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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:
Enforcer Products 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
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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.
Enforcer Products 401(k) 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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Enforcer Products 401(k) Plan
Financial Statements
as of December 31, 1999 and 1998
Together With Auditors' Report
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of
Enforcer Products 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits
of Enforcer Products 401(k) 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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ENFORCER PRODUCTS 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
INVESTMENTS:
NSI DC Trust, at fair value (Notes 2 and 3) $3,813,784 $ 0
Loans to participants 0 165,462
General account of insurance company 0 343,499
Pooled separate accounts 0 2,660,044
----------- -----------
Total investments 3,813,784 3,169,005
CONTRIBUTIONS RECEIVABLE:
Employer 0 3,433
Participant 0 17,635
Loan repayments 0 17,056
----------- -----------
Total contributions receivable 0 38,124
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $3,813,784 $3,207,129
=========== ===========
The accompanying notes are an integral part of these statements.
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ENFORCER PRODUCTS 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1999
CONTRIBUTIONS:
Employer, net of forfeitures $ 59,253
Participant 408,669
-------------
Total contributions 467,922
NET GAIN FROM INVESTMENT IN NSI DC TRUST (Note 3) 139,196
INTEREST INCOME 25,155
NET APPRECIATION IN FAIR VALUE OF SEPARATE ACCOUNTS 198,825
BENEFITS PAID TO PARTICIPANTS (224,443)
-------------
NET INCREASE 606,655
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 3,207,129
-------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 3,813,784
=============
The accompanying notes are an integral part of this statement.
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ENFORCER PRODUCTS 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. PLAN DESCRIPTION
The following is a brief description of the Enforcer Products 401(k) Plan (the
"Plan") of the Enforcer Products, Inc. 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 November 1, 1999, is a defined
contribution plan established under the provisions of Section 401(a) of the
Internal Revenue Code ("IRC"). The Plan covers all employees of the Company,
excluding leased employees, independent contractors, and collectively bargained
employees. Employees who have attained the age of 21 and have completed six
months of service are eligible to participate in the Plan on the entry date
following completion of the eligibility requirements. Plan entry dates are the
first day of each calendar month. 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 1% and 15% of before-tax compensation, as
defined in the Plan, subject to certain limitations under the IRC.
The Company may in its sole discretion elect to make a profit-sharing
contribution to the Plan. Profit-sharing contributions are allocated to
participants based on relative compensation up to $160,000. Total contributions
made to the account of a participant for any plan year cannot exceed the lesser
of $30,000 or 25% of the participant's annual compensation.
Matching contributions prior to November 1, 1999 were 25%, up to 4% of
compensation that a participant deferred. Effective November 1, 1999, matching
contributions became discretionary. Matching contributions made after November
18, 1999 are made in NSI common stock or with cash that is used to purchase NSI
common stock and may not be directed by participants.
Vesting
Participants are always fully vested in their individual contributions. Prior to
November 1, 1999, vesting of employer contributions was a graded scale with 100%
vesting after six years of credited service. Effective November 1, 1999, vesting
of employer contributions occurs ratably at 20% for each year of service, as
defined, with 100% vesting after five years of service. Participants become
fully vested upon retirement, death, or disability. Forfeitures of employer
contributions reduce the matching contributions and/or profit-sharing
contributions to the Plan for the plan year in which such forfeitures occur.
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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 were commingled in the National Service Industries, Inc.
Defined Contribution Plans Master Trust (the "NSI DC Trust") beginning December
1, 1999 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.
INVESCO Trust Company is the 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.
The separate investment options offered by the Plan under the NSI DC Trust
arrangement 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 a 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 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.
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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.
Prior to participation in the NSI DC Trust, the Plan's assets were invested in
pooled separate accounts and guaranteed interest accounts under a group annuity
contract with Principal Life Insurance Company ("Principal").
Loans to Participants
The Plan generally permits loans to participants from $1,000 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. Repayments are made through
payroll deductions. 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
for the period after December 1, 1999 and in interest income prior to that date
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 termination of employment, death, disability, or retirement (age 65
or age 55 with six years of credited service). For employees who became
participants in the Plan prior to November 1, 1999, the normal form of benefit
is a qualified joint and survivor annuity for married participants and straight
life maturity for unmarried participants. For employees who became participants
in the Plan after November 1, 1999, benefits are payable in a lump-sum amount.
If the vested portion of a participant's account is less than $5,000, then the
plan administrator may distribute the entire vested amount as soon as
practicable following termination of employment.
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 at the
request of the participant.
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.
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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 financial statements, and
the 1998 financial statements have been reclassified to eliminate the
participant-directed fund investment program disclosures.
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 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 they 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.
The value of the Plan's investment in pooled separate accounts ("PSAs") at
December 31, 1998 is determined by Principal at the end of each day by
multiplying the number of units held by the Plan times the PSA's unit value. The
unit value is determined by Principal based on the market value of the
underlying assets of the PSA and the total number of units outstanding.
The guaranteed interest accounts held by the Plan at December 31, 1998 were not
fully benefit-responsive as defined by accounting pronouncements and therefore
must be carried at fair value. Estimated fair value at December 31, 1998
approximates contract value (amount invested plus accumulated earnings less any
withdrawals) based on prevailing interest rates for contracts with similar
terms.
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Net realized gains and losses from the sale of investments in the PSAs and
changes in the unrealized appreciation of investments in PSAs are recorded as
net appreciation in fair value of separate accounts in the accompanying
statement of changes in net assets available for benefits.
Effective December 1, 1999, the investments in the PSAs and guaranteed interest
accounts were liquidated and the cash was transferred to the NSI DC Trust for
investment in new options.
The fair value of investments that represent 5% or more of the Plan's net assets
at December 31, 1999 and 1998 are as follows:
1999:
Investment in NSI DC Trust $3,813,784
1998:
Principal U.S. Stock Account 1,129,239
Principal Bond and Mortgage Account 346,189
Principal Stock Index Account 746,880
Principal International Stock Account 274,829
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 income 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
============= =============
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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>
Enforcer Products 401(k) Plan $ 3,813,784 1.28% 0 0.00%
All other plans 294,479,437 98.72 274,497,559 100.00
-------------------------- -------------------------
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.
4. TAX STATUS
The Plan previously relied on a favorable determination letter from the Internal
Revenue Service dated May 7, 1990 stating that the Principal standardized
prototype profit-sharing plan as adopted was designed in accordance with plan
design requirements as of that date. The Plan has been amended and restated
effective November 1, 1999 and no longer utilizes the prototype document.
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.
