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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:
Zep Manufacturing Company Profit Sharing/
401(k) 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 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.
Zep Manufacturing Company Profit Sharing/
401(k) 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 3
ZEP MANUFACTURING COMPANY
PROFIT SHARING/401(K) RETIREMENT PLAN
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH
AUDITORS' REPORT
Page 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of
Zep Manufacturing Company
Profit Sharing/401(k) Retirement Plan:
We have audited the accompanying statements of net assets available for benefits
of ZEP MANUFACTURING COMPANY PROFIT SHARING/401(k) 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
Page 5
ZEP MANUFACTURING COMPANY
PROFIT SHARING/401(K) RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1998 AND 1997
1998 1997
-------------- --------------
INVESTMENT IN NSI DC TRUST, at fair value (Notes 2 and 3):
Balanced Fund $ 38,104,637 $ 37,501,238
Diversified Equity Fund 52,315,299 42,713,715
Stable Value Fund 32,466,969 28,755,765
NSI Stock Fund 8,905,423 11,893,708
Loan Fund 4,333,138 4,498,635
International Fund 1,256,706 1,433,528
Index Fund 8,942,178 3,533,009
Small Company Fund 1,911,201 1,696,351
Bond Index Fund 415,470 0
-------------- --------------
Total investment 148,651,021 132,025,949
-------------- --------------
CONTRIBUTIONS RECEIVABLE:
Employer 1,895,212 2,267,551
Participant 0 3,772
-------------- --------------
Total contributions receivable 1,895,212 2,271,323
-------------- --------------
REFUNDS PAYABLE TO PARTICIPANTS (14,104) 0
-------------- --------------
NET ASSETS AVAILABLE FOR BENEFITS $ 150,532,129 $ 134,297,272
============== ==============
The accompanying notes are an integral part of these statements.
Page 6
ZEP MANUFACTURING COMPANY
PROFIT SHARING/401(K) RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
Balanced Diversified Stable NSI Small Bond
Fund Equity Value Stock Loan Int'l Index Company Index
Fund Fund Fund Fund Fund Fund Fund Fund Other Total
----------- ---------- ---------- ---------- --------- --------- --------- --------- ------- --------- ------------
CONTRIBUTIONS:
Employer, net
of forfeitures $ 497,187 651,577 670,285 246,283 0 43,397 61,011 35,673 259 (372,339)$ 1,833,333
Participant 1,268,557 1,730,031 779,421 623,368 0 109,605 294,009 138,567 9,801 (17,876) 4,935,483
----------- ---------- ---------- ---------- --------- --------- --------- --------- ------- --------- ------------
Total
contributions 1,765,744 2,381,608 1,449,706 869,651 0 153,002 355,020 174,240 10,060 (390,215) 6,768,816
NET GAIN (LOSS)
FROM INVESTMENT
IN NSI DC
TRUST
(Note 3) 4,813,729 12,360,275 2,028,218 (2,473,711) 0 5,989 1,409,953 206,781 23,490 0 18,374,724
BENEFITS PAID TO
PARTICIPANTS (2,058,641)(2,666,554)(3,094,314) (388,291) (328,005) (90,973) (202,245) (79,660) 0 0 (8,908,683)
INTRAPLAN
TRANSFERS (3,917,433)(2,473,745) 3,327,594 (995,934) 162,508 (244,840)3,846,441 (86,511)381,920 0 0
----------- ---------- ---------- ---------- --------- --------- --------- --------- ------- --------- ------------
NET INCREASE
(DECREASE) 603,399 9,601,584 3,711,204 (2,988,285) (165,497) (176,822)5,409,169 214,850 415,470 (390,215) 16,234,857
NET ASSETS
AVAILABLE FOR
BENEFITS,
Dec 31, 1997 37,501,238 42,713,715 28,755,765 11,893,708 4,498,635 1,433,528 3,533,009 1,696,351 0 2,271,323 134,297,272
----------- ---------- ---------- ---------- --------- --------- --------- --------- ------- --------- ------------
NET ASSETS
AVAILABLE FOR
BENEFITS,
Dec 31, 1998 $38,104,637 52,315,299 32,466,969 8,905,423 4,333,138 1,256,706 8,942,178 1,911,201 415,470 1,881,108 $150,532,129
=========== ========== ========== ========== ========= ========= ========= ========= ======= ========= ============
The accompanying notes are an integral part of this statement.
Page 7
ZEP MANUFACTURING COMPANY
PROFIT SHARING/401(K) RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. PLAN DESCRIPTION
The following is a brief description of the Zep Manufacturing Company
Profit Sharing/401(k) Retirement Plan (the "Plan") of Zep Division of
National Service Industries, Inc. of Georgia and Zep Division of Zep
Manufacturing Company (together, the "Employer"). Both National Service
Industries, Inc. of Georgia and Zep Manufacturing Company 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
salaried, commissioned, and union and nonunion hourly employees of the
Employer with at least one year of service, as defined, and who have
attained the age of 21. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
Effective November 1997, the Employer acquired Pure Corporation ("Pure").
All former employees of Pure who were eligible to participate in the Pure
retirement plan as of November 17, 1997 were immediately eligible to
participate in the Plan.
Contributions
Participants may elect to contribute between 1% and 15% of before-tax
compensation, as defined in the Plan, subject to certain limitations under
the IRC.
The Employer makes a profit-sharing contribution to the Plan for salaried,
commissioned, and nonunion hourly employees in the amount of 5% of net
profits, as defined, plus an amount which represents the same percentage of
total annual compensation of all hourly paid employees who are participants
of the Plan as the 5% of net profits bears to the total annual compensation
of the salaried and commissioned employees who are participants under this
Plan. This amount is multiplied by a fraction which represents the
relationship between the annual compensation of all salaried, commissioned,
and nonunion hourly employees to the annual compensation of all employees
who are qualifying participants in the Plan. Annual compensation included
for each participant shall not exceed $40,000. An additional amount may be
contributed at the discretion of the board of directors of NSI.
Page 8
The Employer also makes a profit-sharing contribution to the Plan for the
union employees, which is calculated in a similar manner as that described
above.
Employer contributions are allocated to all participants who are actively
employed on November 30 of the plan year and who have a year of service, as
defined, during the plan year which contains such November 30. Allocations
are made based on each qualifying participant's compensation relative to
the compensation of all qualifying participants, with a limitation on
compensation considered of $40,000.
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. For former employees of Pure, years of
service with Pure prior to November 17, 1997 count toward the vesting
requirements of the Plan. Nonvested employer contributions are forfeited
upon a participant's withdrawal from the Plan and are allocated to
remaining participants in the same manner as contributions.
Administration
The responsibility for administration of the Plan rests with the Plan's
profit-sharing committee, which is appointed by the board of directors of
NSI. 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 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, 12,124,737 and 12,146,977 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
Page 9
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.
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.
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 Growth 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.
Page 10
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. Loan processing fees are
charged directly to the participant's account. Interest rates on loans to
participants are determined 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 election of the
participant. 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.
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 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 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.
Page 11
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.
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
==============
Page 12
The investment income of the NSI DC Trust for the year ended December 31,
1998 is allocated among participating plans as follows:
Zep Manufacturing Company Profit Sharing/401(k) Retirement Plan $ 18,374,724
All other NSI plans 16,472,220
-------------
Total $ 34,846,944
=============
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:
1998 1997
----------------------------- -----------------------------
Amount Percent Amount Percent
--------------- ---------- ---------------- ----------
Zep Manufacturing Company Profit
Sharing/401(k) Retirement Plan $148,651,021 54.2% $132,025,949 54.9%
All other plans 125,846,538 45.8 108,454,239 45.1
--------------- ---------- ---------------- ----------
Total $274,497,559 100.0% $240,480,188 100.0%
=============== ========== ================ ==========
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.
Page 13
4. Tax Status
The Plan has received a favorable determination letter from the Internal
Revenue Service dated May 21, 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.