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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:
Selig Chemical Industries Retirement 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>
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 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.
Selig Chemical Industires Retirement 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
<PAGE>
Page 3
SELIG CHEMICAL INDUSTRIES RETIREMENT 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
Selig Chemical Industries Retirement Plan:
We have audited the accompanying statements of net assets available for benefits
of SELIG CHEMICAL INDUSTRIES RETIREMENT 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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SELIG CHEMICAL INDUSTRIES RETIREMENT 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 $ 3,307,938 $ 3,293,444
Diversified Equity Fund 4,054,748 3,417,242
Stable Value Fund 3,102,909 2,553,620
NSI Stock Fund 1,086,281 1,167,664
Loan Fund 502,689 394,796
International Fund 80,251 134,217
Index Fund 920,221 728,339
Small Company Fund 719,824 503,158
Bond Index Fund 191 0
------------- -------------
Total investment 13,775,052 12,192,480
CONTRIBUTIONS RECEIVABLE:
Employer 167,808 157,510
Participant 38,256 38,485
------------- -------------
Total contributions receivable 206,064 195,995
------------- -------------
REFUNDS PAYABLE TO PARTICIPANTS (25,578) 0
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $ 13,955,538 $ 12,388,475
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
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SELIG CHEMICAL INDUSTRIES RETIREMENT 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>
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:
Employer, net of
forfeitures $ 40,895 $ 45,146 $ 29,893 $ 24,437 $ 0 $ 3,339 $ 8,995 $ 4,805 $ 0 $ 10,298 $ 167,808
Participant 123,172 168,813 89,564 79,038 0 9,672 54,593 22,951 337 (25,807) 522,333
---------- ---------- ---------- ---------- -------- -------- -------- -------- ---- -------- -----------
Total contributions 164,067 213,959 119,457 103,475 0 13,011 63,588 27,756 337 (15,509) 690,141
NET GAIN (LOSS)
FROM INVESTMENT
IN NSI
DC TRUST (Note 3) 427,739 944,158 193,571 (199,712) 0 (1,738) 209,778 115,961 603 0 1,690,360
BENEFITS PAID
TO PARTICIPANTS (182,078) (296,654) (101,892) (131,670) (47,917) (2,171) (48,149) (2,907) 0 0 (813,438)
INTRAPLAN TRANSFERS (395,234) (223,957) 338,153 146,524 155,810 (63,068) (33,335) 75,856 (749) 0 0
---------- ---------- ---------- ---------- -------- -------- -------- -------- ---- -------- -----------
NET INCREASE (DECREASE) 14,494 637,506 549,289 (81,383) 107,893 (53,966) 191,882 216,666 191 (15,509) 1,567,063
NET ASSETS AVAILABLE
FOR BENEFITS,
December 31, 1997 3,293,444 3,417,242 2,553,620 1,167,664 394,796 134,217 728,339 503,158 0 195,995 12,388,475
---------- ---------- ---------- ---------- -------- -------- -------- -------- ---- -------- -----------
NET ASSETS AVAILABLE
FOR BENEFITS,
December 31, 1998 $3,307,938 $4,054,748 $3,102,909 $1,086,281 $502,689 $ 80,251 $920,221 $719,824 $191 $180,486 $13,955,538
========== ========== ========== ========== ======== ======== ======== ======== ==== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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SELIG CHEMICAL INDUSTRIES RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. PLAN DESCRIPTION
The following is a brief description of the Selig Chemical Industries
Retirement Plan (the "Plan") of the Selig Chemical Industries 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, as amended and restated effective September 1, 1989 and as
further amended through January 1, 1994, is a defined contribution plan
established under the provisions of Section 401(a) of the Internal Revenue
Code ("IRC"). The Plan covers all salaried and nonunion hourly employees of
the Company who have attained the age of 21 and have completed one year of
service consisting of at least 1,000 hours of employment. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended.
Contributions
Contributions are made by the Company and participants of the Plan.
Participants may elect to contribute between 2% and 15% of before-tax
compensation, as defined in the Plan, subject to certain limitations under
the IRC. The Company contributes an amount equal to 5% of net profits, as
defined, which may be increased by a resolution of the board of directors
of NSI. Company contributions are allocated to participants who made
elective deferrals to the Plan during the plan year, are employed on the
last day of the plan year, and have completed one year of service, as
defined. Allocations are made based on a participant's compensation
(maximum of $40,000 per participant) relative to the compensation of all
qualifying participants.
Vesting
Participants are always fully vested in their individual contributions.
Vesting of employer contributions occurs on an increasing scale, ranging
from 20% vesting after three years of service, as defined, to 100% vesting
after seven years of service. Forfeitures of employer contributions are
allocated among the remaining participants in the same manner as company
contributions.
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Administration
The responsibility for administration of the Plan rests with the Plan's
retirement committee, which is appointed by the board of directors of NSI.
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 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, 1,230,408 and 1,084,922 units, respectively, were assigned
to plan participants. Unit values for each investment fund were as follows
at December 31, 1998 and 1997:
<TABLE>
<S> <C> <C>
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
</TABLE>
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 the 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.
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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. 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,
with fund information. 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 or age 55
with ten years of credited service). These benefits are payable in a
lump-sum amount or can be paid in installments at the participant's
election. 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. The vested portion of the
participant's employer contributions is generally distributable on the
first day of the first month following the later of his/her termination
date or sixty-fifth birthday. If this vested portion is less than $5,000,
then the participant may elect to have his/her interest distributed
immediately in a lump sum.
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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.
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 or forfeitures.
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%.
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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 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:
<TABLE>
<S> <C>
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
==============
</TABLE>
The investment income of the NSI DC Trust for the year ended December 31,
1998 is allocated among participating plans as follows:
<TABLE>
<S> <C>
Selig Chemical Industries Retirement Plan $ 1,690,360
All other NSI plans 33,156,584
-------------
Total $ 34,846,944
=============
</TABLE>
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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
Selig Chemical Industries ------------------- -------------- ----------------- -----------
Retirement Plan $ 13,775,052 5.02% $ 12,192,480 5.07%
All other plans 260,722,507 94.98 228,287,708 94.93
------------------- -------------- ----------------- -----------
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 February 14, 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, 1998 and 1997.
Page 13
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 Selig Chemical Industries
Retirement Plan.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
June 25, 1999
