Page 1 of 14
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, 1998
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 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
<PAGE>
Page 2
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, 1998 and 1997
Statement of Changes in Net Assets Available for Benefits, with Fund
Information, for the Year Ended December 31, 1998
Notes to Financial Statements
2. Exhibits
Sequentially
Numbered
The following exhibit is filed with this report: Page
23 Consent of Arthur Andersen LLP 14
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 Associates
Date: June 30, 1999 By: National Service Industries, Inc.
Plan Administrator
By: /s/ James S. Balloun
Name: James S. Balloun
Title: Chairman and Chief Executive Officer
<PAGE>
Page 3
NATIONAL LINEN SERVICE RETIREMENT
AND 401(K) PLAN FOR ELIGIBLE ASSOCIATES
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
Page 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of
National Linen Service Retirement
and 401(k) Plan for Eligible Associates:
We have audited the accompanying statements of net assets available for benefits
of NATIONAL LINEN SERVICE RETIREMENT AND 401(k) PLAN FOR ELIGIBLE ASSOCIATES as
of December 31, 1998 and 1997 and the related statement of changes in net assets
available for benefits, with fund information, for the year ended December 31,
1998. 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, 1998 and 1997 and the changes in net assets available for benefits
for the year ended December 31, 1998 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.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 29, 1999
<PAGE>
Page 5
NATIONAL LINEN SERVICE RETIREMENT
AND 401(K) PLAN FOR ELIGIBLE ASSOCIATES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C> <C>
1998 1997
------------ -----------
INVESTMENT IN NSI DC TRUST, at fair value (Notes 2 and 3):
Balanced Fund $1,252,541 $1,273,795
Diversified Equity Fund 2,022,436 1,896,466
Stable Value Fund 742,794 711,345
NSI Stock Fund 396,596 510,187
Loan Fund 134,397 172,271
International Fund 79,766 76,411
Index Fund 123,752 31,491
Small Company Fund 40,363 21,707
Bond Index Fund 7,505 0
------------ -----------
Total investment 4,800,150 4,693,673
CONTRIBUTIONS RECEIVABLE--PARTICIPANT 10,267 57,172
------------ -----------
NET ASSETS AVAILABLE FOR BENEFITS $4,810,417 $4,750,845
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Page 6
NATIONAL LINEN SERVICE RETIREMENT
AND 401(K) PLAN FOR ELIGIBLE ASSOCIATES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS,
WITH FUND INFORMATION,
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified Stable NSI Small Bond
Balanced Equity Value Stock Loan Int'l Index Company Index
Fund Fund Fund Fund Fund Fund Fund Fund Fund Other Total
---------- ----------- --------- -------- --------- -------- --------- -------- ------ --------- ---------
CONTRIBUTIONS-
PARTICIPANT $ 206,690 $ 266,100 $159,072 $100,488 $ 0 $24,999 $ 41,794 $14,565 $ 35 $(46,905) $ 766,838
NET GAIN (LOSS) FROM
INVESTMENT IN NSI
DC TRUST (Note 3) 162,320 513,035 47,108 (102,925) 0 (31) 19,730 4,381 133 0 643,751
BENEFITS PAID TO
PARTICIPANTS (346,707) (568,688) (206,732) (111,598) (69,852) (24,136) (13,503) (9,801) 0 0 (1,351,017)
INTRAPLAN TRANSFERS (43,557) (84,477) 32,001 444 31,978 2,523 44,240 9,511 7,337 0 0
---------- ----------- --------- -------- --------- -------- --------- -------- ------ --------- ----------
NET (DECREASE) INCREASE (21,254) 125,970 31,449 (113,591) (37,874) 3,355 92,261 18,656 7,505 (46,905) 59,572
NET ASSETS AVAILABLE FOR
BENEFITS,
December 31, 1997 1,273,795 1,896,466 711,345 510,187 172,271 76,411 31,491 21,707 0 57,172 4,750,845
---------- ----------- --------- -------- --------- -------- --------- -------- ------ --------- ----------
NET ASSETS AVAILABLE FOR
BENEFITS,
December 31, 1998 $1,252,541 $2,022,436 $742,794 $396,596 $134,397 $79,766 $123,752 $40,363 $7,505 $ 10,267 $4,810,417
========== =========== ========= ======== ========= ======== ========= ======== ====== ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Page 7
NATIONAL LINEN SERVICE RETIREMENT
AND 401(K) PLAN FOR ELIGIBLE ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. PLAN DESCRIPTION
The following is a brief description of the National Linen Service
Retirement and 401(k) Plan for Eligible 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 eligible nonunion, nonmanagement employees of
the Company who have attained the age of 20.5 with at least six months of
service. The Plan's coverage will expand, effective January 1, 1999, to
include all nonunion, hourly paid employees employed at a linen or uniform
services plant operated by the Company. 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.
Contributions
Participants may elect to contribute between 1% and 10% (15% effective
January 1, 1999) of before-tax compensation, as defined in the Plan,
subject to certain limitations under the IRC.
Vesting
Participants are always fully vested in their individual contributions and
the earnings thereon.
<PAGE>
Page 8
Administration
All administrative expenses of the Plan were paid by the Company during the
year ended December 31, 1998.
Participants' Accounts
Individual accounts are maintained for each of the Plan's participants to
reflect the particular participant's 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,
1998 and 1997, 388,802 and 448,243 units, respectively, were assigned to
plan participants. Unit values for each investment fund were as follows at
December 31, 1998 and 1997:
1998 1997
---------- ---------
Balanced Fund $ 37.82 $ 33.18
Diversified Equity Fund 15.71 14.04
Stable Value Fund 12.84 12.07
NSI Stock Fund 15.47 19.61
International Fund 17.76 4.82
Index Fund 112.85 89.56
Small Company Fund 11.58 11.21
Bond Index Fund 11.16 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.
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.
<PAGE>
Page 9
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. This fund is managed by INVESCO Trust
Company or its affiliates.
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. This fund is managed by INVESCO Trust Company or
its affiliates.
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.
During 1998, the investment committee of the NSI DC Trust changed
the specific asset fund which serves as this investment option.
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. This fund is managed by INVESCO Trust Company or
its affiliates.
o Bond Index Fund. This fund (offered beginning July 1998) is
invested in a well-diversified portfolio that is representative
of the domestic investment-grade bond market.
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, 1998 was 9.25%.
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, retirement (age 65), or other
termination of employment. 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 $5,000 and he/she is age 55 or older.
<PAGE>
Page 10
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.
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, "Reporting of Investment Contracts for Welfare and Pension Plans." At
December 31, 1998 and 1997, contract value approximates fair value. At
December 31, 1998, the weighted average crediting interest rate was 6.6%.
For the year ended December 31, 1998, the annual yield on the GICs held by
the NSI DC Trust was 7%. 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 they 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.
<PAGE>
Page 11
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, 1998, the value of the underlying
assets of the synthetic GICs (determined from quoted market prices) and the
value of the related wrapper contracts were $48,749,180 and $(1,232,140),
respectively.
3. NSI DC TRUST
Investment Income
Investment income of the NSI DC Trust for the year ended December 31, 1998
is summarized as follows:
Dividends on common stock $ 363,675
Interest income 3,619,354
Net depreciation in fair value of NSI common stock (4,420,458)
Net income from common/collective trust 23,084,929
Net income from mutual funds 12,167,659
Net income from pooled separate account 31,785
--------------
Total investment income $34,846,944
==============
The investment income of the NSI DC Trust for the year ended December 31,
1998 is allocated among participating plans as follows:
National Linen Service Retirement and 401(k)
Plan for Eligible Associates $ 643,751
All other NSI plans 34,203,193
--------------
Total $34,846,944
==============
<PAGE>
Page 12
Net Assets
The net assets of the NSI DC Trust are as follows at December 31, 1998 and
1997:
1998 1997
-------------- --------------
Mutual funds $ 91,469,061 $ 79,312,170
Common/collective trust 98,522,341 79,112,333
Guaranteed investment contracts 59,224,919 52,443,357
NSI common stock 15,348,609 18,045,789
Loans receivable from participants 7,590,683 7,564,684
Money market fund 0 1,740,602
Pooled separate account 2,315,680 2,385,857
-------------- --------------
274,471,293 240,604,792
Cash 0 9,476
-------------- --------------
274,471,293 240,614,268
Accrued investment income 6,608 112,870
Adjustments for pending trades 19,658 (199,191)
Other 0 (47,759)
-------------- --------------
Net assets $ 274,497,559 $ 240,480,188
============== ==============
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,
1998 and 1997:
<TABLE>
<S> <C> <C> <C> <C>
1998 1997
-------------------------- ----------------------------
Amount Percent Amount Percent
---------------- ------------ --------------- ------------
National Linen Service Retirement
and 401(k) Plan for
Eligible Associates $ 4,800,150 1.75% $ 4,693,673 1.95%
All other plans 269,697,409 98.25 235,786,515 98.05
---------------- ------------ --------------- ------------
Total $ 274,497,559 100.00% $ 240,480,188 100.00%
================ ============ =============== ============
</TABLE>
Investment in NSI Common Stock
As of December 31, 1998 and 1997, approximately 5.6% and 7.5%,
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 July 19, 1995 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, 1998 and 1997.
<PAGE>
Page 13
5. Nonexempt Transactions
For certain payroll periods during 1998, the Company did not remit
participant contributions to the Plan in a timely manner. These
contributions, amounting to $197,356, are deemed to have represented loans
to the Company by the Plan. The loan of plan assets to a party in interest
is a nonexempt transaction under Section 406(a) of ERISA. The participant
contributions and related lost earnings were remitted to the Plan prior to
December 31, 1998.
Page 14
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 Associates.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
June 25, 1999
