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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant To Section 13 Or 15(d)
Of The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999. Commission File number 1-14762
THE SERVICEMASTER COMPANY
(Exact Name of Registrant as Specified in its Certificate)
(Successor to ServiceMaster Limited Partnership)
Delaware 36-3858106
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One ServiceMaster Way, Downers Grove, Illinois 60515-1700
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (630) 271-1300
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- ---------------------
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by Check Mark Whether the Registrant (1) Has Filed All Reports
Required to Be Filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 During the Preceding 12 Months (or for such Shorter Period That the
Registrant Was Required to File Such Reports), and (2) Has Been Subject to Such
Filing Requirements for the Past 90 Days. Yes O No
The Aggregate Market Value of Shares Held by Non-Affiliates of the
Registrant As of March 15, 2000 was $3,580,033,732. The Number of Shares
Outstanding of the Registrant's Common Stock as of March 15, 2000 was
305,045,000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the Registrant's Annual Report to Shareholders for the
year ended December 31, 1999 are incorporated into Part I, Part II and Part IV
of this Form 10-K.
Certain parts of the Registrant's Definitive Proxy Statement for the
April 28, 2000 Annual Meeting of Shareholders are incorporated into Part III of
this Form 10-K.
PART I
Item 1. Business
This annual report on Form 10-K is filed by The ServiceMaster Company,
a Delaware corporation (hereinafter sometimes referred to as the "Registrant").
The Registrant and its affiliated entities are referred to as "ServiceMaster" or
the "Company" or the "ServiceMaster enterprise." The Registrant is the successor
to ServiceMaster Limited Partnership, a Delaware limited partnership. On
December 26, 1997, by means of a statutory merger, the Registrant succeeded to
and became substituted for ServiceMaster Limited Partnership as the publicly
traded parent entity in the ServiceMaster enterprise.
Forward-Looking Statements
This Annual Report on Form 10-K contains or incorporates by reference
certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company intends that such forward-looking
statements be subject to the safe harbors created by such legislation. Such
forward-looking statements involve risks and uncertainties and include, but are
not limited to, statements regarding future events and the Company's plans,
goals and objectives. Such statements are generally accompanied by words such as
"intend", "anticipate", "believe", "estimate", "expect" or similar statements.
The Company's actual results may differ materially from such statements. Among
the factors that could result in such differences are the impact of weather
conditions; increased competition; labor shortages; the continued consolidation
of the U.S. hospital market; and the ability of the Company to make acquisitions
at reasonable prices. Although the Company believes that the assumptions
underlying its forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated in such forward-looking statements will be realized. The
inclusion of such forward-looking statements should not be regarded as a
representation by the Company or any other person that the future events, plans
or expectations contemplated by the Company will be achieved and the Company
notes that past performance in operations and share price is not necessarily
predictive of future performance.
Principal Business Groups
The Registrant is a holding company whose shares of common stock are
traded on the NYSE. Through its subsidiaries, the Company is engaged in
providing a variety of specialty services to homeowners and commercial
facilities and supportive management services in several markets, including the
healthcare market, the education market and certain segments of the business and
industry market.
The Company is organized into two principal operating groups:
ServiceMaster Consumer and Commercial Services, whose operating units are
headquartered in Memphis, Tennessee, and ServiceMaster Management Services,
whose operating units are for the most part headquartered in Downers Grove,
Illinois. (The Consumer and Commercial Services group was identified in Form
10-K Reports for years prior to the 1999 report as "Consumer Services", but that
designation is now a misnomer in that several of the Memphis-based companies
provide a significant volume of services to commercial customers).
The two principal operating groups have their own holding companies,
ServiceMaster Consumer Services Limited Partnership and ServiceMaster Management
Services Limited Partnership, each of which is a wholly owned subsidiary of the
Registrant. All subsidiaries of the operating group parent companies are wholly
owned, except for WeServeHomes.com and two other units in which senior
management for those units have purchased nominal equity interests which are
subject to certain put and call rights.
Trademarks and Service Marks; Franchises
The Company's trademarks and service marks are important for all
elements of the Company's business, although such marks are particularly
important in the advertising and franchising activities conducted by the
Consumer and Commercial companies. Such marks are registered and are renewed at
each registration expiration date.
1
Within the Consumer and Commercial group, franchises are important for
the TruGreen ChemLawn, Terminix, ServiceMaster Clean (formerly ServiceMaster
Residential/Commercial), Merry Maids, AmeriSpec and Furniture Medic businesses.
Nevertheless, revenues and profits derived from franchise-related activities
constitute less than 10% of the revenue and profits of the consolidated
ServiceMaster enterprise. Franchise agreements made in the course of these
businesses are generally for a term of five years. ServiceMaster's renewal
history is that most of the franchise agreements which expire in any given year
are renewed.
ServiceMaster Consumer and Commercial Services
ServiceMaster Consumer and Commercial Services provides specialty services
to homeowners and commercial facilities principally through eight companies:
TruGreen LawnCare L.L.C ("TruGreen ChemLawn"); TruGreen LandCare L.L.C.
(formerly LandCare U.S.A., Inc. which was acquired by ServiceMaster in March
1999); The Terminix International Company L.P. ("Terminix"); ServiceMaster
Residential/Commercial Services L.P. ("ServiceMaster Clean"); Merry Maids L.P.
("Merry Maids"); American Home Shield Corporation ("American Home Shield" or
"AHS"); AmeriSpec, Inc. ("AmeriSpec"); Furniture Medic L.P. ("Furniture Medic");
and Rescue Rooter L.L.C. ("Rescue Rooter"). Rescue Rooter was acquired by
ServiceMaster Consumer Services on January 1, 1998 and includes the assets and
business of American Residential Services, a company acquired by ServiceMaster
in April 1999. The services provided by these companies include: lawn care, tree
and shrub services and indoor plant maintenance services under the "TruGreen",
"ChemLawn" and "Barefoot" service marks; landscaping services under the
"TruGreen" and "LandCare" service marks; termite and pest control services under
the "Terminix" service mark; residential and commercial cleaning and disaster
restoration services under the "ServiceMaster" and "ServiceMaster Clean" service
marks; domestic housekeeping services under the "Merry Maids" service mark; home
systems and appliance warranty contracts under the "American Home Shield"
service mark; home inspection services under the "AmeriSpec" service mark;
on-site furniture repair and restoration under the "Furniture Medic" service
mark; plumbing and drain cleaning services under the "Rescue Rooter" service
mark; and electrical, plumbing, heating, ventilating and air conditioning
services under the "ARS" service mark.
The services provided by Consumer and Commercial Services companies are
part of the ServiceMaster "Quality Service Network" and are accessed by calling
a single toll-free telephone number: 1-800-WE SERVE. ServiceMaster focuses on
establishing relationships to provide one or more of these services on a
repetitive basis to customers. Since 1986, the number of customers served by
Consumer and Commercial Services has increased from fewer than one million
domestic customers to more than 12 million worldwide customers.
Oversight responsibility for the Consumer and Commercial Services
businesses which are conducted in foreign markets is in the appropriate Consumer
and Commercial domestic operating unit.
TruGreen ChemLawn. As of December 31, 1999, TruGreen ChemLawn had 230
company-owned branches and 105 franchised branches. With nearly 3.5 million
residential and commercial customers, TruGreen ChemLawn is the leading provider
of lawn care services in the United States. TruGreen ChemLawn provides lawn,
tree and shrub care services in Egypt, Japan, the Palestine Authority, Saudi
Arabia, and Turkey through licensing arrangements and in Canada through a
subsidiary. TruGreen ChemLawn also provides interior plantscape services to
commercial customers. The TruGreen ChemLawn businesses are seasonal in nature.
TruGreen LandCare. On March 18, 1999, ServiceMaster completed the
acquisition of LandCare USA, Inc., a leading provider of commercial landscaping
services and tree services (including line clearing and tree care). The
landscaping business previously conducted by TruGreen ChemLawn was combined with
the business of the acquired company and now operates as TruGreen LandCare
L.L.C. TruGreen LandCare is a leading provider of commercial landscaping
services. As of December 31, 1999, TruGreen LandCare had 165 company-owned
branches with approximately 17,000 customers. The Company has established a
capital structure for TruGreen LandCare whereby 90% of the invested capital is
in the form of intercompany debt and 10% in the form of equity. In 1999, members
of senior management of TruGreen LandCare purchased 8.65% of the equity
interest, representing 0.865% of the total investment in TruGreen LandCare at
this time, pursuant to a management equity plan. Such interest is subject to
reciprocal put and call rights which will become exercisable on April 1, 2004
and which will be consummated on the basis of the then fair market value of the
interest. The intercompany debt has been eliminated in the consolidated
financial statements of the company.
2
Terminix. With over 2.5 million domestic residential and commercial
customers Terminix, through its company-owned branches and through franchisees,
is the leading provider of termite and pest control services in the United
States. As of December 31, 1999, Terminix was providing these services through
251 company-owned branches and 208 franchised branches in 45 states. Terminix
also manages the following European pest control companies, all of which are
subsidiaries of TMX-Europe B.V., a wholly-owned subsidiary of the Company:
Terminix Ltd., a leading pest control and wood preservation company in the
United Kingdom and Ireland; Terminix B.V. and Riwa B.V., each a leading pest
control company in the Netherlands and Belgium; Anticimex Development A.B., a
holding company for the leading pest control company in Sweden and which also
operates in Norway; and Terminix GmbH & Co. KG (formerly the Stenglein Group), a
group of pest control companies in Germany. Terminix also provides termite and
pest control services through licensing arrangements with local service
providers in 28 other countries and through a subsidiary in Mexico. The Terminix
business is seasonal in nature.
ServiceMaster Clean. ServiceMaster Clean is the leading franchisor in
the United States in the residential and commercial cleaning field.
ServiceMaster Clean provides carpet and upholstery cleaning and janitorial
services, disaster restoration services and window cleaning services. As of
December 31, 1999, these services were provided to approximately 1.6 million
residential and commercial customers worldwide through a network of over 4,170
independent franchisees. ServiceMaster Clean provides its services through
subsidiaries in Canada, Germany, Ireland and the United Kingdom, and through
licensing arrangements with local service providers in 17 other countries.
Furniture Medic. Furniture Medic provides on-site furniture repair and
restoration services in 46 states. As of December 31, 1999, these services were
provided through 600 worldwide licensees. Furniture Medic also provides its
services through subsidiaries in Canada and the United Kingdom and through a
licensing arrangement with a local service provider in one other country.
Merry Maids. With approximately 415,000 worldwide customers, Merry
Maids is the leading provider of domestic house cleaning services in the United
States. As of December 31, 1999, these services were provided through 33
company-owned branches and 1,187 licensees operating in all 50 states and
internationally. Merry Maids also provides domestic house cleaning services
through subsidiaries in Canada and the United Kingdom and through licensing
arrangements with local service providers in 9 other countries.
American Residential Services/Rescue Rooter. American Residential
Services ("ARS"), a leading provider of electrical, plumbing, heating,
ventilation and air conditioning services, was acquired by ServiceMaster in
April 1999 and the ARS business was thereafter combined with the business of
Rescue Rooter, which provides plumbing and drain cleaning services. As combined,
the ARS/Rescue Rooter business performed services for approximately 1.3 million
customers in 1999 in 21 states through 93 company-owned branches and one
franchise location. Rescue Rooter also provides plumbing and drain cleaning
services through a licensing arrangement with a local service provider in one
other country. The Company has established a capital structure for ARS/Rescue
Rooter whereby 90% of the invested capital is in the form of intercompany debt
and 10% in the form of equity. In 1999, members of senior management of the
combined businesses purchased 8.5% of the equity interest, representing 0.85% of
the total investment in ARS/Rescue Rooter at this time, pursuant to a management
equity plan. Such interest is subject to reciprocal put and call rights which
will become exercisable on July 1, 2004 and which will be consummated on the
basis of the then fair market value of the interest. The intercompany debt has
been eliminated in the consolidated financial statements of the company.
American Home Shield. AHS is a wholly-owned subsidiary of ServiceMaster
Consumer Services L.P. AHS is a leading provider of home systems and appliance
warranty contracts ("warranty contracts") in the United States, providing
homeowners with contracts covering the repair or replacement of built-in
appliances, hot water heaters and electrical, plumbing, central heating and
central air conditioning systems which malfunction by reason of normal wear and
tear. Warranty contracts are sold through participating real estate brokerage
offices in conjunction with resales of single-family residences to homeowners.
AHS also sells warranty contracts directly to non-moving homeowners by renewing
existing contracts and through various other distribution channels which are
currently being expanded. As of December 31, 1999, AHS warranty contracts
provided for services to approximately 795,000 homes through approximately
21,750 independent repair maintenance contractors in 50 states and the District
of Columbia, with operations in California, Texas and Arizona accounting for
24%, 22% and
3
7%, respectively, of gross contracts written by AHS. AHS also provides home
service warranty contracts through a licensing arrangement with a local service
provider in Saudi Arabia.
AmeriSpec. AmeriSpec is a wholly-owned subsidiary of AHS. AmeriSpec is
a leading provider of home inspection services in the United States. AmeriSpec
provides home inspection services through one company-owned branch and 345
franchise locations. During 1999, AmeriSpec conducted approximately 133,000 home
inspections in 47 states and Canada, with operations in California, New York and
Illinois accounting for 22%, 6% and 5%, respectively, of the gross number of
inspections conducted through AmeriSpec.
ServiceMaster Management Services
ServiceMaster pioneered the providing of supportive management services
to health care facilities by instituting housekeeping management services in
1962. Since then, ServiceMaster has expanded its management services business
such that it now provides a variety of supportive management services to health
care, education and business and industrial customers (including the management
of housekeeping, plant operations and maintenance, laundry and linen, grounds
and landscaping, clinical equipment maintenance, food service, and total
facility management). ServiceMaster's general programs and systems free the
customer to focus on its core business activity with confidence that the support
services are being managed and performed in an efficient manner.
ServiceMaster Management Services is organized into operating units,
each of which provides service on a nationwide basis within its market. These
markets are: Healthcare Management Services; Education Management Services; and
Business & Industry Management Services. The responsibility for overseeing the
Management Services businesses which are conducted in foreign markets lies with
Management Services senior management and designated parent company officers.
As of December 31, 1999, ServiceMaster Management Services was
providing supportive management services to approximately 1,290 health care
customers and to approximately 470 educational and commercial customers. These
services were being provided in all 50 states and the District of Columbia.
Outside of the United States, ServiceMaster was providing management services
through subsidiaries in Canada and Japan and through licensing arrangements with
local service providers in 24 other countries.
Healthcare Management Services. The Healthcare division of
ServiceMaster Management Services L.P. is a leading provider to the health care
market of supportive management services, including the management of
housekeeping, plant operations and maintenance, laundry and linen, grounds and
landscaping, clinical equipment maintenance, food services and total facility
management. As of December 31, 1999, the Healthcare division was serving in
approximately 1,290 healthcare facilities. Although the healthcare market has
undergone significant consolidation in recent years, ServiceMaster believes that
there continues to be potential for expansion in the healthcare market due to
the trend of healthcare facilities to outsource more of their service
requirements.
Education Management Services. The Education division of ServiceMaster
Management Services L.P. is a leading provider to the education market of
maintenance, custodial and grounds services. The facilities which comprise the
education market include primary schools, secondary schools and school
districts, private specialty schools and colleges and universities. As of
December 31, 1999, ServiceMaster was serving 280 educational customers.
ServiceMaster believes there is potential for expansion in the education market
due to its current relatively low penetration of that market and the trend of
educational facilities to consider outsourcing more of their service
requirements. However, a majority of the educational facilities continue to
assume direct responsibility for managing their support functions.
Business & Industry Management Services. The Business & Industry
division of ServiceMaster Management Services L.P. is a leading provider of
plant operations and maintenance, custodial and grounds management services to
business and industrial customers in selected markets. Such markets include the
food processing, transportation, healthcare products and automotive markets.
ServiceMaster believes that there is potential for expansion in these business
and industrial markets due to ServiceMaster's current low penetration of those
markets, the trend of businesses to consider outsourcing more of their service
requirements and the trend of
4
governmental units to privatize parts of their operations. As of December 31,
1999, ServiceMaster was serving approximately 190 business or industrial
customers.
1999 Strategic Business Initiatives
During the year 1999, the Company launched two new strategic business
initiatives.
E-Commerce Initiative. The Company initiated planning for the
organization of a new Internet company to provide comprehensive on-line
solutions for home services, products and information. On January 20, 2000, the
Company, in conjunction with Kleiner, Perkins, Caufield & Byers ("KPCB"),
announced the formation and initial funding of WeServeHomes.com, Inc. ("WSH"),
as the Internet company which will provide such solutions at a website having
the URL "WeServeHomes.com". The equity interests in WSH are currently divided
between ServiceMaster (approximately 84%) and KPCB (approximately 16%, for which
KPCB contributed $15 million in cash on January 19, 2000). KPCB also received
warrants to purchase an additional $11.5 million in capital stock. Certain
senior managers in the ServiceMaster enterprise will purchase an approximate 1%
equity interest for $1 million in transactions which are expected to be
completed in April 2000. ServiceMaster will support the Internet company through
intensive co-branding efforts, access to the customer base of its Consumer and
Commercial Services operating units, the fulfillment support of those units, and
licenses for the use of certain trademarks.
Site Service and Information Resources Initiatives. The Company expanded
its outsourcing, site service and information resources to the business and
commercial markets.
Other Businesses
ServiceMaster Diversified Health Services. In 1999, ServiceMaster
Diversified Health Services ("DHS") provided management services to
freestanding, hospital-based and government-owned nursing homes, skilled nursing
facilities, and assisted living facilities; the sale of various medical products
and supplies; and pharmacy management. In January 1999, DHS sold its hospice
business in connection with the ServiceMaster Home Health Care sale described
below. In December 1999, DHS sold its rehabilitation services business and its
architectural services business.
ServiceMaster Employer Services. ServiceMaster Employer Services is one
of the nation's larger professional employer organizations. It provides more
than 990 clients with administrative processing of payroll, workers compensation
insurance, health insurance, unemployment insurance and other employee benefits.
International Operations. Consumer and commercial services and
supportive management services in international markets are provided either
through licensing arrangements with local entities or ownership of foreign
operating companies acquired by ServiceMaster. Except as noted below, these
activities in Europe, Latin America and the Middle East are administered as part
of the operations of the appropriate Consumer and Commercial Services or
Management Services operating units. Operating arrangements and market expansion
efforts in the Pacific Rim are administered by the parent company.
Dispositions
Energy Management Services. In January 1999, ServiceMaster transferred
its energy management services business to a subsidiary of Texas Utilities
Company and acquired a 15% equity interest in the subsidiary company. In June
1999, ServiceMaster sold this 15% equity interest to Texas Utilities Company.
Premier Automotive Services. In April 1999, ServiceMaster sold one of
its specialty services units (Premier Automotive Services) to Durr AG. Premier
Automotive Services provided cleaning services for paint booths and other
related maintenance services in the automotive industry.
Home Health Care. On January 4, 1999, ServiceMaster announced the
completion of its strategic review of its home health care business and its
decision to sell its direct operations of home health care agencies and certain
support operations. This decision was implemented at various points throughout
the year such that, by December
5
31, 1999, the company's home health care services were limited to providing
consulting services to certain providers of home health care.
Other Activities
Supporting Departments. The Company has various departments responsible
for technical, engineering, management information, planning and market
services, and product and process development activities. Various administrative
support departments provide personnel, public relations, administrative,
education, accounting, financial and legal services.
Manufacturing Division. ServiceMaster has a manufacturing division
which formulates, combines and distributes supplies, products and equipment that
are used internally in providing management services to customers and which are
sold to licensees for use in the operation of their businesses. ServiceMaster
has a small share of the market for the manufacture and distribution of cleaning
equipment, chemicals and supplies.
Venture Fund. ServiceMaster Venture Fund L.L.C., a subsidiary of the
parent company (the "Venture Fund"), invests in emerging growth companies which
show an ability to provide innovative service technologies to ServiceMaster's
current and new customers. The Venture Fund is managed so as not to be intrusive
to the ongoing operations of the Company's operating units.
Industry Position, Competition and Customers
The following information is based solely upon estimates made by the
management of ServiceMaster and cannot be verified. In considering
ServiceMaster's industry and competitive positions, it should be recognized that
ServiceMaster competes with many other companies in the sale of its services,
franchises and products and that some of these competitors are larger or have
greater financial and marketing strength than ServiceMaster.
The principal methods of competition employed by ServiceMaster in the
Consumer and Commercial Services business are name recognition, assurance of
customer satisfaction and a history of providing quality services to homeowners.
The principal methods of competition employed by ServiceMaster in each of the
operating units in the Management Services business are price, quality of
service and experience in providing management services. The principal methods
of competition employed by ServiceMaster in the Employer Services business are
name recognition, assurance of customer satisfaction and financial strength.
Consumer and Commercial Operating Units
The Consumer and Commercial Services operating units provide a variety
of residential and commercial services under their respective names on the basis
of their and ServiceMaster's reputation, the strength of their service marks,
their size and financial capability, and their training and technical support
services. The markets served by Terminix and TruGreen ChemLawn are seasonal in
nature.
Lawn Care Services. TruGreen ChemLawn, both directly and through
franchisees, provides lawn care services to residential and commercial
customers. Competition within the lawn care market is strong, coming mainly from
regional and local, independently-owned firms and from homeowners who elect to
care for their lawns through their own personal efforts. TruGreen ChemLawn is
the leading national lawn care company within this market. TruGreen ChemLawn
also provides indoor plant maintenance to commercial customers.
Lawn care services are regulated by law in most of the states in which
TruGreen ChemLawn provides such services. These laws require licensing which is
conditional on a showing of technical competence and adequate bonding and
insurance. The lawn care industry is regulated at the federal level under the
Federal Insecticide, Fungicide and Rodenticide Act, and lawn care companies
(such as TruGreen ChemLawn) which apply herbicides and pesticides are regulated
under the Federal Environmental Pesticide Control Act of 1972. Such laws,
together with a variety of state and local laws and regulations, may limit or
prohibit the use of certain herbicides and pesticides, and such restrictions may
adversely affect the business of TruGreen ChemLawn.
6
Landscaping and Tree Services. TruGreen LandCare provides landscaping
and tree services to commercial customers. (See page 2 for a discussion of the
acquisition of LandCare USA, Inc.). The landscape and tree services industry is
highly competitive. Most competitors of TruGreen LandCare's landscape services
are small, owner-operated companies operating in a limited geographic market,
but there are a few large companies operating in multiple markets. Competition
in the line clearing market is characterized by a small number of large
companies. The commercial tree services market is characterized by a large group
of small competitors, most of which are owner-operated businesses operating in
limited geographic areas and a few larger companies operating in one or more
regions.
Termite and Pest Control Services. The market for termite and pest
control services to commercial and residential customers includes many
competitors. Terminix is the leading national termite and pest control company
within this market. Competition within the termite and pest control market is
strong, coming mainly from regional and local, independently-owned firms
throughout the United States and from one other large company which operates on
a national basis.
Termite and pest control services are regulated by law in most of the
states in which Terminix provides such services. These laws require licensing
which is conditional on a showing of technical competence and adequate bonding
and insurance. The extermination industry is regulated at the federal level
under the Federal Insecticide, Fungicide and Rodenticide Act, and pesticide
applicators (such as Terminix) are regulated under the Federal Environmental
Pesticide Control Act of 1972. Such laws, together with a variety of state and
local laws and regulations, may limit or prohibit the use of certain pesticides,
and such restrictions may adversely affect the business of Terminix.
Heating, Ventilating and Air Conditioning Services. The market for
heating, ventilating and air conditioning services is highly competitive in both
the residential and commercial sectors. ARS believes that its share of the total
potential market for such services is small and that there is significant
potential for future expansion and penetration. Many states in which ARS
provides heating, ventilating, and air conditioning services regulate such
services. The level of regulation and licensing varies from state to state.
Plumbing and Drain Cleaning Services. The market for plumbing and drain
cleaning services is highly competitive in both the residential and commercial
sectors. Rescue Rooter believes that its share of the total potential market for
such services is small and that there is significant potential for future
expansion and penetration. Plumbing is regulated by most states in which Rescue
Rooter provides such services. The level of licensing varies from state to
state. There are no state or federal guidelines regulating drain cleaning
services.
Home Systems and Appliance Warranty Contracts. The market for home
systems and appliance warranty contracts is relatively new. ServiceMaster
believes that AHS maintains a favorable position in its industry due to the
system developed and used by AHS for accepting, dispatching and fulfilling
service calls from homeowners through a nationwide network of independent
contractors. AHS also has a computerized information system developed and owned
by AHS, and an electronic digital voice communication system through which AHS
handles requests for service.
Residential and Commercial Cleaning Services. The market for domestic
house cleaning services is highly competitive. In urban areas the market
involves numerous local companies and a few national companies. ServiceMaster
believes that its share of the total potential market for such services is small
and that there is significant potential for further expansion of its
housecleaning business through continued internal expansion and greater
penetration of the housecleaning market. Through company-owned branches and
franchisees, ServiceMaster Clean and Merry Maids have a small share of the
market for the cleaning of residential and commercial buildings.
Home Inspection Services. AmeriSpec is a leading provider of home
inspection services in the United States. Competition within this market is
strong, coming mainly from regional and local, independently-owned firms.
7
Furniture Repair Services. The market for on-site furniture repair
services is relatively new. ServiceMaster believes that Furniture Medic
maintains a favorable position in its industry due to its patented
environmentally sensitive procedure for repairing furniture in the customer's
home.
Management Services
Health Care. Within the market consisting of general health care
facilities having 50 or more beds, ServiceMaster is the leading supplier of
plant operations and maintenance, housekeeping, clinical equipment maintenance,
and laundry and linen management services. As of December 31, 1999,
ServiceMaster was serving approximately 1,290 customers and managing
approximately 1,620 health care facilities. The majority of health care
facilities within this market not currently served by ServiceMaster assume
direct responsibility for managing their own non-medical support functions.
ServiceMaster believes that its management services for health care
facilities may expand by the addition of facilities not presently served, by
initiating additional services at facilities which use only a portion of the
services now offered, by the development of new services and by growth in the
size of facilities served. At the same time, industry consolidation, changes in
use and methods of health care delivery and payment for services (including in
particular changes in Medicare reimbursement regulations) continue to affect the
health care environment.
Education. ServiceMaster is a leading provider to the education market
of maintenance, custodial and grounds services. The facilities which comprise
the education market served by ServiceMaster include primary schools, secondary
schools and school districts, private specialty schools and colleges and
universities. As of December 31, 1999, ServiceMaster was serving approximately
280 customers and managing approximately 4,845 facilities. ServiceMaster
believes there is potential for expansion in the education market due to its
current relatively low penetration of that market and the trend of educational
facilities to consider outsourcing more of their service requirements. However,
a majority of the educational facilities continue to assume direct
responsibility for managing their support functions.
Business and Industry. ServiceMaster is a leading provider of plant
operations and maintenance, custodial and grounds management services to
business and industrial customers in selected markets. ServiceMaster believes
that there is potential for expansion in those business and industrial markets
which ServiceMaster has elected to emphasize due to ServiceMaster's low current
penetration of those markets, the trend of businesses to consider outsourcing
more of their service requirements and the trend of governmental units to
privatize parts of their operations. The emphasized markets include the food
processing, transportation, healthcare products, and automotive markets. As of
December 31, 1999, ServiceMaster was serving approximately 190 customers and
managing approximately 5,500 business or industrial facilities.
Major Customers
ServiceMaster has no single customer which accounts for more than 10%
of its total revenues. No part of the Company's business is dependent on a
single customer or a few customers, the loss of which would have a material
adverse effect on the Company as a whole. Revenues from governmental sources are
not material.
Employees
On December 31, 1999, ServiceMaster had a total of approximately 72,000
employees.
ServiceMaster provides its employees with annual vacation, medical,
hospital and life insurance benefits and the right to participate in additional
benefit plans which are described in the Notes to Financial Statements included
in the Company's Annual Report to Shareholders for the Year Ended December 31,
1999.
Year 2000 Computer Program Compliance
Throughout the year 1999, the Company proceeded with its program (the
"Y2K Program") to address Year 2000 ("Y2K") issues as they might affect the
Company's information technology ("IT") systems, electronic data
8
interfaces and its non-IT hardware. The Y2K Program met its objective and the
Company experienced no material difficulties in its internal programs in the
transition from the year 1999 to the year 2000. The Company also did not
experience any material Y2K-related difficulties with its providers of goods and
services, and the Company did not experience any material Y2K-related
difficulties in facilities in which the Company was providing services to its
customers.
Several of the projects carried out as part of the Y2K Program were
upgrades of systems which the Company would have undertaken irrespective of Y2K
concerns. In some cases, including a new accounting and financial reporting
system for the parent company and its Management Services group, work on these
systems was accelerated in view of Y2K issues. Other upgrades or new systems
were already scheduled for completion prior to the year 2000 (such as a new
support system for American Home Shield Corporation and a new operating and
financial system for the operations making up TruGreen LandCare).
The Company's Y2K costs were not material to the Company's results of
operations or financial position. All Y2K costs (as well as the costs of
installing the system upgrades referred to above) were funded from cash from
operations.
Item 2. Properties
The headquarters facility of ServiceMaster, which also serves as
headquarters for ServiceMaster Management Services, is owned by The
ServiceMaster Company and is located on a ten-acre tract at One ServiceMaster
Way, Downers Grove, Illinois. The building contains approximately 118,900 square
feet of air conditioned office space, 2,100 square feet of laboratory space and
space for food service demonstrations and dining facilities. In 1992,
ServiceMaster completed the conversion of approximately 30,000 square feet of
space formerly used as a warehouse to offices for Management Services and for
The Kenneth and Norma Wessner Training Center.
ServiceMaster owns a seven-acre, improved tract at 2500 Warrenville
Road, Downers Grove, Illinois, which is adjacent to its headquarters facility.
ServiceMaster leases approximately half the space (50,000 square feet) to a
commercial tenant and the balance of the space is utilized by ServiceMaster
personnel.
ServiceMaster owns a 50,000 square foot facility near Aurora, Illinois
which is used by ServiceMaster as a warehouse/distribution center.
ServiceMaster believes that the facilities described in the preceding
three paragraphs will satisfy the Company's needs for administrative and
warehouse space in the Chicago area for the immediate future.
ServiceMaster owns five properties in Cairo, Illinois, consisting of a
36,000 square foot, three-story building used for manufacturing and warehousing
equipment, supplies and products used in the business; a warehouse and package
facility comprising 30,000 square feet; a three-story warehouse and
manufacturing building consisting of 43,000 square feet; a 2,500 square foot
building used for a machine shop; and a warehouse facility consisting of 6,000
square feet. ServiceMaster also leases one warehouse property with 14,000 square
feet in Cairo, Illinois. Management believes that the foregoing manufacturing
and warehouse facilities are adequate to support the current needs of
ServiceMaster.
The headquarters for ServiceMaster Consumer Services L.P. are located
in leased premises at 860 Ridge Lake Boulevard, Memphis, Tennessee. The 860
Ridge Lake Boulevard facility also serves as the headquarters for TruGreen
ChemLawn, TruGreen LandCare, Terminix, American Home Shield, AmeriSpec, ARS and
Rescue Rooter. The headquarters for ServiceMaster Clean, Merry Maids and
Furniture Medic are located in leased premises at 889 Ridge Lake Boulevard,
Memphis, Tennessee.
A call center is located in leased premises at 6399 Shelby View Drive,
Memphis, Tennessee. The center contains approximately 60,000 square feet of air
conditioned office space from which telephone sales, scheduling services, and
other business functions are conducted.
9
TruGreen ChemLawn owns eight buildings which are used as branch sites
for lawn care services. These facilities are located in Colorado (1), Florida
(1), Georgia (1), Michigan (1), Ohio (3), and Texas (1). TruGreen-ChemLawn also
leases 199 facilities used as branch sites.
TruGreen LandCare owns four facilities in Texas which are used as branch
locations. It leases 185 facilities for branch operations.
Terminix owns 21 buildings which are used as branch sites for termite
and pest control services. These properties are all one-story buildings that
contain both office and storage space. These properties are located in
California (3), Florida (9), Georgia (1), New Jersey (2), Tennessee (1), and
Texas (5). Terminix also leases 232 facilities in 39 states for branch
operations.
American Home Shield leases office space in Santa Rosa and San Ramos,
California, for sales and service operations. Certain of American Home Shield's
service and data processing departments are located in premises owned by the
company in Carroll, Iowa.
This facility consists of a 43,000 square foot building on a seven-acre site.
Out of the 110 acres of land in Santa Rosa, California, which American
Home Shield owned at the time of its acquisition by ServiceMaster in 1989, the
company owned 16.6 acres on March 17, 2000. This remaining land is divided into
two lots, both of which are under contract to close via escrow in February 2001.
Rescue Rooter owns four buildings and leases 23 facilities which are
used for branch operations to provide plumbing and drain cleaning services, and
heating, ventilating and air conditioning services. The owned facilities are
located in four states, and leased facilities are located in ten states.
American Residential Services owns eight buildings and leases 74
facilities, all of which are used for branch operations to provide electrical,
plumbing, heating, ventilating, and air conditioning services. The owned
facilities are located in seven states, and the leased facilities are located in
16 states.
The headquarters for Diversified Health Services are located in a
leased facility at 3839 Forest Hill-Irene Road, Memphis, Tennessee. DHS leases
other administrative facilities in Pennsylvania and Tennessee. As of March 1,
2000, DHS has an ownership interest in three nursing home facilities, leases one
nursing home facility, and leases five assisted living facilities. These
facilities are located in Alabama, Connecticut, Florida, Michigan, Tennessee,
and Texas.
The headquarters for ServiceMaster Employer Services ("SES") and
Certified Systems, Inc., the principal subsidiary of SES, are located at 3218
Highway 67, Mesquite, Texas. SES leases other administrative facilities in
Little Rock, Arkansas, and Memphis, Tennessee.
Item 3. Legal Proceedings
In the ordinary course of conducting its business activities,
ServiceMaster becomes involved in judicial and administrative proceedings which
involve both private parties and governmental authorities. As of March 17, 2000,
these proceedings included a number of general liability actions and a very
small number of environmental proceedings.
Ray D. Martin v. ServiceMaster. In June 1996, Ray D. Martin, a former
salesman employed by ServiceMaster's Management Services unit, filed a lawsuit
in the State Court of Fulton County, Georgia (Civ. Action File No. 96VS114677J),
which as originally filed contended that the company had not paid him the full
amount of commission due him on a sale in which he was involved. In the course
of the pre-trial proceedings, the trial court entered a default judgment against
the company (thereby leaving under the court's orders only the question of
damages to be considered at the trial). On September 13, 1999, the jury awarded
the plaintiff compensatory damages of approximately $1 million and on September
14, 1999, a jury awarded the plaintiff punitive damages and fees of $135
million. On September 29, 1999, the trial court entered final judgment for the
plaintiff on the basis of these verdicts in a total amount of $136,259,417.79.
Under Georgia law, that judgment will accrue post-judgment interest at a
statutory rate of 12% per annum, except for the portion of the judgment
($77,189) that represents pre-judgment interest. On October 14, 1999, the
company filed a motion for judgment
10
notwithstanding the verdict or, in the alternative, for a new trial and/or
remittitur and a hearing on this motion was held on March 9, 2000. The trial
court presently has the matter under advisement. ServiceMaster believes that the
award of $135 million in punitive damages is not supportable by the facts of the
case or by applicable state law and that the judgment will be reversed or
substantially reduced by the trial court or, if necessary, by an appellate
court.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
11
PART II
Item 5. Market for Registrant's Shares and Related Shareholder Matters
Except for the information set forth in the second and third sentences
of this Item 5, the portions of the ServiceMaster Annual Report to Shareholders
for 1999 under the captions "Statements of Shareholders' Equity" (page 37) and
"Cash Dividends Per Share" and "Price Per Share" in the Quarterly Operating
Results table (page 46) supply the information required by this item and such
portions are hereby incorporated herein by reference. The Registrant's shares of
common stock are listed and traded on the New York Stock Exchange under the
symbol "SVM". At March 15, 2000, the Registrant's shares of common stock were
held of record by approximately 41,000 persons. The Company estimates that
another 53,000 persons held shares of the Registrant's common stock in the names
of nominees.
Item 6. Selected Financial Data
The portion of the ServiceMaster Annual Report to Shareholders for 1999
in the Financial Statements and Management Discussion section ("FSMD Section")
under the caption "Eleven Year Financial Summary" (pages 30-31) supplies the
information required by this item and such portion is hereby incorporated herein
by reference.
Item 7. Management Discussion and Analysis of Financial Condition and Results
of Operations
Management Discussion and Analysis of Financial Condition and Results
of Operations for the three years ended December 31, 1999, is contained in the
FSMD Section of the ServiceMaster Annual Report to Shareholders for 1999 on
pages 25-29 and is hereby incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated statements of financial position of ServiceMaster as
of December 31, 1999 and 1998, and the consolidated statements of income, cash
flows and shareholders' equity for the years ended December 31, 1999, 1998, and
1997 and notes to the consolidated financial statements are contained in the
FSMD Section of the ServiceMaster Annual Report to Shareholders for 1999 on
pages 32-46 are incorporated herein by reference. The report of Arthur Andersen
LLP thereon dated January 24, 2000, and the summary of significant accounting
policies are contained in the FSMD Section of the ServiceMaster Annual Report to
Shareholders for 1999 on page 33 and are hereby incorporated herein by
reference.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
12
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The information contained under the heading "Election of Directors" in
the definitive proxy statement for the Company's April 28, 2000 Annual Meeting
of the Shareholders is incorporated herein by reference.
Senior Management Advisers
The Bylaws of the Company provide that the Board of Directors may
appoint officers of the Company or a subsidiary and other persons having a
special relationship to ServiceMaster to serve as Senior Management Advisers.
Senior Management Advisers attend the meetings of the Board and advise the Board
but do not have the power to vote. The Board has determined that providing a
greater number of officers the opportunity to advise and interact with the Board
is in the best interest of ServiceMaster as well as the individual officers. The
Senior Management Advisers receive no special compensation for their services in
this capacity.
The Board of Directors has appointed the persons listed below as Senior
Management Advisers effective as of the 1999 annual meeting of the Board of
Directors to serve in such capacity until the annual meeting of the Board of
Directors in 2000 or until otherwise determined by the Board of Directors.
Robert D. Erickson, age 56, is an Executive Vice President. Mr.
Erickson was a director of ServiceMaster from May 1987 to May 1993. He
previously served as a director of ServiceMaster from May 1981 to June 1984. He
served as the President and Chief Operating Officer of ServiceMaster's
International business unit from October 1993 to December 1997.
Donald K. Karnes, age 49, is Group President of ServiceMaster Consumer
and Commercial Services. He served as President and Chief Operating Officer of
TruGreen ChemLawn from January 1992 to December 1995.
Robert F. Keith, age 43, is Group President of ServiceMaster Management
Services. He served as President and Chief Operating Officer, ServiceMaster
Management Services from January 1, 1997 to October 2, 1998, and President and
Chief Operating Officer, ServiceMaster Consumer Services from July 1994 to
December 31, 1996.
Ernest J. Mrozek, age 46, is Group President of ServiceMaster Consumer
and Commercial Services. He served as President and Chief Operating Officer,
ServiceMaster Consumer Services from January 1, 1997 to October 2, 1998, and
Senior Vice President and Chief Financial Officer of the Registrant from January
1, 1995 to December 31, 1996
Steven C. Preston, age 39, has served as Executive Vice President and
Chief Financial Officer since July 1, 1998. He served as Senior Vice President
and Chief Financial Officer from April 1, 1997 to June 30, 1998. From August
1993 to March 7, 1997, he was Senior Vice President and Corporate Treasurer for
First Data Corporation, Atlanta, GA.
David M. Slott, age 41, is President and Chief Operating Officer of
TruGreen Limited Partnership. He served as Executive Vice President and Chief
Operating Officer of TruGreen Limited Partnership from May 1, 1994 to December
31, 1995.
Richard W. Williams, age 50, is President of Education Management
Services. He served as Executive Vice President of Education Management Services
from January 1, 1994 to April 1, 1996.
13
The following table shows: (i) the names and ages (as of March 1, 2000)
of the present executive officers of the Registrant; (ii) all positions
presently held by each officer; and (iii) the year each person became an
officer. Each person named has served as an officer of the Registrant and its
predecessor company continuously since the year shown. There are no arrangements
or understandings between any executive officer and any other person pursuant to
which the officer was or is to be selected as an officer.
First Became
Name Age Present Position An Officer
- ------------------ --- ------------------------------------------------------------ ------------
C. William Pollard 61 Chairman, Chief Executive Officer and Director 1977
Carlos H. Cantu 66 Senior Chairman and Director 1986
Robert D. Erickson 56 Executive Vice President and a Senior Management Adviser 1976
Donald K. Karnes 49 Group President, Consumer and Commercial Services, and a
Senior Management Adviser 1992
Ernest J. Mrozek 46 Group President, Consumer and Commercial Services, and a
Senior Management Adviser 1987
Robert F. Keith 43 Group President, Management Services, and 1986
a Senior Management Adviser
Phillip B. Rooney 55 President, Business Services Group, and Director 1997
Vernon T. Squires 65 Senior Vice President and General Counsel 1987
Steven C. Preston 39 Executive Vice President and Chief Financial Officer, and
a Senior Management Adviser 1997
Eric R. Zarnikow 40 Senior Vice President and Treasurer 1994
Deborah A. O'Connor 37 Senior Vice President and Controller 1993
Messrs. Pollard and Cantu are also Directors of the Company. See "Election
of Directors" in the definitive proxy statement for the Company's 2000 Annual
Meeting of the Shareholders for biographical information with respect to these
persons. Messrs. Erickson, Karnes, Mrozek, Keith, and Preston are Senior
Management Advisers. See page 13 for biographical information with respect to
these persons.
Phillip B. Rooney, age 55, is also a Director of the Company. He
presently serves as President, Business Services Group. From May 1996 to
February 1997 he was President and Chief Executive Officer of Waste Management,
Inc., Oakbrook, Illinois ("WMI") and from November 1984 to May 1996 he was
President and Chief Operating Officer of WMI. Mr. Rooney is a director of Van
Kampen American Capital, Oak Brook, Illinois, an investment management company;
Stone Container Corporation, Chicago, Illinois, a paper manufacturing company;
Illinois Tool Works, Inc., Glenview, Illinois, a diversified manufacturing
company; and Urban Shopping Centers, Inc., Chicago, Illinois, a retail real
estate management company.
Vernon T. Squires, age 65, has served as Senior Vice President and
General Counsel since January 1, 1988. He served as Vice President and General
Counsel from April 1, 1987 until December 31, 1987. He was an associate and
partner with the law firm of Wilson & McIlvaine in Chicago, specializing in
corporate and tax law, from 1960 to April 1, 1987.
14
Eric R. Zarnikow, age 40, has served as Senior Vice President and
Treasurer since December 10, 1999. He served as Vice President and Treasurer
from May 1, 1994 until December 9, 1999.
Deborah A. O'Connor, age 37, has served as Senior Vice President and
Controller since December 10, 1999. She served as Vice President and Controller
from January 1, 1993 until December 9, 1999.
Compliance With Section 16(a) of The Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
ServiceMaster's shares, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the "Commission") and the New York
Stock Exchange. The Commission's regulations require certain officers, directors
and greater-than-ten-percent shareholders to furnish to the Company copies of
all Section 16(a) forms that they file. During 1999, the Company received
Section 16(a) forms from such officers and directors. As of January 1, 2000, the
Company did not have any shareholders with an interest greater than ten percent.
Based solely on a review of the copies of Section 16(a) forms received
by the Company or on written representations from certain reporting persons that
no Form 5 was required for those persons, the Company believes that during 1999
the officers and directors of the Company complied with applicable filing
requirements.
Item 11. Executive Compensation
The information contained under the heading "Executive Compensation"
(except those portions relating to Item 13 below) in the definitive proxy
statement for the Company's April 28, 2000 Annual Meeting of Shareholders is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Principal Shareholders"
and "Management Ownership" in the definitive proxy statement for the Company's
April 28, 2000 Annual Meeting of the Shareholders is incorporated herein by
reference.
Item 13. Certain Relationships and Related Miscellaneous Transactions
The information contained under the heading "Executive Compensation"
(except those portions relating to Item 11 above) and the subheadings
"Compensation of Directors" and "Ownership Information" in the definitive proxy
statement for the Company's April 28, 2000 Annual Meeting of the Shareholders is
incorporated herein by reference.
15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements, Schedules and Exhibits
1. Financial Statements
The documents shown below are contained in the Financial
Statements and Management Discussion and Analysis section of
the ServiceMaster Annual Report to Shareholders for 1999, on
pages 32-46 and are incorporated herein by reference:
Summary of Significant Accounting Policies
Report of Independent Public Accountants
Consolidated Statements of Income for the three years
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Financial Position as of
December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the three
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for
the three years ended December 31,1999, 1998 and 1997
Notes to the Consolidated Financial Statements
2. Financial Statements Schedules
Schedule IV--Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees other than Related
Parties:
None
Included in Part IV of this Report:
Schedule VIII--Valuation and Qualifying Accounts
Report of Independent Public Accountants on Schedules
Exhibit 11 -- Exhibit Regarding Detail of Income Per
Share Computation
Exhibit 23 -- Consent of Independent Public
Accountants
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
16
3. Exhibits
The exhibits filed with this report are listed on pages 24-27
herein (the "Exhibits Index").
The following entries in the Exhibits Index are management
contracts or compensatory plans in which a director or any of
the named executive officers of the Registrant does or may
participate. Reference is made to the Exhibits Index for the
filing with the Commission which contains such contract or
plan.
Exhibit Contract or Plan
------- ----------------
10.2 Deferred Directors Fee Agreement
10.3 Incentive Reward Compensation Plan
10.4 ServiceMaster Profit Sharing and Retirement Plan as amended and
restated effective October 1, 1999
10.5 Senior Executive Ownership Election Plan
10.6 ServiceMaster 10-Plus Plan. See also Item 10.11 *
10.8 Directors Deferred Fees Plan (ServiceMaster Shares Alternative)
10.11 ServiceMaster 10-Plus Plan as amended September 3, 1991 *
10.13 ServiceMaster 1994 Non-Employee Directors Share Option Plan**
10.15 ServiceMaster 1997 Share Option Plan *
10.17 ServiceMaster 1998 Equity Incentive Plan
10.20 ServiceMaster 1998 Non-Employee Directors Discounted Stock Option Plan
10.21 ServiceMaster 1998 Long-Term Performance Award Plan
---------
* Superseded by Item 10.17
** Superseded by Item 10.20
17
(b) Reports on Form 8-K filed during the last quarter of 1999
None
Certain Undertakings With Respect To Registration Statements on Form S-8
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933,
the Registrant hereby undertakes as follows which undertaking shall be
incorporated by reference into each of the Registrant's Registration Statements
on Form S-8, including No. 333-89037:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person
of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
18
SCHEDULE VIII
THE SERVICEMASTER COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions Deductions
--------- ----------
Balance at Charged to Write-offs of Balance at
Beginning of Costs and Uncollectible end of
Description Period Expenses Accounts Period
----------- ------------------ ------------- ------------------ -------------
AS OF DECEMBER 31, 1999:
Allowance for doubtful accounts --
Accounts receivable (current) $34,153 28,797 25,747 $37,203
------------------ ------------- ------------------ -------------
Notes receivable (current) $4,835 688 3,715 $1,808
------------------ ------------- ------------------ -------------
AS OF DECEMBER 31, 1998:
Allowance for doubtful accounts--
Accounts receivable (current) $27,544 25,998 19,389 $34,153
------------------ ------------- ------------------ -------------
Notes receivable (current) $ 4,677 686 528 $ 4,835
------------------ ------------- ------------------ -------------
AS OF DECEMBER 31, 1997:
Allowance for doubtful accounts--
Accounts receivable (current) $24,117 20,183 16,756 $27,544
------------------ ------------- ------------------ -------------
Notes receivable (current) $ 2,170 2,507 0 $ 4,677
------------------ ------------- ------------------ -------------
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of The ServiceMaster Company:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in The ServiceMaster Company's annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 24, 2000. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedules included
in Part IV in the Form 10-K are the responsibility of the Company's management
and are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
supporting schedules have been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 24, 2000
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE SERVICEMASTER COMPANY
Registrant
Date: March 17, 2000 By /s/ C. WILLIAM POLLARD
C. William Pollard
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in their capacities and on the date indicated.
Signature Title Date
- -------------------------- -------------------------------------- ---------------
/s/ C. WILLIAM POLLARD Chairman, Chief Executive Officer March 17, 2000
C. William Pollard and Director
/s/ CARLOS H. CANTU Senior Chairman and Director March 17, 2000
Carlos H. Cantu
/s/ STEVEN C. PRESTON Executive Vice President and March 17, 2000
Steven C. Preston Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ PAUL W. BEREZNY, JR. Director March 17, 2000
Paul W. Berezny, Jr.
/s/ BRIAN GRIFFITHS Director March 17, 2000
Brian Griffiths
/s/ SIDNEY E. HARRIS Director March 17, 2000
Sidney E. Harris
21
/s/ GLENDA A. HATCHETT Director March 17, 2000
Glenda A. Hatchett
/s/ HERBERT P. HESS Director March 17, 2000
Herbert P. Hess
/s/ MICHELE M. HUNT Director March 17, 2000
Michele M. Hunt
/s/ GUNTHER H. KNOEDLER Director March 17, 2000
Gunther H. Knoedler
/s/ JAMES D. McLENNAN Director March 17, 2000
James D. McLennan
/s/ VINCENT C. NELSON Director March 17, 2000
Vincent C. Nelson
/s/ DALLEN W. PETERSON Director March 17, 2000
Dallen W. Peterson
/s/ PHILLIP B. ROONEY Director March 17, 2000
Phillip B. Rooney
/s/ STEVEN S REINEMUND Director March 17, 2000
Steven S Reinemund
/s/ BURTON E. SORENSEN Director March 17, 2000
Burton E. Sorensen
22
/s/ CHARLES W. STAIR Director March 17, 2000
Charles W. Stair
/s/ DAVID K. WESSNER Director March 17, 2000
David K. Wessner
23
Exhibit
No. Description of Exhibit
- ------- -------------------------------------------------------------------
2.1 Merger and Reorganization Agreement as amended and restated on
October 3, 1997 is incorporated by reference to Exhibit 5 to the
Current Report on Form 8-K as filed by ServiceMaster Limited
Partnership on December 29, 1997 (the "SMLP December 29, 1997 8-K")
and to Exhibit 5 to the Current Report on Form 8-K as filed by The
ServiceMaster Company on Form 8-K on February 26, 1998 - second of
three 8-K reports filed on that date (the "Company February 26,
1998 8-K, No. 2").
2.2 Certificate of Merger of NewSub B, Inc. into ServiceMaster Limited
Partnership in accordance with Section 17-211 of the Delaware
Revised Uniform Limited Partnership Act (the "Reincorporating
Merger"), the filing of which was certified by the Secretary of
State of the State of Delaware on December 17, 1997 and the
effective date and time of which was December 26, 1997 at 11:59
P.M., Eastern Standard Time, is on file with the Secretary of State
of the State of Delaware.
2.3 Certificate of Merger of ServiceMaster Limited Partnership and The
ServiceMaster Company Limited Partnership with and into The
ServiceMaster Company, a Delaware corporation, in accordance with
the General Corporation Law of the State of Delaware, the filing of
which was certified by the Secretary of State of the State of
Delaware on December 18, 1997 and the effective date and time of
which was January 1, 1998 at 12:01 A.M., Eastern Standard Time, is
on file with the Secretary of State of the State of Delaware.
2.4 The Plan of Reorganization and Agreement and Plan of Merger dated
as of November 1, 1998 by and among LandCare USA, Inc., The
ServiceMaster Company and SVM Acquisition Corporation is
incorporated by reference to Appendix A to the Proxy
Statement/Prospectus included as part of the Registration Statement
on Form S-4 as filed by The ServiceMaster Company on February 10,
1999 (SEC Registration No. 333-70191).
2.5 Agreement and Plan of Merger dated as of March 22, 1999 by and
among American Residential Services, Inc., The ServiceMaster
Company and SVM M9 Acquisition Corporation is incorporated by
reference to Exhibit C(1) to the Schedule 14D-1 to the Tender Offer
Statement as filed by The ServiceMaster Company on March 29, 1999.
2.6 Amended and Restated Certificate of Incorporation of The ServiceMaster
Company, a Delaware corporation, as filed with the Secretary of State,
State of Delaware, on November 6, 1997 is incorporated by reference to
Exhibit 1 to the SMLP December 29, 1997 8-K and to Exhibit 1 to the Company
February 26, 1998 8-K, No. 2.
2.7 Bylaws of The ServiceMaster Company as adopted on November 3, 1997 are
incorporated by reference to Exhibit 2 to the SMLP December 29, 1997 8-K
and to Exhibit 2 to the Company February 26, 1998 8-K, No. 2.
4.1 Shareholder Rights Agreement between The ServiceMaster Company and the
Harris Trust and Savings Bank as adopted on December 12,1997 is
incorporated by reference to Exhibit 3 to the SMLP December 29, 1997 8-K
and to Exhibit 3 to the Company February 26, 1998 8-K, No. 2.
4.2 The ServiceMaster Company: Certificate of Designation, Preferences and
Rights of Junior Participating Preferred Stock, Series A, is incorporated
by reference to Exhibit 4 to the SMLP December 29, 1997 8-K and to Exhibit
4 to the Company February 26, 1998 8-K, No. 2.
4.3 Indenture dated as of August 15, 1997 among The ServiceMaster
Company (as successor to ServiceMaster Limited Partnership and The
ServiceMaster Company Limited Partnership) and the Harris Trust and
Savings Bank as trustee is incorporated by reference to Exhibit 4.1
to the ServiceMaster Limited Partnership, The ServiceMaster Company
Limited Partnership, and ServiceMaster Incorporated of Delaware
Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on July 28, 1997 (the "July 28, 1997
Registration Statement").
24
4.4 First Supplemental Indenture dated as of August 15, 1997 among The
ServiceMaster Company (as successor to ServiceMaster Limited
Partnership and The ServiceMaster Company Limited Partnership) and
the Harris Trust and Savings Bank as trustee is incorporated by
reference to Exhibit 4.4 to the Annual Report on Form 10-K for the
year ended December 31, 1997 as filed by The ServiceMaster Company
(the "1997 10-K").
4.5 Second Supplemental Indenture dated as of January 1, 1998 among The
ServiceMaster Company (as successor to ServiceMaster Limited Partnership
and The ServiceMaster Company Limited Partnership) and the Harris Trust and
Savings Bank as trustee is incorporated by reference to Exhibit 2 to the
Current Report on Form 8-K as filed by The ServiceMaster Company on Form
8-K on February 26, 1998 - first of three 8-K reports filed on that date.
4.6 Third Supplemental Indenture dated as of March 2, 1998 among The
ServiceMaster Company and the Harris Trust and Savings Bank as trustee is
incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K
as filed by The ServiceMaster Company on February 27, 1998 (the "Company
February 27, 1998 8-K").
4.7 Fourth Supplemental Indenture dated as of August 10, 1999 by and between
The ServiceMaster Company and the Harris Trust and Savings Bank as trustee
is incorporated by reference to Exhibit 3 to the Current Report on Form 8-K
as filed by The ServiceMaster Company on August 16, 1999 (the "Company
August 16, 1999 8-K").
4.8 Indenture dated as of November 18, 1999 between The ServiceMaster
Company and the Harris Trust and Savings Bank as trustee, including
the form of note annexed thereto as Exhibit 1, is incorporated by
reference to Exhibit 4.16 to The ServiceMaster Company Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on November 19, 1999 (SEC File Number 333-91381) (the
"November 19, 1999 Registration Statement").
4.9 Form of 6.95% Note due August 14, 2007 is incorporated by reference to
Exhibit 4.2 to the July 28, 1997 Registration Statement.
4.10 Form of 7.45% Note due August 14, 2027 is incorporated by reference to
Exhibit 4.2 to the July 28, 1997 Registration Statement.
4.11 Form of 7.10% Note due March 1, 2018 is incorporated by reference to
Exhibit 4.1 to the Company February 27, 1998 8-K.
4.12 Form of 7.25% Note due March 1, 2038 is incorporated by reference to
Exhibit 4.2 to the Company February 27, 1998 8-K.
4.13 Form of 7.875% Note due August 15, 2009 is incorporated by reference to
Exhibit 4 to the Company August 16, 1999 8-K.
4.14 Form of 7.875% Note due August 15, 2009 is incorporated by reference to
Exhibit 5 to the Company August 16, 1999 8-K.
10.1 $750,000,000 Credit Agreement among The ServiceMaster Company
Limited Partnership, the First National Bank of Chicago and Morgan
Guaranty Trust Company dated as of April 1, 1997, is incorporated
by reference to Exhibit 10.2 to the 1997 10-K.
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10.2 Form of Deferred Directors Fee Agreement as assumed by The
ServiceMaster Company in the Reincorporating Merger is incorporated
by reference to Exhibit 10(c)(4) to the Annual Report on Form 10-K
for the year ended December 31, 1980 as filed by ServiceMaster
Limited Partnership (the "1980 10-K").
10.3 Incentive Reward Compensation Plan as assumed by The ServiceMaster
Company in the Reincorporating Merger is incorporated by reference
to Exhibit 10(c)(6) to the 1980 10-K.
10.4 ServiceMaster Profit Sharing and Retirement Plan as amended and
restated as of October 1,1999 is incorporated by reference to
Exhibit 99.1 to The ServiceMaster Company Registration Statement on
Form S-8 (No. 333-89037) filed with the SEC on October 14, 1999.
10.5 Senior Executive Ownership Election Plan as approved by the Board of
Directors on December 10, 1999.
10.6 ServiceMaster 10-Plus Plan as assumed by The ServiceMaster Company
in the Reincorporating Merger is incorporated by reference to
Exhibit 4.2 to the ServiceMaster Limited Partnership Registration
Statement on Form S-8 (No. 33-39148) filed with the SEC on February
26, 1991 (the "10-Plus Registration Statement").
10.7 Form of Option Agreement for the ServiceMaster 10-Plus Plan is incorporated
by reference to Exhibit 4.3 to the 10-Plus Registration Statement.
10.8 Form of Directors Deferred Fees Plan (ServiceMaster Shares
Alternative) as assumed by The ServiceMaster Company in the
Reincorporating Merger is incorporated by reference to Exhibit
10.18 to the Annual Report on Form 10-K for the year ended December
31, 1990 (the "1990 10-K").
10.9 Form of Directors Deferred Fees Agreement (ServiceMaster Shares
Alternative) as assumed by The ServiceMaster Company in the
Reincorporating Merger is incorporated by reference to Exhibit
10.19 of the 1990 10-K.
10.10Form of ServiceMaster Deferred Fees Plan Trust is incorporated by
reference to Exhibit 10.20 of the 1990 10-K.
10.11 ServiceMaster 10-Plus Plan as amended September 3, 1991 and as
assumed by The ServiceMaster Company in the Reincorporating Merger
is incorporated by reference to Exhibit 10.21 to the Annual Report
on Form 10-K for the year ended December 31, 1991 (the "1991
10-K").
10.12Form of Option Agreement for the ServiceMaster 10-Plus Plan as amended
September 3, 1991 is incorporated by reference to Exhibit 10.22 to the 1991
10-K.
10.13 ServiceMaster 1994 Non-Employee Directors Share Option Plan as
assumed by The ServiceMaster Company in the Reincorporating Merger
is incorporated by reference to Exhibit to the ServiceMaster
Limited Partnership Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on October 5, 1994 (the
"Directors Share Plan Registration Statement").
10.14 Form of Option Agreement for the ServiceMaster 1994 Non-Employee
Director Share Option Plan is incorporated by reference to Exhibit
4.3 to the Directors Share Plan Registration Statement.
10.15 ServiceMaster 1997 Share Option Plan as assumed by The
ServiceMaster Company in the Reincorporating Merger is incorporated
by reference to Exhibit 10.28 to the Annual Report on Form 10-K for
the year ended December 31,1996 as filed by ServiceMaster Limited
Partnership (the "1996 10-K").
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10.16Form of Option Agreement for the ServiceMaster 1997 Share Option Plan is
incorporated by reference to Exhibit 10.29 to the 1996 10-K.
10.17ServiceMaster 1998 Equity Incentive Plan as adopted on December 17, 1997
and approved by the shareholders on May 1, 1998 is incorporated by
reference to Exhibit 10.15 to the 1997 10-K.
10.18 Form of Option Agreement for the ServiceMaster 1998 Equity
Incentive Plan (Non-Qualifying Stock Options) is incorporated by
reference to Exhibit 10.20 to the 1997 10-K.
10.19Form of Option Agreement for the ServiceMaster 1998 Equity Incentive Plan
(Incentive Stock Options) is incorporated by reference to Exhibit 10.21 to
the 1997 10-K.
10.20ServiceMaster 1998 Non-Employee Directors Discounted Stock Option Plan is
incorporated by reference to Exhibit 10.21 to the 1997 10-K.
10.21ServiceMaster 1998 Long-Term Performance Award Plan is incorporated by
reference to Exhibit 10.22 to the 1997 10-K.
11 Exhibit regarding detail of income per share computation for each
of the three years ended December 31, 1999, 1998 and 1997 is
incorporated by reference to the footnote on page 45 of the 1999
Annual Report (defined in Exhibit 13).
13 The ServiceMaster Annual Report to Shareholders for the year ended
December 31, 1999 (the "1999 Annual Report"). The parts of the 1999
Annual Report which are expressly incorporated into this report by
reference shall be deemed filed with this report. All other parts
of the 1999 Annual Report are furnished for the information of the
Commission and are not filed with this report.
21 Subsidiaries of Registrant
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule (EDGAR filing only)
99.1 Amended and Restated Agreement of Limited Partnership for
ServiceMaster Consumer Services Limited Partnership dated November
8, 1990 is incorporated by reference to Exhibit 4.4 to the Current
Report on Form 8-K as filed by ServiceMaster Limited Partnership on
November 21, 1990.
99.2 Amended and Restated Agreement of Limited Partnership of
ServiceMaster Management Services Limited Partnership dated
December 1991 is incorporated by reference to Exhibit 28.10 to the
1991 10-K.
99.3 Amended and Restated Agreement of Limited Partnership of
ServiceMaster Consumer Services Limited Partnership effective June
30, 1992 is incorporated by reference to Exhibit 28.12 to the
Annual Report on Form 10-K for the year ended December 31, 1992 as
filed by ServiceMaster Limited Partnership.
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