-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Iz3N0zGNHO3r2E5B16PuFkVxdigxFEEXOTJkHFGpuKZUv+7WTYZP8Cw81ZYILP7W RPzUZmOpwBKdJsXBQPlyLQ== 0000070538-96-000020.txt : 19961202 0000070538-96-000020.hdr.sgml : 19961202 ACCESSION NUMBER: 0000070538-96-000020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 26 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961126 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03208 FILM NUMBER: 96672728 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-K 1 NATIONAL SERVICE INDUSTRIES, INC. 10-K Page 1 of 100 Index to Exhibits on Page 15 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the fiscal year ended August 31, 1996 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) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered Common Stock ($1.00 Par Value) New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Based upon the closing price as quoted on the New York Stock Exchange October 31, 1996 the aggregate market of the voting stock held by nonaffiliates of the registrant was $1,576,711,893.00. The number of shares outstanding of the registrant's common stock, $1.00 par value, was 45,701,794 shares as of October 31, 1996. DOCUMENTS INCORPORATED BY REFERENCE Location in Form 10-K Incorporated Document Part I, Item 1 1996 Annual Report Part II, Items 5, 6, 7, and 8 1996 Annual Report Part III, Items 10, 11, 12, and 13 1996 Proxy Statement Part IV, Item 14 1996 Annual Report Page 2 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES Table of Contents Page No. Part I Item 1. Business .................................................. 3-4 Item 2. Properties ................................................ 5 Item 3. Legal Proceedings ......................................... 5 Item 4. Submission of Matters to a Vote of Security Holders ....... 5 Part II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters .............................. 6 Item 6. Selected Financial Data ................................... 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............. 6 Item 8. Financial Statements and Supplementary Data ............... 6 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................... 6 Part III Item 10. Directors and Executive Officers of the Registrant ........ 7 Item 11. Executive Compensation .................................... 7 Item 12. Security Ownership of Certain Beneficial Owners and Management ............................................ 7 Item 13. Certain Relationships and Related Transactions ............ 7 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ....................................... 8-11 Signatures ............................................................. 12 Financial Statement Schedules .......................................... 13-14 Index to Exhibits ...................................................... 15 Page 3 PART I ITEM 1. BUSINESS The registrant, incorporated in Delaware in 1928, provides a wide variety of products and services through its operating divisions, as follows: Divisions Principal Products or Services Marketing Area Products and services for industrial, commercial, institutional, and healthcare customers TEXTILE RENTAL National Linen Service Rented napkins and table Principally the southern, National Uniform Service linens, bed linens, towels, southwestern, central, National Healthcare Linen Service uniforms, specialized and northeastern National Dust Control Service garments, sterilized United States National Direct Source products, restroom products, mats and mops, and complimentary direct sale products. CHEMICAL Zep Manufacturing Company Chemical products, Throughout the United Zep Manufacturing Company of Canada primarily for maintenance, States, Canada, Zep Europe sanitation, and water Puerto Rico, and Selig Chemical Industries treatment, including soaps, western Europe. National Chemical detergents, waxes, and disinfectants. ENVELOPE Atlantic Envelope Company Business and specialty South and Southwest. ATENCO Filing Systems envelopes and records Lyon Folder Company storage and filing systems. Techno-Aide/Stumb Metal Products Company Products for the construction industry LIGHTING EQUIPMENT Lithonia Lighting Fluorescent fixtures for Throughout the United Lithonia Fluorescent commercial, industrial, and States, Canada, Lithonia Hi-Tek Lighting institutional applications; Mexico and overseas. Lithonia Downlighting high-intensity discharge Major Reflector Products fixtures for industrial and RELOC Wiring Systems commercial use; architectural Lithonia Controls Systems outdoor lighting; downlighting; Lithonia Emergency Lighting sportslighting; track lighting; vandal-resistant fixtures; emergency lighting; lighting and dimming controls; and manufactured wiring systems. INSULATION SERVICE North Bros. Co. Commercial, mechanical Principally in the Precision Foam Fabricators industrial and institutional southeastern United insulation products, accessories States. and contracting services.
Page 4 Divisions Principal Products or Services Marketing Area Products and services for the consumer LIGHTING EQUIPMENT Home-Vue Lighting Fluorescent work lamps, recessed Throughout the United Light Concepts and track lighting, and other States. decorative fluorescent fixtures.
Competition While each of the registrant's businesses is highly competitive, the competitive conditions and the registrant's relative position and market share vary widely from business to business. A limited number of the competitors of each division are large diversified companies, but most of the competitors of the principal divisions are smaller companies than the registrant. Such smaller companies frequently specialize in one industry or one geographic area, which in many instances increases the intensity of competition. Management believes that its Lighting Equipment segment is the largest manufacturer of lighting fixtures in the world and its Textile Rental segment is one of the largest such companies in the United States. Raw Materials There were no significant shortages of materials or components during the years ended August 31, 1996, 1995, and 1994. No one commodity or supplier provided a significant portion of the company's material requirements. Total Employment The registrant employs approximately 20,600 people. Financial Information about Industry Segments The financial information required by this item is included on page 29 of the company's annual report for the year ended August 31, 1996, under the caption "Business Segment Information" and is incorporated herein by reference. Page 5 ITEM 2. PROPERTIES The general offices of the company are located in Atlanta, Georgia. Because of the diverse nature of the operations and the large number of individual locations, it is neither practical nor significant to describe all of the operating facilities owned or leased by the company. The following listing summarizes the significant facility categories by division: Number of Facilities Division Owned Leased Nature of Facilities Lighting Equipment 7 4 Manufacturing plants 1 2 Distribution centers - 17 Field warehouses Textile Rental 63 16 Linen plants 17 47 Linen service centers - 1 Distribution centers Chemical 9 4 Manufacturing plants 22 45 Distribution centers - 2 Sales offices Envelope 6 4 Manufacturing plants - 2 Warehouses - 1 Sales office Insulation Service 1 - Fabrication plants 22 11 Warehouses Corporate Office 1 - Corporate headquarters ITEM 3. LEGAL PROCEEDINGS The Registrant is neither a party to nor is its property subject to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the three months ended August 31, 1996. Page 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is included on the inside back cover of the company's annual report for the year ended August 31, 1996, under the captions "Listing," "Shareholders of Record," and "Common Share Prices and Dividends per Share" and is incorporated here by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is included on pages 34 and 35 of the company's annual report for the year ended August 31, 1996, under the caption "Ten-Year Financial Summary" and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is included on pages 31 through 33 of the company's annual report for the year ended August 31, 1996, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference. From time to time, the company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the company notes that a variety of factors could cause the company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the company's business include without limitation the following: (a) the uncertainty of general business and economic conditions, particularly the potential for a slow down in nonresidential construction awards; (b) the ability to achieve strategic initiatives, including but not limited to the ability to achieve sales growth across the business segments through a combination of increased pricing, sales force, and new products and improved customer service. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is included on pages 18 through 30 of the company's annual report for the year ended August 31, 1996, under the captions "Consolidated Balance Sheets," "Consolidated Statements of Income," Consolidated Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements," and "Report of Independent Public Accountants" and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Page 7 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item, with respect to directors, is included on pages 2 and 3 under the caption "Information Concerning Nominees" of the company's proxy statement for the annual meeting of stockholders to be held January 8, 1997, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT Executive officers of the company are elected at the organizational meeting of the Board of Directors in January. Name and age of each executive officer Business experience of executive officers during the five and positions held with the company years ended August 31, 1996 and term in office James S. Balloun, age 58 Mr. Balloun was elected Chairman and Chief Executive Chairman, President, and Officer effective February, 1996 and assumed the role Chief Executive Officer of President in October, 1996. Previously, he served and Director McKinsey & Company as a Director. David Levy, age 59 Mr. Levy was elected Executive Vice President, Executive Vice President, Administration in October, 1992. He served as Senior Administration and Counsel Vice President, Secretary and Counsel from 1982 through and Director September, 1992. Brock A. Hattox, age 48 Mr. Hattox was elected Executive Vice President and Executive Vice President and Chief Financial Officer effective September, 1996. Chief Financial Officer Previously, he served McDermott International, Inc., as Chief Financial Officer since 1991, and President of the Engineering and Construction Group since 1995. Stewart A. Searle III, age 45 Mr. Searle was elected Senior Vice President, Planning Senior Vice President, and Development effective June, 1996. Previously, he served Planning and Development four years with Equifax as Senior Vice President of Development. Prior to that, he served as a Principal at McKinsey & Company.
ITEM 11. EXECUTIVE COMPENSATION The information required by this item is included on pages 4 through 13 under the captions "Compensation of Directors," "Other Information Concerning the Board and its Committees," "Compensation Committee Interlocks and Insider Participation," "Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated Option Exercises and Fiscal Year-End Option Values," "Employment Contracts, Severance Arrangements, and Other Agreements," and "Pension and Supplemental Retirement Benefits" of the company's proxy statement for the annual meeting of stockholders to be held January 8, 1997, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included on page 5 under the caption "Beneficial Ownership of the Corporation's Securities" of the company's proxy statement for the annual meeting of stockholders to be held January 8, 1997, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is included on page 4 under the caption "Certain Transactions" of the company's proxy statement for the annual meeting of stockholders to be held January 8, 1997, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference. Page 8 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) Financial Statements The company's 1996 Annual Report contains the consolidated balance sheets as of August 31, 1996 and 1995, the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended August 31, 1996, and the related report of Arthur Andersen LLP. The financial statements, incorporated herein by reference, include the following: Consolidated Balance Sheets - August 31, 1996 and 1995 Consolidated Statements of Income for the years ended August 31, 1996, 1995, and 1994 Consolidated Statements of Stockholders' Equity for the years ended August 31, 1996, 1995, and 1994 Consolidated Statements of Cash Flows for the years ended August 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: Report of Independent Public Accountants on Schedule Schedule Number II Valuation and Qualifying Accounts Any of schedules I through V not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits filed with this report Reference No. from Reg. 229.601 Item 601 Description of Exhibit 3 Restated Certificate of Incorporation and By-Laws 4 Shareholder Rights Plan Adopted May 9, 1988 10(i) Section 168 Agreement and Election dated as of April 9, 1982, between National Service Industries, Inc. and Oglethorpe Power Corporation 10(iii)A Management Contracts and Compensatory Arrangements: (1) Directors' Deferred Compensation Plan (2) Executives' Deferred Compensation Plan and Amendments (3) Restated and Amended Supplemental Retirement Plan for Executives of National Service Industries, Inc., Amendments and Appendices (4) The National Service Industries, Inc. Senior Management Benefit Plan and Amendments Page 9 ITEM 14. (Continued) (3) Exhibits filed with this report (Continued) Reference No. from Reg. 229.601 Item 601 Description of Exhibit (5) Severance Protection Agreement between National Service Industries, Inc. and David Levy and Amendment (6) Severance Protection Agreements between National Service Industries, Inc. and (a) James S. Balloun (b) Stewart A. Searle III and Amendment (7) Bonus Letter Agreements between National Service Industries, Inc. and (a) James S. Balloun (b) David Levy (c) Stewart A. Searle III and Supplemental Letter Agreement (8) Long-Term Incentive Program and Amendment (9) Incentive Stock Option Agreements between National Service Industries, Inc. and (a) D. Raymond Riddle (b) Don W. Hubble (c) David Levy (d) J. Robert Hipps (e) Stewart A. Searle III (10)Nonqualified Stock Option Agreement for Corporate Officers between National Service Industries, Inc. and (a) James S. Balloun (b) D. Raymond Riddle (c) Don W. Hubble (d) David Levy (e) J. Robert Hipps (11)Nonqualified Stock Option Agreement for Corporate Officers Effective Beginning September 21, 1994 between National Service Industries, Inc. and (a) D. Raymond Riddle (b) Don W. Hubble (c) David Levy (12)Benefits Protection Trust Agreement and Amendments (13)Executive Benefits Trust Agreement and Amendment (14)Consulting Agreement between National Service Industries, Inc. and Erwin Zaban and Amendment (15)1992 Nonemployee Directors' Stock Option Plan Effective September 16, 1992 (16)Nonemployee Directors' Stock Option Agreement between National Service Industries, Inc. and (a) John L. Clendenin (b) Robert M. Holder, Jr. (c) F. Ross Johnson (d) James C. Kennedy (e) Donald R. Keough (f) Bryan D. Langton (g) Bernard Marcus (h) John G. Medlin, Jr. (i) Dr. Betty L. Siegel (j) Erwin Zaban Page 10 ITEM 14. (Continued) (3) Exhibits filed with this report (Continued) Reference No. from Reg. 229.601 Item 601 Description of Exhibit (17)National Service Industries, Inc. Executive Savings Plan Effective September 1, 1994 and Amendment (18)National Service Industries, Inc. Management Compensation and Incentive Plan Effective September 1, 1994 (19)Split-Dollar Agreement among National Service Industries, Inc., D. Raymond Riddle, and Wachovia Bank of Georgia N.A. Dated January 4, 1993 and Amendment (20)Letter Agreement between National Service Industries, Inc. and D. Raymond Riddle Dated March 28, 1995 (21)Consulting Agreement between National Service Industries, Inc. and D. Raymond Riddle (22)Letter Agreement between National Service Industries, Inc. and D. Raymond Riddle, Dated April 10, 1995 (23)Employment Letter Agreement between National Service Industries, Inc. and James S. Balloun, Dated February 1, 1996 (24)Severance Agreement between National Service Industries, Inc. and J. Robert Hipps, Dated May 14, 1996 (25)Letter Agreement between National Service Industries, Inc. and J. Robert Hipps, Dated May 24, 1996 (26)National Service Industries, Inc. Nonemployee Director Deferred Stock Unit Plan, Effective June 1, 1996 (27)Severance Agreement between National Service Industries, Inc. and Don W. Hubble, Dated July 22, 1996 (28)Employment Letter Agreement between National Service Industries, Inc. and Brock A. Hattox, Dated August 26, 1996 11 Computations of Net Income per Share of Common Stock 13 Information Incorporated by Reference from Annual Report for the Year Ended August 31, 1996 21 List of Subsidiaries 23 Consent of Independent Public Accountants 24 Powers of Attorney Page 11 ITEM 14. (Continued) (3) Exhibits filed with this report (Continued) Reference No. from Reg. 229.601 Item 601 Description of Exhibit 27 (1) Financial Data Schedule for the Year Ended August 31, 1996 (2) Restated Financial Data Schedule for the Quarter Ended May 31, 1996 (3) Restated Financial Data Schedule for the Quarter Ended February 29, 1996 (4) Restated Financial Data Schedule for the Quarter Ended November 30, 1995 (5) Restated Financial Data Schedule for the Year Ended August 31, 1995 (6) Restated Financial Data Schedule for the Quarter Ended May 31, 1995 (7) Restated Financial Data Schedule for the Quarter Ended February 28, 1995 (8) Restated Financial Data Schedule for the Quarter Ended November 30, 1994 (9) Restated Financial Data Schedule for the Year Ended August 31, 1994 (b) No reports on Form 8-K were filed for the three months ended August 31, 1996. (c) Exhibits 2, 12, 18, 22, and 28 have been omitted because they are not applicable. (d) Not applicable. Page 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL SERVICE INDUSTRIES, INC. Date: November 26, 1996 By: /s/ Kenyon W. Murphy Vice President, Secretary, and Associate Counsel Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title James S. Balloun* Chairman, President and Chief Executive Officer Brock A. Hattox* Executive Vice President and Chief Financial Officer Mark R. Bachmann* Vice President and Controller John L. Clendenin* Director Robert M. Holder, Jr.* Director F. Ross Johnson* Director James C. Kennedy* Director - November 20, 1996 Donald R. Keough* Director Bryan D. Langton* Director David Levy* Director Bernard Marcus* Director John G. Medlin, Jr.* Director D. Raymond Riddle* Director Herman J. Russell* Director Dr. Betty L. Siegel* Director Erwin Zaban* Director *By: /s/ David Levy Attorney-in-Fact David Levy Page 13 Arthur Andersen LLP Atlanta, Georgia REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To National Service Industries, Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in NATIONAL SERVICE INDUSTRIES, INC. and subsidiaries' annual report to stockholders incorporated by reference in this Form 10-K and have issued our report thereon dated October 21, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 in this Form 10-K is the responsibility of the company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Atlanta, Georgia October 21, 1996 Page 14 SCHEDULE II NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994 (In thousands) Balance at Additions Charged to Balance at Beginning Costs and Other End Description of Period Expenses Accounts(1) Deductions(2) of Period YEAR ENDED AUGUST 31, 1996: Deducted in the balance sheet from the asset to which it applies- Reserve for doubtful accounts.... $6,467 $2,708 $(964) $2,404 $5,807 YEAR ENDED AUGUST 31, 1995: Deducted in the balance sheet from the asset to which it applies- Reserve for doubtful accounts.... $7,385 $3,170 $(384) $3,704 $6,467 YEAR ENDED AUGUST 31, 1994: Deducted in the balance sheet from the asset to which it applies- Reserve for doubtful accounts.... $7,170 $2,804 $ 923 $3,512 $7,385
(1) Recoveries credited to reserve, reserves recorded in acquisitions, and reserves removed in sale of businesses. (2) Uncollectible accounts written off. Page 15 INDEX TO EXHIBITS Page No. EXHIBIT 3 - Restated Certificate of Incorporation Reference is made to Exhibit 3 of registrant's Form 10-Q for the quarter ended May 31, 1992, which is incorporated herein by reference. - By-Laws as Amended and Restated June 21, 1989 Reference is made to Exhibit 3 of registrant's Form 10-K for the fiscal year ended August 31, 1989, which is incorporated herein by reference. EXHIBIT 4 - Shareholder Rights Plan Adopted May 9, 1988 Reference is made to Exhibit 1 of registrant's Form 8-A as filed with the Commission on May 11, 1988, which is incorporated herein by reference. EXHIBIT 10(i) - Section 168 Agreement and Election Dated Reference is made to Exhibit 10(i) of April 9, 1982 between National Service registrant's Form 10-K for the fiscal year Industries, Inc. and Oglethorpe Power ended August 31, 1982, which is incorporated Corporation herein by reference. EXHIBIT 10(iii)A Management Contracts and Compensatory Arrangements: (1)-Director's Deferred Compensation Plan Reference is made to Exhibit 10(iii)A (b) of registrant's Form 10-K for the fiscal year ended August 31, 1982, which is incorporated herein by reference. (2)- (a)Executives' Deferred Compensation Plan Reference is made to Exhibit 19 of registrant's Form 10-K for the fiscal year ended August 31, 1982, which incorporated herein by reference. (b)First Amendment To Executives' Reference is made to Exhibit 10(iii)A (b)-(ii) Deferred Compensation Plan, Dated of registrant's Form 10-K for the fiscal year September 21, 1989 ended August 31, 1989, which is incorporated herein by reference. (c)Second Amendment to Executives' Reference is made to Exhibit 10(iii)A (a) of Deferred Compensation Plan, registrant's Form 10-Q for the quarter ended Effective as of September 1, 1994. November 30, 1994, which is incorporated herein by reference. (d)Amendment No. 3 to Executives' Deferred Compensation Plan dated August 31, 1996 21 (3)- (a)Restated and Amended Supplemental Reference is made to Exhibit 10(iii)A (c)-(i) Retirement Plan for Executives of National of registrant's Form 10-K for the fiscal year Service Industries, Inc. (Supplemental ended August 31, 1993, which is incorporated Pension Plan) herein by reference. (b)Amendment to Restated and Amended Reference is made to Exhibit 10(iii)A (a) of Supplemental Retirement Plan for Executives registrant's Form 10-Q for the quarter ended of National Service Industries, Inc. February 28, 1994, which is incorporated (Supplemental Pension Plan) herein by reference. (c)Appendix B to Restated and Amended Reference is made to Exhibit 10iii)A(e) of Supplemental Retirement Plan for Executives of registrant's Form 10-Q for the quarter ended National Service Industries, Inc. (Supplemental February 29, 1996, which is incorporated herein Pension Plan), Effective February 1, 1996 by reference. Page 16 INDEX TO EXHIBITS Page No. (d)Appendix C to Restated and Amended Reference is made to Exhibit 10iii)A(d) of Supplemental Retirement Plan for Executives of registrant's Form 10-Q for the quarter ended National Service Industries, Inc. (Supplemental May 31, 1996, which is incorporated herein Pension Plan), Effective May 31, 1996 by reference. (e) Amendment No. 2 to Restated and Amended Supplemental Retirement Plan for Executives of Naitonal Service Industries, Inc. (Supplemental Pension Plan) Dated August 31, 1996 24 (4)- (a) The National Service Industries, Inc. Reference is made to Exhibit 10(iii)A (f) of Senior Management Benefit Plan, Dated registrant's Form 10-K for the fiscal year August 15, 1985 ended August 31, 1985, which is incorporated herein by reference. (b)First Amendment to National Service Reference is made to Exhibit 10(iii)A (e)-(ii) Industries, Inc. Senior Management Benefit of registrant's Form 10-K for the fiscal year Plan, Dated September 21, 1989 ended August 31, 1989, which is incorporated herein by reference. (c)Amendment No. 2 to National Service Reference is made to Exhibit 10(iii)A (d)(iii) of Industries, Inc. Senior Management Benefit registrant's Form 10-K for the fiscal year Plan, Dated September 16, 1994 ended August 31, 1994, which is incorporated herein by reference. (d)Amendment No. 3 to National Service Industries, Inc. Senior Management Benefit Plan, Dated August 31, 1996 27 (5)- (a)Severance Protection Agreement between Reference is made to Exhibit 10(iii)A (h) of National Service Industries, Inc. and David registrant's Form 10-K for the fiscal year Levy ended August 31, 1989, which is incorporated herein by reference. (b)Amendment to Severance Protection Agreement between National Service Industries, Inc. and David Levy, Dated August 31, 1996 30 (6)- (a)Severance Protection Agreements between Reference is made to Exhibit 10(iii)A (c) of National Service Industries, Inc. and registrant's Form 10-Q for the quarter (i) James S. Balloun (February 1, 1996) ended February 29, 1996, which is incorporated (ii) Stewart A. Searle III (June 19, 1996) herein by reference. (b)Amendment to Severance Protection Agreements, Dated August 31, 1996 30 (7)- (a)Bonus Letter Agreements between Reference is made to Exhibit 10(iii)A (j) of National Service Industries, Inc. and registrant's Form 10-K for the fiscal year (i) James S. Balloun (February 1, 1996) ended August 31, 1989 and to Exhibit 10(iii)A(d) (ii) David Levy (October 1, 1989) of the registrant's Form 10-Q for the quarter (iii) Stewart A. Searle III (June 19, 1996) ended February 29, 1996, which are incorporated herein by reference. (b)Supplemental Letter Agreement, Dated August 31, 1996 35 Page 17 INDEX TO EXHIBITS Page No. (8)- (a)Long-Term Incentive Program, Dated Reference is made to Exhibit 10(iii)A (k) of September 20, 1989 registrant's Form 10-K for the fiscal year ended August 31, 1989, which is incorporated herein by reference. (b)Amendment No. 1 to Long-Term Reference is made to Exhibit 10(iii)A (h)(ii) of Incentive Program, Dated September 21, registrant's Form 10-K for the fiscal year 1994 ended August 31, 1994, which is incorporated herein by reference. (9)- Incentive Stock Option Agreements between Reference is made to Exhibit 10(iii)A (l) of National Service Industries, Inc., and registrant's Form 10-K for the fiscal year (a) D. Raymond Riddle ended August 31, 1989, which is incorporated (b) Don W. Hubble herein by reference. (c) David Levy (d) J. Robert Hipps (e) Stewart A. Searle III (10)-Nonqualified Stock Option Agreement for Reference is made to Exhibit 10(iii)A (j) of Corporate Officers between National Service registrant's Form 10-K for the fiscal year Industries, Inc. and ended August 31, 1992, which is incorporated (a) James S. Balloun herein by reference. (b) D. Raymond Riddle (c) Don W. Hubble (d) David Levy (e) J. Robert Hipps (11)-Nonqualified Stock Option Agreement for Reference is made to Exhibit 10(iii)A (k) of Corporate Officers Effective Beginning registrant's Form 10-K for the fiscal year September 21, 1994 between National ended August 31, 1994, which is incorporated Service Industries, Inc. and herein by reference. (a) D. Raymond Riddle (b) Don W. Hubble (c) David Levy (12)-(a)Benefits Protection Trust Agreement Dated Reference is made to Exhibit 10(iii)A (n) of July 5, 1990, between National Service Indus- registrant's Form 10-K for the fiscal year tries, Inc. and Wachovia Bank and Trust ended August 31, 1990, which is incorporated Company herein by reference. (b)Amended Schedule 1 of Benefits Reference is made to Exhibit 10(iii)A (k)-(ii) of Protection Trust Agreement between registrant's Form 10-K for the fiscal year National Service Industries, Inc. and ended August 31, 1993, which is incorporated Wachovia Bank and Trust Company herein by reference. Dated September 15, 1993 (c)Amendment to Benefits Protection Trust Agreement between National Service Industries, Inc. and Wachovia Bank and Trust Company and Adoption, Dated August 31, 1996 36 (13)-(a)Executive Benefits Trust Agreement Dated Reference is made to Exhibit 10(iii)A (o) of July 5, 1990, between National Service Indus- registrant's Form 10-K for the fiscal year tries, Inc. and Wachovia Bank and Trust ended August 31, 1990, which is incorporated Company herein by reference. Page 18 INDEX TO EXHIBITS Page No. (13)-(b)Amendment to Executive Benefits Trust Agreement between National Service Industries, Inc. and Wachovia Bank and Trust Company and Adoption. Dated August 31, 1996 39 (14)-(a)Consulting Agreement between National Reference is made to Exhibit 10(iii)A of Service Industries, Inc. and Erwin Zaban, registrant's Form 10-Q for the quarter ended Dated December 30, 1991 November 30, 1991, which is incorporated herein by reference. (b)Letter Agreement Dated March 21, 1996 Reference is made to Exhibit 10iii)A(a) of amending the Consulting Agreement between registrant's Form 10-Q for the quarter ended National Service Industries, Inc. and Erwin May 31, 1996, which is incorporated herein Zaban, Dated December 31, 1991 by reference. (15)-1992 Nonemployee Directors' Stock Option Reference is made to Exhibit 10(iii)A (o) of Plan Effective September 16, 1992 registrant's Form 10-K for the fiscal year ended August 31, 1992, which is incorporated herein by reference. (16)-Nonemployee Directors' Stock Option Reference is made to Exhibit 10(iii)A (q) of Agreement between National Service registrant's Form 10-K for the fiscal year Industries, Inc. and ended August 31, 1994, which is incorporated (a) John L. Clendenin herein by reference. (b) Robert M. Holder, Jr. (c) F. Ross Johnson (d) James C. Kennedy (e) Donald R. Keough (f) Bryan D. Langton (g) Bernard Marcus (h) John G. Medlin, Jr. (i) Dr. Betty L. Siegel (j) Erwin Zaban (17)-(a)National Service Industries, Inc. Executive Reference is made to Exhibit 10(iii)A (s) of Savings Plan Effective September 1, 1994 registrant's Form 10-K for the fiscal year ended August 31, 1994, which is incorporated herein by reference. (b)Amendment No. 1 to National Service Industries, Inc. Executive Savings Plan, Dated August 31, 1996. 42 (18)-(a)National Service Industries, Inc. Management Reference is made to Exhibit 10(iii)A (t) of Compensation and Incentive Plan Effective registrant's Form 10-K for the fiscal year September 1, 1994 ended August 31, 1994, which is incorporated herein by reference. (19)-(a)Split-Dollar Agreement among National Reference is made to Exhibit 10(iii)A (a)(i) of Service Industries, Inc., D. Raymond Riddle, registrant's Form 10-Q for the quarter ended and Wachovia Bank of Georgia, N.A. dated February 28, 1995, which is incorporated January 4, 1993 herein by reference. (b)First Amendment to Split-Dollar Agreement Reference is made to Exhibit 10(iii)A (a)(ii) of among National Service Industries, Inc., registrant's Form 10-Q for the quarter ended D. Raymond Riddle, and Wachovia Bank February 28, 1995, which is incorporated of Georgia, N.A. effective March 30, 1995 herein by reference. Page 19 INDEX TO EXHIBITS Page No. (20)-(a)Letter Agreement between National Service Reference is made to Exhibit 10(iii)A (b) of Industries, Inc. and D. Raymond Riddle dated registrant's Form 10-Q for the quarter ended March 28, 1995, amending as of September 21, February 28, 1995, which is incorporated 1994 the Incentive Stock Option Agreement herein by reference. 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 (21)-(a)Consulting Agreement between National Service Reference is made to Exhibit 10(iii)A (c) of Industries, Inc. and D. Raymond Riddle dated registrant's Form 10-Q for the quarter ended March 30, 1995 February 28, 1995, which is incorporated herein by reference. (22)-(a)Letter Agreement between National Service Reference is made to Exhibit 10(iii)A (d) of Industries, Inc. and D. Raymond Riddle dated registrant's Form 10-Q for the quarter ended April 10, 1995, amending as of March 15, 1995 the February 28, 1995, which is incorporated Incentive Stock Option Agreement dated January herein by reference. 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 Services Industries, Inc. and D. Raymond Riddle (23)-(a)Employment Letter Agreement between Reference is made to Exhibit 10iii)A(a) of National Service Industries, Inc. and James S. registrant's Form 10-Q for the quarter ended Balloun, Dated February 1, 1996 (a confidential February 29, 1996, which is incorporated herein portion of which has been omitted and filed by reference. separately with the Securities and Exchange Commission) (24)-(a)Severance Agreement between National Reference is made to Exhibit 10iii)A(b) of Service Industries, Inc. and J. Robert Hipps, registrant's Form 10-Q for the quarter ended Dated May 14, 1996 May 31, 1996, which is incorporated herein by reference. (25)-(a)Letter Agreement between National Service Reference is made to Exhibit 10iii)A(c) of Industries, Inc. and J. Robert Hipps Dated May registrant's Form 10-Q for the quarter ended 24, 1996, amending as of that date the Incentive May 31, 1996, which is incorporated herein Stock Option Agreement Dated September 19, by reference. 1990; the Incentive Stock Option Agreement Dated December 18, 1991; the Incentive Stock Option Agreement Dated September 16, 1992: the Nonqualified Stock Option Agreement Dated September 16, 1992; the Incentive Stock Option Agreement Dated September 15, 1993; the Nonqualified Stock Option Agreement Dated September 15, 1993; the Nonqualified Stock Option Agreement Dated September 21, 1994; and the Nonqualified Stock Option Agreement Dated September 20, 1995 Page 20 INDEX TO EXHIBITS Page No. (26)-(a)National Service Industries, Inc. Nonemployee Director Deferred Stock Unit Plan, Effective June 1, 1996 45 (27)-(a)Severance Agreement between National Service Industries, Inc. and Don W. Hubble, Dated July 22, 1996 50 (28)-(a)Employment Letter Agreement between National Service Industries, Inc. and Brock A. Hattox, Dated August 26, 1996 53 EXHIBIT 11 - Computations of Net Income per Share of 57 Common Stock EXHIBIT 13 - Information Incorporated by Reference from Annual Report for the Year Ended August 31, 1996 58 EXHIBIT 21 - List of Subsidiaries 77 EXHIBIT 23 - Consent of Independent Public Accountants 78 EXHIBIT 24 - Powers of Attorney 79 EXHIBIT 27 - (1) Financial Data Schedule for the Year Ended August 31, 1996 92 (2) Restated Financial Data Schedule for the Quarter Ended May 31, 1996 93 (3) Restated Financial Data Schedule for the Quarter Ended February 29, 1996 94 (4) Restated Financial Data Schedule for the Quarter Ended November 30, 1995 95 (5) Restated Financial Data Schedule for the Year Ended August 31, 1995 96 (6) Restated Financial Data Schedule for the Quarter Ended May 31, 1995 97 (7) Restated Financial Data Schedule for the Quarter Ended February 28, 1995 98 (8) Restated Financial Data Schedule for the Quarter Ended November 30, 1994 99 (9) Restated Financial Data Schedule for the Year Ended August 31, 1994 100
EX-10 2 AMENDMENT 3 TO DEFERRED COMPENSATION PLAN Page 21 Exhibit 10(iii)A(2)(d) AMENDMENT NO. 3 TO THE EXECUTIVES' DEFERRED COMPENSATION PLAN OF NATIONAL SERVICE INDUSTRIES, INC. THIS AMENDMENT made as of this _____ day of _______________, 1996, by National Service Industries, Inc. ("NSI"); W I T N E S S E T H: WHEREAS, NSI has previously established the Executives' Deferred Compensation Plan of National Service Industries, Inc. (the "Plan") for the exclusive benefit of its eligible employees and their beneficiaries; and WHEREAS, effective as of August 31, 1996, NSI will reorganize its operations into several newly-formed corporations and limited partnerships; and WHEREAS, NSI desires to amend the Plan in connection with the reorganization; and WHEREAS, pursuant to the power of amendment contained in Section 8.02 of the Plan, the Plan is hereby amended as follows: 1. Section 1.04 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "1.04 'Company' means National Service Industries, Inc. (or its successor or successors). Affiliated or related employers are permitted to adopt the Plan and shall be known as "Adopting Employers." To the extent required by certain provisions (e.g., Compensation and Continuous Service), references to the Company shall include the Adopting Employer of the Participant. Adopting Employers are listed on Appendix A." 2. Section 1.10 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "1.10'Executive or Eligible Executive' means a senior Officer of the Company or an Adopting Employer or a President of one of the Operating Divisions of an Adopting Employer. Any dispute regarding any individual's classification shall be resolved solely by the Committee in its sole discretion." Page 22 Exhibit 10(iii)A(2)(d) 3. Section 7.05 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "7.05The benefits provided by this Plan shall be unfunded. All amounts payable under this Plan to any Participant shall be paid from the general assets of the employer which principally employs the Participant (the "Obligated Employer"), and nothing contained in this Plan shall require the Obligated Employer to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants. This Plan shall create only a contractual obligation on the part of the Obligated Employer and Participants shall have the status of general unsecured creditors of the Obligated Employer under the Plan with respect to amounts of Compensation they defer hereunder or any other obligation of the Obligated Employer to pay benefits pursuant hereto. Any funds of the Obligated Employer available to pay benefits pursuant to the Plan shall be subject to the claims of general creditors of the Obligated Employer, and may be used for any purpose by the Obligated Employer. Notwithstanding the preceding paragraph, the Obligated Employer may at any time transfer assets to a trust for purposes of paying all or any part of its obligations under this Plan. However, to the extent provided in the trust only, such transferred amounts shall remain subject to the claims of general creditors of the Obligated Employer. To the extent that assets are held in a trust when a Participant's benefits under the Plan become payable, the Committee shall direct the trustee to pay such benefits to the Participant from the assets of the trust." 4. Article VII of the Plan is hereby amended by adding the following new section 7.06: "7.06 In consideration of each Participant's performance of valuable services that inure to the financial benefit of the Company, the Company does hereby agree to perform all of the obligations and responsibilities and pay any benefits due and owing to a Participant under the Plan if the Obligated Employer (as defined in Section 7.05) designated to perform such obligations and responsibilities or pay such benefits fails or is unable to do so." Page 23 Exhibit 10(iii)A(2)(d) 5. The Plan is hereby amended by incorporating the following as Appendix A: "Appendix A Adopting Employers North Bros., Inc. National Service Industries, Inc. of Georgia NSI Enterprises, Inc. Zep Manufacturing Company NSI Services, L.P." 6. This Amendment shall be effective August 31, 1996. 7. 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. 3 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: _____________________________ By: _________________________________ EX-10 3 AMENDMNET 2-SUPPLEMENTAL RET. PLAN Page 24 Exhibit 10(iii)A(3)(e) AMENDMENT NO. 2 TO THE SUPPLEMENTAL RETIREMENT PLAN FOR EXECUTIVES OF NATIONAL SERVICE INDUSTRIES, INC. THIS AMENDMENT made as of this _____ day of _______________, 1996, by National Service Industries, Inc. ("NSI"); W I T N E S S E T H: WHEREAS, NSI has previously established the Supplemental Retirement Plan for Executives of National Service Industries, Inc. (the "Plan") for the exclusive benefit of its eligible employees and their beneficiaries; and WHEREAS, effective as of August 31, 1996, NSI will reorganize its operations into several newly-formed corporations and limited partnerships; and WHEREAS, NSI desires to amend the Plan in connection with the reorganization; and WHEREAS, pursuant to the power of amendment contained in Section 11.1 of the Plan, the Plan is hereby amended as follows: 1. Section 1.1(o) of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "1.1(o) Company: Company shall mean National Service Industries, Inc. (or its successor or successors). Affiliated or related employers are permitted to adopt the Plan and shall be known as "Adopting Employers." To the extent required by certain provisions (e.g., determining Average Monthly Compensation, Credited Service and Service Date), references to the Company shall include the Adopting Employer of the Participant. Adopting Employers are listed on Schedule 1." 2. Section 1.1(w) of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "(w) Executive: Any person who, on or after the Effective Date, is classified as an executive officer of the Company covered by a bonus arrangement and who is receiving remuneration for personal services rendered to the Company (or would be receiving such remuneration except for an Authorized Leave of Absence), and any other officer of the Company (or an Adopting Employer) designated by the Chief Executive Officer of the Page 25 Exhibit 10(iii)A(3)(e) Company as eligible to participate in the Plan and who is listed on an Appendix attached hereto." 3. Section 5.1 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "5.1 Payment of Costs and Expenses: All costs of providing the benefits under the Plan and the expenses thereof, including the cost of the Committee and the Administrator and any Actuary, shall be paid from the general assets of the Company (or with respect to Participants employed by an Adopting Employer, from the general assets of such Adopting Employer)." 4. Article X of the Plan is hereby amended by deleting such article in its entirety and substituting the following: "Article X Trust "The benefits provided by this Plan shall be unfunded. All amounts payable under this Plan to a Participant shall be paid from the general assets of the employer which principally employs the Participant (the "Obligated Employer"), and nothing contained in this Plan shall require the Obligated Employer to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants. This Plan shall create only a contractual obligation on the part of the Obligated Employer and Participants shall have the status of general unsecured creditors of the Obligated Employer under the Plan with respect to amounts of Compensation they defer hereunder or any other obligation of the Obligated Employer to pay benefits pursuant hereto. Any funds of the Obligated Employer available to pay benefits pursuant to the Plan shall be subject to the claims of general creditors of the Obligated Employer, and may be used for any purpose by the Obligated Employer. Notwithstanding the preceding paragraph, the Obligated Employer may at any time transfer assets to a trust for purposes of paying all or any part of its obligations under this Plan. However, to the extent provided in the trust only, such transferred amounts shall remain subject to the claims of general creditors of the Obligated Employer. To the extent that assets are held in a trust when a Participant's benefits under the Plan become payable, the Plan Administrator shall direct the trustee to pay such benefits to the Participant from the assets of the trust." Page 26 Exhibit 10(iii)A(3)(e) 5. Article XII of the Plan is hereby amended by adding the following new section 12.8: "12.8 Guarantee of Performance: In consideration of each Participant's performance of valuable services that inure to the financial benefit of the Company, the Company does hereby agree to perform all of the obligations and responsibilities and pay any benefits due and owing to a Participant under the Plan if the Obligated Employer (as defined in Article X) designated to perform such obligations and responsibilities or pay such benefits fails or is unable to do so." 6. The Plan is hereby amended by incorporating the following as Schedule 1: "Schedule 1 Adopting Employers North Bros, Inc. National Service Industries, Inc. of Georgia NSI Enterprises, Inc. Zep Manufacturing Company NSI Services, L.P." 7. This Amendment shall be effective August 31, 1996. 8. 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. 2 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: _____________________________ By: _________________________________ EX-10 4 AMENDMENT 3 TO SENIOR MANAGEMENT BENEFIT PLAN Page 27 Exhibit 10(iii)A(4)(d) AMENDMENT NO. 3 TO THE NATIONAL SERVICE INDUSTRIES, INC. SENIOR MANAGEMENT BENEFIT PLAN THIS AMENDMENT made as of this _____ day of _______________, 1996, by National Service Industries, Inc. ("NSI"); W I T N E S S E T H: WHEREAS, NSI has previously established the National Service Industries, Inc. Senior Management Benefit Plan (the "Plan") for the exclusive benefit of its eligible employees and their beneficiaries; and WHEREAS, effective as of August 31, 1996, NSI will reorganize its operations into several newly-formed corporations and limited partnerships; and WHEREAS, NSI desires to amend the Plan in connection with the reorganization; and WHEREAS, pursuant to the power of amendment contained in Section 11.4 of the Plan, the Plan is hereby amended as follows: 1. Section 1.9 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "1.9 Employer. For purposes of this Plan, Employer means National Service Industries, Inc. (or its successor or successors). Affiliated or related employers are permitted to adopt the Plan and shall be known as 'Adopting Employers.' To the extent required by certain provisions (e.g., Compensation and service), references to the Employer shall include the Adopting Employer of the Participant. Adopting Employers are listed on Appendix 1." 2. Section 1.11 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "1.11 Participant: An employee of Employer or Adopting Employer who is eligible to participate in the Plan according to standards adopted by Board of Directors of Employer and who elects to participate in this Plan." Page 28 Exhibit 10(iii)A(4)(d) 3. Section 10.2 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "10.2 Benefits Unfunded: The benefits provided by this Plan shall be unfunded. All amounts payable under this Plan to a Participant shall be paid from the general assets of the employer which principally employs the Participant (the "Obligated Employer"), and nothing contained in this Plan shall require the Obligated Employer to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants. This Plan shall create only a contractual obligation on the part of the Obligated Employer and Participants shall have the status of general unsecured creditors of the Obligated Employer under the Plan with respect to amounts of Compensation they defer hereunder or any other obligation of the Obligated Employer to pay benefits pursuant hereto. Any funds of the Obligated Employer available to pay benefits pursuant to the Plan shall be subject to the claims of general creditors of the Obligated Employer, and may be used for any purpose by the Obligated Employer. Any insurance policy or other asset acquired or held by the Obligated Employer shall not be deemed to be held under any trust for the benefit of Participant or to be security for the performance of the Obligated Employer's obligations pursuant hereto. Notwithstanding the preceding paragraph, the Obligated Employer may at any time transfer assets to a trust for purposes of paying all or any part of its obligations under this Plan. However, to the extent provided in the trust only, such transferred amounts shall remain subject to the claims of general creditors of the Obligated Employer. To the extent that assets are held in a trust when a Participant's benefits under the Plan become payable, the Plan Administrator shall direct the trustee to pay such benefits to the Participant from the assets of the trust." 4. Article X of the Plan is hereby amended by adding the following new section 10.7: "10.7 Guarantee of Performance: In consideration of each Participant's performance of valuable services that inure to the financial benefit of the Company, the Company does hereby agree to perform all of the obligations and responsibilities and pay any benefits due and owing to the Participant under the Plan if the Obligated Employer (as defined in Section 10.2) designated to perform such obligations and responsibilities or pay such benefits fails or is unable to do so." Page 29 Exhibit 10(iii)A(4)(d) 5. The Plan is hereby amended by incorporating the following as Appendix 1: "Appendix 1 Adopting Employers North Bros., Inc. National Service Industries, Inc. of Georgia NSI Enterprises, Inc. Zep Manufacturing Company NSI Services, L.P." 6. This Amendment shall be effective August 31, 1996. 7. 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. 3 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: _____________________________ By: _________________________________ EX-10 5 AMENDMENT 3 TO SEVERANCE PROTECTION AGREEMENTS Page 30 Exhibit 10(iii)A(5)(b) Exhibit 10(iii)A(6)(b) AMENDMENT TO SEVERANCE PROTECTION AGREEMENT THIS AMENDMENT made as of this ____ day of _____________, 1996, by and between National Service Industries, Inc., a Delaware corporation (the "Company"), and ____________________ (the "Executive"); WITNESSETH WHEREAS, the Company entered into an agreement ("Agreement") with the Executive, dated _________________, providing for the payment of certain compensation and benefits to the Executive in the event his employment is terminated as a result of, or in connection with, a Change in Control of the Company; and WHEREAS, effective as of August 31, 1996, the Company is reorganizing (the "Restructuring") its operations into several newly-formed subsidiary corporations and limited partnerships (individually, a "Subsidiary" and together, the "Subsidiaries"); and WHEREAS, the Company and the Executive desire to amend the Agreement to reflect the fact that Executive may be primarily employed by, and/or primarily perform services for, a Subsidiary (or several Subsidiaries); and WHEREAS, the Executive will continue to perform valuable services that inure to the financial benefit of the Company and its shareholders; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties agree to amend the Agreement as follows: 1. Each place in the Agreement where a reference to the "Company" appears that relates to the Executive's employment, termination of employment or performing services, including the definitions of "Cause" and "Good Reason," shall now mean and include the Subsidiary which is the primary employer of the Executive. Further, in each place where the Agreement now refers to a benefit plan or program, payment of compensation, compensation arrangement or other similar plan or program maintained by the Company, such reference shall now include any plan, program or arrangement maintained or established by the Subsidiary. 2. Notwithstanding the provisions of Paragraph 1 above, the references in the definitions of "Change in Control," "Threatened Change in Control," "Threatened Change in Control Period" and similar references to changes in ownership and Page 31 Exhibit 10(iii)A(5)(b) Exhibit 10(iii)A(6)(b) control of the Company shall continue to mean and refer to National Service Industries, Inc., a Delaware corporation. 3. In consideration of the Executive's performing valuable services for the Subsidiary, the Subsidiary does hereby guarantee the payment and performance by the Company of all of the Company's obligations and responsibilities under the Agreement. 4. The Executive hereby agrees that under the Agreement the Restructuring (i) shall not be deemed to constitute a Change in Control, and (ii) shall not result in a termination of the Executive's employment. 5. The Appendix to the Agreement shall be replaced by the Appendix attached hereto. 6. Except as hereby modified, the terms and conditions of the Agreement shall remain in full force and effect. This Amendment shall be effective as of August 31, 1996. Page 32 Exhibit 10(iii)A(5)(b) Exhibit 10(iii)A(6)(b) IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. EXECUTIVE: NATIONAL SERVICE INDUSTRIES, INC. By: The undersigned Subsidiary does hereby agree to the terms and conditions of the Agreement and to pay and perform the obligations described in Paragraph 3 of this Amendment. This ____ day of __________________, 1996. SUBSIDIARY: By: Page 33 Exhibit 10(iii)A(5)(b) Exhibit 10(iii)A(6)(b) APPENDIX (As of 8/31/96) Executives' Deferred Compensation Plan Supplemental Retirement Plan for Executives (or similar supplemental retirement plan covering the Executive) Senior Management Benefit Plan Executive Savings Plan Long-Term Incentive Program Management Compensation and Incentive Plan Pension Plan C (or similar retirement plan covering the Executive) Retirement and 401(k) Plan (or similar deferred compensation plan covering the Executive) Page 34 Exhibit 10(iii)A(5)(b) Exhibit 10(iii)A(6)(b) Dear You currently have a letter agreement with the Company relating to the payment of a bonus in the event of a Change in Control of the Company. In connection with the restructuring of the Company that will be effective August 31, 1996, this will confirm that the the references in the letter to your being in the "employ of the Company' includes your being in the employ of a direct or indirect subsidiary corporation or subsidiary partnership of the Company. Sincerely, NATIONAL SERVICE INDUSTRIES, INC. By: EX-10 6 SUPPLEMENTAL LETTER AGREEMENT Page 35 Exhibit 10(iii)A(7)(b) Dear Mr. Balloun: The terms of your employment with the Company are currently covered by a letter agreement ("Agreement"), dated February 1, 1996, between you and the Company. In connection with the restructuring of the Company that will be effective August 31, 1996, this will confirm that you may be employed by, and perform services for, subsidiary corporations or subsidiary partnerships of the Company and that you may receive compensation and benefits from such entities. This will also confirm that you will continue to be entitled to the aggregate amount of compensation, benefits and other amounts provided in the Agreement. Your rights to benefits upon termination of employment with the Company and its subsidiaries will continue to be as provided in Paragraph 7 of the Agreement. Sincerely, NATIONAL SERVICE INDUSTRIES, INC. By:_________________________________ EX-10 7 AMENDMENT TO BENEFITS PROTECTION TRUST AGREEMENT Page 36 Exhibit 10(iii)A(12)(c) AMENDMENT AND ADOPTION OF NATIONAL SERVICE INDUSTRIES, INC. BENEFITS PROTECTION TRUST This Agreement made and entered into as of this ____ day of __________, 1996, by and among National Service Industries, Inc. (the "Corporation), Wachovia Bank and Trust Company (the "Trustee") and the following affiliates of the Corporation - North Bros., Inc., National Service Industries, Inc. of Georgia, NSI Enterprises, Inc., ZEP Manufacturing Company, and NSI Services, L.P.: W I T N E S S E T H: WHEREAS, the Corporation previously established a trust arrangement known as the National Service Industries, Inc. Benefits Protection Trust (the "Trust") in order to ensure that participants and their beneficiaries receive the benefits which the Corporation is obligated to provide pursuant to various executive compensation arrangements (collectively, the "Plans"); and WHEREAS, effective as of August 31, 1996, the Corporation will reorganize its operations into several newly-formed subsidiary corporations and limited partnerships including North Bros., Inc., National Service Industries, Inc. of Georgia, NSI Enterprises , Inc., ZEP Manufacturing Company, and NSI Services, L.P. (collectively, referred to as the "Affiliates"); and WHEREAS, each Affiliate has assumed the obligation, with respect to certain eligible employees employed by such Affiliate, to provide benefits under one or more of the Plans; and WHEREAS, each Affiliate now desires to adopt and become a party to the Trust on the terms contained herein; and WHEREAS, the Corporation desires to amend the Trust in certain respects to clarify each Affiliate's financial obligation to provide benefits to the Affiliate's eligible employees under any Plan adopted by such Affiliate; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. The Corporation authorizes each of the Affiliates to adopt and become a party to the Trust in accordance with the terms and provisions thereof. 2. Page 37 Exhibit 10(iii)A(12)(c) Effective as of August 31, 1996, each of the Affiliates hereby adopts and becomes a party to the Trust and agrees to be bound by all the terms and provisions thereof. 3. Section 4.2 of the Trust is hereby amended by adding "and any Affiliate" after "Company" wherever it appears therein and by adding the following to the end of the section: "; provided, however, any Affiliate shall be required to make contributions hereunder only to the extent of such Affiliate's obligation under any Plan it has adopted." 4. Section 4.3 of the Trust is hereby amended by adding "or Affiliate, as applicable" after "Company" wherever it appears therein and by adding the following to the end of the section: "In the event that any Affiliate fails to transfer funds following written demand as provided herein, the Company shall assume the Affiliate's obligation to transfer such funds." 5. Section 9.5 of the Trust is hereby amended by adding the following to the end of the section: "To the extent any Affiliate has failed to transfer funds required under Section 4.3, the Trustee may join such Affiliate in any legal action against the Company to compel payment." 6. This Agreement shall be effective as of August 31, 1996. Except as provided herein, the provisions of the Trust shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment and Adoption Agreement as of the day and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ____________________________ By: _______________________________ ATTEST: NORTH BROS., INC. ____________________________ By: _______________________________ Page 38 Exhibit 10(iii)A(12)(c) ATTEST: NATIONAL SERVICE INDUSTRIES, INC. OF GEORGIA ____________________________ By: _______________________________ ATTEST: NSI ENTERPRISES, INC. ____________________________ By: _______________________________ ATTEST: ZEP MANUFACTURING COMPANY ____________________________ By: _______________________________ ATTEST: NSI SERVICES, L.P. ____________________________ By: _______________________________ ATTEST: WACHOVIA BANK AND TRUST COMPANY, AS TRUSTEE ____________________________ By: _______________________________ EX-10 8 AMENDMENT TO EXECUTIVE BENEFITS TRUST AGREEMENT Page 39 Exhibit 10(iii)A(13)(b) AMENDMENT AND ADOPTION OF NATIONAL SERVICE INDUSTRIES, INC. EXECUTIVE BENEFITS TRUST This Agreement made and entered into as of this ____ day of ___________, 1996, by and among National Service Industries, Inc. (the "Corporation), Wachovia Bank and Trust Company (the "Trustee") and the following affiliates of the Corporation - North Bros., Inc., National Service Industries, Inc. of Georgia, NSI Enterprises, Inc., ZEP Manufacturing Company, and NSI Services, L.P.: W I T N E S S E T H: WHEREAS, the Corporation previously established a trust arrangement known as the National Service Industries, Inc. Executive Benefits Trust (the "Trust") in order to ensure that participants and their beneficiaries receive the benefits which the Corporation and its affiliates are obligated to provide pursuant to various executive compensation arrangements (collectively, the "Plans") and to provide for additional funding of the Trust upon a Change in Control of the Corporation; and WHEREAS, effective as of August 31, 1996, the Corporation will reorganize its operations into several newly-formed subsidiary corporations and limited partnerships including North Bros., Inc., National Service Industries, Inc. of Georgia, NSI Enterprises , Inc., ZEP Manufacturing Company, and NSI Services, L.P. (collectively, referred to as the "Affiliates"); and WHEREAS, each Affiliate has assumed the obligation, with respect to certain eligible employees employed by such Affiliate, to provide benefits under one or more of the Plans; and WHEREAS, each of the Affiliates now desires to adopt and become a party to the Trust upon the terms set forth herein; and WHEREAS, the Corporation desires to amend the Trust in certain respects to clarify each Affiliate's financial obligation to provide benefits to the Affiliate's eligible employees under any Plan adopted by such Affiliate; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. The Corporation authorizes each of the Affiliates to adopt and become a party to the Trust in accordance with the terms and provisions thereof. Page 40 Exhibit 10(iii)A(13)(b) 2. Effective as of August 31, 1996, each of the Affiliates hereby adopts and becomes a party to the Trust and agrees to be bound by all the terms and provisions thereof. 3. Section 4.1 of the Trust is hereby amended by deleting the first sentence thereof in its entirety and substituting the following: "Immediately upon the occurrence of a Change in Control, the Company and each Affiliate shall contribute sufficient cash or marketable securities to their respective Benefit Accounts in an amount equal to the difference between the assets transferred to this Trust pursuant to the Transfer and the amount necessary to pay all benefits payable (whether payable currently or on a deferred basis) under all Transferred Plans as the Trustee, in its discretion, determines; provided, however, any Affiliate shall be required to make contributions hereunder only to the extent of such Affiliate's obligation under each Plan it has adopted." 4. Section 4.2 of the Trust is hereby amended by adding "and any Affiliate" after "Company" wherever it appears therein. 5. Section 4.3 of the Trust is hereby amended by adding "or Affiliate, as applicable" after "Company" wherever it appears therein and by adding the following to the end of the section: "In the event that any Affiliate fails to transfer funds following written demand as provided herein, the Company shall assume the Affiliate's obligation to transfer such funds." 6. Section 9.4 of the Trust is hereby amended by adding the following to the end of the section: "To the extent any Affiliate has failed to transfer funds required under Section 4.3, the Trustee may join such Affiliate in any legal action against the Company to compel payment." 7. Page 41 Exhibit 10(iii)A(13)(b) This Agreement shall be effective as of August 31, 1996. Except as provided herein, the remaining provisions of the Trust shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment and Adoption Agreement as of the day and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ____________________________ By: _______________________________ ATTEST: NORTH BROS., INC. ____________________________ By: _______________________________ ATTEST: NATIONAL SERVICE INDUSTRIES, INC. OF GEORGIA ____________________________ By: _______________________________ ATTEST: NSI ENTERPRISES, INC. ____________________________ By: _______________________________ ATTEST: ZEP MANUFACTURING COMPANY ____________________________ By: _______________________________ ATTEST: NSI SERVICES, L.P. ____________________________ By: _______________________________ ATTEST: WACHOVIA BANK AND TRUST COMPANY, AS TRUSTEE ____________________________ By: _______________________________ EX-10 9 AMENDMENT TO EXECUTIVE BENEFITS TRUST AGREEMENT Page 42 Exhibit 10(iii)A(17)(b) AMENDMENT NO. 1 TO THE NATIONAL SERVICE INDUSTRIES, INC. EXECUTIVE SAVINGS PLAN THIS AMENDMENT made as of this _____ day of _______________, 1996, by National Service Industries, Inc. ("NSI"); W I T N E S S E T H: WHEREAS, NSI has previously established the National Service Industries, Inc. Executive Savings Plan (the "Plan") for the exclusive benefit of its eligible employees and their beneficiaries; and WHEREAS, effective as of August 31, 1996, NSI will reorganize its operations into several newly-formed corporations and limited partnerships; and WHEREAS, NSI desires to amend the Plan in connection with the reorganization; and WHEREAS, pursuant to the power of amendment contained in Section 7.1 of the Plan, the Plan is hereby amended as follows: 1. Section 2.10 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "2.10 'Employer' means the Company and any affiliated or related employer designated by the Company to adopt and participate in the Plan. Affiliated or related employers permitted to adopt the Plan shall be known as "Adopting Employers" and are listed on Appendix A." 2. Section 2.12 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "2.12 'Executive" means an officer of the Company, an officer of an Adopting Employer or one of its Operating Divisions, and other designated employees. Any dispute regarding any individual's classification shall be determined by the Plan Administrator in its sole discretion. Page 43 Exhibit 10(iii)A(17)(b) 3. Section 8.2 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "8.2 Benefits Unfunded. The benefits provided by this Plan shall be unfunded. All amounts payable under this Plan to Participants shall be paid from the general assets of the Employer which principally employs the Participant (the "Obligated Employer"), and nothing contained in this Plan shall require the Obligated Employer to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants. This Plan shall create only a contractual obligation on the part of the Obligated Employer and Participants shall have the status of general unsecured creditors of the Obligated Employer under the Plan with respect to amounts of Compensation they defer hereunder or any other obligation of the Obligated Employer to pay benefits pursuant hereto. Any funds of the Obligated Employer available to pay benefits pursuant to the Plan shall be subject to the claims of general creditors of the Obligated Employer, and may be used for any purpose by the Obligated Employer. Notwithstanding the preceding paragraph, the Obligated Employer may at any time transfer assets to a trust for purposes of paying all or any part of its obligations under this Plan. However, to the extent provided in the trust only, such transferred amounts shall remain subject to the claims of general creditors of the Obligated Employer. To the extent that assets are held in a trust when a Participant's benefits under the Plan become payable, the Plan Administrator shall direct the trustee to pay such benefits to the Participant from the assets of the trust." 4. Article VIII of the Plan is hereby amended by adding the following new section 8.8: "8.8 Guarantee of Performance. In consideration of each Participant's performance of valuable services that inure to the financial benefit of the Company, the Company does hereby agree to perform all of the obligations and responsibilities and pay any benefits due and owing to Participants under the Plan if the Obligated Employer (as defined in Section 8.2) designated to perform such obligations and responsibilities or pay such benefits fails or is unable to do so." Page 44 Exhibit 10(iii)A(17)(b) 5. The Plan is hereby amended by incorporating the following as Appendix A: "Appendix A Adopting Employers North Bros, Inc. National Service Industries, Inc. of Georgia NSI Enterprises, Inc. Zep Manufacturing Company NSI Services, L.P." 6. This Amendment shall be effective August 31, 1996. 7. 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: _____________________________ By: _________________________________ Title: ____________________________ Title: ________________________________ EX-10 10 NON EMPLOYEE DIRECTOR DEFERRED STOCK PLAN Page 45 Exhibit 10(iii)A(26)(a) NATIONAL SERVICE INDUSTRIES, INC. NONEMPLOYEE DIRECTOR DEFERRED STOCK UNIT PLAN 1. Purpose 1.1 The National Service Industries, Inc. Nonemployee Director Deferred Stock Unit Plan is intended to increase the alignment of the interests of eligible members of the Board with the interests of stockholders of the Corporation by increasing their incentive to contribute to the success of the Corporation's business through the grant of Deferred Stock Units, on the terms and conditions set forth herein. 2. Definitions 2.1 When used in this Plan, unless the context otherwise requires: (a) "Annual Fee" shall mean the annual fee payable, in cash or under this Plan, to an Eligible Director for service on the Board. (b) "Board" shall mean the Board of Directors of the Corporation. (c) "Chairman Fee" shall mean the fee, if any, payable in cash or under this Plan to an Eligible Director for service as the Chairman of a committee of the Board. (d) "Change of Control" shall mean: The acquisition (other than from the Corporation) by any "Person" (as the term person is used for purposes of Sections 13(d) or 14(d) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding voting securities; or The individuals who, as of the Effective Date, are members of the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by the Corporation's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; or Page 46 Exhibit 10(iii)A(26)(a) Approval by stockholders of the Corporation of (1) a merger or consolidation involving the Corporation if the stockholders of the Corporation, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than seventy percent (70%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Corporation outstanding immediately before such merger or consolidation, or (2) a complete liquidation or dissolution of the Corporation or an agreement for the sale or other disposition of all or substantially all of the assets of the Corporation. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to paragraph (i) solely because twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Corporation or any of its subsidiaries, or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Corporation in the same proportion as their ownership of stock in the Corporation immediately prior to such acquisition. (e) "Committee" shall mean the Executive Resource and Nominating Committee of the Board or such other committee as may be designated by the Board. (f) "Corporation" shall mean National Service Industries, Inc. (g) "Date of Grant" shall mean the date on which Deferred Stock Units are granted pursuant to Section 5.1. (h) "Deferred Stock Units" shall mean the units issued pursuant to Section 5.1 hereof. (i) "Effective Date" shall mean June 1, 1996, the date when this Plan shall go into effect. (j) "Eligible Director" shall mean each member of the Board who is not at the time of reference an employee of the Corporation or any Subsidiary. Page 47 Exhibit 10(iii)A(26)(a) (k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. (l) "Fair Market Value" shall mean the average of the high and low sales prices of a share of Stock as reported on the New York Stock Exchange Composite Tape on the five (5) trading dates immediately preceding the date for which such value is being determined. (m) "Optional Amount" shall mean the amount elected by an Eligible Director for any year during the term hereof pursuant to Section 5.2 hereof. (n) "Plan" shall mean the National Service Industries, Inc. Nonemployee Director Deferred Stock Unit Plan, as such Plan may be amended from time to time. (o) "Required Amount" shall mean one-fourth of the Annual Fee. (p) "Stock" shall mean the Common Stock of the Corporation. (q) "Subsidiary" shall mean any corporation more than 50% of whose stock having general voting power is owned by the Corporation or by a Subsidiary of the Corporation. 3. Administration 3.1 The Plan shall be administered by the Committee. 3.2 The Committee may take such rules and establish such procedures for the administration of the Plan as it deems appropriate to carry out the purpose of the Plan, provided that the Committee shall have no discretion with respect to the grantee, amount, price or timing of any Deferred Stock Unit. The interpretation and application of the Plan or of any rule or procedure, any other matter relating to or necessary to the administration of the Plan, shall be determined by the Committee, and any such determination shall be final and binding on all persons. Deferred Stock Units shall be evidenced by agreements in such form as shall be determined from time to time by the Committee, provided that the terms and conditions of each such agreement are not inconsistent with this Plan. 4. Capital Adjustments 4.1 In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation or a similar corporate transaction, the number or class of shares of Stock represented by Deferred Stock Units granted hereunder shall be proportionately adjusted to reflect any such transaction. Page 48 Exhibit 10(iii)A(26)(a) 5. Deferred Stock Units 5.1 Quarterly Grant. The Corporation shall establish a bookkeeping account for each Eligible Director. On the first of each September, December, March, and June on or after the Effective Date and prior to the termination of this Plan (subject to Section 6.1 below), the bookkeeping account of each Eligible Director shall automatically be credited with the number of Deferred Stock Units (rounded to the nearest hundredth) equal to the sum of (a) one-fourth of the Required Amount plus (b) one-fourth of the Optional Amount, if any, divided by (c) the Fair Market Value. 5.2 Election of Optional Amount. Each Eligible Director shall be entitled to elect, with respect to each year during the term of this Plan (subject to Section 6.1 below), such portion of the Annual Fee in excess of the Required Amount and such portion of the Chairman Fee, if applicable, which the Eligible Director desires to be credited in Deferred Stock Units under Section 5.1 above rather than paid in cash. Such election shall be made and submitted prior to each such year on such form as shall be determined from time to time by the Committee; provided, however, that the election for the portion of the 1996 calendar year that this Plan is in effect shall be made prior to September 1, 1996 and shall be effective for the remainder of the calendar year commencing on that date. 5.3 Terms and Conditions of Deferred Stock Units. (a) The Deferred Stock Units shall become nonforfeitable on the earliest to occur of (i) the first anniversary of the Date of Grant, (ii) the Eligible Director's death, disability or termination of service as a director upon completion of the last term of office to which such director was elected or (iii) the occurrence of a Change of Control. If an Eligible Director otherwise terminates service as a director of the Corporation, any Deferred Stock Units that are forfeitable shall be forfeited as of the date of such termination of service. (b) As of each dividend payment date declared with respect to the Stock, the Corporation shall credit to each bookkeeping account a number of additional Deferred Stock Units equal to (i) the product of (x) the dividend per share of Stock payable on such dividend payment date and (y) the number of Deferred Stock Units credited to such account as of the applicable dividend record date divided by (ii) the Fair Market Value of a share of Stock on such dividend payment date. (c) Upon the termination of service of an Eligible Director the Eligible Director shall receive a lump sum cash payment equal to the product of (i) the Fair Market Value of a share of Stock on the date of such termination of service and (ii) the number of nonforfeitable Deferred Stock Units then credited to such Eligible Director's account. Notwithstanding the foregoing, an Eligible Director may elect to receive the distribution with respect to his or her account in five annual installments commencing as soon as practicable following the Eligible Director's termination of service, in which event the amount of each installment shall be determined based upon the Fair Market Value of a share of Stock as of the date preceding the date such installment payment is made. Any Page 49 Exhibit 10(iii)A(26)(a) such election may be made or changed at any time without limitation, provided, however, that any election (and any modification or revocation of any election) shall not be given effect unless made at least two years prior to the Eligible Director's termination of service. (d) The holder of Deferred Stock Units shall have none of the rights of a stockholder of the Corporation. The Corporation's obligation hereunder with respect to Deferred Stock Units shall be an unsecured promise to pay the amount described in paragraph (c) above at the times described therein. 6. Term of Plan 6.1 The Plan shall remain in effect until all Deferred Stock Units have been paid under the terms of the Plan, provided that no Deferred Stock Units may be granted on or after the tenth anniversary of the Effective Date. 7. Amendment; Termination 7.1 The Board may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part; provided, however, that the provisions of Article 5 shall not be amended more than every six months, other than to comport with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act, as amended, or the rules thereunder. The termination or any modification or amendment of the Plan shall not, without the consent of a director, affect his or her rights under a grant of Deferred Stock Units. 8. Miscellaneous 8.1 Deferred Stock Units granted hereunder shall not be assignable or transferable by the director except by will or by the laws of descent and distribution. 8.2 Nothing in the Plan shall be construed as conferring any right upon any director to continue as a member of the Board. 8.3 The Plan and all rights hereunder shall be construed in accordance with and governed by the laws of the State of Delaware. 8.4 The Corporation shall have the right to require, prior to any payment hereunder, payment by the recipient of any federal, state, local or other taxes which may be required to be withheld or paid in connection with such payment hereunder. EX-10 11 SEVERANCE AGREEMENT Page 50 Exhibit 10(iii)A(27)(a) July 22, 1996 Mr. Don W. Hubble 2621 Winslow Drive Atlanta, Georgia 30305 Dear Don: This letter will confirm our agreement with respect to your termination of employment with National Service Industries, Inc. ("NSI"). 1. Effective Date. Your termination of employment will be effective on October 18, 1996 (the "Effective Date"). Our expectation is that you will continue to work until the Effective Date, unless I advise you otherwise, in which case you will be placed on a paid leave of absence until the Effective Date. 2. Severance Pay. NSI will pay you as severance pay an amount equal to $50,000 per month plus one-twelfth of any increase in the amount of bonus paid to you for fiscal 1996 over the bonus paid to you for fiscal 1995. Payment of your severance pay will be made in semi-monthly installments commencing on November 10, 1996, for the greater of (a) nine months or (b) twelve months minus one-half of any period remaining between the date you commence any employment, consulting work, or other arrangement for which you receive compensation and October 18, 1997. 3. Additional Benefits. If you elect COBRA coverage following your termination of employment, you will continue to pay the portion of the health insurance premium cost which you currently pay to NSI, and NSI will pay the remaining amount of your monthly premiums for COBRA coverage (including coverage for your wife) until the sooner of (a) your qualification under a medical plan offered by your employer, or (b) October 18, 1997. NSI will amend your Stock Option Agreements in two respects: (1) all employee stock options you presently hold will vest on or before September 18 1996; and (2) the time for exercising all vested stock options will be extended until October 31, 1998. NSI will add an appendix to the Supplemental Retirement Plan for Executives of NSI on the Effective Date to add additional years of credited service to the credited service you have in the plan on the Effective Date so that your total credited service will equal twenty years. 4. Other Terms of Payment. You acknowledge that the foregoing severance pay and benefits exceed those which you would otherwise receive upon your termination of employment. Your severance pay and benefits will be subject to appropriate tax withholdings and will satisfy all sums which might otherwise be due you from NSI, including, without limitation, vacation pay and bonuses, but excluding any payments due you under the Executive Deferred Compensation Plan for Senior Officers, the Senior Management Benefit Plan, the Executive Savings Page 51 Exhibit 10(iii)A(27)(a) Plan, NSI's Pension Plan C, the Supplemental Retirement Plan for Executives of NSI (effective as of January 1, 1994), and NSI's 401(k) Plan, which payments will be made in accordance with the terms of such plans. You will not be eligible to participate in any employee benefit plans following your termination on the Effective Date, except as provided above and as provided for under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), as amended. 5. Conditions to Payment. You understand that the severance pay and benefits provided for hereunder are conditioned upon (a) your not disparaging NSI or any officer, director of employee of NSI in any material respect; (b) your not disclosing to any person or using for your own benefit, directly or indirectly, any trade secrets or confidential information of NSI, unless directed to do so by court order; (c) your not soliciting, either directly or indirectly, any current employees of NSI to terminate their employment with NSI and become employed by you or any person or entity with whom you are associated; (d) your compliance with the provisions of paragraph 6 below, and (e) the approval of the Executive Resource and Nominating Committee of the Board of Directors of NSI. 6. Release. In consideration of enhanced severance pay and benefits, and subject to the fulfillment of the condition provided in subparagraph 5(e) hereof, as described above, you hereby release and forever discharge NSI and its divisions, subsidiaries, and affiliates and their respective shareholders, officers, directors, employees, agents or others acting on their behalf, and each of them, from any and all claims, losses or expenses (including attorneys' fees) which you now have or have had or may later claim to have had as of the date hereof against them arising out of your employment with NSI or the termination of your employment. You understand and agree that as a result of this release and discharge, you will not, for example, be entitled to pursue any claims arising out of any alleged violation of your rights while employed by NSI, including, but not limited to, (a) claims for back pay, reinstatement or recovery of any losses or compensatory, punitive, or other damages to you or your property resulting from any alleged violation of state or federal law, such as (but not limited to), claims arising under Title VII of the Civil Rights Act of 1964, 42 U.S.C. SS621, et. seq. (prohibiting discrimination on account of age); the Americans with Disabilities Act of 1990, 42 U.S.C. SS12101, et. seq. (prohibiting discrimination on account of disability); the Family and Medical Leave Act of 1993 (relating to leaves of absence for family and medical reasons); and any similar federal or state law claim relating to your employment; and (b) claims resulting or arising from or in connection with any alleged tortuous conduct or other wrongdoing by NSI. 7. Acceptance Period. You have a period of twenty-one (21) days from the date hereof to consider whether or not you will accept the terms and conditions set forth herein. You are advised to consult with an attorney and anyone else of your choosing to obtain advice and information concerning such terms and conditions. In order to receive the severance pay and benefits, it will be necessary for you to accept such terms and conditions by signing both copies of this letter agreement and returning one (1) copy to me within twenty-one (21) days from the date hereof. Page 52 Exhibit 10(iii)A(27)(a) 8. Revocation Period. You understand that for a period of up to and including seven (7) days after the date you sign this letter agreement, you may revoke it entirely. No rights or obligations contained in this agreement shall become enforceable before the end of this seven (7) day revocation period. If you decide to revoke this letter agreement, you will deliver a signed notice of revocation to me on or before the end of this seven (7) day period. Upon delivery of a timely notice of revocation, this letter agreement shall be canceled and void, and neither party to this letter agreement shall have any rights or obligations arising under it. 9. Nondisclosure Covenant. You agree to hold this agreement and the contents hereof in strict confidence and not to disclose such contents to any third party, other than your family members and financial and legal advisors, without the prior written approval of NSI. 10. Nondisparagement by NSI. NSI agrees to take appropriate steps to ensure that the officers of NSI will not disparage you. 11. Miscellaneous. This letter agreement constitutes the entire agreement of the parties and supersedes any prior agreements, whether oral or written, between the parties, including any prior employment agreements. This letter agreement shall be binding upon and inure to the benefit of the successors and assigns of NSI and your heirs, administrators, executors and personal representatives. If any provision of this letter agreement is determined to be unenforceable by a court of appropriate jurisdiction, the remaining provisions of this letter will continue in effect at the discretion of NSI. 12. Statement of Understanding. YOU STATE THAT YOU HAVE CAREFULLY READ THIS LETTER AGREEMENT, UNDERSTAND ITS MEANING AND INTENT, AND VOLUNTARILY AGREE TO ABIDE BY ITS TERMS. YOU FURTHER STATE THAT THE ONLY PROMISES MADE TO YOU TO SIGN THIS LETTER AGREEMENT ARE SET FORTH HEREIN. Sincerely, /s/ James S. Balloun James S. Balloun AGREED TO AND ACCEPTED THIS ____ DAY OF JULY, 1996 /s/ Don W. Hubble Don W. Hubble EX-10 12 EMPLOYMENT LETTER AGREEMENT Page 53 Exhibit 10(iii)A(28)(a) B.A. Hattox August 26, 1996 August 26, 1996 Mr. Brock A. Hattox 19206 Hanston Court Houston, Texas 77094 Dear Brock: This letter will confirm the terms of your employment by National Service Industries, Inc. ("NSI") and NSI Services, L.P., effective September 9, 1996 (the "Effective Date"). We are enthusiastic about your decision to join NSI and look forward to working with you to enhance NSI's future growth. The terms of your employment, which are subject, of course, to approval by our Executive Resource and Nominating Committee and the Board of Directors, will be as follows: 1. Duties - You will be nominated for election as Executive Vice President and Chief Financial Officer at the meeting of our Board of Directors on September 18, 1996. You will also serve in the same capacity for NSI Services, L.P. (the "Partnership"). You will assume the duties and responsibilities commensurate with those positions, which will include service to NSI, the Partnership, and other subsidiaries and partnerships of NSI and may receive compensation, benefits, and other amounts from such entities, the aggregate amount of which will equal the sums and benefits specified herein. Between September 9 and September 18, 1996, you will perform substantially the same duties as outlined above as assistant to the Chairman of the Board for the salary set forth in paragraph 2 below. You will devote substantially all of your working time and attention to the business and affairs of NSI. 2. Base Salary - Your base salary for the fiscal year ending August 31, 1997 ("fiscal 1997"), will be at the annual rate of Three Hundred Fifty Thousand Dollars ($350,000). Thereafter, your base salary will be subject to review for increases at such time as NSI conducts salary reviews for executive officers generally. Page 54 Exhibit 10(iii)A(28)(a) 3. Annual Incentive Compensation - You will participate in the NSI Management Compensation and Incentive Plan (the "AIP") for fiscal 1997 and will receive a bonus under the AIP of at least One Hundred Fifty Thousand Dollars ($150,000) for fiscal 1997. 4. Stock Options - You will receive a grant of employee stock options for twenty thousand (20,000) shares of stock under our current long-term incentive plan upon your arrival at NSI. In addition, you will receive a grant of options for at least twenty thousand (20,000) shares at the September 1996 board meeting under either our current long-term incentive plan or a new plan to be presented to the Board at the meeting. 5. Retirement Plans - Upon satisfying the eligibility requirements, you will be eligible to participate in NSI's tax-qualified retirement plans, NSI Pension Plan C, and the NSI 401(k) Plan for Corporate Office Employees. In addition, on September 18, 1996, you will become a participant in the Supplemental Retirement Plan for Executives of NSI (the "SERP"). Your benefits under the SERP will be determined in the same manner as for other executive officers of NSI participating in the plan (other than the Chief Executive Officer), except that you will be credited with service under the SERP for each year of actual service. You will become vested in your SERP benefit after completing five (5) years of employment with NSI and will be eligible for early retirement at age sixty (60). 6. Medical, Life Insurance, and Other Employee Benefits - You will be covered by, or eligible to participate in, the medical, dental, life insurance, disability, deferred compensation, and other benefit programs generally made available by NSI to its executive officers and their families, including a car allowance of Four Hundred Dollars ($400) per month. 7. Relocation Expenses - We will pay the following relocation expenses: (a) your expenses for moving your household effects to Atlanta; (b) three (3) months rent for an apartment and storage of your personal effects in Atlanta, pending your move into your new home; and Page 55 Exhibit 10(iii)A(28)(a) (c) brokerage and closing costs you incur in connection with the sale of your home in Houston and the purchase of a home in Atlanta. 8. Severance Payment/Change in Control - Except in the event of termination in connection with a Change in Control of NSI (as defined in the Severance Protection Agreement that will cover you), you will be entitled to the following severance payment: * If your employment is terminated on or before August 31, 1999, except for voluntary termination, termination upon death or Disability (as defined below), or termination by NSI for Cause (as defined below), you will receive (a) a severance payment (payable in twenty-four (24) semi-monthly installments) equal to your then current salary plus any annual incentive received for the preceding fiscal year, and (b) a pro rata bonus for the fiscal year during which you are terminated. In addition to the foregoing, any employee options you hold at the date of termination will be vested and you will be given two (2) years following termination to exercise them. * For purposes of entitlement to a severance benefit, "Cause" shall mean any act(s) on your part that constitutes fraud, a felony involving dishonesty, a breach of fiduciary duty, or gross malfeasance or habitual neglect of your duties for NSI, and "Disability" shall mean a physical or mental infirmity which impairs your ability to substantially perform your duties as Chief Financial Officer of NSI for a period of one hundred eighty (180) consecutive days. The NSI Board, based upon the information provided to it, shall determine whether an act constituting Cause has occurred and whether you have suffered a Disability. In the case of termination for Cause, (i) you will be given written notice of the actions constituting Cause at least fifteen (15) days prior to any meeting of the Board of Directors of NSI at which your termination is to be considered; (ii) you will be given the opportunity to be heard by the Board; and (iii) your termination for Cause must be evidenced by a resolution adopted by a majority of the Board. With respect to Change in Control situations, you will be covered by a Severance Protection Agreement with the same provisions as are applicable to NSI's other Page 56 Exhibit 10(iii)A(28)(a) executive officers. In the event of your termination in connection with a Change in Control that entitles you to benefits under the Severance Protection Agreement, you will receive the greater of the payments and benefits provided under the Severance Protection Agreement (after consideration of any tax penalties) or the severance payments described above. The base salary, annual incentive, option grants, nonqualified retirement benefits, and any severance payments will be structured to ensure the tax deductibility to NSI of the payments and benefits under the Internal Revenue Code of 1986, including Code Section 162(m). We can provide additional information on these issues if you so desire. We will prepare a SERP provision and Severance Protection Agreement to evidence the arrangements set forth in this letter. Again, we are delighted you are joining NSI and we look forward to a long and mutually satisfactory relationship. This letter outlines your employment relationship with NSI; if you agree with the employment terms as outlined above, please sign and date both copies of this letter agreement and return one copy to me at your earliest convenience. Sincerely, /s/ James S. Balloun James S. Balloun ACCEPTED AND AGREED TO THIS _____ DAY OF _____________, 1996 /s/ Brock A. Hattox Brock A. Hattox EX-11 13 COMPUTATION OF NET INCOME PER SHARE Page 57 Exhibit 11 NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATIONS OF NET INCOME PER SHARE OF COMMON STOCK (In thousands, except per-share data) Years Ended August 31 1996 1995 1994 Primary: Weighted Average Number of Shares Outstanding (determined on a monthly basis) ........... 47,941 48,696 49,547 Net Income ..................................$101,148 $ 94,097 $ 82,698 Primary Earnings per Share ..................$ 2.11 $ 1.93 $ 1.67 Fully Diluted: Weighted Average Number of Shares Outstanding ............................... 47,941 48,696 49,547 Additional Shares Assuming Exercise of Options: Options exercised ....................... 1,260 989 707 Treasury stock purchased with ........... (919) (835) (619) Average Common Shares Outstanding (as adjusted) ............................ 48,282 48,850 49,635 Net Income ..................................$101,148 $ 94,097 $ 82,698 Fully Diluted Earnings per Share ............$ 2.09 $ 1.93 $ 1.67 EX-13 14 1996 ANNUAL REPORT INCORPORATED BY REFERENCE Page 58 Exhibit 13 Consolidated Balance Sheets National Service Industries, Inc. August 31 (In thousands, except share data) 1996 1995 Assets Current Assets: Cash and cash equivalents ........................................................................ $ 58,662 $ 79,402 Short-term investments ........................................................................... 551 3,598 Receivables, less reserves for doubtful accounts of $5,807 in 1996 and $6,467 in 1995 ............ 269,971 266,056 Inventories, at the lower of cost (on a first-in, first-out basis) or market ..................... 169,813 185,789 Linens in service, net of amortization ........................................................... 97,710 88,605 Deferred income taxes ............................................................................ 2,152 10,221 Prepayments ...................................................................................... 7,522 6,739 Total Current Assets ..................................................................... 606,381 640,410 Property, Plant, and Equipment, at cost: Land ............................................................................................. 29,062 31,016 Buildings and leasehold improvements ............................................................. 194,219 192,023 Machinery and equipment .......................................................................... 542,056 503,868 Total Property, Plant, and Equipment ..................................................... 765,337 726,907 Less-Accumulated depreciation and amortization ................................................... 407,941 377,003 Property, Plant, and Equipment-net ....................................................... 357,396 349,904 Other Assets: Goodwill and other intangibles ................................................................... 89,427 101,410 Other ............................................................................................ 41,442 39,622 Total Other Assets ....................................................................... 130,869 141,032 Total Assets ..................................................................... $1,094,646 $1,131,346
18 Page 59 Exhibit 13 Consolidated Balance Sheets (continued) National Service Industries, Inc. August 31 (In thousands, except share data) 1996 1995 Liabilities and Stockholders' Equity Current Liabilities: Current maturities of long-term debt ............................................................. $ 46 $ 87 Notes payable .................................................................................... 6,696 6,399 Accounts payable ................................................................................. 79,851 81,524 Accrued salaries, commissions, and bonuses ....................................................... 42,788 43,944 Current portion of self-insurance reserves ....................................................... 15,396 16,276 Other accrued liabilities ........................................................................ 52,649 54,340 Total Current Liabilities ................................................................ 197,426 202,570 Long-Term Debt, less current maturities .................................................................. 24,920 26,776 Deferred Income Taxes .................................................................................... 63,347 65,756 Self-Insurance Reserves, less current portion ............................................................ 63,369 67,830 Other Long-Term Liabilities .............................................................................. 27,576 24,010 Commitments and Contingencies (Note 4) 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 in 1996 and 1995 57,919 57,919 Paid-in capital .................................................................................. 11,021 8,065 Retained earnings ................................................................................ 791,367 746,256 860,307 812,240 Less-Treasury stock, at cost (11,447,036 shares in 1996 and 9,609,261 shares in 1995)..................... 142,299 67,836 Total Stockholders' Equity ............................................................... 718,008 744,404 Total Liabilities and Stockholders' Equity ....................................... $1,094,646 $1,131,346 The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
19 Page 60 Exhibit 13 Consolidated Statements of Income National Service Industries, Inc. Years Ended August 31 (In thousands, except per-share data) 1996 1995 1994 Sales and Service Revenues: Net sales of products ..................................... $ 1,482,937 $1,424,180 $1,337,410 Service revenues .......................................... 530,625 546,447 544,454 Total Revenues .................................... 2,013,562 1,970,627 1,881,864 Costs and Expenses: Cost of products sold ..................................... 933,405 908,869 875,055 Cost of services .......................................... 304,381 299,687 286,519 Selling and administrative expenses ....................... 616,513 601,143 576,463 Interest expense, net ..................................... 1,565 1,648 2,788 Other (income) expense, net ............................... (4,150) 8,783 8,841 Total Costs and Expenses .......................... 1,851,714 1,820,130 1,749,666 Income before Provision for Income Taxes .......................... 161,848 150,497 132,198 Provision for Income Taxes ........................................ 60,700 56,400 49,500 Net Income ........................................................ $ 101,148 $ 94,097 $ 82,698 Earnings per Share ................................................ $ 2.11 $ 1.93 $ 1.67 Weighted Average Number of Shares Outstanding ..................... 47,941 48,696 49,547 The accompanying notes to consolidated financial statements are an integral part of these statements.
20 Page 61 Exhibit 13 Consolidated Statements of Stockholders' Equity National Service Industries, Inc. Common Paid-in Retained Treasury (In thousands, except per-share data) Stock Capital Earnings Stock Total Balance August 31, 1993 .......................................... $57,919 $ 7,299 $ 673,399 $ (34,594) $ 704,023 Treasury stock purchased(1) .................................. -- -- -- (27) (27) Stock options exercised(2) ................................... -- 385 -- 90 475 Treasury stock acquired in connection with divestiture(3) .... -- -- -- (9,191) (9,191) Net income ................................................... -- -- 82,698 -- 82,698 Cash dividends of $1.07 per share paid on common stock ....... -- -- (53,042) -- (53,042) Adjustment to recognize net decrease in pension liability .... -- -- 2,203 -- 2,203 Foreign currency translation adjustment ...................... -- -- -- 246 246 Balance August 31, 1994 ......................................... 57,919 7,684 705,504 (43,722) 727,385 Treasury stock purchased(4) .................................. -- -- -- (24,127) (24,127) Stock options exercised(5) ................................... -- 380 -- 148 528 Adjustment of treasury stock issued in connection with acquisition(6) -- 1 -- (1) -- Adjustment of treasury stock acquired in connection with divestiture(7) -- -- -- (134) (134) Net income ................................................... -- -- 94,097 -- 94,097 Cash dividends of $1.11 per share paid on common stock ....... -- -- (54,156) -- (54,156) Adjustment to recognize net increase in pension liability .... -- -- (3) -- (3) Foreign currency translation adjustment ...................... -- -- 814 -- 814 Balance August 31, 1995 .......................................... 57,919 8,065 746,256 (67,836) 744,404 Treasury stock purchased(8) .................................. -- -- -- (75,223) (75,223) Stock options exercised(9) ................................... -- 2,956 -- 760 3,716 Net income ................................................... -- -- 101,148 -- 101,148 Cash dividends of $1.15 per share paid on common stock ....... -- -- (55,272) -- (55,272) Adjustment to recognize net increase in pension liability .... -- -- (23) -- (23) Foreign currency translation adjustment . .................... -- -- (742) -- (742) Balance August 31, 1996 .......................................... $57,919 $ 11,021 $ 791,367 $(142,299) $ 718,008 (1)992 shares. (2)21,705 shares. (3) 341,840 shares. (4)949,178 shares. (5)23,598 shares. (6) 39 shares. (7) 4,976 shares. (8)2,000,000 shares. (9)185,044 shares. The accompanying notes to consolidated financial statements are an integral part of these statements.
21 Page 62 Exhibit 13 Consolidated Statements of Cash Flows National Service Industries, Inc. Years Ended August 31 (In thousands) 1996 1995 1994 Cash Provided by (Used for) Operating Activities Net income .......................................................................... $ 101,148 $ 94,097 $ 82,698 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................................... 58,428 57,130 60,548 Provision for losses on accounts receivable ................................. 2,708 3,170 2,804 (Gain) loss on the sale of property, plant, and equipment ................... (1,652) 1,138 (76) Gain on the sale of businesses .............................................. (7,579) (5,726) (2,249) Change in non-current deferred income taxes ................................. 1,864 (3,663) (1,092) Change in assets and liabilities net of effect of acquisitions- Receivables ......................................................... (7,343) (11,367) (8,425) Inventories and linens in service, net .............................. 5,308 (8,522) (23,095) Current deferred income taxes ....................................... 8,069 (2,243) 11,359 Prepayments ......................................................... (940) 2,086 4,635 Accounts payable and accrued liabilities ............................ (6,117) 11,945 5,796 Changes in self-insurance reserves and other long-term liabilities .. (895) 7,819 576 Net Cash Provided by Operating Activities ................... 152,999 145,864 133,479 Cash Provided by (Used for) Investing Activities Change in short-term investments .................................................... 3,047 (1,019) 2,197 Purchases of property, plant, and equipment ......................................... (65,499) (58,768) (42,517) Sale of property, plant, and equipment .............................................. 9,105 8,491 4,552 Sale of businesses .................................................................. 15,250 14,044 2,395 Acquisitions ........................................................................ (600) (2,668) (569) Change in other assets .............................................................. (3,071) (4,848) 52 Net Cash Used for Investing Activities ...................................... $ (41,768) $ (44,768) $ (33,890)
22 Page 63 Exhibit 13 Consolidated Statements of Cash Flows (continued) National Service Industries, Inc. Years Ended August 31 (In thousands) 1996 1995 1994 Cash Provided by (Used for) Financing Activities Repayment of long-term debt ......................................................... $ (1,897) $ (667) $ (2,680) Recovery of investment in tax benefits .............................................. 1,720 1,329 2,080 Deferred income taxes from investment in tax benefits ............................... (4,273) (3,900) (3,875) (Purchase) issuance of treasury stock, net .......................................... (71,507) (23,733) 448 Cash dividends paid ................................................................. (55,272) (54,156) (53,042) Net Cash Used for Financing Activities ...................................... (131,229) (81,127) (57,069) Effect of Exchange Rate Changes on Cash ..................................................... (742) 814 246 Net Change in Cash and Cash Equivalents ..................................................... (20,740) 20,783 42,766 Cash and Cash Equivalents at Beginning of Year .............................................. 79,402 58,619 15,853 Cash and Cash Equivalents at End of Year .................................................... $ 58,662 $ 79,402 $ 58,619 Supplemental Cash Flow Information: Income taxes paid during the year ................................................... $ 58,974 $ 50,630 $ 41,584 Interest paid during the year ....................................................... 4,994 3,671 4,030 Noncash Investing and Financing Activities: Noncash aspects of sale of businesses- Receivables incurred ........................................................ $ (234) $ (3,003) $ -- Liabilities assumed (removed) ............................................... 1,009 1,064 (2,442) Treasury stock acquired ..................................................... -- -- (9,191) Noncash aspects of acquisitions- Liabilities assumed or incurred ............................................. $ 6 $ 468 $ -- Treasury stock returned ..................................................... -- (1) -- The accompanying notes to consolidated financial statements are an integral part of these statements.
23 Page 64 Exhibit 13 Notes to Consolidated Financial Statements National Service Industries, Inc. NOTE 1. Summary of Accounting Policies Description of Business The company has leadership positions in four business segments-Lighting Equipment, Textile Rental, Chemicals, and Envelopes. The Lighting Equipment segment produces a variety of fluorescent and non-fluorescent fixtures for markets throughout the United States, Canada, Mexico, and overseas. The Textile Rental segment provides linens, garments, and dust control products to healthcare, linen supply, and industrial customers principally in the United States. The Chemical segment produces maintenance, sanitation, and water treatment products for customers throughout the United States, Canada, Puerto Rico, and Western Europe. The Envelope segment produces business and specialty envelopes in the South and Southwest. The company's other business, which is being divested (Note 5), provides insulation products and services principally in the southeastern United States. Principles of Consolidation The consolidated financial statements include the accounts of the company and all subsidiaries after elimination of significant intercompany transactions and accounts. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash, Cash Equivalents, and Short-Term Investments Cash in excess of daily requirements is invested in time deposits and marketable securities, consisting of taxable and tax exempt variable rate demand notes, included in the balance sheet at market value. The company considers time deposits and marketable securities purchased with an original maturity of three months or less to be cash equivalents. Investments purchased with a maturity of more than three months are considered short-term investments. The carrying amounts of short-term investments at August 31, 1996 and 1995 approximate fair value. At August 31, 1996, short-term investments consisted of preferred stocks. In accordance with the criteria specified by Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," these investments were classified as "available for sale." Concentrations of Credit Risk Concentrations of credit risk with respect to receivables are limited due to the wide variety of customers and markets into which the company's products and services are provided, as well as their dispersion across many different geographic areas. As a result, as of August 31, 1996, the company does not consider itself to have any significant concentrations of credit risk. Inventories and Linens in Service Inventories are valued at the lower of cost (on a first-in, first-out basis) or market and consisted of the following at August 31, 1996 and 1995: (In thousands) 1996 1995 Raw materials and supplies ............................... $ 73,236 $ 87,470 Work in progress ......................................... 9,679 9,879 Finished goods ........................................... 86,898 88,440 $169,813 $185,789 Linens in service are recorded at cost and are amortized over their estimated useful lives of 15 to 60 months Goodwill and Other Intangibles Goodwill of $3,460,000 was recognized in connection with a 1969 acquisition and is not being amortized. Remaining amounts of goodwill ($45,029,000 in 1996 and $47,853,000 in 1995) and other intangible assets are being amortized on a straight-line basis over various periods up to 40 years. The company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives of goodwill and other long-lived assets or whether the remaining balance of goodwill should be evaluated for possible impairment. The company uses an estimate of related undiscounted net income over the remaining life of the goodwill in measuring whether the goodwill is recoverable. Depreciation For financial reporting purposes, depreciation is determined principally on a straight-line basis using estimated useful lives of plant and equipment (20 to 45 years for buildings and 3 to 16 years for machinery and equipment) while accelerated depreciation methods are used for income tax purposes. Leasehold improvements are amortized over the life of the lease or the useful life of the improvement, whichever is shorter. 24 Page 65 Exhibit 13 Notes to Consolidated Financial Statements (continued) National Service Industries, Inc. Foreign Currency Translation The functional currency for the company's foreign operations is the local currency. The translation of foreign currencies into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains or losses, net of applicable income taxes, resulting from the translation are included in retained earnings and are excluded from net income. Gains or losses resulting from foreign currency transactions are included in "Other (income) expense, net" in the consolidated statements of income and amounted to gains of $249,000 in 1996 and $201,000 in 1995 and a loss of $379,000 in 1994. Pension and Profit Sharing Plans The company has several pension plans covering hourly and salaried employees. Benefits paid under these plans are based generally on employees' years of service and/or compensation during the final years of employment. The company makes annual contributions to the plans to the extent indicated by actuarial valuations. Plan assets are invested primarily in equity and fixed income securities. Net pension (income) expense for 1996, 1995, and 1994 included the following components: (In thousands) 1996 1995 1994 Service cost of benefits earned during the period $ 2,719 $ 2,648 $ 2,466 Interest cost on projected benefit obligation ... 7,438 7,277 7,262 Return on plan assets ........................... (28,255) (12,178) (1,929) Net amortization and deferral ................... 17,383 2,257 (8,215) Net pension (income) expense .................... $ (715) $ 4 $ (416) The following schedule reconciles the funded status of the plans as of June 1, 1996 and 1995, with amounts reported in the company's balance sheets at August 31, 1996 and 1995: 1996 1995 Plan Accumulated Plan Accumulated Assets Benefit Assets Benefit Exceed Obligation Exceed Obligation Accumulated Exceeds Accumulated Exceeds Benefit Plan Benefit Plan (In thousands) Obligation Assets Obligation Assets Actuarial present value of benefit obligations as of June 1: Vested ..................................................... $ (91,127) $(3,784) $ (77,505) $(3,879) Nonvested .................................................. (4,281) (1,407) (6,585) (90) Accumulated benefit obligation ..................................... (95,408) (5,191) (84,090) (3,969) Effect of projected salary increases ............................... (7,431) (1,640) (6,295) (1,731) Total projected benefit obligation ................................. (102,839) (6,831) (90,385) (5,700) Fair value of plan assets .......................................... 134,426 -- 113,510 -- Plan assets greater (less) than projected benefit obligation ....... 31,587 (6,831) 23,125 (5,700) Unrecognized transition (asset) liability .......................... (9,475) 74 (10,777) 86 Unrecognized prior service cost obligation ......................... 3,056 2,528 2,847 2,262 Unrecognized net loss (gain) ....................................... 6,471 (371) 13,549 (755) Adjustment required to recognize minimum liability ................. -- (918) -- (426) Prepaid (accrued) pension expense at August 31 ..................... $ 31,639 $(5,518) $ 28,744 $(4,533)
For all periods presented, the discount rate used to determine the projected benefit obligation is 8 percent, the assumed growth rate of compensation is 5.5 percent, and the expected long-term rate of return on plan assets is 9.5 percent. During 1996, the company implemented the widely used, more conservative GA83 mortality table. The company also has profit sharing and 401(k) plans to which both employees and the company contribute. At August 31, 1996, assets of the 401(k) plans included shares of the company's common stock with a market value of approximately $11,412,000. The company's cost of these plans was $4,595,000 in 1996, $3,810,000 in 1995, and $3,133,000 in 1994. 25 Page 66 Exhibit 13 Notes to Consolidated Financial Statements (continued) National Service Industries, Inc. Postretirement Healthcare and Life Insurance Benefits The company's retiree medical plans are financed entirely by retiree contributions; therefore, the company has no liability in connection with them. Several programs provide limited retiree life insurance benefits. The liability for these plans is not significant. Postemployment Benefits During fiscal 1995, the company adopted 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, which is not material, relates primarily to severance agreements and the liability for life insurance coverage for certain eligible employees. Interest Expense, Net Interest expense, net is comprised primarily of interest expense on long-term debt and short-term line of credit borrowings and interest income on cash, cash equivalents, and short-term investments. Other (Income) Expense, Net Other (income) expense, net is comprised primarily of amortization of intangible assets net of gains resulting from the sale of fixed assets and businesses and casualty loss insurance proceeds. Accounting Standards Yet to Be Adopted During fiscal 1997, the company is required to adopt Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." SFAS No. 121 requires that long-lived assets and certain intangibles be reviewed whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In the opinion of management, the adoption of SFAS No. 121 is not expected to have a material impact on the company's financial position or results of operations. Reclassifications Certain amounts in the 1995 and 1994 financial statements and notes have been reclassified to conform with the 1996 presentation. NOTE 2. Long-Term Debt and Lines of Credit Long-term debt at August 31, 1996 and 1995, consisted of the following: (In thousands) 1996 1995 6.5% to 9.25% mortgage notes, payable in installments through 2000 (secured in part by property, plant, and equipment having a net book value of $632,000 at August 31, 1996) $ 148 $ 244 3.55% to 8.5% other notes, payable in installments to 2021 24,818 26,619 24,966 26,863 Less-Amounts payable within one year included in current liabilities 46 87 $24,920 $26,776 The annual maturities of long-term debt are as follows: (In thousands) Amounts Year Ending August 31 1997 $ 46 1998 5,500 1999 25 2000 28 2001 16 Later years 19,351 $24,966 Late in fiscal 1996, the company negotiated a $250,000,000 multi-currency committed credit facility, of which $187,500,000 has been provided through domestic banks and $62,500,000 through foreign banks. The company had no outstanding borrowings under the facility at August 31, 1996. The company has complimentary lines of credit totaling $132,000,000, of which $110,000,000 has been provided domestically and $22,000,000 is available on a multi-currency basis primarily from a European bank. At August 31, 1996 the company had foreign currency short-term bank borrowings equivalent to $6,696,000 at an average interest rate of 4.0%. Under one of the domestic lines of credit, up to $40,000,000 may be used for letters of credit. At August 31, 1996, $16,683,000 in letters of credit associated with the company's self-insurance program (Note 4) was outstanding and $23,317,000 was available under the line of credit. 26 Page 67 Exhibit 13 Notes to Consolidated Financial Statements (continued) National Service Industries, Inc. Long-term debt recorded in the accompanying balance sheets approximates fair value based on the borrowing rates currently available to the company for bank loans with similar terms and average maturities. NOTE 3. Common Stock and Related Matters The company has a shareholder rights plan under which one preferred stock purchase right is presently attached to and trades with each outstanding share of the company's common stock. The rights become exercisable and transferable apart from the common stock ten days after a person or group, without the company's consent, acquires beneficial ownership of, or the right to obtain beneficial ownership of, 20 percent or more of the company's common stock or announces or commences a tender offer or exchange offer that could result in 20 percent ownership (unless such date is extended by the Board of Directors). Once exercisable, each right entitles the holder to purchase one one-hundredth share of Series A Participating Preferred Stock at an exercise price of $80, subject to adjustment to prevent dilution. The rights have no voting power and, until exercised, no dilutive effect on net income per common share. The rights expire on May 19, 1998, and are redeemable under certain circumstances. If a person acquires 20 percent ownership, except in an offer approved by the company under the plan, each right not owned by the acquirer or related parties will entitle its holder to purchase, at the right's exercise price, common stock or common stock equivalents having a market value immediately prior to the triggering of the right of twice that exercise price. In addition, after an acquirer obtains 20 percent ownership, if the company is involved in certain mergers, business combinations, or asset sales, each right not owned by the acquirer or related persons will entitle its holder to purchase, at the right's exercise price, shares of common stock of the other party to the transaction having a market value immediately prior to the triggering of the right of twice that exercise price. The company has 1,000,000 shares of preferred stock authorized, 500,000 of which have been reserved for issuance under the shareholder rights plan. No shares of preferred stock had been issued at August 31, 1996. In 1990, the stockholders approved the National Service Industries, Inc. Long-Term Incentive Program for the benefit of officers and other key employees. There were 1,750,000 treasury shares reserved for issuance under the program. The employee stock options granted under the program become exercisable in four equal annual installments beginning one year from the date of the grant. In 1993, the stockholders approved the National Service Industries, Inc. 1992 Nonemployee Directors' Stock Option Plan under which a maximum of 100,000 shares were reserved for issuance. The shares become exercisable one year from the date of the grant. Under both plans, the options expire ten years from the date of the grant and have an exercise price equal to the fair market value on the date of the grant. Stock option transactions for the stock option plans and stock option agreements during the years ended August 31, 1996, 1995, and 1994 were as follows: 1996 1995 1994 Options outstanding at September 1 1,088,773 820,752 680,139 Granted 513,200 325,400 214,700 Exercised 185,044 23,598 21,705 Canceled 150,886 33,781 52,382 Options outstanding at August 31 1,266,043 1,088,773 820,752 Option price range at August 31 $19.75-$39.75 $19.75-$29.00 $19.75-$29.00 Options exercisable at August 31 466,377 513,665 316,024 Options available for grant at August 31 300,408 657,565 949,184 Potential dilution of earnings per share applicable to these stock options is not significant. In 1996, the Board of Directors adopted the National Service Industries, Inc. Nonemployee Director Deferred Stock Unit Plan under which eligible directors are required to defer into the plan a portion of their annual directors fees and may defer an additional optional amount. At quarterly intervals, participants are granted stock units equal to one-fourth of the annual deferred amount divided by the fair market value at the date of the grant. At each dividend payment date, the deferred stock units are further increased based on the dividend rate and the fair market value of the company's common stock at the dividend payment date. The deferred stock units have no voting rights and vest one year from the date of grant. Upon termination, participants receive a cash payment for vested deferred stock units at the fair market value at that date. At August 31, 1996, participants had been credited with 708 deferred stock units. During fiscal 1996, there was no related compensation expense. 27 Page 68 Exhibit 13 Notes to Consolidated Financial Statements (continued) National Service Industries, Inc. NOTE 4. Commitments and Contingencies Self Insurance It is the policy of the company to self insure for certain insurable risks consisting primarily of physical loss to property; business interruptions resulting from such loss; and workers' compensation, comprehensive general, and auto liability. Insurance coverage is obtained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. Based on an independent actuary's estimate of the aggregate liability for claims incurred, a provision for claims under the self-insured program is recorded and revised annually. Based on the 1996 actuarial review, reserves relating to prior years were reduced by $14,100,000 as a result of improved claims experience. Expense associated with the program was $13,677,000 in 1996, $22,800,000 in 1995, and $25,588,000 in 1994. Leases The company leases certain of its buildings and equipment under noncancelable lease agreements. Minimum lease payments under noncancelable leases for years subsequent to August 31, 1996, are as follows: (In thousands) Amount Year Ending August 31 1997 $ 9,524 1998 7,389 1999 5,769 2000 4,246 2001 3,462 Later years 9,015 Total minimum lease payments $39,405 Total rent expense was $10,907,000 in 1996, $11,607,000 in 1995, and $10,585,000 in 1994. Litigation The company is involved in various legal matters primarily arising in the normal course of business. In the opinion of management, the company's liability in any of these matters will not have a material adverse effect on its financial condition or results of operations. NOTE 5. Divestitures and Acquisitions In September 1996, the company announced its intention to divest the North Bros. insulation business. The company does not expect the sale to have a material impact on earnings. Acquisitions during 1996 related to the Textile Rental segment and were not material. During 1996 and 1995, the company divested several non-strategic or unprofitable businesses, primarily in the Textile Rental segment, generating cash of $15,250,000 and $14,044,000, respectively. In May 1995, the company acquired the assets of Infranor Canada Inc., a Canadian lighting products manufacturer based in Saint Hyacinthe, Quebec. The operating results of Infranor were included in the Lighting Equipment segment for the fourth quarter of fiscal 1995. Full-year acquisition spending of $2.7 million also included several small purchases for the Textile Rental segment. Effective August 31, 1994, the company sold its Marketing Services division. A small gain resulted from the transaction as the company received approximately 342,000 of its common shares in return for those assets transferred to the purchasers. The division had sales of approximately $32,000,000 in 1994 and an immaterial operating loss. NOTE 6. Income Taxes Income taxes are reconciled with the Federal statutory rate as follows: (In thousands) 1996 1995 1994 Federal income tax computed at statutory rate $56,647 $52,674 $46,269 Increase (decrease) in taxes: State income tax, net of Federal income tax benefit 5,368 4,308 4,693 Other, net (1,315) (582) (1,462) $60,700 $56,400 $49,500 The following summarizes the components of income tax expense: (In thousands) 1996 1995 1994 Provision for current Federal taxes $50,899 $55,921 $40,253 Provision for current state taxes 8,258 6,628 7,220 Provision (credit) for deferred taxes 1,543 (6,149) 2,027 $60,700 $56,400 $49,500 28 Page 69 Exhibit 13 Notes to Consolidated Financial Statements (continued) National Service Industries, Inc. Components of the net deferred income tax liability at August 31, 1996 and 1995 include: (In thousands) 1996 1995 Deferred tax liabilities: Depreciation $ 43,790 $ 45,125 Safe harbor lease 39,030 43,303 Amortization of linens 19,116 11,933 Pension 10,906 7,522 Total deferred tax liabilities 112,842 107,883 Deferred tax assets: Self insurance (30,249) (34,551) Deferred compensation (7,966) (3,706) Bonuses (2,816) (5,145) Foreign tax losses (2,483) (4,414) Other assets (8,133) (4,532) Total deferred tax assets (51,647) (52,348) Net deferred tax liability $ 61,195 $ 55,535 At August 31, 1996, the company had foreign net operating loss carryforwards of $12,974,000 expiring in fiscal years 1997 through 2004. Current income taxes payable were $5,374,000 and $11,257,000 at August 31, 1996 and 1995, respectively. NOTE 7. Quarterly Financial Data (Unaudited) Sales and Income (In thousands, except Service Gross before Net Earnings earnings per share) Revenues Profit Taxes Income per Share 1996 1st Quarter $492,550 $190,747 $37,095 $23,269 $ .48 2nd Quarter 482,206 180,258 30,720 19,250 .40 3rd Quarter(1) 516,870 202,378 44,336 27,677 .58 4th Quarter(1) 521,936 202,393 49,697 30,952 .66 1995 1st Quarter $480,984 $185,951 $33,735 $21,114 $ .43 2nd Quarter 465,810 174,793 28,031 17,578 .36 3rd Quarter 505,798 196,903 41,064 25,627 .53 4th Quarter(2) 518,035 204,424 47,667 29,778 .62 (1) Results for the third and fourth quarters include favorable self-insurance reserve adjustments of $6,302,000 and $7,644,000, respectively. (2) Results include favorable self-insurance reserve adjustment of $4,592,000. NOTE 8. Business Segment Information Depreciation Capital Sales and and Expenditures Service Operating Identifiable Amortization Including (In thousands) Revenues Profit(Loss) Assets Expense Acquisitions 1996 Lighting Equipment $ 867,771 $ 76,085 $ 332,006 $15,224 $20,800 Textile Rental(1) 530,625 42,198 420,169 29,753 28,418 Chemical 367,682 38,611 170,327 8,127 5,744 Other 247,484 15,283 80,694 4,151 6,980 2,013,562 172,177 1,003,196 57,255 61,942 Corporate (8,764) 91,450 1,173 3,624 Interest Expense, net (1,565) $ 2,013,562 $ 161,848 $1,094,646 $58,428 $65,566 1995 Lighting Equipment $ 851,363 $ 61,313 $ 340,187 $14,205 $23,098 Textile Rental(1) 546,447 51,016 422,108 30,787 28,144 Chemical 352,670 35,227 169,376 6,711 4,527 Other 220,147 14,351 83,400 3,827 4,120 1,970,627 161,907 1,015,071 55,530 59,889 Corporate (9,762) 116,275 1,600 21 Interest Expense, net (1,648) $ 1,970,627 $ 150,497 $1,131,346 $57,130 $59,910 1994 Lighting Equipment $ 763,592 $ 50,092 $ 323,335 $15,460 $13,183 Textile Rental(1) 544,454 48,840 432,994 31,656 20,986 Chemical 332,298 35,368 168,956 6,392 5,315 Other 241,520 8,822 75,580 5,792 2,695 1,881,864 143,122 1,000,865 59,300 42,179 Corporate (8,964) 100,396 1,248 339 Interest Expense, net (1,960) $ 1,881,864 $ 132,198 $1,101,261 $60,548 $42,518
(1) Textile Rental segment operating profit includes one-time gains, primarily resulting from the sale of fixed assets and businesses, of $7,800,000 in 1996, $6,300,000 in 1995, and $1,250,000 in 1994. 29 Page 70 Exhibit 13 Report of Management National Service Industries, Inc. The management of National Service Industries, Inc. is responsible for the integrity and objectivity of the financial information in this annual report. These financial statements are prepared in conformity with generally accepted accounting principles, using informed judgements and estimates where appropriate. The information in other sections of this report is consistent with the financial statements. The company maintains a system of internal controls and accounting policies and procedures designed to provide reasonable assurance that assets are safeguarded and transactions are executed and recorded in accordance with management's authorization. The audit committee of the Board of Directors, composed entirely of outside directors, is responsible for monitoring the company's accounting and reporting practices. The audit committee meets regularly with management, the internal auditors, and the independent public accountants to review the work of each and to assure that each performs its responsibilities. Both the internal auditors and Arthur Andersen LLP have unrestricted access to the audit committee allowing open discussion, without management's presence, on the quality of financial reporting and the adequacy of internal accounting controls. /s/ James S. Balloun James S. Balloun Chairman, President, and Chief Executive Officer /s/ Brock Hattox Brock Hattox Executive Vice President and Chief Financial Officer /s/ Mark R. Bachmann Mark R. Bachmann Vice President and Controller Report of Independent Public Accountants To the Stockholders of National Service Industries, Inc.: We have audited the accompanying consolidated balance sheets of National Service Industries, Inc. (a Delaware corporation) and subsidiaries as of August 31, 1996 and 1995 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended August 31, 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Service Industries, Inc. and subsidiaries as of August 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended August 31, 1996 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Arthur Andersen LLP Atlanta, Georgia October 21, 1996 30 Page 71 Exhibit 13 Management's Discussion and Analysis of Financial Condition and Results of Operations National Service Industries, Inc. Financial Condition National Service Industries' financial condition remained sound at August 31, 1996. Net working capital was $409.0 million, down from $437.8 million at August 31, 1995, and the current ratio was 3.1, compared with 3.2 at last year end. Cash and short-term investments were reduced to $59.2 million, from $83.0 million at the prior year end, as the company accelerated its share repurchases. During 1996, the company invested $66.1 million in capital expenditures and acquisitions. The percent of short-term and long-term debt to total capitalization was 4.2 percent at August 31, 1996 and 4.3 percent at the prior year end. Cash provided by operating activities rose to $153.0 million from $145.9 million in 1995 and $133.5 million in 1994. The 1996 improvement was due in large part to better management of inventories and higher net income. The improvement in 1995 resulted primarily from a lower rate of investment in inventories and linens in service and a decrease in prepayments. Capital expenditures, exclusive of acquisition spending, were $65.5 million in 1996, $58.8 million in 1995, and $42.5 million in 1994. During 1996, Lighting Equipment segment spending included expansion of its production facility in Monterrey, Mexico, as well as continued investment in equipment replacements, process improvements, and tooling for new products. The Textile Rental segment invested substantially in facility improvements and replacement of equipment and vehicles. In the prior year, the Lighting Equipment segment invested in manufacturing equipment replacements and improvements and the construction of its Mexican production facility, which began production in the fourth quarter of 1995. Textile Rental segment expenditures for 1995 included fleet upgrades, facility improvements, and information system enhancements. Cash payments in connection with acquisitions totaled $.6 million in 1996, $2.7 million in 1995, and $.6 million in 1994. All three years included spending for small acquisitions in the Textile Rental segment. In 1995, the company acquired the assets of Infranor Canada Inc., a Canadian lighting products manufacturer based in Saint Hyacinthe, Quebec. The operating results of this acquisition were included in the Lighting Equipment segment beginning with the fourth quarter of fiscal 1995. During 1996 and 1995, the company divested several non-strategic businesses, primarily in the Textile Rental segment, generating cash of $15.3 million and $14.0 million, respectively. During 1996, the company distributed 129 percent of net income to shareholders through dividends and share repurchases. The company accelerated its share repurchase program, spending $75.2 million for the full 2,000,000 shares authorized annually. Last year, the company spent $24.1 million on the repurchase of approximately 949,000 shares of its common stock. Dividend payments totaled $55.3 million, or $1.15 per share, in 1996, $54.2 million, or $1.11 per share, in 1995, and $53.0 million, or $1.07 per share, in 1994. The fiscal 1996 dividend of $1.15 per share was a 3.6 percent increase. For the periods presented, capital expenditures, working capital needs, dividends, acquisitions, and share repurchases were financed primarily with internally generated funds. European operations were supplemented by short-term borrowings in the European market. The Infranor acquisition was a cash transaction. Contractual commitments for capital and acquisition spending for fiscal 1997 total $17.3 million. The company expects actual capital expenditures in 1997 to be somewhat higher than the 1996 level. Late in fiscal 1996, the company negotiated a $250 million multi-currency committed credit facility, of which 31 Page 72 Exhibit 13 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) National Service Industries, Inc. $187.5 million has been provided through domestic banks and $62.5 million through foreign banks. The company has complimentary lines of credit totaling $132 million, of which $110 million has been provided domestically and $22 million is available on a multi-currency basis primarily from a European bank. Current liquid assets, internally generated funds, and the available credit are expected to meet most of the anticipated general operating cash requirements for the next twelve months. Results of Operations National Service Industries posted a record $2.01 billion in revenues for the fiscal year ended August 31, 1996. Total year revenues increased $42.9 million, or 2.2 percent, from $1.97 billion in 1995, primarily as a result of higher pricing in the Lighting Equipment segment and volume gains across the Chemical and Envelope segments. Fiscal 1995 revenues rose 4.7 percent from 1994's $1.88 billion, as a result of volume gains in the Lighting Equipment and Chemical segments and pricing improvements in the Envelope segment. Adjusted for the divestiture of the Marketing Services division, which contributed $32 million to 1994 sales, the 1995 sales gain was 6.5 percent. Net income for fiscal 1996 increased $7.1 million, or 7.5 percent, to a record $101.1 million, or $2.11 per share. Earnings per share grew at the greater rate of 9.2 percent, benefiting from an average of 755,000 fewer shares outstanding for the year. The performance of all segments was enhanced by improved workers' compensation claims experience, which resulted in a $14.1 million reduction in expense. For fiscal 1995, net income grew 13.8 percent to $94.1 million, or $1.93 per share. Lighting Equipment segment sales grew 1.9 percent to a record $868 million from $851 million in 1995. Pricing gains were offset somewhat by lower unit volumes. Sales for 1995 increased 11.5 percent from 1994 on the strength of volume gains. For 1996, operating profit advanced 24.1 percent to 8.8 percent of revenues, compared with 7.2 percent of revenues in 1995 and 6.6 percent in 1994. Current-year margin improvements resulted from a more favorable product mix and lower manufacturing costs. In 1995, higher unit volumes more than compensated for higher product and selling costs. Textile Rental segment revenues declined 2.9 percent to $531 million largely due to lost sales from previously divested branches and continued price pressure. Revenues for 1995 were $546 million, compared with $544 million in 1994, and reflected pricing gains offset by declining volumes, particularly in the hospital market. For 1996, operating income decreased 17.3 percent to 8.0 percent of revenues, compared with 9.3 percent of revenues in 1995 and 9.0 percent in 1994. The decline resulted from lower selling prices and cost increases for labor and merchandise, which were partially offset by lower workers' compensation costs and one-time gains on asset sales. The improvement in 1995 was due to reduced labor and workers' compensation costs and gains related to plant divestitures. Chemical segment revenues advanced 4.3 percent to $368 million, from $353 million in 1995, which was a 6.1 percent increase from 1994's $332 million. The gains in both periods resulted from higher unit volumes, predominantly in domestic operations. Operating income grew 9.6 percent to 10.5 percent of revenues, from 10.0 percent of revenues in 1995 and 10.6 percent in 1994. Margins benefited from the volume 32 Page 73 Exhibit 13 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) National Service Industries, Inc. increases and lower material and operating costs. The margin decline in 1995 resulted from the segment's increased investment in recruiting and training sales representatives and because of increases in certain raw material costs. The Envelope and Insulation Service businesses combined for a 12.4 percent sales increase. Revenues were $247 million in 1996, $220 million in 1995, and $242 million in 1994. The decline in 1995 resulted from the divestiture of Marketing Services. Operating profit increased to $15.3 million in 1996, largely as a result of volume increases in the Envelope business. Operating profit was $14.4 million in 1995 and $8.8 million in 1994. The 1995 profit gain was due primarily to margin improvements on pricing gains. The company recently announced that it is in the process of selling the North Bros. insulation service business. The company does not expect the sale to have a material impact on earnings. Effective August 31, 1994, the company sold its Marketing Services division. A small gain resulted from the transaction as the company received approximately 342,000 of its common shares in return for those assets transferred to the purchasers. The division had sales of $32 million in 1994 and an immaterial operating loss. Corporate income increased in 1996 and declined in 1995 mainly because of 1995 accruals for higher business taxes. During both 1996 and 1995, the company benefited from higher average levels of short-term investments although interest rates declined somewhat in 1996. Interest expense increased only slightly in 1996 and 1995 compared with 1994. Consolidated income before taxes and net income grew 7.5 percent in 1996 compared with 13.8 percent for both measures in 1995. The year-to-year decline was due primarily to a lower rate of growth in segment operating profits. The provision for income taxes was 37.5 percent of pretax income in 1996 and 1995, compared with 37.4 percent in 1994. During fiscal 1997, the company is required to adopt Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." SFAS No. 121 requires that long-lived assets and certain intangibles be reviewed whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In the opinion of management, the adoption of SFAS No. 121 is not expected to have a material impact on the company's financial position or results of operations. Outlook With a new management team, NSI has implemented an economic profit-based compensation program, a financial strategy geared toward leverage, and in-depth strategic reviews to establish an environment that fosters profitable growth. The company has begun to measure and reward its operating units on economic profit to better align their actions with the interests of shareholders. With 1997 operating plan reviews completed, continued growth is anticipated in the Lighting Equipment, Chemical, and Envelope segments, while the Textile Rental segment's profit forecast is flat as the improving operating rate of the segment is not expected to offset 1996's favorable one-time events. These factors are expected to result in modest 1997 earnings per share growth and continued growth in economic profit. 33 Page 74 Exhibit 13 Ten-Year Financial Summary National Service Industries, Inc. (Dollar amounts in thousands, except per-share data) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 Operating Results Net sales of products $1,482,937 $1,424,180 $1,337,410 $1,257,906 $1,189,684 $1,164,181 $1,250,833 $1,183,666 $1,093,163 $1,032,145 Service revenues ..... 530,625 546,447 544,454 546,916 444,127 437,534 396,981 355,845 321,025 294,713 Total revenues 2,013,562 1,970,627 1,881,864 1,804,822 1,633,811 1,601,715 1,647,814 1,539,511 1,414,188 1,326,858 Cost of products sold 933,405 908,869 875,055 832,264 810,552 791,355 832,867 800,385 741,383 690,689 Cost of services ..... 304,381 299,687 286,519 281,551 236,474 240,376 219,673 198,262 179,793 159,019 Selling and administrative expenses(2) ......... 616,513 601,143 576,463 556,162 462,240 456,622 438,949 397,160 361,845 350,466 Interest expense (income),net (2)..... 1,565 1,648 2,788 3,645 (837) (4,332) (3,712) (3,805) (2,429) (1,315) Restructuring expense -- -- -- -- -- 63,467 -- -- -- -- Other (income) expense,net(2)....... (4,150) 8,783 8,841 11,684 8,474 5,591 4,322 (509) 374 (4,391) Income before taxes .. 161,848 150,497 132,198 119,516 116,908 48,636 155,715 148,018 133,222 132,390 Income taxes ......... 60,700 56,400 49,500 44,400 42,800 16,400 56,000 53,300 47,100 56,700 Net income ...........$ 101,148 $ 94,097 $ 82,698 $ 75,116 $ 74,108 $ 32,236 $ 99,715 $ 94,718 $ 86,122 $ 75,690 Per-Share Data(1) Net income ...........$ 2.11 $ 1.93 $ 1.67 $ 1.52 $ 1.50 $ .65 $ 2.02 $ 1.92 $ 1.75 $ 1.54 Cash dividends ....... 1.15 1.11 1.07 1.03 .99 .95 .90 .82 .73 .62 Stockholders' equity . 15.45 15.41 14.77 14.21 13.79 13.33 13.68 12.44 11.33 10.31 Financial Ratios Current ratio ........ 3.1 3.2 3.2 2.9 3.5 3.4 4.5 4.8 5.0 5.1 Net income as a percent of sales ..... 5.0% 4.8% 4.4% 4.2% 4.5% 2.0% 6.1% 6.2% 6.1% 5.7% Return on average stockholders' equity .. 13.6% 13.0% 11.6% 10.9% 11.1% 4.8% 15.6% 16.3% 16.3% 15.7% Dividends as a percent of current-year earnings 54.6% 57.6% 64.1% 67.9% 66.3% 146.2% 44.6% 42.6% 41.8% 40.2% Percent of debt to total capitalization . 4.2% 4.3% 4.3% 4.7% 4.2% 5.0% 4.2% 3.5% 3.9% 4.3%
34 Page 75 Exhibit 13 Ten-Year Financial Summary (continued) National Service Industries, Inc. (Dollar amounts in thousands, except per-share data) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 Financial Position Increase (decrease) in: Cash and cash equivalents ....$ (20,740)$ 20,783 $ 42,766 $ (85,284)$ 27,617 $ (50,437)$ 23,433 $ 14,612 $ (24,786)$ 16,318 Short-term investments (3,047) 1,019 (2,197) (3,736) (5,551) 12,813 (27,247) (19,633) 35,971 5,160 Net working capital ... 408,955 437,840 413,114 363,575 399,893 386,306 447,800 450,185 439,990 416,801 Short-term debt ......$ 6,742 $ 6,486 $ 5,765 $ 6,196 $ 1,434 $ 3,254 $ 2,253 $ 1,372 $ 1,237 $ 1,443 Long-term debt ....... 24,920 26,776 26,863 28,418 28,359 31,373 27,465 20,765 21,391 21,466 Total debt ........... 31,662 33,262 32,628 34,614 29,793 34,627 29,718 22,137 22,628 22,909 Stockholders' equity . 718,008 744,404 727,385 704,023 682,954 660,567 675,444 612,668 558,160 508,219 Capitalization .......$ 749,670 $ 777,666 $ 760,013 $ 738,637 $ 712,747 $ 695,194 $ 705,162 $ 634,805 $ 580,788 $ 531,128 Other Data Capital expenditures (including acquisitions)........$ 65,566 $ 59,910 $ 42,508 $ 82,171 $ 49,789 $ 90,229 $ 82,932 $ 66,491 $ 55,394 $ 45,258 Depreciation and amortization.......... 58,428 57,130 60,548 62,097 53,816 50,249 42,821 36,260 31,037 27,333 Total assets ..........1,094,646 1,131,346 1,101,261 1,081,510 1,036,908 1,008,319 960,622 886,358 823,906 758,659 Deferred income taxes . 63,347 65,756 73,319 78,286 87,150 96,627 99,277 101,320 103,021 102,374 Self-insurance reserves 63,369 67,830 61,081 56,335 47,638 38,428 15,222 15,213 15,016 13,574 Other long-term liabilities .......... 27,576 24,010 22,940 27,110 28,677 22,015 16,067 17,964 15,330 12,042 Weighted average number of shares outstanding (in thousands)(1)..... 47,941 48,696 49,547 49,556 49,539 49,540 49,389 49,255 49,258 49,278 Shareholders .......... 6,281 6,655 7,034 7,262 7,554 7,996 8,248 8,459 8,851 9,164 Employees ............. 20,600 21,100 22,000 22,200 20,100 20,900 21,800 20,800 20,400 19,400 Use of Total Revenues Salaries and wages ...$ 580,571 $ 568,616 $ 565,859 $ 572,163 $ 502,709 $ 501,502 $ 491,334 $ 465,522 $ 428,325 $ 399,968 Materials and supplies 875,658 832,668 783,610 760,551 700,338 683,871 713,310 668,655 616,223 574,179 Other operating expenses 340,563 364,849 347,600 299,977 273,330 258,919 246,288 219,270 201,478 188,414 Restructuring expense . -- -- -- -- -- 63,467 -- -- -- -- Taxes and licenses .... 115,621 110,397 102,097 97,015 83,326 59,889 97,167 91,346 82,040 88,607 Dividends paid ........ 55,272 54,156 53,042 51,041 49,105 47,124 44,506 40,389 35,960 30,428 Retained earnings ..... 45,877 39,941 29,656 24,075 25,003 (13,057) 55,209 54,329 50,162 45,262 $2,013,562 $1,970,627 $1,881,864 $1,804,822 $1,633,811 $1,601,715 $1,647,814 $1,539,511 $1,414,188 $1,326,858 (1)Restated to reflect stock splits of 3 for 2 effective January 13, 1987 (2)Prior-year amounts have been restated to conform to current-year presentation.
35 Page 76 Exhibit 13 Shareholder Information Executive Offices NSI Center 1420 Peachtree Street, N.E. Atlanta, Georgia 30309 (404) 853-1000 Transfer Agent and Registrar Wachovia Bank of North Carolina, N.A. P.O. Box 8217 Boston, Massachusetts 02266-8217 (800) 633-4236 Independent Public Accountants Arthur Andersen LLP 133 Peachtree Street, N.E. Atlanta, Georgia 30303 (404) 658-1776 Annual Meeting 10:00 a.m., Wednesday, January 8, 1997 High Museum of Art 1280 Peachtree Street, N.E. Atlanta, Georgia 30309 Listing New York Stock Exchange. Ticker Symbol: NSI. Shareholders of Record The number of shareholders of record holding NSI common stock was 6,281 as of September 27, 1996. Reports Available to Stockholders Copies of the following company reports may be obtained, without charge: 1996 Annual Report to the Securities and Exchange Commission, filed on Form 10-K; andQuarterly Reports to the Securities and Exchange Commission, filed on Form 10-Q. Requests should be directed to: National Service Industries, Inc. Attention: Investor Relations 1420 Peachtree Street, N.E. Atlanta, Georgia 30309 (404) 853-1216 Dividend Reinvestment Plan An automatic dividend reinvestment plan is available to all stockholders of record. Dividends can be automatically reinvested in NSI common stock. Participants also may add cash for the purchase of additional shares. For more information, contact the Transfer Agent at (800) 633-4236. Cash Dividends NSI now offers direct deposit of dividends to your bank, savings, or money market account. For more information, contact the Transfer Agent at (800) 633-4236. Common Share Prices and Dividends per Share Dividends Price per Share Paid per High Low Share 1996 First Quarter .................... $32 3/4 $28 5/8 $ .28 Second Quarter ................... 35 1/4 30 3/4 .29 Third Quarter .................... 39 7/8 32 1/2 .29 Fourth Quarter ................... 40 1/4 37 1/2 .29 1995 First Quarter .................... $27 3/8 $25 3/8 $ .27 Second Quarter ................... 27 1/2 24 7/8 .28 Third Quarter .................... 29 1/8 26 1/2 .28 Fourth Quarter ................... 30 5/8 28 1/8 .28 The above common share prices are as quoted on the New York Stock Exchange. EX-21 15 LIST OF SUBSIDIARIES Page 77 Exhibit 21 LIST OF SUBSIDIARIES Registrant - National Service Industries, Inc. State or Other Jurisdiction of Incorporation Subsidiary Principal Location or Organization Lithonia Lighting Mexico, S.A. de C.V. Monterrey, Nuevo Leon Mexico Lithonia Lighting Servicios, S.A. de C.V. Monterrey, Nuevo Leon Mexico National Service Industries, Inc. Atlanta, Georgia Georgia North Bros., Inc. Atlanta, Georgia Delaware NSI Enterprises, Inc. which owns the stock of- Atlanta, Georgia Georgia CORISMA Group, Inc. Atlanta, Georgia Georgia Keplime B.V. Bergen op Zoom, Holland Netherlands NSI Holdings, Inc. Montreal,Quebec,Canada Canada NSI Insurance (Bermuda) Ltd. Hamilton, Bermuda Bermuda NSI Leasing, Inc. Atlanta, Georgia Delaware Productos Lithonia Lighting de Mexico,S.A.de C.V. Monterrey, Nuevo Leon Mexico Selig Company of Puerto Rico, Inc. Atlanta, Georgia Puerto Rico ZEP Europe B.V. which owns the stock of- Bergen op Zoom, Holland Netherlands ZEP FRANCE Nogent-le-Roi, France France Zep Industries S.A. Nogent-le-Roi, France France Resolve S.A. Nogent-le-Roi, France France Research Development Industries S.A. Nogent-le-Roi, France France Chemical Continental Industries S.A.R.L Nogent-le-Roi, France France Zep Italia S.r.l. Aprilia, Italy Italy ZEP Belgium S.A. Brussels, Belgium Belgium Zep S.A. Bern, Switzerland Switzerland Graham International B.V. Bergen op Zoom, Holland Netherlands Kem Europa B.V. Bergen op Zoom, Holland Netherlands Zep Manufacturing B.V. Bergen op Zoom, Holland Netherlands Chemical Specialties B.V. Bergen op Zoom, Holland Netherlands Zep Manufacturing Company Santa Clara, California Delaware The consolidated financial statements include the accounts of all subsidiaries.
EX-23 16 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Page 78 Exhibit 23 Arthur Andersen LLP Atlanta, Georgia CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated October 20, 1996, included or incorporated by reference in National Service Industries, Inc. 10-K for the year ended August 31, 1996, into the Company's previously filed Registration Statemen Nos. 33-36980, 33-51339, 33-51341, 33-51343, 33-51345, 33-51351, 33-51355, 33-51357, 31-60715, 33-63041, and 33-63043. ARTHUR ANDERSEN LLP November 17, 1996 EX-24 17 POWERS OF ATTORNEY Page 79 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ James S. Balloun James S. Balloun, Chairman of the Board, President and Chief Executive Officer, and Director /s/ Brock Hattox Brock Hattox, Executive Vice President and Chief Financial Officer /s/ Mark R. Bachmann Mark R. Bachmann, Vice President and Controller (Principal Accounting Officer) /s/ David Levy David Levy, Executive Vice President, Administration and Counsel, and Director Dated: November 20, 1996 Page 80 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ John L. Clendenin John L. Clendenin Dated: November 20, 1996 Page 81 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Robert M. Holder, Jr. Robert M. Holder, Jr. Dated: November 20, 1996 Page 82 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ F. Ross Johnson F. Ross Johnson Dated: November 20, 1996 Page 83 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ James C. Kennedy James C. Kennedy Dated: November 20, 1996 Page 84 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Donald R. Keough Donald R. Keough Dated: November 20, 1996 Page 85 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Bryan D. Langton Bryan D. Langton Dated: November 20, 1996 Page 86 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Bernard Marcus Bernard Marcus Dated: November 20, 1996 Page 87 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ John G. Medlin, Jr. John G. Medlin, Jr. Dated: November 20, 1996 Page 88 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ D. Raymond Riddle D. Raymond Riddle Dated: November 20, 1996 Page 89 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Herman J. Russell Herman J. Russell Dated: November 20, 1996 Page 90 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, her true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for her in her name, place, and stead in her capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Betty L. Siegel Betty L. Siegel Dated: November 20, 1996 Page 91 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints David Levy and Brock Hattox, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 1996, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Erwin Zaban Erwin Zaban Dated: November 20, 1996 EX-27 18 FDS --
5 Page 92 Exhibit 27 Financial Data Schedule Year Ended August 31, 1996 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 August 31, 1996 and the consolidated statement of income for the year ended August 31, 1996 and is qualified in its entirety by reference to such financial statements. 12-MOS AUG-31-1996 SEP-01-1995 AUG-31-1996 58,663 551 275,779 5,807 169,813 606,381 765,337 407,941 1,094,646 197,426 24,920 0 0 57,919 660,089 1,094,646 1,482,937 2,013,562 933,405 1,237,786 609,025 0 4,903 161,848 60,700 101,148 0 0 0 101,148 2.11 2.09
EX-27 19 FDS --
5 Page 93 Exhibit 27 Restated Financial Data Schedule Quarter Ended May 31, 1996 Pursuant to Section 601(c) of Regulation S-K This schedule contains restated summary financial information extracted from National Service Industries, Inc. consolidated balance sheet as of May 31, 1996 and the consolidated statement of income for the nine months ended May 31, 1996, and is qualified in its entirety by reference to such financial statements. 9-MOS AUG-31-1996 SEP-01-1995 MAY-31-1996 79,307 2,551 264,545 8,981 177,503 625,900 759,855 403,873 1,111,111 179,595 26,737 0 0 57,919 784,700 748,756 1,093,359 1,491,626 691,951 918,243 457,601 0 3,631 112,151 41,955 70,196 0 0 0 70,196 1.46 1.44
EX-27 20 FDS --
5 Page 94 Exhibit 27 Restated Financial Data Schedule Quarter Ended February 29, 1996 Pursuant to Section 601(c) of Regulation S-K This schedule contains restated summary financial information extracted from National Service Industries, Inc. consolidated balance sheet as of February 29, 1996 and the consolidated statement of income for the six months ended February 29, 1996, and is qualified in its entirety by reference to such financial statements. 6-MOS AUG-31-1996 SEP-01-1995 FEB-29-1996 73,431 2,550 260,353 8,256 182,428 627,958 746,904 394,620 1,111,347 176,795 26,741 0 0 57,919 771,295 757,470 712,245 974,756 454,537 603,751 300,783 0 2,407 67,815 25,296 42,519 0 0 0 42,519 0.88 0.87
EX-27 21 FDS --
5 Page 95 Exhibit 27 Restated Financial Data Schedule Quarter Ended November 30, 1995 Pursuant to Section 601(c) of Regulation S-K This schedule contains restated summary financial information extracted from National Service Industries, Inc. consolidated balance sheet as of November 30, 1995 and the consolidated statement of income for the three months ended November 30, 1995, and is qualified in its entirety by reference to such financial statements. 3-MOS AUG-31-1996 SEP-01-1995 NOV-30-1995 92,569 2,550 263,015 7,643 188,581 650,848 738,409 386,309 1,139,797 199,869 26,745 0 0 57,919 766,213 1,139,797 359,842 492,550 227,439 301,803 152,410 0 1,242 37,095 13,826 23,269 0 0 0 23,269 0.48 0.48
EX-27 22 FDS --
5 Page 96 Exhibit 27 Restated Financial Data Schedule Year Ended August 31, 1995 Pursuant to Section 601(c) of Regulation S-K This schedule contains restated summary financial information extracted from National Service Industries, Inc. consolidated balance sheet as of August 31, 1995 and the consolidated statement of income for the year ended August 31, 1995, and is qualified in its entirety by reference to such financial statements. 12-MOS AUG-31-1995 SEP-01-1994 AUG-31-1995 79,402 3,598 272,523 6,467 185,789 640,410 726,907 377,003 1,131,346 202,570 26,776 0 0 57,919 686,485 1,131,346 1,424,180 1,970,627 908,869 1,208,556 601,143 0 4,431 150,497 56,400 94,097 0 0 0 94,097 1.93 1.93
EX-27 23 FDS --
5 Page 97 Exhibit 27 Restated Financial Data Schedule Quarter Ended May 31, 1995 Pursuant to Section 601(c) of Regulation S-K This schedule contains restated summary financial information extracted from National Service Industries, Inc. consolidated balance sheet as of May 31, 1995 and the consolidated statement of income for the nine months ended May 31, 1995, and is qualified in its entirety by reference to such financial statements. 9-MOS AUG-31-1995 SEP-01-1994 MAY-31-1995 58,818 9,386 263,842 9,394 198,548 621,668 723,737 377,043 1,110,937 200,155 26,807 0 0 57,919 737,863 1,110,937 1,042,706 1,452,592 669,891 894,945 451,541 0 3,276 102,830 38,511 64,319 0 0 0 64,319 1.32 1.31
EX-27 24 FDS --
5 Page 98 Exhibit 27 Restated Financial Data Schedule Quarter Ended February 28, 1995 Pursuant to Section 601(c) of Regulation S-K This schedule contains restated 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 February 28, 1995, and is qualified in its entirety by reference to such financial statements. 6-MOS AUG-31-1995 SEP-01-1994 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 0 0 57,919 725,389 1,083,648 678,941 946,794 436,223 586,050 296,879 0 2,099 61,766 23,074 38,692 0 0 0 38,692 0.79 0.79
EX-27 25 FDS --
5 Page 99 Exhibit 27 Restated Financial Data Schedule Quarter Ended November 30, 1994 Pursuant to Section 601(c) of Regulation S-K This schedule contains restated summary financial information extracted from National Service Industries, Inc. consolidated balance sheet as of November 30, 1994 and the consolidated statement of income for the three months ended November 30, 1994, and is qualified in its entirety by reference to such financial statements. 3-MOS AUG-31-1995 SEP-01-1994 NOV-30-1994 82,430 2,240 254,679 8,705 188,769 622,978 733,477 386,270 1,114,915 252,071 26,818 0 0 57,919 721,117 1,114,915 344,882 480,984 219,187 295,033 151,230 0 986 33,735 12,621 21,114 0 0 0 21,114 0.43 0.43
EX-27 26 FDS --
5 Page 100 Exhibit 27 Restated Financial Data Schedule Year Ended August 31, 1994 Pursuant to Section 601(c) of Regulation S-K This schedule contains restated summary financial information extracted from National Service Industries, Inc. consolidated balance sheet as of August 31, 1994 and the consolidated statement of income for the year ended August 31, 1994, and is qualified in its entirety by reference to such financial statements. 12-MOS AUG-31-1994 SEP-01-1993 AUG-31-1994 58,619 2,579 263,436 7,385 178,590 602,787 726,574 378,262 1,101,261 189,673 26,863 0 0 57,919 669,466 1,101,261 1,337,410 1,881,864 875,055 1,161,574 576,463 0 4,496 132,198 49,500 82,698 0 0 0 82,698 1.67 1.67
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