-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UFTP8shuQ5Eb/ruYpQNMxCvzgMLwmAuuprixJwerLJlL5pZh67ZZgsk7etF8blYF Im7+RySKawErPt1LdChCWQ== 0000070538-97-000025.txt : 19970716 0000070538-97-000025.hdr.sgml : 19970716 ACCESSION NUMBER: 0000070538-97-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970715 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL SERVICE INDUSTRIES INC CENTRAL INDEX KEY: 0000070538 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [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: 97640681 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 Page 1 of 20 Exhibit Index on Page 12 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For quarter ended May 31, 1997 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 - 45,085,188 shares as of June 27, 1997. Page 2 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS - MAY 31, 1997 AND AUGUST 31, 1996 3 CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS AND NINE MONTHS ENDED MAY 31, 1997 AND 1996 4 CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS ENDED MAY 31, 1997 AND 1996 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-9 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 SIGNATURES 11 EXHIBIT INDEX 12 Page 3 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands, except per-share data) May 31, August 31, 1997 1996 ASSETS (Unaudited) Current Assets: Cash and cash equivalents .......................... $ 39,431 $ 58,662 Short-term investments ............................. 553 551 Receivables, less reserves for doubtful accounts of $7,343 at May 31, 1997 and $5,807 at August 31, 1996 .................... 261,990 269,971 Inventories, at the lower of cost (on a first-in, first-out basis) or market ............. 166,722 169,813 Linens in service, net of amortization ............. 97,470 97,710 Deferred income taxes .............................. 4,145 2,152 Prepayments ........................................ 9,575 7,522 Total Current Assets ............................. 579,886 606,381 Property, Plant, and Equipment, at cost: Land ............................................... 28,049 29,062 Buildings and leasehold improvements ............... 188,425 194,219 Machinery and equipment ............................ 535,820 542,056 Total Property, Plant, and Equipment ............. 752,294 765,337 Less - Accumulated depreciation and amortization ..................................... 401,730 407,941 Property, Plant, and Equipment - net ........... 350,564 357,396 Other Assets: Goodwill and other intangibles ..................... 102,275 89,427 Other .............................................. 36,977 41,442 Total Other Assets ............................... 139,252 130,869 Total Assets ................................... $1,069,702 $1,094,646 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt ............... $ 5,566 $ 46 Notes payable ...................................... 5,998 6,696 Accounts payable ................................... 88,016 79,851 Accrued salaries, commissions, and bonuses ......... 34,824 42,788 Current portion of self insurance reserves ......... 15,591 15,396 Other accrued liabilities .......................... 42,495 52,649 Total Current Liabilities ........................ 192,490 197,426 Long-Term Debt, less current maturities .............. 26,236 24,920 Deferred Income Taxes ................................ 56,937 63,347 Self Insurance Reserves, less current portion ........ 61,827 63,369 Other Long-Term Liabilities .......................... 28,873 27,576 Stockholders' Equity: Series A participating preferred stock, $.05 stated value, 500,000 shares authorized, none issued Preferred stock, no par value, 500,000 shares authorized, none issued Common stock, $1 par value, 80,000,000 shares authorized, 57,918,978 shares issued at May 31, 1997 and August 31, 1996 ..................... 57,919 57,919 Paid-in capital .................................... 12,646 11,021 Retained earnings .................................. 825,641 791,367 896,206 860,307 Less - Treasury stock, at cost (12,762,340 shares at May 31, 1997 and 11,447,036 shares at August 31, 1996) .............................. 192,867 142,299 Total Stockholders' Equity ................... 703,339 718,008 Total Liabilities and Stockholders's Equity. $1,069,702 $1,094,646 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 1997 1996 1997 1996 Sales and Service Revenues: Net sales of products $ 383,493 $ 381,114 $ 1,136,640 $ 1,093,359 Service revenues 131,786 135,756 389,768 398,267 Total Revenues 515,279 516,870 1,526,408 1,491,626 Costs and Expenses: Cost of products sold 231,601 237,414 703,518 691,951 Cost of services 72,814 77,078 223,589 226,292 Selling and administrative expenses 160,961 157,395 474,491 460,438 Interest expense, net 1,705 1,082 4,646 3,180 Other expense (income), net 1,390 (435) 1,829 (2,386) Total Costs and Expenses 468,471 472,534 1,408,073 1,379,475 Income before Provision for Income Taxes 46,808 44,336 118,335 112,151 Provision for (Benefit from) Income Taxes: Current 21,132 15,779 46,097 42,997 Deferred (3,758) 880 (2,375) (1,042) 17,374 16,659 43,722 41,955 Net Income $ 29,434 $ 27,677 $ 74,613 $ 70,196 Per Share: Net income $.65 $.58 $1.64 $1.46 Cash dividends $.30 $.29 $.89 $.86 Weighted Average Number of Shares Outstanding (thousands) 44,996 48,059 45,371 48,240
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 1997 1996 Cash Provided by (Used for) Operating Activities: Net income ........................................... $ 74,613 $ 70,196 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .................... 44,449 44,184 Provision for losses on accounts receivable ...... 2,654 3,509 Gain on the sale of property, plant, and equipment (198) (1,718) Gain on the sale of business ..................... (972) (2,946) Change in noncurrent deferred income taxes ....... (2,375) (1,042) Change in assets and liabilities net of effect of acquisitions and sale of business- Receivables .................................. 914 6,311 Inventories and linens in service, net ....... 3,347 799 Current deferred income taxes ................ (1,994) 3,076 Prepayments and other ........................ (1,699) (2,375) Accounts payable and accrued liabilities ..... (15,067) (23,771) Changes in self insurance reserves and other long-term liabilities ....................... (2,306) 2,674 Net Cash Provided by Operating Activities .. 101,366 98,897 Cash Provided by (Used for) Investing Activities: Change in short-term investments ..................... (2) 1,047 Purchase of property, plant, and equipment ........... (34,215) (48,367) Sale of property, plant, and equipment ............... 3,170 5,177 Sale of business ..................................... 31,380 11,517 Acquisitions, net of cash acquired ................... (4,320) (600) Change in other assets ............................... 4,439 (65) Net Cash Provided by (Used for) Investing Activities 452 (31,291) Cash Provided by (Used for) Financing Activities: Change in notes payable .............................. (10,796) 130 Additions to long-term debt .......................... 7,554 -- Repayment of long-term debt .......................... (6,692) (72) Recovery of investment in tax benefits ............... 661 1,290 Deferred income taxes from investment in tax benefits (1,972) (3,205) Purchase of treasury stock ........................... (69,465) (23,262) Cash dividends paid .................................. (40,657) (41,458) Net Cash Used for Financing Activities ............. (121,367) (66,577) Effect of Exchange Rate Changes on Cash ................ 318 (1,124) Net Change in Cash and Cash Equivalents ................ (19,231) (95) Cash and Cash Equivalents at Beginning of Year ......... 58,662 79,402 Cash and Cash Equivalents at End of Period ............. $ 39,431 $ 79,307 Supplemental Cash Flow Information: Income taxes paid during the period .................. $ 41,744 $ 44,791 Interest paid during the period ...................... 4,074 3,026 Noncash Investing and Financing Activities: Noncash aspects of sale of business - Receivables incurred .............................. $ (391) $ -- Liabilities removed ................................ (477) -- Noncash Aspects of Acquisitions: Liabilities assumed or incurred ...................... $ (22,440) $ 6 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 consolidated balance sheet as of August 31, 1996 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, 1997, the consolidated results of operations for the three months and nine months ended May 31, 1997 and 1996, and the consolidated cash flows for the nine months ended May 31, 1997 and 1996. 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, 1996. The results of operations for the nine months ended May 31, 1997 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 1997 1996 1997 1996 (In thousands) Lighting Equipment $ 237,775 $ 219,904 $ 23,662 $ 21,596 Textile Rental 131,786 135,756 14,040 11,519 Chemical 109,813 95,657 9,438 9,394 Envelopes 34,404 32,791 2,969 2,591 Other 1,501 32,762 472 1,941 $ 515,279 $ 516,870 50,581 47,041 Corporate (2,671) (2,276) Interest expense, net (1,102) (429) Total $ 46,808 $ 44,336 Nine Months Ended May 31 Sales and Service Revenues Operating Profit 1997 1996 1997 1996 (In thousands) Lighting Equipment $ 688,943 $ 634,636 $ 65,679 $ 51,750 Textile Rental 389,768 398,267 29,478 30,519 Chemical 292,990 272,119 26,985 25,321 Envelopes 99,165 92,756 7,720 6,753 Other 55,542 93,848 1,419 3,921 $ 1,526,408 $ 1,491,626 131,281 118,264 Corporate (10,244) (5,086) Interest expense, net (2,702) (1,027) Total $ 118,335 $ 112,151
Page 7 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (CONTINUED) 3. INVENTORIES Major classes of inventory as of May 31, 1997 and August 31, 1996 were as follows: May 31, August 31, 1997 1996 (In thousands) Raw Materials and Supplies ................... $ 66,729 $ 73,236 Work-in-Process .............................. 8,744 9,679 Finished Goods ............................... 91,249 86,898 Total ................................... $166,722 $169,813 4. NEW ACCOUNTING STANDARDS During the first quarter of fiscal 1997, the company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires that long-lived assets and certain intangibles be reviewed whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The adoption of SFAS No. 121 did not have a significant impact on the company's financial statements. In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share." SFAS No. 128 supersedes APB 15, "Earnings per Share" and promulgates new accounting standards for the computation and manner of presentation of the company's earnings per share. The company is required to adopt the provisions of SFAS No. 128 for the quarter ending February 28, 1998. Earlier application is not permitted; however, upon adoption the company will be required to restate previously reported annual and interim earnings per share in accordance with the provisions of SFAS No. 128. The adoption of SFAS No. 128 will not have a material impact on the computation or manner of presentation of the company's earnings per share as currently or previously presented under APB 15. The following table represents a reconciliation of basic and diluted weighted average shares and a pro forma calculation of earnings per share using the guidelines of SFAS No. 128. Three Months Ended Nine Months Ended May 31 May 31 1997 1996 1997 1996 (In thousands, except per-share data) Basic weighted average shares outstanding ... 44,996 48,059 45,371 48,240 Add: Shares of common stock assumed issued upon exercise of stock options using the "Treasury Stock" method as it applies to the computation of diluted earnings per share ............ 352 323 292 225 Diluted weighted average shares outstanding . 45,348 48,382 45,663 48,465 Net earnings used in the computation of basic and diluted earnings per share .............. $29,434 $27,677 $74,613 $70,196 Earnings per Share: Basic ............................. $ .65 $ .58 $ 1.64 $ 1.46 Diluted ........................... $ .65 $ .57 $ 1.63 $ 1.45
5. RECLASSIFICATIONS Certain amounts in the 1996 financial statements and notes have been reclassified to conform with the 1997 presentation. 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' financial position remained strong at May 31, 1997. Net working capital was $387.4 million, compared with $409.0 million at August 31, 1996, and the current ratio was 3.0, compared with 3.1 at year end. Cash and short-term investments were $40.0 million compared with $59.2 million at August 31. For the nine months ended May 31, the company invested $38.5 million in capital expenditures and acquisitions. The percent of debt to total capitalization was 5.1 percent, up from 4.2 percent at August 31. Cash provided by operating activities was $101.4 million, up from $98.9 million for the first nine months last year. Capital expenditures, exclusive of acquisition spending, were $34.2 million for the first nine months this year and $48.4 million for the same period a year ago. The lighting equipment segment invested in facility improvements, equipment replacements, process improvements, and tooling for new products, and textile rental segment spending consisted primarily of improvement of facilities and replacement of equipment. Prior-year spending included the lighting equipment segment's expansion of the Mexican production facility, equipment replacements, process improvements and tooling for new products and the textile rental segment's replacement and improvement of facilities, equipment and vehicles. Current-year acquisition spending of $4.3 million 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 $20.5 million in stock of Enforcer Products, Inc., a specialty chemical company with a retail focus. Acquisition spending was minimal in the prior-year period. Cash from divestitures totaled $31.4 million for the nine months this year. During the second quarter, the insulation business was sold for $27.1 million. The textile rental segment divested non-strategic businesses in both the current and prior-year periods, generating cash of $4.3 million and $11.5 million, respectively. During the 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 $280 million in cash, subject to a post-closing adjustment. Dividend payments totaled $40.7 million, or 89 cents per share, compared with $41.5 million, or 86 cents per share, for the prior-year period. Effective January, 1997, the regular quarterly dividend rate was increased 3.4 percent to 30 cents per share, or an annual rate of $1.20 per share. During the first half, the company completed the repurchase of 2.0 million of its common shares. The Board had previously clarified that the standing authority is to reduce outstanding shares by 2.0 million per year, net of shares reissued. In connection with the sale of the uniform and linen plants, the Board authorized the repurchase of an additional 1.25 million shares. Combined with the standing authority to reduce outstanding shares by 2.0 million shares per year and this additional authorization, the company anticipates purchasing about 1.0 million shares during each of the next four quarters. For the periods presented, capital expenditures, working capital needs, dividends, acquisitions, and share repurchases were financed primarily with internally generated funds and some interim borrowing against the committed credit facility (discussed below). 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 $14 million. For the current fiscal year, the company expects actual capital expenditures to be less than levels of recent years, which, excluding acquisition spending, were $66 million in 1996, $59 million in 1995, and $43 million in 1994. Late in fiscal 1996, the company negotiated the $250 million multi-currency committed credit facility with eleven domestic and international banks. The company has complimentary lines of credit totaling $132 million, of which $110 million is available domestically and $22 million is available on a multi-currency basis primarily from a European bank. Current liquid assets, internally generated funds, and the available credit are expected to meet the anticipated general operating cash requirements for the next twelve months. Results of Operations National Service Industries' earnings per share for the third quarter ended May 31, 1997 increased 12.1 percent to 65 cents compared with the same quarter a year ago. Sales for the quarter decreased 0.3 percent to $515 million. Excluding revenues associated with the previously divested insulation business, sales from continuing operations increased 6.1 percent. Net income of $29.4 million was 6.3 percent higher than the $27.7 million reported in last year's third quarter. Third quarter 1997 pretax earnings included gains of $2.5 million for accounting policy changes for ancillary linen revenue and $1.8 million from improved workers' compensation claims experience. The third quarter of 1996 included Page 9 gains of $6.3 million from improved workers' compensation claims experience. Earnings per share increased at a greater rate of 12.1 percent due to 3.1 million fewer average shares outstanding compared to the third quarter a year ago. For the first nine months of NSI's fiscal year, sales increased $34.8 million, or 2.3 percent, to $1.5 billion. Net income increased $4.4 million, or 6.3 percent, to $74.6 million. The 1997 year to date pre-tax earnings included gains of $1.2 million from asset sales, $5.4 million from ongoing favorable workers' compensation claims experience and $6.1 million from changes in accounting policy for ancillary linen revenue. Gains on asset sales were $4.6 million in the first nine months of 1996. Earnings per share for the first nine months increased 12.3 percent to $1.64. The third quarter was led by the lighting equipment segment as the non-residential construction market showed continued strength, sales through retail stores grew and new products were introduced. Sales advanced 8.1 percent to $238 million for the quarter and 8.6 percent to $689 million for the first nine months. Operating income advanced 9.6 percent to $23.7 million for the quarter and 26.9 percent to $65.7 million for the nine months as higher volumes, a more favorable product mix, and lower manufacturing costs increased profits. Lumaid, Inc., acquired during the first half, is reported as part of the segment. For the third quarter and nine months, sales in the textile rental segment were down 2.9 percent to $132 million and 2.1 percent to $390 million, respectively, as a result of previously divested branches. Operating income increased 21.9 percent to $14.0 million from $11.5 million in the third quarter of 1996 and declined 3.4 percent to $29.5 million from $30.5 million last year. Operating income for the quarter included a $1.1 million reduction in workers' compensation self insurance reserves and $2.5 million for accounting policy changes for ancillary linen revenue. For the first nine months, operating income included gains of $1.3 million on asset sales, a $3.3 million reduction in workers' compensation self insurance reserves, and $6.0 million for accounting policy changes for ancillary linen revenue. The impact of the accounting changes and workers' compensation adjustments is anticipated to be repeated in the fourth quarter. The 1996 operating income included gains on asset sales of $0.1 million for the quarter and $4.3 million for the year to date. Chemical segment sales advanced 14.8 percent to $110 million during the third quarter and 7.7 percent to $293 million for the year to date as a result of incremental volumes from U.S. and Canadian acquisitions. Operating income was flat at $9.4 million. Operating margins declined due in part to investments to increase the size and capability of the segment's fully commissioned sales force. For the first nine months, operating income grew 6.6 percent to $27.0 million. The European operations continued to report a small loss for the nine months, which was slightly greater than the loss last year. The Enforcer acquisition closed on March 12, 1997, and is reported as part of the chemical segment. The envelope segment increased sales during the quarter by 4.9 percent to $34 million and for the nine months by 6.9 percent to $99 million. Operating profit improved by 14.6 percent to $3.0 million for the quarter largely due to the increased sales volume and lower manufacturing costs. Operating profit improved 14.3 percent to $7.7 million for the first nine months. The decrease in sales and operating profits disclosed in the "other" category reflects the divestiture of the insulation business, which was sold on February 28, 1997, for $27.1 million in cash. Corporate expenses were up $0.4 million for the third quarter and $5.2 million year to date due to accrued long-term incentive plan costs and consulting expenses for refining strategic planning and introducing economic profit. These expenditures are intended to accelerate the company's profitable growth. Net interest increased slightly due to the share repurchase initiatives. The provision for income taxes was 37.1 percent of pretax income for the quarter compared to 37.6 last year and 36.9 percent year to date compared with 37.4 percent for last year. Changes in the comparative year-to-year effective rates resulted from improvement in effective state tax rates and variations in the relative amounts of tax exempt income. From time to time, the company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, 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 slowdown in nonresidential construction awards; (b) divestitures and other restructuring activities; (c) 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, sales force, and new products and improved customer service. Page 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits are listed on the Index to Exhibits (page 12). (b) There were no reports on Form 8-K for the three months ended May 31, 1997. 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 15, 1997 DAVID LEVY EXECUTIVE VICE PRESIDENT, ADMINISTRATION AND COUNSEL DATE July 15, 1997 BROCK HATTOX EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Page 12 INDEX TO EXHIBITS Page No. EXHIBIT 10 (iii)A Stock Option Agreement for Nonemployee Directors Dated March 19, 1997 between National Service Industries, Inc. and (a) John L. Clendenin (b) Senator Sam Nunn 13 EXHIBIT 11 Computations of Net Income per Share of 19 Common Stock EXHIBIT 27 Financial Data Schedules 20 EX-10 2 STOCK OPTION AGREEMENT FOR NON-EMPLOYEE DIRECTORS Page 13 Exhibit 10(iii)A STOCK OPTION AGREEMENT FOR NONEMPLOYEE DIRECTORS THIS AGREEMENT, made as of the 19th day of March, 1997 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation (the "Company"), and Optionee (the "Optionee"). WHEREAS, in order to provide additional incentive to nonemployee directors joining the Board of Directors to exert maximum efforts for the success of the Company, the Executive Resource and Compensation Committee of the Board of Directors of the Company has on this date approved the option grant provided herein, as further ratified by the Board of Directors on this date; and NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. 1.1 Subject to, and in accordance with, the terms and conditions set forth in this Agreement, the Company hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of an aggregate of 1,000 whole shares of common stock, par value $1.00 per share, of the Company (the "Shares"). 1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422A of the Code. 1.3 Except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as are set forth in the National Service Industries, Inc. 1992 Nonemployee Directors' Stock Option Plan. Notwithstanding the foregoing reference, the Option is not granted under that Plan. 2. Purchase Price. The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be $38.75 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. Page 14 Exhibit 10(iii)A 4. Exercisability of Option. Unless otherwise provided in this Agreement, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, the shares covered by the option after the expiration of one (1) year from the Grant Date. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 16 below, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 6. Termination of Service. 6.1 Termination for Cause. If the Optionee's service as a Director terminates for Cause, the Option shall immediately terminate in full and no rights hereunder may be exercised. 6.2 Other Termination of Service. If the Optionee's service as a Director is terminated for any reason other than for Cause, the Option shall continue to be exercisable in whole or in part (to the extent exercisable on the date of such termination) at any time within three (3) years after the date of such termination, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the 2 Page 15 Exhibit 10(iii)A extent provided in this Agreement, by the legatee or legatees under his will, or by his personal representatives or distributees and such person or persons shall be substituted for the Optionee each time the Optionee is referred to herein. 7. Effect of Change in Control. Notwithstanding anything contained in this Agreement to the contrary, in the event of a Change in Control, (i) the Option shall become immediately and fully exercisable, and (ii) the Optionee will be permitted to surrender for cancellation within sixty (60) days after such Change in Control, the Option or any portion of the Option to the extent not yet exercised and the Optionee shall be entitled to receive immediately a cash payment in an amount equal to the excess, if any, of (A) the greater of (x) the Fair Market value, on the date preceding the date of the surrender, of the Shares subject to the Option or portion of the Option surrendered or (y) the Adjusted Fair Market Value of the Shares subject to the Option or the portion of the Option surrendered, over (B) the aggregate purchase price for such Shares under the Option; provided, however, that if the Option was granted within six (6) months prior to the Change in Control, the Optionee shall be entitled to surrender for cancellation the Option or any portion of the Option during the sixty (60) day period following the expiration of six (6) months from the Grant Date and to receive the amount described above with respect to such surrender for cancellation. 8. Nontransferability. The Optionee may designate a person or persons to receive, in the event of the Optionee's death, the Option or any amount payable pursuant thereto, to which the Optionee would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If an Optionee fails effectively to designate a beneficiary, then his or her estate will be deemed to be the beneficiary. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continuing Service. Nothing in this Agreement shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of service as a director of the Company, nor shall this Agreement interfere in any way with the right of the Company to terminate the Optionee's service as a director at any time. 10. Adjustments. 10.1 In the event of a Change in Capitalization, the Board shall make appropriate adjustments to the number and class of Shares or other stock or securities subject to the Option and the purchase price for such Shares or other stock or securities. The Board's adjustment shall be effective and final, binding, and conclusive for all purposes of this Agreement. 3 Page 16 Exhbit 10(iii)A 10.2 Any stock adjustment in the Shares or other stock or securities subject to the Option (including any adjustments in the purchase price) shall be made only to the extent necessary to maintain the proportionate interest of the Optionee and preserve, without exceeding, the value of such Option. 10.3 If, by reason of a Change in Capitalization, an Optionee shall be entitled to exercise the Option with respect to new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions which were applicable to the Shares subject to the Option, as the case may be, prior to such Change in Capitalization. 11. Terminating Events. Subject to Section 7 hereof, upon the effective date of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Option shall continue in effect in accordance with its terms and the Optionee shall be entitled to receive in respect of all Shares subject to the Option, upon exercise of the Option, the same number and kind of stock, securities, cash, property, or other consideration that each holder of Shares was entitled to receive in the Transaction. 12. Modification of Agreement. This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 13. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. 14. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof, except to the extent that such law is pre-empted by federal law. 15. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon each successor to the Company. This Agreement shall inure to the benefit of the Optionee's legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon the Optionee's heirs, executors, administrators and successors. 4 Page 17 Exhibit 10(iii)A 16. Regulations and Other Approvals; Governing Law. 16.1 The obligation of the Company to sell or deliver Shares with respect to the Option granted under this Agreement shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Board. 16.2 The grant is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Board shall interpret and administer the provisions of the Agreement in a manner consistent therewith. 16.3 The Option is subject to the requirement that, if at any time the Board determines, in its discretion, that the listing, registration, or qualification of Shares issuable pursuant to the Option is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of the Option or the issuance of Shares, no payment shall be made or Shares issued, in whole or in part, unless listing, registration, qualification, consent, or approval has been effected or obtained free of any conditions as acceptable to the Board. 16.4 In the event that the disposition of Shares acquired pursuant hereto is not covered by a then-current registration statement under the Securities Act of 1933, as amended, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act of 1933, as amended, and Rule 144 of other regulations thereunder. The Board may require any individual receiving Shares pursuant to the Option, as a condition precedent to receipt of such Shares upon exercise of the Option, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately inscribed with a legend reflecting their status as restricted securities as aforesaid. 5 Page 18 Exhibit 10(iii)A 17. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Board. Any determination made hereunder shall be final, binding, and conclusive on the Optionee and the Company for all purposes. ATTEST: NATIONAL SERVICE INDUSTRIES INC. By: Secretary James S. Balloun Chairman of the Board, President, and Chief Executive Officer Name of Optionee: Optionee 6 EX-11 3 COMPUTATION OF NET INCOME PER SHARE Page 19 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 1997 1996 1997 1996 Primary: Weighted Average Number of Shares (determined on a monthly basis) . 44,996 48,059 45,371 48,240 Net Income ........................ $ 29,434 27,677 $ 74,613 $ 70,196 Primary Earnings per Share ........ $ .65 $ .58 $ 1.64 $ 1.46 Fully Diluted: Weighted Average Number of Shares Outstanding ..................... 44,996 48,059 45,371 48,240 Additional Shares Assuming Exercise of Options: Options exercised ............. 1,425 1,293 1,425 1,293 Treasury stock purchased with proceeds ............... (981) (919) (981) (919) Average Common Shares Outstanding (as adjusted) .................. 45,440 48,433 45,815 48,614 Net Income ........................ $ 29,434 27,677 $ 74,613 $ 70,196 Fully Diluted Earnings per Share .. $ .65 $ .57 $ 1.63 $ 1.44
EX-27 4 FDS --
5 Page 96 Exhibit 27 Financial Data Schedules Quarter Ended May 31, 1997 Pursuant to Section 601(c) of Regulation S-K This schedule contains summary financial information extracted from National Service Industries, Inc. consolidated balance sheet as of May 31, 1997 and the consolidated statement of income for the nine months ended May 31, 1997, and is qualified in its entirety by reference to such financial statements. 9-MOS AUG-31-1997 SEP-01-1996 MAY-31-1997 39,431 553 269,333 7,343 166,722 579,886 752,294 401,730 1,069,702 192,490 26,236 0 0 57,919 645,420 1,069,702 1,136,640 1,526,408 703,518 927,107 476,231 0 4,646 118,335 43,722 74,613 0 0 0 74,613 1.64 1.63
-----END PRIVACY-ENHANCED MESSAGE-----