SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
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 incorporation or organization) (I.R.S. Employer Identification Number)
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)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of Each Class Name of Each Exchange on which Registered
Common Stock ($1.00 Par Value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _
Based on the closing price of $19.56 as quoted on the New York Stock Exchange on September 30, 2000, the aggregate market value of the voting stock held by nonaffiliates of the registrant, was $794,525,147.
The number of shares outstanding of the registrant’s common stock, $1.00 par value, was 40,828,564 shares as of September 30, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
Part III, Items 10, 11, 12, and 13 2000 Proxy Statement
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Part I
Item 1. Business............................................. 1
Item 2. Properties........................................... 3
Item 3. Legal Proceedings.................................... 4
Item 4. Submission of Matters to a Vote of Security Holders.. 4
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................... 4
Item 6. Selected Financial Data.............................. 5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 7
Item 7a. Quantitative and Qualitative Disclosures About Market
Risk.............................................. 13
Item 8. Financial Statements and Supplementary Data.......... 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............... 38
Part III
Item 10. Directors and Executive Officers of the Registrant... 38
Item 11. Executive Compensation............................... 39
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................ 39
Item 13. Certain Relationships and Related Transactions....... 39
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K....................................... 39
Signatures.......................................................... 56
Financial Statement Schedules....................................... 58
List of Subsidiaries................................................ 59
Consent of Independent Public Accountants........................... 60
Item 1. Business
National Service Industries, Inc. (the "company" or "NSI"), is a diversified service and manufacturing company that, through its subsidiaries, occupies leadership positions in four markets:
- lighting equipment,
- chemicals,
- textile rental, and
- envelopes.
NSI is headquartered in Atlanta, Georgia, and provides products and services throughout North America, as well as Western Europe and Australia. Of the company's fiscal 2000 revenues of $2.6 billion, approximately 95 percent was from North American sales. The company's 2000 revenues broken down by segment contributions was as follows: 59 percent lighting equipment, 20 percent chemicals, 12 percent textile rental, and 9 percent envelopes.
The company's principal executive offices are located at 1420 Peachtree Street, N.E., Atlanta, Georgia 30309-3002 and the telephone number is (404) 853-1000.
Business Segments
Lighting Equipment
The company's lighting equipment segment is comprised of the Lithonia Lighting Group, which includes Lithonia Lighting and Holophane. The company believes the Lithonia Lighting Group is the world's largest manufacturer of lighting fixtures for both new construction and renovation. Products include a full range of indoor and outdoor lighting for commercial, institutional, and industrial applications, surface and recessed residential lighting, exit signs and emergency lighting, lighting control systems, and flexible wiring systems. These lighting products are manufactured in the United States, Canada, Mexico, and Europe and are marketed under numerous brand names, including Lithonia, Holophane, Home-Vue, LightConcepts, Gotham, Hydrel, Peerless, Antique Street Lighting, MetalOptics, and Reloc.
Principal customers include wholesale electrical distributors, retail home centers, and lighting showrooms located in North America and select international markets. In North America, the lighting equipment segment's products are sold through independent sales agents and factory sales representatives who cover specific geographic areas and market segments. Products are delivered through a network of distribution centers, regional warehouses, and public field warehouses using both common carriers and a company-owned truck fleet. For international customers, the segment employs a sales force that adopts distribution methods to meet individual customer or country requirements. In fiscal 2000, North American sales accounted for more than 97 percent of this segment's gross sales.
ChemicalsThe company's chemical segment, NSI Chemicals Group, includes Zep Manufacturing Company, Enforcer Products, and Selig Industries. NSI Chemicals is a leading provider of specialty chemical products in the automotive, food, manufacturing, institutional, aviation, hospitality, home center, and retail markets. Products include cleaners, sanitizers, disinfectants, polishes, floor finishes, degreasers, deodorizers, pesticides, insecticides, and herbicides. Zep manufactures products in four North American plants, two European plants, and one Australian location. Enforcer and Selig each operate single manufacturing facilities in Georgia.
The chemical segment provides products to customers in North America, Western Europe, and Australia. In fiscal 2000, North American sales accounted for approximately 90 percent of the segment's gross sales. Zep and Selig serve a wide array of institutional and industrial customers, ranging from small sole proprietorships to Fortune 1000 corporations. Individual markets in the non-retail channel include: automotive, vehicle wash, food, aviation, industrial manufacturing, and contract cleaners and are serviced through a direct commissioned sales force. Enforcer provides Enforcer-branded products and Zep-branded products to retail channels such as home centers, hardware stores, mass merchandisers, and drug stores.
Textile Rental
National Linen Service is a leading United States multi-service textile rental company, serving the dining, lodging, and healthcare industries. Products include napkins, table and bed linens, bath towels, pillow cases, bar towels, scrubs and surgical drapery, mats, mops, and restroom supplies. National Linen Service operates from numerous facilities primarily in the southeastern United States.
National Linen Service's customers include restaurants, hotels, country clubs, retail stores, hospitals, clinics, and doctors' offices. Clean products are delivered to customers, and soiled products are retrieved by route drivers for cleaning. National Linen Service sells its services directly to end users through a salaried and commissioned sales force.
EnvelopesAtlantic Envelope Company is a leading United States producer of custom envelopes and office products, serving the energy, finance, transportation, direct mail, and package delivery markets. Products include custom business and courier envelopes, as well as specialty filing products. Atlantic Envelope's products are manufactured in eleven plants in the United States.
Atlantic Envelope serves customers throughout the United States, which include major airlines, banks, credit card companies, and express delivery companies. Products are sold directly to end-users by a commissioned sales team. Specialty products are also sold through dealers.
Financial Results by Industry SegmentSales and service revenues, operating profit (loss), total assets, and related data for each of the company's business segments for the three years ended August 31, 2000 are included in Note 10, Business Segment Information, of the Notes to the Consolidated Financial Statements on page 36.
Raw MaterialsNo single commodity or supplier in any segment provided a significant portion of the segment's material requirements nor were there any significant shortages of materials or components during the three years ended August 31, 2000.
SeasonalityFinancial results for any particular quarter are not necessarily indicative of results to be expected for the full year. Typically, the company's revenues and income are higher in the second half of its fiscal year.
CustomersNo single customer accounted for more than 10 percent of consolidated revenues during the fiscal years ended August 31, 2000, 1999, and 1998. However, 11 percent and 13 percent of fiscal 2000 revenues in the chemical and envelope segments, respectively, were related to a single customer of each segment, the loss of which would adversely affect the respective segment.
BacklogSales order backlog at August 31, 2000 was $155.2 million, $.6 million, and $53.7 million in the lighting equipment, chemical, and envelope segments, respectively. Sales order backlog at August 31, 1999 was $108.7 million, $1.9 million, and $55.0 million in the lighting equipment, chemical, and envelope segments, respectively.
Competition
While each of the company's businesses is highly competitive, the competitive conditions and the company's relative position and market share vary widely from business to business. A limited number of competitors of each business are large diversified companies. However, most competitors are smaller companies that frequently specialize in one industry or geographic area, which in many instances increases the intensity of competition. The principal methods of competition include price, quality, brand name recognition, and customer responsiveness.
Research and DevelopmentThe company conducts research and development related to present and future products for its lighting equipment, chemical, and envelope segments. Research and development expenses were $19.1 million in 2000, $8.5 million in 1999, and $13.6 million in 1998.
Environmental MattersManagement does not anticipate that compliance with current environmental laws and regulations will materially affect the capital expenditures or results of operations of the company or its subsidiaries during the fiscal year ending August 31, 2001. See Note 5, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements on page 30.
EmploymentAs of August 31, 2000, the company employed approximately 20,000 people.
Item 2. Properties
The general offices of the company are located in Atlanta, Georgia. Because of the diverse nature of the operations and the large number of individual locations, it is neither practical nor meaningful to describe each of the operating facilities owned or leased by the company. The following listing summarizes the significant facility categories by business:
Number of Facilities
Division Owned Leased Nature of Facilities
Lighting Equipment 18 7 Manufacturing Facilities
1 9 Warehouses
1 1 Distribution Centers
8 11 Offices
Chemical 5 4 Manufacturing Plants
16 48 Warehouses
1 7 Offices
-- 1 Training Center
Textile Rental 35 8 Linen Processing Plants
2 28 Linen Service Centers
-- 1 Distribution Centers
3 6 Warehouses/Fleet Garages
Envelope 8 3 Manufacturing Plants
-- 2 Warehouses
1 1 Offices
Corporate Office 1 -- Corporate headquarters
Item 3. Legal Proceedings
The company is neither a party to, nor is its property subject to, any material pending legal proceedings. See Note 5, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements on page 30.
Item 4. Submission of Matters to a Vote of Security HoldersNo matters were submitted to a vote of security holders during the three months ended August 31, 2000.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
National Service Industries’ common stock is listed on the New York Stock Exchange under the symbol “NSI.” At August 31, 2000, there were 5,903 stockholders of record. The following table sets forth the New York Stock Exchange high and low stock prices and the dividend payments for NSI’s common stock for the periods indicated.
Price per Share Dividends
High Low per Share
2000
First Quarter $ 34 $29 1/4 $ .32
Second Quarter 30 3/16 20 1/2 .33
Third Quarter 24 3/8 20 3/8 .33
Fourth Quarter 23 3/8 18 1/4 .33
1999
First Quarter $ 40 1/4 $30 15/16 $ .31
Second Quarter 38 1/8 31 1/4 .32
Third Quarter 41 7/16 29 3/4 .32
Fourth Quarter 39 32 .32
Item 6. Selected Financial Data
2000 1999 1998 1997 1996
(Dollar amounts in thousands, except per-share data)
Operating Results
Net sales of products $ 2,244,659 $ 1,910,114 $ 1,718,564 $ 1,542,644 $ 1,482,937
Service revenues 321,522 309,115 312,746 493,535 530,625
Total revenues 2,566,181 2,219,229 2,031,310 2,036,179 2,013,562
Cost of products sold 1,358,140 1,146,080 1,023,765 924,505 909,870
Cost of services 183,867 180,770 183,470 283,024 304,381
Selling and administrative expenses 797,432 698,196 654,511 655,029 640,048
Amortization expense 20,852 7,631 4,666 9,348 10,784
Interest expense, net 44,877 14,067 749 1,624 1,565
Gain on sale of businesses (356) (11,220) (2,449) (75,097) (7,579)
Restructuring expense, asset
impairments, and other charges - (9,291) - 63,091 -
Other income, net (1,817) (5,326) (6,523) (4,423) (7,355)
Income before taxes 163,186 198,322 173,121 179,078 161,848
Provision for income taxes 63,316 73,979 64,401 71,800 60,700
Net Income $ 99,870 $ 124,343 $ 108,720 $ 107,278 $ 101,148
Per-Share Data
Net income(1):
Basic $ 2.45 $ 3.04 $ 2.56 $ 2.37 $ 2.11
Diluted 2.45 3.03 2.53 2.36 2.10
Cash dividends 1.31 1.27 1.23 1.19 1.15
Stockholders' equity 16.37 15.22 13.96 15.20 15.45
Financial Ratios
Current ratio 1.4 1.6 2.7 2.8 3.1
Net income as a percent of sales 3.9% 5.6% 5.4% 5.3% 5.0%
EBITDA as a percent of sales(2) 11.4% 12.2% 11.3% 11.9% 10.6%
Return on average stockholders'
equity 15.5% 21.2% 17.4% 15.5% 13.6%
Dividends as a percent of current
year earnings 53.4% 41.7% 48.4% 50.5% 54.6%
EBITDA interest coverage 6.5 16.0 31.6 39.7 47.6
Percent of debt to total
capitalization 49.0% 47.2% 12.9% 4.6% 4.2%
Financial Position
Net working capital $ 221,072 $ 256,528 $ 385,056 $ 498,758 $ 408,955
Short-term debt $ 257,192 $ 114,378 $ 7,981 $ 5,889 $ 6,742
Long-term debt 384,242 435,199 78,092 26,197 24,920
Total debt 641,434 549,577 86,073 32,086 31,662
Stockholders' equity 668,470 615,874 578,901 671,813 718,008
Capitalization $ 1,309,904 $ 1,165,451 $ 664,974 $ 703,899 $ 749,670
(1) In 1998, the company adopted Financial Accounting Standard No. 128, "Earnings per Share." Prior period amounts have been restated in accordance with this statement.
(2) In 2000, the company began calculating EBITDA using gross interest expense (rather than net interest expense). Prior period amounts have been restated in accordance with this treatment.
2000 1999 1998 1997 1996
(Dollar amounts in thousands, except per-share data)
Other Data
Capital expenditures and
acquisitions $ 134,742 $ 606,417 $ 127,339 $ 56,990 $ 65,566
Depreciation and amortization 83,712 55,822 48,846 57,981 58,428
Total assets 1,820,139 1,695,789 1,010,684 1,106,352 1,094,646
Deferred income tax liability 96,153 95,557 40,404 34,093 63,347
Self-insurance reserves, less
current portion 37,484 38,828 44,573 57,056 63,369
Other long-term liabilities 93,138 86,446 46,719 35,193 27,576
Weighted average number of shares
outstanding (in thousands)(1):
Basic 40,708 40,899 42,462 45,191 47,941
Diluted 40,727 41,093 43,022 45,534 48,189
Stockholders 5,903 6,292 6,774 7,165 6,281
Employees 20,000 19,700 16,700 16,100 20,600
Use of Total Revenues
Salaries and wages $ 667,786 $ 582,343 $ 552,816 $ 572,517 $ 580,571
Materials and supplies 1,225,538 1,048,817 955,307 909,082 875,658
Other operating expenses 451,149 357,854 305,888 334,503 348,143
Taxes and licenses 122,194 126,383 111,028 124,805 115,621
Gain on sale of businesses (356) (11,220) (2,449) (75,097) (7,579)
Restructuring expense, asset
impairments, and other charges - (9,291) - 63,091 -
Dividends paid 53,357 51,856 52,603 54,222 55,272
Retained earnings 46,513 72,487 56,117 53,056 45,876
$2,566,181 $2,219,229 $2,031,310 $2,036,179 $2,013,562
(1) In 1998, the company adopted Financial Accounting Standard No. 128, "Earnings per Share." Prior period amounts have been restated in accordance with this statement.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
National Service Industries is a diversified service and manufacturing company operating in four segments: lighting equipment, chemicals, textile rental, and envelopes. The company continued in solid financial condition at August 31, 2000. Although down from last year, net working capital remained solid at $221.1 million at August 31, 2000, and the current ratio was 1.4, compared with 1.6 at the prior year end. The decrease in net working capital was primarily the result of an increase in inventory and receivables, offset by an increase in debt to fund capital expenditures and acquisitions and a reclassification of approximately $50.0 million in commercial paper from long-term debt at August 31, 1999 to short-term debt at August 31, 2000. At August 31, 2000, the company's debt to capitalization increased to 49.0 percent compared with 47.2 percent at the prior year end.
Strategic TransactionsThe company periodically implements strategic transactions that, it believes, afford it the opportunity to redeploy resources to create value and position the company for future growth. During the three-year period ending August 31, 2000, the following transactions occurred:
AcquisitionsAcquisition spending in 2000 totaled $26.3 million and primarily related to the cash-out of remaining Holophane Corporation ("Holophane") shares. The company purchased Holophane, a manufacturer of premium quality, highly engineered lighting fixtures and systems, in July 1999 for approximately $471 million, including approximately $20.0 million for the payoff of Holophane's existing debt. Of the total purchase price, $454.6 million was paid during fiscal 1999 and $16.2 million was paid during fiscal 2000. The remaining $10.1 million spent in 2000 related to several small acquisitions in the textile rental segment.
In 1999, acquisition spending totaled $534.9 million ($534.1 million in cash and $0.8 million in stock) and was primarily related to the lighting equipment and envelope segments. In addition to Holophane, acquisitions in the lighting equipment segment included the September 1998 purchase of certain assets of GTY Industries (d/b/a "Hydrel"), a manufacturer of architectural-grade light fixtures for landscape, in-grade, and underwater applications; the April 1999 purchase of certain assets of Peerless Corporation ("Peerless"), a manufacturer of high performance indirect/direct suspended lighting products; and the July 1999 purchase of C&G Carandini SA, a manufacturer of exterior lighting fixtures. In February 1999, the envelope segment acquired substantially all of Gilmore Envelope, an envelope manufacturer headquartered in Los Angeles, California. The company also made several minor acquisitions in the textile rental segment.
In 1998, acquisition spending totaled $45.3 million and was primarily related to the chemical and envelope segments. In November 1997, the chemical segment purchased Pure Corporation, a specialty chemical company with its core businesses in Indiana, Pennsylvania, and New York. In March 1998, the envelope segment purchased Allen Envelope Corporation ("Allen Envelope"), a single-plant, Pennsylvania-based envelope manufacturer, providing the segment with access to markets in the Northeast. In July 1998, the company purchased Calman Australia Pty Ltd ("Calman"). Calman, located in Victoria, Australia, is a manufacturer of cleaning, maintenance, sanitation and industrial products, chemicals, supplies, and accessories. Additionally, the company paid certain performance payments associated with a prior year chemical acquisition.
DivestituresThere were no significant divestitures in 2000.
In 1999, proceeds from divestitures totaled $12.0 million and related to the envelope segment's sale of Techno-Aide/Stumb Metal Products in June 1999 resulting in proceeds of $4.2 million and a pretax gain of $2.0 million. Other divestitures during 1999 related to the sale of industrial contracts in the textile rental segment and were not material.
During 1999, management performed an extensive review of the liabilities recorded in connection with the textile rental segment's 1997 uniform plants divestiture. In 1997, the textile rental segment accrued for items related to its uniform plants including environmental exposures, severance agreements, and costs to return leased facilities to pre-lease condition. The company realized lower costs than originally anticipated associated with these items and, as a result, reduced the liability and recorded a gain of $3.5 million.
In 1998, divestitures of non-strategic textile rental operations and excess properties resulted in net proceeds of $3.1 million and pretax gains of $2.4 million.
Liquidity and Capital ResourcesOperating Activities
Operations provided cash of $104.9 million in 2000, compared with cash provided of $208.2 million in 1999 and $26.4 million in 1998. The decrease in 2000 related to the increase in receivables and inventory, primarily in the lighting equipment and chemical segments, a decrease in net income, a decrease in current liabilities related to incentive compensation plan payments, and an increase in income tax payments. The increase in 1999 primarily resulted from additional tax payments made in 1998 related to the 1997 textile rental segment divestitures, improved working capital management in the lighting equipment and chemical segments, and an increase in net income.
Investing ActivitiesInvesting activities used cash of $147.7 million in 2000 and $598.0 million in 1999 and provided cash of $81.3 million in 1998. The change in fiscal 2000 investing cash flows primarily related to a decrease in acquisition spending, offset somewhat by an increase in capital expenditures. The change in investing cash flows during 1999 was a result of the significant increase in acquisition spending coupled with the liquidation of short-term investments during 1998 that was not repeated during 1999.
Acquisition spending during fiscal 2000 was $26.3 million and related primarily to the cash-out of remaining Holophane shares and several small acquisitions in the textile rental segment. Prior year acquisition spending of $534.9 million related to the lighting equipment segment's purchase of Holophane, certain assets of GTY Industries (d/b/a "Hydrel"), certain assets of Peerless, and C&G Carandini SA. In addition, prior year acquisition spending included the envelope segment's purchase of substantially all of Gilmore Envelope and several minor acquisitions in the textile rental segment.
Capital expenditures were $108.4 million in 2000, compared with $72.3 million in 1999 and $82.0 million in 1998. Capital spending in 2000 primarily pertained to the lighting equipment, envelope, and textile rental segments. The lighting equipment segment invested in land, buildings, and equipment for a new plant and in an office facility. Capital expenditures in the envelope segment primarily related to manufacturing process improvements, new folding capacity, and information systems. Expenditures in the textile rental segment related to replacing old equipment and delivery truck purchases and refurbishments. The lighting equipment segment's capital expenditures in 1999 related to the purchase of land and buildings for a new plant, manufacturing improvements and upgrades for capacity expansion, and implementation of new technology. Expenditures in the textile rental segment during 1999 were for implementation of new technology, production enhancements, and delivery truck purchases and refurbishments. The envelope segment's expenditures related primarily to manufacturing process improvements, information systems, facility expansion, and new folding capacity. During 1998, the lighting equipment segment invested in facility expansions and manufacturing process improvements, the textile rental segment invested in a merchandise tracking system and fleet refurbishment, and the envelope segment invested in facility and machinery replacements. In 2001, capital expenditures are expected to approximate $72.9 million as the company continues to invest capital in technology and facilities. Contractual commitments for capital and acquisition spending for fiscal year 2001 approximate $19.8 million.
Financing Activities
Financing activities provided cash of $42.4 million and $372.9 million during 2000 and 1999, respectively, and used cash of $145.2 million in 1998. The decrease in cash provided by financing activities in 2000 primarily related to the decrease in cash provided by net borrowings. Cash provided by net borrowings decreased $371.3 million to $91.9 million in fiscal 2000. Fiscal 2000 borrowings were used for general operating purposes, including working capital requirements and capital expenditures. Fiscal 1999 borrowings were used primarily to finance acquisitions, treasury share purchases, and other general operating purposes. Employee Stock Purchase Plan issuances and stock options exercised provided $3.9 million during fiscal 2000, while treasury share transactions used $38.4 million during fiscal 1999. The company suspended its treasury share repurchase program in the third quarter of fiscal 1999.
In the three years ended August 31, 2000, the company distributed approximately $353.8 million to stockholders through share repurchases and dividends. There were no treasury share repurchases during 2000. Cash of $42.0 million and $154.0 million was utilized for share repurchases of 1.2 million and 3.0 million shares in 1999 and 1998, respectively. Included in the 1998 amount was a supplemental authorization for the repurchase of 1.25 million shares granted as a result of the textile rental divestiture transaction. Additionally, the company distributed cash of $53.4 million, $51.9 million, and $52.6 million in 2000, 1999, and 1998, respectively, to the company's stockholders in the form of dividends. The increase in dividends to $1.31 per share in 2000 from $1.27 per share in 1999 represented an increase of 3.1 percent, marking the sixty-fourth consecutive year of quarterly dividends without a decrease.
In 1996, the company negotiated a $250.0 million multi-currency committed credit facility (the "Credit Facility") with ten domestic and international banks. The Credit Facility has a term of five years, expiring in July 2001, with no provision for a reduction in commitments. The Credit Facility contains restrictions on the incurrence of additional indebtedness by subsidiaries, as well as financial and other covenants, including the restriction that the company's ratio of total debt to capitalization may not exceed 60 percent. In July 1999, the company entered into an additional $250.0 million, 364-day committed credit facility (the "Revolving Credit Facility") which was renewed in July 2000 and expires in July 2001. Each credit facility permits certain subsidiaries of the company to borrow under such facility, and the company guarantees these borrowings. The combined $500.0 million under the Credit Facility and the Revolving Credit Facility support the company's commercial paper program.
At August 31, 2000, the company had $236.7 million outstanding under its commercial paper program, which is included in current liabilities, at an average interest rate of 6.82 percent.
The company has complimentary uncommitted lines of credit totaling $128.9 million for general operating purposes, of which $28.9 million is designated as multi-currency. At August 31, 2000, the company had $20.3 million of foreign currency short-term bank borrowings outstanding under the multi-currency lines of credit at a weighted average interest rate of 5.4 percent. At August 31, 2000, $74.4 million in letters of credit were outstanding, primarily under the domestic uncommitted line of credit.
In January 1999, the company issued $160.0 million in ten-year publicly traded notes bearing a coupon rate of 6.0 percent. Proceeds were used for the repayment of $80.0 million in borrowings under the Credit Facility, of which $52.0 million was outstanding under the domestic uncommitted line of credit at August 31, 1998. The remainder was used for general operating purposes including working capital requirements, capital expenditures, acquisitions, and share repurchases. In August 2000, the company issued $200.0 million in ten-year publicly traded notes bearing a coupon rate of 8.375 percent. Proceeds were used for the repayment of borrowings under the company's commercial paper program.
Management believes current cash balances, anticipated cash flows from operations, and available funds from the commercial paper program or the committed credit facilities, and the complimentary uncommitted lines of credit are sufficient to meet the company's planned level of capital spending and general operating cash requirements for the next twelve months.
Results of Operations
(In millions, except per-share amounts)
Year Ended August 31,
2000 1999 1998
Sales and Service Revenues:
Lighting Equipment $ 1,511.6 $ 1,220.6 $ 1,105.3
Chemical 511.1 487.8 454.5
Textile Rental 321.5 309.1 312.7
Envelope 221.9 201.7 158.8
$ 2,566.1 $ 2,219.2 $ 2,031.3
Operating Profit (Loss):
Lighting Equipment $ 144.1 $ 121.8 $ 109.3
Chemical 48.7 45.2 36.5
Textile Rental 28.2 42.9 29.7
Envelope 5.1 17.7 13.3
226.1 227.6 188.8
Corporate (18.0) (15.2) (14.9)
Interest expense, net (44.9) (14.1) (0.8)
$ 163.2 $ 198.3 $ 173.1
Net Income $ 99.9 $ 124.3 $ 108.7
Earnings per Share:
Basic $ 2.45 $ 3.04 $ 2.56
Diluted $ 2.45 $ 3.03 $ 2.53
National Service Industries posted revenues of $2.6 billion for the fiscal year ended August 31, 2000. The revenue increase in comparison to the prior year resulted from 1999 acquisitions and core growth across the business segments. Revenues in 1999 were $2.2 billion, representing an increase in comparison to 1998 as a result of higher lighting equipment, chemical, and envelope revenues of approximately $192.0 million, partially offset by a slight decrease in revenue in the textile rental segment.
Net income in fiscal 2000 decreased $24.4 million to $99.9 million, or $2.45 per basic and diluted share, primarily as a result of unusual gains included in the textile rental segment’s 1999 results that were not repeated during 2000 and increased interest expense related to higher debt levels for financing capital expenditures, prior year acquisitions, and increased inventory and receivables. Additionally, lower operating profit in the envelope segment negatively impacted fiscal 2000 net income. Net income for 1999 increased $15.6 million, or 14.4 percent, to a record level of $124.3 million, or $3.04 per basic share, $3.03 diluted. Fiscal 1999 earnings per share grew at the higher rate of 18.8 percent per basic share and 19.8 percent per diluted share due to a reduction of 1.6 million basic and 1.9 million diluted average shares outstanding.
Lighting equipment segment sales grew $291.0 million, or 23.8 percent, to $1.5 billion in 2000. The growth in sales primarily related to the acquisitions of Holophane and Peerless. Operating profit increased primarily as a result of the acquisitions of Holophane and Peerless, growth in the segment’s core business, and containment of fixed costs, offset somewhat by a $1.0 million pretax charge during the first quarter of fiscal 2000 for closing a manufacturing facility in California. Although the non-residential construction market remained strong throughout fiscal 2000, the company forecasts a five percent decline in next calendar year’s non-residential construction market. The company expects to partially offset the impact of the anticipated slowing market with cost-saving initiatives and the achievement of synergies related to the Holophane acquisition. Sales grew $115.3 million, or 10.4 percent, to $1.2 billion in 1999. Continued strength in the non-residential construction market and the acquisitions of Hydrel, Peerless, and Holophane contributed to the growth in sales. As a result of the increased sales and manufacturing cost savings, operating profit increased 11.4 percent in 1999.
Chemical segment revenues for 2000 increased $23.3 million, or 4.8 percent, to $511.1 million. Increased revenues related primarily to growth in the retail channel and higher revenue in the institutional and industrial channels. Operating profit increased $3.5 million, or 7.7 percent, to $48.7 million. The increase in operating profit resulted from the increased revenue, offset somewhat by a $2.0 million pretax charge for the disposal of obsolete retail chemical inventories in the fourth quarter of fiscal 2000 and lower operating profit from the segment’s international operations. The chemical segment’s international operations were negatively impacted by severance costs and weakening currencies. During 2000, the company reorganized its three chemical companies. Under the new structure, the company expects to benefit from shared resources but will continue to maintain separate sales forces and product brand identities. Revenues in 1999 increased $33.3 million, or 7.3 percent, to $487.8 million. The increase in fiscal 1999 revenue was a result of continued growth in the retail channel, higher revenue in the industrial and institutional distribution channels, inclusion of a full year of Calman, and other international revenue. Operating profit increased $8.7 million, or 24.0 percent, to $45.2 million as a result of the increased revenues, lower operating costs, and severance costs included in 1998 that were not repeated in 1999.
Textile rental segment revenues, representing all of the company’s service revenues, increased 4.0 percent during 2000 to $321.5 million, as a result of several small acquisitions and growth in the segment’s core business. Operating profit decreased $14.7 million, or 34.3 percent, as a result of last year’s unusual gains which were not repeated in 2000. The unusual gains were related to the 1997 uniform plants divestiture, 1997 restructuring activities, and other gains recognized on the sale of businesses. Excluding the unusual gains, fiscal 2000 operating profit increased by $3.8 million as a result of the increase in revenue, lower workers compensation expense, and productivity improvements, offset somewhat by increased fuel costs. In 1999, revenues decreased 1.2 percent to $309.1 million, primarily as a result of the sale of industrial contracts and the rationalization of unprofitable accounts. Operating profit increased 44.4 percent to $42.9 million, primarily as a result of gains recognized on the sale of businesses and adjustments made to amounts accrued in connection with the 1997 uniform plants divestiture and 1997 restructuring activities.
In 1997, the textile rental segment accrued for items related to the sale of its uniform plants, including environmental exposures, severance agreements, and costs to return leased facilities to pre-lease condition. The company realized lower costs than originally anticipated and recorded a gain of $3.5 million during 1999 as discussed in “Strategic Transactions.” In 1997, the segment also recorded an impairment charge and accrued for items related to restructuring activities that primarily related to branch consolidations and asset dispositions. In addition to realizing lower than anticipated costs, management determined that it was more economically feasible to continue to operate certain locations that were to be disposed of in the original plan. As a result, the related reserve and impairments were reversed and $9.3 million in income was recorded during 1999. Excluding unusual gains and other non-operating items in 1999 and 1998, operating profit during 1999 increased slightly due to the segment’s focus on lowering merchandise costs and improving production efficiencies.
Envelope segment revenue increased $20.2 million, or 10 percent, due to prior year acquisitions and growth in the segment’s core business. Operating profit decreased $12.6 million to $5.1 million as a result of lower average margins from prior year acquisitions and higher paper prices, labor costs, and costs associated with initiatives to improve future productivity. In addition, prior year operating profit included a $2.0 million pretax gain on the sale of Techno-Aide/Stumb Metal Products that was not repeated in the current year.
The productivity initiatives included the installation of several new high-speed machines and the implementation of an enterprise-wide operating system. The segment will continue these initiatives and is expected to return to normal production schedules, maximize operating efficiencies associated with the new equipment, and improve its sales mix by focusing on higher margin business. In 1999, revenues increased $43.0 million, or 27.1 percent, to $201.7 million primarily as a result of the acquisitions of Gilmore Envelope in February 1999 and Allen Envelope in March 1998. Operating profit for the segment increased 32.9 percent to $17.7 million primarily as a result of the gain on the sale of Techno-Aide/Stumb Metal Products, as discussed in “Strategic Transactions,” the acquisition of Gilmore Envelope, and increased revenues.
Corporate expenses in 2000 increased $2.9 million primarily due to higher costs related to strategic initiatives, partially offset by lower compensation expense. Corporate expenses in 1999 approximated those in 1998. Net interest expense increased $30.8 million in 2000 as a result of higher debt levels required for financing acquisitions as well as higher capital expenditures and working capital. Net interest expense increased $13.3 million in 1999 as a result of higher average debt levels coupled with lower average cash balances.
Consolidated income before taxes decreased $35.1 million, or 17.7 percent, to $163.2 million primarily due to unusual gains included in last year’s results that were not repeated in 2000, increased interest expense, and lower operating profit in the envelope segment, partially offset by increased operating profit from the lighting equipment and chemical segments. Income before taxes increased $25.2 million, or 14.6 percent, to $198.3 million in 1999 primarily due to increased income from the lighting equipment, chemical, and envelope segments. Additionally, gains realized on the sale of businesses and related to adjustments to restructuring reserves and impairments originally recorded in 1997 in the textile rental segment positively affected 1999 income. The provision for income taxes was 38.8 percent, 37.3 percent, and 37.2 percent in 2000, 1999, and 1998, respectively. The increase in the provision for income taxes primarily relates to goodwill recorded in the Holophane acquisition, which is not deductible for tax purposes.
Environmental MattersSee Note 5: Commitments and Contingencies in the Notes to the Consolidated Financial Statements for a discussion of environmental matters.
OutlookManagement continues to execute its strategic plan to grow internally. Fiscal 2001 sales from the existing businesses are anticipated to grow at a rate of three to five percent led primarily by the lighting equipment and chemical segments. Management expects earnings to be in line with or only slightly ahead of 2000 results due to an anticipated decline in next calendar year’s non-residential construction market and other trends such as increased oil prices and higher interest rates that point to an economic slowdown. With each of the segments anticipating higher material, labor, and fuel costs, a slowdown may intensify pricing pressures and limit the company’s ability to pass along these additional costs in the form of price increases. Additionally, the company will incur costs to improve the flexibility of its cost structure to better position the company for the slowdown. As a result of these factors, combined with an expected increase in interest expense, earnings for the first half of the year could be as much as thirty percent lower than last year’s results during the same period. However, the company expects to deliver improved earnings results during the second half of the year as the company benefits from initiatives taken to improve the cost structure and the realization of synergies from the Holophane acquisition. Additionally, the company intends to complete the chemical segment reorganization and return the envelope segment’s operating margins to historic levels.
Cautionary Statement Regarding Forward-Looking InformationCertain information contained herein constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are inherently uncertain and involve risks. Consequently, actual results may differ materially from those indicated by the forward-looking statements. Statements that may be considered forward looking include statements concerning: (a) the company’s expectations or beliefs with respect to the outcome and impact of environmental issues and legal proceedings on the company’s business, financial condition, or results of operations; (b) management’s expectations with respect to the company’s plan for strategic growth; (c) management’s expectations with regard to projected capital expenditures and future cash flows; (d) forecasted declines in next calendar year’s non-residential construction market; (e) the expected benefits of cost-saving initiatives and the achievement of synergies related to the Holophane acquisition in the lighting equipment segment; (f) the completion of the chemical segment reorganization and the anticipated benefits from shared resources associated with the reorganization of the chemical segment; (g) expected benefits of productivity initiatives in the envelope segment including the segment’s return to normal production schedules, the achievement of operating efficiencies associated with new equipment, the expected improvement of the segment’s sales mix by focusing on higher margin business, and the return of the segment’s operating margins to historic levels; (h) future revenue and earnings during the first half, second half, and full fiscal year of 2001; (i) expectations regarding an economic slowdown; (j) anticipated higher material, labor, and fuel costs and their impact on pricing, and the company’s limited ability to pass along higher costs in the form of price increases; (k) the taking of steps to improve the flexibility of the company’s cost structure and the impact of these steps on earnings; and (l) increased interest expense. A variety of risks and uncertainties could cause the company’s actual results to differ materially from the anticipated results or other expectations expressed in the company’s forward-looking statements. The risks and uncertainties include without limitation the following: (a) the uncertainty of general business and economic conditions, including the potential for a greater-than-expected slowdown in non-residential construction awards, fluctuations in commodity and raw materials prices, interest rate changes, and foreign currency fluctuations; (b) unexpected outcomes in the company’s legal proceedings; (c) the company’s ability to realize the anticipated benefits of strategic initiatives related to increased productivity, new product development, technological advances, cost synergies, and the achievement of sales growth across the business segments; (d) the achievement of sales synergies related to the Holophane acquisition; (e) the achievement of cost synergies related to the reorganization of the chemical segment; and (f) the successful completion of changes to manufacturing operations.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Disclosures about Market Risk
The company is exposed to market risks that may impact the Consolidated Balance Sheets, Consolidated Statements of Income, and Consolidated Statements of Cash Flows due to changing interest rates and foreign exchange rates. The company does not currently participate in any significant hedging activities, nor does it utilize any significant derivative financial instruments. The following discussion provides additional information regarding the company’s market risks.
Interest Rates. The company’s commercial paper, notes payable, fixed-rate notes, and other long-term debt are subject to interest rate fluctuations. These fluctuations expose the company to changes in interest expense, cash flows, and the fair market value of the instruments. The company’s variable-rate debt amounted to $279.3 million at August 31, 2000. Based on outstanding borrowings at year end, a 10 percent adverse change in effective market interest rates at August 31, 2000 would result in additional annual after-tax interest expense of approximately $1.2 million. Although a fluctuation in interest rates would not affect interest expense or cash flows related to the company’s $360.0 million publicly traded notes, a 10 percent adverse change in effective market interest rates at August 31, 2000 would decrease the fair value of the notes to approximately $322.8 million.
Foreign Exchange Rates. The majority of the company’s revenue, expense, and capital purchases are transacted in U.S. dollars. International operations, primarily of the lighting equipment and chemical segments, represented less than 10 percent of sales and service revenues, operating profit (loss), and long-lived assets. The company does not believe a 10 percent fluctuation in average foreign currency rates would have a material effect on its consolidated financial statements or results of operations.
Item 8. Financial Statements and Supplementary Data
Page
Index to Consolidated Financial Statements
Report of Management.................................................................... 15
Report of Independent Public Accountants................................................ 15
Consolidated Balance Sheets-- August 31, 2000 and 1999.................................. 16
Consolidated Statements of Income for the years ended August 31, 2000, 1999, and 1998... 17
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years
ended August 31, 2000, 1999, and 1998................................................ 18
Consolidated Statements of Cash Flows for the years ended August 31, 2000, 1999, and
1998................................................................................. 19
Notes to Consolidated Financial Statements.............................................. 20
The management of National Service Industries, Inc. is responsible for the integrity and objectivity of the financial information in this annual report. These financial statements are prepared in conformity with generally accepted accounting principles, using informed judgments and estimates where appropriate. Where applicable, the information in other sections of this report is consistent with the financial statements. The company maintains a system of internal controls and accounting policies and procedures designed to provide reasonable assurance that assets are safeguarded and transactions are executed and recorded in accordance with management’s authorization. The audit committee of the Board of Directors, composed entirely of outside directors, is responsible for monitoring the company’s accounting and reporting practices. The audit committee meets regularly with management, the internal auditors, and the independent public accountants to review the work of each and to assure that each performs its responsibilities. Both the internal auditors and Arthur Andersen LLP have unrestricted access to the audit committee allowing open discussion, without management’s presence, on the quality of financial reporting and the adequacy of internal accounting controls.
James S. Balloun Brock A. Hattox Robert R. Burchfield
Chairman, President, and Executive Vice President and Vice President and
Chief Executive Officer Chief Financial Officer Controller
To the Stockholders of National Service Industries, Inc.:
We have audited the accompanying consolidated balance sheets of National Service Industries, Inc. (a Delaware corporation) and subsidiaries as of August 31, 2000 and 1999 and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended August 31, 2000. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Service Industries, Inc. and subsidiaries as of August 31, 2000 and 1999 and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2000 in conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLPAtlanta, Georgia
October 9, 2000
CONSOLIDATED BALANCE SHEETS
NATIONAL SERVICE INDUSTRIES, INC.
(In thousands, except share and per-share data)
August 31,
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 1,510 $ 2,254
Receivables, less reserves for doubtful accounts of $7,537
in 2000 and $6,306 in 1999 423,912 382,188
Inventories, at the lower of cost (on a first-in,
first-out basis) or market 257,579 218,191
Linens in service, net of amortization 57,162 58,875
Deferred income taxes 10,285 10,271
Prepayments 11,276 8,634
Total Current Assets 761,724 680,413
Property, Plant, and Equipment, at cost:
Land 28,697 25,764
Buildings and leasehold improvements 206,946 186,776
Machinery and equipment 559,483 587,719
Total Property, Plant, and Equipment 795,126 800,259
Less-- Accumulated depreciation and amortization 368,067 417,946
Property, Plant, and Equipment-- net 427,059 382,313
Other Assets:
Goodwill and other intangibles 536,009 551,995
Other 95,347 81,068
Total Other Assets 631,356 633,063
Total Assets $ 1,820,139 $ 1,695,789
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 201 $ 368
Commercial paper, short-term 236,706 102,539
Notes payable 20,285 11,471
Accounts payable 135,854 132,567
Accrued salaries, commissions, and bonuses 54,158 65,458
Current portion of self-insurance reserves 7,006 8,785
Accrued taxes payable 1,924 12,203
Other accrued liabilities 84,518 90,494
Total Current Liabilities 540,652 423,885
Long-Term Debt, less current maturities 384,242 435,199
Deferred Income Taxes 96,153 95,557
Self-Insurance Reserves, less current portion 37,484 38,828
Other Long-Term Liabilities 93,138 86,446
Commitments and Contingencies (Note 5)
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, 120,000,000 shares authorized,
57,918,978 shares issued in 2000 and 1999 57,919 57,919
Paid-in capital 29,657 29,055
Retained earnings 1,022,974 976,461
Accumulated other comprehensive income items (12,777) (9,326)
1,097,773 1,054,109
Less-- Treasury stock, at cost (17,090,414 shares in
2000 and 17,449,752 shares in 1999) 429,303 438,235
Total Stockholders' Equity 668,470 615,874
Total Liabilities and Stockholders' Equity $ 1,820,139 $ 1,695,789
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
CONSOLIDATED STATEMENTS OF INCOME
NATIONAL SERVICE INDUSTRIES, INC.
(In thousands, except per-share data)
Years Ended August 31,
2000 1999 1998
Sales and Service Revenues:
Net sales of products $2,244,659 $1,910,114 $1,718,564
Service revenues 321,522 309,115 312,746
Total Sales and Service Revenues 2,566,181 2,219,229 2,031,310
Costs and Expenses:
Cost of products sold 1,358,140 1,146,080 1,023,765
Cost of services 183,867 180,770 183,470
Selling and administrative expenses 797,432 698,196 654,511
Amortization expense 20,852 7,631 4,666
Interest expense, net 44,877 14,067 749
Gain on sale of businesses (356) (11,220) (2,449)
Restructuring expense, asset impairments, and
other charges - (9,291) -
Other income, net (1,817) (5,326) (6,523)
Total Costs and Expenses 2,402,995 2,020,907 1,858,189
Income before Provision for Income Taxes 163,186 198,322 173,121
Provision for Income Taxes 63,316 73,979 64,401
Net Income $ 99,870 $ 124,343 $ 108,720
Basic Earnings per Share $ 2.45 $ 3.04 $ 2.56
Basic Weighted Average Number of Shares Outstanding 40,708 40,899 42,462
Diluted Earnings per Share $ 2.45 $ 3.03 $ 2.53
Diluted Weighted Average Number of Shares
Outstanding 40,727 41,093 43,022
The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
NATIONAL SERVICE INDUSTRIES, INC.
(In thousands, except share and per-share data)
Accumulated
Other
Comprehensive Common Paid-in Retained Comprehensive Treasury
Income Stock Capital Earnings Income Items Stock Total
Balance, August 31, 1997 $ 57,919 $ 25,521 $ 847,857 $ (6,812) $ (252,672) $ 671,813
Comprehensive income:
Net income $ 108,720 -- -- 108,720 -- -- 108,720
Other comprehensive income, net of
tax:
Foreign currency translation
adjustments (4,528) -- -- -- (4,528) -- (4,528)
Minimum pension liability
adjustment (net of tax of $10) (17) -- -- -- (17) -- (17)
Other comprehensive income (4,545)
Comprehensive income $ 104,175
Treasury stock purchased(1) -- -- -- -- (154,032) (154,032)
Stock options exercised(2) -- 625 -- -- 3,305 3,930
Treasury stock issued in connection
with acquisition(3) -- 2,104 -- -- 2,896 5,000
Employee Stock Purchase Plan
issuances(4) -- 271 -- -- 347 618
Cash dividends of $1.23 per share paid
on common stock -- -- (52,603) -- -- (52,603)
Balance, August 31, 1998 57,919 28,521 903,974 (11,357) (400,156) 578,901
Comprehensive income:
Net income $ 124,343 -- -- 124,343 -- -- 124,343
Other comprehensive income, net of
tax:
Foreign currency translation
adjustments 2,022 -- -- -- 2,022 -- 2,022
Minimum pension liability
adjustment (net of tax of $4) 9 -- -- -- 9 -- 9
Other comprehensive income 2,031
Comprehensive income $ 126,374
Treasury stock purchased(5) -- -- -- -- (41,954) (41,954)
Stock options exercised(6) -- 58 -- -- 435 493
Treasury stock issued in connection
with acquisition(7) -- 200 -- -- 645 845
Employee Stock Purchase Plan
issuances(8) -- 276 -- -- 2,795 3,071
Cash dividends of $1.27 per share paid
on common stock -- -- (51,856) -- -- (51,856)
Balance, August 31, 1999 57,919 29,055 976,461 (9,326) (438,235) 615,874
Comprehensive income:
Net income $ 99,870 -- -- 99,870 -- -- 99,870
Other comprehensive income, net of
tax:
Foreign currency translation
adjustments (3,448) -- -- -- (3,448) -- (3,448)
Minimum pension liability
adjustment (net of tax of $1) (3) -- -- -- (3) -- (3)
Other comprehensive income (3,451)
Comprehensive income $ 96,419
Stock options exercised(9) -- 98 -- -- 643 741
Treasury stock issued in connection
with Long-Term Incentive Program(10) -- 1,245 -- -- 4,422 5,667
Employee Stock Purchase Plan
issuances(11) -- (741) -- -- 3,867 3,126
Cash dividends of $1.31 per share paid
on common stock -- -- (53,357) -- -- (53,357)
Balance, August 31, 2000 $ 57,919 $ 29,657 $ 1,022,974 $(12,777) $ (429,303) $ 668,470
__________(1) 3,025,162 shares. (2) 142,568 shares. (3) 130,804 shares. (4) 14,284 shares. (5) 1,153,099 shares. (6) 21,357 shares. (7) 26,495 shares. (8) 112,835 shares. (9) 29,350 shares. (10) 176,033 shares. (11) 153,955 shares.
The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NATIONAL SERVICE INDUSTRIES, INC.
(In thousands)
Years Ended August 31,
2000 1999 1998
Cash Provided by (Used for) Operating Activities
Net income $ 99,870 $ 124,343 $ 108,720
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 83,712 55,822 48,846
Provision for losses on accounts receivable 4,792 3,651 3,558
Gain on the sale of property, plant, and equipment (1,254) (1,098) (3,400)
Gain on sale of businesses (356) (11,220) (2,449)
Restructuring expense, asset impairments, and other
charges - (9,291) -
Change in non-current deferred income taxes 6,491 4,860 6,311
Change in assets and liabilities net of effect of
acquisitions and divestitures--
Receivables (42,948) (24,207) (47,564)
Inventories and linens in service, net (37,210) 10,371 (16,995)
Current deferred income taxes (2,395) 12,486 (4,383)
Prepayments (1,469) 517 493
Accounts payable and accrued liabilities (10,502) 42,323 (64,830)
Self-insurance reserves and other long-term
liabilities 6,158 (360) (1,944)
Net Cash Provided by Operating Activities 104,889 208,197 26,363
Cash Provided by (Used for) Investing Activities
Sale of short-term investments - - 205,302
Purchases of property, plant, and equipment (108,398) (72,285) (82,034)
Sale of property, plant, and equipment 3,813 3,996 6,814
Sale of businesses - 11,962 3,064
Acquisitions (26,344) (534,132) (45,305)
Change in other assets (16,800) (7,527) (6,532)
Net Cash (Used for) Provided by Investing
Activities (147,729) (597,986) 81,309
Cash Provided by (Used for) Financing Activities
Proceeds from notes payable, net 8,814 3,588 805
Issuances (repayments) of commercial paper, net (less
than 90 days) (87,762) 352,265 -
Issuances of commercial paper (greater than 90 days) 194,953 - -
Repayments of commercial paper (greater than 90 days) (222,750) - -
Proceeds from issuances of long-term debt 199,798 267,585 52,000
Repayments of long-term debt (1,196) (160,304) (957)
Issuance (purchase) of treasury stock, net 3,867 (38,390) (144,484)
Cash dividends paid (53,357) (51,856) (52,603)
Net Cash Provided by (Used for) Financing
Activities 42,367 372,888 (145,239)
Effect of Exchange Rate Changes on Cash (271) 9 (410)
Net Change in Cash and Cash Equivalents (744) (16,892) (37,977)
Cash and Cash Equivalents at Beginning of Year 2,254 19,146 57,123
Cash and Cash Equivalents at End of Year $ 1,510 $ 2,254 $ 19,146
Supplemental Cash Flow Information:
Income taxes paid during the year $ 66,705 $ 40,799 $ 100,270
Interest paid during the year 43,977 15,660 7,025
Noncash Investing and Financing Activities:
Treasury shares issued under long-term incentive plan $ 5,667 $ - $ -
Noncash aspects of sale of businesses -
Receivables incurred $ - $ 396 $ -
Liabilities assumed - 954 166
Noncash aspects of acquisitions -
Assets acquired $ 10,699 $ 660,238 $ 51,190
Liabilities assumed or incurred 569 125,261 5,885
Treasury stock issued - 845 5,000
The accompanying notes to consolidated financial statements are an integral part of these statements.
NATIONAL SERVICE INDUSTRIES, INC.
(In thousands, except share and per-share data)
Note 1. Summary of Accounting Policies
Description of Business
The company operates in four business segments — lighting equipment, chemicals, textile rental, and envelopes — each of which is a leading competitor in its respective markets. The lighting equipment segment produces a variety of fluorescent and non-fluorescent fixtures for markets throughout the United States, Canada, Mexico, and overseas. The chemical segment produces maintenance, sanitation, and water treatment products for customers throughout the United States, Canada, Puerto Rico, Western Europe, and Australia. The textile rental segment provides linens and dust control products to healthcare, lodging, and dining customer segments in the United States. The envelope segment produces business and specialty envelopes in the United States.
Revenue Recognition and Product WarrantyThe company records revenues as products are shipped or as services are rendered. A provision for estimated returns, allowances, and warranty costs is recorded when products are shipped.
Principles of ConsolidationThe consolidated financial statements include the accounts of the company and all subsidiaries after elimination of significant intercompany transactions and accounts.
Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents, and Short-Term InvestmentsCash in excess of daily requirements is invested in time deposits and marketable securities and is included in the accompanying balance sheets at market value. The company considers time deposits and marketable securities purchased with an original maturity of three months or less to be cash equivalents. Investments purchased with a maturity of more than three months and less than a year are considered short-term investments. There were no short-term investments at August 31, 2000 and 1999.
Concentrations of Credit RiskConcentrations of credit risk with respect to receivables are limited due to the wide variety of customers and markets using the company’s products and services, as well as their dispersion across many different geographic areas. As a result, as of August 31, 2000, the company does not consider itself to have any significant concentrations of credit risk.
Inventories and Linens in Service
Inventories are valued at the lower of cost (on a first-in, first-out basis) or market and consisted of the following at August 31, 2000 and 1999:
2000 1999
Raw materials and supplies $104,566 $ 99,249
Work in progress 20,262 16,718
Finished goods 132,751 102,224
$257,579 $ 218,191
Linens in service are recorded at cost and are amortized over their estimated useful lives of 12 to 60 months.
Goodwill and Other IntangiblesGoodwill of $3,460 was recognized in connection with a 1969 acquisition and is not being amortized. Remaining amounts of goodwill ($368,019 in 2000 and $385,380 in 1999) and other intangible assets are being amortized on a straight-line basis over various periods ranging from 3 to 40 years.
The company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives of goodwill and other long-lived assets or whether the remaining balance of goodwill should be evaluated for possible impairment. The company uses an estimate of related undiscounted cash flows over the remaining life of the goodwill in measuring whether the goodwill is recoverable.
DepreciationFor financial reporting purposes, depreciation is determined principally on a straight-line basis using estimated useful lives of plant and equipment (25 to 40 years for buildings and 3 to 16 years for machinery and equipment) while accelerated depreciation methods are used for income tax purposes. Leasehold improvements are amortized over the life of the lease or the useful life of the improvement, whichever is shorter.
Research and DevelopmentResearch and development costs are expensed as incurred. Research and development expenses amounted to $19,088, $8,482, and $13,577 during 2000, 1999, and 1998, respectively.
Foreign Currency TranslationThe functional currency for the company’s foreign operations is the local currency. The translation of foreign currencies into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains or losses, net of applicable income taxes, resulting from the translation are included in “Accumulated Other Comprehensive Income Items” in the Consolidated Statements of Stockholders’ Equity and Comprehensive Income and are excluded from net income.
Gains or losses resulting from foreign currency transactions are included in “Other income, net” in the Consolidated Statements of Income and were insignificant in 2000, 1999, and 1998.
Postretirement Healthcare and Life Insurance Benefits
The company’s retiree medical plans are financed entirely by retiree contributions; therefore, the company has no liability in connection with them. Several programs provide limited retiree life insurance benefits. The liability for these plans is not material.
Postemployment BenefitsStatement of Financial Accounting Standards (“SFAS”) No. 112, “Employers’ Accounting for Postemployment Benefits,” requires the accrual of the estimated cost of benefits provided by an employer to former or inactive employees after employment but before retirement. The company’s accrual, which is not material, relates primarily to severance agreements and the liability for life insurance coverage for certain eligible employees.
Interest Expense, NetInterest expense, net, is comprised primarily of interest expense on long-term debt, credit facility borrowings, commercial paper, and line of credit borrowings offset by interest income on cash, cash equivalents, and short-term investments.
Other Income, NetOther income, net, is comprised primarily of gains resulting from the sale of fixed assets.
Accounting Standards Yet to be AdoptedSFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” was issued in June 1998 and is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. In addition, SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities — an Amendment of FASB Statement No. 133,” was issued in June 2000 and is to be adopted concurrently with SFAS No. 133. However, the company does not currently participate in any significant hedging activities, nor does it utilize any significant derivative financial instruments.
ReclassificationsCertain prior period amounts in the financial statements and notes have been reclassified to conform with the 2000 presentation.
Note 2. Pension and Profit Sharing Plans
The company has several pension plans covering hourly and salaried employees. Benefits paid under these plans are based generally on employees’ years of service and/or compensation during the final years of employment. The company makes annual contributions to the plans to the extent indicated by actuarial valuations. Plan assets are invested primarily in equity and fixed income securities.
The following tables reflect the status of the company’s pension plans at August 31, 2000 and 1999:
2000 1999
Change in benefit obligation:
Benefit obligation at beginning of year $ 130,581 $ 124,545
Service cost 4,514 3,822
Interest cost 9,713 8,592
Acquisition -- 11,869
Actuarial gain (4,402) (6,589)
Benefits paid (9,499) (11,840)
Other 224 182
Benefit obligation at end of year $ 131,131 $ 130,581
Change in plan assets:
Fair value of plan assets at beginning of year $ 162,568 $ 150,101
Actual return on plan assets 15,004 9,466
Employer contributions 2,063 564
Employee contributions 544 --
Benefits paid (9,499) (11,440)
Acquisition -- 13,663
Other (1,440) 214
Fair value of plan assets at end of year $ 169,240 $ 162,568
Funded status:
Funded status $ 38,109 $ 31,987
Unrecognized actuarial loss 1,751 6,655
Unrecognized transition asset (3,044) (4,030)
Unrecognized prior service cost 3,849 3,670
Prepaid pension expense $ 40,665 $ 38,282
Amounts recognized in the consolidated balance
sheets consist of:
Prepaid benefit cost $ 48,655 $ 45,086
Accrued benefit liability (8,577) (7,713)
Intangible asset 528 854
Accumulated other comprehensive income 59 55
Prepaid pension expense $ 40,665 $ 38,282
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for defined benefit pension plans with accumulated benefit obligations in excess of plan assets were $11,744, $8,779, and $1,113, respectively, as of August 31, 2000, and $10,428, $8,487, and $971, respectively, as of August 31, 1999.
Components of net periodic benefit cost for the fiscal years ended August 31, 2000, 1999, and 1998 included the following:
2000 1999 1998
Service cost $ 4,514 $ 3,822 $ 3,091
Interest cost 9,713 8,592 8,509
Expected return on plan assets (15,017) (13,893) (12,344)
Amortization of prior service cost 470 477 444
Amortization of transitional asset (987) (1,011) (1,131)
Recognized actuarial loss 265 236 55
Net periodic pension benefit $ (1,042) $ (1,777) $ (1,376)
Weighted average assumptions in 2000 and 1999 included the following:
2000 1999
Discount rate 8.2% 7.5%
Expected return on plan assets 9.4% 9.2%
Rate of compensation increase 5.1% 5.1%
During 2000, the discount rate used to determine the projected benefit obligation was increased to 8.2 percent to more closely approximate rates on high-quality, long-term obligations.
The company also has profit sharing and 401(k) plans to which both employees and the company contribute. At August 31, 2000, assets of the 401(k) plans included shares of the company’s common stock with a market value of approximately $10,151. The company’s cost of these plans was $5,138 in 2000, $4,521 in 1999, and $4,292 in 1998.
Note 3. Long-Term Debt and Lines of CreditLong-term debt at August 31, 2000 and 1999, consisted of the following:
2000 1999
Commercial paper $ - $249,726
6% notes due February 2009 with an effective rate of
6.04%, net of unamortized discount of $351 in 2000
and $393 in 1999 159,649 159,607
8.375% notes due August 2010 with an effective rate of
8.398%, net of unamortized discount of $244 199,756 -
4.3% to 8.5% other notes, payable in installments to
2026 (secured in part by property, plant, and
equipment having a net book value of $148 at August
31, 2000) 25,038 26,234
384,443 435,567
Less - Amounts payable within one year included in
current liabilities 201 368
$ 384,242 $435,199
Future annual principal payments of long-term debt are as follows:
Fiscal Year Amount
2001 $ 201
2002 2,045
2003 1,094
2004 3,578
2005 89
2006 and beyond 377,436
$384,443
In 1996, the company negotiated a $250,000 multi-currency committed credit facility (the “Credit Facility”) with ten domestic and international banks. The Credit Facility has a term of five years, expiring in July 2001, with no provision for a reduction in commitments. The Credit Facility contains restrictions on the incurrence of indebtedness by subsidiaries, as well as financial and other covenants, including the restriction that the company’s ratio of total debt to capitalization may not exceed 60 percent. In July 1999, the company entered into an additional $250,000, 364-day committed credit facility (the “Revolving Credit Facility”), which was renewed in July 2000 and expires in July 2001. Each credit facility permits certain subsidiaries of the company to borrow under such facility, and the company guarantees these borrowings. The combined $500,000 under the Credit Facility and the Revolving Credit Facility support the company’s commercial paper program, which was initiated in July 1999. Interest rates under the credit facilities are based on the LIBOR rate or other rates, at the company’s option. The company pays an annual fee on the commitments based on the company’s debt rating and leverage ratio. No amounts were outstanding under either facility at August 31, 2000 and 1999.
Amounts outstanding under the company’s commercial paper program ($236,706 in 2000 and $352,265 in 1999) had weighted average interest rates of 6.8 percent and 5.6 percent at August 31, 2000 and 1999, respectively. At August 31, 1999, $249,726 of commercial paper was classified as long-term as the company intended to refinance this amount through long-term debt instruments. As discussed below, the company refinanced $200,000 of long-term commercial paper in the fourth quarter of 2000. Additionally, the remaining portion of commercial paper which was classified as long-term at August 31, 1999 (approximately $50,000) was reclassified to short-term debt in the fourth quarter of 2000.
At August 31, 2000, the company had complimentary uncommitted lines of credit totaling $128,853 for general operating purposes, of which $28,853 is designated as multi-currency. At August 31, 2000, the company had $20,285 of foreign currency short-term bank borrowings under the multi-currency lines of credit at a weighted-average interest rate of 5.35 percent. At August 31, 2000, $74,390 in letters of credit was outstanding, primarily under the domestic uncommitted line of credit.
In January 1999, the company issued $160,000 in ten-year publicly traded notes bearing a coupon rate of 6.0 percent. Proceeds were used for the repayment of $80,000 in borrowings under the Credit Facility, of which $52,000 was outstanding under the domestic uncommitted line of credit at August 31, 1998. The remainder was used for general operating purposes including working capital requirements, capital expenditures, acquisitions, and share repurchases. In August 2000, the company issued $200,000 in ten-year publicly traded notes bearing a coupon rate of 8.375 percent. Proceeds were used for the repayment of borrowings under the commercial paper program. The fair values of the $160,000 and $200,000 notes, based on quoted market prices, were approximately $138,720 and $201,880, respectively, at August 31, 2000.
Excluding the $160,000 and $200,000 notes, long-term debt recorded in the accompanying balance sheets approximates fair value based on the borrowing rates currently available to the company for bank loans with similar terms and average maturities.
Note 4. Common Stock and Related Matters
Shares Authorized
In January 1999, the stockholders approved an amendment to the corporation’s Restated Certificate of Incorporation to increase the corporation’s authorized shares of common stock from 80,000,000 to 120,000,000. The additional shares will be available for potential acquisitions, stock dividends and splits, and other purposes determined by the Board of Directors to be in the best interests of the corporation.
Shareholder Rights PlanThe company has a shareholder rights plan under which one preferred stock purchase right is presently attached to and trades with each outstanding share of the company’s common stock. The plan, which was to have expired May 19, 1998, was amended in December 1997 and extended to May 19, 2008.
The rights become exercisable and transferable apart from the common stock (a) on the date that a person or group announces that they have acquired 15 percent or more of the company’s common stock or (b) ten days after a person or group makes an unsolicited offer to acquire beneficial ownership of, or the right to obtain beneficial ownership of, 15 percent or more of the company’s common stock (unless such date is extended by the Board of Directors) or (c) 20 business days before the date on which a business combination is reasonably expected to be consummated involving a person who, if the business combination is consummated, has or would acquire beneficial ownership of, or the right to obtain beneficial ownership of, 15 percent or more of the company’s common stock and that person has directly or indirectly nominated a director of the company at the time the business combination is considered. The rights are not triggered if the Board of Directors is notified that reaching the trigger threshold was inadvertent and divestiture of sufficient stock is thereafter made. Once exercisable, each right entitles the holder to purchase one one-thousandth share of Series A Participating Preferred Stock at an exercise price of $160, subject to adjustment to prevent dilution. The rights have no voting power and, until exercised, no dilutive effect on net income per common share. The rights expire on May 19, 2008, and are redeemable under certain circumstances.
If a person acquires 15 percent ownership, except in an offer approved under the plan by a majority of the disinterested nonemployee directors, each right not owned by the acquirer or related parties will entitle its holder to purchase, at the right’s exercise price, common stock or common stock equivalents having a market value immediately prior to the triggering of the right of twice that exercise price. In addition, after an acquirer obtains 15 percent ownership, if the company is involved in certain mergers, business combinations, or asset sales, each right not owned by the acquirer or related persons will entitle its holder to purchase, at the right’s exercise price, shares of common stock of the other party to the transaction having a market value immediately prior to the triggering of the right of twice that exercise price.
Preferred StockThe company has 1,000,000 shares of preferred stock authorized, 500,000 of which have been reserved for issuance under the shareholder rights plan. No shares of preferred stock had been issued at August 31, 2000 and 1999.
Earnings per ShareDuring fiscal 1998, the company adopted SFAS No. 128, "Earnings per Share." Upon adoption, the company was 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 did not have a material impact on the computation or manner of presentation of the company's earnings per share.
The following table represents a reconciliation of basic and diluted earnings per share at August 31:
2000 1999 1998
Basic weighted average shares outstanding (thousands) 40,708 40,899 42,462
Add: Shares of common stock assumed issued upon
exercise of dilutive stock options (thousands) 19 194 560
Diluted weighted average shares outstanding (thousands) 40,727 41,093 43,022
Net income used in the computation of basic and
diluted earnings per share $99,870 $ 124,343 $ 108,720
Earnings per Share:
Basic $ 2.45 $ 3.04 $ 2.56
Diluted $ 2.45 $ 3.03 $ 2.53
Stock-Based CompensationIn 1990, stockholders approved the National Service Industries, Inc. Long-Term Incentive Program for the benefit of officers and other key employees. There were 1,750,000 treasury shares reserved for issuance under the program.
In 1997, stockholders approved the National Service Industries, Inc. Long-Term Achievement Incentive Plan for the benefit of officers and other key employees. On January 5, 2000, the stockholders approved an amendment to the plan which, in addition to other modifications, increased the number of shares authorized for issuance under the plan from 1,750,000 to 5,750,000. Treasury shares have been reserved for issuance under the plan.
Aspiration Achievement Incentive Awards were granted annually beginning in September 1996 under the Long-Term Achievement Incentive Plan. Shares may be earned and issued to participants based on a level of achievement of performance over three-year performance cycles. Amounts charged to compensation expense for 2000, 1999, and 1998 were $7,209, $9,244, and $7,203, respectively. During fiscal 2000, 176,033 shares were issued under the award for the first performance cycle ended August 31, 1999. No shares were issued under this award as of August 31, 1999.
Generally, the stock options granted under both long-term incentive programs become exercisable in four equal annual installments beginning one year from the date of the grant.
In January 1993, stockholders approved the National Service Industries, Inc. 1992 Nonemployee Directors’ Stock Option Plan, under which 100,000 treasury shares were reserved for issuance. The stock options granted under that plan become exercisable one year from the date of the grant.
Under all stock option plans, the options expire ten years from the date of the grant and have an exercise price equal to the fair market value of the company’s stock on the date of the grant. At August 31, shares available for grant as options under all plans were 3,517,152 in 2000, 694,279 in 1999, and 1,236,574 in 1998, less shares required for the payment of outstanding Aspiration Achievement Incentive Awards (approximately 628,061 at August 31, 2000).
Stock option transactions for the stock option plans and stock option agreements during the years ended August 31, 2000, 1999, and 1998 were as follows:
Outstanding Exercisable
Weighted Weighted
Number of Average Number of Average
Shares Exercise Price Shares Exercise Price
Outstanding at August 31, 1997 1,387,214 $ 30.35 731,914 $ 27.11
Granted 500,000 44.50
Exercised (142,568) 26.32
Cancelled - -
Outstanding at August 31, 1998 1,744,646 $ 34.74 876,721 $ 29.05
Granted 665,250 $ 35.24
Exercised (21,357) 27.71
Cancelled (122,955) 39.24
Outstanding at August 31, 1999 2,265,584 $ 34.78 1,110,084 $ 31.30
Granted 1,144,598 $ 27.51
Exercised (29,350) 27.44
Cancelled (27,533) 32.14
Outstanding at August 31, 2000 3,353,299 $ 32.40 1,752,011 $ 32.28
Range of option exercise prices:
Officers and other key employees -
$17.83 - $29.72 (average life - 7.5 years) 1,505,104 $ 26.66 701,004 $ 25.94
$29.72 - $41.61 (average life - 6.7 years) 1,342,195 $ 34.83 782,757 $ 34.38
$41.61 - $59.44 (average life - 6.9 years) 443,500 $ 44.49 222,250 $ 44.49
Nonemployee directors -
$22.13 - $30.98 (average life - 5.9 years) 35,500 $ 27.44 19,000 $ 27.22
$35.40 - $44.25 (average life - 5.7 years) 27,000 $ 39.49 27,000 $ 39.49
During fiscal 1997, the company adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” Accordingly, no compensation cost has been recognized for these stock option plans. Had compensation cost for the company’s stock option plans been determined based on the fair value at the grant date for awards in fiscal years 2000, 1999, and 1998, consistent with the provisions of SFAS No. 123, the company’s net income and earnings per share would have been reduced to the following pro forma amounts:
2000 1999 1998
Pro Forma Information:
Net income $ 94,166 $120,141 $ 106,297
Basic earnings per share 2.31 2.94 2.50
Diluted earnings per share 2.31 2.92 2.47
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. The weighted average grant date fair value of options was $9.18, $13.70, and $12.23, for 2000, 1999, and 1998, respectively.
The following weighted average assumptions were used to estimate fair value:
2000 1999 1998
Dividend yield 2.6% 2.6% 2.8%
Expected volatility 24.4% 36.2% 18.1%
Risk-free interest rate 6.9% 5.2% 6.1%
Expected life of options 10 years 10 years 10 years
Turnover rate 5.0% 5.0% 5.0%
Employee Stock Purchase PlanIn 1998, stockholders approved the National Service Industries, Inc. Employee Stock Purchase Plan for the benefit of eligible employees. Under the plan, employees may purchase, through payroll deduction, the company’s common stock at a 15 percent discount. Shares are purchased quarterly at 85 percent of the lower of the fair market value of the company’s common stock on the first business day of the quarterly plan period or on the last business day of the quarterly plan period. There were 1,500,000 treasury shares reserved for purchase under the plan, of which 1,218,926 shares remain available for purchase at August 31, 2000.
Note 5. Commitments and ContingenciesSelf-Insurance
It is the company’s policy to self insure for certain insurable risks consisting primarily of physical loss to property; business interruptions resulting from such loss; and workers’ compensation, comprehensive general, and auto liability. Insurance coverage is obtained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. Based on an independent actuary’s estimate of the aggregate liability for claims incurred, a provision for claims under the self-insured program is recorded and revised annually.
The activity in the self-insurance liability for each of the years ended August 31 was as follows:
2000 1999 1998
Reserve, beginning of period $ 47,613 $ 55,826 $ 69,596
Expense 10,271 5,302 3,482
Payments (13,394) (13,515) (17,252)
Reserve, end of period $ 44,490 $ 47,613 $ 55,826
LeasesThe company leases certain of its buildings and equipment under noncancelable lease agreements. Minimum lease payments under noncancelable leases for years subsequent to August 31, 2000, are as follows: 2001 - $14,437; 2002 - $11,082; 2003 - $8,426; 2004 - $6,118; 2005 - $3,573; after 2005 - $19,277.
Total rent expense was $19,017 in 2000, $16,536 in 1999, and $12,237 in 1998.
Collective Bargaining AgreementsApproximately 48 percent of the company’s total work force is covered by collective bargaining agreements. Collective bargaining agreements representing 14 percent of the company’s total work force will expire within one year. Management believes that the renewal of the collective bargaining agreements will not have a material adverse effect on the company’s financial condition or results of operations.
Litigation
The company is subject to various legal claims arising in the normal course of business out of the conduct of its current and prior businesses, including patent infringement and product liability claims. Based on information currently available and based upon the advice of counsel, it is the opinion of management that the ultimate resolution of pending and threatened legal proceedings will not have a material adverse effect on the company’s financial condition or results of operations. However, in the event of unexpected future developments or information, it is possible that the ultimate resolution of such matters, if unfavorable, could have a material adverse effect on the company’s results of operations in a particular future period. The company’s reserves for known legal claims, which are included in current liabilities in the accompanying balance sheets, were $10,300 and $10,400 at August 31, 2000 and 1999, respectively. The actual costs of resolving legal claims may be substantially lower or higher than that reserved. The company does not believe that the amount of such costs below or in excess of that accrued is reasonably estimable.
Environmental MattersThe company’s operations, as well as similar operations of other companies, 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 limit 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 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.
The company’s environmental reserves, which are included in current liabilities, totaled $10,160 and $11,000 at August 31, 2000 and 1999, respectively, and were calculated on an undiscounted basis. The actual cost of environmental issues may be substantially lower or higher than that reserved due to the difficulty in estimating such costs, potential changes in the status of government regulations, and the inability to determine the extent to which contributions will be available from other parties. The company does not believe that any amount of such costs below or in excess of that accrued is reasonably estimable.
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 potentially responsible parties (“PRPs”) that are financially viable, 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 PRPs, although no assurance as to the method of apportioning the liability can be given as to any particular site.
The company is currently a party to, or otherwise involved in, legal proceedings in connection with state and federal Superfund sites, two of which are located on property owned by the company. Except for the Crymes Landfill and M&J Solvents matters 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 and M&J Solvents sites in Georgia, since the matters are currently in the investigative phase, the company does not know whether its liability is de minimis but believes that its exposure at each of the sites is not likely to result in a material adverse effect on the company due to its limited involvement at the sites and the number of viable PRPs. For property which the company owns on Seaboard Industrial Boulevard in Atlanta, Georgia, the company has conducted an investigation on its and adjoining properties and submitted a Compliance Status Report (“CSR”) to the State of Georgia Environmental Protection Division (“EPD”) pursuant to the Georgia Hazardous Site Response Act. The CSR is subject to EPD’s final approval. Until the CSR is finalized, 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. For property which the company owns on East Paris Street in Tampa, Florida, the company has been requested by the State of Florida to clean up chlorinated solvent contamination in the groundwater on the property and on surrounding property known as Seminole Heights Solvent Site and to reimburse approximately $430 of costs already incurred by the State of Florida in connection with such contamination. The company believes that it has a strong defense due to likely off-site sources of the contamination and because contamination from the property, if any, was due to prior owners and not the company’s operations. At this time, it is too early to quantify the company’s potential exposure or the likelihood of an adverse result.
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 environmental liabilities arising from events occurring prior to the closing, subject to certain exceptions. 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. The prior owner is currently conducting an investigation of the contamination at its expense, subject to a reservation of rights. At this time, 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.
The State of New York has filed a lawsuit against the company alleging that the company is responsible as a successor to Serv-All Uniform Rental Corp. for past and future response costs in connection with the release or potential release of hazardous substances at and from the Blydenburgh Landfill in Islip, New York. The company believes that it is not a successor to Serv-All Uniform Rental Corp. and therefore has no liability with respect to the Blydenburgh Landfill, and it has responded to the lawsuit accordingly. At this stage of the litigation, it is too early to quantify the company’s potential exposure or the likelihood of an adverse result.
Note 6. Restructuring Expense and Asset ImpairmentsDuring 1997, the company conducted reviews of the textile rental, European chemical, and corporate operations as a part of management’s strategic initiatives to examine under-performing operations and to position the company for growth. As a result of the reviews, the company approved a significant restructuring program and recorded a related charge of $9,600 during the fourth quarter of 1997. The accrual included severance and union-related costs totaling $2,950 for 120 employees of the textile rental, chemical, and envelope segments, all of whom have since been terminated, and $6,650 in exit expenses to close certain facilities and consolidate the operations of others in the textile rental segment. Exit expenses include costs of unexpired leases and costs to dispose of facilities.
The major components of the 1997 restructuring charges and related activity are as follows:
Reserve, Reserve,
Beginning Cash Non-Cash End of
of Period Payments Adjustments Period
2000
Severance and union related costs $ 163 (163) - $ -
Exit costs $ 464 (179) - $ 285
1999
Severance and union related costs $ 630 (290) (177)(1) $ 163
Exit costs $3,600 (378) (2,758)(1) $ 464
1998
Severance and union related costs $2,745 (2,115) - $ 630
Exit costs $4,740 (390) (750)(1) $3,600
__________
(1) The restructuring reserves were reduced because the company realized lower costs than originally anticipated and also revised its estimate for certain expenses included in the original restructuring plan due to lease terminations or other changes.
As a further result of the 1997 reviews, the company recognized long-lived asset impairments totaling $43,500. Textile rental assets to be disposed of in under-performing branches were reduced by $22,300 to state them at their estimated fair value less costs to sell. After the charge, the remaining net book value of these assets was immaterial. Fixed assets held for use by the textile rental, European chemical, and corporate units were reduced by $12,400 and related intangibles were reduced by $8,800. Impairments were recognized for those assets where the sum of estimated undiscounted future cash flows was less than the carrying amount of the assets, including related goodwill. Fair market values were established based on independent appraisals, comparable sales or purchases, and expected future cash flows discounted at the company’s cost of capital. Factors leading to the impairments were a combination of the results of the reviews discussed above, historical losses, anticipated future losses, and inadequate cash flows.
The losses resulting from the accruals and impairments are included in “Restructuring expense, asset impairments, and other charges” in the Consolidated Statements of Income.
During 1999, management performed an extensive review of the assets that were to be disposed of and the remaining restructuring accruals. In addition to realizing lower than anticipated costs, management determined that it was more economically feasible to continue to operate certain locations that were to be disposed of in the original plan. As a result, in 1999 the related reserve and impairments were reversed and $9,291 of income was recorded and included in “Restructuring expense, asset impairments, and other charges” in the Consolidated Statements of Income.
Note 7. Acquisitions and DivestituresAcquisition spending in 2000 totaled $26,344 and primarily related to the cash-out of remaining Holophane Corporation (“Holophane”) shares. The company purchased Holophane in July 1999 for approximately $470,811. Of the total purchase price, $454,564 was paid during fiscal 1999 and $16,214 was paid during fiscal 2000. The remaining $10,130 spent in 2000 related to several small acquisitions in the textile rental segment. These acquisitions were accounted for as purchases, and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values. As a result, goodwill of $2,564 was recorded and is being amortized over periods ranging from 10 to 20 years. Identifiable intangibles of $5,539 are being amortized over periods ranging from 3 to 7 years and primarily include customer lists and non-compete agreements. Results of operations after the acquisition date are included in the Consolidated Statements of Income.
There were no significant divestitures in 2000.
Acquisition spending in 1999 totaled $534,977 ($534,132 in cash and 26,495 shares valued at $845) and was primarily related to the lighting equipment and envelope segments. The acquisitions were accounted for as purchases and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values.
The lighting equipment segment acquired four companies during 1999. The largest acquisition was Holophane, a manufacturer of premium quality, highly engineered lighting fixtures and systems, which was purchased in July 1999 for approximately $470,811. The preliminary allocation of the purchase price resulted in additional goodwill of $251,781, which is being amortized over 40 years, and identifiable intangibles of $145,725, which are being amortized over periods ranging from 2 to 40 years. Identifiable intangibles include trade names, trademarks, patented technology, distribution network, trained workforce, and restrictive covenants. In 2000, certain adjustments were made to the purchase price allocation resulting in additional goodwill of approximately $1,324. These adjustments primarily related to severance charges and costs associated with the termination of a joint venture in Australia.
Results of operations after the acquisition date of Holophane are included in the Consolidated Statements of Income. The following pro forma information has been prepared assuming the Holophane acquisition had taken place at the beginning of the respective fiscal year of the company. The pro forma information includes adjustments for interest expense on debt incurred to effect the acquisition, the interest income forgone on the cash portion paid for the acquisition, additional depreciation based on the fair market value of property, plant, and equipment, and amortization of goodwill and intangibles resulting from this transaction. The pro forma financial information does not purport to reflect the financial position or results of operations that actually would have resulted had the transaction occurred as of the date indicated or to project the results of operations for any future period.
1999 1998
Pro Forma Information (Unaudited)
Sales and Service Revenues $2,422,991 $2,240,322
Net income 118,403 102,102
Basic earnings per share 2.90 2.40
Diluted earnings per share 2.88 2.37
Other acquisitions in the lighting equipment segment included the September 1998 purchase of certain assets of GTY Industries (d/b/a “Hydrel”), a manufacturer of architectural-grade light fixtures for landscape, in-grade, and underwater applications; the April 1999 purchase of certain assets of Peerless Corporation, a manufacturer of high performance indirect/direct suspended lighting products; and the July 1999 purchase of C&G Carandini SA, a manufacturer of exterior lighting fixtures. In February 1999, the envelope segment acquired substantially all of Gilmore Envelope, an envelope manufacturer headquartered in Los Angeles, California. The company also made several minor acquisitions in the textile rental segment.
Divestitures in 1999 primarily related to the envelope segment’s sale of Techno-Aide/Stumb Metal Products in June 1999 for approximately $4,191. The envelope segment recognized a pretax gain of $1,990 on the transaction. Other divestitures during 1999 related to the sale of industrial contracts in the textile rental segment and were not material.
During 1999, management performed an extensive review of the liabilities recorded in connection with the textile rental segment’s 1997 uniform plants divestiture. In 1997, the textile rental segment accrued for items related to the sale of its uniform plants including environmental exposures, severance agreements, and costs to return leased facilities to pre-lease condition. The company realized lower costs than originally anticipated associated with these items and, as a result, reduced the liability and recorded a gain of $3,511.
Acquisition spending in 1998 totaled $45,305 and was primarily related to the chemical and envelope segments. In November 1997, the chemical segment purchased Pure Corporation, a specialty chemical company with its core businesses in Indiana, Pennsylvania, and New York. In March 1998, the envelope segment purchased Allen Envelope Corporation, a single-plant, Pennsylvania-based envelope manufacturer, providing the segment with access to markets in the Northeast. In July 1998, the company purchased Calman Australia Pty Ltd (“Calman”). Calman, located in Victoria, Australia is a manufacturer of cleaning, maintenance, sanitation and industrial products, chemicals, supplies, and accessories. Additionally, the company paid certain performance payments associated with a prior year chemical acquisition. Divestitures during 1998 related to the textile rental segment and excess properties and were not material.
Note 8. Income TaxesThe company accounts for income taxes using the asset and liability approach as prescribed by SFAS No. 109, “Accounting for Income Taxes.” This approach requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Using the enacted tax rates in effect for the year in which the differences are expected to reverse, deferred tax liabilities and assets are determined based on the differences between the financial reporting and the tax basis of an asset or liability.
The provision for income taxes consists of the following components:
2000 1999 1998
Provision for current Federal taxes $51,144 $ 49,221 $ 54,997
Provision for current state taxes 2,500 2,957 3,143
Provision for current foreign taxes 4,657 2,373 1,952
Provision for deferred taxes 5,015 19,428 4,309
Total provision for income taxes $63,316 $ 73,979 $ 64,401
A reconciliation from the Federal statutory rate to the total provision for income taxes is as follows:
2000 1999 1998
Federal income tax computed at statutory rate $ 57,115 $69,414 $ 60,592
State income tax, net of Federal income tax
benefit 3,340 2,594 2,144
Foreign and other, net 2,861 1,971 1,665
Total provision for income taxes $ 63,316 $73,979 $ 64,401
Components of the net deferred income tax liability at August 31, 2000 and 1999 include:
2000 1999
Deferred tax liabilities:
Depreciation $ 37,218 $ 30,946
Amortization of linens 22,941 25,416
Pension 16,466 14,134
Intangibles 53,251 52,006
Other 35,782 40,925
Total deferred tax liabilities 165,658 163,427
Deferred tax assets:
Self-insurance (21,080) (22,203)
Deferred compensation (24,476) (23,348)
Bonuses (5,638) (5,017)
Foreign tax losses (643) (807)
Restructuring and asset impairment (19,638) (19,136)
Asset disposition reserves (192) (74)
Other assets (8,123) (7,556)
Total deferred tax assets (79,790) (78,141)
Net deferred tax liability $ 85,868 $ 85,286
At August 31, 2000, the company had foreign net operating loss carryforwards of $1,761 expiring in fiscal years 2001 through 2004.
Note 9. Quarterly Financial Data (Unaudited)
Sales and Income Basic Diluted
Service Gross before Net Earnings Earnings
Revenues Profit Taxes Income per Share per Share
2000
1st Quarter $ 620,010 $ 247,724 $ 39,852 $24,390 $ .60 $ .60
2nd Quarter 605,413 240,623 33,130 20,276 .50 .50
3rd Quarter 645,040 258,182 33,950 20,776 .51 .51
4th Quarter 695,718 277,645 56,254 34,428 .84 .84
1999
1st Quarter $ 518,926 $ 213,488 $ 40,930 $25,704 $ .62 $ .62
2nd Quarter 510,359 201,357 39,427 24,762 .60 .60
3rd Quarter 569,838 228,849 48,635 30,541 .75 .75
4th Quarter 620,106 248,685 69,330 43,336 1.07 1.07
Note 10. Business Segment Information
Capital
Sales and Expenditures
Service Operating Total Depreciation Amortization and
Revenues Profit (Loss) Assets Expense Expense Acquisitions
2000
Lighting Equipment $1,511,641 $144,149 $1,145,927 $ 31,792 $14,994 $ 68,721
Chemical 511,070 48,699 241,645 7,705 3,447 9,946
Textile Rental(1) 321,522 28,208 222,957 14,154 1,432 30,795
Envelope(2) 221,948 5,096 151,003 6,892 979 22,890
2,566,181 226,152 1,761,532 60,543 20,852 132,352
Corporate (18,089) 58,607 2,317 2,390
Interest Expense, net (44,877)
$2,566,181 $163,186 $1,820,139 $ 62,860 $20,852 $ 134,742
1999
Lighting Equipment $1,220,602 $121,755 $1,073,936 $ 20,351 $ 2,322 $ 541,649
Chemical 487,783 45,206 233,461 6,681 3,480 10,980
Textile Rental(1) 309,115 42,935 203,509 13,666 860 20,669
Envelope(2) 201,729 17,662 139,755 5,319 969 32,592
2,219,229 227,558 1,650,661 46,017 7,631 605,890
Corporate (15,169) 45,128 2,174 527
Interest Expense, net (14,067)
$2,219,229 $198,322 $1,695,789 $ 48,191 $ 7,631 $ 606,417
1998
Lighting Equipment $1,105,255 $109,286 $ 397,962 $ 18,819 $ 295 $ 37,541
Chemical 454,532 36,460 235,269 6,387 2,807 20,217
Textile Rental(1) 312,746 29,734 193,347 12,836 1,076 21,595
Envelope 158,777 13,293 103,087 3,895 488 47,111
2,031,310 188,773 929,665 41,937 4,666 126,464
Corporate (14,903) 81,019 2,243 875
Interest Expense, net (749)
$2,031,310 $173,121 $1,010,684 $ 44,180 $ 4,666 $ 127,339
__________
(1) Textile rental segment 1999 operating profit included $9,291 of income related to the reversal of restructuring reserves and asset impairments. Gains resulting from the sale of businesses were $186 in 2000, $9,230 in 1999, and $2,449 in 1998. Gains on sale of businesses for 1999 included $3,511 related to the 1997 sale of textile rental plants to G&K Services, Inc. See Note 7: Acquisitions and Divestitures.
(2) Envelope segment operating profit included gains resulting from the sale of businesses of $170 in 2000 and $1,990 in 1999.
The geographic distribution of the company’s sales and service revenues, operating profit (loss), and long-lived assets is summarized in the following table:
2000 1999 1998
Sales and service revenues(1)
United States $ 2,327,460 $2,061,774 $ 1,898,947
Canada 104,335 85,829 79,435
European countries 81,246 46,723 39,936
Other 53,140 24,903 12,992
$ 2,566,181 $2,219,229 $ 2,031,310
Operating profit (loss)
United States $ 155,678 $ 195,470 $ 174,447
Canada 6,342 1,170 152
European countries (891) 934 (2,562)
Other 2,057 748 1,084
$ 163,186 $ 198,322 $ 173,121
Long-lived assets(2)
United States $ 1,003,062 $ 953,959 $ 373,252
Canada 15,196 14,719 14,196
European countries 26,041 32,491 12,641
Other 14,116 14,207 3,544
$ 1,058,415 $1,015,376 $ 403,633
__________
(1) Sales are attributed to each country based on the selling location.
(2) Long-lived assets include net property, plant, and equipment, goodwill and intangibles, and other long-term assets.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant
The information required by this item, with respect to directors, is included under the caption “Information Concerning Nominees” of the company’s proxy statement for the annual meeting of stockholders to be held December 21, 2000, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.
The information required by this item, with respect to beneficial ownership reporting, is included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of the company’s proxy statement for the annual meeting of stockholders to be held December 21, 2000, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Executive Officers of the RegistrantExecutive officers of the company are elected at the organizational meeting of the Board of Directors following the annual meeting of stockholders.
Name and age of each executive officer Business experience of executive officers during the five years ended August 31, 2000
and positions held with the company and term in office.
James S. Balloun, age 62 Mr. Balloun was elected Chairman and Chief Executive Officer effective February, 1996
Chairman, President, and Chief and assumed the role of President in October, 1996. Previously, he served McKinsey &
Executive Officer and Director Company as a Director.
George H. Gilmore, Jr., age 51 Mr. Gilmore was elected Executive Vice President and Group President effective June,
Executive Vice President and Group 1999. Previously, he served as President of Moore Business Systems from 1994 to 1995,
President President of Moore Document Solutions from 1995 to 1997, and as President and Chief
Operating Officer of Calmat Co. from 1998 to 1999.
David Levy, age 63 Mr. Levy was elected Executive Vice President, Administration and Counsel in October,
Executive Vice President, 1992. He served as Counsel until March 2000. From 1982 through September, 1992, he
Administration and Director served as Senior Vice President, Secretary and Counsel.
Brock A. Hattox, age 52 Mr. Hattox was elected Executive Vice President and Chief Financial Officer effective
Executive Vice President and Chief September, 1996. Previously, he served McDermott International, Inc. as Chief
Financial Officer Financial Officer from 1991 to 1996.
Stewart A. Searle III, age 49 Mr. Searle was elected Senior Vice President, Planning and Development effective
Senior Vice President, Planning and June, 1996. Previously, he served four years with Equifax as Senior Vice President of
Development Development.
Joseph G. Parham, Jr., age 51 Mr. Parham was elected Senior Vice President, Human Resources effective June, 2000.
Senior Vice President, Human Previously, he served as President and Chief Operating Officer of Polaroid Eyewear
Resources from 1999 to 2000, and as Senior Vice President, Human Resources from 1994
to 1999.
Item 11. Executive Compensation
The information required by this item is included under the captions “Compensation of Directors,” “Other Information Concerning the Board and its Committees,” “Compensation Committee Interlocks and Insider Participation,” “Summary Compensation Table,” “Option Grants in Last Fiscal Year,” “Aggregated Option Exercises and Fiscal Year-End Option Values,” “Long-Term Incentive Plans — Awards in Last Fiscal Year,” “Employment Contracts, Severance Arrangements, and Other Agreements,” and “Pension and Supplemental Retirement Benefits” of the company’s proxy statement for the annual meeting of stockholders to be held December 21, 2000, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and ManagementThe information required by this item is included under the caption “Beneficial Ownership of the Corporation’s Securities” of the company’s proxy statement for the annual meeting of stockholders to be held December 21, 2000, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Item 13. Certain Relationships and Related TransactionsThe information required by this item is included under the caption “Certain Relationships and Transactions” of the company’s proxy statement for the annual meeting of stockholders to be held December 21, 2000, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
(1) Report of Management
Report of Independent Public Accountants
Consolidated Balance Sheets - August 31, 2000 and 1999
Consolidated Statements of Income for the years ended August 31, 2000, 1999, and 1998
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended
August 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the years ended August 31, 2000, 1999, and 1998
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Report of Independent Public Accountants on Schedule II
Schedule Number
II - Valuation and Qualifying Accounts
Any of schedules I through V not listed above have been omitted because they are not applicable or the required information
is included in the consolidated financial statements or notes thereto.
(3) Exhibits filed with this report (begins on next page):
Copies of such materials will be furnished to stockholders upon request at a nominal rate. Requests should be sent to Helen
D. Haines, Vice President and Secretary, National Service Industries, Inc., P.O. Box 7158, Midtown Station, Atlanta,
Georgia 30357-0158.
Page 39
EXHIBIT LIST
NATIONAL SERVICE INDUSTRIES, INC.
EXHIBIT 3 (a) Amended and Restated Certificate Reference is made to Exhibit 3 of
of Incorporation registrant's Form 10-Q for the
quarter ended February 28, 1998,
which is incorporated herein by
reference.
(b) Certificate of Amendment of Reference is made to Exhibit 3(a) of
Restated Certificate of registrant's Form 10-Q for the
Incorporation quarter ended November 30, 1998,
which is incorporated herein by
reference.
(c) By-Laws as Amended and Restated Page 59
October 5, 2000
EXHIBIT 4 (a) Amended and Restated Rights Reference is made to Exhibit 4.1 of
Agreement dated as of December 17, registrant's Form 8-A/A as filed
1997 between National Service with the Commission on December 17,
Industries, Inc. and Wachovia Bank, 1997, which is incorporated herein
N.A. (replacing Wachovia Bank, N.A. by reference.
with First Chicago Trust Company)
(b) First Amendment dated as of Reference is made to Exhibit 1 of
April 30, 1998 between National registrant's Form 8-A/A-3 as filed
Service Industries, Inc. and First with the Commission on June 22,
Chicago Trust Company of New York, 1998, which is incorporated herein
to the Amended and Restated Rights by reference.
Agreement, dated as of December 17,
1997 between National Service
Industries, Inc. and Wachovia Bank,
N.A
(c) Second Amendment dated as of Reference is made to Exhibit 1 of
January 6, 1999 between National registrant's Form 8-A/A-4 as filed
Service Industries, Inc. and First with the Commission on January 12,
Chicago Trust Company of New York, 1999, which is incorporated herein
to the Amended and Restated Rights by reference.
Agreement, dated as of December 17,
1997 between National Service
Industries, Inc. and First Chicago
Trust Company of New York, as Rights
Agent, as amended.
EXHIBIT 10(i)A (1) US$250,000,000 Credit Agreement Reference is made to Exhibit10(i)A
dated as of July 23, 1996 among of registrant's Form 10-Q for the
National Service Industries, quarter ended May 31, 1998, which is
Inc., Certain of its incorporated herein by reference.
Subsidiaries, Certain Listed
Banks, Wachovia Bank of Georgia,
N.A., as Agent, and Nationsbank,
N.A. (South) and SunTrust Bank,
Atlanta, as Co-Agents
Page 40
(2) US$250,000,000 Credit Agreement, Reference is made to Exhibit(b)(8)
dated as of July 15, 1999, among of registrant's Schedule 14D-1 as
National Service Industries, filed with the Commission on June
Inc., Wachovia Bank, N.A., The 25, 1999, as amended and
First National Bank of Chicago, supplemented by Amendment No. 2,
Banc One Capital Markets, Inc., filed July 20, 1999, which is
Wachovia Securities, Inc., incorporated herein by reference.
Commerzbank AG, New York
Branch, ABN Amro, N.V., and the
other banks listed therein.
(3) Commercial Paper Dealer Reference is made to Exhibit (b)(4)
Agreement, dated as of July 16, of registrant's Schedule 14D-1 as
1999, between National Service filed with the Commission on June
Industries, Inc. and Goldman, 25, 1999, as amended and
Sachs & Co. supplemented by Amendment No. 2,
filed July 20, 1999, which is
incorporated herein by reference.
(4) Commercial Paper Dealer Reference is made to Exhibit (b)(5)
Agreement, dated as of July 16, of registrant's Schedule 14D-1 as
1999, between National Service filed with the Commission on June
Industries, Inc. and J.P. Morgan 25, 1999, as amended and
Securities, Inc. supplemented by Amendment No. 2,
filed July 20, 1999, which is
incorporated herein by reference.
(5) Commercial Paper Dealer Reference is made to Exhibit (b)(6)
Agreement, dated as of July 16, of registrant's Schedule 14D-1 as
1999, between National Service filed with the Commission on June
Industries, Inc. and Wachovia 25, 1999, as amended and
Securities, Inc. supplemented by Amendment No. 2,
filed July 20, 1999, which is
incorporated herein by reference.
(6) Commercial Paper Dealer Reference is made to Exhibit (b)(7)
Agreement, dated as of July 16, of registrant's Schedule 14D-1 as
1999, between National Service filed with the Commission on June
Industries, Inc. and The First 25, 1999, as amended and
National Bank of Chicago. supplemented by Amendment No. 2,
filed July 20, 1999, which is
incorporated herein by reference.
EXHIBIT 10(iii)A Management Contracts and
Compensatory Arrangements:
(1) Amended and Restated Executives' Page 76
Deferred Compensation Plan,
Effective as of October 4, 2000
Page 41
(2) (a)Restated and Amended Reference is made to Exhibit
Supplemental Retirement Plan for 10(iii)A(c)-(i) of registrant's Form
Executives of National Service 10-K for the fiscal year ended
Industries, Inc. August 31, 1993, which is
incorporated herein by reference.
(b) Amendment to Restated and Reference is made to Exhibit
Amended Supplemental Retirement 10(iii)A(a) of registrant's Form
Plan for Executives of National 10-Q for the quarter ended February
Service Industries, Inc. 28, 1994, which is incorporated
herein by reference.
(c) Amendment No. 2 to Restated and Reference is made to Exhibit
Amended Supplemental Retirement 10(iii)A(3)(e) of registrant's Form
Plan for Executives of National 10-K for the fiscal year ended
Service Industries, Inc., Dated August 31, 1996, which is
August 31, 1996 incorporated herein by reference.
(d) Amendment No. 3 to Restated and Reference is made to Exhibit
Amended Supplemental Retirement 10(iii)A(1)(a) of registrant's Form
Plan for Executives of National 10- Q for the quarter ended May 31,
Service Industries, Inc., Dated 2000, which is incorporated herein
September 18, 1996 by reference.
(e) Amendment No. 4 to Restated and Reference is made to Exhibit
Amended Supplemental Retirement 10(iii)A(1)(b) of registrant's Form
Plan for Executives of National 10-Q for the quarter ended May 31,
Service Industries, Inc., Dated 2000, which is incorporated herein
December 1, 1996 by reference.
(f) Appendix B to Restated and Reference is made to Exhibit
Amended Supplemental Retirement 10(iii)A(e) of registrant's Form
Plan for Executives of National 10-Q for the quarter ended February
Service Industries, Inc., Effective 29, 1996, which is incorporated
February 1, 1996 herein by reference.
(g) Appendix C to Restated and Reference is made to Exhibit
Amended Supplemental Retirement 10(iii)A(d) of registrant's Form
Plan for Executives of National 10-Q for the quarter ended May 31,
Service Industries, Inc., Effective 1996, which is incorporated herein
May 31, 1996 by reference.
(h) Appendix D to Restated and Reference is made to Exhibit
Amended Supplemental Retirement 10(iii)A(1)(c) of registrant's Form
Plan for Executives of National 10- Q for the quarter ended May 31,
Service Industries, Inc., Effective 2000, which is incorporated herein
October 18, 1996 by reference.
(i) Appendix E to Restated and Reference is made to Exhibit
Amended Supplemental Retirement 10(iii)A(f) of registrant's Form
Plan for Executives of National 10-K for the fiscal year ended
Service Industries, Inc. effective August 31, 1999, which is
September 18, 1996. incorporated herein by reference.
Page 42
(j) Appendix F to Restated and Reference is made to Exhibit
Amended Supplemental Retirement 10(iii)A(g) of registrant's Form
Plan for Executives of National 10-K for the fiscal year ended
Service Industries, Inc. effective August 31, 1999, which is
June 1, 1999. incorporated herein by reference.
(k) Appendix G to Restated and Reference is made to Exhibit
Amended Supplemental Retirement 10(iii)A(1)(d) of registrant's Form
Plan for Executives of National 10-Q for the quarter ended May 31,
Service Industries, Inc., Effective 2000, which is incorporated herein
May 15, 2000 by reference.
(3) (a) The National Service Reference is made to Exhibit
Industries, Inc. Senior 10(iii)A(f) of registrant's Form
Management Benefit Plan, Dated 10-K for the fiscal year ended
August 15, 1985 August 31, 1985, which is
incorporated herein by reference.
(b) First Amendment to National Reference is made to Exhibit
Service Industries, Inc. Senior 10(iii)A(e)-(ii) of registrant's
Management Benefit Plan, Dated Form 10-K for the fiscal year ended
September 21, 1989 August 31, 1989, which is
incorporated herein by reference.
(c) Second Amendment to National Reference is made to Exhibit
Service Industries, Inc. Senior 10(iii)A(d)(iii) of registrant's
Management Benefit Plan, Dated Form 10-K for the fiscal year ended
September 16, 1994 August 31, 1994, which is
incorporated herein by reference.
(d) Third Amendment to National Reference is made to Exhibit
Service Industries, Inc. Senior 10(iii)A(4)(d) of registrant's Form
Management Benefit Plan, Dated 10- K for the fiscal year ended
August 31, 1996 August 31, 1996, which is
incorporated herein by reference.
(4) (a) Severance Protection Reference is made to Exhibit
Agreement between National 10(iii)A(h) of registrant's Form
Service Industries, Inc. and 10-K for the fiscal year ended
David Levy August 31, 1989, which is
incorporated herein by reference.
(b) Amendment to Severance Reference is made to Exhibit
Protection Agreement between 10(iii)A(5)(b) of registrant's Form
National Service Industries, Inc. 10- K for the fiscal year ended
and David Levy, Dated August 31, August 31, 1996, which is
1996 incorporated herein by reference.
(5) (a) Severance Protection Reference is made to Exhibit
Agreements between National 10(iii)A(c) of registrant's Form
Service Industries, Inc. and 10-Q for the quarter ended February
(i) James S. Balloun 29, 1996, which is incorporated
(February 1, 1996) herein by reference.
(ii) Stewart A. Searle III
(June 19, 1996)
Page 43
(b) Amendment to Severance Reference is made to Exhibit
Protection Agreements, Dated August 10(iii)A(6)(b) of registrant's Form
31, 1996 10-K for the fiscal year ended
August 31, 1996, which is
incorporated herein by reference.
(6) Severance Protection Agreements Reference is made to Exhibit
between National Service 10(iii)A(34) of registrant's Form 10-K
Industries, Inc. and for the fiscal year ended August 31,
(a) Brock A. Hattox 1999, which is incorporated herein by
(September 9, 1996) reference.
(b) George H. Gilmore, Jr.
(June 1, 1999)
(c) Joseph G. Parham, Jr.
(May 15, 2000)
(7) (a) Bonus Letter Agreements Reference is made to Exhibit
between National Service 10(iii)A(j) of registrant's Form 10-K
Industries, Inc. and for the fiscal year ended August 31,
(i) James S. Balloun 1989, and to Exhibit 10(iii)A(d) of
(February 1, 1996) the registrant's Form 10-Q for the
(ii) David Levy (October 1, 1989) quarter ended February 29, 1996, which
(iii) Stewart A. Searle III are incorporated herein by
(June 19, 1996) reference.
(b) Supplemental Letter Agreement, Reference is made to Exhibit
Dated August 31, 1996 10(iii)A(7)(b) of registrant's Form
10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
(8) Bonus Letter Agreements between Reference is made to Exhibit
National Service Industries, 10(iii)A(35) of registrant's Form 10-K
Inc. and for the fiscal year ended August 31,
(a) Brock A. Hattox 1999, which is incorporated herein by
(September 9, 1996) reference.
(b) George H. Gilmore, Jr.
(June 1, 1999)
(c) Joseph G. Parham, Jr.
(May 15, 2000)
(9) (a) Long-Term Incentive Program, Reference is made to Exhibit
Dated September 20, 1989 10(iii)A(k) of registrant's Form 10-K
for the fiscal year ended August 31,
1989, which is incorporated herein by
reference.
(b) Amendment No. 1 to Long-Term Reference is made to Exhibit
Incentive Program, Dated September 10(iii)A(h)(ii) of registrant's Form
21, 1994 10-K for the fiscal year ended August
31, 1994, which is incorporated herein
by reference.
Page 44
(10) National Service Industries, Reference is made to Exhibit A of
Inc. Long-Term Achievement Incentive registrant's Schedule 14A as filed
Plan as Amended and Restated, with the Commission on November 22,
Effective as of January 5, 2000 1999, which is incorporated herein by
reference.
(11) Incentive Stock Option Reference is made to Exhibit
Agreements between National 10(iii)A(1) of registrant's Form 10-K
Service Industries, Inc. and for the fiscal year ended August 31,
(a) David Levy 1989, which is incorporated herein by
(b) Stewart A. Searle III reference.
(c) Brock A. Hattox
(12) Incentive Stock Option Reference is made to Exhibit
Agreement Effective Beginning 10(iii)A(5) of registrant's Form 10-Q
September 17, 1996 between for the quarter ended November 30,
National Service Industries, 1996, which is incorporated herein by
Inc. and reference.
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
(13) Incentive Stock Option Reference is made to Exhibit
Agreement Effective Beginning 10(iii)A(7) of registrant's Form 10-Q
September 23, 1997 between for the quarter ended November 30,
National Service Industries, 1997, which is incorporated herein by
Inc. and reference.
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(14) Incentive Stock Option Reference is made to Exhibit
Agreement for Executive Officers 10(iii)A(1) of registrant's Form 10-Q
Effective Beginning September for the quarter ended November 30,
22, 1998 between National 1998, which is incorporated herein by
Service Industries, Inc. and reference.
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(15) Incentive Stock Option Reference is made to Exhibit
Agreement for Executive Officers 10(iii)A(4) of registrant's Form 10-Q
Effective Beginning June 1, for the quarter ended May 31, 1999,
1999 between National Service which is incorporated herein by
Industries, Inc. and George H. reference.
Gilmore, Jr.
Page 45
(16) Incentive Stock Option Reference is made to Exhibit
Agreement for Executive Officers 10(iii)A(4) of registrant's Form 10-Q
Effective Beginning January 5, for the quarter ended February 29,
2000 between National Service 2000, which is incorporated herein by
Industries, Inc. and: reference.
(a) James S. Balloun
(b) George H. Gilmore, Jr.
(c) Brock A. Hattox
(d) David Levy
(e) Stewart A. Searle III
(17) Incentive Stock Option Reference is made to Exhibit
Agreement for Executive Officers 10(iii)A(5) of registrant's Form 10-Q
Effective beginning May 15, for the quarter ended May 31, 2000,
2000 between National Service which is incorporated herein by
Industries, Inc. and Joseph G. reference.
Parham, Jr.
(18) Nonqualified Stock Option Reference is made to Exhibit
Agreement for Corporate 10(iii)A(j) of registrant's Form 10-K
Officers between National for the fiscal year ended August 31,
Service Industries, Inc. and 1992, which is incorporated herein by
(a) David Levy reference.
(b) Brock A. Hattox
(19) Nonqualified Stock Option Reference is made to Exhibit
Agreement for Corporate 10(iii)A(k) of registrant's Form 10-K
Officers Effective Beginning for the fiscal year ended August 31,
September 21, 1994 between 1994, which is incorporated herein by
National Service Industries, reference.
Inc. and David Levy
(20) Nonqualified Stock Option Reference is made to Exhibit
Agreement Effective January 3, 10(iii)A(b) of registrant's Form 10-Q
1996 between National Service for the quarter ended February 28,
Industries, Inc. and James S. 1996, which is incorporated herein by
Balloun reference.
(21) Nonqualified Stock Option Reference is made to Exhibit
Agreement for Executive 10(iii)A(6) of registrant's Form 10-Q
Officers Effective Beginning for the quarter ended November 30,
September 17, 1996 between 1996, which is incorporated herein by
National Service Industries, reference.
Inc. and
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
(d) Brock A. Hattox
Page 46
(22) Nonqualified Stock Option Reference is made to Exhibit
Agreement For Executive 10(iii)A(8) of registrant's Form 10-Q
Officers Effective Beginning for the quarter ended November 30,
September 23, 1997 between 1997, which is incorporated herein by
National Service Industries, reference.
Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(23) Nonqualified Stock Option Reference is made to Exhibit
Agreement for Executive 10(iii)A(2) of registrant's Form 10-Q
Officers Effective Beginning for the quarter ended November 30,
September 22, 1998 between 1998, which is incorporated herein by
National Service Industries, reference.
Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(24) Nonqualified Stock Option Reference is made to Exhibit
Agreement for Executive 10(iii)A(5) of registrant's Form 10-Q
Officers Effective Beginning for the quarter ended May 31, 1999,
June 1, 1999 between National which is incorporated herein by
Service Industries, Inc. and reference.
George H. Gilmore, Jr.
(25) Nonqualified Stock Option Reference is made to Exhibit
Agreement (Surrendered 10(iii)A(3) of registrant's Form 10-Q
Aspiration Award) between for the quarter ended February 29,
National Service Industries, 2000, which is incorporated herein by
Inc. and: reference.
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(26) Nonqualified Stock Option Reference is made to Exhibit
Agreement for Executive 10(iii)A(5) of registrant's Form 10-Q
Officers Effective Beginning for the quarter ended February 29,
January 5, 2000 between 2000, which is incorporated herein by
National Service Industries, reference.
Inc. and:
(a) James S. Balloun
(b) George H. Gilmore, Jr.
(c) Brock A. Hattox
(d) David Levy
(e) Stewart A. Searle III
(27) (a) Benefits Protection Trust Reference is made to Exhibit
Agreement Dated July 5, 1990, 10(iii)A(n) of registrant's Form 10-K
between National Service for the fiscal year ended August 31,
Industries, Inc. and Wachovia 1990, which is incorporated herein by
Bank and Trust Company reference.
Page 47
(b) Amendment to Benefits Protection Reference is made to Exhibit
Trust Agreement between National 10(iii)A(12)(c) of registrant's Form
Service Industries, Inc. and 10-K for the fiscal year ended August
Wachovia Bank and Trust Company and 31, 1996, which is incorporated herein
Adoption, Dated August 31, 1996 by reference.
(c) Amendment No. 2 to Benefits Reference is made to Exhibit
Protection Trust Agreement between 10(iii)A(3) of registrant's Form 10-Q
National Service Industries, Inc. for the quarter ended November 30,
and Wachovia Bank and Trust 1997, which is incorporated herein by
Company, Dated September 23, 1997 reference.
(d) Amended Schedule 1 of Benefits Reference is made to Exhibit
Protection Trust Agreement between 10(iii)A(4) of registrant's Form 10-Q
National Service Industries, Inc. for the quarter ended November 30,
and Wachovia Bank and Trust 1997, which is incorporated herein by
Company, Dated September 23, 1997 reference.
(e) Amendment No. 3 to Benefits Reference is made to Exhibit
Protection Trust Agreement between 10(iii)A(4) of registrant's Form 10-Q
National Service Industries, Inc. for the quarter ended November 30,
and Wachovia Bank, N.A. (formerly 1998, which is incorporated herein by
Wachovia Bank and Trust Company), reference.
Dated January 6, 1999.
(28) (a) Executive Benefits Trust Reference is made to Exhibit
Agreement Dated July 5, 1990, 10(iii)A(o) of registrant's Form 10-K
between National Service for the fiscal year ended August 31,
Industries, Inc. and Wachovia 1990, which is incorporated herein by
Bank and Trust Company reference.
(b) Amendment to Executive Benefits Reference is made to Exhibit
Trust Agreement between National 10(iii)A(13) of registrant's Form 10-K
Service Industries, Inc. and for the fiscal year ended August 31,
Wachovia Bank and Trust Company and 1996, which is incorporated herein by
Adoption, Dated August 31, 1996 reference.
(c) Amended Schedule 1 of Executive Reference is made to Exhibit
Benefits Trust Agreement between 10(iii)A(5) of registrant's Form 10-Q
National Service Industries, Inc. for the quarter ended November 30,
and Wachovia Bank, N.A. (formerly 1997, which is incorporated herein by
Wachovia Bank and Trust Company), reference.
Dated September 23, 1997
Page 48
(d) Amendment No. 2 to Executive Reference is made to Exhibit
Benefits Trust Agreement between 10(iii)A(5) of registrant's Form 10-Q
National Service Industries, Inc. for the quarter ended November 30,
and Wachovia Bank, N.A. (formerly 1998, which is incorporated herein by
Wachovia Bank and Trust Company), reference.
Dated January 6, 1999.
(29) (a) National Service Reference is made to Exhibit
Industries, Inc. 1992 Nonemployee 10(iii)A(o) of registrant's Form 10-K
Directors' Stock Option Plan, for the fiscal year ended August 31,
Effective September 16, 1992 1992, which is incorporated herein by
reference.
(b) First Amendment to the National Reference is made to Exhibit
Service Industries, Inc. 1992 10(iii)A(13)(b) of registrant's Form
Nonemployee Directors' Stock Option 10-K for the fiscal year ended August
Plan, Dated March 24, 1998 31, 1998, which is incorporated herein
by reference.
(c) Second Amendment to the National Reference is made to Exhibit
Service Industries, Inc. 1992 10(iii)A(1) of registrant's Form 10-Q
Nonemployee Directors' Stock Option for the quarter ended November 30,
Plan, Dated January 5, 2000 1999, which is incorporated herein by
reference.
(30) Nonemployee Directors' Stock Reference is made to Exhibit
Option Agreement between 10(iii)A(q) of registrant's Form 10-K
National Service Industries, for the fiscal year ended August 31,
Inc. and 1994, which is incorporated herein by
(a) John L. Clendenin reference.
(b) Robert M. Holder, Jr.
(c) James C. Kennedy
(d) Bernard Marcus
(e) John G. Medlin, Jr.
(f) Dr. Betty L. Siegel
(g) Barrie A. Wigmore
(h) Thomas C. Gallagher
(i) Charles W. McCall
(j) Herman J. Russell
(k) Samuel A. Nunn
(31) Stock Option Agreement for Reference is made to Exhibit 10(iii)A
Nonemployee Directors Dated of registrant's Form 10-Q for the
March 19, 1997 between National quarter ended May 31, 1997, which is
Service Industries, Inc. and incorporated herein by reference.
(a) John L. Clendenin
(b) Samuel A. Nunn
Page 49
(32) Nonemployee Directors' Stock Reference is made to Exhibit
Option Agreement Dated January 10(iii)A(1) of the registrant's Form
5, 2000 between National 10-Q for the quarter ended February
Service Industries, Inc. and 29, 2000, which is incorporated herein
(a) Leslie M. Baker, Jr. by reference.
(b) John L. Clendenin
(c) Thomas C. Gallagher
(d) Bernard Marcus
(e) Samuel A. Nunn
(f) Ray M. Robinson
(g) Herman J. Russell
(h) Betty L. Siegel
(i) Kathy Brittain White
(j) Barrie A. Wigmore
(k) Neil Williams
(33) (a) National Service Industries, Reference is made to Exhibit
Inc. Executive Savings Plan, 10(iii)A(s) of registrant's Form 10-K
Effective September 1, 1994 for the fiscal year ended August 31,
1994, which is incorporated herein by
reference.
(b) Amendment No. 1 to National Reference is made to Exhibit
Service Industries, Inc. Executive 10(iii)A(17)(b) of registrant's Form
Savings Plan, Dated August 31, 1996 10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
(34) (a)National Service Industries, Reference is made to Exhibit
Inc. Nonemployee Director 10(iii)A(26) of registrant's Form 10-K
Deferred Stock Unit Plan, for the fiscal year ended August 31,
Effective June 1, 1996 1996, which is incorporated herein by
reference.
(b) Amendment No. 1 to National Reference is made to Exhibit
Service Industries, Inc. 10(iii)A(6) of registrant's Form 10-Q
Nonemployee Director Deferred Stock for the quarter ended November 30,
Unit Plan, Effective December 1, 1997, which is incorporated herein by
1997 reference.
(c) Amendment No. 2 to National Reference is made to Exhibit
Service Industries, Inc. 10(iii)A(19)(c) of registrant's Form
Nonemployee Director Deferred Stock 10-K for the fiscal year ended August
Unit Plan, Effective December 31, 31, 1998, which is incorporated herein
1997 by reference.
(35) Employment Letter Agreement Reference is made to Exhibit
between National Service 10(iii)A(28) of registrant's Form 10-K
Industries, Inc. and Brock A. for the fiscal year ended August 31,
Hattox, Dated August 26, 1996 1996, which is incorporated herein by
reference.
Page 50
(36) Employment Letter Agreement Reference is made to Exhibit
between National Service 10(iii)A(2) of registrant's Form 10-Q
Industries, Inc. and James S. for the quarter ended November 30,
Balloun, Dated February 1, 1996 1997, which is incorporated herein by
reference.
[refiled to disclose confidential
information previously omitted and
filed separately with the
Securities and Exchange
Commission]
(37) Employment Letter Agreement Reference is made to Exhibit
between National Service 10(iii)A(1) of registrant's Form 10-Q
Industries, Inc. and George H. for the quarter ended May 31, 1999,
Gilmore, Jr., Dated May 5, which is incorporated herein by
1999. reference.
(38) Employment Letter Agreement Reference is made to Exhibit
between National Service 10(iii)A(2) of registrant's Form 10-Q
Industries, Inc. and Joseph G. for the quarter ended May 31, 2000,
Parham, Jr., Dated May 3, 2000 which is incorporated herein by
reference.
(39) (a) Aspiration Achievement Reference is made to Exhibit
Incentive Award Agreements for 10(iii)A(22) of registrant's Form 10-K
the Performance Cycle beginning for the fiscal year ended August 31,
September 1, 1996 between 1999, which is incorporated herein by
National Service Industries, reference.
Inc. and
(i) James S. Balloun
(ii) Brock A. Hattox
(iii) David Levy
(iv) Stewart A. Searle III
[refiled to disclose confidential
information previously omitted and
filed separately with the
Securities and Exchange
Commission]
(b) Amendment of Aspiration Reference is made to Exhibit
Achievement Incentive Award 10(iii)A(8) of registrant's Form 10-Q
Agreement and Election Form for for the quarter ended May 31, 1999,
Performance Cycle Ending August 31, which is incorporated herein by
1999 between National Service reference.
Industries, Inc. and:
(i) James S. Balloun
(ii) Brock A. Hattox
(iii) David Levy
(iv) Stewart A. Searle III
Page 51
(c) Second Amendment of Aspiration Reference is made to Exhibit
Achievement Incentive Award 10(iii)A(2) of registrant's Form 10-Q
Agreement for the Performance Cycle for the quarter ended November 30,
Ended August 31, 1999 between 1999, which is incorporated herein by
National Service Industries, Inc. reference.
and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(40) (a) Aspiration Achievement Page 102
Incentive Award Agreements for
the Performance Cycle beginning
September 1, 1997 between
National Service Industries,
Inc., and
(i) James S. Balloun
(ii) Brock A. Hattox
(iii) David Levy
(iv) Stewart A. Searle III
[refiled to disclose confidential
information previously omitted and
filed separately with the
Securities and Exchange
Commission]
(b) Amendment of the Aspiration Reference is made to Exhibit
Achievement Incentive Award 10(iii)A(3) of registrant's Form 10-Q
Agreement and Election Form for the for the quarter ended November 30,
Performance Cycle Ending August 31, 1999, which is incorporated herein by
2000 between National Service reference.
Industries, Inc. and
(i) James S. Balloun
(ii) George H. Gilmore, Jr.
(iii) Brock A. Hattox
(iv) David Levy
(v) Stewart A. Searle III
Page 52
(41) (a) Aspiration Achievement Reference is made to Exhibit
Incentive Award Agreements for 10(iii)A(3) of registrant's Form 10-Q
the Performance Cycle beginning for the quarter ended November 30,
September 1, 1998 between 1998, which is incorporated herein by
National Service Industries, reference.
Inc. and
(i) James S. Balloun
(ii) Brock A. Hattox
(iii) David Levy
(iv) Stewart A. Searle III
[a confidential portion of which
has been omitted and filed
separately with the Securities and
Exchange Commission]
(b) Amendment of the Aspiration Reference is made to Exhibit
Achievement Incentive Award 10(iii)A(4) of registrant's Form 10-Q
Agreement for the Performance Cycle for the quarter ended November 30,
Ending August 31, 2001 between 1999, which is incorporated herein by
National Service Industries, Inc. reference.
and
(i) James S. Balloun
(ii) George H. Gilmore, Jr.
(iii) Brock A. Hattox
(iv) David Levy
(v) Stewart A. Searle III
[a confidential portion of which
has been omitted and filed
separately with the Securities and
Exchange Commission]
(42) Aspiration Achievement Page 109
Incentive Award Agreement for the
Performance Cycle beginning
September 1, 1997 between
National Service Industries,
Inc. and George H. Gilmore,
Jr., Dated June 1, 1999.
[refiled to disclose confidential
information previously omitted and
filed separately with the
Securities and Exchange
Commission]
Page 53
(43) Aspiration Achievement Reference is made to Exhibit
Incentive Award Agreement for the 10(iii)A(7) of registrant's Form 10-Q
Performance Cycle beginning for the quarter ended May 31, 1999,
September 1, 1998 between which is incorporated herein by
National Service Industries, reference.
Inc. and George H. Gilmore,
Jr., Dated June 1, 1999.
[a confidential portion of which
has been omitted and filed
separately with the Securities and
Exchange Commission]
(44) Aspiration Achievement Reference is made to Exhibit
Incentive Award Agreements for the 10(iii)A(40) of registrant's Form 10-K
Performance Cycle beginning for the fiscal year ended August 31,
September 1, 1999 between 1999, which is incorporated herein by
National Service Industries, reference.
Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(e) George H. Gilmore, Jr.
[a confidential portion of which
has been omitted and filed
separately with the Securities and
Exchange Commission]
(45) Aspiration Achievement Reference is made to Exhibit
Incentive Award Agreement for the 10(iii)A(6) of registrant's Form 10-Q
Performance Cycle beginning for the quarter ended May 31, 2000,
September 1, 1998 between which is incorporated herein by
National Service Industries, reference.
Inc. and Joseph G. Parham, Jr.,
Dated May 15, 2000
[a confidential portion of which
has been omitted and filed
separately with the Securities and
Exchange Commission]
Page 54
(46) Aspiration Achievement Reference is made to Exhibit
Incentive Award Agreement for the 10(iii)A(7) of registrant's Form 10-Q
Performance Cycle beginning for the quarter ended May 31, 2000,
September 1, 1999 between which is incorporated herein by
National Service Industries, reference.
Inc. and Joseph G. Parham, Jr.,
Dated May 15, 2000
[a confidential portion of which
has been omitted and filed
separately with the Securities and
Exchange Commission]
(47)(a) National Service Reference is made to Exhibit
Industries, Inc. Supplemental 10(iii)A(9) of registrant's Form 10-Q
Deferred Savings Plan, for the quarter ended November 30,
Effective September 18, 1996 1996, which is incorporated herein by
reference.
(b) Amendment No. 1 to National Reference is made to Exhibit
Service Industries, Inc. 10(iii)A(23)(b) of registrant's Form
Supplemental Deferred Savings Plan, 10-K for the fiscal year ended August
Dated December 29, 1997 31, 1999, which is incorporated herein
by reference.
(48) National Service Industries, Reference is made to Exhibit
Inc. Management Compensation and 10(iii)A(31) of registrant's Form 10-K
Incentive Plan as Amended and for the fiscal year ended August 31,
Restated, Effective as of 1998, which is incorporated herein by
September 1, 1998. reference.
EXHIBIT 12 Ratio of Earnings to Fixed Charges Reference is made to Exhibit 12 of
registrant's Form 10-Q for the quarter
ended May 31, 2000, which is
incorporated herein by reference.
EXHIBIT 21 List of Subsidiaries Page 117
EXHIBIT 23 Consent of Independent Public Accountants Page 118
EXHIBIT 24 Powers of Attorney Page 119
EXHIBIT 27 Financial Data Schedule for the Year Page 132
Ended August 31, 2000
(b) None filed for the quarter ended August 31, 2000.
(c) Exhibits 2, 9, 11, 13, 18, and 22 have been omitted because they are not applicable.
(d) Not applicable.
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: November 6, 2000 By: /s/ HELEN D. HAINES
Helen D. Haines
Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
* Chairman, President, and November 6, 2000
James S. Balloun Chief Executive Officer
and Director
* Executive Vice President November 6, 2000
Brock Hattox and Chief Financial Officer
* Vice President and Controller November 6, 2000
Robert R. Burchfield
* Director November 6, 2000
John L. Clendenin
* Director November 6, 2000
Thomas C. Gallagher
* Director November 6, 2000
Neil Williams
* Director November 6, 2000
Roy Richards
* Director November 6, 2000
David Levy
* Director November 6, 2000
Bernard Marcus
* Director November 6, 2000
Leslie M. Baker, Jr.
* Director November 6, 2000
Samuel A. Nunn
* Director November 6, 2000
Herman J. Russell
* Director November 6, 2000
Betty L. Siegel
* Director November 6, 2000
Kathy Brittain White
* Director November 6, 2000
Ray M. Robinson
* Director November 6, 2000
Barrie A. Wigmore
*By: /s/ DAVID LEVY Attorney-in-Fact
David Levy
To National Service Industries, Inc.:
�� We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in the NATIONAL SERVICE INDUSTRIES, INC. and subsidiaries’ Form 10-K for the year ended August 31, 2000, and have issued our report thereon dated October 9, 2000. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 in this Form 10-K is the responsibility of the company’s management and is presented for the purpose of complying with the Securities and Exchange Commission’s rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen LLPAtlanta, Georgia
October 9, 2000
SCHEDULE II
NATIONAL SERVICE INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended August 31, 2000, 1999, and 1998
(In thousands)
Additions Charged to
Balance at Balance at
Beginning Costs and Other End of
of Period Expenses Accounts(1) Deductions(2) Period
YEAR ENDED AUGUST 31, 2000:
Deducted in the balance sheet from
the asset to which it
applies - Reserve for
doubtful accounts $6,306 $ 4,792 $ 232 $ 3,793 $ 7,537
YEAR ENDED AUGUST 31, 1999:
Deducted in the balance sheet from
the asset to which it
applies - Reserve for
doubtful accounts $4,631 $ 3,651 $ 1,709 $ 3,685 $ 6,306
YEAR ENDED AUGUST 31, 1998:
Deducted in the balance sheet from
the asset to which it
applies - Reserve for
doubtful accounts $4,302 $ 3,558 $ 214 $ 3,443 $ 4,631
__________
(1) Recoveries credited to reserve, reserves recorded in acquisitions, and reserves removed in sale of businesses.
(2) Uncollectible accounts written off and net currency translation adjustments.