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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, 1999
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
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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 as of December
31, 1999 and 1998
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 1999
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.
AECO Employees' 401(k) Retirement and
Savings Plan
Date: June 28, 2000 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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AECO EMPLOYEES 401(k) RETIREMENT AND SAVINGS PLAN
Financial Statements
as of December 31, 1999 and 1998
Together With Auditors' Report
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, 1999
and 1998 and the related statement of changes in net assets available for
benefits for the year ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998 and the changes in its net assets available for
benefits for the year ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
/S/ ARTHUR ANDERSEN
Atlanta, Georgia
June 8, 2000
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AECO EMPLOYEES'
401(k) RETIREMENT AND SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999 AND 1998
1999 1998
--------------- ---------------
INVESTMENT in NSI DC Trust,
at fair value (Notes 2 and 3) $11,230,480 $6,011,480
=============== ===============
The accompanying notes are an integral part of these statements.
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AECO EMPLOYEES'
401(k) RETIREMENT and SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1999
CONTRIBUTIONS:
Employer, net of forfeitures $ 399,982
Participant 1,843,682
--------------
Total contributions 2,243,664
NET GAIN FROM INVESTMENT IN NSI DC TRUST (Note 3) 632,040
BENEFITS PAID TO PARTICIPANTS (1,041,920)
MERGER OF ALLEN ENVELOPE PLAN (Note 1) 3,385,216
--------------
NET INCREASE 5,219,000
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 6,011,480
--------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $11,230,480
==============
The accompanying notes are an integral part of this statement.
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AECO EMPLOYEES'
401(k) RETIREMENT AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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
have completed one year of service, as defined. Effective January 1, 1999, the
Plan was amended to reduce the service requirement for eligibility from one year
to six months. 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 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 $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. 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
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, 1999.
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.
Investment in Master Trust
The Plan's assets are commingled in the National Service Industries, Inc.
Defined Contribution Plans Master Trust (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.
Effective January 1, 1998, INVESCO Trust Company was appointed trustee of the
NSI DC Trust.
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 Note
5.
The separate investment options offered by the Plan are as follows:
o Diversified Equity Fund. This fund invests in a mutual fund that
is 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. The majority of this fund's assets are investment
contracts ("GICs") and synthetic GICs with insurance companies and
banks. This fund is managed by INVESCO Trust Company or its
affiliates.
o Balanced Fund. This fund is invested in a commingled fund that
invests 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 primarily 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.
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o International Fund. This fund is invested in a mutual fund that
invests in the stock of non-U.S. companies and is designed to
provide long-term growth.
o Index Fund. This fund is invested in a mutual fund that invests
in all of the stocks in the Standard & Poor's 500 Composite Stock
Price Index.
o Small Company Fund. This fund is invested in a mutual fund that
invests 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 is invested in a collective trust that
invests 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, 1999 was 9%.
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 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.
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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.
Reclassifications
Statement of Position ("SOP") 99-3, "Accounting for and Reporting of Certain
Defined Contribution Plan Investments and Other Disclosure Matters," eliminates
the requirement for a defined contribution plan to disclose participant-directed
investment programs. SOP 99-3 was adopted for the 1999 plan year, and 1998
financial statement amounts have been reclassified to eliminate the
participant-directed investment program disclosures. In addition, unit
information presented in the prior year's financial statements has been
eliminated in accordance with SOP 99-3.
Investment Valuation
Investments of the NSI DC Trust, except for the 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) by the NSI DC Trust in
accordance with SOP No. 94-4, "Reporting of Investment Contracts for Welfare and
Pension Plans." At December 31, 1999 and 1998, contract value approximated fair
value. At December 31, 1999, the weighted average crediting interest rate was
6.18%. For the year ended December 31, 1999, the annual yield on the GICs held
by the NSI DC Trust was 6.4%. 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 issuers 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, 1999 and 1998, the value of the underlying
assets of the synthetic GICs (determined from quoted market prices) was
$54,030,000 and $48,749,000, respectively, and the value of the related wrapper
contracts was $990,000 and $(1,232,000), respectively.
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3. NSI DC TRUST
Investment Income
Investment income of the NSI DC Trust for the year ended December 31, 1999 is
summarized as follows:
Interest income $ 4,392,012
Dividends on NSI common stock 492,305
Net depreciation in fair value of NSI common stock (3,126,435)
Net loss from common/collective trusts (389,640)
Net income from mutual funds 21,103,949
-------------
Total investment income $22,472,191
=============
Net Assets
The net assets of the NSI DC Trust are as follows at December 31, 1999 and 1998:
1999 1998
------------- -------------
Mutual funds $150,101,844 $119,999,722
Common/collective trusts 61,734,231 72,307,360
Guaranteed investment contracts 62,398,546 59,224,919
NSI common stock 11,026,746 15,348,609
Loans receivable from participants 7,942,464 7,590,683
Cash equivalents 4,873,957 0
------------- -------------
298,077,788 274,471,293
Accrued investment income 23,712 6,608
Adjustments for pending trades 219,969 19,658
Accrued expenses and other (28,248) 0
------------- -------------
Net assets $298,293,221 $274,497,559
============= =============
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, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
Amount Percent Amount Percent
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
AECO Employees' 401(k) Retirement and
Savings Plan $ 11,230,480 3.76% $ 6,011,480 2.19%
All other NSI plans 287,062,741 96.24 268,486,079 97.81
---------------------------- ---------------------------
Total $298,293,221 100.00% $274,497,559 100.00%
============================ ===========================
</TABLE>
Investment in NSI Common Stock
As of December 31, 1999 and 1998, approximately 3.7% 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.
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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, 1999 and 1998.
5. NONPARTICIPANT-DIRECTED FUND INFORMATION
The following represents the net assets available for benefits of the
nonparticipant-directed portion of the Plan as of December 31, 1999 and 1998:
1999 1998
----------- -----------
Investment in NSI DC Trust $886,704 $769,873
=========== ===========
The nonparticipant directed portion of the investment in the NSI DC Trust is
invested in the NSI Stock Fund.
The change in the nonparticipant-directed net assets available for benefits is
as follows for the year ended December 31, 1999:
Contributions--employer, net of forfeitures $399,982
Net loan activity and other (43,669)
Net loss from investment in NSI DC Trust (180,019)
Benefits paid to participants (59,463)
----------
Net increase $116,831
==========
