection Agency ("EPA") proposed stringent
new wastewater discharge limits, which would become effective in the future,
that could apply to certain facilities operated by the company. While the
company does not believe that these regulations should apply to its operations,
if the regulations are adopted as proposed, following adoption, the company's
cost to comply with them could be as much as $6-million to $9-million of
equipment expenditures spread over a three-year period, which the company does
not believe would be material to its financial condition or results of
operations.
Page 8
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 continued in strong financial condition at May 31,
1998. Net working capital declined to $337.3 million from $498.8 million at
August 31, 1997, as the company reinvested to support its growth and returned
other funds to its shareholders through share repurchases. The current ratio was
2.3 compared with 2.8 as of year end. Cash and short-term investments were $30.0
million, compared with $262.4 million at August 31. For the nine months ended
May 31, the company invested $96.3 million in capital expenditures and
acquisitions. In addition, the company spent $145.2 million to repurchase 3.0
million shares of its common stock. Operating activities used $1.6 million of
cash primarily for investment in inventories to support sales growth, the
payment of taxes associated with the gain on the 1997 disposal of linen plants
and funding of restructuring activities. Cash provided by operating activities
was $101.4 million for the nine months last year. As planned, the percent of
debt to total capitalization was 12.8 percent, up from 4.6 percent at August 31
due to interim borrowings under a committed credit facility.
Capital expenditures, exclusive of acquisition spending, were $56.8 million for
the nine months this year, compared with $34.2 million for the same period last
year. For the current-year nine months, the lighting equipment segment invested
in facility expansions and manufacturing process improvements, the textile
rental segment invested in efficiency improvements and replacements of
processing equipment and information systems, and the envelope segment invested
in facility and machinery replacements. Prior-year spending consisted primarily
of lighting equipment segment facilities and process improvements, equipment
replacements, and tooling for new products and textile rental segment facilities
improvements and equipment replacements.
Current-year acquisition spending of $39.4 million resulted primarily from the
chemical segment's purchase of Pure Corporation, a specialty chemical company
with its core businesses in Indiana, Pennsylvania, and New York; the envelope
segment's purchase of Allen Envelope Corporation, a single-plant,
Pennsylvania-based envelope manufacturer serving markets in the Northeast; and
performance payments associated with a prior-year chemical acquisition.
Prior-year spending of $4.3 million in cash was the result of: the chemical
segment's purchase of chemical products companies in Ohio and Canada; the
lighting equipment segment's acquisition of Lumaid, Inc., a small emergency
lighting products manufacturer in Canada; and the third quarter acquisition for
an initial payment of $20.5 million in stock of Enforcer Products, Inc., a
specialty chemical company with a retail focus.
Cash from divestitures totaled $3.0 million for the current year due primarily
to the textile rental segment's sale of non-strategic operations. Prior-year
divestitures generated $31.4 million from the sale of the insulation business
for $27.1 million and the sale of non-strategic textile rental businesses.
During the prior-year third quarter, the company agreed to sell, at a gain, 29
uniform and linen plants to G&K Services, Inc. The sale was completed during the
fourth quarter for approximately $280 million in cash.
During the nine months ended May 31, 1998, year-end restructuring reserves were
reduced by $4.4 million, primarily for exit costs associated with the disposal
of facilities and consolidation of operations and severance-related costs.
Dividend payments totaled $39.8 million, or 92 cents per share, for the nine
months, compared with $40.7 million, or 89 cents per share, for the same period
a year ago. Effective January 1998, the regular quarterly dividend rate was
increased 3.3 percent to 31 cents per share, or an annual calendar year rate of
$1.24 per share. During the nine months ended May 31, 1998, the company
repurchased 3.0 million of its common shares, before reissuances related to
acquisitions and stock options.
For the periods presented, capital expenditures, working capital needs,
dividends, acquisitions, and share repurchases were financed primarily with
internally generated funds supplemented by borrowings through a committed credit
facility. European operations were supplemented by short-term borrowings in the
European market. Contractual commitments for capital and acquisition spending
during the coming twelve months total $26.1 million. The company expects actual
capital expenditures in 1998 to be significantly higher than the 1997 level in
support of the company's growth plans. Capital expenditures, excluding
acquisition spending, were $49 million in 1997, $66 million in 1996, and $59
million in 1995. Late in fiscal 1996, the company negotiated a $250 million
multi-currency committed credit facility with eleven domestic and international
banks. The company has complimentary lines of credit totaling $62 million, of
which $40 million is available domestically and $22 million is available on a
multi-currency basis. Current liquid assets, internally generated funds, and
borrowing, either through the existing facility or the debt capital markets, are
expected to meet anticipated general operating cash requirements for the next
twelve months.
Over the past year, the company has devoted significant internal resources in
addressing the expected impact of the Year 2000 issue on its information
technology infrastructure. At this point in time, the company does not believe
that its expenditures relating to the Year 2000 issue will have a material
impact on its financial position, results of operations, liquidity, or future
business strategy. The company expects to have completed all systems
modifications prior to the year 2000.
Page 9
Results of Operations
National Service Industries' sales for the third quarter ended May 31, 1998
increased slightly to $521.6 million versus last year's $515.3 million. Third
quarter net income was $28.1 million, or 66 cents diluted earnings per share,
compared with prior year's net income of $29.4 million, or 65 cents diluted EPS.
Diluted EPS increased 1.5 percent on a 4.4 percent decline in net income as a
result of 2.7 million fewer average shares outstanding.
For the first nine months of fiscal year 1998, NSI's sales declined 2.5 percent
to $1.49 billion versus last year's $1.53 billion. Net income increased 4.9
percent to $78.3 million versus last year's $74.6 million. Diluted EPS increased
11.0 percent, reflecting increased income and a 2.4 million reduction in average
shares outstanding. The 1998 year-to-date earnings included pretax gains of $5.8
million from the sale of assets compared with $7.3 million from asset sales and
accounting policy changes for ancillary textile rental revenues in 1997.
The lighting equipment segment reported sales of $277.5 million, up 16.7 percent
over last year's third quarter sales of $237.8 million. For the nine months,
sales were $806.2 million, a 17.0 percent increase over the prior year to date.
Continued demand in non-residential construction and market acceptance of new
Lithonia products contributed to the sales growth. Operating income increased
10.4 percent to $26.1 million for the quarter and 16.7 percent to $76.6 million
for the nine months. Operating margin rates for the third quarter were slightly
below those of the same period a year ago due to increased marketing
expenditures and were consistent on a comparative year-to-date basis.
Chemical segment sales, benefiting from a prior-year acquisition, increased 8.5
percent to $119.1 million for the third quarter and 13.3 percent to $332.1
million for the year to date, due largely to incremental revenues from retail
distribution channels. Operating income increased 20.0 percent to $11.3 million
for the quarter and 5.5 percent to $28.5 million for the nine months. While
margin rates for the quarter improved due to a reduction in administrative
costs, year-to-date margin rates were slightly below last year's due to costs
associated with growth initiatives in both the retail and
industrial/institutional distribution channels.
Textile rental segment sales were $79.5 million for the third quarter and $235.1
million for the nine months, each a 40 percent decline from the respective
prior-year amounts. Operating income declined to $8.7 million for the quarter
from $14.0 million last year and was $21.5 million for the nine months compared
with $29.5 million the prior year to date. The declines in sales and operating
income were a result of the uniform plant divestitures completed in the fourth
quarter of fiscal year 1997. After considering divested operations and
non-operating gains, revenue was in line with the prior year's results and
operating income improved slightly. Since the 1997 divestitures, National Linen
Service has continued to improve underlying margin rates and generate positive
economic profit.
Envelope segment sales increased 32.4 percent to $45.5 million for the third
quarter and 16.2 percent to $115.2 million for the nine months. The quarter's
increased sales volume was due largely to the March acquisition of Allen
Envelope, which also benefited year-to-date sales volume. Operating profit
increased for both the quarter and year to date due to additional sales volume
and a $0.6 million gain on the sale of non-productive equipment.
During the third quarter, the company repurchased 1.0 million shares of its
common stock under its buyback program, bringing the total to 3.0 million shares
repurchased during the fiscal year to date. To finance third quarter share
repurchases and acquisitions, the company began borrowing funds, which resulted
in an increase in net interest expense. In addition, corporate expense increased
due to accruals for competitive incentives designed to encourage higher levels
of performance.
The provision for income taxes was 37.2 percent compared to 37.1 percent for the
prior third quarter and was 37.1 percent compared to 36.9 percent the prior year
to date.
From time to time, the company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
capital expenditures, technological developments, new products, research and
development activities and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements. In
order to comply with the terms of the safe harbor, the company notes that a
variety of factors could cause the company's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the company's forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of the company's
business include without limitation the following: (a) the uncertainty of
general business and economic conditions, particularly the potential for a slow
down in non-residential construction awards; and (b) the ability to achieve
strategic initiatives, including but not limited to the ability to achieve sales
growth across the business segments through a combination of increased pricing,
enhanced sales force, new products, and improved customer service, as well as
share repurchases and acquisitions.
Page 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On March 12, 1997, the company acquired all of the issued and outstanding
capital stock of Enforcer Products, Inc. ("Enforcer") and issued as partial
consideration for the acquisition an aggregate of 667,676 restricted shares of
Common Stock of the company to Enforcer's three shareholders, each of whom
qualified as an "accredited investor" within the meaning of the Securities Act
of 1933 (the "Act"). The Common Stock issued to Enforcer's shareholders was
valued at approximately $25.5 million for purposes of the acquisition. The
company relied on Section 4(2) of the Act as its exemption from the registration
requirements.
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, 1998.
Page 11
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 14, 1998 /s/ David Levy
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE July 14, 1998 /s/ Brock Hattox
BROCK HATTOX
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Page 12
INDEX TO EXHIBITS
Page No.
EXHIBIT 10(i)A US$250,000,000 Credit Agreement
dated as of July 23, 1996 among
National Service Industries, Inc.,
Certain of its Subsidiaries,
Certain Listed Banks, Wachovia Bank
of Georgia, N.A., as Agent, and
Nationsbank, N.A. (South) and
Suntrust Bank, Atlanta, as Co-Agents 13
EXHIBIT 11 Computation of Net Income
per Share of Common Stock 99
EXHIBIT 27 Financial Data Schedule 100