<PAGE> 1
Page 1 of 59
Index to Exhibits on Page 16
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, 1997 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, 1997 the aggregate market value of the voting stock held by nonaffiliates of
the registrant was $1,911,956,610.75.
The number of shares outstanding of the registrant's common stock, $1.00 par
value, was 43,208,059 shares as of October 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
--------------------- ---------------------
Part I, Item 1 1997 Annual Report
Part II, Items 5, 6, 7, and 8 1997 Annual Report
Part III, Items 10, 11, 12, and 13 1997 Proxy Statement
Part IV, Item 14 1997 Annual Report
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Page 2
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
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 8-12
Signatures 13
Financial Statement Schedules 14-15
Index to Exhibits 16
</TABLE>
<PAGE> 3
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 segments, as follows:
<TABLE>
<CAPTION>
Divisions Principal Products or Services Marketing Area
--------- ------------------------------ --------------
<S> <C> <C>
PRODUCTS AND SERVICES FOR INDUSTRIAL,
COMMERCIAL, INSTITUTIONAL, AND HEALTHCARE
CUSTOMERS
TEXTILE RENTAL
National Linen Service Rented napkins and table Principally the southern,
National Healthcare Linen Service linens, bed linens, bath southwestern, and central
National Facility Services towels, bar and shop towels, United States
National Direct Source sterilized products, mats,
and mops.
CHEMICAL
Zep Manufacturing Company Chemical products Throughout the United
Zep Manufacturing Company of Canada including cleaners, sanitizers, States, Canada,
Zep Europe disinfectants, polishes, floor Puerto Rico, and
Selig Chemical Industries finishes, degreasers, water Western Europe.
National Chemical treatments, pesticides,
insecticides, and herbicides.
ENVELOPE
Atlantic Envelope Company Custom business envelopes and South and Southwest.
ATENCO Filing Systems courier packages and specialty
Lyon Folder Company filing products.
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.
</TABLE>
<PAGE> 4
Page 4
<TABLE>
<CAPTION>
Divisions Principal Products or Services Marketing Area
--------- ------------------------------ --------------
<S> <C> <C>
PRODUCTS AND SERVICES FOR THE CONSUMER
CHEMICAL
Enforcer Products, Inc. Pesticides, insecticides, rodenticides, Throughout the United States
herbicides, cleaners, plumbing
pipe and sewer drain cleaners
and clog removers
LIGHTING EQUIPMENT
Home-Vue Lighting Fluorescent work lamps, recessed Throughout the United States
Light Concepts and track lighting, and other
decorative fluorescent fixtures.
</TABLE>
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, 1997, 1996, and 1995. No one commodity or supplier provided a
significant portion of the company's material requirements.
Total Employment
The registrant employs approximately 16,100 people.
Financial Information about Industry Segments
The financial information required by this item is included on page 39 of the
company's annual report for the year ended August 31, 1997, under the caption
"Business Segment Information" and is incorporated herein by reference.
<PAGE> 5
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 business:
<TABLE>
<CAPTION>
Number of Facilities
--------------------
Division Owned Leased Nature of Facilities
- -------- -------------------- --------------------
<S> <C> <C> <C>
Lighting Equipment 7 5 Manufacturing plants
1 6 Distribution centers
-- 14 Field warehouses
Textile Rental 37 10 Linen plants
6 16 Linen service centers
-- 1 Distribution centers
Chemical 10 4 Manufacturing plants
22 49 Distribution centers
-- 2 Sales offices
Envelope 6 4 Manufacturing plants
-- 2 Warehouses
-- 1 Sales office
Corporate Office 1 -- Corporate headquarters
</TABLE>
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, 1997.
<PAGE> 6
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, 1997, 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 44 and 45 of the
company's annual report for the year ended August 31, 1997, 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 41 through 43 of the
company's annual report for the year ended August 31, 1997, 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,
enhanced sales force, new products and improved customer service; share
repurchases; and acquisitions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included on pages 26 through 40 of the
company's annual report for the year ended August 31, 1997, 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.
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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 through 4 under the caption "Information Concerning Nominees" of the
company's proxy statement for the annual meeting of stockholders to be held
January 7, 1998, 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.
<TABLE>
<CAPTION>
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, 1997 and term in office.
- --------------------------------------------------- ----------------------------------------------------------
<S> <C>
James S. Balloun, age 59 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 60 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 49 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 46 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.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included on pages 4 through 14 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 7, 1998, 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 6 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 7, 1998,
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 5 under the caption
"Certain Relationships and Transactions" of the company's proxy statement for
the annual meeting of stockholders to be held January 7, 1998, filed with the
Commission pursuant to Regulation 14A, and is incorporated herein by reference.
<PAGE> 8
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 1997 Annual Report contains the consolidated balance
sheets as of August 31, 1997 and 1996, the related consolidated
statements of income, stockholders' equity, and cash flows for each
of the three years in |the period ended August 31, 1997, and the
related report of Arthur Andersen LLP. The financial statements,
incorporated herein by reference, include the following:
Consolidated Balance Sheets - August 31, 1997 and 1996
Consolidated Statements of Income for the years ended August 31,
1997, 1996, and 1995
Consolidated Statements of Stockholders' Equity for the years ended
August 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the years ended August 31,
1997, 1996, and 1995
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
<TABLE>
<CAPTION>
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
----------------- ----------------------
<S> <C>
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
</TABLE>
<PAGE> 9
Page 9
ITEM 14. (Continued)
(3) Exhibits filed with this report (Continued)
<TABLE>
<CAPTION>
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
-------- ----------------------
<S> <C> <C>
(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
(c) Brock A. Hattox
and Amendment
(7) Bonus Letter Agreements between National
Service Industries, Inc. and
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
(d) Brock A. Hattox
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
(f) Brock A. Hattox
(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
(f) Brock A. Hattox
(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
</TABLE>
<PAGE> 10
Page 10
ITEM 14. (Continued)
(3)Exhibits filed with this report (Continued)
<TABLE>
<CAPTION>
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
-------- ----------------------
<S> <C> <C>
(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
(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
</TABLE>
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Page 11
ITEM 14. (Continued)
(3)Exhibits filed with this report (Continued)
<TABLE>
<CAPTION>
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
-------- ----------------------
<S> <C> <C>
(29) Incentive Stock Option Agreement Effective
Beginning September 17, 1996 between
National Service Industries, Inc. and
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
(30) Nonqualified Stock Option Agreement for
Executive Officers Effective Beginning
September 17, 1996 between National Service
Industries, Inc. and
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
(d) Brock A. Hattox
(31) National Service Industries, Inc. Long-Term
Achievement Incentive Plan Effective
September 17, 1996
(32) Aspiration Achievement Incentive Award
Agreements between National Service
Industries, Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
[a confidential portion of which has been
omitted and filed separately with the
Securities and Exchange Commission]
(33) National Service Industries, Inc.
Supplemental Deferred Savings Plan Effective
September 18, 1996
(34) Letter Agreement Between National Service
Industries, Inc. and Don W. Hubble Dated
October 18, 1996, amending as of that date
the Incentive Stock Option Agreement Dated
September 15, 1993, the Incentive Stock
Option Agreement Dated September 21, 1994,
the Nonqualified Stock Option Agreement
Dated September 21, 1994, the Incentive
Stock Option Agreement Dated September 20,
1995, and the Nonqualified Stock Option
Agreement Dated September 20, 1995.
(35) Stock Option Agreement for Nonemployee
Directors Dated March 19, 1997 between
National Service Industries, Inc. and
(a) John L. Clendenin
(b) Senator Sam Nunn
11 Computations of Net Income per Share of
Common Stock
13 Information Incorporated by Reference from
Annual Report for the Year Ended
August 31, 1997
21 List of Subsidiaries
23 Consent of Independent Public Accountants
</TABLE>
<PAGE> 12
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ITEM 14. (Continued)
(3) Exhibits filed with this report (Continued)
<TABLE>
<CAPTION>
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
-------- ----------------------
<S> <C>
24 Powers of Attorney
27 (1) Financial Data Schedule for the Year Ended
August 31, 1997 (for SEC use only)
</TABLE>
(b) The registrant filed a report on Form 8-K dated July 14, 1997, which
reported the sale of certain assets of the Textile Rental segment to G & K
Services, Inc. The financial statements filed as an exhibit to the report
were:
Unaudited Pro Forma Balance Sheet as of February 28, 1997.
Unaudited Pro Forma Statement of Operations for the six months ended
February 28, 1997.
Unaudited Pro Forma Statement of Operations for the year ended August 31,
1996.
(c) Exhibits 2, 9, 12, 18, 22, and 28 have been omitted because they are not
applicable.
(d) Not applicable.
<PAGE> 13
Page 13
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 20, 1997 By: /s/ Kenyon W. Murphy
----------------- -----------------------------------------------
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.
<TABLE>
<CAPTION>
Signature Title
- ---------------- --------------------------
<S> <C> <C>
James S. Balloun* Chairman, President, and Chief Executive
Officer and Director
Brock Hattox* Executive Vice President and
Chief Financial Officer
Mark R. Bachmann* Vice President and Controller
John L. Clendenin* Director
Thomas C. Gallagher* Director
Robert M. Holder, Jr.* Director
James C. Kennedy* Director
--November 20, 1997
David Levy* Director
Bernard Marcus* Director
John G. Medlin, Jr.* Director
Samuel A. Nunn* Director
Herman J. Russell* Director
Betty L. Siegel* Director
Barrie A. Wigmore* Director
*By /s/ David Levy Attorney-in-Fact
-----------------------
David Levy
</TABLE>
<PAGE> 14
Page 14
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 20, 1997. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in Item 14 in this Form 10-K is the
responsibility of the company's management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 20, 1997
<PAGE> 15
Page 15
SCHEDULE II
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1997, 1996, AND 1995
(In thousands)
<TABLE>
<CAPTION>
Additions Charged to
Balance at ---------------------------------- Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts (1) Deductions (2) of Period
- ----------------------------- -------------- ------------ --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1997:
Deducted in the balance sheet
from the asset to which it applies-
Reserve for doubtful accounts $ 5,807 $ 2,276 $ (745) $ 3,036 $ 4,302
======== ========= ======== ======== ==========
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
======== ========= ======== ========= ==========
</TABLE>
(1) Recoveries credited to reserve, reserves recorded in acquisitions, and
reserves removed in sale of businesses.
(2) Uncollectible accounts written off.
<PAGE> 16
Page 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
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' Reference is made to Exhibit 10(iii)A(2)(d) of
Deferred Compensation Plan dated registrant's Form 10-K for the fiscal year
August 31, 1996 ended August 31, 1996, which is incorporated
herein by reference.
(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.
</TABLE>
<PAGE> 17
Page 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
(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 10(iii)A(e) of
Supplemental Retirement Plan for Executives registrant's Form 10-Q for the quarter ended
of National Service Industries, Inc. February 29, 1996, which is incorporated
(Supplemental Pension Plan), Effective herein by reference.
February 1, 1996
(d)Appendix C to Restated and Amended Reference is made to Exhibit 10(iii)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 Reference is made to Exhibit 10(iii)A(3)(e)
Supplemental Retirement Plan for Executives of of registrant's Form 10-K for the fiscal year
National Service Industries, Inc. (Supplemental ended August 31, 1996, which is incorporated
Pension Plan) Dated August 31, 1996 herein by reference.
(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 Reference is made to Exhibit 10(iii)A(4)(d) of
Industries, Inc. Senior Management Benefit registrant's Form 10-K for the fiscal year ended
Plan, Dated August 31, 1996 August 31, 1996, which is incorporated herein
by reference.
(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 Reference is made to Exhibit 10(iii)A(5)(b) of
Agreement between National Service Industries, registrant's Form 10-K for the fiscal year
Inc. and David Levy, Dated August 31, 1996 ended August 31, 1996, which is incorporated
herein by reference.
</TABLE>
<PAGE> 18
Page 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
(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.
(iii) Brock A. Hattox (September 9, 1996)
(b) Amendment to Severance Protection Reference is made to Exhibit 10(iii)A(6)(b) of
Agreements, Dated August 31, 1996 registrant's Form 10-K for the fiscal year ended
August 31, 1996, which is incorporated herein
by reference.
(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
(ii) David Levy (October 1, 1989) 10(iii)A(d) of the registrant's Form 10-Q for the
(iii) Stewart A. Searle III (June 19, 1996) quarter ended February 29, 1996, which are
(iv) Brock A. Hattox (September 9, 1996) incorporated herein by reference.
(b)Supplemental Letter Agreement, Dated Reference is made to Exhibit 10(iii)A(7)(b) of
August 31, 1996 registrant's Form 10-K for the fiscal year
ended August 31, 1996, which is incorporated
herein by reference.
(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
(f) Brock A. Hattox
(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
(f) Brock A. Hattox
</TABLE>
<PAGE> 19
Page 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
(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 Reference is made to Exhibit 10(iii)A(n) of
Dated July 5, 1990, between National registrant's Form 10-K for the fiscal year
Service Industries, Inc. and Wachovia ended August 31, 1990, which is incorporated
Bank and Trust 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 Reference is made to Exhibit 10(iii)A(12)(c) of
Trust Agreement between National registrant's Form 10-K for the fiscal year
Service Industries, Inc. and Wachovia ended August 31, 1996, which is incorporated
Bank and Trust Company and Adoption, herein by reference.
Dated August 31, 1996
(13) -(a)Executive Benefits Trust Agreement Reference is made to Exhibit 10(iii)A(o) of
Dated July 5, 1990, between National registrant's Form 10-K for the fiscal year
Service Industries, Inc. and Wachovia ended August 31, 1990, which is incorporated
Bank and Trust Company herein by reference.
(b)Amendment to Executive Benefits Reference is made to Exhibit 10(iii)A(13) of
Trust Agreement between National registrant's Form 10-K for the fiscal year
Service Industries, Inc. and Wachovia ended August 31, 1996, which is incorporated
Bank and Trust Company and Adoption, herein by reference.
Dated August 31, 1996
(14) -(a)Consulting Agreement between Reference is made to Exhibit 10(iii)A of
National Service Industries, Inc. and registrant's Form 10-Q for the quarter ended
Erwin Zaban Dated December 30, 1991 November 30, 1991, which is incorporated
herein by reference.
(b)Letter Agreement Dated March 21, Reference is made to Exhibit 10(iii)A(a) of
1996 amending the Consulting Agreement registrant's Form 10-Q for the quarter ended
between National Service Industries, Inc. May 31, 1996, which is incorporated herein
and Erwin 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.
</TABLE>
<PAGE> 20
Page 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
(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. Reference is made to Exhibit 10(iii)A(s) of
Executive Savings Plan Effective registrant's Form 10-K for the fiscal year
September 1, 1994 ended August 31, 1994, which is incorporated
herein by reference.
(b)Amendment No. 1 to National Service Reference is made to Exhibit 10(iii)A(17)(b) of
Industries, Inc. Executive Savings Plan, registrant's Form 10-K for the fiscal year
Dated August 31, 1996. ended August 31, 1996, which is incorporated
herein by reference.
(18) -(a)National Service Industries, Inc. Reference is made to Exhibit 10(iii)A(t) of
Management Compensation and Incentive registrant's Form 10-K for the fiscal year
Plan Effective 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 Reference is made to Exhibit 10(iii)A(a)(ii) of
Agreement among National Service registrant's Form 10-Q for the quarter ended
Industries, Inc., D. Raymond Riddle, and February 28, 1995, which is incorporated
Wachovia Bank of Georgia, N.A. effective herein by reference.
March 30, 1995
(20) -(a)Letter Agreement between National Reference is made to Exhibit 10(iii)A(b) of
Service Industries, Inc. and D. Raymond registrant's Form 10-Q for the quarter ended
Riddle dated March 28, 1995, amending as February 28, 1995, which is incorporated
of September 21, 1994 the Incentive Stock herein by reference.
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
</TABLE>
<PAGE> 21
Page 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
(21) -(a)Consulting Agreement between National Reference is made to Exhibit 10(iii)A(c) of
Service Industries, Inc. and D. Raymond registrant's Form 10-Q for the quarter ended
Riddle dated March 30, 1995 February 28, 1995, which is incorporated
herein by reference.
(22) -(a)Letter Agreement between National Reference is made to Exhibit 10(iii)A(d) of
Service Industries, Inc. and D. Raymond registrant's Form 10-Q for the quarter ended
Riddle dated April 10, 1995, amending as February 28, 1995, which is incorporated
of March 15, 1995 the Incentive Stock herein by reference.
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 Services Industries,
Inc. and D. Raymond Riddle
(23) -(a)Employment Letter Agreement between Reference is made to Exhibit 10(iii)A(a) of
National Service Industries, Inc. and James registrant's Form 10-Q for the quarter ended
S. Balloun, Dated February 1, 1996 February 29, 1996, which is incorporated herein
by reference.
[a confidential portion of which has been
omitted and filed separately with the
Securities and Exchange Commission]
(24) -(a)Severance Agreement between National Reference is made to Exhibit 10(iii)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 Refrence is made to Exhibit 10(iii)A(c) of
Service Industries, Inc. and J. Robert Hipps regstrant's Form 10-Q for the quarter ended
Dated May 24, 1996, amending as of that May 31, 1996, which is incorporated herein
date the Incentive Stock Option Agreement by reference.
Dated September 19, 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
(26) -National Service Industries, Inc. Reference is made to Exhibit 10(iii)A(26) of
Nonemployee Director Deferred Stock Unit registrant's Form 10-K for the fiscal year
Plan, Effective June 1, 1996 ended August 31, 1996, which is incorporated
herein by reference.
</TABLE>
<PAGE> 22
Page 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
<S> <C>
(27) -Severance Agreement between National Reference is made to Exhibit 10(iii)A(27) of
Service Industries, Inc. and Don W. Hubble, registrant's Form 10-K for the fiscal year
Dated July 22, 1996 ended August 31, 1996, which is incorporated
herein by reference.
(28) -Employment Letter Agreement between Reference is made to Exhibit 10(iii)A(28) of
National Service Industries, Inc. and Brock registrant's Form 10-K for the fiscal year
A. Hattox, Dated August 26, 1996 ended August 31, 1996, which is incorporated
herein by reference.
(29) -Incentive Stock Option Agreement Reference is made to Exhibit 10(iii)A(5) of
Effective Beginning September 17, 1996 registrant's Form 10-Q for the quarter ended
between National Service Industries, Inc. November 30, 1996, which is incorporated
and herein by reference.
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
(30) -Nonqualified Stock Option Agreement Reference is made to Exhibit 10(iii)A(6) of
for Executive Officers Effective Beginning registrant's Form 10-Q for the quarter ended
September 17, 1996 between National November 30, 1996, which is incorporated
Service Industries, Inc. and herein by reference.
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
(d) Brock A. Hattox
(31) -National Service Industries, Inc. Long- Reference is made to Exhibit 10(iii)A(7) of
Term Achievement Incentive Plan registrant's Form 10-Q for the quarter ended
Effective September 17, 1996 November 30, 1996, which is incorporated
herein by reference.
(32) -Aspiration Achievement Incentive Award Reference is made to Exhibit 10(iii)A(8) of
Agreements between National Service registrant's Form 10-Q for the quarter ended
Industries, Inc. and November 30, 1996, which is incorporated
(a) James S. Balloun herein by reference.
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
[a confidential portion of which has been
omitted and filed separately with the Securities
and Exchange Commission]
(33) -National Service Industries, Inc. Supple- Reference is made to Exhibit 10(iii)A(9) of
mental Deferred Savings Plan Effective registrant's Form 10-Q for the quarter ended
September 18, 1996 November 30, 1996, which is incorporated
herein by reference.
</TABLE>
<PAGE> 23
Page 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
(34) -Letter Agreement Between National Reference is made to Exhibit 10(iii)A(10) of
Service Industries, Inc. and Don W. registrant's Form 10-Q for the quarter ended
Hubble Dated October 18, 1996, amending November 30, 1996, which is incorporated
as of that date the Incentive Stock Option herein by reference.
Agreement Dated September 15, 1993, the
Incentive Stock Option Agreement Dated
September 21, 1994, the Nonqualified Stock
Option Agreement Dated September 21, 1994,
the Incentive Stock Option Agreement Dated
September 20, 1995, and the Nonqualified
Stock Option Agreement Dated September 20,
1995
(35) -Stock Option Agreement for Nonemployee Reference is made to Exhibit 10(iii)A of
Directors Dated March 19, 1997 between registrant's Form 10-Q for the quarter ended
National Service Industries, Inc. and May 31, 1997, which is incorporated herein
(a) John L. Clendenin by reference.
(b) Senator Sam Nunn
EXHIBIT 11 - Computations of Net Income per Share of 24
Common Stock
EXHIBIT 13 - Information Incorporated by Reference from
Annual Report for the Year Ended August 31,
1997 25
EXHIBIT 21 - List of Subsidiaries 46
EXHIBIT 23 - Consent of Independent Public Accountants 47
EXHIBIT 24 - Powers of Attorney 48
EXHIBIT 27 - Financial Data Schedule for the Year
Ended August 31, 1997 (for SEC use only) 59
</TABLE>
<PAGE> 1
Page 24
Exhibit 11
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATIONS OF NET INCOME PER SHARE OF COMMON STOCK
(In thousands, except per-share data)
<TABLE>
<CAPTION>
Years Ended August 31
--------------------------------------------------
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Primary:
Weighted Average Number of Shares
(determined on a monthly basis) 45,191 47,941 48,696
============ ============ ==========
Net Income $ 107,278 $ 101,148 $ 94,097
============ ============ ==========
Primary earnings per Share
$ 2.37 $ 2.11 $ 1.93
============ ============ ==========
Fully Diluted:
Weighted Average Number of Shares
Outstanding 45,191 47,941 48,696
Additional Shares Assuming Exercise of
Options:
Options exercised 1,379 1,260 989
Treasury stock purchased with proceeds (952) (919) (835)
------------ ------------- ----------
Average Common Shares Outstanding
(as adjusted) 45,618 48,282 48,850
============ ============= ==========
Net Income $ 107,278 $ 101,148 $ 94,097
============ ============= ==========
Fully Diluted Earnings per Share $ 2.35 $ 2.09 $ 1.93
============ ============= ==========
</TABLE>
<PAGE> 1
Page 25
Exhibit 13
Consolidated Balance Sheets
National Service Industries, Inc.
<TABLE>
<CAPTION>
August 31
(In thousands, except per-share data) 1997 1996
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 57,123 $ 58,662
Short-term investments 205,302 551
Receivables, less reserves for doubtful accounts of $4,302 in 1997 and $5,807 in 1996 258,689 269,971
Inventories, at the lower of cost (on a first-in, first-out basis) or market 179,046 169,813
Linens in service, net of amortization 60,805 97,710
Deferred income taxes 13,077 2,152
Prepayments 6,716 7,522
Total Current Assets 780,758 606,381
Property, Plant, and Equipment, at cost:
Land 19,911 29,062
Buildings and leasehold improvements 138,933 194,219
Machinery and equipment 434,194 542,056
Total Property, Plant, and Equipment 593,038 765,337
Less-Accumulated depreciation and amortization 356,308 407,941
Property, Plant, and Equipment-net 236,730 357,396
Other Assets:
Goodwill and other intangibles 50,166 89,427
Other 38,698 41,442
Total Other Assets 88,864 130,869
Total Assets $1,106,352 $1,094,646
</TABLE>
-26-
<PAGE> 2
Page 26
Exhibit 13
Consolidated Balance Sheets (continued)
National Service Industries, Inc.
<TABLE>
<CAPTION>
August 31
(In thousands, except per-share data) 1997 1996
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 116 $ 46
Notes payable 5,773 6,696
Accounts payable 101,512 79,851
Accrued salaries, commissions, and bonuses 34,776 42,788
Current portion of self-insurance reserves 12,540 15,396
Accrued taxes payable 38,351 5,374
Other accrued liabilities 88,932 47,275
Total Current Liabilities 282,000 197,426
Long-Term Debt, less current maturities 26,197 24,920
Deferred Income Taxes 34,093 63,347
Self-Insurance Reserves, less current portion 57,056 63,369
Other Long-Term Liabilities 35,193 27,576
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 1997 57,919 57,919
and 1996
Paid-in capital 25,521 11,021
Retained earnings 841,045 791,367
924,485 860,307
Less-Treasury stock, at cost (13,719,834 shares in 1997 and 11,447,036 shares in 1996) 252,672 142,299
Total Stockholders' Equity 671,813 718,008
Total Liabilities and Stockholders' Equity $1,106,352 $1,094,646
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets
</TABLE>
-27-
<PAGE> 3
Page 27
Exhibit 13
Consolidated Statements of Income
National Service Industries, Inc.
<TABLE>
<CAPTION>
Years Ended August 31
(In thousands, except per-share data) 1997 1996 1995
<S> <C> <C> <C>
Sales and Service Revenues:
Net sales of products $ 1,542,644 $ 1,482,937 $ 1,424,180
Service revenues 493,535 530,625 546,447
Total Revenues 2,036,179 2,013,562 1,970,627
Costs and Expenses:
Cost of products sold 945,794 933,405 908,869
Cost of services 283,024 304,381 299,687
Selling and administrative expenses 633,740 616,513 601,143
Interest expense, net 1,624 1,565 1,648
Gain on sale of businesses (75,097) (7,579) (5,726)
Restructuring expense, asset impairments, and other charges 63,091 -- --
Other expense, net 4,925 3,429 14,509
Total Costs and Expenses 1,857,101 1,851,714 1,820,130
Income before Provision for Income Taxes 179,078 161,848 150,497
Provision for Income Taxes 71,800 60,700 56,400
Net Income $ 107,278 $ 101,148 $ 94,097
Earnings per Share $ 2.37 $ 2.11 $ 1.93
Weighted Average Number of Shares Outstanding 45,191 47,941 48,696
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-28-
<PAGE> 4
Page 28
Exhibit 13
Consolidated Statements of Stockholders' Equity
National Service Industries, Inc.
<TABLE>
<CAPTION>
Common Paid-in Retained Treasury
(In thousands, except share and per-share data) Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
Balance August 31, 1994 $57,919 $ 7,684 $ 705,504 $ (43,722) $ 727,385
Treasury stock purchased (1) -- -- -- (24,127) (24,127)
Stock options exercised (2) -- 380 -- 148 528
Adjustment of treasury stock issued in connection with
acquisition (3) -- 1 -- (1) --
Adjustment of treasury stock acquired in connection with
divestiture (4) -- -- -- (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 (5) -- -- -- (75,223) (75,223)
Stock options exercised (6) -- 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
Treasury stock purchased (7) -- -- -- (121,668) (121,668)
Stock options exercised (8) -- 2,588 -- 2,685 5,273
Treasury stock issued in connection with acquisition (9) -- 11,912 -- 8,610 20,522
Net income -- -- 107,278 -- 107,278
Cash dividends of $1.19 per share paid on common stock -- -- (54,222) -- (54,222)
Foreign currency translation adjustment -- -- (3,378) -- (3,378)
Balance August 31, 1997 $57,919 $25,521 $ 841,045 $(252,672) $ 671,813
</TABLE>
(1) 949,178 shares. (2) 23,598 shares. (3) 39 shares.
(4) 4,976 shares. (5) 2,000,000 shares. (6) 185,044 shares.
(7) 3,000,000 shares. (8) 190,330 shares. (9) 536,872 shares.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-29-
<PAGE> 5
Page 29
Exhibit 13
Consolidated Statements of Cash Flows
National Service Industries, Inc.
<TABLE>
<CAPTION>
Years Ended August 31
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Cash Provided by (Used for) Operating Activities
Net income $ 107,278 $ 101,148 $ 94,097
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 57,981 58,428 57,130
Provision for losses on accounts receivable 2,276 2,708 3,170
Loss (gain) on the sale of property, plant, and equipment 1,233 (1,652) 1,138
Gain on the sale of businesses (75,097) (7,579) (5,726)
Restructuring expense, asset impairments, and other charges 63,091 -- --
Change in non-current deferred income taxes (25,219) 1,864 (3,663)
Change in assets and liabilities net of effect of acquisitions and divestitures-
Receivables (11,993) (7,343) (11,367)
Inventories and linens in service, net (11,286) 5,308 (8,522)
Current deferred income taxes (10,926) 8,069 (2,243)
Prepayments 47 (940) 2,086
Accounts payable and accrued liabilities 30,941 (6,117) 11,945
Self-insurance reserves and other long-term liabilities (758) (895) 7,819
Net Cash Provided by Operating Activities 127,568 152,999 145,864
Cash Provided by (Used for) Investing Activities
Change in short-term investments (204,751) 3,047 (1,019)
Purchases of property, plant, and equipment (48,806) (65,499) (58,768)
Sale of property, plant, and equipment 5,370 9,105 8,491
Sale of businesses 311,382 15,250 14,044
Acquisitions (4,320) (600) (2,668)
Change in other assets 2,972 (3,071) (4,848)
Net Cash Provided by (Used for) Investing Activities $ 61,847 $ (41,768) $ (44,768)
</TABLE>
-30-
<PAGE> 6
Page 30
Exhibit 13
Consolidated Statements of Cash Flows (continued)
National Service Industries, Inc.
<TABLE>
<CAPTION>
Years Ended August 31
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Cash Provided by (Used for) Financing Activities
Repayment of short-term debt $ (11,021) $ -- $ --
Repayment of long-term debt (4,627) (1,897) (667)
Recovery of investment in tax benefits 661 1,720 1,329
Deferred income taxes from investment in tax benefits (1,972) (4,273) (3,900)
Purchase of treasury stock, net (116,395) (71,507) (23,733)
Cash dividends paid (54,222) (55,272) (54,156)
Net Cash Used for Financing Activities (187,576) (131,229) (81,127)
(3,378) (742) 814
Effect of Exchange Rate Changes on Cash
(1,539) (20,740) 20,783
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year 58,662 79,402 58,619
Cash and Cash Equivalents at End of Year $ 57,123 $ 58,662 $ 79,402
Supplemental Cash Flow Information:
Income taxes paid during the year $ 68,475 $ 58,974 $ 50,630
Interest paid during the year 5,614 4,994 3,671
Noncash Investing and Financing Activities:
Noncash aspects of sale of businesses--
Receivables incurred $ 391 $ 234 $ 3,003
Liabilities assumed 22,637 1,009 1,064
Noncash aspects of acquisitions--
Liabilities assumed or incurred $ 22,440 $ 6 $ 468
Treasury stock issued (returned) 20,522 -- (1)
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-31-
<PAGE> 7
Page 31
Exhibit 13
Notes to Consolidated Financial Statements
National Service Industries, Inc.
(In thousands, except share and per-share data)
Note 1. Summary of Accounting Policies
Description of Business
The company operates in four business segments -lighting equipment, textile
rental, chemicals, and envelopes- which are leading competitors in their
respective markets. The lighting equipment segment produces a variety of
fluorescent and non-fluorescent fixtures for markets throughout the United
States, Canada, Mexico, and overseas. The textile rental segment provides linens
and dust control products to healthcare, lodging, and dining customer segments
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.
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, 1997 and 1996 approximate fair
value. At August 31, 1997, short-term investments consisted primarily of
corporate debt securities and commercial paper. 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, 1997, 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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Raw materials and supplies $ 71,266 $ 73,236
Work in progress 10,572 9,679
Finished goods 97,208 86,898
$ 179,046 $ 169,813
</TABLE>
Linens in service are recorded at cost and are amortized over their
estimated useful lives of 15 to 50 months.
Goodwill and Other Intangibles
Goodwill of $3,460 was recognized in connection with a 1969 acquisition and is
not being amortized. Remaining amounts of goodwill ($34,974 in 1997 and $45,029
in 1996) and other intangible assets are being amortized on a straight-line
basis over various periods up to 40 years.
<PAGE> 8
The company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of goodwill and
other long-lived assets or whether the remaining balance of goodwill should be
evaluated for possible impairment. The company uses an estimate of related
undiscounted cash flows over the remaining life of the goodwill in measuring
whether the goodwill is recoverable. During fiscal 1997, goodwill and other
intangibles of $8,800 were written off due to the impairment of long-lived
assets (Note 5).
Depreciation
For financial reporting purposes, depreciation is determined principally on a
straight-line basis using estimated useful lives of plant and equipment (25 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.
-32-
<PAGE> 9
Page 32
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 expense, net" in the consolidated statements of income and amounted to
a loss of $54 in 1997 and gains of $249 in 1996 and $201 in 1995.
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 1997, 1996, and 1995 included the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost of benefits earned during the period $ 3,636 $ 2,719 $ 2,648
Interest cost on projected benefit obligation 8,505 7,438 7,277
Return on plan assets (12,393) (28,255) (12,178)
Net amortization and deferral (768) 17,383 2,257
Net pension (income) expense $ (1,020) $ (715) $ 4
</TABLE>
The following schedule reconciles the funded status of the plans as of
June 1, 1997 and 1996, with amounts reported in the company's balance sheets at
August 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
Plan Assets Accumulated Plan Assets Accumulated
Exceed Benefit Exceed Benefit
Accumulated Obligation Accumulated Obligation
Benefit Exceeds Plan Benefit Exceeds Plan
Obligation Assets Obligation Assets
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations as of June 1:
Vested $(87,929) $(5,123) $(91,127) $(3,784)
Nonvested (10,180) (20) (4,281) (1,407)
Accumulated benefit obligation (98,109) (5,143) (95,408) (5,191)
Effect of projected salary increases (5,379) (1,195) (7,431) (1,640)
Total projected benefit obligation (103,488) (6,338) (102,839) (6,831)
Fair value of plan assets 133,214 - 134,426 -
Plan assets greater (less) than projected benefit obligation 29,726 (6,338) 31,587 (6,831)
Unrecognized transition (asset) liability (7,059) 61 (9,475) 74
Unrecognized prior service cost obligation 1,873 2,208 3,056 2,528
Unrecognized net loss (gain) 9,891 (896) 6,471 (371)
Adjustment required to recognize minimum liability -- (596) -- (918)
Prepaid (accrued) pension expense at August 31 $ 34,431 $ (5,561) $ 31,639 $(5,518)
</TABLE>
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.
The company also has profit sharing and 401(k) plans to which both
employees and the company contribute. At August 31, 1997, assets of the 401(k)
plans included shares of the company's common stock with a market value of
approximately $13,868. The company's cost of these plans was $5,020 in 1997,
$4,595 in 1996, and $3,810 in 1995.
-33-
<PAGE> 10
Page 33
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 material.
Postemployment Benefits
Statement of Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Postemployment Benefits," requires the accrual of the estimated
cost of benefits provided by an employer to former or inactive employees after
employment but before retirement. The company's accrual, which is not material,
relates primarily to severance agreements and the liability for life insurance
coverage for certain eligible employees.
Interest Expense, Net
Interest expense, net is comprised primarily of interest expense on long-term
debt and short-term line of credit borrowings and interest income on cash, cash
equivalents, and short-term investments.
Other Expense, Net
Other expense, net is comprised primarily of amortization of intangible assets
net of gains resulting from the sale of fixed assets and casualty loss insurance
proceeds.
Accounting Standards Yet to Be Adopted
During fiscal 1998, the company is required to adopt Statement of Financial
Accounting Standards No. 128, "Earnings per Share." SFAS No. 128 supersedes
Accounting Principles Board Opinion No. 15, "Earnings per Share," and
promulgates new accounting standards for the computation and manner of
presentation of the company's earnings per share. Earlier application is not
permitted; however, upon adoption, the company will be required to restate
previously reported annual and interim earnings per share in accordance with the
provisions of SFAS No. 128. The adoption of SFAS No. 128 will not have a
material impact on the computation or manner of presentation of the company's
earnings per share as currently or previously presented under APB No. 15.
During fiscal 1999, the company is required to adopt SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 requires the reporting of a
measure of all changes in equity of an entity that result from recognized
transactions and other economic events other than transactions with owners in
their capacity as owners. In the opinion of management, the adoption of SFAS No.
130 is not expected to have a material impact on the company's manner of
reporting the components of comprehensive income.
Reclassifications
Certain amounts in the 1996 and 1995 financial statements and notes have been
reclassified to conform with the 1997 presentation.
Note 2. Long-Term Debt and Lines of Credit
Long-term debt at August 31, 1997 and 1996, consisted of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
6.5% to 9.25% mortgage notes, payable in installments through 2000 (secured in part by $ 86 $ 148
property, plant, and equipment having a net book value of $237 at August 31, 1997)
3.4% to 8.5% other notes, payable in installments to 2026 26,227 24,818
26,313 24,966
Less-Amounts payable within one year included in current liabilities 116 46
$ 26,197 $ 24,920
</TABLE>
The annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Amounts
<S> <C>
Year Ending August 31
1998 116
1999 100
2000 108
2001 91
2002 97
Later years 25,801
$ 26,313
</TABLE>
Late in fiscal 1996, the company negotiated a $250,000 multi-currency
committed credit facility with eleven domestic and international banks. The
company had no outstanding borrowings under the facility at August 31, 1997.
-34-
<PAGE> 11
Page 34
Exhibit 13
Notes to Consolidated Financial Statements (continued)
National Service Industries, Inc.
The company has complimentary lines of credit totaling $62,000, of which
$40,000 has been provided domestically and $22,000 is available on a
multi-currency basis primarily from a European bank. At August 31, 1997, the
company had foreign currency short-term bank borrowings equivalent to $5,773 at
an average interest rate of 4.1%.
Under the domestic line of credit, up to $40,000 may be used for letters
of credit. At August 31, 1997, $16,683 in letters of credit associated with the
company's insurance program (Note 4) was outstanding and $23,317 was available
under the line of credit.
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, 1997.
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.
In 1997, the stockholders approved the National Service Industries, Inc.
Long-Term Achievement Incentive Plan for the benefit of officers and other key
employees. There were 1,750,000 treasury shares reserved for issuance under that
plan.
The stock options granted under both the incentive programs 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 100,000 treasury
shares were reserved for issuance. The stock options granted under that plan
become exercisable one year from the date of the grant.
Under all stock option plans, the options expire ten years from the date
of the grant and have an exercise price equal to the fair market value on the
date of the grant.
Stock option transactions for the stock option plans and stock option
agreements during the years ended August 31, 1997, 1996, and 1995 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Options outstanding at September 1 1,266,043 1,088,773 820,752
Granted 324,500 513,200 325,400
Exercised 196,115 185,044 23,598
Canceled 7,214 150,886 33,781
Additional shares available for future grant 1,750,000 - -
Options outstanding at August 31 1,387,214 1,266,043 1,088,773
Option price range at August 31 $19.75-$39.75 $19.75-$39.75 $19.75-$29.00
Options exercisable at August 31 731,914 466,377 513,665
Options available for grant at August 31 1,732,574 300,408 657,565
</TABLE>
-35-
<PAGE> 12
Page 35
Exhibit 13
Notes to Consolidated Financial Statements (continued)
National Service Industries, Inc.
Potential dilution of earnings per share applicable to these stock options
is not significant.
During fiscal 1997, the company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for these
stock option plans. Had compensation cost for the company's stock option plans
been determined based on the fair value at the grant date for awards in fiscal
years 1996 and 1997 consistent with the provisions of SFAS No. 123, the
company's net earnings and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net income-as reported $107,278 $101,148
Net income-pro forma $105,793 $100,284
Earnings per share-as reported $ 2.37 $ 2.11
Earnings per share-pro forma $ 2.34 $ 2.09
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Dividend yield 3.350% 4.009%
Expected volatility 16.8% 15.3%
Risk-free interest rate 6.73% 6.10%
Expected life of options 10 years 10 years
Turnover rate 5.0% 5.0%
</TABLE>
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. Expense associated with the program was $7,900 in
1997, $13,677 in 1996, and $22,800 in 1995.
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, 1997, are as follows:
<TABLE>
<CAPTION>
Amount
Year Ending August 31
<S> <C>
1998 $ 9,342
1999 7,791
2000 6,092
2001 4,433
2002 2,998
Later years 7,104
Total minimum lease payments $37,760
</TABLE>
Total rent expense was $11,327 in 1997, $10,907 in 1996, and $11,607 in
1995.
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.
-36-
<PAGE> 13
Page 36
Exhibit 13
Notes to Consolidated Financial Statements (continued)
National Service Industries, Inc.
Note 5. Restructuring Expense and Asset Impairments
During 1997, the company conducted reviews of the textile rental, European
chemical, and corporate operations as a part of management's strategic
initiatives to examine under-performing operations and to position the company
for growth. As a result of the reviews, the company approved a significant
restructuring program and recorded a related charge of $9,600 during the fourth
quarter. The accrual included severance and union-related costs totaling $2,950
for 120 employees of the textile rental, chemical and envelope segments and
$6,650 in exit expenses to close certain facilities and consolidate the
operations of others in the textile rental segment. Exit expenses include costs
of unexpired leases, costs to dispose of facilities, and costs of personnel to
effect the closures and consolidations. The severance accrual had been reduced
by payments of $205 and reserves associated with plant consolidations had been
reduced by $1,910 as of August 31, 1997.
As a further result of the reviews, the company recognized long-lived
asset impairments totaling $43,500. Textile rental assets to be disposed of in
under-performing branches were reduced by $22,300 to state them at their
estimated fair value less costs to sell. The remaining net book value of these
assets is immaterial. Fixed assets held for use by the textile rental, European
chemical, and corporate units were reduced by $12,400 and related intangibles
were reduced by $8,800. Impairments were recognized for those assets where the
sum of estimated undiscounted future cash flows was less than the carrying
amount of the assets, including related goodwill. Fair market values were
established based on independent appraisals, comparable sales or purchases, and
expected future cash flows discounted at the company's cost of capital. Factors
leading to the impairments were a combination of the reviews discussed above,
historical losses, anticipated future losses, and inadequate cash flows.
The textile rental segment recorded other charges of $10,000 associated
primarily with environmental matters. The associated reserves had been reduced
to $8,400 at August 31, 1997.
The losses resulting from the accruals and impairments are included in
"Restructuring expense, asset impairments, and other charges" in the
consolidated statements of income.
Note 6. Divestitures and Acquisitions
In February 1997, the company sold the North Bros. insulation business for $27.1
million in cash. An immaterial gain was realized on the sale. The business had
1997 sales of $57,000 and operating income of $1,900. Additionally, immaterial
gains were recognized as the company divested several non-strategic textile
rental locations.
In July 1997, the company sold 29 textile rental plants to G&K Services,
Inc. at a pretax gain of $74.0 million. The following condensed pro forma
consolidated balance sheet gives effect to the sale as if the transaction had
occurred at August 31, 1996:
Condensed Pro Forma Consolidated Balance Sheet (Unaudited) August 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C>
Current Assets:
Cash and short-term investments $ 346,713
Receivables, net 249,823
Inventories and linens in service 228,808
Other current assets 8,645
Total Current Assets 833,989
Property, Plant, and Equipment, net 266,533
Other Assets 83,402
Total Assets $ 1,183,924
Liabilities and Stockholders' Equity
Current Liabilities $ 230,191
Long-Term Debt, less current maturities 24,920
Deferred Income Taxes 63,347
Other Long-Term Liabilities 90,945
Stockholders' Equity 774,521
Total Liabilities and Stockholders' Equity $ 1,183,924
</TABLE>
The following condensed pro forma consolidated statements of income
restate reported results for the respective fiscal years to remove both the gain
on the transaction and the results of the operations sold:
<TABLE>
<CAPTION>
Condensed Pro Forma Consolidated Statements of Income (Unaudited) 1997 1996
<S> <C> <C>
Sales and Service Revenues $ 1,859,653 $1,803,034
Other Costs and Expenses 1,708,672 1,648,460
Restructuring Expense, Asset Impairments, and Other Charges 63,091 -
Income before Provision for Income Taxes 87,890 154,574
Provision for Income Taxes 32,172 57,988
Income before Gain on Disposal $ 55,718 $ 96,586
Earnings per Share $ 1.23 $ 2.01
Weighted Average Number of Shares Outstanding (thousands) 45,191 47,941
</TABLE>
-37-
<PAGE> 14
Page 37
Exhibit 13
Notes to Consolidated Financial Statements (continued)
National Service Industries, Inc.
The pro forma statements are not necessarily indicative of the financial
position and results of operations that would have been attained had the
divestiture been consummated on the dates indicated or that may be attained in
the future.
In 1997, cash acquisition spending totaled $4.3 million and was the result
of the chemical segment's purchase of chemical products companies in Ohio and
Canada and the lighting equipment segment's acquisition of a small emergency
lighting products manufacturer in Canada. The company also issued 536,872 shares
valued at $20.5 million to acquire Enforcer Products, Inc., a specialty chemical
company with a retail focus. The operating results of Enforcer were included in
the chemical segment beginning with the third quarter of fiscal 1997.
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 and $14,044, 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.
Note 7. Income Taxes
Income taxes are reconciled with the Federal statutory rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal income tax computed at statutory rate $62,677 $56,647 $ 52,674
Increase (decrease) in taxes:
State income tax, net of Federal income tax benefit 9,169 5,368 4,308
Other, net (46) (1,315) (582)
$71,800 $60,700 $ 56,400
</TABLE>
The following summarizes the components of income tax expense:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Provision for current Federal taxes $ 93,912 $ 50,899 $55,921
Provision for current state taxes 14,106 8,258 6,628
Provision (credit) for deferred taxes (36,218) 1,543 (6,149)
$ 71,800 $ 60,700 $56,400
</TABLE>
Components of the net deferred income tax liability at August 31, 1997 and
1996 include:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 23,116 $ 43,790
Safe harbor lease 31,083 39,030
Amortization of linens 22,187 19,116
Pension 12,015 10,906
Total deferred tax liabilities 88,401 112,842
Deferred tax assets:
Self insurance (26,307) (30,249)
Deferred compensation (9,143) (7,966)
Bonuses (2,989) (2,816)
Foreign tax losses (605) (2,483)
Asset disposition reserves (17,402) --
Other assets (10,939) (8,133)
Total deferred tax assets (67,385) (51,647)
Net deferred tax liability $ 21,016 $ 61,195
</TABLE>
At August 31, 1997, the company had foreign net operating loss
carryforwards of $1,639 expiring in fiscal years 1998 through 2004.
Current income taxes payable were $38,351 and $5,374 at August 31, 1997
and 1996, respectively.
-38-
<PAGE> 15
Page 38
Exhibit 13
Notes to Consolidated Financial Statements (continued)
National Service Industries, Inc.
Note 8. Business Segment Information
<TABLE>
<CAPTION>
Depreciation Capital
Sales and and Expenditures
Service Operating Identifiable Amortization Including
Revenues Profit (Loss) Assets Expense Acquisitions
1997
<S> <C> <C> <C> <C> <C>
Lighting Equipment $ 952,026 $ 92,372 $ 353,224 $16,722 $21,688
Textile Rental (1) 493,535 60,792 190,139 27,014 13,050
Chemical (2) 402,569 31,647 202,769 8,679 12,875
Envelope (3) 131,015 10,190 55,271 3,297 7,159
Other 57,034 1,906 -- 611 509
2,036,179 196,907 801,403 56,323 55,281
Corporate (4) (16,205) 304,949 1,658 1,709
Interest Expense, net (1,624)
$ 2,036,179 $ 179,078 $1,106,352 $57,981 $56,990
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
Envelope (5) 125,834 10,041 51,258 2,741 5,759
Other (5) 121,650 5,242 29,436 1,410 1,221
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
Envelope (5) 109,806 8,882 47,125 2,390 2,957
Other (5) 110,341 5,469 36,275 1,437 1,163
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
</TABLE>
(1) Textile rental segment 1997 operating profit includes one-time charges of
$17,800 for restructuring and other and $31,800 for asset impairments. Gains
resulting from the sale of fixed assets and businesses were $75,097 in 1997,
$7,800 in 1996, and $6,300 in 1995.
(2) Chemical segment operating profit includes one-time charges of $1,500 for
restructuring and $8,100 for asset impairments.
(3) Envelope segment operating profit includes one-time charges of $230 for
restructuring.
(4) Corporate operating profit includes one-time charges of $3,700 for asset
impairments.
(5) Prior-year amounts have been restated to conform to current-year
presentation.
Note 9. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Sales and
Service Income Earnings
Revenues Gross Profit before Taxes Net Income per Share
<C> <C> <C> <C> <C> <C>
1997
1st Quarter $511,893 $199,711 $39,340 $24,834 $.54
2nd Quarter 499,236 188,726 32,187 20,345 .45
3rd Quarter 515,279 210,864 46,808 29,434 .65
4th Quarter (1) 509,771 208,060 60,743 32,665 .73
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 (2) 516,870 202,378 44,336 27,677 .58
4th Quarter (2) 521,936 202,393 49,697 30,952 .66
</TABLE>
(1) Results for the fourth quarter include the gain on the sale of the textile
rental plants of $75,097 and charges for restructuring and other reserves of
$19,600 and asset impairments of $43,500.
(2) Results for the third and fourth quarters include favorable self-insurance
reserve adjustments of $6,302 and $7,644, respectively.
-39-
<PAGE> 16
Page 39
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 judgments 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.
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
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, 1997
and 1996 and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended August 31, 1997.
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, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
October 20, 1997
-40-
<PAGE> 17
Page 40
Exhibit 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations
National Service Industries, Inc.
Financial Condition
National Service Industries maintained a strong financial position at August 31,
1997. Net working capital was $498.8 million, up from $409.0 million at August
31, 1996, and the current ratio was 2.8, compared with 3.1 at the prior year
end. Cash and short-term investments increased to $262.4 million, from $59.2
million last August, largely as a result of the cash realized on the sale of 29
textile rental plants to G&K Services, Inc. in July 1997. During 1997, the
company invested $53.1 million in capital expenditures and acquisitions. The
percent of short-term and long-term debt to total capitalization was 4.6 percent
at August 31, 1997 and 4.2 percent at the prior year end. Cash provided by
operating activities was $127.6 million, compared to $153.0 million in 1996 and
$145.9 million in 1995. The 1997 decrease resulted primarily from investment in
inventories to support increased sales of the lighting equipment segment and
changes in deferred taxes associated with the textile rental divestiture. The
1996 improvement was due in large part to better management of inventories and
higher net income.
Capital expenditures, exclusive of acquisition spending, were $48.8
million in 1997, $65.5 million in 1996, and $58.8 million in 1995. During both
1997 and 1996, the lighting equipment segment invested in facility and process
improvements, equipment replacements, and tooling for new products. 1996
spending also included expansion of the segment's production facility in
Monterrey, Mexico. The textile rental segment made substantial investments in
facility improvements and replacement of equipment during 1997 and 1996.
Cash payments in connection with acquisitions totaled $4.3 million in
1997, $.6 million in 1996, and $2.7 million in 1995. In 1997, the chemical
segment purchased chemical products companies in Ohio and Canada, and the
lighting equipment segment acquired a small emergency lighting products
manufacturer in Canada. The company also issued 536,872 shares valued at $20.5
million to acquire Enforcer Products, Inc., a specialty chemical company with a
retail focus. The operating results of Enforcer were included in the chemical
segment beginning with the third quarter of fiscal 1997.
The two prior years included spending for small acquisitions of the
textile rental segment. In 1995, the company also 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.
In February 1997, the company sold the North Bros. insulation business for
$27.1 million in cash. An immaterial gain was realized on the sale. The business
had 1997 sales of $57.0 million and operating income of $1.9 million through the
date of sale. Additionally, immaterial gains were realized as the company
divested several non-strategic textile rental locations.
In July 1997, the company sold 29 textile rental plants to G&K Services,
Inc. for approximately $280 million in cash, resulting in a pretax gain of $74.0
million. The divested locations had 1997 sales of $176.5 million and operating
income of $9.4 million through the date of sale.
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 1997, the company distributed 164 percent of net income to
shareholders through dividends and share repurchases. A total of 2,727,000
shares were purchased under the company's standing annual authorization to
repurchase 2.0 million shares plus the number of new shares issued in any one
year. An additional 273,000 shares were purchased under the 1997 supplemental
authorization for 1.25 million shares granted as a result of the textile rental
divestiture transaction. Last year, the company spent $75.2 million on the
repurchase of 2.0 million shares of its common stock. Dividend payments totaled
$54.2 million, or $1.19 per share, in 1997, $55.3 million, or $1.15 per share,
in 1996, and $54.2 million, or $1.11 per share, in 1995. The fiscal 1997
dividend of $1.19 per share was a 3.4 percent increase.
-41-
<PAGE> 18
Page 41
Exhibit 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
National Service Industries, Inc.
For the periods presented, capital expenditures, working capital needs,
dividends, acquisitions, and share repurchases were financed primarily with
internally generated funds and some 1997 interim borrowing against the committed
credit facility (discussed below). European operations were supplemented by
short-term borrowings in the European market. Contractual commitments for
capital and acquisition spending for fiscal 1998 total $22.6 million. The
company expects actual capital expenditures in 1998 to be somewhat higher than
the 1997 level. Late in fiscal 1996, the company negotiated the $250 million
multi-currency committed credit facility with eleven domestic and international
banks. The company has complimentary lines of credit totaling $62 million, of
which $40 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 the
anticipated general operating cash requirements for the next twelve months.
Results of Operations
National Service Industries posted record revenues of $2.04 billion for the
fiscal year ended August 31, 1997. Total year revenues increased $22.6 million,
or 1.1 percent, from $2.01 billion in 1996, resulting from higher volumes in the
lighting equipment, chemical, and envelope segments. Revenues for 1996 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.
Net income for fiscal 1997 increased $6.1 million, or 6.1 percent, to
$107.3 million, or $2.37 per share. Earnings per share grew at the greater rate
of 12.5 percent due to a reduction of 2.8 million in average shares outstanding.
For fiscal 1996, net income grew 7.5 percent to $101.1 million, or $2.11 per
share.
Lighting equipment segment sales grew 9.7 percent to $952 million from
$868 million in 1996. Net income rose 21.4 percent to 9.7 percent of revenues.
Higher unit volumes, primarily in the non-residential construction market,
contributed to the increase in sales and, combined with improved mix and lower
manufacturing costs, drove income higher. Sales for 1996 increased 1.9 percent
from 1995 on the strength of pricing gains that were somewhat offset by lower
unit volumes. For 1996, operating profit advanced 24.1 percent to 8.8 percent of
revenues, compared with 7.2 percent of revenues in 1995. 1996 margin
improvements resulted from a more favorable product mix and lower manufacturing
costs.
Textile rental segment revenues for 1997 decreased 7.0 percent to $494
million primarily as a result of the businesses divested. For 1997, operating
income increased 44.1 percent to $60.8 million. The $75.1 million gain on the
sale of plants was offset by restructuring expenses, asset impairments, and
other charges totaling $49.6 million. A review of the segment's under-performing
and non-strategic locations resulted in a plan to dispose of certain plants and
consolidate the operations of others. Restructuring expenses included severance
and union-related expenses of $1.2 million and exit expenses of $6.7 million for
unexpired leases, costs to dispose of facilities, and costs of personnel to
effect the closures and consolidations. Also as a result of the review and due
to a combination of historical losses, anticipated future losses, and inadequate
cash flows, the segment recorded an impairment loss of $22.3 million on assets
to be disposed of and $9.5 million on assets held for use. After the impairment
charge, the remaining net book value of the assets to be disposed of was
immaterial. The benefits of these actions, primarily due to reduced employee and
facility expenses, will be partially offset by the costs of plant consolidations
over the next several years and will grow from approximately $3.0 million in
fiscal 1998 to roughly $6.0 million in fiscal 2001. The restructuring is not
expected to materially impact future liquidity or other sources and uses of
capital.
-42-
<PAGE> 19
Page 42
Exhibit 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
National Service Industries, Inc.
Textile rental segment revenues for 1996 were $531 million, compared with
$546 million in 1995, and reflected lost sales from divested branches and
continued price pressure. Operating income decreased 17.3 percent to 8.0 percent
of revenues, compared with 9.3 percent of revenues in 1995, as a result of 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.
Chemical segment revenues for 1997 grew 9.5 percent to $403 million, from
$368 million in 1996, as a result of incremental volumes from U.S. and Canadian
acquisitions. Operating income declined as a percent of sales due to higher
manufacturing costs and investments to increase the size and capability of the
segment's fully commissioned sales force. A study of the segment's European
operations resulted in a severance-related charge of $1.5 million for
operational reorganizations and an asset impairment loss of $8.1 million
resulting from historical losses and inadequate future cash flows. Fiscal 1996
revenues advanced 4.3 percent to $368 million, from $353 million in 1995. The
gains resulted from higher unit volumes, predominantly in domestic operations.
Fiscal 1996 operating income grew 9.6 percent to 10.6 percent of revenues, from
10.0 percent of revenues in 1995, as margins benefited from the volume increases
and lower material and operating costs.
Envelope segment 1997 sales increased 4.1 percent to $131 million from
$126 million in 1996 and $110 million in 1995. The impact of volume gains
earlier in the year was reduced by contractual price adjustments in the fourth
quarter due to reduced paper costs. Operating profit was only slightly ahead of
1996 levels due to increased manufacturing costs associated with the segment's
growth initiatives. 1995 operating profit grew as a result of volume increases.
The decrease in sales and operating profits of the "other" category
reflects the divestiture of the insulation service business in February 1997.
Corporate income declined $7.4 million in 1997 due to the fourth quarter
asset impairment recorded to reflect the $1.2 million appraised value of an
asset held for sale and due to accrued incentive plan costs. Corporate income
increased in 1996 and declined in 1995 mainly because of 1995 accruals for
higher business taxes. During all periods presented, the company benefited from
higher average levels of short-term investments. Foreign currency exchange rate
fluctuations were unfavorable in 1997, compared with favorable results in 1996
and 1995. Net interest expense varied only slightly for the three years
presented.
Consolidated income before taxes grew 10.6 percent and net income grew 6.1
percent in 1997. Excluding unusual gains and expenses, improvement resulted
primarily from growth in the lighting equipment segment. In 1996, consolidated
income before taxes and net income grew 7.5 percent, compared with 13.8 percent
for both measures in 1995. The 1996 decline was due primarily to a lower rate of
growth in segment operating profits. The 1997 provision for income taxes was
40.1 percent of pretax income, compared with 37.5 percent in 1996 and 1995. The
increase in the 1997 rate was due mainly to the higher rate applicable to the
gain on the textile rental divestiture.
Outlook
Fiscal 1997 was a year in which NSI solidified its vision of its businesses and
took actions to position the company for the future. Fiscal 1998 sales are
anticipated to be down slightly due to the lost sales of the divested
businesses. Sales growth of continuing businesses is expected to exceed 5.0
percent, given the continued strength in the lighting equipment market and
growth initiatives in the chemical and envelope segments. NSI will continue to
invest for future profitable growth of the remaining businesses and to increase
the pace of acquisitions. The year-over-year gain in earnings per share is
expected to be in line with 1997's growth performance.
-43-
<PAGE> 20
Page 43
Exhibit 13
Ten-Year Financial Summary
National Service Industries, Inc.
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per-share data) 1997 1996 1995 1994
<S> <C> <C> <C> <C>
Operating Results
Net sales of products $ 1,542,644 $ 1,482,937 $ 1,424,180 $ 1,337,410
Service revenues 493,535 530,625 546,447 544,454
Total revenues 2,036,179 2,013,562 1,970,627 1,881,864
Cost of products sold 945,794 933,405 908,869 875,055
Cost of services 283,024 304,381 299,687 286,519
Selling and administrative expenses 633,740 616,513 601,143 576,463
Interest expense (income), net 1,624 1,565 1,648 2,788
Gain on sale of businesses (1) (75,097) (7,579) (5,726) (2,249)
Restructuring expense, asset impairments, and other 63,091 -- -- --
charges
Other expense, net (1) 4,925 3,429 14,509 11,090
Income before taxes 179,078 161,848 150,497 132,198
Income taxes 71,800 60,700 56,400 49,500
Net income $ 107,278 $ 101,148 $ 94,097 $ 82,698
Per-Share Data (2)
Net income $ 2.37 $ 2.11 $ 1.93 $ 1.67
Cash dividends 1.19 1.15 1.11 1.07
Stockholders' equity 15.20 15.45 15.41 14.77
Financial Ratios
Current ratio 2.8 3.1 3.2 3.2
Net income as a percent of sales 5.3% 5.0% 4.8% 4.4%
Return on average stockholders' equity 15.5% 13.6% 13.0% 11.6%
Dividends as a percent of current year earnings 50.2% 54.6% 57.6% 64.1%
Percent of debt to total capitalization 4.6% 4.2% 4.3% 4.3%
<CAPTION>
(Dollar amounts in thousands, expert per-share data) 1993 1992 1991
<S> <C> <C> <C>
Operating Results
Net sales of products $ 1,257,906 $ 1,189,684 $ 1,164,181
Service revenues 546,916 444,127 437,534
Total revenues 1,804,822 1,633,811 1,601,715
Cost of products sold 832,264 810,552 791,355
Cost of services 281,551 236,474 240,376
Selling and administrative expenses 556,162 462,240 456,622
Interest expense (income), net 3,645 (837) (4,332)
Gain on sale of businesses (1) (1,379) -- --
Restructuring expense, asset impairments, and other -- -- 63,467
charges
Other expense, net (1) 13,063 8,474 5,591
Income before taxes 119,516 116,908 48,636
Income taxes 44,400 42,800 16,400
Net income $ 75,116 $ 74,108 $ 32,236
Per-Share Data (2)
Net income $ 1.52 $ 1.50 $. 65
Cash dividends 1.03 .99 .95
Stockholders' equity 14.21 13.79 13.33
Financial Ratios
Current ratio 2.9 3.5 3.4
Net income as a percent of sales 4.2% 4.5% 2.0%
Return on average stockholders' equity 10.9% 11.1% 4.8%
Dividends as a percent of current year earnings 67.9% 66.3% 146.2%
Percent of debt to total capitalization 4.7% 4.2% 5.0%
<CAPTION>
(Dollar amounts in thousands, expert per-share data) 1990 1989 1988
<S> <C> <C> <C>
Operating Results
Net sales of products $ 1,250,833 $ 1,183,666 $ 1,093,163
Service revenues 396,981 355,845 321,025
Total revenues 1,647,814 1,539,511 1,414,188
Cost of products sold 832,867 800,385 741,383
Cost of services 219,673 198,262 179,793
Selling and administrative expenses 438,949 397,160 361,845
Interest expense (income), net (3,712) (3,805) (2,429)
Gain on sale of businesses (1) -- (3,080) --
Restructuring expense, asset impairments, and other -- -- --
charges
Other expense, net (1) 4,322 2,571 374
Income before taxes 155,715 148,018 133,222
Income taxes 56,000 53,300 47,100
Net income $ 99,715 $ 94,718 $ 86,122
Per-Share Data (2)
Net income $ 2.02 $ 1.92 $ 1.75
Cash dividends .90 .82 .73
Stockholders' equity 13.68 12.44 11.33
Financial Ratios
Current ratio 4.5 4.8 5.0
Net income as a percent of sales 6.1% 6.2% 6.1%
Return on average stockholders' equity 15.6% 16.3% 16.3%
Dividends as a percent of current year earnings 44.6% 42.6% 41.8%
Percent of debt to total capitalization 4.2% 3.5% 3.9%
</TABLE>
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<PAGE> 21
Page 44
Exhibit 13
Ten-Year Financial Summary (continued)
National Service Industries, Inc.
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per-share data) 1997 1996 1995 1994
<S> <C> <C> <C> <C>
Financial Position
Increase (decrease) in:
Cash and cash equivalents $ (1,539) $ (20,740) $ 20,783 $ 42,766
Short-term investments 204,751 (3,047) 1,019 (2,197)
Net working capital 498,758 408,955 437,840 413,114
Short-term debt $ 5,889 $ 6,742 $ 6,486 $ 5,765
Long-term debt 26,197 24,920 26,776 26,863
Total debt 32,086 31,662 33,262 32,628
Stockholders' equity 671,813 718,008 744,404 727,385
Capitalization $ 703,899 $ 749,670 $ 777,666 $ 760,013
Other Data
Capital expenditures (including acquisitions) $ 56,990 $ 65,566 $ 59,910 $ 42,508
Depreciation and amortization 57,981 47,643 57,130 60,548
Total assets 1,106,352 1,094,646 1,131,346 1,101,261
Deferred income taxes 34,093 63,347 65,756 73,319
Self-insurance reserves 57,056 63,369 67,830 61,081
Other long-term liabilities 35,193 27,576 24,010 22,940
Weighted average number of shares outstanding (in 45,191 47,941 48,696 49,547
thousands) (2)
Shareholders 7,165 6,281 6,655 7,034
Employees 16,100 20,600 21,100 22,000
Use of Total Revenues
Salaries and wages $ 572,517 $ 580,571 $ 568,616 $ 565,859
Materials and supplies 909,082 875,658 832,668 783,610
Other operating expenses (1) 333,199 348,142 370,575 349,849
Taxes and licenses 124,805 115,621 110,397 102,097
Gain on sale of businesses (1) (75,097) (7,579) (5,726) (2,249)
Restructuring expense, asset impairments, and other 63,091 -- -- --
charges
Dividends paid 54,222 55,272 54,156 53,042
Retained earnings 54,360 45,877 39,941 29,656
$ 2,036,179 $ 2,013,562 $ 1,970,627 $ 1,881,864
<CAPTION>
(Dollar amounts in thousands, except per-share data) 1993 1992 1991 1990
<S> <C> <C> <C> <C>
Financial Position
Increase (decrease) in:
Cash and cash equivalents $ (85,284) $ 27,617 $ (50,437) $ 23,433
Short-term investments (3,736) (5,551) 12,813 (27,247)
Net working capital 363,575 399,893 386,306 447,800
Short-term debt $ 6,196 $ 1,434 $ 3,254 $ 2,253
Long-term debt 28,418 28,359 31,373 27,465
Total debt 34,614 29,793 34,627 29,718
Stockholders' equity 704,023 682,954 660,567 675,444
Capitalization $ 738,637 $ 712,747 $ 695,194 $ 705,162
Other Data
Capital expenditures (including acquisitions) $ 82,171 $ 49,789 $ 90,229 $ 82,932
Depreciation and amortization 62,097 53,816 50,249 42,821
Total assets 1,081,510 1,036,908 1,008,319 960,622
Deferred income taxes 78,286 87,150 96,627 99,277
Self-insurance reserves 56,335 47,638 38,428 15,222
Other long-term liabilities 27,110 28,677 22,015 16,067
Weighted average number of shares outstanding (in 49,556 49,539 49,540 49,389
thousands) (2)
Shareholders 7,262 7,554 7,996 8,248
Employees 22,200 20,100 20,900 21,800
Use of Total Revenues
Salaries and wages $ 572,163 $ 502,709 $ 501,502 $ 491,334
Materials and supplies 760,551 700,338 683,871 713,310
Other operating expenses (1) 301,356 273,330 258,919 246,288
Taxes and licenses 97,015 83,326 59,889 97,167
Gain on sale of businesses (1) (1,379) -- -- --
Restructuring expense, asset impairments, and other -- -- 63,467 --
charges
Dividends paid 51,041 49,105 47,124 44,506
Retained earnings 24,075 25,003 (13,057) 55,209
$ 1,804,822 $ 1,633,811 $ 1,601,715 $1,647,814
<CAPTION>
(Dollar amounts in thousands, except per-share data) 1989 1988
<S> <C> <C>
Financial Position
Increase (decrease) in:
Cash and cash equivalents $ 14,612 $ (24,786)
Short-term investments (19,633) 35,971
Net working capital 450,185 439,990
Short-term debt $ 1,372 $ 1,237
Long-term debt 20,765 21,391
Total debt 22,137 22,628
Stockholders' equity 612,668 558,160
Capitalization $ 634,805 $ 580,788
Other Data
Capital expenditures (including acquisitions) $ 66,491 $ 55,394
Depreciation and amortization 36,260 31,037
Total assets 886,358 823,906
Deferred income taxes 101,320 103,021
Self-insurance reserves 15,213 15,016
Other long-term liabilities 17,964 15,330
Weighted average number of shares outstanding (in 49,255 49,258
thousands) (2)
Shareholders 8,459 8,851
Employees 20,800 20,400
Use of Total Revenues
Salaries and wages $ 465,522 $ 428,325
Materials and supplies 668,655 616,223
Other operating expenses (1) 222,350 201,478
Taxes and licenses 91,346 82,040
Gain on sale of businesses (1) (3,080) --
Restructuring expense, asset impairments, and other -- --
charges
Dividends paid 40,389 35,960
Retained earnings 54,329 50,162
$ 1,539,511 $ 1,414,188
</TABLE>
(1) Prior-year amounts have been restated to conform to current-year
presentation.
(2) Restated to reflect stock split of 3 for 2 effective January 13, 1987.
-45-
<PAGE> 22
Page 45
Exhibit 13
Shareholder Information
National Service Industries, Inc.
Executive Offices
NSI Center
1420 Peachtree Street, NE
Atlanta, Georgia 30309-3002
(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, NE
Suite 2500
Atlanta, Georgia 30303-1846
(404) 658-1776
Annual Meeting
10:00 a.m., Wednesday, January 7, 1998
Woodruff Arts Center
1280 Peachtree Street, NE
Atlanta, Georgia 30309-3502
Listing
New York Stock Exchange. Ticker Symbol: NSI
Shareholders of Record
The number of shareholders of record holding NSI common stock was 7,165 as of
October 3, 1997.
Reports Available to Shareholders
Copies of the following company reports may be obtained, without charge:
1997 Annual Report to the Securities and Exchange Commission, filed on Form
10-K; and Quarterly Reports to the Securities and Exchange Commission, filed on
Form 10-Q.
Requests should be directed to:
National Service Industries, Inc.
NSI Center
Attention: Investor Relations, MS 831
1420 Peachtree Street, NE
Atlanta, Georgia 30309-3002
(404) 853-1201
Web Site
www.nationalservice.com
Dividend Reinvestment Plan
An automatic dividend reinvestment plan is available to all shareholders of
record. Dividends can be automatically reinvested in NSI common stock.
Participants may also add cash for the purchase of additional shares. For more
information, contact the Transfer Agent at (800) 633-4236.
<PAGE> 23
Cash Dividends
NSI now offers direct deposit of dividends to bank, savings, or money market
accounts. For more information, contact the Transfer Agent at (800) 633-4236.
Common Share Prices and Dividends per Share
<TABLE>
<CAPTION>
Dividends
Price per Share Paid per
High Low Share
<S> <C> <C> <C>
1997
1st Quarter $38 1/4 $33 1/2 $.29
2nd Quarter 39 7/8 33 5/8 .30
3rd Quarter 44 3/4 37 1/4 .30
4th Quarter 52 1/4 43 1/4 .30
1996
1st Quarter $32 3/4 $28 5/8 $.28
2nd Quarter 35 1/4 30 3/4 .29
3rd Quarter 39 7/8 32 1/2 .29
4th Quarter 40 1/4 37 1/2 .29
</TABLE>
The above common share prices are as quoted on the New York Stock Exchange.
Inside Back Cover
<PAGE> 1
Page 46
Exhibit 21
LIST OF SUBSIDIARIES
Registrant - National Service Industries, Inc.
Registrant owns, directly or indirectly, all of the common stock of the
following subsidiaries:
<TABLE>
<CAPTION>
State or Other
Jurisdiction
of Incorporation
Subsidiary Principal Location or Organization
- ----------------------------------------- ----------------------- ----------------
<S> <C> <C>
Chemical Continental Industries S.A.R.L. Nogent-le-Roi, France France
Chemical Specialties B.V. Bergen op Zoom, Holland Netherlands
Graham International B.V. Bergen op Zoom, Holland Netherlands
Kem Europa B.V. Bergen op Zoom, Holland Netherlands
Keplime B.V. Bergen op Zoom, Holland Netherlands
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
NSI Enterprises, Inc. Atlanta, Georgia California
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
Research Development Industries S.A. Nogent-le-Roi, France France
Resolve S.A. Nogent-le-Roi, France France
Selig Company of Puerto Rico, Inc. Atlanta, Georgia Puerto Rico
ZEP Belgium S.A. Brussels, Belgium Belgium
ZEP Europe B.V. Bergen op Zoom, Holland Netherlands
ZEP FRANCE Nogent-le-Roi, France France
Zep Industries S.A. Nogent-le-Roi, France France
Zep Italia S.r.l. Aprilia, Italy Italy
Zep Manufacturing B.V. Bergen op Zoom, Holland Netherlands
Zep Manufacturing Company Santa Clara, California Delaware
Zep S.A. Bern, Switzerland Switzerland
</TABLE>
The consolidated financial statements include the accounts of all subsidiaries.
<PAGE> 1
Page 47
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated October 20, 1997, included or incorporated by
reference in National Service Industries, Inc. Form 10-K for the year ended
August 31, 1997, into the Company's previously filed Registration Statement File
Nos. 33-36980, 33-51339, 33-51341, 33-51343, 33-51345, 33-51351, 33-51355,
33-51357, 33-60715, 33-63041, and 33-63043.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 20, 1997
<PAGE> 1
Page 48
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, 1997, 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 17, 1997
<PAGE> 2
Page 49
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,
1997, 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 17, 1997
<PAGE> 3
Page 50
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,
1997, 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/ Thomas C. Gallagher
---------------------------------
Thomas C. GAllagher
Dated: November 17, 1997
<PAGE> 4
Page 51
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,
1997, 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 17, 1997
<PAGE> 5
Page 52
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,
1997, 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 17, 1997
<PAGE> 6
Page 53
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,
1997, 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 17, 1997
<PAGE> 7
Page 54
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,
1997, 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 17, 1997
<PAGE> 8
Page 55
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,
1997, 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/ Samuel A. Nunn
---------------------------------
Samuel A. Nunn
Dated: November 17, 1997
<PAGE> 9
Page 56
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,
1997, 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 17, 1997
<PAGE> 10
Page 57
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,
1997, 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 17, 1997
<PAGE> 11
Page 58
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,
1997, 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/ Barrie A. Wigmore
---------------------------------
Barrie A. Wigmore
Dated: November 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL
SERVICE INDUSTRIES CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1997 AND
THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED AUGUST 31, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 57,123
<SECURITIES> 205,302
<RECEIVABLES> 262,991
<ALLOWANCES> 4,302
<INVENTORY> 179,046
<CURRENT-ASSETS> 780,758
<PP&E> 593,038
<DEPRECIATION> 356,308
<TOTAL-ASSETS> 1,106,352
<CURRENT-LIABILITIES> 282,000
<BONDS> 26,197
0
0
<COMMON> 57,919
<OTHER-SE> 613,894
<TOTAL-LIABILITY-AND-EQUITY> 1,106,352
<SALES> 1,542,644
<TOTAL-REVENUES> 2,036,179
<CGS> 945,794
<TOTAL-COSTS> 1,228,818
<OTHER-EXPENSES> 622,159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,124
<INCOME-PRETAX> 179,078
<INCOME-TAX> 71,800
<INCOME-CONTINUING> 107,278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,278
<EPS-PRIMARY> 2.37
<EPS-DILUTED> 2.35
</TABLE>
