-----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, anvrOQM4uZtrLqP6XW1P2DIRg/emBx68xfrwBkuLH57kc1ykXEpChLaXvvvwR9eM BXUrpSRYlW+NFZpPJudbuQ== 0000070538-94-000025.txt : 19940728 0000070538-94-000025.hdr.sgml : 19940728 ACCESSION NUMBER: 0000070538-94-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940531 FILED AS OF DATE: 19940715 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: 94539030 BUSINESS ADDRESS: STREET 1: 1420 PEACHTREE ST NE CITY: ATLANTA STATE: GA ZIP: 30309 BUSINESS PHONE: 4048531000 MAIL ADDRESS: STREET 1: 1420 PEACHTREE ST NE CITY: ATLANTA STATE: GA ZIP: 30309 10-Q 1 NATIONAL SERVICE INDUSTRIES, INC. 10-Q, 5-31-94 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 May 31, 1994 Commission file number 1-3208 NATIONAL SERVICE INDUSTRIES, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 58-0364900 (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) 1420 Peachtree Street, N. E., Atlanta, Georgia 30309-3002 (Address of Principal Executive Offices) (Zip Code) (404) 853-1000 (Registrant's Telephone Number, Including Area Code) None (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (applicable only to corporate issuers). Common Stock - $1.00 Par Value - 49,579,731 shares as of July 1, 1994. 2 Page 2 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS - MAY 31, 1994 AND AUGUST 31, 1993 3 CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS AND NINE MONTHS ENDED MAY 31, 1994 AND 1993 4 CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS ENDED MAY 31, 1994 AND 1993 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-8 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9 SIGNATURES 10 EXHIBIT INDEX 11 3 Page 3 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands) May 31, August 31, ASSETS 1994 1993 (Unaudited) Current Assets: Cash and cash equivalents $ 46,190 $ 15,853 Short-term investments 2,371 4,776 Receivables, less reserves for doubtful accounts of $9,555 at May 31, 1994 and $7,170 at August 31, 1993 234,584 249,958 Inventories, at the lower of cost (on a first-in, first-out basis) or market 183,145 171,545 Linens in service, net of amortization 88,556 77,931 Prepaid income taxes 14,588 25,340 Prepayments 11,221 11,513 Total Current Assets 580,655 556,916 Property, Plant, and Equipment, at cost: Land 33,016 33,303 Buildings and leasehold improvements 191,624 190,276 Machinery and equipment 517,139 500,459 Total Property, Plant, and Equipment 741,779 724,038 Less - Accumulated depreciation and amortization 384,581 358,853 Property, Plant, and Equipment - net 357,198 365,185 Other Assets: Goodwill and other intangibles 118,596 127,387 Other 44,117 38,025 Total Other Assets 162,713 165,412 Total Assets $1,100,566 $1,087,513 May 31, August 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993 (Unaudited) Current Liabilities: Current maturities of long-term debt $ 846 $ 1,792 Notes payable 4,841 4,404 Accounts payable 74,283 85,505 Accrued salaries, commissions, and bonuses 35,726 37,103 Self insurance reserves 72,884 71,888 Other accrued liabilities 53,609 42,981 Total Current Liabilities 242,189 243,673 Long-Term Debt, less current maturities 27,197 28,418 Deferred Income Taxes 78,219 84,289 Other Long-Term Liabilities 28,083 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 May 31, 1994 and August 31, 1993 57,919 57,919 Paid-in capital 7,604 7,299 Retained earnings 693,905 673,399 759,428 738,617 Less - Treasury stock, at cost (8,341,324 shares at May 31, 1994 and 8,357,539 share at August 31, 1993) 34,550 34,594 Total Stockholders' Equity 724,878 704,023 Total Liabilities and Stockholders' Equity $1,100,566 $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 NINE MONTHS ENDED MAY 31 MAY 31 1994 1993 1994 1993 Sales and Service Revenues: Net sales of products $340,562 $319,567 $ 974,179 $ 912,121 Service revenues 140,439 140,397 406,059 409,177 Total Revenues 481,001 459,964 1,380,238 1,321,298 Costs and Expenses: Cost of products sold 221,069 210,550 639,181 602,397 Cost of services 72,901 71,465 212,360 210,109 Selling and administrative expenses 146,835 142,224 426,260 412,548 Interest expense 867 1,684 3,037 3,992 Other expense, net 2,480 1,339 5,599 7,011 Total Costs and Expenses 444,152 427,262 1,286,437 1,236,057 Income before Provision for Income Taxes 36,849 32,702 93,801 85,241 Provision for (Benefit from) Income Taxes: Current 15,037 12,887 38,522 28,391 Deferred (1,116) (696) (3,094) 3,119 13,921 12,191 35,428 31,510 Net Income $ 22,928 $ 20,511 $ 58,373 $ 53,731 Per Share: Net income $.46 $.41 $1.18 $1.08 Cash dividends $.27 $.26 $.80 $.77 Weighted Average Number of Shares Outstanding (thousands) 49,578 49,559 49,571 49,554 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) NINE MONTHS ENDED MAY 31 1994 1993 Cash Provided by (Used for) Operations: Net income $ 58,373 $ 53,731 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 45,582 45,110 Provision for losses on accounts receivable 3,442 3,145 Gain on sale of property, plant, and equipment (710) (308) Gain on the sale of business (467) (1,379) Provision for deferred income taxes (3,094) 3,119 Change in assets and liabilities net of effect of acquisitions- Receivables, net 12,213 377 Inventories and linens in service, net (22,297) (19,521) Prepaid income taxes 10,752 (1,087) Prepayments and other 221 (3,210) Accounts payable and accrued liabilities (990) (9,893) Net Cash Provided by Operations 103,025 70,084 Cash Provided by (Used for) Investing Activities: Change in short-term investments 2,405 2,562 Purchase of property, plant, and equipment (30,117) (22,002) Sale of property, plant, and equipment 2,078 2,040 Sale of business 682 2,558 Acquisitions (375) (95,449) Change in other assets (7,710) (8,956) Net Cash Used for Investing Activities (33,037) (119,247) Cash Provided by (Used for) Financing Activities: Change in notes payable 437 12,417 Additions to long-term debt - - Repayment of long-term debt (2,167) (1,820) Recovery of investment in tax benefits 1,601 1,489 Deferred income taxes from investment in tax benefits (2,976) (2,512) Issuance of treasury stock 349 338 Change in other long-term liabilities 973 (1,493) Cash dividends paid (39,655) (38,154) Net Cash Used for Financing Activities (41,438) (29,735) Effect of Exchange Rate Changes on Cash 1,787 (1,395) Net Change in Cash and Cash Equivalents 30,337 (80,293) Cash and Cash Equivalents at Beginning of Year 15,853 101,137 Cash and Cash Equivalents at End of Period $ 46,190 $ 20,844 Supplemental Cash Flow Information: Income taxes paid during the period $ 28,687 $ 24,483 Interest paid during the period 3,023 4,722 Noncash Investing and Financing Activities: Noncash aspects of sale of business - Receivables incurred $ (281) $ - Noncash aspects of acquisitions- Liabilities assumed $ - $ 32,750 Treasury stock returned - (20) $ - $ 32,730 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 May 31, 1994, the consolidated results of operations for the three months and nine months ended May 31, 1994 and 1993, and the consolidated cash flows for the nine months ended May 31, 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 nine months ended May 31, 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 May 31 Sales and Service Revenues Operating Profit 1994 1993 1994 1993 (In thousands) Lighting Equipment $ 192,129 $ 173,573 $ 13,200 $ 9,464 Textile Rental 140,439 140,397 15,127 16,622 Chemical 85,767 83,007 8,079 7,426 * Other 62,666 62,987 3,334 2,287 $ 481,001 $ 459,964 39,740 35,799 Corporate (1,870) (1,752) Interest Expense (1,021) (1,345)* Total $ 36,849 $ 32,702 * Restated for comparative purposes. Nine Months Ended May 31 Sales and Service Revenues Operating Profit 1994 1993 1994 1993 (In thousands) Lighting Equipment $ 548,033 $ 495,376 $ 34,559 $ 26,089 Textile Rental 406,059 409,177 37,411 38,279 Chemical 243,648 232,700 23,559 22,690 Other 182,498 184,045 6,619 7,324 $1,380,238 $1,321,298 102,148 94,382 Corporate (5,318) (5,149) Interest Expense (3,029) (3,992) Total $ 93,801 $ 85,241 3. INVENTORIES: Major classes of inventory as of May 31, 1994 and August 31, 1993 were as follows: May 31, August 31, 1994 1993 (In thousands) Raw Materials and Supplies $ 75,510 $ 77,911 Work-in-Process 10,751 11,269 Finished Goods 96,884 82,365 Total $ 183,145 $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 maintained a strong financial position as it completed the third quarter of fiscal 1994. Net working capital was $338.5 million, compared with $313.2 million at August 31, 1993, and the current ratio was 2.4, compared with 2.3 at year end. Cash and short-term investments were $48.6 million, up from $20.6 million at the prior year end. For the nine months ended May 31, 1994, the company invested $30.5 million in capital expenditures and acquisitions. Long- term debt and other long-term liabilities were 7.1 percent of total capitalization, compared with 7.3 percent at August 31, 1993. Cash provided by operations rose to $103.0 million from $70.1 million for the nine months last year. The improvement resulted from working capital increases, primarily in receivable and prepaid income tax reductions. Capital expenditures, exclusive of acquisition spending, were $30.1 million for the nine months this year and $22.0 million for the prior-year period. Current-year spending was primarily the result of facilities and manufacturing process improvements in the lighting equipment division, facilities additions and information systems enhancements 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 $95.4 million for the three quarters 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 for the nine months totaled $39.7 million, or 80 cents per share, compared with $38.2 million, or 77 cents per share, for the nine months. 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 Net income of National Service Industries rose 11.8 percent, from $20.5 million the prior-year quarter, to $22.9 million in the company's third fiscal quarter which ended May 31, 1994. Sales for the period increased 4.6 percent to $481 million, compared with $460 million the prior year. Earnings per share gained 11.7 percent to 46 cents from last year's 41 cents. 8 Page 8 Year-to-date results for the nine months ended May 31 indicated that sales increased 4.5 percent to $1.38 billion. Net income of $58.4 million led to earnings of $1.18 per share. Both income measures represented 8.6 percent increases from the $53.7 million and $1.08 per share reported last year. The lighting equipment division continued to lead NSI's operatons in the third quarter as further market share gains were posted. Sales increased 10.7 percent to $192.1 million for the quarter and 10.6 percent to $548.0 million year to date on the strength of increased unit sales. Non-fluorescent product lines were particularly strong. Operating profit grew 39.5 percent for the quarter to 6.9 percent of revenues, up from 5.5 percent last year, and rose 32.5 percent for the nine months to 6.3 percent of revenues, from 5.3 percent the prior year to date. Profit improvements were largely the result of higher unit volumes. Results in the textile rental sector were somewhat disappointing as the quarter's revenues of $140.4 million were flat compared with the prior year and year-to-date revenues of $406.1 million were a slight decline . Textile rental demand has not firmed in any meaningful way this year, and heathcare rental revenue has been weak. Operating profit declined to 10.8 percent of revenues for the quarter and 9.2 percent year to date, compared with 11.8 percent and 9.4 percent in the comparable periods last year, primarily due to higher merchandise costs and a prior- year gain on the sale of a business. Sales of the chemical segment increased 3.3 percent to $85.8 million for the third quarter and 4.7 percent to $243.6 million for the nine months due to pricing gains. Domestic sales have shown satisfactory increases, however, international demand has been soft. Operating profit was 9.2 percent of revenues for the quarter and 9.7 percent for the year to date, slightly below the respective prior-year periods. Canadian operations in particular dampened chemical segment results. NSI's other businesses combined for a 45.8 percent quarterly increase in operating income on a small sales decline; year-to-date results deteriorated minimally. Insulation services rebounded sharply in the quarter, and the envelope division added to the gains achieved in the first half of the fiscal year. Corporate income was less than last year's third quarter and nine months due primarily to reduced investment income resulting from both lower rates and lower average investment levels. Interest expense was somewhat less than both prior-year periods due to reductions in acquisition-related debt. Consolidated income before taxes improved 12.7 percent for the quarter and 10.0 percent for the year to date. The improvement in net income was reduced to 11.8 percent and 8.6 percent for the respective periods due to the higher 1994 tax rate. The provision for income taxes was 37.8 percent of pretax income for both the third quarter and the nine months, compared with 37.3 percent and 37.0 percent for the comparable 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 May 31, 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 July 14, 1994 /S/ DAVID LEVY DAVID LEVY EXECUTIVE VICE PRESIDENT, ADMINISTRATION AND COUNSEL DATE July 14, 1994 /S/ J. ROBERT HIPPS J. ROBERT HIPPS SENIOR VICE PRESIDENT, FINANCE 11 Page 11 INDEX TO EXHIBITS Page No. EXHIBIT 11 Computations of Net Income per Share of Common Stock 12 EX-11 2 1 Page 12 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 NINE MONTHS ENDED MAY 31 MAY 31 1994 1993 1994 1993 Primary: Weighted Average Number of Shares (determined on a monthly basis) 49,578 49,559 49,571 49,554 Net Income $22,928 $20,511 $58,373 $53,731 Primary Earnings per Share $ .46 $ .41 $1.18 $1.08 Fully Diluted: Weighted Average Number of Shares Outstanding 49,578 49,559 49,571 49,554 Additional Shares Assuming Exercise of Options: Options exercised 717 567 716 567 Treasury stock purchased with proceeds (636) (493) (656) (493) Average Common Shares Outstanding (as adjusted) 49,659 49,633 49,631 49,628 Net Income $22,928 $20,511 $58,373 $53,731 Fully Diluted Earnings per Share $ .46 $ .41 $1.18 $1.08 -----END PRIVACY-ENHANCED MESSAGE-----