-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, RGpOSKD4H89c9I6gukaOcX8TDSKb4mMpfGOBrN/gHvSY42jtRPqG1mcht3QHxePf 41Di36jrZGfCFIeVdu1zpQ== 0000070538-95-000008.txt : 19950417 0000070538-95-000008.hdr.sgml : 19950417 ACCESSION NUMBER: 0000070538-95-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950414 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL SERVICE INDUSTRIES INC CENTRAL INDEX KEY: 0000070538 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 580364900 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03208 FILM NUMBER: 95528964 BUSINESS ADDRESS: STREET 1: 1420 PEACHTREE ST NE CITY: ATLANTA STATE: GA ZIP: 30309 BUSINESS PHONE: 4048531000 MAIL ADDRESS: STREET 1: 1420 PEACHTREE ST NE CITY: ATLANTA STATE: GA ZIP: 30309 10-Q 1 NATIONAL SERVICE INDUSTRIES, INC. 10-Q Page 1 of 34 Exhibit Index on Page 12 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For quarter ended February 28, 1995 Commission file number 1-3208 NATIONAL SERVICE INDUSTRIES, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 58-0364900 (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) 1420 Peachtree Street, N. E., Atlanta, Georgia 30309-3002 (Address of Principal Executive Offices) (Zip Code) (404) 853-1000 (Registrant's Telephone Number, Including Area Code) None (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (applicable only to corporate issuers). Common Stock - $1.00 Par Value - 48,348,252 shares as of April 3, 1995. Page 2 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS - FEBRUARY 28, 1995 AND AUGUST 31, 1994 3 CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS AND SIX MONTHS ENDED FEBRUARY 28, 4 1995 AND 1994 CONSOLIDATED STATEMENTS OF CASH FLOWS - 5 SIX MONTHS ENDED FEBRUARY 28, 1995 AND 1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-9 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 SIGNATURES 11 EXHIBIT INDEX 12 Page 3 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands) February 28, August 31, 1995 1994 * ASSETS (Unaudited) Current Assets: Cash and cash equivalents $ 52,092 $ 58,619 Short-term investments 5,179 2,579 Receivables, less reserves for doubtful accounts of $8,992,000 at February 28, 1995 and $7,385,000 at August 31, 1994 242,041 256,051 Inventories, at the lower of cost (on a first-in, first-out basis) or market 191,126 178,590 Linens in service, net of amortization 87,577 90,037 Prepaid income taxes 9,174 7,978 Prepayments 12,123 8,933 Total Current Assets 599,312 602,787 Property, Plant, and Equipment, at cost: Land 32,159 32,237 Buildings and leasehold improvements 186,300 186,929 Machinery and equipment 485,961 507,408 Total Property, Plant, and Equipment 704,420 726,574 Less - Accumulated depreciation and amortization 363,194 378,262 Property, Plant, and Equipment - net 341,226 348,312 Other Assets: Goodwill and other intangibles 105,652 112,286 Other 37,458 37,876 Total Other Assets 143,110 150,162 Total Assets $1,083,648 $1,101,261 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt $ 298 $ 667 Notes payable 6,360 5,098 Accounts payable 75,206 81,969 Accrued salaries, commissions, and bonuses 33,398 42,624 Current portion of self insurance reserves 14,333 15,403 Other accrued liabilities 43,403 43,912 Total Current Liabilities 172,998 189,673 Long-Term Debt, less current maturities 26,802 26,863 Deferred Income Taxes 71,312 73,319 Self Insurance Reserves, less current portion 66,523 61,081 Other Long-Term Liabilities 23,447 22,940 Stockholders' Equity: Series A participating preferred stock, $.05 stated value, 500,000 shares authorized, none issued Preferred stock, no par value, 500,000 shares authorized, none issued Common stock, $1 par value, 80,000,000 shares authorized, 57,918,978 shares issued at February 28, 1995 and August 31, 1994 57,919 57,919 Paid-in capital 7,876 7,684 Retained earnings 717,513 705,504 783,308 771,107 Less - Treasury stock, at cost (9,347,097 shares at February 28, 1995 and 8,678,666 shares at August 31, 1994) 60,742 43,722 Total Stockholders' Equity 722,566 727,385 Total Liabilities and Stockholders' Equity $1,083,648 $1,101,261 * Certain amounts have been reclassified to conform to current-year presentation. The accompanying notes to consolidated financial statements are an integral part of these balance sheets. Page 4 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollar amounts in thousands, except per-share data) THREE MONTHS ENDED SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 1995 1994 1995 1994 Sales and Service Revenues: Net sales of products $334,059 $308,404 $678,941 $633,617 Service revenues 131,751 130,933 267,853 265,620 Total Revenues 465,810 439,337 946,794 899,237 Costs and Expenses: Cost of products sold 217,036 204,533 436,223 418,112 Cost of services 73,981 68,722 149,827 139,459 Selling and administrative expenses 144,221 137,842 293,916 279,425 Interest expense 960 1,024 1,790 2,170 Other expense, net 1,581 1,067 3,272 3,119 Total Costs and Expenses 437,779 413,188 885,028 842,285 Income before Provision for Income Taxes 28,031 26,149 61,766 56,952 Provision for (Benefit from) Income Taxes: Current 10,482 10,894 23,131 23,485 Deferred (29) (1,018) (57) (1,978) 10,453 9,876 23,074 21,507 Net Income $ 17,578 $ 16,273 $ 38,692 $ 35,445 Per Share: Net income $.36 $.33 $.79 $.72 Cash dividends $.28 $.27 $.55 $.53 Weighted Average Number of Shares Outstanding (thousands) 48,859 49,572 49,025 49,568 The accompanying notes to consolidated financial statements are an integral part of these statements. Page 5 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollar amounts in thousands) SIX MONTHS ENDED FEBRUARY 28 1995 1994 * Cash Provided by (Used for) Operating Activities: Net income $ 38,692 $ 35,445 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 29,046 30,550 Provision for losses on accounts receivable 2,631 2,427 Gain on the sale of property, plant, and equipment 12 (617) Gain on the sale of business (1,162) (467) Provision for deferred income taxes (57) (1,975) Change in assets and liabilities net of effect of acquisitions- Receivables 11,686 19,411 Inventories and linens in service, net (11,508) (14,744) Prepaid income taxes (1,196) 2,261 Prepayments and other (3,410) (2,127) Accounts payable and accrued liabilities (17,605) (23,898) Net Cash Provided by Operating Activities 47,129 46,266 Cash Provided by (Used for) Investing Activities: Change in short-term investments (2,600) 1,853 Purchase of property, plant, and equipment (22,471) (21,865) Sale of property, plant, and equipment 5,634 1,845 Sale of business 4,626 682 Acquisitions, net of cash acquired (304) (375) Change in other assets (409) (339) Net Cash Used for Investing Activities (15,524) (18,199) Cash Provided by (Used for) Financing Activities: Change in notes payable 1,262 (345) - - Repayment of long-term debt (430) (824) Recovery of investment in tax benefits 414 1,123 Deferred income taxes from investment in tax benefits (1,950) (2,077) Issuance (purchase) of treasury stock (16,694) 349 Change in other long-term liabilities 5,949 3,892 Cash dividends paid (27,030) (26,270) Net Cash Used for Financing Activities (38,479) (24,152) Effect of Exchange Rate Changes on Cash 347 1,074 Net Change in Cash and Cash Equivalents (6,527) 4,989 Cash and Cash Equivalents at Beginning of Year 58,619 15,853 Cash and Cash Equivalents at End of Period $ 52,092 $ 20,842 Supplemental Cash Flow Information: Income taxes paid during the period $ 25,369 $ 21,815 Interest paid during the period 1,712 2,440 Noncash Investing and Financing Activities: Noncash aspects of sale of business - Receivables incurred $ (893) $ (336) * Certain amounts have been reclassified to conform to current-year balance sheet presentation. The accompanying notes to consolidated financial statements are an integral part of these statements. Page 6 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION: The interim consolidated financial statements included herein have been prepared by the company without audit and the condensed consolidated balance sheet as of August 31, 1994 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, 1995, the consolidated results of operations for the three months and six months ended February 28, 1995 and 1994, and the consolidated cash flows for the six months ended February 28, 1995 and 1994. Certain prior-year amounts have been reclassified to conform with current-year 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, 1994. The results of operations for the three months and six months ended February 28, 1995 are not necessarily indicative of the results to be expected for the full fiscal year because the company's revenues and income are generally higher in the second half of its fiscal year and because of the uncertainty of general business conditions. 2. BUSINESS SEGMENT INFORMATION: Three Months Ended February 28 Sales and Service Revenues Operating Profit 1995 1994 1995 1994 (In thousands) Lighting Equipment $200,753 $173,799 $ 12,580 $ 9,460 Textile Rental 131,751 130,933 7,485 11,046 Chemical 80,192 75,599 6,311 6,616 Other 53,114 59,006 3,691 1,772 $465,810 $439,337 30,067 28,894 Corporate (1,076) (1,721) Interest Expense (960) (1,024) Total $ 28,031 $ 26,149 Six Months Ended February 28 Sales and Service Revenues Operating Profit 1995 1994 1995 1994 (In thousands) Lighting Equipment $404,559 $355,904 $ 26,270 $ 21,359 Textile Rental 267,853 265,620 18,801 22,284 Chemical 168,144 157,881 15,612 15,642 Other 106,238 119,832 6,760 3,285 $946,794 $899,237 67,443 62,570 Corporate (3,887) (3,448) Interest Expense (1,790) (2,170) Total $ 61,766 $ 56,952 3. INVENTORIES: Major classes of inventory as of February 28, 1995 and August 31, 1994 were as follows: February 28, August 31, 1995 1994 (In thousands) Raw Materials and Supplies $ 80,124 $ 72,677 Work-in-Process 9,933 9,918 Finished Goods 101,069 95,995 Total $191,126 $178,590 Page 7 4. POSTEMPLOYMENT BENEFITS During the quarter ended November 30, 1994, the company adopted Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits," which requires employers to accrue the expected cost of benefits to be provided to former or inactive employees after employment but before retirement. The company's liability relates primarily to severance agreements and to life insurance coverage for certain eligible disabled employees. The amount is not material to the consolidated financial statements. Page 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and related notes. Financial Condition National Service Industries maintained a strong financial position at February 28, 1995. Net working capital was $426.3 million, compared with $413.1 million at August 31, 1994, and the current ratio was 3.5, compared with 3.2 at year end. Cash and short-term investments were $57.3 million, down slightly from $61.2 million at August 31. For the six months ended February 28, 1995, the company invested $22.8 million in capital expenditures and acquisitions. Long-term debt and other long-term liabilities were 13.9 percent of total capitalization, up from 13.2 percent at year end. Cash provided by operations was $47.1 million, compared with $46.3 million for the first half last year. Capital expenditures, exclusive of acquisition spending, were $22.5 million for the six months this year and $21.9 million for the prior-year period. During the second quarter, the lighting equipment division continued to invest in manufacturing equipment replacements and improvements and the construction of a production facility in Monterrey, Nuevo Leon, Mexico. The textile rental division continued its fleet upgrades and facility improvements. Prior-year spending was attributable to facilities and manufacturing process improvements in the lighting equipment division, facilities additions and information systems improvements in the chemical division, and wastewater compliance projects and fleet upgrades in the textile rental division. Acquisition spending was minimal in both periods. Dividend payments for the six months totaled $27.0 million, or 55 cents per share, compared with $26.3 million, or 53 cents per share, for the same period last year. Effective January, 1995, the regular quarterly dividend rate was increased 3.7 percent to 28 cents per share, which is an annual rate of $1.12 per share. During the three months and six months ended February 28, 1995, the company paid $16.9 million for 675,000 shares of its common stock. An additional 225,000 shares have been purchased since quarter end. The board of directors, at its regular meeting in March, 1995, increased the company's standing authority to purchase shares from the previous two million shares per year to four million shares for the current fiscal year. For the periods presented, capital expenditures, working capital needs, dividends, and acquisitions were financed primarily with internally generated funds, supplemented by short-term borrowings in the European market. Contractual commitments for capital spending during the coming twelve months total $12 million. For the current fiscal year, the company expects actual capital expenditures to be somewhat higher than levels of recent years, which, excluding acquisition spending, were $43 million in 1994, $36 million in 1993, and $43 million in 1992. Current liquid assets and internally generated funds are expected to be more than adequate to meet anticipated cash requirements for the next twelve months, although some interim borrowings might be incurred to meet short-term needs. The company has complimentary lines of credit totaling $152 million, of which $110 million has been provided domestically and $42 million is available on a multi-currency basis primarily from a European bank. Results of Operations National Service Industries reported a 9.8 percent increase in earnings per share, from 33 cents to 36 cents, for its second fiscal quarter ended February 28, 1995. Net income for the quarter increased 8.0 percent to $17.6 million. The percentage increase in earnings per share was somewhat higher because 713,000 fewer shares on average were outstanding compared with last year's second quarter. Sales for the quarter totaled $465.8 million, 6.0 percent higher than in the same period last year. The increase would be 7.9 percent excluding the prior-year sales of Marketing Services, the division divested at last fiscal year end. For the fiscal first half of NSI's fiscal year, sales increased 5.3 percent to $946.8 million and net income increased 9.2 percent to $38.7 million. Earnings per share increased 10.3 percent to 79 cents from 72 cents. Page 9 The lighting equipment division led second quarter results with a sales increase of 15.5 percent to $200.8 million and a first-half sales increase of 13.7 percent to $404.6 million. The increases in both periods were largely attributable to unit volume gains. Operating profit increased 33.0 percent for the quarter to 6.3 percent of revenues, from 5.4 percent last year, and grew 23.0 percent for the six months to 6.5 percent of revenues, up from 6.0 percent the prior year to date. Both fluorescent and non-fluorescent product groups participated in operating improvements, which resulted from the volume increases and some product pricing gains. Textile rental division revenues were only marginally ahead of both prior-year periods, at $131.8 million for the second quarter and $267.9 million for the year to date, as pricing improvements offset unit volume declines. Operating profit decreased to 5.7 percent of revenues for the quarter and 7.0 percent year to date, compared with 8.4 percent for both prior-year periods. The division continued to invest significantly in its sales and marketing programs. Although results were still disappointing, other initiatives are beginning to improve performance as February results were stronger than anticipated. The chemical sector had mixed results. Sales, which have been the focus of the sector's strategy, advanced 6.1 percent to $80.2 million for the quarter and 6.5 percent to $168.1 million for the six months. However, operating earnings declined to 7.9 percent of sales for the quarter from 8.8 percent the prior-year quarter and 9.3 percent of sales for the first half, compared with 9.9 percent a year ago. The decline was largely the result of increased investment in sales training and recruitment and slower progress in international markets than had been anticipated. As of the beginning of the fiscal year, those businesses comprising NSI's other segment no longer include Marketing Services. On a comparable-business basis, the insulation service division and the envelope division combined for modest sales increases of 3.5 percent for the quarter and 1.6 percent year to date. Gains in the envelope sector were offset by volume declines in the insulation service business. Operating income increased 64 percent for the quarter and 73 percent for the six months. The insulation business is enjoying distinctly higher margins as operating improvements are taking hold. The envelope business, benefiting from unit volume gains, is experiencing its best year in some time. Corporate expense for both the second quarter and year to date reflects increased interest income and reduced administrative expenses. For the six months, corporate expense was somewhat higher due in large part to the company's adoption in the first quarter of Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits," requiring the accrual of the estimated cost of benefits provided by an employer to former or inactive employees after employment but before retirement. The accrual relates primarily to severance agreements and the liability for life insurance coverage for certain eligible disabled employees. The provision for income taxes was 37.3 percent of pretax income for the second quarter and 37.4 for the first half, compared with 37.8 for both respective prior-year periods. The slight reduction in the effective tax rate was the result of the increase in interest income, which is largely nontaxable. Page 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits are listed on the Index to Exhibits (page 12). (b) There were no reports on Form 8-K for the three months ended February 28, 1995. Page 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL SERVICE INDUSTRIES, INC. REGISTRANT DATE April 14, 1995 /S/ DAVID LEVY DAVID LEVY EXECUTIVE VICE PRESIDENT, ADMINISTRATION AND COUNSEL DATE April 14, 1995 /S/ J. ROBERT HIPPS J. ROBERT HIPPS SENIOR VICE PRESIDENT, FINANCE Page 12 INDEX TO EXHIBITS Page No. EXHIBIT 10(iii)A Management Contracts and Compensatory Arrangements: (a)(i) Split-Dollar Agreement among National Service Industries, Inc., D. Raymond Riddle, and Wachovia Bank of Georgia, N.A. dated January 4, 1993 13 (ii) First Amendment to Split-Dollar Agreement among National Service Industries, Inc., D. Raymond Riddle, and Wachovia Bank of Georgia, N.A. effective March 30, 1995 21 (b)Letter Agreement between National Service Industries, Inc. and D. Raymond Riddle dated March 28, 1995, amending as of September 21, 1994 the Incentive Stock Option Agreement dated January 6, 1993, the Nonqualified Stock Option Agreement dated January 6, 1993, and the Nonqualified Stock Option Agreement dated September 15, 1993 between National Service Industries, Inc. and D. Raymond Riddle 24 (c)Consulting Agreement between National Service Industries, Inc. and D. Raymond Riddle dated March 30, 1995 25 (d)Letter Agreement between National Service Industries, Inc. and D. Raymond Riddle dated April 10, 1995, amending as of March 15, 1995 the Incentive Stock Option Agreement dated January 6, 1993, the Nonqualified Stock Option Agreement dated January 6, 1993, the Nonqualified Stock Option Agreement dated September 15, 1993, and the Nonqualified Stock Option Agreement dated September 21, 1994 between National Service Industries, Inc. and D. Raymond Riddle 31 EXHIBIT 11 Computations of Net Income per Share of Common Stock 33 EXHIBIT 27 Financial Data Schedules 34 EX-10 2 SPLIT-DOLLAR AGREEMENT Page 13 Exhibit 10(iii)A(a)(i) STATE OF GEORGIA FULTON COUNTY A G R E E M E N T THIS AGREEMENT, made and entered into effective the 4th day of January, 1993, by and between Wachovia Bank of Georgia, N.A. (hereinafter "Wachovia"), National Service Industries, Inc. (hereinafter "NSI"), and D. Raymond Riddle (hereinafter "Riddle"); W * I * T * N * E * S * S * E * T * H: Riddle, an employee of Wachovia, is the owner and insured of two split-dollar life insurance policies with National Life of Vermont as the insurer, specifically, (1) life insurance policy number 1648109, issued November 1, 1978, in the face amount of $456,000, and (2) life insurance policy number 1726458, issued March 14, 1981, with a face amount of $369,000 (hereinafter "the Split Dollar Policies"). Wachovia and Mr. Riddle's designees are beneficiaries of these Policies. Pursuant to these Split-Dollar Policies and agreements entered into by and between Riddle and Wachovia (or its successors in interest and/or successor affiliates in interest) certain premium payments have been made on the Split-Dollar Policies by Riddle and by Wachovia, respectively. Riddle and Wachovia have previously contracted and agreed that upon Riddle's death, or Riddle's termination of employment with Page 14 Exhibit 10(iii)A(a)(i) Wachovia, or when Riddle retires from Wachovia, whichever of these events shall first occur (hereinafter collectively referred to as the "termination date"), Riddle would repay to Wachovia an amount equal to the cumulative premiums actually paid by Wachovia on his behalf over the life of the Split-Dollar Policies to the termination date (hereinafter "Payment Due Wachovia"); and Riddle, by and with the consent of Wachovia, has decided to retire from Wachovia on or about January 6, 1993 and to enter the employment of NSI on or about that date and has requested that from the date of his termination with Wachovia, that NSI pay the employer share of the premiums of the Split-Dollar Policies set forth above until the earlier of (1) Riddle's death, or (2) Riddle's retirement from NSI, or (3) the date that Riddle attains the age of 65, whichever event shall first occur (hereinafter referred to as the "Extended Termination Date"); and Riddle has requested that he be allowed to delay the Payment Due Wachovia until the Extended Termination Date. WHEREAS, Wachovia and NSI have considered the request made by Mr. Riddle, as set forth herein, and for valuable consideration by Riddle, NSI and Wachovia, the receipt whereof is hereby acknowledged, Riddle, NSI and Wachovia, do hereby agree and contract as follows: (1) NSI agrees that beginning January 6, 1993, it will pay the employer's contribution on the premiums of the Split-Dollar Policies issued by National Life of Vermont on the life of Raymond Riddle, and NSI shall continue to make such payments until the Extended Termination Date. These payments shall be made by NSI directly to Page 15 Exhibit 10(iii)A(a)(i) National Life of Vermont. A schedule of those proposed payments is attached. (2) Riddle agrees that he will continue to make payments of the employee contribution on the premiums of the Split-Dollar Policies until the Extended Termination Date. These payments shall be made by Riddle directly to National Life of Vermont. A schedule of those proposed payments is attached. (3) Wachovia agrees that in light of NSI's assumption of the employer contribution payments under these Split Dollar Policies as set forth above, beginning January 6, 1993, Wachovia hereby extends the date upon which Riddle must pay the Payment Due Wachovia from the termination date to the Extended Termination Date. On the Extended Termination Date, Wachovia, NSI, and Riddle agree that Riddle (or his heirs, executors, beneficiaries, personal representatives, and assigns) will pay Wachovia an amount equal to the Payment Due Wachovia as defined herein, for that period of time through and including January 6, 1993, and Riddle will pay to NSI an amount equal to the cumulative Split-Dollar Policies premiums actually paid by NSI on Riddle's behalf from January 6, 1993 to and including the Extended Termination Date. Such payment shall be made by official check or certified funds. Upon receipt of these funds by both Wachovia and NSI, Wachovia and NSI will execute an appropriate release of any rights, liens, or further interests that one or both of may hold in the Split-Dollar Policies. Page 16 Exhibit 10(iii)A(a)(i) (5) All parties to this Agreement do hereby covenant and consent that they will individually execute all documents, if any, required by National Life of Vermont in order to effect the provisions of this Agreement. Wachovia further agrees that any collateral assignments which it now holds on the Split-Dollar Policies will also be held by Wachovia for and on behalf of NSI as its interests, as established by this Agreement, may appear. (6) Except as specifically agreed to and amended herein, any and all obligations between Wachovia and Riddle previously entered into regarding the Split-Dollar Policies shall remain in full force and effect. (7) This Agreement is binding upon the heirs, beneficiaries, executors, personal representatives and assigns of Riddle. (8) This Agreement shall be governed and construed pursuant to the laws of the State of Georgia. (9) This Agreement constitutes the entire understanding of the parties hereto. Page 17 Exhibit 10(iii)A(a)(i) IN WITNESS WHEREOF, the undersigned have executed this instrument on the date and in the year set forth below. ATTEST: WACHOVIA BANK OF GEORGIA, N.A. /S/ Michael E. Ray By: /S/ Thomas Boland Secretary Title: Vice Chairman ATTEST: NATIONAL SERVICE INDUSTRIES, INC. /S/ Kenyon W. Murphy By: /S/ Erwin Zaban Secretary Title: Erwin Zaban, Chairman, President,and Chief Executive Officer /S/ D. Raymond Riddle D. RAYMOND RIDDLE Page 18 Exhibit 10(iii)A(a)(i) STATE OF GEORGIA COUNTY OF FULTON I, the undersigned, a Notary Public in and for the above state and county, do hereby certify that MICHAEL E. RAY personally appeared before me this date and acknowledged that he is the Secretary of Wachovia Bank of Georgia, N.A., a national banking association, that the statements set forth in the foregoing instrument are true and correct, and that he signed the same as his free and voluntary act and as the free and voluntary act of said corporation for the uses and purposes therein set forth. Subscribed and sworn to before me this 4th day of January, 1993. /S/ Jill D. Trowler Notary Public [SEAL] My commission expires: January 28, 1996 STATE OF GEORGIA COUNTY OF FULTON I, the undersigned, a Notary Public in and for the above state and county, do hereby certify that KENYON W. MURPHY personally appeared before me this date and acknowledged that he is the Secretary of National Service Industries, Inc., a corporation organized under the laws of the State of Delaware, that the statements set forth in the foregoing instrument are true and correct, and that he signed the same as his free and voluntary act and as the free and voluntary act of said corporation for the uses and purposes therein set forth. Page 19 Exhibit 10(iii)A(a)(i) Subscribed and sworn to before me this 4th day of January, 1993. /S/ Carol Sowell Notary Public [SEAL] My commission expires: January 5, 1993 STATE OF GEORGIA COUNTY OF FULTON I, the undersigned, a Notary Public in and for the above state and county, do hereby certify that D. RAYMOND RIDDLE personally appeared before me this date and acknowledged that the statements set forth in the foregoing instrument are true and correct, and that he signed the same as his free and voluntary act for the uses and purposes therein set forth. Subscribed and sworn to before me this 4th day of January, 1993. /S/ Carol Sowell Notary Public [SEAL] My commission expires January 5, 1993 Page 20 Exhibit 10(iii)A(a)(i) Schedule of Premium Payments for Split-Dollar Life Insurance Policy Numbers 1648109 and 1726548 ____________________________________________ Policy 1648109 Policy 1726458 Year Employee Employer Employee Employer Share Share Share Share 1993 $1,988 $16,816 $1,065 $15,737 1994 $2,256 $16,548 $1,235 $15,567 1995 $2,590 $16,214 $1,486 $15,316 1996 $2,962 $15,842 $1,612 $15,190 1997 $3,604 $15,200 $1,850 $14,952 1998 $ 0 $ 0 $2,265 $14,537 EX-10 3 FIRST AMENDMENT TO SPLIT-DOLLAR AGREEMENT Page 21 Exhibit 10(iii)A(a)(ii) FIRST AMENDMENT THIS FIRST AMENDMENT is made and entered into effective the 30th day of March, 1995, by and among Wachovia Bank of Georgia, N.A. ("Wachovia"), National Service Industries, Inc. ("NSI"), and D. Raymond Riddle ("Riddle"); W * I * T * N * E * S * S * E * T * H: WHEREAS, Wachovia, NSI, and Riddle are parties to an Agreement dated January 4, 1993 (the "Agreement") concerning the parties' obligations with respect to certain splitdollar life insurance policies owned by Riddle; WHEREAS, Riddle will retire from his employment with NSI upon the election of his successor, which is expected to be on or before August 31, 1995, and Riddle's retirement will occur prior to his 65th birthday; WHEREAS, Wachovia, NSI, and Riddle have mutually agreed that Riddle's retirement from NSI will not determine the Extended Termination Date set forth in the Agreement and that the definition of Extended Termination Date should be amended to exclude any reference to Riddle's retirement from NSI and to refer only to the earlier of Riddle's death or the date Riddle attains the age of 65; NOW THEREFORE, the parties hereto hereby agree to amend the Agreement as follows: 1. The term "Extended Termination Date" as used in the agreement is hereby amended to exclude any reference to Riddle's retirement from NSI and to mean only the earlier of (a) Riddle's death or (b) the date Riddle attains the age of 65. NSI's and Riddle's payment obligations pursuant to the Agreement, and NSI's and Wachovia's right to receive payments from Riddle pursuant to the Agreement, will extend until the Extended Termination Date, as amended. 2. Except as specifically agreed to and amended herein, the Agreement shall remain in full force and effect. Page 22 Exhibit 10(iii)A(a)(ii) IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first above written. ATTEST: WACHOVIA BANK OF GEORGIA, N.A. /s/ Michael E. Ray By: /s/ G. Joseph Prendergast Secretary Title: Chairman [CORPORATE SEAL] ATTEST: NATIONAL SERVICE INDUSTRIES, INC. /S/ Kenyon W. Murphy By:/S/ Don W. Hubble Secretary Don W.Hubble,President [CORPORATE SEAL] WITNESS: /S/ David Levy /S/ D. Raymond Riddle D. RAYMOND RIDDLE STATE OF GEORGIA COUNTY OF FULTON I, the undersigned, a Notary Public in and for the above state and county, do hereby certify that MICHAEL E. RAY personally appeared before me this date and acknowledged that he is the Secretary of Wachovia Bank of Georgia, N.A., a national banking association, that the statements set forth in the foregoing instrument are true and correct, and that he signed the same as his free and voluntary act and as the free and voluntary act of said corporation for the uses and Page 23 Exhibit 10(iii)A(a)(ii) purposes therein set forth. Subscribed and sworn to before me this ________ day of ______________, 1995. /s/ Karen D. Bartley Notary Public [SEAL] My commission expires: February 23, 1996 STATE OF GEORGIA COUNTY OF FULTON I, the undersigned, a Notary Public in and for the above state and county, do hereby certify that KENYON W. MURPHY personally appeared before me this date and acknowledged that he is the Secretary of National Service Industries, Inc., a corporation organized under the laws of the State of Delaware, that the statements set forth in the foregoing instrument are true and correct, and that he signed the same as his free and voluntary act and as the free and voluntary act of said corporation for the uses and purposes therein set forth. Subscribed and sworn to before me this 30th day of March, 1995. /S/ Carol Sowell Notary Public [SEAL] My commission expires: January 4, 1997 STATE OF GEORGIA COUNTY OF FULTON I,the undersigned, a Notary Public in and for the above state and county, do hereby certify that D. RAYMOND RIDDLE personally appeared before me this date and acknowledged that the statements set forth in the foregoing instrument are true and correct, and that he signed the same as his free and voluntary act for the uses and purposes therein set forth. Subscribed and sworn to before me this 30th day of March, 1995. /S/ Marion Jewett Notary Public [SEAL] My commission expires: February 16, 1999 EX-10 4 LETTER AGREEMENT DATED MARCH 28, 1995 Page 24 Exhibit 10(iii)A(b) March 28, 1995 D. Raymond Riddle 940 Crest Valley Drive, N.W. Atlanta, Georgia 30327 Re: Amendment of Stock Option Agreements Dear Raymond: By action of the Executive Resource and Nominating Committee of NSI's Board of Directors on September 21, 1994, ratified by the Board of Directors on that same date, employee stock options which had been granted to you on January 6, 1993 and September 15, 1993 were amended. The amendment extended the period in which the options can be exercised after your normal retirement from three years to five years, subject to the normal ten year term of each option. In accordance with the foregoing, your Incentive Stock Option Agreement dated January 6, 1993, your Nonqualified Stock Option Agreement dated January 6, 1993, and your Nonqualified Stock Option Agreement dated September 15, 1993 (the "Stock Option Agreements") are each hereby amended by substituting "five (5)" for "three (3)" in paragraph 6.1 thereof. Please acknowledge your acceptance of this letter by signing in the space provided below and returning the executed letter to me. A duplicate is enclosed for you to retain with your copies of the Stock Option Agreements. Very truly yours, /S/ David Levy David Levy Executive Vice President, Administration and Counsel DL:sdh Enclosures Accepted and agreed to this the 31st day of March, 1995: /S/ D. Raymond Riddle D. Raymond Riddle EX-10 5 CONSULTING AGREEMENT Page 25 Exhibit 10(iii)A(c) CONSULTING AGREEMENT THIS AGREEMENT (the "Agreement") is entered into this 30th day of March, 1995 by and between NATIONAL SERVICE INDUSTRIES, INC., a Delaware corporation ("NSI"), and D. RAYMOND RIDDLE, a resident of Atlanta, Georgia ("Mr. Riddle"). W * I * T * N * E * S * S * E * T * H: WHEREAS, Mr. Riddle has served as an officer of NSI for over two (2) years, including two (2) years as President and Chief Executive Officer and more recently as Chairman of the Board and Chief Executive Officer; and WHEREAS, Mr. Riddle will resign the aforesaid offices upon the election of a successor, which is expected to occur on or before August 31, 1995; and WHEREAS, NSI desires to retain Mr. Riddle's experience and abilities and has offered to engage him to render consulting and advisory services to NSI following his resignation; and WHEREAS, Mr. Riddle has agreed to accept such engagement upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, it is agreed as follows: Page 26 Exhibit 10(iii)A(c) 1. Term and Duties NSI hereby engages Mr. Riddle for a period beginning on the date of the election of his successor and continuing for three (3) years, as a general advisor and consultant to the management of NSI, in Atlanta, Georgia, on all matters pertaining to the business of NSI and to render such additional services as may be pertinent thereto. Such services will be rendered by Mr. Riddle upon the request of the Chairman of the Board or President of NSI as Mr. Riddle's schedule permits. NSI shall have no control over the daily activities of Mr. Riddle, and the unavailability or inability of Mr. Riddle to render services to NSI for any reason will not constitute a failure to perform any obligation hereunder. 2. Compensation As full and complete compensation for any and all services which Mr. Riddle may render to NSI hereunder, NSI will pay to Mr. Riddle the sum of Twenty-five Thousand Dollars ($25,000) per month during the term of this Agreement. In addition, NSI will, until the sooner of Mr. Riddle's death or his 65th birthday, continue to pay the employer share of the premiums of certain split-dollar life insurance policies owned by Mr. Riddle pursuant to an agreement among NSI, Mr. Riddle, and Wachovia Bank of Georgia, N.A. ("Wachovia") dated January 4, 1993 (the "Split- Dollar Agreement"). NSI and Mr. Riddle will amend the Split- Dollar Agreement accordingly and will also seek Wachovia's consent to delay the Payment Due Wachovia (as defined in the Split-Dollar Agreement) until the sooner of Mr. Riddle's death or his 65th birthday. Page 27 Exhibit 10(iii)A(c) 3. Independent Contractor Throughout the term hereof, Mr. Riddle shall be an independent contractor and shall not be an employee of NSI. Mr. Riddle shall not have the authority to bind NSI in any manner and will not participate in any employee benefit available to NSI employees by reason of services rendered hereunder. 4. Death or Disability In the event of the death of Mr. Riddle during the term of this Agreement, his estate shall be entitled to receive the monthly sum specified in Paragraph 2 above for the remaining term of this Agreement. The payments called for by Paragraph 2 above will continue notwithstanding any disability of Mr. Riddle. 5. Covenant Regarding Employment Mr. Riddle agrees that during the term of this Agreement, he will not, within the Territory (as defined below), be employed by, nor directly or indirectly provide services to, any person, persons, partnership, or corporation ("Person") other than NSI which offers or sells products or services of the same or similar kind as those offered or sold by any division or subsidiary of NSI during said term. "Territory" as used herein refers to the trade areas serviced by the divisions and subsidiaries of NSI in the States of Georgia, Alabama, Tennessee, North Carolina, South Carolina, Florida, and Texas. 6. Non-Disclosure Covenant Mr. Riddle agrees that during the term of this Agreement and following the end of said term, he will not, for or on behalf of himself or any Person other than NSI, directly or indirectly, use for his own benefit or disclose to any Person (other than NSI) Page 28 Exhibit 10(iii)A(c) any confidential information of NSI or any division or subsidiary of NSI. "Confidential information" as used herein means information relating to the business of NSI and its divisions and subsidiaries which derives economic value, actual or potential, from not being generally known to other persons and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. After two (2) years from the expiration of the term of this Agreement, confidential information shall not include information which is not a trade secret. 7. Non-Inducement Covenant Mr. Riddle agrees that during the term of this Agreement, he will not, directly or indirectly, for or on behalf of himself or any other Person, induce, persuade, or encourage or attempt to induce, persuade, or encourage any person who is employed by NSI or any of its divisions or subsidiaries at such time to terminate such employment and be employed by any other Person. 8. Non-Disparagement Covenant Mr. Riddle agrees that during the term of this Agreement, he will refrain from disparaging NSI and its divisions and subsidiaries and their respective directors, officers, and employees. 9. Complete Agreement This Agreement contains the entire agreement between the parties hereto and supersedes any prior understandings, whether oral or written, with respect to the subject matter hereof. Page 29 Exhibit 10(iii)A(c) 10. Scope of Agreement If the scope of any of the provisions of this Agreement is too broad in any respect whatsoever to permit enforcement to its fullest extent, then such provisions shall be enforced to the maximum extent permitted by law, and the parties hereto consent and agree that such scope may be judicially modified accordingly and that the whole of such provisions of this Agreement shall not thereby fail, but that the scope of such provisions shall be curtailed only to the extent necessary to conform to law. 11. Notices Unless otherwise specified herein, all notices to be given hereunder shall be by registered or certified mail. If given to NSI, such notice shall be addressed to NSI at 1420 Peachtree Street, N.E., Atlanta, Georgia 30309-3002, Attn.: David Levy, Executive Vice President, Administration and Counsel. If given to Mr. Riddle, such notice shall be addressed to Mr. Riddle at his last known address. Any such notice shall be effective as of the time of the mailing thereof. 12. Assignment This Agreement shall inure to the benefit of and be binding upon the heirs, executors, and administrators of Mr. Riddle and the successors and assigns of NSI. 13. Attorneys' Fees If any legal action or other proceeding is brought for the enforcement of this Agreement or because of an alleged dispute, breach, or default in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs incurred in such action or proceeding, Page 30 Exhibit 10(iii)A(c) in addition to any other relief to which such party may be entitled. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. /S/ Kenyon W. Murphy By: /S/ John G. Medlin, Jr. Secretary John G. Medlin, Jr., Chairman Executive Resource and Nominating Committee of the Board of Directors WITNESS: /S/ Marion Jewett /S/ D. Raymond Riddle D. Raymond Riddle EX-10 6 LETTER AGREEMENT DATED APRIL 10, 1995 Page 31 Exhibit 10(iii)A(d) April 10, 1995 D. Raymond Riddle 940 Crest Valley Drive, N.W. Atlanta, Georgia 30327 Re: Amendment of Stock Option Agreements Dear Raymond: In connection with your announced retirement as the Chairman and Chief Executive Officer of NSI, and as confirmed and evidenced by this letter agreement, the terms of certain stock options previously granted to you were amended by action taken by the Executive Resource and Nominating Committee of NSI's Board of Directors (the "Committee") on March 15, 1995, and ratified by the Board of Directors on that same date. The following installments of employee stock options which had previously been granted to you were accelerated so that all such installments of options became immediately exercisable on March 15, 1995: Number of Original Vesting Option Grant Shares In Date of Installment Date Installment January 6, 1993 3,703 January 6, 1996 January 6, 1993 1,297 January 6, 1996 September 15,1993 13,750 September 15, 1995 September 21,1994 21,667 September 21, 1995 40,417 In addition, the Committee amended those options for 40,417 shares and options for 23,750 shares which were previously granted to you and were exercisable on March 15, 1995 according to their original vesting schedules. Pursuant to the amendment, said options for 64,167 shares remain exercisable for a period of five (5) years after your actual retirement from the Corporation, subject to the normal ten year term of each option. Page 32 Exhibit 10(iii)A(d) Page 2 D. R. Riddle April 10, 1995 Your Incentive Stock Option Agreement dated January 6, 1993, your Nonqualified Stock Option Agreement dated January 6, 1993, your Nonqualified Stock Option Agreement dated September 15, 1993, and your Nonqualified Stock Option Agreement dated September 21, 1994 (the "Stock Option Agreements") are each hereby amended in accordance with this letter. Please acknowledge your acceptance of this letter by signing in the space provided below and returning the executed letter to me. A duplicate is enclosed for you to retain with your copies of the Stock Option Agreements. Very truly yours, /S/ David Levy David Levy Executive Vice President, Administration and Counsel DL:sdh Enclosures Accepted and agreed to this the 10th day of April, 1995: /S/ D. Raymond Riddle D. Raymond Riddle EX-11 7 COMPUTATION OF NET INCOME PER SHARE Exhibit 11 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATIONS OF NET INCOME PER SHARE OF COMMON STOCK (In thousands, except per-share data) THREE MONTHS ENDED SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 1995 1994 1995 1994 Primary: Weighted Average Number of Shares (determined on a monthly basis) 48,859 49,572 49,025 49,568 Net Income $17,578 $16,273 $38,692 $35,445 Primary Earnings per Share $ .36 $ .33 $ .79 $ .72 Fully Diluted: Weighted Average Number of Shares Outstanding 48,859 49,572 49,025 49,568 Additional Shares Assuming Exercise of Options: Options exercised 691 745 691 745 Treasury stock purchased with proceeds (606) (637) (606) (637) Average Common Shares Outstanding (as adjusted) 48,944 49,680 49,110 49,676 Net Income $17,578 $16,273 $38,692 $35,445 Fully Diluted Earnings per Share $ .36 $ .33 $ .79 $ .71 EX-27 8 FDS --
5 Page 34 Exhibit 27 Financial Data Schedules Quarter Ended February 28, 1995 Pursuant to Section 601(c) of Regulation S-K This schedule contains summary financial information extracted from National Service Industries, Inc. consolidated balance sheet as of February 28, 1995 and the consolidated statement of income for the six months ended ended February 28, 1995, and is qualified in its entirety by reference to such financial statements. 6-MOS AUG-31-1995 FEB-28-1995 52,092 5,179 251,033 8,992 191,126 599,312 704,420 363,194 1,083,648 172,998 26,802 57,919 0 0 725,389 1,083,648 678,941 946,794 436,223 586,050 297,188 0 1,790 61,766 23,074 38,692 0 0 0 38,692 0.79 0.79
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