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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, 1998
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
<PAGE>
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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, 1998 and 1997
Statement of Changes in Net Assets Available for Benefits 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 13
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, 1999 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, 1998 and 1997
Together With
Auditors' Report
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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,
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
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NATIONAL SERVICE INDUSTRIES
RETIREMENT AND 401(K) PLAN
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 $ 266,963 $ 209,107
Diversified Equity Fund 642,548 442,215
Stable Value Fund 107,473 74,174
NSI Stock Fund--participant-directed 167,450 169,757
Loan Fund 86,445 45,319
International Fund 37,588 36,299
Index Fund 116,907 45,951
Small Company Fund 52,994 24,290
NSI Stock Fund--nonparticipant-directed 246,126 225,092
------------ -----------
Total investment 1,724,494 1,272,204
------------ -----------
CONTRIBUTIONS RECEIVABLE -- EMPLOYER 0 3,436
------------ -----------
FUNDS PAYABLE:
Employer (11,002) 0
Participant (11,665) 0
------------ -----------
Total refunds payable (22,667) 0
------------ -----------
NET ASSETS AVAILABLE FOR BENEFITS $ 1,701,827 $ 1,275,640
============ ===========
</TABLE>
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, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nonparticipant-
Participant-Directed Directed
------------------------------------------------------------------------------ ------------
Diversified Stable NSI Small NSI
Balanced Equity Value Stock Loan Int'l Index Company Stock
Fund Fund Fund Fund Fund Fund Fund Fund Fund Other Total
-------- --------- --------- --------- -------- -------- --------- -------- --------- --------- ----------
CONTRIBUTIONS:
Employer, net of
forfeitures $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $118,312 $(14,438) $ 103,874
Participant 51,319 88,803 28,824 47,538 9,410 6,278 45,074 20,999 0 (11,665) 286,580
-------- --------- --------- --------- -------- -------- --------- -------- --------- --------- ----------
Total contributions 51,319 88,803 28,824 47,538 9,410 6,278 45,074 20,999 118,312 (26,103) 390,454
NET GAIN (LOSS) FROM
INVESTMENT IN NSI DC
TRUST (Note 3) 29,806 142,132 6,147 (36,663) 0 (447) 20,825 6,367 (50,341) 0 117,826
BENEFITS PAID TO
PARTICIPANTS (9,334) (27,596) (1,175) (15,662) (2,167) (1,475) (1,289) (333) (23,062) 0 (82,093)
INTRAPLAN TRANSFERS (13,935) (3,006) (497) 2,480 33,883 (3,067) 6,346 1,671 (23,875) 0 0
-------- --------- --------- --------- -------- -------- --------- -------- --------- --------- ----------
NET INCREASE (DECREASE) 57,856 200,333 33,299 (2,307) 41,126 1,289 70,956 28,704 21,034 (26,103) 426,187
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
NET ASSETS AVAILABLE FOR -------- --------- --------- --------- -------- -------- --------- -------- --------- --------- ----------
BENEFITS,
December 31, 1998 $266,963 $642,548 $107,473 $167,450 $86,445 $37,588 $116,907 $52,994 $246,126 $(22,667) $1,701,827
======== ========= ========= ========= ======== ======== ========= ======== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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NATIONAL SERVICE INDUSTRIES
RETIREMENT AND 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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
nonunion, full-time, salaried employees of the Employer who have attained
the age of 20.5 with at least six months of service and 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 each participant in the
same proportion that each participant's annual compensation bears to annual
compensation of all participants or at the discretion of the Employer on a
per capita basis. No discretionary contributions were made for the year
ended December 31, 1998.
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, 1998.
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,
1998 and 1997, 177,040 and 119,436 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
At December 31, 1998, the Plan had $0 investment in the Bond Index Fund.
Thus, this fund is not presented in the accompanying financial statements.
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 was 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.
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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.
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. 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%.
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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 or his/her beneficiary 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.
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. 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 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.
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.
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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 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, 1998, 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 $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 Service Industries Retirement and 401(k)
Plan $ 117,826
All other NSI plans 34,729,118
--------------
Total $ 34,846,944
==============
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Net Assets
The net assets of the NSI DC Trust are as follows at December 31, 1998 and
1997:
<TABLE>
<S> <C> <C>
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
============== ==============
</TABLE>
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 Service Industries
Retirement and 401(k) Plan $ 1,724,494 0.63% $ 1,272,204 0.53%
All other plans 272,773,065 99.37 239,207,984 99.47
----------------- ---------------- ---------------- -----------
Total $274,497,559 100.00% $240,480,188 100.00%
================= ================ ================ ===========
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 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, 1998 and 1997.
</TABLE>
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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 Service Industries
Retirement and 401(k) Plan.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
June 25, 1999
