-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fFU+9pWcc8X3QQAdSlhwrAdj9hvn8j341NEwAFX9WiLeOPSLlhBnUl7tuXDqqv5C fPQJAvSuD2RPEbAGgl26nA== 0000070538-94-000010.txt : 19940415 0000070538-94-000010.hdr.sgml : 19940415 ACCESSION NUMBER: 0000070538-94-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940228 FILED AS OF DATE: 19940414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL SERVICE INDUSTRIES INC CENTRAL INDEX KEY: 0000070538 STANDARD INDUSTRIAL CLASSIFICATION: 3640 IRS NUMBER: 580364900 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03208 FILM NUMBER: 94522644 BUSINESS ADDRESS: STREET 1: 1420 PEACHTREE ST NE CITY: ATLANTA STATE: GA ZIP: 30309 BUSINESS PHONE: 4048531000 10-Q 1 10-Q PAGES 1 THROUGH 11 1 Page 1 of 12 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 2 Page 2 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 3 Page 3 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. 4 Page 4 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. 5 Page 5 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. 6 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, 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 7 Page 7 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. 8 Page 8 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. 9 Page 9 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. 10 Page 10 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 11 Page 11 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 EX-10 2 SUPPLEMENTAL PENSION PLAN 1 Page 12 FIRST AMENDMENT TO SUPPLEMENTAL RETIREMENT PLAN FOR EXECUTIVES OF NATIONAL SERVICE INDUSTRIES, INC. (As Amended and Restated Effective as of January 1, 1994) THIS AMENDMENT made this 16th day of March, 1994, by NATIONAL SERVICE INDUSTRIES, INC. (the "Company"); WHEREAS, the Company maintains the Supplemental Retirement Plan for Executives of National Service Industries, Inc. (the "Plan") for the benefit of certain eligible executives of the Company; and WHEREAS, the Plan was amended and restated effective as of January 1, 1994; and WHEREAS, the Company now desires to clarify certain provisions of the Plan in the manner hereinafter provided; NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 1.1(a)(i) is hereby amended by adding the following after the parenthetical in the seventh line of the present section: ", increased for purposes of this offset for any Participant who would not have been eligible for Early Retirement under Pension Plan C as in effect prior to February 15, 1989, but who elects Early Retirement hereunder, by recalculating his February 14, 1989 accrued benefit as if he were eligible for an Early Retirement benefit". 2 Page 13 2. Section 1.1(gg)(2) is hereby amended by deleting the language after the word "assuming" in the fourth line of the present section and substituting the following therefor: "that he had no Compensation or other earnings after his date of termination of employment; and" 3. The amendment in Paragraph 1 shall be effective as of January 1, 1994 and the amendment in Paragraph 2 shall be effective as of July 1, 1983. Except as hereby amended, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed by its duly authorized officers the day and year first above written. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. /S/ Kenyon W. Murphy By: /S/ David Levy David Levy Executive Vice President, Administration and Counsel (CORPORATE SEAL) EX-11 3 COMPUTATIONS OF NET INCOME PER SHARE 1 Page 14 Exhibit 11 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATIONS OF NET INCOME PER SHARE OF COMMON STOCK (In thousands, except per-share data) THREE MONTHS ENDED SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 1994 1993 1994 1993 Primary: Weighted Average Number of Shares (determined on a monthly basis) 49,572 49,558 49,568 49,552 Net Income $16,273 $14,634 $35,445 $33,220 Primary Earnings per Share $ .33 $ .30 $ .72 $ .67 Fully Diluted: Weighted Average Number of Shares Outstanding 49,572 49,558 49,568 49,552 Additional Shares Assuming Exercise of Options: Options exercised 745 567 745 567 Treasury stock purchased with proceeds (637) (478) (637) (478) Average Common Shares Outstanding (as adjusted) 49,680 49,647 49,676 49,641 Net Income $16,273 $14,634 $35,445 $33,220 Fully Diluted Earnings per Share $ .33 $ .29 $ .71 $ .67 -----END PRIVACY-ENHANCED MESSAGE-----