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