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Exhibit Index on Page 2
FORM 11-K
UNITED STATES
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.
For the fiscal year ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
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 Service Industries Retirement and 401(k) Plan
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, with Fund Information, as
of December 31, 1997 and 1996
Statement of Changes in Net Assets Available for Benefits 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 Service Industires
Retirement and 401(k) Plan
Date: June 30, 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 Service Industries
Retirement and 401(k) Plan
Financial Statements as of December 31, 1997 and 1996
Together With
Auditors' Report
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of
National Service Industries
Retirement and 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits
of NATIONAL SERVICE INDUSTRIES RETIREMENT AND 401(k) PLAN 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 SERVICE INDUSTRIES
RETIREMENT AND 401(k) PLAN
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 .........................................$ 209,107 $ 151,080
Diversified Equity Fund ............................... 442,215 373,961
Stable Value Fund ..................................... 74,174 51,777
NSI Stock Fund--participant-directed .................. 169,757 74,366
Loan Fund ............................................. 45,319 18,230
International Fund .................................... 36,299 25,350
Index Fund ............................................ 45,951 0
Small Company Fund .................................... 24,290 0
NSI Stock Fund--nonparticipant-directed ............... 225,092 142,568
Total investment ............................ 1,272,204 837,332
CONTRIBUTIONS RECEIVABLE:
Employer .............................................. 3,436 2,076
Participant ........................................... 0 11,997
Total contributions receivable .............. 3,436 14,073
REFUNDS PAYABLE TO PARTICIPANTS ........................... 0 (8,250)
NET ASSETS AVAILABLE FOR BENEFITS .........................$1,275,640 $ 843,155
The accompanying notes are an integral part of these statements.
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NATIONAL SERVICE INDUSTRIES
RETIREMENT AND 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS,
WITH FUND INFORMATION,
FOR THE YEAR ENDED DECEMBER 31, 1997
Participant-Directed Nonparticipant-
Diversified Stable NSI Small Directed
Balance Equity Value Stock Loan International Index Company NSI Stock Other
Fund Fund Fund Fund Fund Fund Fund Fund Fund Total
CONTRIBUTIONS:
Employer ............ $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 42,267 $ 1,360 $ 43,627
Participant ......... 46,824 108,256 40,565 41,380 0 10,276 9,983 4,457 0 (3,747) 257,994
Total contributions 46,824 108,256 40,565 41,380 0 10,276 9,983 4,457 42,267 (2,387) 301,621
NET GAIN (LOSS)
FROM INVESTMENT IN
NSI DC TRUST ...... 40,655 116,479 3,666 33,161 0 (1,042) 2,807 22 56,388 0 252,136
BENEFITS PAID
TO PARTICIPANTS ... (4,332) (70,172) (19,680) (4,458) (1,000) (5,410) (44) (45) (16,131) 0 (121,272)
INTRAPLAN TRANSFERS .... (25,120) (86,309) (2,154) 25,308 28,089 7,125 33,205 19,856 0 0 0
NET INCREASE (DECREASE) 58,027 68,254 22,397 95,391 27,089 10,949 45,951 24,290 82,524 (2,387) 432,485
NET ASSETS AVAILABLE
FOR BENEFITS,
December 31, 1996 . 151,080 373,961 51,777 74,366 18,230 25,350 0 0 142,568 5,823 843,155
NET ASSETS AVAILABLE
FOR BENEFITS,
December 31, 1997 . $209,107 $442,215 $ 74,174 $169,757 $45,319 $ 36,299 $45,951 $24,290 $225,092 $ 3,436 $1,275,640
The accompanying notes are an integral part of this statement.
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NATIONAL SERVICE INDUSTRIES
RETIREMENT AND 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. PLAN DESCRIPTION
The following is a brief description of the National Service Industries
Retirement and 401(k) Plan (the "Plan") of National Service Industries,
Inc. of Georgia and NSI Enterprises, Inc. (together, the "Employer"). Both
National Service Industries, Inc. of Georgia and NSI Enterprises, Inc. are
wholly owned subsidiaries 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 under the provisions of
Section 401(a) of the Internal Revenue Code ("IRC"). The Plan covers all
nonunion, full-time, salaried employees of the Employer who have attained
the age of 20.5 with at least six months of service. Effective August 31,
1996, the Plan covers only full-time salaried employees who are classified
by the Employer as corporate office personnel or treasury function
personnel. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended.
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 Employer in an amount equal
to 50% of the participant's contribution up to the lesser of 4% of
compensation or $1,000 in a plan year. Effective January 1, 1998, matching
contributions are made by the Employer in an amount equal to 50% of the
participant's contribution up to 6% of compensation. Additional
discretionary amounts, as determined by the board of directors of NSI, may
be contributed by the Employer and are allocated to participants at the
discretion of the Employer. No discretionary contributions were made for
the year ended December 31, 1997.
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 at
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 Employer during
the year ended December 31, 1997.
Participants' Accounts
Individual accounts are maintained for each of the Plan's participants to
reflect that 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, 119,436 and 79,302 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 employer matching or discretionary
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 the 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 Employer 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 may be distributed
in the form of shares of NSI common stock, with fractional shares paid in
cash.
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 Employer intends for the Plan to be permanent, the Plan
provides that the Employer 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%. 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.
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.
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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 Service Industries
Retirement and 401(k) Plan..................... $ 252,136
All other NSI plans................................ 41,693,717
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 Service Industries
Retirement and 401(k) Plan $ 1,272,204 0.53% $ 837,332 0.42%
All other plans 239,207,984 99.47 199,692,553 99.58
Total $240,480,188 100.00% $200,529,885 100.00%
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 determination letter from the Internal Revenue
Service dated October 25, 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, 1997 and 1996.