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Exhibit Index on Page 2
FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Annual Report Pursuant to Section 15(d) of the Securities Exchange Act
of 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED].
For the fiscal year ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED].
For the transition period from to
Commission file number 1- 3208
A. Full title of the plan and the address of the plan, if
different from that of the issuer named below:
National Linen Service Retirement and 401(k)
Plan for Eligible Management Associates
B. Name of issuer of the securities held pursuant to the plan and
the address of the principal executive office:
National Service Industries, Inc.
1420 Peachtree Street, NE
Atlanta, Georgia 30309
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REQUIRED INFORMATION
The following documents are filed as a part of this report:
1. Financial Statements
Plan financial statements prepared in accordance with the financial
reporting requirements of ERISA include the following:
Report of Independent Public Accountants
Statements of Net Assets Available for Benefits as of December
31, 1997 and 1996
Statement of Changes in Net Assets Available for Benefits, with Fund
Information, for the Year Ended December 31, 1997
Notes to Financial Statements
2. Exhibits
Sequentially
Numbered
The following exhibit is filed with this report: Page
23 Consent of Arthur Andersen LLP 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
National Linen Service Retirement and 401(k)
Plan for Eligible Management Associates
Date: July 14, 1998 By: National Service Industries, Inc.
Plan Administrator
By: /s/ James S. Balloun
Name: James S. Balloun
Title: Chairman and Chief Executive Officer
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National Linen Service Retirement
and 401(k) Plan for
Eligible Management Associates
Financial Statements as of December 31, 1997 and 1996
Together With
Auditors' Report
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of
National Linen Service Retirement
and 401(k) Plan for
Eligible Management Associates:
We have audited the accompanying statements of net assets available for benefits
of NATIONAL LINEN SERVICE RETIREMENT AND 401(k) PLAN FOR ELIGIBLE MANAGEMENT
ASSOCIATES as of December 31, 1997 and 1996 and the related statement of changes
in net assets available for benefits, with fund information, for the year ended
December 31, 1997. These financial statements are the responsibility of the
Plan'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 net assets available for benefits of the Plan as of
December 31, 1997 and 1996 and the changes in net assets available for benefits
for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The fund information in the statement of
changes in net assets available for benefits is presented for the purpose of
additional analysis rather than to present the changes in net assets available
for benefits of each fund. The fund information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Atlanta, Georgia
May 15, 1998
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NATIONAL LINEN SERVICE RETIREMENT
AND 401(k) PLAN FOR
ELIGIBLE MANAGEMENT ASSOCIATES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997 AND 1996
1997 1996
INVESTMENT IN NSI DC TRUST, at fair value (Note 2):
Balanced Fund .................................... $1,215,917 $1,182,866
Diversified Equity Fund .......................... 1,534,605 1,483,524
Stable Value Fund ................................ 499,722 621,231
NSI Stock Fund--participant-directed ............. 251,879 272,773
Loan Fund ........................................ 56,761 58,647
International Fund ............................... 66,731 40,347
Index Fund ....................................... 50,051 0
Small Company Fund ............................... 27,467 0
NSI Stock Fund--nonparticipant-directed .......... 885,063 654,542
Total investment ....................... 4,588,196 4,313,930
CONTRIBUTIONS RECEIVABLE:
Employer ......................................... 10,015 9,505
Participant ...................................... 65,431 68,588
Total contributions receivable ......... 75,446 78,093
NET ASSETS AVAILABLE FOR BENEFITS .................... $4,663,642 $4,392,023
The accompanying notes are an integral part of these statements.
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NATIONAL LINEN SERVICE RETIREMENT
AND 401(k) PLAN FOR
ELIGIBLE MANAGEMENT ASSOCIATES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS,
WITH FUND INFORMATION,
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
Participant-Directed Nonparticipant
Diversified Stable NSI Small Directed
Balanced Equity Value Stock Loan International Index Company NSI Stock Other
Fund Fund Fund Fund Fund Fund Fund Fund Fund Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONTRIBUTIONS:
Employer ........... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $220,786 $ 510 $ 221,296
Participant ........ 223,893 333,004 162,493 90,440 0 48,435 17,676 7,119 0 (3,157) 879,903
Total contributions 223,893 333,004 162,493 90,440 0 48,435 17,676 7,119 220,786 (2,647) 1,101,199
NET GAIN (LOSS)
FROM INVESTMENT IN
NSI DC TRUST ...... 281,979 412,797 38,489 85,536 0 (3,295) 2,661 425 229,302 0 1,047,894
BENEFITS PAID
TO PARTICIPANTS ... (467,332) (713,591) (281,090) (167,033) (17,600) (10,590) (667) (4) (219,567) 0 (1,877,474)
INTRAPLAN TRANSFERS ... (5,489) 18,871 (41,401) (29,837) 15,714 (8,166) 30,381 19,927 0 0 0
NET INCREASE (DECREASE) 33,051 51,081 (121,509) (20,894) (1,886) 26,384 50,051 27,467 230,521 (2,647) 271,619
NET ASSETS AVAILABLE
FOR BENEFITS,
December 31, 1996 1,182,866 1,483,524 621,231 272,773 58,647 40,347 0 0 654,542 78,093 4,392,023
NET ASSETS AVAILABLE
FOR BENEFITS,
December 31, 1997 . $1,215,917 $1,534,605 499,722 $251,879 $56,761 $66,731 $50,051 $27,467 $885,063 $75,446 $4,663,642
</TABLE>
The accompanying notes are an integral part of this statement.
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NATIONAL LINEN SERVICE RETIREMENT
AND 401(k) PLAN FOR
ELIGIBLE MANAGEMENT ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. PLAN DESCRIPTION
The following is a brief description of the National Linen Service
Retirement and 401(k) Plan for Eligible Management Associates (the "Plan")
of the National Linen Service Division (the "Company") of National Service
Industries, Inc. of Georgia, a wholly owned subsidiary of National Service
Industries, Inc. ("NSI"). This description is provided for informational
purposes only. Participants should refer to the plan agreement for more
complete information.
General
The Plan is a defined contribution plan established effective January 1,
1994 under the provisions of Section 401(a) of the Internal Revenue Code
("IRC"). The Plan covers all nonunion management employees of the Company
who have attained the age of 20.5 and have at least six months of service.
The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended.
Effective July 13, 1997, all of the assets and liabilities of the Plan
attributable to those participants employed by the Company who were not
working in dedicated uniform servicing operations were transferred via a
trustee-to-trustee transfer to the G&K Services 401(k) Savings Incentive
Plan and trust established thereto. The total amount of the transfer was
$218,949 and is included in benefits paid to participants in the
accompanying statement of changes in net assets available for benefits.
These participants became fully vested in the matching contribution portion
of their accounts.
Contributions
Participants may elect to contribute between 1% and 10% of before-tax
compensation, as defined in the Plan, subject to certain limitations under
the IRC. Matching contributions are made by the Company in an amount equal
to 50% of the participant's contribution, up to 4% of the participant's
annual compensation or $1,000, whichever is less, in a plan year. Effective
January 1, 1998, the $1,000 limitation on matching contributions was
eliminated. Additional discretionary matching amounts, as determined by the
board of directors of NSI, may be contributed by the Company and are
allocated to participants employed by the Company and who were making
deferrals on the last day of the plan year based on relative elective
deferrals.
Additional discretionary profit-sharing amounts, as determined by the board
of directors of NSI, may be contributed by the Company and are allocated to
participants employed by the Company on the last day of the plan year based
on relative compensation.
Vesting
Participants are always fully vested in their individual contributions.
Vesting of employer contributions occurs on an increasing scale, ranging
from 10% vesting after two years of service, as defined, to 100% vesting
after seven years of service. Effective January 1, 1998, vesting occurs 20%
for each year of service, with 100% vesting after five years of service.
Nonvested employer contributions are forfeited upon a participant's
withdrawal from the Plan and are used to reduce future employer
contributions.
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Administration
All administrative expenses of the Plan were paid by the Company during the
year ended December 31, 1997.
Participants' Accounts
Individual accounts are maintained for each of the Plan's participants to
reflect the particular participant's contributions and related employer
contributions as well as the participant's share of the Plan's income and
any related investment management fees and expenses.
The Plan's investment fund balances are expressed in units. At December 31,
1997 and 1996, 318,456 and 352,869 units, respectively, were assigned to
plan participants. Unit values for each investment fund were as follows at
December 31, 1997 and 1996:
1997 1996
Balanced Fund............................... $33.18 $26.40
Diversified Equity Fund..................... 14.04 12.05
Stable Value Fund........................... 12.07 11.31
NSI Stock Fund.............................. 19.61 14.52
International Fund.......................... 4.82 5.01
Index Fund.................................. 89.56 N/A
Small Company Fund.......................... 11.21 N/A
Investment in Master Trust
Under a trust agreement dated September 1, 1993, as amended, Wachovia Bank
of Georgia, N.A. was appointed trustee of the NSI Defined Contribution
Plan's Master Trust (the "NSI DC Trust"). Effective January 1, 1998,
INVESCO Trust Company has been appointed trustee of the NSI DC Trust.
The Plan's assets are commingled in the NSI DC Trust together with the
assets of certain defined contribution plans of other NSI divisions. The
investments of the NSI DC Trust are subject to certain administrative
guidelines and limitations as to type and amount of securities held.
Certain fund assets are allocated to selected independent investment
managers to invest under these general guidelines.
Investment Options
The separate investment options made available under the Plan may be
changed, eliminated, or modified from time to time by the investment
committee of the NSI DC Trust. Participants make their investment elections
in 5% increments, with changes allowed on a daily basis. Participants may
not direct the investment of company matching or profit-sharing
contributions. These are invested in the NSI Stock Fund discussed below.
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The separate investment options offered by the Plan are as follows:
o Diversified Equity Fund. This fund is a diversified stock fund
designed to invest in a broad range of common stocks providing capital
growth.
o Stable Value Fund. This is a fixed income fund designed to provide a
steady level of current income while focusing on preservation of
principal.
o Balanced Fund. This fund is invested in a changing mix of high-quality
stocks and bonds. The fund is designed to provide capital growth and
current income while limiting the risk of principal loss.
o NSI Stock Fund. This fund is invested in NSI common stock, although it
may hold other short-term investments from time to time. A participant
may not direct more than 50% of his/her account balance to be invested
in this fund.
o International Fund. This fund is invested in the stock of non-U.S.
companies and is designed to provide long-term growth.
o Index Fund. This fund offered beginning June 1997 is invested in all
of the stocks in the Standard & Poor's 500 Composite Stock Price
Index.
o Small Company Fund. This fund offered beginning June 1997 is invested
in small or emerging companies that show potential for increased size
and profitability. The fund seeks little or no current income.
Loans to Participants
The Plan permits loans to participants up to the lesser of 50% of the
participant's vested account balance or $50,000. A participant has up to
five years to repay the principal and interest, unless the loan is for the
purchase of a primary residence, in which case the repayment period will be
established at the time the loan is approved. Loan processing fees are
charged directly to the participant's account. Interest rates on loans to
participants are based on market rates, as determined by the plan
administrator. The interest rate as of December 31, 1997 was 9.5%.
Loan issuances and repayments are included in intraplan transfers in the
accompanying statement of changes in net assets available for benefits.
Interest on loans is included in the net gain from investment in NSI DC
Trust and is allocated to each investment fund based on participants'
investment elections.
Benefits
A participant is entitled to receive the distribution of his/her vested
account balance upon death, disability, or retirement (age 65). These
benefits are payable in a lump-sum amount or can be paid in installments at
the participant's election if his/her vested balance is greater than $3,500
and he/she is age 55 or older. A participant who terminates employment with
the Company for reasons other than these is entitled to receive his/her
contributions in a lump sum as soon as administratively feasible.
Benefits are payable in cash, except that any portion of a participant's
account balance which is invested in the NSI Stock Fund is distributed in
the form of shares of NSI common stock, with fractional shares paid in
cash. If the equivalent number of shares to be distributed to a participant
is less than 100, then the participant may elect to receive cash instead of
shares as his/her distribution.
Hardship withdrawals may be made upon proven financial hardship of a
participant, as defined in the plan agreement and as approved by the Plan's
retirement committee.
Plan Termination
Although the Company intends for the Plan to be permanent, the Plan
provides that the Company has the right to discontinue contributions or to
terminate the Plan at any time. In the event of plan termination, each
participant shall be vested in the balance of his/her account and his/her
proportionate share of any future adjustments.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accounts of the Plan are maintained by the trustee on the cash basis of
accounting. The accompanying financial statements have been prepared using
the accrual method of accounting by application of memorandum entries. The
preparation of financial statements in conformity with generally accepted
accounting principles requires the Plan's management to use estimates and
assumptions that affect the accompanying financial statements and
disclosures. Actual results could differ from these estimates.
Investment Valuation
Investments of the NSI DC Trust, except for the guaranteed investment
contracts ("GICs"), are stated at fair value, as determined by the trustee
from quoted market prices. Securities traded on a national exchange are
valued at the last reported sales price on the last business day of the
plan year; investments traded in the over-the-counter market and listed
securities for which no sale was reported on the last day of the plan year
are valued at the last reported bid price.
GICs included in the NSI DC Trust are fully benefit-responsive and are
therefore carried at contract value (cost plus accrued interest) in the
accompanying financial statements in accordance with Statement of Position
94-4. At December 31, 1997 and 1996, contract value approximates fair
value. At December 31, 1997, the weighted average crediting interest rate
was 7.0%. For the year ended December 31, 1997, the annual yield on the
GICs held by the NSI DC Trust was 6.9%. For certain of the GICs held by the
NSI DC Trust, crediting interest rates may be changed if certain events
occur, such as early retirements, plant closings, etc., but in no case are
adjusted to a rate less than 0%.
GICs are subject to credit risk based on the ability of the insurance
company to meet interest or principal payments, or both, as they become
due.
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Certain GICs included in the NSI DC Trust are synthetic; that is, the NSI
DC Trust owns certain fixed income securities, and the contract issuer
provides a "wrapper" that guarantees a fixed rate of return and provides
benefit responsiveness. At December 31, 1997, the fair value of the
underlying assets of the synthetic GICs (determined from quoted market
prices) and the value of the related wrapper contracts were $42,945,334 and
$(825,875), respectively.
3. NSI DC TRUST
Investment Income
Investment income of the NSI DC Trust for the year ended December 31, 1997
is summarized as follows:
Dividends on common stock......................... $ 454,559
Interest income................................... 4,303,571
Net appreciation in fair value of NSI common stock 4,046,711
Net income from common/collective trust........... 18,537,212
Net income from mutual funds...................... 14,708,000
Net loss from pooled separate account............. (104,200)
Total investment income............. $41,945,853
The investment income of the NSI DC Trust for the year ended December 31,
1997 is allocated among participating plans as follows:
National Linen Service Retirement
and 401(k) Plan for Eligible
Management Associates........................ $ 1,047,894
All other NSI plans.............................. 40,897,959
Total.............................. $41,945,853
Net Assets
The net assets of the NSI DC Trust are as follows at December 31, 1997 and
1996:
1997 1996
Mutual funds...................... $ 79,312,170 $ 63,411,122
Common/collective trust........... 79,112,333 57,558,795
Guaranteed investment contracts... 52,443,357 55,187,898
NSI common stock.................. 18,045,789 11,279,289
Loans receivable from participants 7,564,684 6,828,607
Money market fund................. 1,740,602 3,704,985
Pooled separate account........... 2,385,857 2,723,094
240,604,792 200,693,790
Cash.............................. 9,476 13,342
240,614,268 200,707,132
Accrued investment income......... 112,870 100,534
Adjustments for pending trades.... (199,191) (223,542)
Other............................. (47,759) (54,239)
Net assets........................ $240,480,188 $200,529,885
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The allocation of the net assets of the NSI DC Trust to participating plans
is based on participant units and is as follows as of December 31, 1997 and
1996:
1997 1996
Amount Percent Amount Percent
National Linen Service Retirement
and 401(k) Plan for Eligible
Management Associates..... $ 4,588,196 1.91% $ 4,313,930 2.2%
All other plans............... 235,891,992 98.09 196,215,955 97.8
Total........... $240,480,188 100.00% $200,529,885 100.0%
Investment in NSI Common Stock
As of December 31, 1997 and 1996, approximately 7.5% and 5.6%,
respectively, of the NSI DC Trust's net assets were invested in the common
stock of NSI, a party in interest to the Plan.
4. TAX STATUS
The Plan has received a favorable determination letter from the Internal
Revenue Service dated December 5, 1996 stating that the Plan was designed
in accordance with plan design requirements as of that date. The Plan has
been amended since receiving the determination letter. However, the plan
administrator believes that the Plan is currently designed and is being
operated in compliance with the applicable requirements of the IRC.
Therefore, the plan administrator believes that the Plan was qualified and
that the related trust was tax-exempt as of December 31, 1997 and 1996.
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 11-K into National Service Industries, Inc.'s
previously filed Registration Statement covering the National Linen Service
Retirement and 401(k) Plan for Eligible Management Associates.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
July 10, 1998
