10-Q

                                                                    Page 1 of 23
                                                    Index to Exhibits on Page 17

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q
(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended February 28, 2001.

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from __________________  to ____________________.

Commission file number 1-3208.

                       NATIONAL SERVICE INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                                   58-0364900
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)

      1420 Peachtree Street, N.E., Atlanta, Georgia       30309-3002
          (Address of principal executive offices)        (Zip Code)

                                 (404) 853-1000
              (Registrant's telephone number, including area code)

                                      None
                 (Former Name, Former Address and Former Fiscal
                      Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
                                Yes [ X ] No [ ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

Common Stock - $1.00 Par Value - 41,151,100 shares as of March 31, 2001.


Page 2

               NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES

                                     INDEX



                                                                Page No.
                                                           -----------------

PART I.  FINANCIAL INFORMATION

  ITEM 1.  FINANCIAL STATEMENTS

      CONSOLIDATED BALANCE SHEETS (Unaudited) -
      FEBRUARY 28, 2001 AND AUGUST 31, 2000                         3

      CONSOLIDATED STATEMENTS OF INCOME (Unaudited) -
      THREE  AND SIX MONTHS ENDED FEBRUARY 28, 2001
      AND FEBRUARY 29, 2000                                         4

      CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) -
      SIX MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000      5

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)     6-11

  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS             12-14


  ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                MARKET RISK                                        14

PART II.  OTHER INFORMATION

  ITEM 1.  LEGAL PROCEEDINGS                                       15

  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                        15

SIGNATURES                                                         16

INDEX TO EXHIBITS                                                  17




Page 3

               NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (Unaudited)
                 (In thousands, except share and per-share data)

                                                                      February 28,       August 31,
                                                                          2001              2000
                                                                    ------------------ ---------------
Assets
Current Assets:
      Cash and cash equivalents                                         $    5,732      $    1,510
      Receivables, less reserves for doubtful accounts
        of $8,875 at February 28, 2001 and $7,310 at August 31, 2000       369,632         405,748
      Inventories, at the lower of cost (on a first-in,
        first-out basis) or market                                         265,275         257,579
      Linens in service, net of amortization                                55,235          57,162
      Deferred income taxes                                                 10,024          10,285
      Prepayments                                                           29,103          25,740
                                                                    ------------------ ---------------
           Total Current Assets                                            735,001         758,024
                                                                    ------------------ ---------------

Property, Plant, and Equipment, at cost:
      Land                                                                  28,528          28,697
      Buildings and leasehold improvements                                 217,060         206,946
      Machinery and equipment                                              577,321         559,483
                                                                    ------------------ ---------------
           Total Property, Plant, and Equipment                            822,909         795,126
      Less-Accumulated depreciation and amortization                       398,050         368,067
                                                                    ------------------ ---------------
           Property, Plant, and Equipment-net                              424,859         427,059
                                                                    ------------------ ---------------

Other Assets:
      Goodwill and other intangibles                                       522,971         536,009
      Other                                                                 91,324          95,347
                                                                    ------------------ ---------------
           Total Other Assets                                              614,295         631,356
                                                                    ------------------ ---------------
                Total Assets                                            $1,774,155      $1,816,439
                                                                    ================== ===============

Liabilities and Stockholders' Equity
Current Liabilities:
      Current maturities of long-term debt                              $    1,067      $      201
      Commercial paper                                                     255,434         236,706
      Notes payable                                                         21,366          20,285
      Accounts payable                                                     112,026         130,573
      Accrued salaries, commissions, and bonuses                            42,648          63,832
      Current portion of self-insurance reserves                             6,996           7,006
      Accrued taxes payable                                                 11,396           1,924
      Other accrued liabilities                                             67,484          76,425
                                                                    ------------------ ---------------
           Total Current Liabilities                                       518,417         536,952
                                                                    ------------------ ---------------

Long-Term Debt, less current maturities                                    382,790         384,242
                                                                    ------------------ ---------------
Deferred Income Taxes                                                       76,003          96,153
                                                                    ------------------ ---------------
Self-Insurance Reserves, less current portion                               29,694          37,484
                                                                    ------------------ ---------------
Other Long-Term Liabilities                                                 89,375          93,138
                                                                    ------------------ ---------------

Stockholders' Equity:
      Series A participating preferred stock, $.05 stated value,
        500,000 shares authorized, none issued
      Preferred stock, no par value, 500,000 shares authorized,
        none issued
      Common stock, $1 par value, 120,000,000 shares authorized,
        57,918,978 shares issued                                            57,919          57,919
      Paid-in capital                                                       29,859          29,657
      Retained earnings                                                  1,028,241       1,022,974
      Unearned compensation on restricted stock (Note 7)                    (1,160)              -
      Accumulated other comprehensive income items                         (15,794)        (12,777)
                                                                    ------------------ ---------------
                                                                         1,099,065       1,097,773
      Less-Treasury stock, at cost (16,767,419 shares at February
           28, 2001 and 17,090,414 shares at August 31, 2000)              421,189         429,303
                                                                    ------------------ ---------------
           Total Stockholders' Equity                                      677,876         668,470
                                                                    ------------------ ---------------
                Total Liabilities and Stockholders' Equity              $1,774,155      $1,816,439
                                                                    ================== ===============

       The accompanying notes to consolidated financial statements are an integral part of these statements.


Page 4
                          NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                               (In thousands, except per-share data)


                                                 THREE MONTHS ENDED               SIX MONTHS ENDED
                                            ------------------------------  -----------------------------
                                            February 28,    February 29,    February 28,   February 29,
                                               2001            2000            2001           2000
                                            --------------  --------------  -------------- --------------

Sales and Service Revenues:
      Net sales of products                     $527,821        $527,994      $1,090,473    $ 1,070,288
      Service revenues                            79,608          77,419         160,715        155,135
                                            --------------  --------------  -------------- --------------
           Total Revenues                        607,429         605,413       1,251,188      1,225,423
                                            --------------  --------------  -------------- --------------

Costs and Expenses:
      Cost of products sold                      314,784         316,963         647,467        640,877
      Cost of services                            46,201          44,805          92,634         89,939
      Selling and administrative expenses        204,254         196,003         422,358        392,974
      Amortization expense                         5,272           5,198          10,319         10,363
      Interest expense, net                       13,375          10,527          26,636         20,513
      Gain on sale of business                    (2,360)           (170)         (2,360)          (356)
      Other expense (income), net                    784          (1,043)          2,766         (1,869)
                                            --------------  --------------  -------------- --------------
           Total Costs and Expenses              582,310         572,283       1,199,820      1,152,441
                                            --------------  --------------  -------------- --------------

Income before Provision for Income Taxes          25,119          33,130          51,368         72,982

Provision for Income Taxes                         9,294          12,854          19,006         28,316
                                            --------------  --------------  -------------- --------------

Net Income                                      $ 15,825        $ 20,276      $   32,362    $    44,666
                                            ==============  ==============  ============== ==============

Per Share:
      Basic Earnings per Share                  $   0.39        $   0.50      $     0.79    $      1.10
                                            ==============  ==============  ============== ==============
      Basic Weighted Average Number of
      Shares Outstanding                          41,076          40,711          41,002         40,641
                                            ==============  ==============  ============== ==============

      Diluted Earnings per Share                $   0.38        $   0.50      $     0.79    $      1.10
                                            ==============  ==============  ============== ==============
      Diluted Weighted Average Number of
      Shares Outstanding                          41,497          40,737          41,183         40,721
                                            ==============  ==============  ============== ==============

       The accompanying notes to consolidated financial statements are an integral part of these statements.






Page 5

                                NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                                  (In thousands)

                                                                           SIX MONTHS ENDED
                                                                   -------------------------------
                                                                     February 28,     February 29,
                                                                        2001             2000
                                                                   --------------   --------------

Cash Provided by (Used for) Operating Activities
      Net income                                                        $32,362          $44,666
      Adjustments to reconcile net income to net cash provided by
        (used for) operating activities:
           Depreciation and amortization                                 46,155           42,493
           Provision for losses on accounts receivable                    2,599            2,047
           (Gain) loss on the sale of property, plant, and equipment      1,824           (1,024)
           Gain on the sale of business                                  (2,360)            (356)
           Change in assets and liabilities net of effect of
                acquisitions and divestitures-
                Receivables                                              32,709           14,602
                Inventories and linens in service, net                   (7,301)         (22,185)
                Deferred income taxes                                   (19,889)           1,433
                Prepayments and other                                    (3,686)         (12,279)
                Accounts payable and accrued liabilities                (30,000)         (45,856)
                Self-insurance reserves and other long-term liabilities (12,505)          (2,614)
                                                                   --------------   --------------
                      Net Cash Provided by Operating Activities          39,908           20,927
                                                                   --------------   --------------

Cash Provided by (Used for) Investing Activities
      Purchases of property, plant, and equipment                       (36,984)         (47,443)
      Sale of property, plant, and equipment                              1,416            2,094
      Acquisitions                                                         (223)         (21,533)
      Divestitures                                                        2,286                -
      Change in other assets                                              4,097            1,300
                                                                   --------------   --------------
           Net Cash Used for Investing Activities                       (29,408)         (65,582)
                                                                   --------------   --------------

Cash Provided by (Used for) Financing Activities
      Borrowings of notes payable, net                                    1,081                -
      Issuances of commercial paper, net (less than 90 days)             27,581           51,045
      Issuances of commercial paper (greater than 90 days)                1,347          140,551
      Repayments of commercial paper (greater than 90 days)             (10,200)        (122,750)
      Repayments of long-term debt                                         (586)            (568)
      Treasury stock transactions, net                                    1,532            2,098
      Cash dividends paid                                               (27,095)         (26,444)
                                                                   --------------   --------------
           Net Cash Provided by (Used for) Financing Activities          (6,340)          43,932
                                                                   --------------   --------------

Effect of Exchange Rate Changes on Cash                                      62              (48)
                                                                   --------------   --------------

Net Change in Cash and Cash Equivalents                                   4,222             (771)

Cash and Cash Equivalents at Beginning of Period                          1,510            2,254
                                                                   --------------   --------------

Cash and Cash Equivalents at End of Period                              $ 5,732          $ 1,483
                                                                   ==============   ==============

Supplemental Cash Flow Information:
      Income taxes paid during the period                               $29,168          $41,932
      Interest paid during the period                                    21,800           19,677

Noncash Investing and Financing Activities:
         Treasury shares issued under long-term incentive plan          $ 4,928          $ 5,667
         Noncash aspects of acquisitions--
           Assets acquired                                              $   224          $     -
           Liabilities assumed or incurred                                    -            1,219
         Noncash aspects of sale of businesses--
           Reduction of liabilities recorded in conjunction
              with 1997 sale of business                                $ 2,069          $     -

       The accompanying notes to consolidated financial statements are an integral part of these statements.






Page 6

               NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                 (Dollar amounts in thousands, except share and
                   per-share data and as otherwise indicated)

1.    BASIS OF PRESENTATION

The interim consolidated financial statements included herein have been prepared
by the company without audit and the condensed  consolidated balance sheet as of
August 31, 2000 has been  derived  from  audited  statements.  These  statements
reflect all adjustments,  all of which are of a normal,  recurring nature, which
are, in the opinion of management,  necessary to present fairly the consolidated
financial  position  as  of  February  28,  2001  and  February  29,  2000,  the
consolidated  results of operations  for the three and six months ended February
28, 2001 and  February  29, 2000,  and the  consolidated  cash flows for the six
months ended February 28, 2001 and February 29, 2000. Certain  reclassifications
have  been made to the prior  year's  financial  statements  to  conform  to the
current  year's  presentation.  Certain  information  and  footnote  disclosures
normally included in financial  statements prepared in accordance with generally
accepted  accounting  principles  have been  condensed  or omitted.  The company
believes that the disclosures are adequate to make the information presented not
misleading.  It  is  suggested  that  these  financial  statements  be  read  in
conjunction  with the financial  statements  and notes  thereto  included in the
company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000.

The results of operations  for the three and six months ended  February 28, 2001
are not necessarily indicative of the results to be expected for the full fiscal
year  because the  company's  revenues  and income are  generally  higher in the
second  half of its  fiscal  year and  because  of the  uncertainty  of  general
business conditions.

2.    RECENT ACCOUNTING STANDARDS

Newly Adopted Accounting  Standards
Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  133, as amended,
"Accounting for Derivative  Instruments and Hedging  Activities,"  was issued in
June of 1998 and is effective for all fiscal  quarters of fiscal years beginning
after June 15, 2000. Accordingly,  the company adopted SFAS 133 at the beginning
of the quarter ended  November 30, 2000.  The adoption of this statement did not
have a material impact on the company's consolidated financial statements.

Accounting Standards Yet to be Adopted
In September  2000,  the  Emerging  Issues Task Force  ("EITF")  reached a final
consensus on EITF Issue 00-10,  "Accounting  for Shipping and Handling  Fees and
Costs."  Specifically,  Issue  00-10  addresses  how the seller of goods  should
classify  amounts  billed to a customer  for  shipping  and  handling.  The EITF
concluded that all amounts billed to a customer in a sale transaction related to
shipping  and  handling  represent  revenues  earned for the goods  provided and
should be classified as revenue.  The company is required to and will adopt EITF
00-10 in the fourth  quarter of fiscal year 2001.  The company has  historically
netted certain shipping and handling  revenues charged to customers in costs and
expenses.  The  adoption  of EITF 00-10 will  result in an increase in sales and
service  revenues  and costs and  expenses,  with no impact on net  income.  The
company  has not yet  calculated  the  effect  of this  reclassification  on its
reported revenues and costs.

In  November  2000,  the EITF  reached a final  consensus  on EITF Issue  00-14,
"Accounting  for Certain Sales  Incentives,"  which  addresses the  recognition,
measurement,  and income statement  classification  of certain sales incentives.
The EITF concluded that the costs  associated  with sales  incentives  should be
recognized at the later of the date the related  revenue is recorded or the date
the incentive is offered. Additionally, the EITF concluded that costs associated
with sales  incentives other than free products or services should be classified
as a reduction of revenue, while costs associated with free products or services
should be classified as expense.  The company is required to and will adopt EITF
00-14 in the  fourth  quarter  of fiscal  year  2001.  The  company  has not yet
calculated  the effect of this  reclassification  on its  reported  revenues and
costs.





Page 7

3.    BUSINESS SEGMENT INFORMATION

                                                                               Depreciation        Capital
                                                  Sales and     Operating          and          Expenditures
                                                   Service        Profit       Amortization          and
Six Months Ended February 28, 2001                 Revenues       (Loss)         Expense        Acquisitions
                                                 ------------- ------------- ----------------- ----------------
Lighting Equipment                                   $727,645       $61,614           $26,132          $23,695
Chemical                                              249,728        16,887             5,766            4,497
Textile Rental                                        160,715         7,736             8,268            5,804
Envelope                                              113,100         2,575             4,756            2,342
                                                 ------------- ------------- ----------------- ----------------
                                                    1,251,188        88,812            44,922           36,338
Corporate                                                           (10,808)            1,233              869
Interest expense, net                                               (26,636)
                                                 ------------- ------------- ----------------- ----------------
Total                                              $1,251,188       $51,368           $46,155          $37,207
                                                 ============= ============= ================= ================


                                                                               Depreciation        Capital
                                                  Sales and     Operating          and          Expenditures
                                                   Service        Profit       Amortization          and
Six Months Ended February 29, 2000                 Revenues       (Loss)         Expense        Acquisitions
                                                 ------------- ------------- ----------------- ----------------
Lighting Equipment                                  $ 721,691       $64,300           $24,646          $40,610
Chemical                                              239,508        20,094             5,510            2,251
Textile Rental                                        155,135        11,434             7,556           15,024
Envelope                                              109,089         5,523             3,648            9,214
                                                -------------- ------------- ----------------- ----------------
                                                    1,225,423       101,351            41,360           67,099
Corporate                                                            (7,856)            1,133            1,877
Interest expense, net                                               (20,513)
                                                 ------------- ------------- ----------------- ----------------
Total                                              $1,225,423       $72,982           $42,493          $68,976
                                                 ============= ============= ================= ================


                                                                               Depreciation        Capital
                                                  Sales and     Operating          and          Expenditures
                                                   Service        Profit       Amortization          and
Three Months Ended February 28, 2001               Revenues       (Loss)         Expense        Acquisitions
                                                 ------------- ------------- ----------------- ----------------
Lighting Equipment                                   $349,965       $28,338           $13,549          $14,804
Chemical                                              123,373        10,350             2,919            2,370
Textile Rental                                         79,608         4,009             4,121            3,733
Envelope                                               54,483           863             2,431            1,258
                                                ------------- ------------- ----------------- ----------------
                                                      607,429        43,560            23,020           22,165
Corporate                                                            (5,066)              633              182
Interest expense, net                                               (13,375)                                                               -------------
                                                 ------------- ------------- ----------------- ----------------
Total                                                $607,429       $25,119           $23,653          $22,347
                                                 ============= ============= ================= ================


                                                                               Depreciation        Capital
                                                  Sales and     Operating          and          Expenditures
                                                   Service        Profit       Amortization          and
Three Months Ended February 29, 2000               Revenues       (Loss)         Expense        Acquisitions
                                                 ------------- ------------- ----------------- ----------------
Lighting Equipment                                   $354,096       $29,013           $12,240          $15,706
Chemical                                              119,607        11,472             2,798              917
Textile Rental                                         77,419         6,306             3,804           11,456
Envelope                                               54,291         2,455             1,867            4,867
                                                 ------------- ------------- ----------------- ----------------
                                                      605,413        49,246            20,709           32,946
Corporate                                                            (5,589)              574              208
Interest expense, net                                               (10,527)
                                                 ------------- ------------- ----------------- ----------------
Total                                                $605,413       $33,130           $21,283          $33,154
                                                 ============= ============= ================= ================






Page 8

                                                                Total Assets
                                                 -------------------------------------------
                                                 February 28, 2001         August 31, 2000
                                                 -------------------      ------------------
Lighting Equipment                                       $1,114,318              $1,142,227
Chemical                                                    243,147                 241,645
Textile Rental                                              218,911                 222,957
Envelope                                                    151,816                 151,003
                                                 -------------------      ------------------
Subtotal                                                  1,728,192               1,757,832
Corporate                                                    45,963                  58,607
                                                 -------------------      ------------------
Total                                                    $1,774,155              $1,816,439
                                                 ===================      ==================


4.    INVENTORIES

Major  classes of  inventory as of February 28, 2001 and August 31, 2000 were as
follows:

                                                 February 28,          August 31,
                                                     2001                 2000
                                               -----------------    -----------------
Raw Materials and Supplies                             $110,410             $104,566
Work-in-Process                                          19,470               20,262
Finished Goods                                          135,395              132,751
                                               -----------------    -----------------
Total                                                  $265,275             $257,579
                                               =================    =================


5.    EARNINGS PER SHARE

The company  accounts  for  earnings  per share  using  Statement  of  Financial
Accounting Standards No. 128, "Earnings per Share." Under this statement,  basic
earnings  per share is computed by dividing  net  earnings  available  to common
stockholders by the weighted average number of common shares  outstanding during
the period.  Diluted  earnings per share is computed  similarly but reflects the
potential  dilution  that would occur if dilutive  options  were  exercised  and
restricted  stock awards were  vested.  The  following  table  calculates  basic
earnings per common share and diluted  earnings per common share at February 28,
2001 and February 29, 2000:


                                                  Three Months Ended                   Six Months Ended
                                            --------------------------------    -------------------------------
                                              February 28,     February 29,      February 28,     February 29,
                                                2001               2000              2001             2000
                                           ---------------    -------------    --------------    -------------
Basic earnings per common share:
    Net income                                  $15,825          $20,276           $32,362          $44,666
    Basic weighted average shares
           outstanding (in thousands)            41,076           40,711            41,002           40,641
                                           ---------------    -------------    --------------    -------------
    Basic earnings per common share              $ 0.39           $ 0.50            $ 0.79           $ 1.10
                                           ===============    =============    ==============    =============

Diluted earnings per common share:
    Net income                                  $15,825          $20,276           $32,362          $44,666

    Basic weighted average shares
           outstanding (in thousands)            41,076           40,711            41,002           40,641
       Add - Shares of common stock issuable
           upon assumed exercise of dilutive
           stock options (in thousands)             386               26               164               80
       Add - Unvested restricted stock
           (in thousands)                            35                -                17                -
                                           ---------------    -------------    --------------    -------------
    Diluted weighted average shares
           outstanding (in thousands)            41,497           40,737            41,183           40,721
                                           ---------------    -------------    --------------    -------------

    Diluted earnings per common share            $ 0.38           $ 0.50            $ 0.79           $ 1.10
                                           ===============    =============    ==============    =============






Page 9

6.    COMPREHENSIVE INCOME

Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income,"  requires  the  reporting  of a measure of all  changes in equity of an
entity that result from recognized  transactions and other economic events other
than transactions with owners in their capacity as owners.  Other  comprehensive
income (loss) for the three and six months ended  February 28, 2001 and February
29, 2000 includes only foreign currency translation adjustments. The calculation
of comprehensive income is as follows:

                                                 Three Months Ended                     Six Months Ended
                                         ----------------------------------    ---------------------------------
                                           February 28,       February 29,      February 28,       February 29,
                                               2001               2000              2001               2000
                                          ---------------    ---------------    --------------    ---------------

Net income                                      $15,825            $20,276           $32,362            $44,666
Foreign currency translation adjustments           (499)               250            (3,017)               240
                                          ---------------    ---------------    --------------    ---------------
       Comprehensive Income                     $15,326            $20,526           $29,345            $44,906
                                          ===============    ===============    ==============    ===============

7.    RESTRICTED STOCK

In October 2000,  the company  awarded  256,800  shares of  restricted  stock to
officers and other key employees  under the National  Service  Industries,  Inc.
Long-Term  Achievement  Incentive  Plan.  The shares  are  granted in 20 percent
increments  when the company's stock price equals or exceeds certain stock price
targets ranging from $22.14 to $38.50 for thirty consecutive  calendar days. The
shares vest ratably in four equal annual  installments  beginning  one year from
the date of grant.  During the  vesting  period,  the  participants  have voting
rights  and  receive  dividends,  but  the  shares  may not be  sold,  assigned,
transferred, pledged or otherwise encumbered. If the stock price targets are not
reached on or before the fifth  anniversary of the award date, the corresponding
shares are not granted. Additionally,  granted but unvested shares are forfeited
upon termination of employment, unless certain retirement criteria are met.

The  fair  value of the  restricted  shares  on the  date of grant is  amortized
ratably over the vesting  period.  In January 2001, the first stock price target
was achieved and 51,260 restricted shares were granted. Unearned compensation on
restricted  stock of $1,281 was initially  recorded based on the market value of
the  shares  on the date of grant and is  generally  being  amortized  over four
years. The company recorded  compensation expense related to restricted stock of
$121 during the quarter  ended  February 28, 2001.  The  unamortized  balance of
unearned compensation on restricted stock is included as a separate component of
stockholders' equity.

8.    LEGAL PROCEEDINGS

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,  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,  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 reserves for known legal claims when payments associated with the claims
become probable and the costs can be reasonably  estimated.  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 reserved is reasonably estimable.

Among the  product  liability  claims to which the company is subject are claims
arising  from  the   installation   and   distribution  of   asbestos-containing
insulation,  primarily  in  the  southeastern  United  States,  by a  previously
divested business of the company. The company has reached settlement  agreements
with  substantially all of its relevant insurers  providing for their payment of
these claims up to the various policy limits. Over the past two decades, through
February 2001,  approximately  37,400 such claims against the company's business
have been resolved for an aggregate cost (liability payments and other expenses)
of approximately  $44 million,  approximately $42 million of which has been paid
or is expected to be paid by insurers.  The average per-claim  liability payment
made by the company and its insurers is less than nine hundred dollars over that
period and is slightly more than a thousand  dollars over the past two years. As
of February 28, 2001,  there were  approximately  28,300  similar claims pending
against  the  company,  including  approximately  15,200  claims  that have been
settled in principle (but not yet finalized)  for amounts  generally  consistent
with recent historical  per-claim settlement costs. The company anticipates that
similar claims will be made in the future. Neither the number of such claims nor
the liabilities which may arise from them is reasonably estimable.


Page 10

Since  1988 the  company  has been a  member,  together  with a number  of other
companies  that are among the  defendants  in these  claims,  of the  Center for
Claims  Resolution  (the "CCR").  Beginning on February 1, 2001, the company has
used CCR for claims  processing and handling;  the company has used coordinating
counsel and local counsel for the defense of claims. Prior to that date, the CCR
handled the  processing  and  settlement  of claims on behalf of the company and
retained local counsel for the defense of claims, and the company benefited from
cost  sharing with other CCR members.  The company was  responsible  for varying
percentages of CCR's defense and liability  payments on a  claim-by-claim  basis
pursuant to predetermined  sharing formulae;  substantially all of the company's
portion of those payments were paid directly by the company's  insurers.  During
2000, one member left the CCR;  another member had its membership  terminated by
the CCR's Board;  and another  member  declared  bankruptcy.  These members have
failed to pay certain financial  obligations in connection with settlements that
were  reached  while  they  were CCR  members.  The  company  recently  paid CCR
approximately five hundred thousand dollars for the company's allocated share of
the amount needed to cover defaulted  obligations  relating to paid settlements;
the CCR may  request,  and the  company  may be  subject  to claims  that it has
liability for, further payments with respect to settlements reached in principle
but not finalized.  Although the company will seek to recover the recent payment
and any future payments from insurance and other sources,  there is no assurance
that  such  payments  will be  recoverable.  In  addition,  several  significant
companies that are  traditional  co-defendants  in similar  claims,  but are not
members of CCR,  sought  bankruptcy  protection  during 2000 and early 2001. The
absence of these  traditional  defendants  may  increase  the cost of  resolving
similar claims for other defendants, including the company.

The ultimate asbestos-related liability of the company is difficult to estimate.
Based  on  the  company's   experience  to  date,  the  company   believes  that
substantially  all of the  costs  it  may  incur  in  defending  and  ultimately
disposing of  asbestos-related  claims in the foreseeable future will be paid by
its  insurers.  The company is and will  continue  monitoring  and analyzing the
trends, developments, and variables affecting or likely to affect the resolution
of pending and future claims against the company.

9.    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 $8.0 million and $10.2 million at February 28, 2001 and August 31, 2000,
respectively. 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 Blydenburgh Landfill matter in
New York (which is discussed  below),  the company  believes its liability is de
minimis at each of the currently active sites which it does not own where it has
been named as a PRP due to its limited involvement at the site and/or the number
of viable PRPs.  Specifically,  the preliminary  allocation among 48 PRPs at the
Crymes  Landfill site in Georgia  indicates that the company's  liability is not
significant,  and there are more than  1,000  PRPs at the M&J  Solvents  site in
Georgia. 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 currently  pending,  subject to
EPD's final approval. Until the CSR is


Page 11

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 was requested by the State of Florida to clean up
chlorinated  solvent  contamination in the groundwater  beneath the property and
beneath  surrounding  property  known as Seminole  Heights  Solvent  Site and to
reimburse  approximately $430 thousand of costs already incurred by the State of
Florida in connection  with such  contamination.  The company  presented  expert
evidence  to the State of Florida in 1998 that the  company is not the source of
the  contamination,  and the State has not responded.  On this matter, it is not
possible to quantify the company's potential exposure.

In  connection  with the sale of certain  assets,  including 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.  Because the company is not the
source of contamination,  the company asserted an indemnification  claim against
the company  from which it bought the  property.  The prior  owner is  currently
addressing 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  outcome  of the
company's indemnification claim against the prior owner.

During the second  quarter of 2001,  management  performed a review of the other
environmental  liabilities  recorded  in  connection  with  the  textile  rental
segment's 1997 uniform plants divestiture.  Based on the advice of the company's
environmental   experts,   the  company  decreased  its  estimates  for  certain
environmental  exposures  and, as a result,  reduced the related  liability  and
recorded a gain of approximately $2.0 million.  The gain is included in "Gain on
sale of business" in the accompanying consolidated statements of income.

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.  The  company has also  asserted an
indemnification claim against the parent of Initial Services Investments,  Inc.,
which the company  acquired in 1992 and which had previously  purchased and sold
certain assets of Serv-All  Uniform  Rental Corp. The federal  district court in
the  Eastern  District  of New York  denied the  company's  motion  for  summary
judgement  on the issue of  successor  liability  and  granted  the State of New
York's motion for partial summary  judgment and for a declaratory  judgment that
the  company is a successor  to Serv-All  Uniform  Rental  Corp.  The company is
appealing  this  decision.  At this  stage,  it is too  early  to  quantify  the
company's  potential  exposure,  the  likelihood  of an adverse  result,  or the
outcome of the company's indemnification claim.





Page 12

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following  discussion  should be read in conjunction  with the  consolidated
financial statements and related notes.

National Service Industries is a diversified  service and manufacturing  company
operating in four segments: lighting equipment,  chemicals,  textile rental, and
envelopes.  The company  remained in solid  financial  condition at February 28,
2001. Net working capital was $216.6 million, down from $221.1 million at August
31,  2000,  and the  current  ratio  remained  constant  at 1.4.  The  company's
percentage of debt to total  capitalization  increased  slightly to 49.4 percent
compared to 49.0 percent at August 31, 2000.

Results of Operations

National Service Industries generated revenue of $607.4 million and $1.3 billion
in the three and six months ended February 28, 2001,  respectively,  compared to
revenue of $605.4 million and $1.2 billion,  respectively, in the previous year.
The  year-to-date   increase  was  related  to  growth  in  the  company's  core
businesses,  primarily the lighting equipment and chemical segments. Revenue for
the second quarter  increased by  approximately  $2.0 million as improvements in
the chemical and textile rental segments were partially  offset by a decrease in
the lighting equipment segment.

Net income  totaled  $15.8  million,  or $.38 per diluted  share,  for the three
months ended February 28, 2001 compared to net income of $20.3 million,  or $.50
per  diluted  share,  for  the  three  months  ended  February  29,  2000.  On a
year-to-date  basis,  net income  declined $12.3 million,  from $44.7 million to
$32.4  million.   Net  income  was  negatively  impacted  by  weakened  economic
conditions,  higher interest expense and energy costs,  and expenses  associated
with  repositioning  the company for an economic  slowdown.  Interest expense of
$13.4  million and $26.6 million for the  respective  three and six months ended
February  28,  2001,  increased  $2.9  million and $6.1  million,  respectively,
compared to a year ago as a result of higher  interest  rates and increased debt
levels.  The company expects to offset the effects of the economic slowdown with
operational  initiatives including the consolidation of the chemical businesses,
a working capital reduction  project,  a major sourcing  initiative,  aggressive
sales efforts, and other cost reduction projects. However, further deterioration
in economic conditions could negatively impact this outlook.

The lighting equipment segment reported revenue of $350.0 million for the second
quarter,  representing a decrease of $4.1 million compared to the previous year.
The   decrease  in  revenue   resulted   primarily   from  a  softening  in  the
non-residential  construction  market.  Operating  profit for the second quarter
declined $.7 million to $28.3 million versus one year ago due to the decrease in
revenue and higher  expenses  associated with sales,  marketing,  and technology
initiatives. On a year-to-date basis, revenue increased $5.9 million from $721.7
million for the six months ended  February 29, 2000,  to $727.6  million for the
six months  ended  February  28, 2001 due to higher  sales  volumes in the first
quarter.  Excluding a $1.0 million  pretax  charge  during the first  quarter of
fiscal 2000 for closing a  manufacturing  facility in  California,  year-to-date
operating profit decreased  approximately  $3.7 million to $61.6 million because
of increased spending for sales, marketing, and technology initiatives and costs
to establish a Texas distribution center.

Revenue in the  chemical  segment of $123.4  million and $249.7  million for the
quarter and six months ended  February 28, 2001,  respectively,  increased  $3.8
million  and  $10.2  million,  respectively,  compared  to the  same  prior-year
periods.  The increase was due to sales volume growth in North America primarily
in the retail channel.  Operating  profit of $10.4 million and $16.9 million for
the respective  three and six months ended February 28, 2001 was,  respectively,
$1.1 million and $3.2 million lower than last year's results  primarily  because
of costs incurred to integrate the chemical operations,  increased energy costs,
and up-front costs  associated  with developing new sales  representatives.  The
chemical  segment  expects to realize  the  benefits of the  integration  in the
latter part of this fiscal year.

Textile  rental  segment  revenue,  representing  all of the  company's  service
revenue,  increased  $2.2 million to $79.6 million during the second quarter and
increased $5.6 million to $160.7 million  year-to-date  primarily as a result of
volume and price  increases and revenues  associated  with acquired  businesses.
Operating  profit for the  quarter  and  year-to-date  of $4.0  million and $7.7
million, respectively, decreased by $2.3 million and $3.7 million, respectively,
compared to a year ago.  The decrease in operating  margins  primarily  resulted
from higher  natural  gas prices,  front-end  selling and  implementation  costs
associated with several new large customer  accounts,  costs incurred to close a
facility in order to reduce the segment's  cost  structure and improve  customer
service,  increased  retiree medical costs,  and fewer gains associated with the
sale of assets.



Page 13

During  the  second  quarter  of 2001,  management  performed  a  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.  Based on the  advice of the  company's  environmental  experts,  the
company  decreased its estimates for certain  environmental  exposures and, as a
result,  reduced the related liability and recorded a gain of approximately $2.0
million.  The gain is included in "Gain on sale of business" in the accompanying
consolidated statements of income.

Second quarter  revenue in the envelope  segment was relatively flat compared to
last year's results.  Revenue increased $4.0 million,  or 3.7 percent, to $113.1
million  for the six months  ended  February  28,  2001  compared  to a year ago
primarily because of higher sales volumes to strategic partners during the first
quarter.  Operating profit for the quarter ended February 28, 2001 declined $1.6
million to $.9 million  principally  as a result of power  outages in California
and  higher  costs  for raw  materials.  In  addition  to these  factors,  costs
associated with reorganizing the Miami, Florida manufacturing  facility resulted
in a  decrease  in  year-to-date  operating  profit  from $5.5  million  to $2.6
million.

Corporate expenses for the second quarter of $5.1 million were $.5 million lower
than the previous year.  The favorable  variance for the quarter was a result of
lower  long-term  incentive   compensation  expense,   partially  offset  higher
insurance costs. For the six months ended February 28, 2001,  corporate expenses
increased $3.0 million to $10.8 million.  Higher year-to-date corporate expenses
were primarily  caused by  lower-than-normal  long-term  incentive  compensation
expense in the  prior-year  first  quarter and higher costs related to strategic
and  operational  initiatives.  Additionally,  the  provision  for income  taxes
decreased  to 37.0  percent of pretax  income,  compared to 38.8  percent in the
prior year, due mainly to the implementation of various tax-saving strategies.

Liquidity and Capital Resources

Operating Activities

Operations  provided cash of $39.9 million  during the six months ended February
28, 2001 compared with $20.9 million during the  respective  period of the prior
year.  The change in operating cash flows was largely due to an increase in cash
provided by  receivables  and inventory  compared to the same period a year ago,
primarily in the lighting equipment  segment,  partially offset by a decrease in
net income.

Investing Activities

Investing activities used cash of $29.4 million compared to $65.6 million in the
prior year.  The  improvement  in investing  cash flows  related  primarily to a
decrease in acquisition spending and a decrease in purchases of property, plant,
and equipment.  Higher acquisition  spending in fiscal 2000 was primarily due to
remaining payments associated with the 1999 acquisition of Holophane.

Capital  expenditures totaled $37.0 million for the six-month period compared to
$47.4 million in the previous  year.  The lighting  equipment  segment  invested
primarily  in  manufacturing  upgrades  and  improvements  and a  new  corporate
facility. Capital expenditures in the envelope segment were primarily related to
manufacturing  process  improvements  and information  systems.  In the chemical
segment,  capital expenditures were associated with manufacturing  equipment and
facilities improvements. In the textile rental segment, capital investments were
primarily  attributable  to  building  improvements,   equipment  upgrades,  and
information  systems.  In the same  period one year ago,  capital  spending  was
primarily  attributable to the lighting equipment,  envelope, and textile rental
segments.  The  lighting  equipment  segment  invested in land,  buildings,  and
equipment  for  a  new  plant  in  Mexico  and  in  manufacturing  upgrades  and
improvements.  Capital expenditures in the envelope segment related primarily to
new  folding  capacity,  manufacturing  process  improvements,  and  information
systems.  The textile  rental  segment's  expenditures  related to replacing old
equipment and delivery truck purchases and refurbishments.

Management   believes  current  cash  balances,   anticipated  cash  flows  from
operations,  available funds from the commercial  paper program or the committed
credit facilities,  and the complimentary lines of credit are sufficient to meet
the  company's  planned  level of capital  spending and general  operating  cash
requirements for the next twelve months.

Financing Activities

Cash used for financing  activities  totaled $6.3 million  during the six months
ended February 28, 2001 compared to cash provided of $43.9 million one year ago,
primarily as a result of a reduction  in cash  provided by net  borrowings.  The
decrease in cash  provided by net  borrowings  resulted  largely  from  improved
operating  cash flows and a decrease  in capital  expenditures  and  acquisition
spending.  Year-to-date dividend payments totaled $27.1 million, or 66 cents per
share,  compared with $26.4 million,  or 65 cents per share,  for the prior-year
period.



Page 14

Legal Proceedings

For information concerning legal proceedings,  including trends and developments
involving legal proceedings, see footnote 8 to the financial statements included
in this filing.

Environmental Matters

For  information  concerning   environmental   matters,   including  trends  and
developments  involving  environmental  matters, see footnote 9 to the financial
statements included in this filing.

Quantitative and Qualitative Disclosures About Market Risk

The company is exposed to market risks that may impact the Consolidated  Balance
Sheets,  Consolidated  Statements of Income, and Consolidated Statements of Cash
Flows due to changing  interest rates and foreign  exchange  rates.  The company
does not currently  participate in any significant hedging activities,  nor does
it currently  utilize any  significant  derivative  financial  instruments.  The
following  discussion  provides additional  information  regarding the company's
market risks.

Interest Rates- Interest rate  fluctuations  expose the company's  variable-rate
debt to changes in interest expense and cash flows. The company's  variable-rate
debt,  primarily  commercial  paper,  amounted to $288.0 million at February 28,
2001.  Based on  outstanding  borrowings at  quarter-end,  a 10 percent  adverse
change in effective  market  interest rates at February 28, 2001 would result in
additional  annual after-tax  interest  expense of  approximately  $1.1 million.
Although a fluctuation  in interest rates would not affect  interest  expense or
cash flows  related to the $360 million  publicly  traded  notes,  the company's
primary  fixed-rate  debt, a 10 percent  increase in effective  market  interest
rates at  February  28,  2001 would  decrease  the fair value of these  notes to
approximately $344 million.

Foreign  Exchange  Rates-The  majority of the company's  revenue,  expense,  and
capital purchases are transacted in U.S. dollars. The company does not believe a
10 percent  fluctuation in average foreign  currency rates would have a material
effect on its consolidated  financial  statements or results of operations.  The
company does not engage in speculative  transactions,  nor does the company hold
or issue financial instruments for trading purposes. To the extent possible, the
company  mitigates  its exposure to  unfavorable  foreign  currency  translation
adjustments on the balance sheet through the use of foreign-currency denominated
debt agreements.


Cautionary Statement Regarding Forward-Looking Information

This  filing  contains  forward-looking  statements,  within the  meaning of the
Private  Securities  Litigation  Reform  Act of 1995,  that  involve  risks  and
uncertainties.  Consequently,  actual results may differ  materially  from those
indicated by the forward-looking statements.  Statements made herein that may be
considered  forward  looking include  statements  concerning:  (a)  expectations
regarding a continued  economic slowdown and the company's ability to offset the
effect of the slowdown with operational  initiatives including the consolidation
of the  chemical  businesses,  a  working  capital  reduction  project,  a major
sourcing  initiative,   aggressive  sales  efforts,  and  other  cost  reduction
projects; (b) anticipated benefits of the integration of the chemical operations
during the latter part of this fiscal  year;  and (c)  expectations  relating to
contingent liabilities involving environmental matters and legal proceedings.  A
variety of risks and  uncertainties  could cause the company's actual results to
differ materially from the anticipated  results or other expectations  expressed
in the company's forward-looking statements. The risks and uncertainties include
without  limitation the following:  (a) the uncertainty of general  business and
economic  conditions,   including  the  potential  for  a  greater-than-expected
slowdown in  non-residential  construction  awards,  interest rate changes,  and
fluctuations in commodity and raw material prices;  (b) unexpected  developments
and  outcomes in the  company's  legal and  environmental  proceedings;  (c) the
company's ability to realize the anticipated  benefits of strategic  initiatives
related  to  increased  productivity,  new  product  development,  technological
advances,  cost synergies,  sourcing,  decreases in net working capital, and the
achievement of sales growth across the business segments; and (d) the successful
completion of changes to manufacturing operations.





Page 15


                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

For information concerning legal proceedings,  including trends and developments
involving legal proceedings, see footnote 8 to the financial statements included
in this filing.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits are listed on the Index to Exhibits (page 17).

(b) There were no reports on Form 8-K for the three  months  ended  February 28,
2001.





Page 16


                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                                NATIONAL SERVICE INDUSTRIES, INC.
                                                       REGISTRANT


DATE  April 13, 2001                                  /s/ KENYON MURPHY
                                                         KENYON MURPHY
                                                      SENIOR VICE PRESIDENT
                                                      AND GENERAL COUNSEL



DATE  April 13, 2001                                  /s/ BROCK HATTOX
                                                          BROCK HATTOX
                                                   EXECUTIVE VICE PRESIDENT AND
                                                      CHIEF FINANCIAL OFFICER





Page 17

                                                 INDEX TO EXHIBITS


                                                                                          Page No.

EXHIBIT 10(iii)A             (1)    Nonemployee Director' Stock Option Agreement          18
                                    Dated December 21, 2000 between National
                                    Service Industries, Inc. and
                                    (a)  Leslie M. Baker, Jr.
                                    (b)  John L. Clendenin
                                    (c)  Thomas C. Gallagher
                                    (d)  Samuel A. Nunn
                                    (e)  Roy Richards, Jr.
                                    (f)  Ray M. Robinson
                                    (g)  Betty L. Siegel
                                    (h)  Kathy Brittain White
                                    (i)  Barrie A. Wigmore
                                    (j)  Neil Williams

                             (2)    Amendment No. 1 to the National Service               23
                                    Industries, Inc. Executives'Deferred
                                    Compensation Plan (as Amended and Restated
                                    October 4, 2000)Dated December 21, 2000

EX-10

                             STOCK OPTION AGREEMENT
                            FOR NONEMPLOYEE DIRECTORS



     THIS  AGREEMENT,  made as of the 21st day of  December,  2000  (the  "Grant
Date"),  between National Service Industries,  Inc., a Delaware corporation (the
"Company"), and "Name" (the "Optionee").

     WHEREAS, the Company has adopted the National Service Industries, Inc. 1992
Nonemployee  Directors'  Stock  Option  Plan (the  "Plan")  in order to  provide
additional  incentive to nonemployee  directors to exert maximum efforts for the
success of the Company; and

     WHEREAS, pursuant to the terms of the Plan, the Optionee is entitled to the
option grant provided herein.

     NOW, THEREFORE, the parties hereto agree as follows:

     1. Grant of Option.
        ----- -- ------

     1.1 The Company  hereby  grants to the  Optionee  the right and option (the
"Option") to purchase  all or any part of an aggregate of "Amount"  whole Shares
subject to, and in accordance  with,  the terms and conditions set forth in this
Agreement.

     1.2 The Option is not  intended  to qualify as an  Incentive  Stock  Option
within the meaning of Section 422A of the Code.

     1.3 This Agreement  shall be construed in accordance  and consistent  with,
and  subject  to,  the  provisions  of the Plan  (the  provisions  of which  are
incorporated  herein by reference) and, except as otherwise  expressly set forth
herein,  the  capitalized  terms  used in this  Agreement  shall  have  the same
definitions as set forth in the Plan.

     2. Purchase Price.
        -------- -----

     The price at which the Optionee  shall be entitled to purchase  Shares upon
the exercise of the Option shall be $22.5625 per Share.

     3. Duration of Option.
        -------- -- ------

     The Option shall be  exercisable  to the extent and in the manner  provided
herein for a period of ten (10) years from the Grant Date (the "Exercise Term");
provided,  however,  that the Option may be earlier  terminated  as  provided in
- ---------  -------
Section 6 hereof.

     4. Exercisability of Option.
        -------------- -- ------

     Unless  otherwise  provided in this Agreement or the Plan, the Option shall
entitle the Optionee to  purchase,  in whole at any time or in part from time to
time, the shares covered by the option after the expiration of one (1) year from
the Grant Date.

     5. Manner of Exercise and Payment.
        ------ -- -------- --- -------

     5.1 Subject to the terms and conditions of this Agreement and the Plan, the
Option may be  exercised by delivery of written  notice to the  Company,  at its
principal  executive  office.  Such  notice  shall  state that the  Optionee  is
electing to exercise the Option and the number of Shares in respect of which the
Option  is being  exercised  and  shall  be  signed  by the  person  or  persons
exercising  the Option.  If requested,  such person or persons shall (i) deliver
this  Agreement  to the  Secretary  of the Company who shall  endorse  thereon a
notation of such exercise and (ii) provide satisfactory proof as to the right of
such person or persons to exercise the Option.

     5.2 The notice of exercise described in Section 5.1 shall be accompanied by
the full  purchase  price for the Shares in respect of which the Option is being
exercised,  in cash, by check, or by transferring Shares to the Company having a
Fair Market value on the day  preceding  the date of exercise  equal to the cash
amount for which such Shares are substituted.

     5.3 Upon  receipt of notice of exercise  and full payment for the Shares in
respect of which the Option is being  exercised,  the Company shall,  subject to
Section  12 of the Plan,  take such  action as may be  necessary  to effect  the
transfer to the  Optionee of the number of Shares as to which such  exercise was
effective.

     5.4 The Optionee shall not be deemed to be the holder of, or to have any of
the rights of a holder with  respect to, any Shares  subject to the Option until
(i) the Option shall have been exercised pursuant to the terms of this Agreement
and the  Optionee  shall  have paid the full  purchase  price for the  number of
Shares in respect of which the Option was exercised, (ii) the Company shall have
issued and delivered the Shares to the Optionee,  and (iii) the Optionee's  name
shall have been entered as a stockholder  of record on the books of the Company,
whereupon the Optionee  shall have full voting and other  ownership  rights with
respect to such Shares.

     6. Termination of Service.
        ----------- -- -------

     6.1  Termination  for  Cause.  If  the  Optionee's  service  as a  Director
          -----------  ---  -----
terminates  for Cause,  the Option  shall  immediately  terminate in full and no
rights hereunder may be exercised.

     6.2 Other Termination of Service.  If the Optionee's  service as a Director
         ----- ----------- -- -------
is terminated for any reason other than for Cause,  the Option shall continue to
be  exercisable  in whole or in part (to the extent  exercisable  on the date of
such  termination)  at any time  within  three (3) years  after the date of such
termination,  but in no event after the  expiration of the Exercise Term. In the
event of the Optionee's  death,  the Option shall be exercisable,  to the extent
provided in the Plan and this  Agreement,  by the legatee or legatees  under his
will,  or by his personal  representatives  or  distributees  and such person or
persons shall be substituted for the Optionee each time the Optionee is referred
to herein.

     7. Effect of Change in Control.
        ------ -- ------ -- -------

     Notwithstanding  anything  contained in this Agreement to the contrary,  in
the event of a Change in Control,  (i) the Option shall become  immediately  and
fully  exercisable,  and (ii) the Optionee  will be  permitted to surrender  for
cancellation within sixty (60) days after such Change in Control,  the Option or
any portion of the Option to the extent not yet exercised and the Optionee shall
be  entitled to receive  immediately  a cash  payment in an amount  equal to the
excess,  if any, of (A) the greater of (x) the Fair  Market  value,  on the date
preceding  the date of the  surrender,  of the  Shares  subject to the Option or
portion of the Option  surrendered  or (y) the Adjusted Fair Market Value of the
Shares subject to the Option or the portion of the Option surrendered,  over (B)
the  aggregate  purchase  price  for such  Shares  under the  Option;  provided,
                                                                       ---------
however,  that if the Option  was  granted  within  six (6) months  prior to the
- -------
Change in Control,  the Optionee shall be entitled to surrender for cancellation
the  Option or any  portion  of the  Option  during  the sixty  (60) day  period
following  the  expiration  of six (6) months from the Grant Date and to receive
the amount described above with respect to such surrender for cancellation.

     8. Nontransferability.
        ------------------

     The Option shall not be  transferable  other than by will or by the laws of
descent and distribution.  During the lifetime of the Optionee, the Option shall
be exercisable only by the Optionee.

     9. No Right to Continuing Service.
        -- ----- -- ---------- -------

     Nothing in this  Agreement or the Plan shall be interpreted or construed to
confer upon the Optionee any right with respect to  continuance  of service as a
director of the Company,  nor shall this  Agreement or the Plan interfere in any
way with the right of the  Company  to  terminate  the  Optionee's  service as a
director at any time.

     10. Adjustments.
         -----------

     In  the  event  of  a  Change  in  Capitalization,  the  Board  shall  make
appropriate  adjustments  to the  number  and class of Shares or other  stock or
securities subject to the Option and the purchase price for such Shares or other
stock or securities. The Board's adjustment shall be made in accordance with the
provisions of Section 7 of the Plan and shall be effective  and final,  binding,
and conclusive for all purposes of the Plan and this Agreement.

     11. Terminating Events.
         ----------- ------

     Subject to Section 7 hereof, upon the effective date of (i) the liquidation
or dissolution of the Company or (ii) a merger or  consolidation  of the Company
(a  "Transaction"),  the Option shall continue in effect in accordance  with its
terms and the  Optionee  shall be  entitled  to receive in respect of all Shares
subject to the Option,  upon exercise of the Option, the same number and kind of
stock,  securities,  cash, property,  or other consideration that each holder of
Shares was entitled to receive in the Transaction.

     12. Optionee Bound by the Plan.
         -------- ----- -- --- ----

     The Optionee hereby  acknowledges  receipt of a copy of the Plan and agrees
to be bound by all the terms and provisions thereof.

     13. Modification of Agreement.
         ------------ -- ---------

     This Agreement may be modified,  amended, suspended, or terminated, and any
terms or conditions may be waived, but only by a written instrument  executed by
the parties hereto.

     14. Severability.
         ------------

     Should any  provision  of this  Agreement  be held by a court of  competent
jurisdiction  to be  unenforceable  or invalid  for any  reason,  the  remaining
provisions  of this  Agreement  shall not be affected by such  holding and shall
continue in full force in accordance with their terms.

     15. Governing Law.
         --------- ---

     The  validity,  interpretation,   construction,  and  performance  of  this
Agreement shall be governed by the laws of the State of Delaware  without giving
effect to the conflicts of laws principles thereof.

     16. Successors in Interest.
         ---------- -- --------

     This  Agreement  shall  inure to the  benefit of and be  binding  upon each
successor  to the  Company.  This  Agreement  shall  inure to the benefit of the
Optionee's legal representatives.  All obligations imposed upon the Optionee and
all rights granted to the Company under this Agreement shall be final,  binding,
and  conclusive  upon  the  Optionee's  heirs,  executors,  administrators,  and
successors.

     17. Resolution of Disputes.
         ---------- -- --------

     Any dispute or disagreement which may arise under, or as a result of, or in
any way relate to, the  interpretation,  construction,  or  application  of this
Agreement  shall be determined by the Board.  Any  determination  made hereunder
shall be final,  binding, and conclusive on the Optionee and the Company for all
purposes.



ATTEST:                                NATIONAL SERVICE INDUSTRIES, INC.



______________________________         By:______________________________________
Secretary                                 James S. Balloun
                                          Chairman, President and
                                          Chief Executive Officer



- ------------------------------
"Name"

EX-10

                                 AMENDMENT NO. 1
                                     TO THE
                        NATIONAL SERVICE INDUSTRIES, INC.
                     EXECUTIVES' DEFERRED COMPENSATION PLAN
                    (As Amended and Restated October 4, 2000)


     THIS  AMENDMENT  made as of the 21st day of  December,  2000,  by  National
Service Industries, Inc. ("NSI");

                     W o I o T o N o E o S o S o E o T o H:

     WHEREAS,  NSI has previously  established the National Service  Industries,
Inc.  Executives'  Deferred  Compensation  Plan (the  "Plan") for the  exclusive
benefit of its eligible employees and their beneficiaries; and

WHEREAS, NSI desires to amend the Plan, as set forth below:

                                       1.

     The last sentence of Section 6.03 of the Plan is hereby amended by deleting
such sentence in its entirety and substituting the following:

     "A  Participant  retiring on or after age 55 may elect prior to termination
to make the  deferral  election in this  section  with respect to all Class Year
Accounts  as to which the  five-year  period  has not yet  passed and that would
otherwise  be  payable  more than one (1) year in the  future.  Any  Class  Year
Accounts  as to which the  five-year  period has not yet passed that are payable
within one (1) year and any Class Year Accounts as to which the election in this
section is not made shall be payable as soon as practical after termination."

                                       2.

     This Amendment shall be effective as of the date hereof.

                                       3.

     Except as provided herein,  the provisions of the Plan shall remain in full
force and effect.

     IN WITNESS  WHEREOF,  NSI has caused this Amendment No. 1 to be executed by
its duly authorized  corporate officer and is hereby accepted the same as of the
date and year first written above.

ATTEST:                                         NATIONAL SERVICE INDUSTRIES, INC.



__________________________________              By:_____________________________
 Helen D. Haines, Secretary                        James S. Balloun
                                                   Chairman, President and
                                                   Chief Executive Officer