Page 1 of 13
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:
AECO Employees' 401(k) Retirement and Savings 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
Statement 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.
AECO Employees' 401(k) Retirement and
Savings 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
AECO EMPLOYEES'
401(K) RETIREMENT AND SAVINGS PLAN
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
AECO Employees' 401(k) Retirement
and Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of AECO EMPLOYEES' 401(k) RETIREMENT AND SAVINGS 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
<PAGE>
Page 5
AECO EMPLOYEES'
401(K) RETIREMENT AND SAVINGS 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 $1,238,414 $ 912,753
Diversified Equity Fund 2,276,287 1,446,338
Stable Value Fund 489,305 319,176
NSI Stock Fund--participant-directed 439,579 392,889
Loan Fund 172,599 118,112
International Fund 225,883 185,001
Index Fund 313,252 50,596
Small Company Fund 86,153 23,750
Bond Index Fund 135 0
NSI Stock Fund--nonparticipant-directed 769,873 659,397
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $6,011,480 $4,108,012
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Page 6
AECO EMPLOYEES'
401(K) RETIREMENT AND SAVINGS 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> <C>
Nonparticipant-
Participant-Directed Directed
---------------------------------------------------------------------------------------------------
Diversified Stable NSI Small Bond NSI
Balanced Equity Value Stock Loan Int'l Index Company Index Stock
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Total
CONTRIBUTIONS: ----------------------------------------------------------------------------------------------------
Employer, net of
forfeitures $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $347,046 $ 347,046
Participant 311,975 516,814 218,172 194,217 0 96,985 134,203 44,740 126 0 1,517,232
----------------------------------------------------------------------------------------------------
Total contributions 311,975 516,814 218,172 194,217 0 96,985 134,203 44,740 126 347,046 1,864,278
NET GAIN (LOSS) FROM
INVESTMENT IN NSI
DC TRUST (Note 3) 139,493 495,717 25,654 (114,783) 0 (3,227) 43,387 11,473 0 (155,259) 442,455
BENEFITS PAID TO
PARTICIPANTS (84,291) (154,161) (29,260) (34,426) (21,015) (20,245) (9,624) (1,930) 0 (48,313) (403,265)
INTRAPLAN TRANSFERS (41,516) (28,421) (44,437) 1,682 75,502 (32,631) 94,690 8,120 9 (32,998) 0
----------------------------------------------------------------------------------------------------
NET INCREASE 325,661 829,949 170,129 46,690 54,487 40,882 262,656 62,403 135 110,476 1,903,468
NET ASSETS AVAILABLE
FOR BENEFITS,
December 31, 1997 912,753 1,446,338 319,176 392,889 118,112 185,001 50,596 23,750 0 659,397 4,108,012
NET ASSETS AVAILABLE
FOR BENEFITS, ----------------------------------------------------------------------------------------------------
December 31, 1998 $1,238,414 $2,276,287 $489,305 $439,579 $172,599 $225,883 $313,252 $86,153 $135 $769,873 $6,011,480
====================================================================================================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Page 7
AECO EMPLOYEES'
401(K) RETIREMENT AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. PLAN DESCRIPTION
The following is a brief description of the AECO Employees' 401(k)
Retirement and Savings Plan (the "Plan") of the AECO Products 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 July 1, 1995
under the provisions of Section 401(a) of the Internal Revenue Code
("IRC"). The Plan covers all nonunion employees of the Company who have
attained the age of 21 and who were hired prior to April 1, 1995 or have
completed one year of service, as defined. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended.
Effective March 2, 1998, the Company acquired Allen Envelope Corporation
("Allen"). All former employees of Allen who were eligible to participate
in the Allen Envelope Corporation Retirement Plan (the "Allen Plan") as of
March 2, 1998 were immediately eligible to participate in the Plan.
Effective April 1, 1999, the Allen Plan was merged into the Plan and the
assets and liabilities of the Allen Plan were transferred into the Plan.
Contributions
Participants may elect to contribute between 1% and 10% (15% effective
September 1, 1998) of before-tax compensation, as defined in the Plan,
subject to certain limitations under the IRC. Contributions are made by the
Company in an amount equal to 50% of the participant's contribution up to
the lesser of 4% of the participant's annual compensation or $500 ($1,000
effective September 1, 1998). Additional discretionary amounts, as
determined by the board of directors of NSI, may be contributed by the
Company.
Vesting
Participants are always fully vested in their individual contributions.
Vesting of employer contributions occurs at 20% for each year of service,
with 100% vesting after five years of service. For former employees of
Allen, years of service with Allen prior to March 2, 1998 count toward the
vesting requirements of the Plan. Nonvested employer contributions are
forfeited upon a participant's withdrawal from the Plan and are used to
reduce future employer contributions.
<PAGE>
Page 8
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, 489,528 and 369,897 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 type and amount of securities held.
Certain fund assets are allocated to selected independent investment
managers to invest under these general guidelines.
<PAGE>
Page 9
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 discretionary
contributions. These are invested in the NSI Stock Fund discussed below and
are presented as nonparticipant-directed in the accompaning financial
statements.
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.
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.
<PAGE>
Page 10
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 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.
<PAGE>
Page 11
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 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>
AECO Employees' 401(k) Retirement and Savings Plan $ 442,455
All other NSI plans 34,404,489
---------------
Total $ 34,846,944
===============
</TABLE>
<PAGE>
Page 12
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
------------------- ------------ ------------------ -----------
AECO Employees' 401(k) Retirement
and Savings Plan $ 6,011,480 2.19% $ 4,108,012 1.71%
All other NSI plans 268,486,079 97.81 236,372,176 98.29
------------------- ------------ ------------------ -----------
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 September 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, 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 AECO Employees' 401(k)
Retirement and Savings Plan.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
June 25, 1999
