Page 1 of 87
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 31,1998 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, 1998 the aggregate market value of the voting stock held by nonaffiliates of
the registrant was $ 1,483,569,010.
The number of shares outstanding of the registrant's common stock, $1.00 par
value, was 41,426,705 shares as of October 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
Part I, Item 1 1998 Annual Report
Part II, Items 5, 6, 7, and 8 1998 Annual Report
Part III, Items 10, 11, 12, and 13 1998 Proxy Statement
Part IV, Item 14 1998 Annual Report
<PAGE>
Page 2
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
Table of Contents
Page No.
Part I
Item 1. Business 3-4
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters 6
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 8. Financial Statements and Supplementary Data 6
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 6
Part III
Item 10. Directors and Executive Officers of the Registrant 7
Item 11. Executive Compensation 7
Item 12. Security Ownership of Certain Beneficial Owners and Management 7
Item 13. Certain Relationships and Related Transactions 7
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 8-12
Signatures 13
Financial Statement Schedules 14-15
Index to Exhibits 16
<PAGE>
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>
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 cleaners Throughout the United
Zep Manufacturing Company of Canada including sanitizers, States, Canada,
Zep Europe disinfectants, polishes, floor Puerto Rico, Western
Selig Chemical Industries finishes, degreasers, water Europe, and Australia.
National Chemical treatments, pesticides,
insecticides, and herbicides
ENVELOPE
Atlantic Envelope Company Custom business envelopes and South, Southwest, and Northeast.
Allen Envelope Corporation courier packages and specialty
ATENCO Filing Systems filing products.
Lyon Folder Company
Techno-Aide/Stumb Metal Products Company
Products for the construction industry
LIGHTING EQUIPMENT
Lithonia Lighting Fluorescent fixtures for Throughout the United
commercial, industrial, and States, Canada,
institutional applications; Mexico and overseas.
high-intensity discharge
fixtures for industrial and
commercial use; architectural
outdoor lighting; downlighting;
sportslighting; track lighting;
vandal-resistant fixtures;
emergency lighting; lighting
and dimming controls; and
manufactured wiring systems
</TABLE>
<PAGE>
Page 4
<TABLE>
<S> <C> <C>
Divisions Principal Products or Services Marketing Area
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
Lithonia Lighting Residential fluorescent, recessed Throughout North America.
Home-Vue Lighting and track lighting, and
Light Concepts 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 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.
Research and Development
Company-sponsored research and development expenses related to present and
future products are expensed as incurred. Research and development expenses were
$13.6 million, $8.6 million, and $8.7 million in 1998, 1997, and 1996,
respectively.
Raw Materials
There were no significant shortages of materials or components during the years
ended August 31, 1998, 1997, and 1996. No one commodity or supplier provided a
significant portion of the company's material requirements.
Total Employment
The registrant employs approximately 16,700 people.
Financial Information about Industry Segments
The financial information required by this item is included on page 40 of the
company's annual report for the year ended August 31, 1998, under the caption
"Business Segment Information" and is incorporated herein by reference.
<PAGE>
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:
Number of Facilities
Division Owned Leased Nature of Facilities
Lighting Equipment 7 5 Manufacturing plants
1 7 Distribution centers
- 10 Field warehouses
Textile Rental 33 8 Linen plants
- 23 Linen service centers
- 1 Distribution centers
Chemical 10 2 Manufacturing plants
20 51 Distribution centers
- 3 Sales offices
Envelope 7 5 Manufacturing plants
- 2 Warehouses
Corporate Office 1 - Corporate headquarters
ITEM 3. LEGAL PROCEEDINGS
The registrant is neither a party to nor is its property subject to any material
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the three months
ended August 31, 1998.
<PAGE>
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, 1998, under the
captions "Listing," "Shareholders of Record," and "Common Share Prices and
Dividends per Share" and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included on pages 46 and 47 of the
company's annual report for the year ended August 31, 1998, 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 42 through 45 of the
company's annual report for the year ended August 31, 1998, 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,
capital expenditures, 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 non-residential construction awards; and (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, as well as
share repurchases and acquisitions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included on pages 26 through 41 of the
company's annual report for the year ended August 31, 1998, under the captions
"Consolidated Balance Sheets," "Consolidated Statements of Income," Consolidated
Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows,"
"Notes to Consolidated Financial Statements," and "Report of Independent Public
Accountants" and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
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 6, 1999, 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 organization meeting of the
Board of Directors in January.
<TABLE>
<S> <C>
Name and age of each executive officer Business experience of executive officers during the five years
and positions held with the company ended August 31, 1998 and term in office.
James S. Balloun, age 60 Mr. Balloun was elected Chairman and Chief Executive Officer
Chairman, President, and effective February, 1996 and assumed the role of President in
Chief Executive Officer October, 1996. Previously, he served McKinsey & Company as a
and Director Director.
David Levy, age 61 Mr. Levy was elected Executive Vice President, Administration in
Executive Vice President, October, 1992. He served as Senior Vice President, Secretary and
Administration and Counsel Counsel from 1982 through September, 1992.
and Director
Brock A. Hattox, age 50 Mr. Hattox was elected Executive Vice President and Chief Financial
Executive Vice President and Officer effective September, 1996. Previously, he served McDermott
Chief Financial Officer International, Inc., as Chief Financial Officer since 1991 and
President of the Engineering and Construction Group since 1995.
Stewart A. Searle III, age 47 Mr. Searle was elected Senior Vice President, Planning and
Senior Vice President, Development effective June, 1996. Previously, he served four years
Planning and Development 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 13 under
the captions "Compensation of Directors," "Other Information Concerning the
Board and its Committees," "Compensation Committee Interlocks and Insider
Participation," "Summary Compensation Table," "Aggregated Option Exercises and
Fiscal Year-End Option Values," "Option Grants in Last Fiscal Year," "Long-Term
Incentive Plans - Awards in Last Fiscal Year," "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 6, 1999, 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 6, 1999,
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 6, 1999, filed with the
Commission pursuant to Regulation 14A, and is incorporated herein by reference.
<PAGE>
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 1998 Annual Report contains the consolidated
balance sheets as of August 31, 1998 and 1997, the related
consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended August 31,
1998, and the related report of Arthur Andersen LLP. The
financial statements, incorporated herein by reference, include
the following:
Consolidated Balance Sheets - August 31, 1998 and 1997
Consolidated Statements of Income for the years ended August 31,
1998, 1997, and 1996
Consolidated Statements of Stockholders' Equity for the years
ended August 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the years ended August
31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Report of Independent Public Accountants on Schedule
Schedule Number
II Valuation and Qualifying Accounts
Any of schedules I through V not listed above have been omitted
because they are not applicable or the required information is
included in the consolidated financial statements or notes
thereto.
(3) Exhibits filed with this report
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
3 Amended and Restated Certificate of Incorporation and
By-Laws
4 Amended and Restated Rights Agreement dated as of
December 17, 1997 between National Service Industries, Inc.
and Wachovia Bank, N.A. and Amendment (replacing
Wachovia Bank, N.A. with First Chicago Trust Company)
10(i)A US$250,000,000 Credit Agreement dated as of July 23, 1996
among National Service Industries, Inc., Certain of its
Subsidiaries, Certain Listed Banks, Wachovia Bank of
Georgia, N.A., as Agent, and Nationsbank, N.A. (South)
and Suntrust Bank, Atlanta, as Co-Agents
10(iii)A Management Contracts and Compensatory Arrangements:
(1) Executives' Deferred Compensation Plan and Amendments
<PAGE>
Page 9
ITEM 14. (Continued)
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
(2) Restated and Amended Supplemental Retirement Plan for
Executives of National Service Industries, Inc. ,
Amendments and Appendices
(3) The National Service Industries, Inc. Senior Management
Benefit Plan and Amendments
(4) Severance Protection Agreement between National Service
Industries, Inc. and David Levy and Amendment
(5) Severance Protection Agreements between National
Service Industries, Inc. and
(a) James S. Balloun
(b) Stewart A. Searle III
(c) Brock A. Hattox
and Amendments
(6) 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
(7) Long-Term Incentive Program and Amendment
(8) Incentive Stock Option Agreements between National
Service Industries, Inc. and
(a) David Levy
(b) Stewart A. Searle III
(c) Brock A. Hattox
(9) Nonqualified Stock Option Agreement for Corporate
Officers between National Service Industries, Inc. and
(a) David Levy
(b) Brock A. Hattox
(10) Nonqualified Stock Option Agreement for Corporate
Officers Effective Beginning September 21, 1994 between
National Service Industries, Inc. and David Levy
(11) Benefits Protection Trust Agreement and Amendments
(12) Executive Benefits Trust Agreement and Amendments
(13) 1992 Nonemployee Directors' Stock Option Plan Effective
September 16, 1992 and Amendment
<PAGE>
Page 10
ITEM 14. (Continued)
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
(14) 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) Barrie A. Wigmore
(15) National Service Industries, Inc. Executive Savings
Plan Effective September 1, 1994 and Amendment
(16) Split-Dollar Agreement among National Service
Industries, Inc., D. Raymond Riddle, and Wachovia Bank
of Georgia, N.A. Dated January 4, 1993 and Amendment
(17) Consulting Agreement between National Service
Industries, Inc. and D. Raymond Riddle
(18) Nonqualified Stock Option Agreement Effective January
3, 1996 between National Service Industries, Inc. and
James S. Balloun
(19) National Service Industries, Inc. Nonemployee Director
Deferred Stock Unit Plan, Effective June 1, 1996 and
Amendments
(20) Employment Letter Agreement between National Service
Industries, Inc. and Brock A. Hattox, Dated August 26,
1996
(21) 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
(22) 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
(23) National Service Industries, Inc. Long-Term Achievement
Incentive Plan Effective September 17, 1996
<PAGE>
Page 11
ITEM 14. (Continued)
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
(24) 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]
(25) National Service Industries, Inc. Supplemental Deferred
Savings Plan Effective September 18, 1996
(26) Stock Option Agreement for Nonemployee Directors Dated
March 19, 1997 between National Service Industries,
Inc. and
(a) John L. Clendenin
(b) Samuel A. Nunn
(27) Employment Letter Agreement between National Service
Industries, Inc. and James S. Balloun, Dated
February 1, 1996
[refiled to disclose confidential information
previously omitted and filed separately with the
Securities and Exchange Commission]
(28) Incentive Stock Option Agreement Effective Beginning
September 23, 1997 between National Service Industries,
Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(29) Nonqualified Stock Option Agreement For Executive
Officers Effective Beginning September 23, 1997 between
National Service Industries, Inc. and
(a) James S.Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(30) 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]
(31) National Service Industries, Inc. Management
Compensation and Incentive Plan as Amended and
Restated, Effective as of September 1, 1998, Subject to
Approval by Shareholders at the Annual Meeting to be
held on January 6, 1999
<PAGE>
Page 12
ITEM 14. (Continued)
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
13 Information Incorporated by Reference from Annual Report for the
Year Ended August 31, 1998
21 List of Subsidiaries
23 Consent of Independent Public Accountants
24 Powers of Attorney
27 Financial Data Schedule for the Year Ended August 31, 1998
(b) No reports on Form 8-K were filed for the three months ended August 31,
1998.
(c) Exhibits 2, 9, 11, 12, 18, 22, and 28 have been omitted because they are
not applicable.
(d) Not applicable.
<PAGE>
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 18, 1998 By: /s/ Helen D. Haines
Helen D. Haines
Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title
James S. Balloun* Chairman, President, and
Chief Executive Officer 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 18, 1998
David Levy* Director
Bernard Marcus* Director
Charles W. McCall 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
<PAGE>
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 9,1998. 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 9, 1998
<PAGE>
Page 15
SCHEDULE II
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997, AND 1996
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Balance at Additions Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts (1) Deductions (2) of Period
YEAR ENDED AUGUST 31, 1998:
Deducted in the balance sheet
from the asset to which it applies-
Reserve for doubtful accounts $ 4,302 $ 3,558 $ 214 $ 3,443 $ 4,631
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
</TABLE>
(1) Recoveries credited to reserve, reserves recorded in acquisitions, and
reserves removed in sale of businesses.
(2) Uncollectible accounts written off.
<PAGE>
Page 16
INDEX TO EXHIBITS
<TABLE>
Page No.
<S> <C> <C>
EXHIBIT 3 (a)Amended and Restated Certificate of Reference is made to Exhibit 3 of
Incorporation registrant's Form 10-Q for the quarter
ended February 28, 1998, which is
incorporated herein by reference.
(b)By-Laws as Amended and Restated June 21, 1989 25
and Amended March 24, 1998
EXHIBIT 4 (a) Amended and Restated Rights Agreement dated Reference is made to Exhibit 4.1 of
as of December 17, 1997 between National Service registrant's Form 8-A/A as filed with the
Industries, Inc. and Wachovia Bank, N.A. Commission on December 17, 1997, which is
(replacing Wachovia Bank, N.A. with First Chicago incorporated herein by reference.
Trust Company)
(b) First Amendment dated as of April 30, 1998 Reference is made to Exhibit 1 of
between National Service Industries, Inc. and registrant's Form 8-A/A-3 as filed
First Chicago Trust Company of New York, to the with the Commission on June 22, 1998,
Amended and Restated Rights Agreement, dated as which is incorporated herein by reference.
of December 17, 1997 between National Service
Industries, Inc. and Wachovia Bank, N.A
EXHIBIT 10(i)A US$250,000,000 Credit Agreement dated as of July Reference is made to Exhibit 10(i)A of
23, 1996 among National Service Industries, Inc., registrant's Form 10-Q for the quarter
Certain of its Subsidiaries, Certain Listed ended May 31, 1998, which is incorporated
Banks, Wachovia Bank of Georgia, N.A., as Agent, herein by reference.
and Nationsbank, N.A. (South) and Suntrust Bank,
Atlanta, as Co-Agents
EXHIBIT 10(iii)A Management Contracts and Compensatory
Arrangements:
(1) (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 is
incorporated herein by reference.
(b)First Amendment To Executives' Deferred Reference is made to Exhibit
Compensation Plan, Dated September 21, 1989 10(iii)A(b)-(ii) of registrant's Form
10-K for the fiscal year ended August
31, 1989, which is incorporated herein
by reference.
(c)Second Amendment to Executives' Reference is made to Exhibit
Deferred Compensation Plan, Effective as 10(iii)A(a) of registrant's Form 10-Q
of September 1, 1994. for the quarter ended November 30,
1994, which is incorporated herein by
reference.
(d)Amendment No. 3 to Executives' Deferred Reference is made to Exhibit
Compensation Plan, Dated August 31, 1996 10(iii)A(2)(d) of registrant's Form
10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
<PAGE>
Page 17
INDEX TO EXHIBITS
Page No.
(2) (a)Restated and Amended Supplemental Reference is made to Exhibit
Retirement Plan for Executives of National 10(iii)A(c)-(i) of registrant's Form
Service Industries, Inc. 10-K for the fiscal year ended August
31, 1993, which is incorporated herein
by reference.
(b)Amendment to Restated and Amended Reference is made to Exhibit
Supplemental Retirement Plan for 10(iii)A(a) of registrant's Form 10-Q
Executives of National Service Industries, for the quarter ended February 28,
Inc. 1994, which is incorporated herein by
reference.
(c)Appendix B to Restated and Amended Reference is made to Exhibit
Supplemental Retirement Plan for 10(iii)A(e) of registrant's Form 10-Q
Executives of National Service Industries, for the quarter ended February 29,
Inc., Effective February 1, 1996 1996, which is incorporated herein by
reference.
(d)Appendix C to Restated and Amended Reference is made to Exhibit
Supplemental Retirement Plan for 10(iii)A(d) of registrant's Form 10-Q
Executives of National Service Industries, for the quarter ended May 31, 1996,
Inc., Effective May 31, 1996 which is incorporated herein by
reference.
(e)Amendment No. 2 to Restated and Amended Reference is made to Exhibit
Supplemental Retirement Plan for 10(iii)A(3)(e) of registrant's Form
Executives of National Service Industries, 10-K for the fiscal year ended August
Inc., Dated August 31, 1996 31, 1996, which is incorporated herein
by reference.
(3) (a)The National Service Industries, Inc. Reference is made to Exhibit
Senior Management Benefit Plan, Dated 10(iii)A(f) of registrant's Form 10-K
August 15, 1985 for the fiscal year ended August 31,
1985, which is incorporated herein by
reference.
(b)First Amendment to National Service Reference is made to Exhibit
Industries, Inc. Senior Management Benefit 10(iii)A(e)-(ii) of registrant's Form
Plan, Dated September 21, 1989 10-K for the fiscal year ended August
31, 1989, which is incorporated herein
by reference.
(c)Amendment No. 2 to National Service Reference is made to Exhibit
Industries, Inc. Senior Management Benefit 10(iii)A(d)(iii) of registrant's Form
Plan, Dated September 16, 1994 10-K for the fiscal year ended August
31, 1994, which is incorporated herein
by reference.
(d)Amendment No. 3 to National Service Reference is made to Exhibit
Industries, Inc. Senior Management 10(iii)A(4)(d) of registrant's Form
Benefit Plan, Dated August 31, 1996 10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
<PAGE>
Page 18
INDEX TO EXHIBITS
Page No.
(4) (a)Severance Protection Agreement between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(h) of registrant's Form 10-K
David Levy for the fiscal year ended August 31,
1989, which is incorporated herein by
reference.
(b)Amendment to Severance Protection Reference is made to Exhibit
Agreement between National Service 10(iii)A(5)(b) of registrant's Form
Industries, Inc. and David Levy, Dated 10-K for the fiscal year ended August
August 31, 1996 31, 1996, which is incorporated herein
by reference.
(5) (a)Severance Protection Agreements between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(c) of registrant's Form 10-Q
(i) James S. Balloun (February 1, 1996) for the quarter ended February 29,
(ii) Stewart A. Searle III (June 19, 1996, which is incorporated herein by
1996) reference.
(iii) Brock A. Hattox (September 9, 1996)
(b)Amendment to Severance Protection Reference is made to Exhibit
Agreements, Dated August 31, 1996 10(iii)A(6)(b) of registrant's Form
10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
(6) (a)Bonus Letter Agreements between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(j) of registrant's Form 10-K
(i) James S. Balloun (February 1, 1996) for the fiscal year ended August 31,
(ii) David Levy (October 1, 1989) 1989, and to Exhibit 10(iii)A(d) of the
(iii) Stewart A. Searle III (June 19, 1996) registrant's Form 10-Q for the quarter
(iv) Brock A. Hattox (September 9, 1996) ended February 29, 1996, which are
incorporated herein by reference.
(b)Supplemental Letter Agreement, Dated Reference is made to Exhibit
August 31 1996 10(iii)A(7) (b) of registrant's Form
10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
(7) (a)Long-Term Incentive Program, Dated Reference is made to Exhibit
September 20, 1989 10(iii)A(k) of 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 Incentive Reference is made to Exhibit
Program, Dated September 21, 1994 10(iii)A(h)(ii) of registrant's Form
10-K for the fiscal year ended August
31, 1994, which is incorporated herein
by reference.
<PAGE>
Page 19
INDEX TO EXHIBITS
Page No.
(8) Incentive Stock Option Agreements between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(1) of registrant's Form 10-K
(a) David Levy for the fiscal year ended August 31,
(b) Stewart A. Searle III 1989, which is incorporated herein by
(c) Brock A. Hattox reference.
(9) Nonqualified Stock Option Agreement for Reference is made to Exhibit
Corporate Officers between National 10(iii)A(j) of registrant's Form 10-K
Service Industries, Inc. and for the fiscal year ended August 31,
(a) David Levy 1992, which is incorporated herein by
(b) Brock A. Hattox reference.
(10) Nonqualified Stock Option agreement for Reference is made to Exhibit
Corporate Officers Effective Beginning 10(iii)A(k) of registrant's Form 10-K
September 21, 1994 between National for the fiscal year ended August 31,
Service Industries, Inc. and David Levy 1994, which is incorporated herein by
reference.
(11) (a)Benefits Protection Trust Agreement Reference is made to Exhibit
Dated July 5, 1990, between National 10(iii)A(n) of registrant's Form 10-K
Service Industries, Inc. and Wachovia Bank for the fiscal year ended August 31,
and Trust Company 1990, which is incorporated herein by
reference.
(b)Amendment to Benefits Protection Trust Reference is made to Exhibit
Agreement between National Service 10(iii)A(12)(c) of registrant's Form
Industries, Inc. and Wachovia Bank and 10-K for the fiscal year ended August
Trust Company and Adoption, Dated August 31, 1996, which is incorporated herein
31, 1996 by reference.
(c)Amendment No. 2 to Benefits Protection Reference is made to Exhibit
Trust Agreement between National Service 10(iii)A(3) of registrant's Form 10-Q
Industries, Inc. and Wachovia Bank and for the quarter ended November 30,
Trust Company, Dated September 23, 1997 1997, which is incorporated herein by
reference.
(d)Amended Schedule 1 of Benefits Reference is made to Exhibit
Protection Trust Agreement between 10(iii)A(4) of registrant's Form 10-Q
National Service Industries, Inc. and for the quarter ended November 30,
Wachovia Bank and Trust Company, Dated 1997, which is incorporated herein by
September 23, 1997 reference.
(12) (a)Executive Benefits Trust Agreement Reference is made to Exhibit
Dated July 5, 1990, between National 10(iii)A(o) of registrant's Form 10-K
Service Industries, Inc. and Wachovia Bank for the fiscal year ended August 31,
and Trust Company 1990, which is incorporated herein by
reference.
<PAGE>
Page 20
INDEX TO EXHIBITS
Page No.
(b)Amendment to Executive Benefits Trust Reference is made to Exhibit
Agreement between National Service 10(iii)A(13) of registrant's Form 10-K
Industries, Inc. and Wachovia Bank and for the fiscal year ended August 31,
Trust Company and Adoption, Dated August 1996, which is incorporated herein by
31, 1996 reference.
(c)Amended Schedule 1 of Executive Reference is made to Exhibit
Benefits Trust Agreement between National 10(iii)A(5) of registrant's Form 10-Q
Service Industries, Inc. and Wachovia for the quarter ended November 30,
Bank, N.A. (formerly Wachovia Bank and 1997, which is incorporated herein by
Trust Company), Dated September 23, 1997 reference.
(13) (a)National Service Industries, Inc. 1992 Reference is made to Exhibit
Nonemployee Directors' Stock Option Plan, 10(iii)A(o) of registrant's Form 10-K
Effective September 16, 1992 for the fiscal year ended August 31,
1992, which is incorporated herein by
reference.
(b)First Amendment to the National Service 41
Industries, Inc. 1992 Nonemployee
Directors' Stock Option Plan, Dated March
24, 1998
(14) Nonemployee Directors' Stock Option Reference is made to Exhibit
Agreement between National Service 10(iii)A(q) of registrant's Form 10-K
Industries, Inc. and for the fiscal year ended August 31,
(a) John L. Clendenin 1994, which is incorporated herein by
(b) Robert M. Holder, Jr. reference.
(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) Barrie A. Wigmore
(15) (a)National Service Industries, Inc. Reference is made to Exhibit
Executive Savings Plan, Effective 10(iii)A(s) of registrant's Form 10-K
September 1, 1994 for the fiscal year ended August 31,
1994, which is incorporated herein by
reference.
(b)Amendment No. 1 to National Service Reference is made to Exhibit
Industries, Inc. Executive Savings Plan, 10(iii)A(17)(b) of registrant's Form
Dated August 31, 1996 10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
<PAGE>
Page 21
INDEX TO EXHIBITS
Page No.
(16) (a)Split-Dollar Agreement among National Reference is made to Exhibit
Service Industries, Inc., D. Raymond 10(iii)A(a)(i) of registrant's Form
Riddle, and Wachovia Bank of Georgia, 10-Q for the quarter ended February 28,
N.A., Dated January 4, 1993 1995, which is incorporated herein by
reference.
(b)First Amendment to Split-Dollar Reference is made to Exhibit
Agreement among National Service 10(iii)A(a)(ii) of registrant's Form
Industries, Inc., D. Raymond Riddle, and 10-Q for the quarter ended February 28,
Wachovia Bank of Georgia, N.A., Effective 1995, which is incorporated herein by
March 30, 1995 reference.
(17) Consulting Agreement between National Reference is made to Exhibit
Service Industries, Inc. and D. Raymond 10(iii)A(c) of registrant's Form 10-Q
Riddle, Dated March 30, 1995 for the quarter ended February 28,
1995, which is incorporated herein by
reference.
(18) Nonqualified Stock Option Agreement Reference is made to Exhibit
Effective January 3, 1996 between National 10(iii)A(b) of registrant's Form 10-Q
Service Industries, Inc. and James S. for the quarter ended February 28,
Balloun 1996, which is incorporated herein by
reference.
(19) (a)National Service Industries, Inc. Reference is made to Exhibit
Nonemployee Director Deferred Stock Unit 10(iii)A(26) of registrant's Form 10-K
Plan, Effective June 1, 1996 for the fiscal year ended August 31,
1996, which is incorporated herein by
reference.
(b)Amendment No. 1 to National Service Reference is made to Exhibit
Industries, Inc. Nonemployee Director 10(iii)A(6) of registrant's Form 10-Q
Deferred Stock Unit Plan, Effective for the quarter ended November 30,
December 1, 1997 1997, which is incorporated herein by
reference.
(c)Amendment No. 2 to National Service 43
Industries, Inc. Nonemployee Director
Deferred Stock Unit Plan, Effective
December 31, 1997
(20) Employment Letter Agreement between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(28) of registrant's Form 10-K
Brock A. Hattox, Dated August 26, 1996 for the fiscal year ended August 31,
1996, which is incorporated herein by
reference.
<PAGE>
Page 22
INDEX TO EXHIBITS
Page No.
(21) Incentive Stock Option Agreement Effective Reference is made to Exhibit
Beginning September 17, 1996 between 10(iii)A(5) of registrant's Form 10-Q
National Service Industries, Inc. and for the quarter ended November 30,
(a) James S. Balloun 1996, which is incorporated herein by
(b) David Levy reference.
(c) Stewart A. Searle III
(22) Nonqualified Stock Option Agreement for Reference is made to Exhibit
Executive Officers Effective Beginning 10(iii)A(6) of registrant's Form 10-Q
September 17, 1996 between National for the quarter ended November 30,
Service Industries, Inc. and 1996, which is incorporated herein by
(a) James S. Balloun reference.
(b) David Levy
(c) Stewart A. Searle III
(d) Brock A. Hattox
(23) National Service Industries, Inc. Reference is made to Exhibit
Long-Term Achievement Incentive Plan, 10(iii)A(7) of registran's Form 10-Q
Effective September 17, 1996 for the quarter ended November 30,
1996, which is incorporated herein by
reference.
(24) Aspiration Achievement Incentive Award Reference is made to Exhibit
Agreements between National Service 10(iii)A(8) of registrant's Form 10-Q
Industries, Inc. and for the quarter ended November 30,
(a) James S. Balloun 1996, which is incorporated herein by
(b) Brock A. Hattox reference.
(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]
(25) National Service Industries, Inc. Reference is made to Exhibit
Supplemental Deferred Savings Plan, 10(iii)A(9) of registrant's Form 10-Q
Effective September 18, 1996 for the quarter ended November 30,
1996, which is incorporated herein by
reference.
(26) Stock Option Agreement for Nonemployee Reference is made to Exhibit 10(iii)A
Directors Dated March 19, 1997 between of registrant's Form 10-Q for the
National Service Industries, Inc. and quarter ended May 31, 1997, which is
(a) John L. Clendenin incorporated herein by reference.
(b) Samuel A. Nunn
<PAGE>
Page 23
INDEX TO EXHIBITS
Page No.
(27) Employment Letter Agreement between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(2) of registrant's Form 10-Q
James S. Balloun, Dated February 1, 1996 for the quarter ended November 30,
1997, which is incorporated herein by
[refiled to disclose confidential reference.
information previously omitted and filed
separately with the Securities and
Exchange Commission]
(28) Incentive Stock Option Agreement Effective Reference is made to Exhibit
Beginning September 23, 1997 between 10(iii)A(7) of registrant's Form 10-Q
National Service Industries, Inc. and for the quarter ended November 30,
(a) James S. Balloun 1997, which is incorporated herein by
(b) Brock A. Hattox reference.
(c) David Levy
(d) Stewart A. Searle III
(29) Nonqualified Stock Option Agreement For Reference is made to Exhibit
Executive Officers Effective Beginning 10(iii)A(8) of registrant's Form 10-Q
September 23, 1997 between National for the quarter ended November 30,
Service Industries, Inc. and 1997, which is incorporated herein by
(a) James S. Balloun reference.
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(30) Aspiration Achievement Incentive Award Reference is made to Exhibit
Agreements between National Service 10(iii)A(9) of registrant's Form 10-Q
Industries, Inc. and for the quarter ended November 30,
(a) James S. Balloun 1997, which is incorporated herein by
(b) Brock A. Hattox reference.
(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]
(31) National Service Industries, Inc. 44
Management Compensation and Incentive Plan
as Amended and Restated, Effective as of
September 1, 1998, Subject to Approval by
Shareholders at the Annual Meeting to be
held on January 6, 1999
EXHIBIT 13 Information Incorporated by Reference from 51
Annual Report for the Year Ended August
31, 1998
EXHIBIT 21 List of Subsidiaries 73
EXHIBIT 23 Consent of Independent Public Accountants 74
<PAGE>
Page 24
INDEX TO EXHIBITS
Page No.
EXHIBIT 24 Powers of Attorney 75
EXHIBIT 27 Financial Data Schedule for the Year Ended 87
August 31, 1998
</TABLE>
Page 25
EXHIBIT 3(b)
NATIONAL SERVICE INDUSTRIES, INC.
BY - LAWS
(as amended and restated June 21, 1989 and amended March 24, 1998)
(A Delaware Corporation)
ARTICLE ONE
OFFICES AND AGENT
1.1 Registered Office and Agent. The registered office of the Corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle, and the name of the registered agent in charge thereof is The
Corporation Trust Company.
1.2 Other Offices. In addition to its registered office within the State of
Delaware, the Corporation may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors may, from
time to time determine or the business of the Corporation may require or make
desirable.
ARTICLE TWO
STOCKHOLDERS' MEETINGS
2.1 Place of Meetings. All meetings of the stockholders for the election of
directors or for any other purpose shall be held at any place either within or
without the State of Delaware as shall be designated from time to time by the
Board of Directors or, if it fails to act, the Chairman of the Board, or if he
fails to act, the President, and shall be stated in the notice of meeting or a
duly executed waiver thereof.
2.2 Quorum, Adjournment. The holders of one-third of the voting power of
the stock of the Corporation issued and outstanding and entitled to vote at a
meeting of stockholders, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by the Delaware General Corporation Law or
by the Corporation's Restated Certificate of Incorporation, as amended from time
to time ("Certificate of Incorporation"). If, however, a quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat shall have the power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present. At such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or, if
after adjournment a new record date is set, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
<PAGE>
Page 26
EXHIBIT 3(b)
2.3 Conduct of Meetings. At each meeting of stockholders, the Chairman of
the Board shall act as chairman of the meeting. In the absence or inability or
refusal to act of the Chairman of the Board, the Vice Chairman of the Board, or
if a Vice Chairman has not been elected, the President, shall act as chairman of
the meeting. The Secretary or, in his absence, inability or refusal to act, such
person as the chairman of the meeting shall appoint shall act as secretary of
the meeting and keep the minutes thereof.
2.4 Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
2.5 Voting. Except as otherwise provided by statute or the Corporation's
Certificate of Incorporation, each stockholder of the Corporation shall be
entitled at each meeting of stockholders to one vote for each share of capital
stock of the Corporation standing in his name on the list of stockholders of the
Corporation on the record date fixed as provided in these By-Laws, as amended
from time to time ("By-Laws"). Each stockholder entitled to vote at any meeting
of stockholders may authorize another person or persons to act for him by a
proxy signed by such stockholder or his attorney-in-fact bearing a date not more
than three years prior to said meeting, unless said instrument provides for a
longer period. Any such proxy shall be delivered to the secretary of the meeting
at or prior to the time designated in the order of business for so delivering
such proxies. At all meetings of stockholders for the election of directors a
plurality of the votes cast shall be sufficient to elect. All other elections
and questions shall, unless otherwise provided by law or in the Corporation's
Certificate of Incorporation or these By-Laws, be decided by the vote of the
holders of a majority of the outstanding shares of stock entitled to vote
thereon present in person or by proxy at the meeting. Unless required by
statute, or determined by the chairman of the meeting to be advisable, the vote
on any question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
2.6 List of Stockholders. A complete list of the stockholders entitled to
vote at each meeting of stockholders, arranged in alphabetical order, with the
address of each, and the number of voting shares held by each, shall be prepared
by the Secretary at least ten days before every meeting. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
<PAGE>
Page 27
EXHIBIT 3(b)
2.7 Inspectors. The Board of Directors may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors. Inspectors
need not be stockholders.
2.8 Annual meeting. The Annual Meeting of the Stockholders of the
Corporation ("Annual Meeting") shall be held at such time and on such date as
shall be designated by the Board of Directors and stated in the notice of
meeting. At such meeting, the stockholders shall elect directors as provided in
the Corporation's Certificate of Incorporation and By-Laws and shall transact
such other business as may properly come before the meeting.
2.9 Notice of Annual Meeting. Except as otherwise expressly required by
statute, written notice of the Annual Meeting stating the date, place and time
of the meeting shall be given to each stockholder entitled to vote thereat, not
less than ten nor more than sixty days prior to the date of the meeting. Notice
is given when deposited in the United States mail, postage prepaid, directed to
the stockholder at his address as it appears on the records of the Corporation.
Notice of any meeting shall not be required to be given to any person (i) who
attends such meeting, except when such person attends the meeting in person or
by proxy for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, or (ii) who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an Annual Meeting need be specified in any
written waiver of notice.
<PAGE>
Page 28
EXHIBIT 3(b)
2.10 Notice of Stockholder Proposals. (a) At an Annual Meeting, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been brought before the Annual Meeting (i) by, or at the direction
of, the Board of Directors or (ii) by any stockholder of the Corporation who
complies with the notice procedures set forth in this Section of these By-Laws.
For a proposal to be properly brought before an Annual Meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the scheduled Annual Meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if less
than seventy (70) days' notice or prior public disclosure of the date of the
scheduled Annual Meeting is given or made, notice by the stockholder to be
timely must be so delivered or received not later than the close of business on
the tenth (10th) day following the earlier of the day on which such notice of
the date of the scheduled Annual Meeting was mailed or the day on which such
public disclosure was made. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the Annual
Meeting (i) a brief description of the proposal desired to be brought before the
Annual Meeting and the reasons for conducting such business at the Annual
Meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business and any other stockholders known by
such stockholder to be supporting such proposal, (iii) the class and number of
shares of the Corporation's stock which are beneficially owned by the
stockholder on the date of such stockholder notice and by any other stockholders
known by such stockholder to be supporting such proposal on the date of such
stockholder notice, and (iv) any financial interest of the stockholder in such
proposal.
(b) If the presiding officer of the Annual Meeting determines that a
stockholder proposal was not made in accordance with the terms of this Section,
he shall so declare at the Annual Meeting and any, such proposal shall not be
acted upon at the Annual Meeting.
(c) This provision shall not prevent the consideration and approval or
disapproval at the Annual Meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports, no
business shall be acted upon at such Annual Meeting unless stated, filed and
received as herein provided.
2.11 Special Meetings. Special meetings of the stockholders ("Special
Meetings"), for any purpose or purposes, unless otherwise prescribed by statute
or by the Certificate of Incorporation, may be called by the Chief Executive
Officer, and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors. Such request shall state the
purpose or purposes of the proposed meeting. Business transacted at all Special
Meetings shall be confined to the purposes stated in the notice of meeting.
2.12 Notice of Special Meetings. Except as otherwise expressly required by
statute, written notice of a special meeting, stating the date, time, place, and
purpose or purposes thereof, shall be given to each stockholder entitled to vote
thereat not less than ten nor more than sixty days prior to the date of the
meeting. Notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation. Notice of any meeting shall not be required to be given to
any person who attends such meeting, except when such person attends the meeting
in person or by proxy for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, or who, either before or after the meeting, shall
submit a signed written waiver of notice, in person or by proxy. Neither the
business to be transacted at, nor the purpose of, a Special Meeting need be
specified in any written waiver of notice.
<PAGE>
Page 29
EXHIBIT 3(b)
ARTICLE THREE
BOARD OF DIRECTORS
3.1 General Powers. The business and affairs of the Corporation shall be
managed by or be under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute or the Corporation's
Certificate of Incorporation directed or required to be done by the
stockholders.
3.2 Number, Qualification, Term of Office. The number of directors which
constitute the entire Board of Directors of the Corporation shall be fixed by
resolution of the Board of Directors from time to time, but shall in any event
be not less than seven nor more than fifteen. Any decrease in the number of
directors shall be effective at the time of the next succeeding Annual Meeting
unless there shall be vacancies in the Board of Directors at the time the Board
effects such decrease, in which case such decrease may become effective at any
time prior to the next succeeding Annual Meeting to the extent of the number of
vacancies. Directors need not be stockholders. Except as provided in these
By-Laws, directors shall be elected at the Annual Meeting or at a Special
Meeting called for such purpose, and each director shall be elected to hold
office until a successor shall be elected and qualify.
3.3 Election of Directors. Nominations for the election of directors may be
made by the Board of Directors or a nominating committee appointed by the Board
of Directors or by any stockholder entitled to vote in the election of directors
generally. However, any stockholder entitled to vote in the election of
directors generally may nominate one or more persons for election as directors
at a meeting only if written notice of such stockholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to an election to be held at an Annual Meeting,
ninety (90) days prior to the anniversary date of the immediately preceding
Annual Meeting; and (ii) with respect to an election to be held at a Special
Meeting for the election of directors, the close of business on the tenth (10th)
day following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (A) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (B) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (C) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (D) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission as then in effect; and (E) the consent of each nominee to serve as a
director of the Corporation if so elected. The presiding officer of the meeting
shall refuse to acknowledge the nomination of any person not made in compliance
with the foregoing procedure. The vote necessary to elect directors shall be as
set forth in these By-Laws including, without limitation, Section 2.5 hereof,
unless otherwise required by the Delaware General Corporation Law.
<PAGE>
Page 30
EXHIBIT 3(b)
3.4 Vacancies. Unless otherwise provided in the Corporation's Certificate
of Incorporation (or by resolution of the Board of Directors, any vacancy in the
Board of Directors, whether arising from death, resignation, removal, or any
other cause, and any newly created directorship resulting from an increase in
the number of directors, shall be filled exclusively by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director, and shall not be filled by the stockholders. Each director so elected
shall hold office until his successor shall have been elected and qualified.
3.5 Resignations. Any director of the Corporation may resign at any time by
giving written notice of his resignation to the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
3.6 Committees. (a) The Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, designate one or more committees,
including an executive committee, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In addition, in the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(b) Except to the extent restricted by the Delaware General
Corporation Law or the Corporation's Certificate of Incorporation, each
such committee, to the extent provided in the resolution creating it, shall
have and may exercise all the powers and authority of the Board of
Directors and may authorize the seal of the Corporation to be affixed to
all papers which require it. Each such committee shall serve at the
pleasure of the Board of Directors and have such name as may be determined
from time to time by resolution adopted by the Board of Directors. Each
committee shall keep regular minutes of its meetings and report the same to
the Board of Directors.
(c) Except to the extent restricted by the Delaware General
Corporation Law or the Corporation's Certificate of Incorporation, the
Executive Committee, if any, shall, when the Board of Directors is not in
session, have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation,
including, without limitation, the power and authority to declare a
dividend, to authorize the issuance of stock, and to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law.
<PAGE>
Page 31
EXHIBIT 3(b)
3.7 Compensation. The Board of Directors shall have authority to fix the
compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity.
ARTICLE FOUR
MEETINGS OF THE BOARD
4.1 Annual Meeting. The newly elected Board shall meet, immediately after
the Annual Meeting at which they were elected, for the purpose of organization
or otherwise, and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a
majority of the whole Board shall be present.
4.2 Regular Meetings. Regular meetings of the Board shall be held on the
third Wednesday of March, June, September, and December, at 1:00 p.m. at the
office of the Corporation in the City of Atlanta, Georgia, unless the Secretary
or any Assistant Secretary shall have given notice to each director of some
other date, time or place for the meeting. Notice of regular meetings of the
Board of Directors need not be given.
4.3 Special Meetings. Special meetings of the Board may be called by the
Chairman of the Board or the President. Notice of any special meeting shall be
given to each director at least twelve (12) hours before the meeting by
telephone or by being personally delivered or sent by telex, telecopier, or
telegraph, or at least three (3) days before the meeting if delivered by mail at
the address at which the director is most likely to be reached. Such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage prepaid, or when transmitted if sent by telex,
telecopier or telegraph. Any director may waive notice of any meeting by a
writing signed by the director entitled to the notice and filed with the minutes
or corporate records. The attendance at or participation of the director at a
meeting shall constitute waiver of notice of such meeting, unless the director
at the beginning of the meeting or promptly upon his arrival objects to holding
the meeting or transacting business at the meeting. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Special meetings
shall be called by the Chairman of the Board, President or Secretary in like
manner and on like notice on the written request of two directors.
4.4 Place of Meetings. Unless otherwise specified in the notice of any
meeting, meetings of the Board of Directors shall be held at such place or
places, within or without the State of Delaware, as the Board of Directors may
from time to time determine.
4.5 Quorum and Manner of Acting. At all meetings of the Board, one-third of
the total number of directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by the
Delaware General Corporation Law or by the Certificate of Incorporation or by
these By-Laws. However, directors attending a meeting at which less than a
quorum is present shall have the power to adjourn the meeting. Notice of the
time and place of any such adjourned meeting shall be given to all of the
directors unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
<PAGE>
Page 32
EXHIBIT 3(b)
4.6 Conduct of Meetings. At each meeting of the Board of Directors, the
Chairman of the Board shall act as chairman of the meeting and preside thereat.
The Secretary or, in his absence, inability or refusal to act, such person as
the chairman of the meeting shall appoint shall act as secretary of the meeting
and keep the minutes thereof.
4.7 Action by Consent. Unless restricted by the Corporation's Certificate
of Incorporation, any action required or permitted to be taken by the Board of
Directors or committee may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or committee, as the case may be.
4.8 Telephonic Meeting. Unless restricted by the Corporation's Certificate
of Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE FIVE
OFFICERS
5.1 Offices. The Board of Directors, at its first meeting after each Annual
Meeting of Stockholders, shall elect the officers of the Corporation, which
shall include the following: Chairman of the Board; President; one or more Vice
Presidents, as the Board of Directors shall designate; Secretary; and Treasurer.
The Secretary and the Treasurer may be the same person, and any Vice President
may hold at the same time the office of Secretary and/or Treasurer. The Board
may elect one or more Assistant Secretaries and one or more Assistant Treasurers
as may be necessary or desirable for the business of the Corporation. The Board
may also elect from among its members a Vice Chairman of the Board, and from
among its members or former members, a Chairman Emeritus. The Board may elect
such other officers as it shall deem necessary, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
<PAGE>
Page 33
EXHIBIT 3(b)
5.2 Designation of Chief Executive Officer. The Board of Directors shall
designate either the Chairman of the Board or the President of the Corporation
as the Chief Executive officer of the Corporation. The Chief Executive Officer
shall have authority over the business and affairs of the Corporation and over
all other officers, agents and employees of the Corporation, subject to the
control and direction of the Board of Directors.
5.3 Designation of Chief Operating Officer. The Board of Directors may
designate an officer of the Corporation as the Chief Operating Officer of the
Corporation. The Chief Operating Officer, if designated, shall manage and
operate the business and affairs of the Corporation, subject to the control and
direction of the Board of Directors, and shall report to the Chief Executive
Officer.
5.4 Compensation. The salaries of all officers shall be fixed by or
pursuant to the direction of the Board of Directors.
5.5 Tenure and Removal. Each officer of the Corporation shall hold office
until his successor is chosen and qualifies in his stead, or until his death, or
until he shall have resigned or been removed, as hereinafter provided in these
By-Laws. Any officer elected or appointed by the Board of Directors may be
removed at any time with or without cause by the affirmative vote of a majority
of the Board of Directors.
5.6 Resignations. Any officer of the Corporation may resign at any time by
giving written notice of his resignation to the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
5.7 Vacancies. If the office of any officer becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office, or
otherwise, the Board of Directors may fill each such vacancy for the unexpired
term in respect of which such vacancy occurred.
5.8 Chairman of the Board. (a) The Chairman of the Board shall be elected
from among the members of the Board of Directors and shall be an officer of the
Corporation. The Chairman shall preside at all meetings of the Board of
Directors and of the stockholders. The Chairman shall have such powers and
duties as an officer of the Corporation as provided by these By-Laws and as the
Board of Directors may from time to time prescribe.
(b) The Chairman may sign, execute, acknowledge and deliver, in the
name and on behalf of the Corporation, all stock certificates, deeds,
mortgages, bonds, contracts, documents and instruments, except where the
signing thereof shall be expressly and exclusively delegated to some other
officer or agent by the Board of Directors or by these By-Laws, or required
by law to be otherwise signed or executed.
5.9 Chairman Emeritus. The Board of Directors may elect a former Chairman
of the Board as Chairman Emeritus. The Chairman Emeritus shall be an honorary
position, reflecting outstanding service and devotion to the Corporation. The
Chairman Emeritus shall advise and consult with the Board of Directors,
committees of the Board of Directors, and the President, on matters of interest
to the Corporation, and shall perform such other duties as the Board of
Directors may from time to time prescribe.
<PAGE>
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EXHIBIT 3(b)
5.10 Vice Chairman of the Board. The Vice Chairman of the Board, if one
shall have been elected from among the members of the Board, shall, in the
absence of the Chairman or in the event of the Chairman's refusal or inability
to act, preside at all meetings of the Board of Directors and stockholders, and
shall perform such other duties as the Board of Directors may from time to time
prescribe.
5.11 President. (a) The President shall have such powers and shall perform
such duties as are provided by these By-Laws and as the Board of Directors may
from time to time prescribe. The President shall, in the Chairman's absence,
inability or refusal to act, perform the duties of the Chairman, other than
duties to be performed by the Vice Chairman (if one shall have been elected) as
prescribed under or pursuant to these By-Laws. When so acting, the President
shall have all of the powers of and be subject to all the restrictions upon the
Chairman, including the powers and restrictions applicable to the Chief
Executive Officer if the Chairman serves in that capacity.
(b) The President may sign, execute, acknowledge and deliver, in the
name and on behalf of the Corporation, all stock certificates, deeds,
mortgages, bonds, contracts, documents and instruments, except where the
signing thereof shall be expressly and exclusively delegated to some other
officer or agent by the Board of Directors or by these By-Laws or required
by law to be otherwise signed or executed.
5.12 Vice President. (a) Each Vice President shall have such powers and be
required to perform such duties as the Board of Directors or the Chief Executive
Officer may from time to time prescribe.
*(b) The Board of Directors may designate one or more of the Vice
Presidents as Executive Vice President. The Executive Vice President (or,
if more than one Executive Vice President has been designated, the
Executive Vice President specified by the Board of Directors) shall, in the
President's absence, inability or refusal to act, perform all of the duties
of the President. When so acting, the Executive Vice President shall have
all of the powers of and be subject to all of the restrictions upon the
President, including the powers and restrictions applicable to the Chief
Executive Officer if the President serves in that capacity.
5.13 Secretary. (a) The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and shall record all votes and the minutes
of all such proceedings in a book to be kept for that purpose. The Secretary
shall perform like duties for the Committees of the Board upon requested. He
shall be custodian of the records and the seal of the Corporation and shall
affix and attest the seal to all documents to be executed on behalf of the
Corporation under its seal. He shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, in accordance with
the provisions of these By-Laws and as required by the Delaware General
Corporation Law, and shall perform such other duties as the Board of Directors
or the Chief Executive Officer may from time to time prescribe.
<PAGE>
Page 35
EXHIBIT 3(b)
(b) The Assistant Secretary shall, in the Secretary's absence,
inability or refusal to act, perform the duties of the Secretary, and shall
perform such other duties as the Board of Directors or the Chief Executive
Officer may from time to time prescribe.
5.14 Treasurer. (a) The Treasurer shall have charge and custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements, in books belonging to the Corporation, and shall
deposit all corporate monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors or pursuant to its direction.
(b) The Treasurer shall receive and give receipts for monies due and
payable to the Corporation from any source whatsoever and shall disburse
the funds of the Corporation as may be ordered by the Board, taking proper
vouchers therefor, and shall render to the President and directors, at the
regular meetings of the Board, or whenever they may require it, an account
of all of his transactions as Treasurer and of the financial condition of
the Corporation and in general, perform all duties incident to the office
of the Treasurer and such other duties as the Board of Directors or the
Chief Executive Officer may from time to time prescribe.
(c) The Assistant Treasurer shall, in the Treasurer's absence,
inability or refusal to act, perform the duties of the Treasurer and shall
also perform such other duties as the Board of Directors or the Chief
Executive Officer may from time to time prescribe.
ARTICLE SIX
STOCK CERTIFICATES AND TRANSFER THEREOF
6.1 Stock Certificates. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by,
the Chairman of the Board or the President or the Executive Vice President and
by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation. If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the Delaware General Corporation Law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
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EXHIBIT 3(b)
6.2 Transfers of Stock. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its record; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
6.3 Registered Stockholders. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its records as the owner of shares
of stock to receive dividends and to vote as such owner, and accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares of stock on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by the
laws of Delaware.
6.4 Record Date. (a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, and, for determining
stockholders entitled to receive payment of any dividend or other distribution
or allotment or rights or to exercise any rights of change, conversion or
exchange of stock or for any other purpose, the record date shall be at the
close of business on the day on which the Board of Directors adopts a resolution
relating thereto.
(b) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
6.5 Lost Certificates. Any person claiming a certificate of stock to be
lost, stolen or destroyed shall make an affidavit or affirmation of that fact,
in such manner and form as the Board of Directors may from time to time require,
in order to obtain issuance of a new certificate in place thereof. The Board of
Directors may, at its discretion and as a condition precedent to any such
issuance, require any such person to give the Corporation a bond in such sum as
it may direct to indemnify it against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate. Upon compliance with all
requirements established by the Board of Directors for any such issuance, a new
certificate may be issued.
<PAGE>
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EXHIBIT 3(b)
6.6 Facsimile Signatures. Any or all of the signatures on a certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may, be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
6.7 Transfer Agents and Registrars. The Board of Directors may appoint, or
authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
6.8 Regulations. The Board of Directors may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
ARTICLE SEVEN
GENERAL PROVISIONS
7.1 Corporate Seal. The corporate seal shall have inscribed thereon the
name of the Corporation and the words "CORPORATE SEAL" and "DELAWARE."
7.2 Fiscal Year. The fiscal year shall begin the first day of September in
each year.
7.3 Checks, Notes, Drafts, Etc. All checks, drafts or other demands for the
payment of money and notes of the Corporation shall be signed, endorsed, or
accepted in the name of the Corporation by such officer or officers from time to
time designated by the Board of Directors or by an officer or officers
authorized by the Board of Directors to make such designation.
7.4 Execution of Instruments. The Board of Directors may authorize any
officer or officers, agent or agents, in the name of and on behalf of the
Corporation to enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments, and such authority
may be general or confined to specific instances.
7.5 Dividends and Reserves. Subject to the provisions of statute and the
Corporation's Certificate of Incorporation dividends upon the shares of capital
stock of the Corporation may be declared by the Board of Directors at any
regular or special meeting, and may be paid in cash, in property or in shares of
stock of the Corporation.
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EXHIBIT 3(b)
7.6 Notice. Whenever under the provisions of these By-Laws written notice
is required to be given to any director, officer, or stockholder, it shall not
be construed to require personal notice, but unless otherwise provided by these
By-Laws, such notice shall be deemed to have been given in writing when
deposited in the United States mail, postage prepaid, directed to such
stockholder, officer or director at his address as it appears on the records of
the Corporation.
7.7 Voting of Stock in Other Corporations. Unless otherwise provided by
resolution of the Board of Directors, the Chief Executive Officer, from time to
time, may (or may appoint one or more attorneys or agents to) cast the votes
which the Corporation may be entitled to cast as a stockholder or otherwise in
any other corporation, any of whose shares or securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporation. In the event one or more; attorneys or agents are
appointed, the Chief Executive Officer may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent. The
Chief Executive Officer may, or may instruct the attorneys or agents appointed
to, execute or cause to be executed in the name and on behalf of the Corporation
and under its seal or otherwise, such written proxies, consents, waivers or
other instruments as may be necessary or proper in the circumstances.
7.8 Indemnification. (a) Each director or officer or former director or
officer of the Corporation or any person who may have served at its request as a
director or officer of another corporation in which it owns shares of capital
stock or of which it is a creditor, shall be indemnified and held harmless by
the Corporation, as hereinafter provided, against any and all liabilities and
counsel fees, costs and legal and other expenses (including, without limitation,
fines, penalties, judgments and amounts paid in settlement) reasonably incurred
by or imposed on him in connection with or resulting from any claim, action,
suit or proceeding, whether civil, criminal, administrative or investigative, or
any appeal therein, in which he may be or become involved or with which he may
be threatened, as a party or otherwise, by reason of his now or hereafter being
or having heretofore been a director or officer of the Corporation or of such
other corporation, or by reason of his alleged acts or omissions as a director
or officer as aforesaid, whether or not he continues to be such at the time such
liabilities, fees, costs or expenses shall have been incurred, provided such
director or officer shall be indemnified and held harmless against such
liabilities, fees, costs and expenses, only if he acted in relation to such
matters in good faith for a purpose which he reasonably believed to be in the
best interests of the Corporation.
(b) In discharging his duty to the Corporation, a director or officer,
when acting in good faith, may rely upon financial statements of the
Corporation represented to him to be correct by, the officer of the
Corporation having charge of its books of accounts, or stated in a written
report by an independent public or certified public accountant or firm of
such accountants fairly to reflect the financial condition of such
corporation.
(c) Termination of a claim, action or proceeding by judgment, order,
settlement (whether with or without court approval), conviction or upon a
plea of guilty or of nolo contendere, or its equivalent, shall not of
itself create a presumption that a director or officer did not meet the
standard of conduct set forth above.
<PAGE>
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EXHIBIT 3(b)
(d) The grant of an indemnification provided herein, unless approved
by a court in a final adjudication of a claim, action, suit, or proceeding
or in connection with a court approved settlement thereof, shall be made
pursuant to a direction of the Board of Directors of the Corporation, but
may be granted only (i) if the Board of Directors, acting by a quorum
consisting of directors not parties to such claim, action, suit or
proceeding, shall have determined that in its opinion the director or
officer has met the standard of conduct set forth above or (ii) in the
event such a quorum is not obtainable with due diligence, then
alternatively if the Board of Directors shall have received the written
advice of independent legal counsel selected by it, that in the latter's
judgment such applicable standard of conduct has been met. If several
claims, issues, matters or actions are involved in the grant of
indemnification provided herein, a director or officer may be granted
indemnification by the Board of Directors to the extent of that portion of
the liabilities, fees, costs and expenses which are allocable to such
claims, issues, matters or actions in respect of which it is determined
that such director or officer has met the standard of conduct set forth
above.
(e) Expenses incurred with respect to any claim, action, suit or
proceeding may be advanced by the Corporation prior to the final
disposition thereof upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount unless it shall ultimately be
determined that he is entitled to indemnification hereunder.
(f) The rights to the indemnification provided herein shall inure to
the benefit of the heirs, executors, administrators, or legal
representatives of the persons covered hereby; shall be in addition to any
rights to which any such person may otherwise be entitled by any provision
of law, articles of incorporation, by-law, contract, vote of stockholders
or otherwise; and shall be in addition to and not in restriction or
limitation of any other privilege or power which the Corporation may
lawfully exercise with respect to the indemnification or reimbursement of
directors, officers and others.
(g) If any part of this Section shall be found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and the effect of
the remaining parts shall not be affected.
(h) The rights of indemnification provided herein shall not arise with
respect to conduct subsequent to January 5, 1987, which conduct shall be
subject to the indemnification provisions set forth in Article Fifteenth of
the Corporation's Certificate of Incorporation.
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EXHIBIT 3(b)
7.9 Amendments. These By-Laws may be adopted, amended or repealed (i) by
the affirmative vote of a majority of the directors present at a meeting at
which a quorum is present unless the Certificate of Incorporation or these
By-Laws shall require a vote of a greater number, or (ii) by the affirmative
vote of the holders of two-thirds of the voting power of all of the outstanding
shares of capital stock of the Corporation at any regular or special meeting of
stockholders if notice of the proposed amendment is contained in the notice of
the meeting or waived by all of the stockholders entitled to vote.
* Paragraph 5.12(b), as amended March 24, 1998.
Page 41
Exhibit 10(iii)A(13)(b)
FIRST AMENDMENT
TO THE
NATIONAL SERVICE INDUSTRIES, INC.
1992 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
THIS AMENDMENT made as of March 24, 1998, by National Service Industries,
Inc. ("NSI");
W I T N E S S E T H:
WHEREAS, the 1992 Nonemployee Directors' Stock Option Plan (the "Plan") was
approved by the Board of Directors of NSI on September 16, 1992, and by the
stockholders of NSI on January 6, 1993; and
WHEREAS, pursuant to the power of amendment set forth in Section 9 of the
Plan and action of the Board of Directors of NSI on March 24, 1998;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 5.1 of the Plan is amended by deleting the "and" before "(ii)",
by replacing "that the Plan remains in effect pursuant to its terms" with
"through the fiscal year ending August 31, 1998," and inserting "and (iii)
beginning with the fiscal year that commences September 1, 1998, on the date of
the Annual Meeting each year that the Plan remains in effect pursuant to its
terms", so that Section 5.1 now reads in its entirety as follows:
5.1 Grant. An Option shall be granted to each Nonemployee Director on
(i) the first business day after the date of the first annual meeting
of the stockholders of the Company following adoption of the Plan by
the Board, (ii) the third (3rd) Wednesday occurring in September of
each year through the fiscal year ending August 31, 1998, and (iii)
beginning with the fiscal year that commences September 1, 1998, on
the date of the Annual Meeting each year that the Plan remains in
effect pursuant to its terms. The number of Shares and the purchase
price therefor of each Option shall be as provided in this Section 5
and such Options shall be evidenced by an Agreement containing such
other terms and conditions not inconsistent with the provisions of
this Plan as determined by the Board.
<PAGE>
Page 42
Exhibit 10(iii)A(13)(b)
2. Except as hereby modified, the Plan shall remain in full force and
effect pursuant to its original terms.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first written above.
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
/s/ Carol Ellis Morgan By: /s/ James S. Balloun
Assistant Secretary James S. Balloun
Chairman of the Board, President and
Chief Executive Officer
(CORPORATE SEAL)
Page 43
Exhibit 10(iii)A(19)(c)
AMENDMENT NO. 2 TO
NATIONAL SERVICE INDUSTRIES, INC.
NONEMPLOYEE DIRECTOR DEFERRED STOCK UNIT PLAN
This Amendment is made as of the 31st day of December, 1997, by National
Service Industries, Inc. (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation previously established and amended the
National Service Industries, Inc. Nonemployee Director Deferred Stock Unit Plan
(the "Plan") for the benefit of directors of the Corporation who are not
employees of the Corporation or any Subsidiary (as defined in the Plan); and
WHEREAS, pursuant to the power of amendment contained in Section 7.1 of
the Plan, by action of the Board of Directors of the Corporation taken December
17, 1997 and effective on the date hereof, the Plan is hereby amended as
follows:
1.
Article 5 of the Plan is hereby amended, effective December 31, 1997,
by renumbering Section 5.5 as 5.6 and inserting the following as Section 5.5:
5.5 Merger with Deferred Compensation Plan. The account of
each Eligible Director who participates in the Directors' Deferred
Compensation Plan shall be credited as of the close of business on
December 31, 1997, with the number of Deferred Stock Units (rounded to
the nearest hundredth) equal to such Eligible Director's account
balance in the Directors' Deferred Compensation Plan as of that date
divided by the Fair Market Value.
2.
Except as provided herein, the provisions of the Plan shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
2 as of the day and year first written above.
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
/s/ Carol Ellis Morgan By: /s/ James S. Balloun
Assistant Secretary James S. Balloun
Chairman of the Board, President and
Chief Executive Officer
Page 44
Exhibit 10(iii)A(31)
NATIONAL SERVICE INDUSTRIES, INC.
MANAGEMENT COMPENSATION AND INCENTIVE PLAN
As Amended and Restated, Effective As Of September 1, 1998
1. ESTABLISHMENT AND EFFECTIVE DATE OF PLAN
National Service Industries, Inc. (the "Corporation") hereby
amends and restates the National Service Industries, Inc. Management
Compensation and Incentive Plan (the "Plan") for its executive officers
and certain other executives of the Corporation, its Operating Units
and affiliates who are in management positions designated as eligible
for participation by the Executive Resource and Compensation Committee
(the "Committee") of the Board of Directors of the Corporation or its
designee. The amended and restated Plan shall be effective on September
1, 1998 and shall remain in effect, subject to the rights of amendment
and termination in Section 13, until the Incentive Awards are paid for
the Corporation's fiscal year ending in 2004. Payments under the Plan
shall only be made to Named Executive Officers after the Plan is
approved by the stockholders of the Corporation.
2. PURPOSE OF THE PLAN
The purpose of the Plan is to further the growth and financial
success of the Corporation by offering performance incentives to
designated executives who have significant responsibility for such
success.
3. DEFINITIONS
() "Base Annual Salary" means the actual salary paid to a
Participant during the applicable Plan Year, increased by the
amount of any pre-tax deferrals or other pre-tax payments made
by the Participant to the Corporation's deferred compensation
or welfare plans (whether qualified or non-qualified).
() "Board of Directors" means the Board of Directors of the
Corporation.
() "Change in Control" means any of the following events:
(i) The acquisition (other than from the Corporation)
by any "Person" [as the term person is used for purposes of
Sections 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")] of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the 1934
Act) of twenty percent (20%) or more of the combined voting
power of the Corporation's then outstanding voting securities;
or
<PAGE>
Page 45
Exhibit 10(iii)A(31)
(ii) The individuals who, as of September 22, 1998,
are members of the Board of Directors (the "Incumbent Board"),
cease for any reason to constitute at least two-thirds of the
Board of Directors; provided, however, that if the election,
or nomination for election by the Corporation's stockholders,
of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall,
for purposes of this Plan, be considered as a member of the
Incumbent Board; or
(iii) Approval by stockholders of the Corporation of
(1) a merger or consolidation involving the Corporation if the
stockholders of the Corporation, immediately before such
merger or consolidation do not, as a result of such merger or
consolidation, own, directly or indirectly, more than seventy
percent (70%) of the combined voting power of the then
outstanding voting securities of the corporation resulting
from such merger or consolidation in substantially the same
proportion as their ownership of the combined voting power of
the voting securities of the Corporation outstanding
immediately before such merger or consolidation or (2) a
complete liquidation or dissolution of the Corporation or an
agreement for the sale or other disposition of all or
substantially all of the assets of the Corporation.
Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur pursuant to subsection (i) above,
solely because twenty percent (20%) or more of the combined
voting power of the Corporation's then outstanding securities
is acquired by (i) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained
by the Corporation or any of its subsidiaries, or (ii) any
corporation which, immediately prior to such acquisition, is
owned directly or indirectly by the stockholders of the
Corporation in the same proportion as their ownership of stock
in the Corporation immediately prior to such acquisition.
() "Chief Executive Officer" means the chief executive officer
of the Corporation, unless otherwise specified.
() "Code" means the Internal Revenue Code of 1986, as amended.
() "Committee" means the Executive Resource and Compensation
Committee of the Board of Directors or any other committee
designated by the Board of Directors which is responsible for
administering the Plan.
() "Corporation" means National Service Industries, Inc., a
Delaware corporation, and its successors.
() "Incentive Award" or "Award" means the bonus awarded to a
Participant under the terms of the Plan.
<PAGE>
Page 46
Exhibit 10(iii)A(31)
() "Maximum Award" means the maximum percentage of Base Annual
Salary which may be paid based upon the Relative Performance
during the Plan Year.
() "Named Executive Officer" means a Participant who as of
the date of payment of an Incentive Award is one of the
group of "covered employees" under Code Section 162(m) and
the regulations thereunder.
() "Operating Unit" means a separate business operating unit
of the Corporation with respect to which separate
performance goals may be established hereunder.
() "Participant" means an employee of the Corporation, an
Operating Unit or an affiliate who is designated by the
Committee to participate in the Plan.
() "Personal Performance Goals" means the goals that may be
established for a Participant each year to improve the
effectiveness of the Participant's area of responsibility
as well as the Corporation as a whole.
() "Plan Rules" means the guidelines established annually
by the Committee pursuant to Section 4, subject, where
applicable, to ratification by the Board of Directors.
() "Plan Year" means the twelve month period which is the same as
the Corporation's fiscal year. The initial Plan Year for the
amended and restated Plan shall be September 1, 1998 through
August 31, 1999.
() "Relative Performance" means the extent to which the
Corporation, and/or designated Operating Unit, as applicable,
achieves the performance measurement criteria set forth in the
Plan Rules.
() "Target Award" means the percentage (which may vary among
Participants and from Plan Year to Plan Year) of Base Annual
Salary which will be paid to a Participant as an Incentive
Award if the performance measurement criteria applicable to
the Participant for the Plan Year is achieved, as reflected in
the Plan Rules for such Plan Year.
() "Threshold Award" means the percentage of Base Annual Salary
which may be paid based on the minimum acceptable Relative
Performance during the Plan Year.
4. ADMINISTRATION OF THE PLAN
The Plan will be administered by the Committee, subject to its
right to delegate responsibility for administration of the Plan as it
applies to Participants other than Named Executive Officers pursuant to
Section 7. The Committee will have authority to establish Plan Rules
with respect to the following matters for the Plan Year, subject to the
right of the Board of Directors to ratify such Plan Rules as provided
in this Section 4:
(a) the employees who are Participants in the Plan;
<PAGE>
Page 47
Exhibit 10(iii)A(31)
(b) the Target Award, Maximum Award and Threshold Award that can
be granted to each Participant and the method for determining
such award, which the Committee may amend from time to time;
(c) the performance targets and the measurement criteria to be
used in determining the Corporation's or an Operating Unit's
Relative Performance, which will include one or more of the
following, as determined by the Committee each year: sales,
net income, earnings per share, return on equity, return on
assets (or net assets), after-tax or pre-tax profit, market
value of the Corporation's stock, total shareholder return,
return on investment, economic profit, capitalized economic
profit, cash flow and cash flow return; and
(d) the time or times and the conditions subject to which any
Incentive Award may become payable.
The Plan Rules will be adopted by the Committee prior to, or
as soon as practical after, the commencement of each Plan Year. Subject
to the provisions of the Plan and the Committee's right to delegate its
responsibilities, the Committee will also have the discretionary
authority to interpret the Plan, to prescribe, amend and rescind rules
and regulations relating to it, and to make all other determinations
deemed necessary or advisable in administering the Plan. The
determinations of the Committee on the matters referred to in
paragraphs (a) through (d) of this Section 4 with respect to Named
Executive Officers (and such other Participants as the Committee may
determine) shall be submitted at least annually to the Board of
Directors for its consideration and ratification. For Participants who
are not Named Executive Officers, the Committee may in its discretion
establish performance measures not listed in this Section 4 without
obtaining shareholder approval.
5. PARTICIPATION
Eligibility for participation in the Plan is limited to
executive officers of the Corporation and certain other executives of
the Corporation and its Operating Units or affiliates who hold key
management and staff positions. From among those eligible and based
upon the recommendations of the Chief Executive Officer and other
designees, the Committee will designate by name or position the
Participants each Plan Year. Any employee who is a Participant in one
Plan Year may be excluded from participation in any other Plan Year.
If, during the Plan Year, a Participant other than a Named Executive
Officer changes employment positions to a new position which
corresponds to a different award level, the Committee may, in its
discretion, adjust the Participant's award level for such Plan Year.
The Committee may, in its discretion, designate employees who are hired
after the beginning of the Plan Year as Participants for such Plan Year
and as eligible to receive full or partial Incentive Awards for such
year.
<PAGE>
Page 48
Exhibit 10(iii)A(31)
6. INCENTIVE AWARDS
6.1 Determination of the Amount of Incentive Awards
At the end of each Plan Year, the Committee shall certify the
extent to which the performance targets and measurement criteria
established pursuant to Section 4 have been achieved for such Plan Year
based upon financial information provided by the Corporation. Subject
to the right to decrease an award as described in the next paragraph,
the Participant's Incentive Award shall be computed by the Committee
based upon the achievement of the established performance targets,
measurement criteria and the requirements of the Plan. The Committee
may in determining whether performance targets have been met adjust the
Corporation's financial results to exclude the effect of unusual
charges or income items or other events, including acquisitions or
dispositions of businesses or assets, recapitalizations,
reorganizations, restructurings, reductions in force, currency
fluctuations or changes in accounting, which are distortive of results
for the year (either on a segment or consolidated basis); provided,
that for purposes of determining the Incentive Awards of Named
Executive Officers, the Committee shall exclude unusual items whose
exclusion has the effect of increasing Relative Performance if such
items constitute "extraordinary items" under generally accepted
accounting principles or are significant unusual items. In addition,
the Committee will adjust its calculations to exclude the unanticipated
effect on financial results of changes in the Code or other tax laws,
or the regulations relating thereto.
The Committee may, in its discretion, decrease the amount of a
Participant's Incentive Award for a Plan Year based upon such factors
as it may determine, including the failure of the Corporation or an
Operating Unit to meet certain performance goals or of a Participant to
meet his Personal Performance Goals. The factors to be used in reducing
an Incentive Award may be established at the beginning of a Plan Year
and may vary among Participants.
In the event that the Corporation's or an Operating Unit's
performance is below the anticipated performance thresholds for the
Plan Year and the Incentive Awards are below expectations or not earned
at all, the Committee may in its discretion grant Incentive Awards (or
increase the otherwise earned Incentive Awards) to deserving
Participants, except for Participants who are Named Executive Officers.
The Plan Rules and Incentive Awards under the Plan shall be
administered in a manner to qualify payments under the Plan to the
Named Executive Officers for the performance-based exception under Code
Section 162(m) and the regulations thereunder, except where the Board
of Directors determines such compliance is not necessary. The maximum
Incentive Award that may be paid to an individual Participant for a
Plan Year shall be the amount which when added to the Participant's
Base Annual Salary for such Plan Year totals an aggregate of $2.5
million.
<PAGE>
Page 49
Exhibit 10(iii)A(31)
6.2 Eligibility for Payment of Incentive Award
No Participant will have any vested right to receive any
Incentive Award until such date as the Board of Directors has ratified
the Committee's determination with respect to the payment of individual
Incentive Awards, except where the Committee determines such
ratification is not necessary. No Incentive Award will be paid to any
Participant who is not an active employee of the Corporation, an
Operating Unit or an affiliate at the end of the Plan Year to which the
Incentive Award relates; provided, however, at the discretion of the
Committee or its designee (subject to ratification by the Board of
Directors, where required, and the limitations of Code Section 162(m)),
partial Incentive Awards may be paid to Participants (or their
beneficiaries) who are terminated without cause (as determined by the
Committee or its designee) or who retire, die or become permanently and
totally disabled during the Plan Year. No Participant entitled to
receive an Incentive Award shall have any interest in any specific
asset of the Corporation, and such Participant's rights shall be
equivalent to that of a general unsecured creditor of the Corporation.
6.3 Payment of Awards
Payment of the Incentive Awards will be made as soon as
practicable after their determination pursuant to Sections 6.1 and 6.2,
subject to a Participant's right to defer payment pursuant to any
applicable deferred compensation plans of the Corporation. Payment will
generally be made in a lump sum in cash, unless the Committee otherwise
determines at the beginning of the Plan Year.
7. DELEGATION OF AUTHORITY BY THE COMMITTEE
Notwithstanding the responsibilities of the Committee set
forth herein, the Committee may delegate to the Chief Executive Officer
or others all or any portion of its responsibility for administration
of the Plan as it relates to Participants other than Named Executive
Officers. Such delegation may include, without limitation, the
authority to designate employees who can participate in the Plan, to
establish Plan Rules, to interpret the Plan, to determine the extent to
which performance criteria have been achieved, and to adjust any
Incentive Awards that are payable. In the case of each such delegation,
the administrative actions of the delegate shall be subject to the
approval of the person within the Corporation to whom the delegate
reports (or, in the case of a delegation to the Chief Executive
Officer, to the approval of the Committee).
8. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, unless the
Participant otherwise elects in writing, the Participant's Incentive
Award for the Plan Year, determined at the Target Award level (without
any reductions under Section 6.1) shall be deemed to have been fully
earned for the Plan Year, provided that` the Participant shall only be
entitled to a pro rata portion of the Incentive Award based upon the
number of days within the Plan Year that had elapsed as of the
effective date of the Change in Control. The Incentive Award amount
shall be paid in cash within thirty (30) days of the effective date of
the Change in Control. The Incentive Award payable upon a Change in
Control to a Participant for the Plan Year during which a Change in
Control occurs shall be the greater of the amount provided for under
this Section 8 or the amount of the Incentive Award payable to such
Participant for the Plan Year under the terms of any employment
agreement or severance agreement with the Corporation, its Operating
Units or affiliates.
<PAGE>
Page 50
Exhibit 10(iii)A(31)
9. BENEFICIARY
To the extent provided by the Committee or its designee each
Participant will designate a person or persons to receive, in the event
of death, any Incentive Award to which the Participant would then be
entitled under Section 6.2. Such designation will be made in the manner
determined by the Committee and may be revoked by the Participant in
writing. If the Committee does not provide for a designation of
beneficiary or if a Participant fails effectively to designate a
beneficiary, then the estate of the Participant will be deemed to be
the beneficiary.
10. WITHHOLDING OF TAXES
The Corporation shall deduct from each Incentive Award the
amount of any taxes required to be withheld by any governmental
authority.
11. EMPLOYMENT
Nothing in the Plan or in any Incentive Award shall confer (or
be deemed to confer) upon any Participant the right to continue in the
employ of the Corporation, a Division or an affiliate, or interfere
with or restrict in any way the rights of the Corporation, a Division
or an affiliate to discharge any Participant at any time for any reason
whatsoever, with or without cause.
12. SUCCESSORS
All obligations of the Corporation under the Plan with respect
to Incentive Awards granted hereunder shall be binding upon any
successor to the Corporation, whether such successor is the result of
an acquisition of stock or assets of the Corporation, a merger, a
consolidation or otherwise.
13. TERMINATION AND AMENDMENT OF THE PLAN; GOVERNING LAW
The Committee, subject to the ratification rights of the Board
of Directors, has the right to suspend or terminate the Plan at any
time, or to amend the Plan in any respect, provided that no such action
will, without the consent of a Participant, adversely affect the
Participant's rights under an Incentive Award approved under Section
6.2. The Plan shall be interpreted and construed under the laws of the
State of Georgia.
AS APPROVED BY THE BOARD OF DIRECTORS OF THE CORPORATION ON
THE 22nd DAY OF SEPTEMBER, 1998.
<TABLE>
Page 51
Exhibit 13
CONSOLIDATED BALANCE SHEETS
National Service Industries, Inc.
August 31
<S> <C> <C>
In thousands, except share and per share data) 1998 1997
Assets
Current Assets:
Cash and cash equivalents $ 19,146 $ 57,123
Short-term investments - 205,302
Receivables, less reserves for doubtful accounts of $4,631 in 1998 and $4,302 in 1997 307,140 258,689
Inventories, at the lower of cost (on a first-in, first-out basis) or market 197,950 179,046
Linens in service, net of amortization 58,826 60,805
Deferred income taxes 17,542 13,077
Prepayments 6,447 6,716
Total Current Assets 607,051 780,758
Property, Plant, and Equipment, at cost:
Land 21,450 19,911
Buildings and leasehold improvements 150,326 138,933
Machinery and equipment 485,271 434,194
Total Property, Plant, and Equipment 657,047 593,038
Less - Accumulated depreciation and amortization 385,176 356,308
Property, Plant, and Equipment - net 271,871 236,730
Other Assets:
Goodwill and other intangibles 88,280 50,166
Other 43,482 38,698
Total Other Assets 131,762 88,864
Total Assets $1,010,684 $1,106,352
</TABLE>
<PAGE>
Page 52
Exhibit 13
CONSOLIDATED BALANCE SHEETS (continued)
National Service Industries, Inc.
<TABLE>
August 31
<S> <C> <C>
(In thousands, except share and per share data) 1998 1997
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 98 $ 116
Notes payable 7,883 5,773
Accounts payable 95,217 101,512
Accrued salaries, commissions, and bonuses 34,820 34,776
Current portion of self-insurance reserves 11,253 12,540
Accrued taxes payable - 38,351
Other accrued liabilities 72,724 88,932
Total Current Liabilities 221,995 282,000
Long-Term Debt, less current maturities 78,092 26,197
Deferred Income Taxes 40,404 34,093
Self-Insurance Reserves, less current portion 44,573 57,056
Other Long-Term Liabilities 46,719 35,193
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 1998 and 1997 57,919 57,919
Paid-in capital 28,521 25,521
Retained earnings 892,617 841,045
979,057 924,485
Less - Treasury stock, at cost (16,457,340 shares in 1998 and 13,719,834 shares in 1997) 400,156 252,672
Total Stockholders' Equity 578,901 671,813
Total Liabilities and Stockholders' Equity $1,010,684 $1,106,352
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE>
<TABLE>
Page 53
Exhibit 13
CONSOLIDATED STATEMENTS OF INCOME
National Service Industries, Inc.
Years Ended August 31
<S> <C> <C>
(In thousands, except per share data) 1998 1997 1996
Sales and Service Revenues:
Net sales of products $1,718,564 $1,542,644 $1,482,937
Service revenues 312,746 493,535 530,625
Total Revenues 2,031,310 2,036,179 2,013,562
Costs and Expenses:
Cost of products sold 1,044,215 945,794 933,405
Cost of services 183,470 283,024 304,381
Selling and administrative expenses 634,061 633,740 616,513
Interest expense, net 749 1,624 1,565
Gain on sale of businesses (2,449) (75,097) (7,579)
Restructuring expense, asset impairments, and other charges - 63,091 -
Other (income) expense, net (1,857) 4,925 3,429
Total Costs and Expenses 1,858,189 1,857,101 1,851,714
Income before Provision for Income Taxes 173,121 179,078 161,848
Provision for Income Taxes 64,401 71,800 60,700
Net Income $ 108,720 $ 107,278 $ 101,148
Basic Earnings per Share $ 2.56 $ 2.37 $ 2.11
Basic Weighted Average Number of Shares Outstanding 42,462 45,191 47,941
Diluted Earnings per Share $ 2.53 $ 2.36 $ 2.10
Diluted Weighted Average Number of Shares Outstanding 43,022 45,534 48,189
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
Page 54
Exhibit 13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
National Service Industries, Inc.
<S> <C> <C> <C> <C> <C>
(In thousands, except share and per share data) Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
Balance August 31, 1995 $57,919 $ 8,065 $746,256 $ (67,836)$ 744,404
Treasury stock purchased (1) - - - (75,223) (75,223)
Stock options exercised (2) - 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 (3) - - - (121,668) (121,668)
Stock options exercised (4) - 2,588 - 2,685 5,273
Treasury stock issued in connection with acquisition (5) - 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
Treasury stock purchased (6) - - - (154,032) (154,032)
Stock options exercised (7) - 625 - 3,305 3,930
Treasury stock issued in connection with acquisition (8) ` - 2,104 - 2,896 5,000
Employee Stock Purchase Plan issuances (9) - 271 - 347 618
Net income - - 108,720 - 108,720
Cash dividends of $1.23 per share paid on common stock - - (52,603) - (52,603)
Adjustment to recognize net increase in pension liability - - (17) - (17)
Foreign currency translation adjustment - - (4,528) - (4,528)
Balance August 31, 1998 $57,919 $28,521 $892,617 $(400,156)$ 578,901
</TABLE>
(1)2,000,000 shares. (2)185,044 shares. (3)3,000,000 shares. (4)190,330 shares.
(5)536,872 shares. (6) 3,025,162 shares. (7) 142,568 shares. (8) 130,804 shares.
(9) 14,284 shares.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
Page 55
Exhibit 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
National Service Industries, Inc.
Years Ended August 31
<S> <C> <C> <C>
(In thousands) 1998 1997 1996
Cash Provided by (Used for) Operating Activities
Net income $108,720 $107,278 $ 101,148
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 48,846 57,981 58,428
Provision for losses on accounts receivable 3,558 2,276 2,708
(Gain) loss on the sale of property, plant, and equipment (3,400) 1,233 (1,652)
Gain on the sale of businesses (2,449) (75,097) (7,579)
Restructuring expense, asset impairments, and other charges - 63,091 -
Change in non-current deferred income taxes 6,311 (25,219) 1,864
Change in assets and liabilities net of effect of acquisitions and divestitures -
Receivables (46,151) (11,993) (7,343)
Inventories and linens in service, net (15,647) (11,286) 5,308
Current deferred income taxes (4,383) (10,926) 8,069
Prepayments 578 47 (940)
Accounts payable and accrued liabilities (65,696) 30,941 (6,117)
Self-insurance reserves and other long-term liabilities (957) (758) (895)
Net Cash Provided by Operating Activities 29,330 127,568 152,999
Cash Provided by (Used for) Investing Activities
Change in short-term investments 205,302 (204,751) 3,047
Purchases of property, plant, and equipment (82,034) (48,806 (65,499)
Sale of property, plant, and equipment 6,814 5,370 9,105
Sale of businesses 3,064 311,382 15,250
Acquisitions (45,305) (4,320) (600)
Change in other assets (5,381) 2,972 (3,071)
Net Cash Provided by (Used for) Investing Activities $ 82,460 $ 61,847 $ (41,768)
</TABLE>
<PAGE>
<TABLE>
Page 56
Exhibit 13
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
National Service Industries, Inc.
Years Ended August 31
<S> <C> <C> <C>
(In thousands) 1998 1997 1996
Cash Provided by (Used for) Financing Activities
Borrowings (repayments) of short-term debt, net $ 805 $ (11,021)$ -
Borrowings (repayments) of long-term debt, net 51,043 (4,627) (1,897)
Recovery of investment in tax benefits - 661 1,720
Deferred income taxes from investment in tax benefits - (1,972) (4,273)
Purchase of treasury stock, net (144,484) (116,395) (71,507)
Cash dividends paid (52,603) (54,222) (55,272)
Net Cash Used for Financing Activities (145,239) (187,576) (131,229)
Effect of Exchange Rate Changes on Cash (4,528) (3,378) (742)
Net Change in Cash and Cash Equivalents (37,977) (1,539) (20,740)
Cash and Cash Equivalents at Beginning of Year 57,123 58,662 79,402
Cash and Cash Equivalents at End of Year $ 19,146 $ 57,123 $ 58,662
Supplemental Cash Flow Information:
Income taxes paid during the year $ 100,270 $ 68,475 $ 58,974
Interest paid during the year 7,025 5,614 4,994
Noncash Investing and Financing Activities:
Noncash aspects of sale of businesses-
Receivables incurred $ - $ 391 $ 234
Liabilities assumed 166 22,637 1,009
Noncash aspects of acquisitions -
Liabilities assumed or incurred $ 5,885 $ 22,440 $ 6
Treasury stock issued 5,000 20,522 -
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
Page 57
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, chemicals,
textile rental, 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 chemical segment produces maintenance,
sanitation, and water treatment products for customers throughout the United
States, Canada, Puerto Rico, Western Europe, and Australia. The textile rental
segment provides linens and dust control products to healthcare, lodging, and
dining customer segments in the United States. The envelope segment produces
business and specialty envelopes in the Northeast, 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 and is 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 and less than a year are considered
short-term investments. There were no short-term investments at August 31, 1998.
The carrying amount of short-term investments at August 31, 1997 approximated
fair value and 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, 1998, 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, 1998 and 1997:
<TABLE>
<S> <C> <C>
1998 1997
Raw materials and supplies $ 78,730 $ 71,266
Work in progress 10,725 10,572
Finished goods 108,495 97,208
$ 197,950 $ 179,046
</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 ($71,059 in 1998 and $34,974
in 1997) and other intangible assets are being amortized on a straight-line
basis over various periods ranging from 10 to 40 years.
The company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of goodwill and
other long-lived assets or whether the remaining balance of goodwill should be
evaluated for possible impairment. The company uses an estimate of related
undiscounted 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 (See Note 5: Restructuring Expense and Asset Impairments).
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.
<PAGE>
Page 58
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
National Service Industries, Inc.
Foreign Currency Translation
The functional currency for the company's foreign operations is the local
currency. The translation of foreign currencies into U.S. dollars is performed
for balance sheet accounts using exchange rates in effect at the balance sheet
date and for revenue and expense accounts using a weighted average exchange rate
during the period. The gains or losses, net of applicable income taxes,
resulting from the translation are included in retained earnings and are
excluded from net income.
Gains or losses resulting from foreign currency transactions are included
in "Other (income) expense, net" in the consolidated statements of income and
are not material.
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
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.
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 for 1998, 1997, and 1996 included the following
components:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Service cost of benefits earned during the
period $ 3,091 $ 3,636 $ 2,719
Interest cost on projected benefit obligation 8,509 8,505 7,438
Return on plan assets (26,435) (12,393) (28,255)
Net amortization and deferral 13,459 (768) 17,383
Net pension income $ (1,376) $ (1,020) $ (715)
</TABLE>
The following schedule reconciles the funded status of the plans as of June
1, 1998 and 1997, with amounts reported in the company's consolidated balance
sheets at August 31, 1998 and 1997:
<TABLE>
<S> <C> <C> <C> <C>
1998 1997
Plan Accumulated Plan Accumulated
Assets Benefit Assets Benefit
Exceed Obligation Exceed Obligation
Accumulated Exceeds Accumulated Exceeds
Benefit Plan Benefit Plan
Obligation Assets Obligation Assets
Actuarial present value of benefit
obligations
as of June 1:
Vested $(102,101) $ (5,804) $(87,929)$ (5,123)
Nonvested (8,507) (104) (10,180) (20)
Accumulated benefit obligation (110,608) (5,908) (98,109) (5,143)
Effect of projected salary increases (5,852) (2,177) (5,379) (1,195)
Total projected benefit obligation (116,460) (8,085) (103,488) (6,338)
Fair value of plan assets 150,101 - 133,214 -
Plan assets greater (less) than
projected benefit obligation 33,641 (8,085) 29,726 (6,338)
Unrecognized transition (asset)liability (5,089) 49 (7,059) 61
Unrecognized prior service cost obligation 1,755 2,393 1,873 2,208
Unrecognized net loss (gain) 8,829 34 9,891 (896)
Adjustment required to recognize
minimum liability - (892) - (596)
Prepaid (accrued) pension expense at
August 31 $39,136 $ (6,501) $ 34,431 $ (5,561)
</TABLE>
For all periods presented, the assumed growth rate of compensation is 5.5
percent and the expected long-term rate of return on plan assets is 9.5 percent.
During 1998, the discount rate used to determine the projected benefit
obligation was decreased from 8 percent to 7 percent to more closely approximate
rates on high-quality, long-term obligations.
The company also has profit sharing and 401(k) plans to which both
employees and the company contribute. At August 31, 1998, assets of the 401(k)
plans included shares of the company's common stock with a market value of
approximately $14,797. The company's cost of these plans was $4,292 in 1998,
$5,020 in 1997, and $4,595 in 1996.
<PAGE>
Page 59
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
National Service Industries, Inc.
Interest Expense, Net
Interest expense, net, is comprised primarily of interest expense on long-term
debt, credit facility borrowings, and line of credit borrowings offset by
interest income on cash, cash equivalents, and short-term investments.
Other (Income) Expense, Net
Other (income) expense, net, is comprised primarily of amortization of
intangible assets net of gains resulting from the sale of fixed assets in 1998,
1997, and 1996. Other (income) expense, net, also included casualty loss
insurance proceeds in 1996.
Accounting Standards Yet to Be Adopted
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.
During fiscal 1999, the company is required to adopt SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." SFAS No.
131 requires the reporting of financial information on the basis that it is used
internally for evaluating segment performance and the allocation of resources to
segments. In the opinion of management, the adoption of SFAS No. 131 is not
expected to have a material impact on the company's manner of reporting
information about its segments.
During fiscal 1999, the company is required to adopt SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS
No. 132 amends SFAS Nos. 87, 88, and 106 by standardizing the disclosure
requirements for pensions and other postretirement benefits, requiring
additional information on changes in benefit obligations and fair values of plan
assets, and eliminating certain other disclosures.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June of 1998 and is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. However, the company does not
currently participate in any hedging activities, nor does it utilize any other
derivative financial instruments.
Reclassifications
Certain amounts in the financial statements and notes have been reclassified to
conform with the 1998 presentation.
Note 2: Long-Term Debt and Lines of Credit
Long-term debt at August 31, 1998 and 1997, consisted of the following:
<TABLE>
<S> <C> <C>
1998 1997
6.5% to 9.25% mortgage notes, payable in installments through
2000 (secured in part by property, plant, and equipment
having a net book value of $228 at August 31, 1998) $ 45 $ 86
3.4% to 8.5% other notes, payable in installments to 2026 78,145 26,227
78,190 26,313
Less-Amounts payable within one year included in current
liabilities 98 116
$78,092 $26,197
</TABLE>
The annual principal payments of long-term debt for the five-year period
ending August 31, 2003 are: 1999 - $98; 2000 - $108; 2001 - $106; 2002 - $95;
2003 - $102.
In 1996, the company negotiated a $250,000 multi-currency committed credit
facility (the "Credit Facility") with ten domestic and international banks. The
Credit Facility has a term of five years, expiring in July 2001, with no
provision for reduction in commitments. The Credit Facility contains
restrictions on the incurrence of indebtedness by subsidiaries, as well as
financial and other covenants, including restrictions that the company's ratio
of total debt to capitalization may not exceed 60 percent at any time.
The company has complimentary lines of credit totaling $122,000 for general
operating purposes, of which $22,000 is available on a multi-currency basis. On
August 31, 1998, the company borrowed $52,000 under the $100,000 domestic line
of credit. Subsequent to the company's fiscal year end, these borrowings were
repaid through borrowings on the Credit Facility. This borrowing has been
classified as noncurrent because it is the company's intention to refinance this
obligation on a long-term basis. In addition, $28,390 in letters of credit were
outstanding at August 31, 1998 under the domestic line of credit. At August 31,
1998, the company had foreign currency short-term bank borrowings under the
$22,000 line of credit equivalent to $7,883 at a weighted average interest rate
of 4.91 percent.
Long-term debt recorded in the accompanying consolidated balance sheets
approximates fair value based on the borrowing rates currently available to the
company for bank loans with similar terms and average maturities.
<PAGE>
Page 60
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
National Service Industries, Inc.
Note 3: Common Stock and Related Matters
Shareholder Rights Plan
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 plan, which was to have expired May 19, 1998,
was amended and extended to May 19, 2008.
The rights become exercisable and transferable apart from the common stock
(a) on the date that a person or group announces that they have acquired 15
percent or more of the company's common stock or (b) ten days after a person or
group makes an unsolicited offer to acquire beneficial ownership of, or the
right to obtain beneficial ownership of, 15 percent or more of the company's
common stock (unless such date is extended by the Board of Directors) or (c) 20
business days before the date on which a business combination is reasonably
expected to be consummated involving a person who, if the business combination
is consummated, has or would acquire beneficial ownership of, or the right to
obtain beneficial ownership of, 15 percent or more of the company's common stock
and that person has directly or indirectly nominated a director of the company
at the time the business combination is considered. The rights are not triggered
if the Board of Directors is notified that reaching the trigger threshold was
inadvertent and divestiture of sufficient stock is thereafter made. Once
exercisable, each right entitles the holder to purchase one one-thousandth share
of Series A Participating Preferred Stock at an exercise price of $160, 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, 2008, and are redeemable under certain circumstances.
If a person acquires 15 percent ownership, except in an offer approved
under the plan by a majority of the nonemployee directors, 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 15 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. Rights may not be redeemed
for a 365-day period following a change in the majority of the Board of
Directors if the redemption would facilitate a transaction with the person who
caused the change of control of the Board of Directors.
Preferred Stock
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, 1998 and 1997.
Earnings per Share
During fiscal 1998, the company adopted SFAS No. 128, "Earnings per Share." SFAS
No. 128 supersedes Accounting Principles Board ("APB") 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. Upon adoption, the
company was 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 did not have a material impact on the computation or manner of
presentation of the company's earnings per share as previously presented under
APB 15.
The following table represents a reconciliation of basic and diluted
earnings per share at August 31:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Basic weighted average shares outstanding 42,462 45,191 47,941
Add: Shares of common stock assumed issued upon
exercise of stock options 560 343 248
Diluted weighted average shares outstanding 43,022 45,534 48,189
Net earnings used in the computation of
basic and diluted earnings per
share $ 108,720 $ 107,278 $ 101,148
Earnings per Share:
Basic $ 2.56 $ 2.37 $ 2.11
Diluted $ 2.53 $ 2.36 $ 2.10
</TABLE>
Stock-based Compensation
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.
<PAGE>
Page 61
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
National Service Industries, Inc.
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 January 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 of the
company's stock on the date of the grant. At August 31, shares available for
issuance under all plans were 1,236,574 in 1998, 1,732,574 in 1997, and 300,408
in 1996.
Stock option transactions for the stock option plans and stock option
agreements during the years ended August 31, 1998, 1997, and 1996 were as
follows:
<TABLE>
Outstanding Exercisable
Weighted Weighted
Number of Average Number of Average
Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C>
Outstanding at August 31, 1995 1,088,773 $ 24.89
Granted 513,200 $ 32.06
Exercised (185,044) $ 24.01
Cancelled (150,886) $ 26.19
Outstanding at August 31, 1996 1,266,043 $ 27.74 466,377 $ 25.76
Granted 324,500 $ 37.96
Exercised (196,115) $ 25.96
Cancelled (7,214) $ 31.46
Outstanding at August 31, 1997 1,387,214 $ 30.35 731,914 $ 27.11
Granted 500,000 $ 44.50
Exercised (142,568) $ 26.32
Cancelled - -
Outstanding at August 31, 1998 1,744,646 $ 34.74 876,721 $ 29.05
Range of option exercise prices:
$19.75-$39.75
(average life-6.3 years) 1,247,646 $ 30.85 876,721 $ 29.05
$44.25-$59.44
(average life-9.1 years) 497,000 $ 44.50 - -
</TABLE>
During fiscal 1997, the company adopted the disclosure-only provisions of
SFAS 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 1998, 1997, and 1996
consistent with the provisions of SFAS No. 123, the company's net income and
earnings per share would have been reduced to the following pro forma amounts:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Pro Forma Information:
Net income $106,297 $105,793 $100,284
Basic earnings per share $ 2.50 $ 2.34 $ 2.09
Diluted earnings per share $ 2.47 $ 2.32 $ 2.08
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model. The weighted average grant date
fair value of options was $12.23, $9.69, and $6.08 for 1998, 1997, and 1996,
respectively. The following weighted average assumptions were used to estimate
fair value:
1998 1997 1996
<TABLE>
<S> <C> <C> <C>
Dividend yield 2.809% 3.350% 4.009%
Expected volatility 18.1% 16.8% 15.3%
Risk-free interest rate 6.10% 6.73% 6.10%
Expected life of options 10 years 10 years 10 years
Turnover rate 5.0% 5.0% 5.0%
</TABLE>
Employee Stock Purchase Plan
In 1998, the stockholders approved the National Service Industries, Inc.
Employee Stock Purchase Plan for the benefit of eligible employees. Under the
plan, employees may purchase, through payroll deduction, the company's common
stock at a 15 percent discount. Shares are purchased quarterly at 85 percent of
the lower of the fair market value of the company's common stock on the first
business day of the quarterly plan period or on the last business day of the
quarterly plan period. There were 1,500,000 treasury shares reserved for
purchase under the plan.
<PAGE>
Page 62
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
National Service Industries, Inc.
Note 4: Commitments and Contingencies
Self-Insurance
It is the policy of the company to self insure for certain insurable risks
consisting primarily of physical loss to property; business interruptions
resulting from such loss; and workers' compensation, comprehensive general, and
auto liability. Insurance coverage is obtained for catastrophic property and
casualty exposures as well as those risks required to be insured by law or
contract. Based on an independent actuary's estimate of the aggregate liability
for claims incurred, a provision for claims under the self-insured program is
recorded and revised annually.
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, 1998, are as follows: 1999 - $11,902; 2000 - $9,762;
2001 - $7,201; 2002 - $5,680; 2003 - $4,737; after 2003 - $9,109.
Total rent expense was $12,237 in 1998, $11,327 in 1997, and $10,907 in
1996.
Collective Bargaining Agreements
Approximately 50 percent of the company's total work force is covered by
collective bargaining agreements. Collective bargaining agreements representing
30 percent of the company's total work force will expire within one year.
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.
Environmental Matters
The company's operations, as well as other similar operations, are subject to
comprehensive laws and regulations relating to the generation, storage,
handling, transportation, and disposal of hazardous substances and solid and
hazardous wastes and to the remediation of contaminated sites. Permits and
environmental controls are required for certain of the company's operations to
prevent air and water pollution, and these permits are subject to modification,
renewal, and revocation by issuing authorities. The company believes that it is
in substantial compliance with all material environmental laws, regulations, and
its permits. On an ongoing basis, the company incurs capital and operating costs
relating to environmental compliance. Environmental laws and regulations have
generally become stricter in recent years, and the cost of responding to future
changes may be substantial.
The company's environmental reserves totaled $12,600 and $17,100 at August
31, 1998 and 1997, respectively. The actual cost of environmental issues may be
substantially lower or higher than that reserved due to the difficulty in
estimating such costs, potential changes in the status of government
regulations, and the inability to determine the extent to which contributions
will be available from other parties. The company does not believe that any such
amount below or in excess of that accrued is reasonably estimable.
Certain environmental laws, such as Superfund, can impose liability for the
entire cost of site remediation upon each of the current or former owners or
operators of a site or parties who sent waste to a site where a release of a
hazardous substance has occurred regardless of fault or the lawfulness of the
original disposal activity. Generally, where there are a number of financially
viable potentially responsible parties ("PRPs"), liability has been apportioned
based on the type and amount of waste disposed of by each party at such disposal
site and the number of financially viable parties, although no assurance can be
given as to any particular site.
The company is currently a party to, or otherwise involved in, legal
proceedings in connection with several state and federal Superfund sites, two of
which are located on property owned by the company. Except for the Crymes
Landfill matter in Georgia, the company believes its liability is de minimis at
each of the sites which it does not own where it has been named as a PRP. At the
Crymes Landfill Site, since the matter is currently in the investigative phase,
the company does not know whether its liability is de minimis but believes that
its exposure at the site is not likely to result in a material adverse effect on
the company. For the property which the company owns on Seaboard Industrial
Boulevard in Atlanta, Georgia, the company has agreed to conduct an
investigation on its and adjoining properties pursuant to the Georgia Hazardous
Site Response Act. Until that investigation is completed, the company will not
be able to determine if remediation will be required, if the company will be
solely responsible for the cost of such remediation, or whether such cost is
likely to result in a material adverse effect on the company. For the property
which the company owns on East Paris Street in Tampa, Florida, the company has
been requested by the State of Florida to clean up chlorinated solvent
contamination in the groundwater on the property and on surrounding property
known as Seminole Heights Solvent Site and to reimburse costs already incurred
by the State of Florida in connection with such
<PAGE>
Page 63
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
National Service Industries, Inc.
contamination. The company believes that it has a strong defense due to likely
off- site sources of the contamination and because contamination from the
property, if any, was due to prior owners and not the company's operations. The
company plans to meet with the State of Florida in the near future regarding
this matter. At this time, it is too early to quantify the company's potential
exposure or the likelihood of an adverse result.
The company is currently evaluating emissions of volatile organic compounds
from its manufacturing operations in the Atlanta area to determine whether it
will need to install pollution control equipment or modify its operations to
comply with federal and state air pollution regulations. Until the current
evaluations are completed, the company is not able to quantify the possible cost
of compliance. However, based upon currently available information, the company
does not expect any expenditures which may have to be made to achieve compliance
to be material.
In connection with the sale of the North Bros. business and 29 of the
company's textile rental plants in 1997, the company has retained certain
environmental liabilities. The company has received notice from the buyer of the
textile rental plants of the alleged presence of perchloroethylene contamination
on one of the properties involved in the sale. The company has since asserted an
indemnification claim against the company from which it bought the property. At
this time, it is too early to quantify the company's potential exposure in this
matter, the likelihood of an adverse result, or the possibility that the company
may be fully or partially indemnified.
In November 1997, the Environmental Protection Agency ("EPA") proposed
stringent new wastewater discharge limits, which would become effective in the
future, that could apply to certain facilities operated by the company. While
the company does not believe that these regulations should apply to its
operations, if the regulations are adopted as proposed, following adoption, the
company's cost to comply with them could be as much as $6,000 to $9,000 of
equipment expenditures spread over a three-year period, which the company does
not believe would be material to its financial condition or results of
operations.
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 was reduced by
payments of $205 in 1997 and $2,115 in 1998. Plant consolidation payments were
$1,910 in 1997 and $390 in 1998.
As a further result of the 1997 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 results of the reviews
discussed above, historical losses, anticipated future losses, and inadequate
cash flows.
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: Acquisitions and Divestitures
Acquisition spending in 1998 totaled $45,305 and was primarily related to the
chemical and envelope segments. In November 1997, the chemical segment purchased
Pure Corporation, a specialty chemical company with its core businesses in
Indiana, Pennsylvania, and New York. In March 1998, the envelope segment
purchased Allen Envelope Corporation, a single-plant, Pennsylvania-based
envelope manufacturer, providing the segment with access to markets in the
Northeast. In July 1998, the company purchased Calman Australia Pty Ltd
("Calman"). Calman, located in Victoria, Australia is a manufacturer of
cleaning, maintenance, sanitation and industrial products, chemicals, supplies,
and accessories. Additionally, the company paid certain performance payments
associated with a prior year chemical acquisition. Divestitures during 1998
related to the textile rental segment and excess properties and were not
material.
<PAGE>
Page 64
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
National Service Industries, Inc.
In February 1997, the company sold the North Bros. insulation business for
$27,113 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 $74,044. The following condensed pro forma consolidated
statements of income present reported results for the respective fiscal years to
remove both the gain on the transaction and the results of the operations sold:
<TABLE>
Condensed Pro Forma Consolidated Statements of Income 1997 1996
(Unaudited)
<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
Net Income $ 55,718 $ 96,586
Basic Earnings per Share $1.23 $2.01
Basic Weighted Average Number of Shares Outstanding
(thousands) 45,191 47,941
Diluted Earnings per Share $ 1.22 $ 2.00
Diluted Weighted Average Number of Shares Outstanding
(thousands) 45,534 48,189
</TABLE>
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 $4,320 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 $20,522 to acquire Enforcer Products, Inc. ("Enforcer"), 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, the company divested several non-strategic or
unprofitable businesses, primarily in the textile rental segment, generating
cash of $15,250.
Note 7: Income Taxes
The company accounts for income taxes using the asset and liability approach.
This approach requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Using the enacted tax rates in effect for
the year in which the differences are expected to reverse, deferred tax
liabilities and assets are determined based on the differences between the
financial reporting and the tax basis of an asset or liability.
The provision for income taxes consists of the following components:
<TABLE>
1998 1997 1996
<S> <C> <C> <C>
Provision for current Federal taxes $ 54,997 $ 94,426 $ 52,809
Provision for current state taxes 3,143 11,994 5,275
Provision for current foreign taxes 1,952 1,598 1,073
Provision (credit) for deferred taxes 4,309 (36,218) 1,543
Total provision for income taxes $ 64,401 $ 71,800 $ 60,700
</TABLE>
A reconciliation from the Federal statutory rate to the total provision
for income taxes is as follows:
<TABLE>
1998 1997 1996
<S> <C> <C> <C>
Federal income tax computed at statutory rate $ 60,592 $ 62,677 $ 56,647
State income tax, net of Federal income tax benefit 2,144 5,960 3,489
Foreign and other, net 1,665 3,163 564
Total provision for income taxes $64,401 $ 71,800 $ 60,700
</TABLE>
<PAGE>
Page 65
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
National Service Industries, Inc.
Components of the net deferred income tax liability at August 31, 1998 and
1997 include:
<TABLE>
1998 1997
Deferred tax liabilities:
<S> <C> <C>
Depreciation $26,837 $28,839
Amortization of linens 21,017 16,951
Pension 12,835 12,015
Other 26,640 30,596
Total deferred tax liabilities 87,329 88,401
Deferred tax assets:
Self-insurance (24,753) (27,054)
Deferred compensation (10,393) (8,698)
Bonuses (2,609) (3,035)
Foreign tax losses (1,014) (605)
Restructuring and asset impairment (14,594) (15,049)
Asset disposition reserves (4,365) (5,723)
Other assets (6,739) (7,221)
Total deferred tax assets (64,467) (67,385)
Net deferred tax liability $22,862 $21,016
</TABLE>
At August 31, 1998, the company had foreign net operating loss
carryforwards of $2,784 expiring in fiscal years 1999 through 2004.
Note 8: Quarterly Financial Data (Unaudited)
<TABLE>
Sales and Income Basic Diluted
Service Gross before Net Earnings Earnings
Revenues Profit Taxes Income per Share per Share
1998
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $487,584 $193,345 $42,355 $26,668 $.61 $.60
2nd Quarter 479,411 186,049 37,312 23,488 .55 .54
3rd Quarter 521,608 207,319 44,789 28,139 .67 .66
4th Quarter 542,707 216,912 48,665 30,425 .73 .72
1997
1st Quarter $511,893 $199,711 $39,340 $24,834 $.54 $.54
2nd Quarter 499,236 188,726 32,187 20,345 .45 .45
3rd Quarter 515,279 210,864 46,808 29,434 .65 .65
4th Quarter (1) 509,771 208,060 60,743 32,665 .73 .72
</TABLE>
(1) Results for the fourth quarter included the gain on the sale of textile
rental plants of $75,097 and charges for restructuring and other reserves
of $19,600 and asset impairments of $43,500.
Note 9: Business Segment Information
<TABLE>
Depreciation Capital
Sales and Operating and Expenditures
Service Profit Identifiable Amortization Including
Revenues (Loss) Assets Expense Acquisitions
1998
<S> <C> <C> <C> <C> <C>
Lighting Equipment $1,105,255 $ 109,286 $ 397,962 $ 19,114 $ 37,541
Chemical 454,532 36,460 235,269 9,194 20,217
Textile Rental (1) 312,746 29,734 193,347 13,912 21,595
Envelope 158,777 13,293 103,087 4,383 47,111
2,031,310 188,773 929,665 46,603 126,464
Corporate (14,903) 81,019 2,243 875
Interest Expense, net (749)
$2,031,310 $ 173,121 $1,010,684 $ 48,846 $127,339
1997
Lighting Equipment $ 952,026 $ 92,372 $ 353,224 $ 16,722 $ 21,688
Chemical (2) 402,569 31,647 202,769 8,679 12,875
Textile Rental (1) 493,535 60,792 190,139 27,014 13,050
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
Chemical 367,682 38,611 170,327 8,127 5,744
Textile Rental (1) 530,625 42,198 420,169 29,753 28,418
Envelope 125,834 10,041 51,258 2,741 5,759
Other 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
</TABLE>
(1) Textile rental segment 1997 operating profit included one-time charges of
$17,800 for restructuring and other and $31,800 for asset impairments.
Gains resulting from the sale of businesses were $2,449 in 1998, $75,097 in
1997, and $7,800 in 1996.
(2) Chemical segment operating profit included one-time charges of $1,500 for
restructuring and $8,100 for asset impairments.
(3) Envelope segment operating profit included one-time charges of $230 for
restructuring.
(4) Corporate operating profit included one-time charges of $3,700 for asset
impairments.
<PAGE>
Page 66
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.
/s/ James S. Balloun /s/ Brock A. Hattox /s/ Mark R. Bachmann
James S. Balloun Brock A. Hattox Mark R. Bachmann
Chairman, President, and Executive Vice President and Vice President and
Chief Executive Officer Chief Financial Officer 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, 1998
and 1997 and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended August
31, 1998. 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, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1998 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
October 9, 1998
<PAGE>
Page 67
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
National Service Industries, Inc.
National Service Industries is a diversified service and manufacturing company
operating in four segments: lighting equipment, chemicals, textile rental, and
envelopes. The company continued to be in strong financial condition at August
31, 1998. Net working capital was $385.1 million, down from $498.8 million at
August 31, 1997, and the current ratio was 2.7, compared with 2.8 at the prior
year-end. The decrease in net working capital was the result of the company's
utilization of approximately $325 million of cash, generated from the 1997
divestiture of several non-strategic assets, to fund acquisitions, capital
expenditures, share repurchases, and payment of dividends. At August 31, 1998,
the company's debt to capitalization increased according to plan to 12.9 percent
compared with 4.6 percent at the prior year-end.
Strategic Transactions
The company periodically implements strategic transactions that, it believes,
afford it the opportunity to redeploy resources to create value and position the
company for future growth. During the three-year period ending 1998, the
following transactions occurred:
Acquisitions
Acquisition spending in 1998 totaled $45.3 million and was primarily related to
the chemical and envelope segments. In November 1997, the chemical segment
purchased Pure Corporation, a specialty chemical company with its core
businesses in Indiana, Pennsylvania, and New York. In March 1998, the envelope
segment purchased Allen Envelope Corporation, a single-plant, Pennsylvania-based
envelope manufacturer, providing the segment with access to markets in the
Northeast. In July 1998, the company purchased Calman Australia Pty Ltd
("Calman"). Calman, located in Victoria, Australia, is a manufacturer of
cleaning, maintenance, sanitation and industrial products, chemicals, supplies,
and accessories. Additionally, the company paid certain performance payments
associated with a prior year chemical acquisition.
In 1997, acquisition spending totaled $4.3 million and resulted from 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. In March 1997, the company also issued 536,872
shares valued at $20.5 million to acquire Enforcer Products, Inc. ("Enforcer"),
a specialty chemical company with a retail focus. In 1996, the company made
minor acquisitions related to the textile rental segment.
Divestitures
In 1998, divestitures of non-strategic textile rental operations and excess
properties resulted in net proceeds of $3.1 million and pretax gains of $2.4
million.
In February 1997, the company sold the North Bros. insulation business for
cash of $27.1 million, recognizing an immaterial gain. The business had 1997
sales of $57.0 million and operating income of $1.9 million through the date of
sale.
In July 1997, the company sold 29 textile rental plants to G&K Services,
Inc. for approximately $280 million, recognizing 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.
Additionally, in 1997 and 1996, the company divested other non-strategic
businesses, primarily in the textile rental segment, generating cash of $4.3
million and $15.3 million, respectively.
Liquidity and Capital Resources
Operating Activities
Operations provided cash of $29.3 million in 1998, compared with cash provided
of $127.6 million in 1997 and $153.0 in 1996. The decrease in 1998 was primarily
the result of increased tax payments associated with the divestiture of 29
textile plants in July 1997 and an increase in accounts receivable commensurate
with the increased revenue in the lighting equipment and chemical segments. The
1997 decrease compared with 1996 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 plant divestiture.
Investing Activities
Investing activities provided cash of $82.5 million and $61.8 million in 1998
and 1997, respectively, and used cash of $41.8 million in 1996. The increase in
1998 is the result of the liquidation of $205.3 million of short-term
investments, generated by 1997 divestitures, to fund acquisitions, capital
expenditures, share repurchases, and payment of dividends. Capital expenditures
were $82.0 million in 1998, compared with $48.8 million in 1997 and $65.5
million in 1996. During 1998, the lighting equipment segment invested in
facility expansions and manufacturing process improvements, the textile rental
segment invested in a merchandise tracking system and fleet refurbishment, and
the envelope segment invested in facility and machinery replacements. Capital
spending in 1997 and 1996 consisted primarily of lighting equipment segment
facilities and process improvements, equipment replacements, and tooling for new
products and textile rental segment facilities improvements and equipment
replacements. Additionally, in 1996, the lighting equipment segment expanded its
production facility in Monterrey, Mexico. As noted under "Acquisitions" and
"Divestitures," the company has engaged in a number of strategic transactions.
The company spent $45.3 million, $4.3 million, and $0.6 million in 1998, 1997,
and 1996, respectively, on acquisitions. Additionally, the company received $3.1
million, $311.4 million, and $15.3 million in connection with dispositions of
non-strategic assets in 1998, 1997, and 1996, respectively. In 1999, capital
expenditures are expected to approximate $85 million as the company continues to
invest capital in technology and facilities. Contractual commitments for capital
and acquisition spending for fiscal year 1999 approximate $27 million.
<PAGE>
Page 68
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
National Service Industries, Inc.
Financing Activities
Financing activities used $145.2 million, $187.6 million, and $131.2 million in
1998, 1997, and 1996, respectively. In the three years ending August 31, 1998,
the company distributed approximately $510 million to stockholders through share
repurchases and dividends. Cash of $154.0 million, $121.7 million, and $75.2
million was utilized in 1998, 1997, and 1996, respectively, for share
repurchases of 3.0 million, 3.0 million, and 2.0 million shares, respectively.
The company has a standing annual authorization to repurchase 2.0 million shares
plus the number of new shares issued in any one year. Included in the 1998 and
1997 amounts was a supplemental authorization for the repurchase of 1.25 million
shares granted as a result of the textile rental divestiture transaction.
Additionally, the company distributed cash of $52.6 million, $54.2 million, and
$55.3 million in 1998, 1997, and 1996, respectively, to the company's
stockholders in the form of dividends. The increase in dividends to $1.23 per
share in 1998 from $1.19 per share in 1997 represented an increase of 3.4
percent, marking the sixty-second consecutive year of quarterly dividends
without a decrease.
During the fourth quarter of 1998, the company filed a registration
statement (the "shelf registration"), which became effective September 8, 1998,
with the Securities and Exchange Commission to allow the company to offer for
sale, from time to time, up to $400 million of unsecured senior debt securities
or unsecured senior subordinated debt securities (the "Debt Securities")
consisting of notes, debentures, or other evidence of indebtedness. The Debt
Securities may be convertible into or exchangeable for shares of the company's
common stock, shares of its preferred stock, or other Debt Securities. The Debt
Securities may be offered as a single series or as two or more separate series
in amounts, at prices and on terms to be determined at the time of the offering.
The Debt Securities may be sold to or through one or more agents designated from
time to time.
In 1996, the company negotiated a $250 million multi-currency committed
credit facility (the "Credit Facility") with ten domestic and international
banks. The Credit Facility has a term of five years, expiring in July 2001, with
no provision for reduction in commitments. The Credit Facility contains
restrictions on the incurrence of indebtedness by subsidiaries, as well as
financial and other covenants, including restrictions that the company's ratio
of total debt to capitalization may not exceed 60 percent at any time.
The company has complimentary lines of credit totaling $122.0 million for
general operating purposes, of which $22.0 million is available on a
multi-currency basis. On August 31, 1998, the company borrowed $52.0 million
under the $100.0 million domestic line of credit. Subsequent to the company's
fiscal year end, these borrowings were repaid through borrowings on the Credit
Facility. This borrowing has been classified as noncurrent because it is the
company's intention to refinance this obligation on a long-term basis. In
addition, $28.4 million in letters of credit were outstanding at August 31, 1998
under the domestic line of credit. At August 31, 1998, the company had foreign
currency short-term bank borrowings under the $22.0 million line of credit
equivalent to $7.9 million at a weighted average interest rate of 4.91 percent.
Management believes current cash balances, anticipated cash flows from
operations, and available funds from the Credit Facility, complimentary lines of
credit, and the shelf registration are sufficient to meet the company's planned
level of capital spending and general operating cash requirements for the next
twelve months.
Results of Operations
<TABLE>
Years Ended August 31
(in millions, except per 1998 1997 1996
share amounts)
Sales and Service Revenue:
<S> <C> <C> <C>
Lighting Equipment $1,105.3 $ 952.0 $ 867.8
Chemical 454.5 402.6 367.7
Textile Rental 312.7 493.5 530.6
Envelope 158.8 131.0 125.8
Other - 57.1 121.7
$2,031.3 $2,036.2 $2,013.6
Operating Profit (Loss):
Lighting Equipment $ 109.3 $ 92.4 $ 76.1
Chemical 36.5 31.6 38.6
Textile Rental 29.7 60.8 42.2
Envelope 13.3 10.2 10.0
Other - 1.9 5.3
188.8 196.9 172.2
Corporate (14.9) (16.2) (8.8)
Interest expense, net (0.8) (1.6) (1.6)
$ 173.1 $ 179.1 $ 161.8
Net Income $ 108.7 $107.3 $101.1
Earnings per Share:
Basic $ 2.56 $ 2.37 $ 2.11
Diluted 2.53 2.36 2.10
</TABLE>
National Service Industries posted revenues of $2.0 billion for the fiscal
year ended August 31, 1998. The slight revenue decline in 1998 in comparison
with the prior year resulted from increased lighting equipment, chemical, and
envelope revenues of approximately $233 million offset primarily by revenues not
included in 1998 as a result of 1997 divestitures. Revenues in 1997 increased
$22.6 million, or 1.1 percent, as a result of higher volumes in the lighting
equipment, chemical, and envelope segments partially offset by revenues from
businesses divested.
Net income for 1998 increased $1.4 million, or 1.3 percent, to a record
level of $108.7, or $2.56 per basic share, $2.53 diluted. Earnings per share
grew at the higher rate of 8.0 percent per basic share and 7.2 percent per
diluted share due to a reduction of 2.7 million basic and 2.5 million diluted
average shares outstanding. Net income in 1997 increased $6.2 million, or 6.1
percent, to $107.3 million, or $2.37 per basic share, $2.36 diluted.
Lighting equipment segment sales grew $153.3 million, or 16.1 percent, to
$1.1 billion in 1998. Strong demand in the non-residential construction market
and increased volumes resulting from new products contributed to the growth in
sales. As a result of the increased sales and ongoing productivity improvements,
operating profit increased 18.3 percent in 1998. Sales for 1997 increased 9.7
percent due primarily to higher unit volumes in the non-residential construction
markets. Operating profit for 1997 increased 21.4 percent as a result of the
increased sales, improved product mix, and lower manufacturing costs.
<PAGE>
Page 69
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
National Services Industries, Inc.
Chemical segment revenues for 1998 increased $51.9 million, or 12.9
percent, to $454.5 million. Incremental revenues were a result of the inclusion
of a full year of Enforcer as well as increased retail volumes of Enforcer and
Zep Manufacturing Company. Operating profit increased $4.9 million, or 15.5
percent, to $36.5 million as a result of the increased revenues and the impact
of the 1997 restructuring charge on 1997 operating profit. These increases to
operating profit were somewhat offset by additional severance costs and
increased selling expenses incurred in the industrial chemical channel of the
segment. Revenues in 1997 increased 9.5 percent, as a result of incremental
volumes from U.S. and Canadian acquisitions. Operating profit in 1997 declined
18.1 percent, as 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. Additionally in 1997, higher manufacturing costs
and investments to increase the size and capability of the segment's fully
commissioned sales force offset the profits resulting from revenue gains.
Textile rental segment revenues for 1998 decreased 36.6 percent to $312.7
million primarily as a result of the businesses divested in 1997 as described in
"Strategic Transactions" above. Excluding the 1997 divestiture, revenues
declined approximately $4.0 million as the segment continued to eliminate
low-margin customer accounts. Operating profit decreased 51.2 percent to $29.7
million, primarily as a result of the 1997 divestitures. The 1997 sale of
non-strategic assets to G&K Services, Inc., which had 1997 operating profits of
$9.4 million, resulted in gains of $74.0 million. These gains were somewhat
offset in 1997 by restructuring expenses, asset impairment, and other charges
totaling $49.6 million. Excluding the impact on 1997 operating profit of the
gains, restructuring, and loss of revenue from divested facilities, 1997
operating profit would have been approximately $27.0 million. The increase in
operating profit in 1998 after adjusting for the 1997 items is primarily due to
gains on the sale of certain uniform contracts and improved profitability as a
result of tighter inventory control. Segment revenues for 1997 decreased 7.0
percent from 1996 primarily as a result of the businesses divested in 1997.
Operating profit increased 44.1 percent as a result of the gains recognized on
the divestitures discussed above, offset by the restructuring and other charges
recorded in 1997.
A review of the textile rental segment's under-performing and
non-strategic locations during 1997 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 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 ongoing impact to operating profit as a result of reduced
employee and facility expenses is estimated to be an increase of $4 million to
$5 million annually. The restructuring is not expected to materially impact
future liquidity or other sources and uses of capital.
Envelope segment revenue increased $27.8 million, or 21.2 percent, in 1998
to $158.8 million. The March 1998 purchase of Allen Envelope, as discussed in
"Strategic Transactions," accounted for approximately $18 million of the revenue
increase. The remaining increase is attributable to higher shipment volumes.
Operating profit for the segment increased 30.4 percent to $13.3 million,
primarily as a result of the increased revenues generated by the Allen Envelope
acquisition. Segment revenue in 1997 increased 4.1 percent as volume gains were
offset somewhat by contractual price adjustments. Operating profit in 1997 was
flat in comparison to the prior year as increased revenues were offset by higher
manufacturing costs associated with the segment's growth initiatives.
Revenue and operating profit of the "other" segment have been eliminated as
a result of the February 1997 divestiture of the insulation service business
discussed in "Strategic Transactions."
Corporate expenses decreased $1.3 million in 1998, as 1997 expense included
an asset impairment recorded to reflect the $1.2 million appraised value of an
asset held for sale. Corporate expenses in 1997 were $7.4 million higher than
1996 as a result of the asset impairment and higher accrued incentive plan
costs. Net interest expense decreased $0.8 million in 1998 as the company
benefited from higher average levels of short-term investments, offset slightly
by higher average debt levels.
Consolidated income before taxes decreased $6.0 million, or 3.4 percent, to
$173.1 million primarily due to the effect of the 1997 divestitures and
associated gains included in 1997 amounts, partially offset by increased income
from the lighting segment in 1998. The provision for income taxes was 37.2
percent, 40.1 percent, and 37.5 percent in 1998, 1997, and 1996, respectively.
The increase in the effective rate in 1997 was due primarily to higher rates
applicable to the textile rental divestiture.
Environmental Matters
The company's operations, as well as other similar operations, are subject to
comprehensive laws and regulations relating to the generation, storage,
handling, transportation, and disposal of hazardous substances and solid and
hazardous wastes and to the remediation of contaminated sites. Permits and
environmental controls are required for certain of the company's operations to
prevent air and water pollution, and these permits are subject to modification,
renewal, and revocation by issuing authorities. The company believes that it is
in substantial compliance with all material environmental laws, regulations, and
its permits. On an ongoing basis, the company incurs capital and operating costs
relating to environmental compliance. Environmental laws and regulations have
generally become stricter in recent years, and the cost of responding to future
changes may be substantial.
The company's environmental reserves totaled $12.6 million and $17.1
million at August 31, 1998 and 1997, respectively. The actual cost of
environmental issues may be substantially lower or higher than that reserved due
to the difficulty in estimating such costs, potential changes in the status of
government regulations, and the inability to determine the extent to which
contributions will be available from other parties. The company does not believe
that any such amount below or in excess of that accrued is reasonably estimable.
Certain environmental laws, such as Superfund, can impose liability for
the entire cost of site remediation upon each of the current or former owners or
operators of a site or parties who sent waste to a site where a release of a
hazardous substance has occurred regardless of fault or the lawfulness of the
original disposal activity. Generally, where there are a number of financially
viable potentially responsible parties ("PRPs"), liability has been apportioned
based on the type and amount of waste disposed of by each party at such disposal
site and the number of financially viable parties, although no assurance can be
given as to any particular site.
The company is currently a party to, or otherwise involved in, legal
proceedings in connection with several state and federal Superfund sites, two of
which are located on property owned by the company. Except for the Crymes
Landfill matter in Georgia, the company believes its liability is de minimis at
each of the sites which it does not own where it has been named as a PRP. At the
Crymes Landfill Site, since the matter is currently in the investigative phase,
the company does not know whether its liability is de minimis but believes that
its exposure at the site is not likely to result in a
<PAGE>
Page 70
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
National Service Industries, Inc.
material adverse effect on the company. For the property which the company owns
on Seaboard Industrial Boulevard in Atlanta, Georgia, the company has agreed to
conduct an investigation on its and adjoining properties pursuant to the Georgia
Hazardous Site Response Act. Until that investigation is completed, the company
will not be able to determine if remediation will be required, if the company
will be solely responsible for the cost of such remediation, or whether such
cost is likely to result in a material adverse effect on the company. For the
property which the company owns on East Paris Street in Tampa, Florida, the
company has been requested by the State of Florida to clean up chlorinated
solvent contamination in the groundwater on the property and on surrounding
property known as Seminole Heights Solvent Site and to reimburse costs already
incurred by the State of Florida in connection with such contamination. The
company believes that it has a strong defense due to likely off-site sources of
the contamination and because contamination from the property, if any, was due
to prior owners and not the company's operations. The company plans to meet with
the State of Florida in the near future regarding this matter. At this time, it
is too early to quantify the company's potential exposure or the likelihood of
an adverse result.
The company is currently evaluating emissions of volatile organic
compounds from its manufacturing operations in the Atlanta area to determine
whether it will need to install pollution control equipment or modify its
operations to comply with federal and state air pollution regulations. Until the
current evaluations are completed, the company is not able to quantify the
possible cost of compliance. However, based upon currently available
information, the company does not expect any expenditures which may have to be
made to achieve compliance to be material.
In connection with the sale of the North Bros. business and 29 of the
company's textile rental plants in 1997, the company has retained certain
environmental liabilities. The company has received notice from the buyer of the
textile rental plants of the alleged presence of perchloroethylene contamination
on one of the properties involved in the sale. The company has since asserted an
indemnification claim against the company from which it bought the property. At
this time, it is too early to quantify the company's potential exposure in this
matter, the likelihood of an adverse result, or the possibility that the company
may be fully or partially indemnified.
In November 1997, the Environmental Protection Agency ("EPA") proposed
stringent new wastewater discharge limits, which would become effective in the
future, that could apply to certain facilities operated by the company. While
the company does not believe that these regulations should apply to its
operations, if the regulations are adopted as proposed, following adoption, the
company's cost to comply with them could be as much as $6 million to $9 million
of equipment expenditures spread over a three-year period, which the company
does not believe would be material to its financial condition or results of
operations.
Impact of the Year 2000 Issue
The "Year 2000 Issue" resulted from the use of two digits rather than four
digits to define the applicable year in certain computer programs. With the
coming millennium, any of the company's computer programs that have two-digit
date-sensitive software may interpret a date of "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculation
causing disruption of the operation of computer hardware and software, as well
as intelligent manufacturing equipment and processes, and telephony.
Management is addressing the Year 2000 Issue in four phases: awareness,
assessment, action plan, and plan implementation. At August 31, 1998, all areas
of the company had completed the first three phases and implementation of the
plan was approximately 60 percent complete. Management estimates that the total
cost to be incurred in connection with the Year 2000 Issue will range from $3
million to $5 million, and substantially all major systems are expected to be in
compliance prior to the end of calendar year 1999. At August 31, 1998, the
company had spent approximately $1.5 million on the Year 2000 Issue. The cost of
the project is being funded through operating cash flows. Approximately
one-third of the total cost reflects the redeployment of existing internal
information technology resources and should not be incremental costs to the
company.
Management has evaluated the potential exposure of the company to related
problems of its customers and suppliers and has implemented a vendor
certification process. While management believes that its plan is sufficient to
address the Year 2000 Issue, a contingency plan is currently being developed to
address the potential for unforeseen issues that may arise. There can be no
assurance, however, that such exposures or the costs of remediating any problems
associated therewith will not materially affect the company's future business,
financial condition, or results of operations.
Outlook
Management continues to execute its strategic plan to grow both internally and
through acquisitions. Fiscal 1999 sales from the existing businesses are
anticipated to grow at a rate in excess of 5.0 percent, led primarily by the
lighting equipment segment through continued lighting equipment market strength
and in the chemical segment by product development and growth in the retail
market. Additionally, subsequent to year-end, the company completed the
acquisition of the assets of GTY Industries, Inc., a manufacturer of
architectural-grade light fixtures for landscape, in-grade, and underwater
applications. Assuming economic conditions similar to the fall of 1998,
management expects earnings growth that is consistent with or slightly higher
than reported 1998 results.
Cautionary Statement Regarding Forward-Looking Information
From time to time, the company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
capital expenditures, 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.
Statements herein which may be considered forward-looking include: (a)
statements made regarding the company's current expectations or beliefs with
respect to the outcome and impact on the company's business, financial
condition, or results of operations of the Year 2000 Issue, environmental
issues, and legal proceedings; (b) statements made concerning management's
expectations with respect to the company's plan for strategic growth; (c)
statements made regarding management's expectations with regard to future cash
flows; and (d) statements made regarding the effect of the 1997 reduction of
employees and facility expenses in the textile rental segment on future
operating profit. 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 non-residential construction awards; and (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, as well as share repurchases and acquisitions.
<PAGE>
Page 71
Exhibit 13
<TABLE>
TEN-YEAR FINANCIAL SUMMARY
National Service Industries, Inc.
(Dollar amounts in thousands, except per share
data)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Results
Net sales of products $1,718,564 $1,542,644 $1,482,937 $1,424,180 $1,337,410 $1,257,906 $1,189,684 $1,164,181 $1,250,833 $1,183,666
Service revenues 312,746 493,535 530,625 546,447 544,454 546,916 444,127 437,534 396,981 355,845
Total revenues 2,031,310 2,036,179 2,013,562 1,970,627 1,881,864 1,804,822 1,633,811 1,601,715 1,647,814 1,539,511
Cost of products sold 1,044,215 945,794 933,405 908,869 875,055 832,264 810,552 791,355 832,867 800,385
Cost of services 183,470 283,024 304,381 299,687 286,519 281,551 236,474 240,376 219,673 198,262
Selling and administrative
expenses 634,061 633,740 616,513 601,143 576,463 556,162 462,240 456,622 438,949 397,160
Interest expense
(income), net 749 1,624 1,565 1,648 2,788 3,645 (837) (4,332) (3,712) (3,805)
Gain on sale of
business (2,449) (75,097) (7,579) (5,726) (2,249) (1,379) - - - (3,080)
Restructuring expense,
asset impairments, and
other charges - 63,091 - - - - - 63,467 - -
Other (income)
expense, net (1,857) 4,925 3,429 14,509 11,090 13,063 8,474 5,591 4,322 2,571
Income before taxes 173,121 179,078 161,848 150,497 132,198 119,516 116,908 48,636 155,715 148,018
Provision for
income taxes 64,401 71,800 60,700 56,400 49,500 44,400 42,800 16,400 56,000 53,300
Net Income $ 108,720 $ 107,278 $ 101,148 $ 94,097 $ 82,698 $ 75,116 $ 74,108 $ 32,236 $ 99,715 $ 94,718
Per Share Data
Net income: (1)
Basic $ 2.56 $ 2.37 $ 2.11 $ 1.93 $ 1.67 $ 1.52 $ 1.50 $ .65 $ 2.02 $ 1.92
Diluted 2.53 2.36 2.10 1.93 1.67 1.51 1.50 .65 2.02 1.92
Cash dividends 1.23 1.19 1.15 1.11 1.07 1.03 .99 .95 .90 .82
Stockholders' equity 13.96 15.20 15.45 15.41 14.77 14.21 13.79 13.33 13.68 12.44
Financial Ratios
Current ratio 2.7 2.8 3.1 3.2 3.2 2.9 3.5 3.4 4.5 4.8
Net income as a
percent of sales 5.4% 5.3% 5.0% 4.8% 4.4% 4.2% 4.5% 2.0% 6.1% 6.2%
Return on average
stockholders' equity 17.4% 15.5% 13.6% 13.0% 11.6% 10.9% 11.1% 4.8% 15.6% 16.3%
Dividends as a percent of
current year earnings 48.4% 50.5% 54.6% 57.6% 64.1% 67.9% 66.3% 146.2% 44.6% 42.6%
Percent of debt to total
capitalization 12.9% 4.6% 4.2% 4.3% 4.3% 4.7% 4.2% 5.0% 4.2% 3.5%
</TABLE>
<PAGE>
Page 72
Exhibit 13
<TABLE>
TEN-YEAR FINANCIAL SUMMARY (CONTINUED)
National Service Industries, Inc.
(Dollar amounts in thousands, except per share
data)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Position
Increase (decrease) in:
Cash and cash
equivalents $ (37,977)$ (1,539)$ (20,740)$ 20,783 $ 42,766 $ (85,284)$ 27,617 $ (50,437)$ 23,433 $ 14,612
Short-term investments(205,302) 204,751 (3,047) 1,019 (2,197) (3,736) (5,551) 12,813 (27,247) (19,633)
Net working capital 385,056 498,758 408,955 437,840 413,114 363,575 399,893 386,306 447,800 450,185
Short-term debt $ 7,981 $ 5,889 $ 6,742 $ 6,486 $ 5,765 $ 6,196 $ 1,434 $ 3,254 $ 2,253 $ 1,372
Long-term debt 78,092 26,197 24,920 26,776 26,863 28,418 28,359 31,373 27,465 20,765
Total debt 86,073 32,086 31,662 33,262 32,628 34,614 29,793 34,627 29,718 22,137
Stockholders' equity 578,901 671,813 718,008 744,404 727,385 704,023 682,954 660,567 675,444 612,668
Capitalization $ 664,974 $ 703,899 $ 749,670 $ 777,666 $ 760,013 $ 738,637 $ 712,747 $ 695,194 $ 705,162 $ 634,805
Other Data
Capital expenditures (including
acquisitions) $ 127,339 $ 56,990 $ 65,566 $ 59,910 $ 42,508 $ 82,171 $ 49,789 $ 90,229 82,932 $ 66,491
Depreciation and
amortization 48,846 57,981 47,643 57,130 60,548 62,097 53,816 50,249 42,821 36,260
Total assets 1,010,684 1,106,352 1,094,646 1,131,346 1,101,261 1,081,510 1,036,908 1,008,319 960,622 886,358
Deferred income tax
liability 40,404 34,093 63,347 65,756 73,319 78,286 87,150 96,627 99,277 101,320
Self-insurance reserves,
less current portion 44,573 57,056 63,369 67,830 61,081 56,335 47,638 38,428 15,222 15,213
Other long-term
liabilities 46,719 35,193 27,576 24,010 22,940 27,110 28,677 22,015 16,067 17,964
Weighted average number
of shares outstanding
(in thousands): (1)
Basic 42,462 45,191 47,941 48,696 49,547 49,556 49,539 49,540 49,389 49,255
Diluted 43,022 45,534 48,189 48,797 49,614 49,623 49,566 49,561 49,389 49,255
Stockholders 6,774 7,165 6,281 6,655 7,034 7,262 7,554 7,996 8,248 8,459
Employees 16,700 16,100 20,600 21,100 22,000 22,200 20,100 20,900 21,800 20,800
Use of Total Revenues
Salaries and wages $ 552,816 $ 572,517 $ 580,571 $ 568,616 565,859 $ 572,163 $ 502,709 $ 501,502 $ 491,334 $ 465,522
Materials and supplies 955,307 909,082 875,658 832,668 783,610 760,551 700,338 683,871 713,310 668,655
Other operating expenses 305,888 334,503 348,143 370,575 349,849 301,356 273,330 258,919 246,288 222,350
Taxes and licenses 111,028 124,805 115,621 110,397 102,097 97,015 83,326 59,889 97,167 91,346
Gain on sale
of businesses (2,449) (75,097) (7,579) (5,726) (2,249) (1,379) - - - (3,080)
Restructuring expense,
asset impairments,
and other charges - 63,091 - - - - - 63,467 - -
Dividends paid 52,603 54,222 55,272 54,156 53,042 51,041 49,105 47,124 44,506 40,389
Retained earnings 56,117 53,056 45,876 39,941 29,656 24,075 25,003 (13,057) 55,209 54,329
$2,031,310 $2,036,179 $2,013,562 $1,970,627 $1,881,864 $1,804,822 $1,633,811 $1,601,715 $1,647,814 $1,539,511
</TABLE>
(1) In 1998, the company adopted Financial Accounting Standards No. 128,
"Earnings per Share." Prior period amounts have been restated in accordance
with this statement.
Page 73
Exhibit 21
LIST OF SUBSIDIARIES
Registrant - National Service Industries, Inc.
Registrant owns, directly or indirectly, the following subsidiaries and other
affiliates:
<TABLE>
State or Other
Jurisdiction
of Incorporation
Subsidiary or Affiliate Principal Location or Organization
<S> <C> <C>
Chemical Specialties B.V. Bergen op Zoom, Holland Netherlands
Enforcer Products, Inc. Atlanta, Georgia Georgia
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 Export Ltd. Bridgetown, Barbados Barbados
NSI Holdings, Inc. Montreal, Quebec, Canada Canada
NSI Insurance (Bermuda) Ltd. Hamilton, Bermuda Bermuda
NSI International Pty Ltd. Melbourne, Australia Australia
NSI Leasing, Inc. Atlanta, Georgia Delaware
NSI Realty, L.P. Atlanta, Georgia Texas
NSI Services, L.P. Atlanta, Georgia Georgia
Productos Lithonia Lighting de Mexico, S.A. de C.V. Monterrey, Nuevo Leon Mexico
Produits de Maintenance et de Proprete Industrielle 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 International Pty Ltd. Melbourne, Australia Australia
Zep Italia S.r.l. Aprilia, Italy Italy
Zep Manufacturing Company Santa Clara, California Delaware
Zep Industries, S.A. Bern, Switzerland Switzerland
</TABLE>
The consolidated financial statements include the accounts of all subsidiaries
and affiliates.
Page 74
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated October 9, 1998, included or incorporated by
reference in National Service Industries, Inc. Form 10-K for the year ended
August 31, 1998, into the company's previously filed Registration Statement File
Nos. 33-35609, 33-36980, 33-48835, 33-51339, 33-51341, 33-51343, 33-51345,
33-51351, 33-51355, 33-51357, 33-59627, and 33-60715.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 18, 1998
Page 75
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, 1998, 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/ David Levy
David Levy, Executive Vice President,
Administration and Counsel, and Director
/s/ Mark R. Bachmann
Mark R. Bachmann, Vice President and Controller
(Principal Accounting Officer)
Dated: November 18, 1998
<PAGE>
Page 76
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,
1998, 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 18, 1998
<PAGE>
Page 77
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,
1998, 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 18, 1998
<PAGE>
Page 78
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,
1998, 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 18, 1998
<PAGE>
Page 79
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,
1998, 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 18, 1998
<PAGE>
Page 80
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1998, 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 18, 1998
<PAGE>
Page 81
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1998, 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/ Charles W. McCall
Charles W. McCall
Dated: November 18, 1998
<PAGE>
Page 82
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1998, 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 18, 1998
<PAGE>
Page 83
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1998, 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 18, 1998
<PAGE>
Page 84
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1998, 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 18, 1998
<PAGE>
Page 85
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints David Levy and Brock Hattox, and each of them individually, 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,
1998, 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 E. Siegel
Betty E. Siegel
Dated: November 18, 1998
<PAGE>
Page 86
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1998, 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 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Page 87
Exhibit 27
Financial Data Schedule
Year Ended August 31, 1998
Pursuant to Section 601(c) of Regulation S-K
This schedule contains summary financial information extracted from National
Service Industries, Inc. consolidated balance sheet as of August 31, 1998 and
the consolidated statement of income for the year ended August 31, 1998, and is
qualified in its entirety by reference to such financial statements. (Replace
this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-1-1997
<PERIOD-END> AUG-31-1998
<CASH> $19,146
<SECURITIES> 0
<RECEIVABLES> 311,771
<ALLOWANCES> 4,631
<INVENTORY> 197,950
<CURRENT-ASSETS> 607,051
<PP&E> 657,047
<DEPRECIATION> 385,176
<TOTAL-ASSETS> 1,010,684
<CURRENT-LIABILITIES> 221,995
<BONDS> 78,092
0
0
<COMMON> 57,919
<OTHER-SE> 520,982
<TOTAL-LIABILITY-AND-EQUITY> 1,010,684
<SALES> 1,718,564
<TOTAL-REVENUES> 2,031,310
<CGS> 1,044,215
<TOTAL-COSTS> 1,227,685
<OTHER-EXPENSES> 619,682
<LOSS-PROVISION> 3,558
<INTEREST-EXPENSE> 7,264
<INCOME-PRETAX> 173,121
<INCOME-TAX> 64,401
<INCOME-CONTINUING> 108,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,720
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.53
</TABLE>
