The accompanying notes to consolidated financial statements are an integral part of these statements.
(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.
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NOTES TO CONSOLIDATED FINANCIAL 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 Warranty The 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 Consolidation The consolidated financial statements include the accounts of the company and all subsidiaries after elimination of significant intercompany transactions and accounts.
Use of Estimates The 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 Investments Cash 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 Risk Concentrations 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.
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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 Intangibles Goodwill 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.
Depreciation For 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 Development Research 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 Translation The 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.
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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 Benefits Statement 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, Net Interest 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, Net Other income, net, is comprised primarily of gains resulting from the sale of fixed assets.
Accounting Standards Yet to be Adopted SFAS 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.
Reclassifications Certain prior period amounts in the financial statements and notes have been reclassified to conform with the 2000 presentation.
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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.
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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 Credit
Long-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
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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.
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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 Plan The 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 Stock The 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 Share
During 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.
26
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 Compensation In 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).
27
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.
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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 Plan In 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 Contingencies
Self-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
Leases The 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 Agreements
Approximately 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.
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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 Matters The 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.
30
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 Impairments During 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.
31
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 Divestitures Acquisition 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.
32
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.
33
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 Taxes The 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
34
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
35
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.
36
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.
37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
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 Registrant Executive 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.
38
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 Management The 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 Transactions The 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.
PART IV
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.
55
SIGNATURES 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
56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
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 LLP
Atlanta, Georgia
October 9, 2000
57
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.
58
