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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, 2000.
Commission File number 1-14762.
THE SERVICEMASTER COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-3858106
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One ServiceMaster Way, Downers Grove, Illinois 60515-1700
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(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
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Common Stock New York Stock Exchange
Preferred Stock Purchase Rights 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 __X__ No______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ((ss.) 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of shares of common stock held by
non-affiliates of the Registrant as of March 7, 2001 was $2,998,872,297. The
number of shares outstanding of the Registrant's common stock as of March 7,
2001 was 298,833,100.
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the Registrant's Annual Report to Shareholders for the
year ended December 31, 2000 are incorporated into Part I, Part II and Part IV
of this Form 10-K.
Certain parts of the Registrant's Proxy Statement for the 2001 Annual
Meeting of Shareholders are incorporated into Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
1. Business................................................................................... 1
2. Properties................................................................................. 10
3. Legal Proceedings.......................................................................... 11
4. Submission of Matters to a Vote of Security Holders........................................ 12
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 13
6. Selected Financial Data.................................................................... 13
7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 13
7A. Quantitative and Qualitative Disclosures About Market Risk................................ 13
8. Financial Statements and Supplementary Data................................................ 13
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 14
PART III
10. Directors and Executive Officers of the Registrant......................................... 15
11. Executive Compensation..................................................................... 17
12. Security Ownership of Certain Beneficial Owners and Management............................. 17
13. Certain Relationships and Related Transactions............................................. 17
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 18
Signatures...................................................................................... 22
Exhibit Index................................................................................... 24
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PART I
Item 1. Business
This Annual Report on Form 10-K is filed by The ServiceMaster Company,
a Delaware corporation ("ServiceMaster"). The ServiceMaster Company is the
successor to ServiceMaster Limited Partnership, a Delaware limited partnership.
On December 26, 1997, by means of a statutory merger, The ServiceMaster Company
succeeded to ServiceMaster Limited Partnership as the publicly traded parent
entity in the ServiceMaster enterprise.
Forward-Looking Statements
This Annual Report contains or incorporates by reference certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. ServiceMaster intends that such forward-looking
statements be subject to the safe harbors created by such legislation.
ServiceMaster notes that statements that look forward in time, which include
everything other than historical information, involve risks and uncertainties
that affect ServiceMaster's results of operations. Factors which could cause
actual results to differ materially from those expressed or implied in a
forward-looking statement include the following (among others): weather
conditions adverse to certain of ServiceMaster's businesses; the entry of
additional competitors in any of the markets served by ServiceMaster; labor
shortages; consolidation of hospitals in the healthcare market; the cost and
length of time to integrate acquired businesses; unexpected changes in operating
costs; the condition of the U.S. economy; and other factors discussed from time
to time in ServiceMaster's filings with the Securities and Exchange Commission.
Principal Business Groups
ServiceMaster is a holding company whose shares of common stock are
traded on the New York Stock Exchange. Through its subsidiaries, ServiceMaster
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.
ServiceMaster is organized into four principal operating groups. Three
groups--the TruGreen Group, the Terminix Group, and the Home Maintenance and
Improvement Group--are headquartered in Memphis, Tennessee. The fourth
group--ServiceMaster Management Services Group--has operating divisions
headquartered in Downers Grove, Illinois. All subsidiaries of ServiceMaster are
wholly owned, except for (1) WeServeHomes.com, Inc., in which Kleiner, Perkins,
Caufield & Byers has an 18.0% equity interest and senior managers of the
ServiceMaster enterprise have a 0.9% equity interest, (2) TruGreen Holding
L.L.C. and American Residential Services L.L.C., in each of which senior
management for those subsidiaries have purchased nominal equity interests which
are subject to certain put and call rights, and (3) The Terminix International
Company L.P., in which Allied Bruce-Terminix Companies, Inc. is a Class B
limited partner. Financial information for each operating group for 1998, 1999,
and 2000 is contained in the Notes to the Consolidated Financial Statements of
our Annual Report to Shareholders for 2000 and is incorporated by reference.
The services provided by the TruGreen, Terminix, and Home Maintenance
and Improvement Groups comprise the ServiceMaster "Quality Service Network" and
are accessed via a single toll-free telephone number (1-800-WE SERVE) or the
internet at www.WeServeHomes.com. ServiceMaster focuses on establishing
relationships to provide one or more services on a repetitive basis to
customers. Since 1986, the number of customers served by the Quality Service
Network has increased from fewer than one million domestic customers to more
than 12 million worldwide customers.
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TruGreen Group
We provide lawn care, tree and shrub services through TruGreen Limited
Partnership ("TruGreen ChemLawn") under the "TruGreen", "ChemLawn" and
"Barefoot" service marks, among others. We provide landscaping and tree services
through TruGreen LandCare L.L.C. under the "TruGreen" and "LandCare" service
marks, among others. Customers include both homeowners and commercial
facilities. Revenues derived from the TruGreen Group constituted 19%, 24%, and
26% in 1998, 1999, and 2000 of the operating revenue of the consolidated
ServiceMaster enterprise. The TruGreen ChemLawn and TruGreen LandCare business
is seasonal in nature.
TruGreen ChemLawn. As of December 31, 2000, TruGreen ChemLawn had 211
company-owned branches and 71 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 LandCare. On March 18, 1999, ServiceMaster completed the
acquisition of LandCare USA, Inc., a leading provider of commercial landscaping
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 and tree
services. As of December 31, 2000, TruGreen LandCare had 140 company-owned
branches with approximately 18,000 customers. TruGreen Landcare has no
international operations.
On January 1, 2001, members of senior management of the TruGreen Group
purchased an equity interest in TruGreen Holding L.L.C., the holding company of
both TruGreen ChemLawn and TruGreen LandCare. The capital structure of TruGreen
Holding consists of 90% intercompany debt and 10% equity. Senior management of
TruGreen ChemLawn and TruGreen LandCare purchased just under 5.0% of the equity
interest, representing just under 0.5% of the total investment in TruGreen
Holding. Such interest is subject to reciprocal put and call rights which will
become exercisable on January 1, 2006 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 ServiceMaster.
Terminix Group
We provide termite and pest control services through The Terminix
International Company L.P. under the "Terminix" service mark, among others.
Customers include both homeowners and commercial facilities. Revenues derived
from the Terminix Group constituted 13%, 12%, and 12% in 1998, 1999, and 2000 of
the operating revenue of the consolidated ServiceMaster enterprise. The Terminix
business is seasonal in nature.
With over 2.6 million domestic residential and commercial customers,
Terminix, through its company-owned branches and franchisees, is the leading
provider of termite and pest control services in the United States. As of
December 31, 2000, Terminix was providing these services in 45 states through
255 company-owned branches and 209 franchised branches. Terminix provides
termite and pest control services through licensing arrangements with local
service providers in 29 countries and through subsidiaries in 9 countries.
Effective January 1, 2001, Terminix acquired substantially all of the
assets and certain liabilities of the termite and pest control business of
Allied Bruce-Terminix Companies, Inc., the largest franchisee of Terminix. As
part of the acquisition, Allied Bruce became a Class B limited partner of
Terminix, entitling Allied Bruce to quarterly cash distributions. The Class B
partnership interest belonging to Allied Bruce is subject to reciprocal put and
call rights under which the Class B partnership interest is exchangeable for
shares of ServiceMaster common stock. The put right is exercisable immediately;
the call right will become exercisable on January 1, 2006.
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Home Maintenance and Improvement Group
We provide other specialty services to homeowners and commercial
facilities principally through six companies: American Residential Services
L.L.C.; American Home Shield Corporation; ServiceMaster Residential/Commercial
Services L.P. ("ServiceMaster Clean"); Merry Maids L.P.; AmeriSpec, Inc.; and
Furniture Medic L.P. The services provided by these companies include:
electrical, plumbing, heating, ventilation and air conditioning services under
the "ARS" and "AMS" service marks, among others; plumbing and drain cleaning
services under the "Rescue Rooter" service mark, among others; warranty
contracts for home systems and appliances under the "American Home Shield"
service mark, among others; residential and commercial cleaning and disaster
restoration services under the "ServiceMaster" and "ServiceMaster Clean" service
marks, among others; domestic housekeeping services under the "Merry Maids"
service mark, among others; home inspection services under the "AmeriSpec"
service mark, among others; and on-site furniture repair and restoration under
the "Furniture Medic" and "Rx" service marks, among others. Revenues derived
from the Home Maintenance and Improvement Group constituted 9%, 16%, and 20% in
1998, 1999, and 2000 of the operating revenue of the consolidated ServiceMaster
enterprise.
American Residential Services. American Residential Services, a leading
provider of electrical, plumbing, heating, ventilation and air conditioning
services, was acquired by ServiceMaster in April 1999. American Residential
Services performed services for approximately 1.6 million customers in 2000 in
26 states through 97 company-owned branches. American Residential Services has
no international licensees or company-owned operations. The American Residential
Services business is seasonal in nature.
American Residential Services includes the assets and business of
Rescue Rooter, which provides plumbing and drain cleaning services, originally
acquired by ServiceMaster in January 1998. Under the Rescue Rooter brand,
American Residential Services also provides plumbing and drain cleaning services
through a licensing arrangement with a local service provider in one other
country.
American Mechanical Services, a subsidiary of American Residential
Services, is a leading provider of heating, ventilation, and air conditioning
services to commercial customers.
In 1999, ServiceMaster established a capital structure for American
Residential Services whereby 90% of the invested capital was in the form of
intercompany debt and 10% in the form of equity. In 1999, members of senior
management purchased 8.5% of that equity interest, representing 0.85% of the
total investment in American Residential Services. Management's equity 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
ServiceMaster's consolidated financial statements.
American Home Shield. American Home Shield 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. American Home Shield 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,
2000, American Home Shield warranty contracts provided for services to
approximately 860,000 homes through 21,754 independent repair maintenance
contractors in 50 states and the District of Columbia, with operations in
California, Texas, and Arizona accounting for 25%, 21% and 6%, respectively, of
gross contracts written by American Home Shield. American Home Shield also
provides home service warranty contracts through a licensing arrangement with a
local service provider in Saudi Arabia.
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
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services, disaster restoration services, and window cleaning services. As of
December 31, 2000, these services were provided to approximately 1.9 million
residential and commercial customers worldwide through a network of 4,442
independent franchisees. ServiceMaster Clean provides its services through
subsidiaries in Canada, Ireland and the United Kingdom, and through licensing
arrangements with local service providers in 17 other countries.
Merry Maids. With approximately 306,000 worldwide customers, including
274,000 customers in the United States, Merry Maids is the leading provider of
domestic house cleaning services in the United States. As of December 31, 2000,
these services were provided through 43 company-owned branches and 1,114
licensees operating in all 50 states. Merry Maids provides domestic house
cleaning services through subsidiaries in Canada, Ireland and the United Kingdom
and through licensing arrangements with local service providers in 9 other
countries.
AmeriSpec. AmeriSpec is a wholly-owned subsidiary of American Home
Shield. AmeriSpec is a leading provider of home inspection services in the
United States. AmeriSpec provides home inspection services through 1
company-owned branch and 430 franchise locations. During 2000, AmeriSpec
conducted approximately 140,000 home inspections in 48 states and Canada, with
operations in California, Illinois, and New York accounting for 18.2%, 4.1% and
3.4%, respectively, of the gross number of inspections conducted through
AmeriSpec. AmeriSpec has no international licensees or company-owned operations
except for Canada.
Furniture Medic. Furniture Medic provides on-site furniture repair and
restoration services in 46 states. As of December 31, 2000, these services were
provided to approximately 175,000 residential and commercial customers worldwide
through a network of 597 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 Saudi Arabia.
ServiceMaster Management Services Group
ServiceMaster pioneered the providing of supportive management services
to healthcare facilities by instituting housekeeping management services in
1962. Since then, ServiceMaster has expanded its management services business
and it now provides a variety of supportive management services to healthcare,
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, materials management,
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 provides service on a nationwide
basis to three key markets. These markets are healthcare, education, and
business & industry. Revenues derived from ServiceMaster Management Services
Group constituted 39%, 33%, and 32% in 1998, 1999, and 2000 of the operating
revenue of the consolidated ServiceMaster enterprise.
As of December 31, 2000, ServiceMaster Management Services provided
supportive management services to 1,094 healthcare customers and to 623
educational and commercial customers. These services were being provided in all
50 states and the District of Columbia. Outside of the United States,
ServiceMaster provides management services through a subsidiary in Canada and
through licensing arrangements with local service providers in Japan and 25
other countries.
Healthcare Market. ServiceMaster Management Services is a leading
provider to the healthcare 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, 2000, ServiceMaster served
1,094 customers and managed 1,126 healthcare facilities. Although the healthcare
market has undergone significant consolidation in recent years, ServiceMaster
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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 Market. ServiceMaster Management Services 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, 2000, ServiceMaster served 294 educational
customers and managed 4,581 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
outsource more of their service requirements. However, a majority of the
educational facilities continue to assume direct responsibility for managing
their support functions.
Business & Industry Market. ServiceMaster Management Services is a
leading provider of plant operations and maintenance, custodial and grounds
management services to business and industrial customers in selected markets.
These markets include the food processing, transportation, healthcare products,
and automotive markets. As of December 31, 2000, ServiceMaster served 329
customers and managed 11,057 business or industrial facilities. 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 outsource more of their service requirements, and the
trend of governmental units to privatize parts of their operations.
2000 Strategic Business Initiatives
During the year 2000, ServiceMaster introduced or expanded two
strategic business initiatives.
E-Commerce Initiative. ServiceMaster organized a new Internet company
to provide comprehensive on-line solutions for home services, products, and
information. On January 20, 2000, ServiceMaster, in conjunction with Kleiner,
Perkins, Caufield & Byers, announced the formation and initial funding of
WeServeHomes.com, Inc. as the Internet company which will provide these
solutions at a website having the URL "WeServeHomes.com". WeServeHomes launched
its web site on March 31, 2000. The equity interests in WeServeHomes initially
were divided between ServiceMaster (approximately 84%) and Kleiner Perkins
(approximately 16%, for which Kleiner Perkins contributed $15 million in cash).
Subsequently, certain senior managers in the ServiceMaster enterprise purchased
an equity interest for $1 million in May 2000. Current equity interests are
81.1%, 18.0%, and 0.9% for ServiceMaster, Kleiner Perkins and senior managers of
the ServiceMaster enterprise. In February 2001, Kleiner Perkins exercised a
warrant to purchase additional capital stock for $5.0 million, and ServiceMaster
purchased additional capital stock for $10 million. Kleiner Perkins has a
warrant to purchase an additional $6.5 million in capital stock. ServiceMaster
supports WeServeHomes through intensive co-branding efforts, access to the
customer base of operating companies of the Quality Service Network, the
fulfillment by those operating companies of orders placed by WeServeHomes
customers, and licenses for the use of certain service marks.
ServiceMaster Site Service. ServiceMaster Site Service, a division of
Business & Industry Management Services, expanded its operations in several
markets, including retail chain stores, outpatient healthcare centers,
telecommunications and self-service storage centers. It currently has over
10,000 sites under management. Customers of ServiceMaster Site Service typically
have multiple locations throughout a large geographic area and require
centralized ordering, dispatching and reporting of maintenance and repair
services. ServiceMaster Site Service leverages the capabilities of the
ServiceMaster enterprise to manage the maintenance and repair of customer
facilities, providing a single toll-free number to a national operations center
in Memphis, Tennessee where individual customer locations may order services.
Other Businesses
ServiceMaster Employer Services. ServiceMaster Employer Services is one
of the nation's larger professional employer organizations. It provides more
than 704 clients, leasing approximately 11,186 employees,
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with administrative processing of payroll, workers compensation insurance,
health insurance, unemployment insurance, and other employee benefits.
International Operations. ServiceMaster provides services in
international markets either through licensing arrangements with local entities
or ownership of foreign operating companies acquired by ServiceMaster. Except as
noted below, the TruGreen, Terminix, Home Maintenance and Improvement and
ServiceMaster Management Services Groups are responsible for overseeing these
activities.
ServiceMaster manages the following European pest control companies,
all of which are subsidiaries of TMX-Europe B.V., a wholly-owned subsidiary
of ServiceMaster: 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, a holding company for a group of pest control companies in
Germany.
Intellectual Property; Franchises
ServiceMaster holds various service marks, trademarks, trade names,
patents, and copyrights, none of which, other than certain service marks and
trademarks, is considered by ServiceMaster to be material to its financial
condition and results of operations. ServiceMaster's service marks and
trademarks are important for all elements of ServiceMaster's business, although
these marks are particularly important in the advertising and franchising
activities conducted by the TruGreen, Terminix, and Home Maintenance and
Improvement Groups. These marks are registered in over 95 countries and the U.S.
and are renewed at each registration expiration date. ServiceMaster also owns
certain trade secrets including training manuals, pricing models, customer
information, and software source code.
Franchises are important for the TruGreen ChemLawn, Terminix,
ServiceMaster Clean, Merry Maids, AmeriSpec, and Furniture Medic businesses.
Nevertheless, revenues and profits derived from franchise-related activities
constitute less than 2% 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. Most of ServiceMaster's
franchise agreements which expire in any given year are renewed.
Dispositions
ServiceMaster Diversified Health Services. In September 2000,
ServiceMaster sold substantially all of the operations of ServiceMaster
Diversified Health Services, which provides management services to freestanding,
hospital-based and government-owned nursing homes, skilled nursing facilities,
and assisted living facilities, to a company owned and operated by a group of
former senior managers of ServiceMaster Diversified Health Services.
ServiceMaster retained its ownership interest in five assisted living
facilities; however, the new owners of the Diversified Health Services business
will operate these facilities. This sale is consistent with ServiceMaster's
previously announced strategy to reduce its operational involvement in the
long-term care industry.
TruGreen Interior Plantcare. In September 2000, TruGreen sold the
operations of its interior plantcare division. The transaction did not
materially impact ServiceMaster's operating results for the year. This sale
represents ServiceMaster's continued focus on the growth and investment in its
core business.
Other Activities
Shared Services. Shared Services coordinates administration of payroll,
benefits, risk management, and the administration of travel services for
ServiceMaster's internal operations. In addition, Shared Services manages the
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sale and distribution of products including technical development and
assistance, financing for customers and affiliates, and sales and support for
international affiliates.
Supporting Departments. ServiceMaster 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, information technology, and
legal services.
Manufacturing Division. ServiceMaster's manufacturing division
formulates, combines, and distributes supplies, products, and equipment used
internally in providing management services to customers and which are sold to
licensees for use in the operation of their businesses. The customer bases
consists of 69% internal management services customers, 27% distributors who in
turn sell to licensees, and 4% international and other customers. ServiceMaster
has a small share of the market for the manufacture and distribution of cleaning
equipment, chemicals, and supplies. The manufacturing division offers about
4,000 products in its product line, and employs 75 people.
Industry Position, Competition and Customers
We base the following information on estimates, which cannot be
verified, made by our management. In considering ServiceMaster's industry and
competitive positions, you should recognize 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.
In the TruGreen, Terminix, and Home Maintenance and Improvement Groups,
we employ the following principal methods of competition: name recognition,
price, assurance of customer satisfaction, and a history of providing quality
services to homeowners. In the ServiceMaster Management Services Group, we
employ the following principal methods of competition: quality of service,
price, and experience in providing management services. In the ServiceMaster
Employer Services business, we employ the following principal methods of
competition: name recognition, assurance of customer satisfaction, and financial
strength.
The TruGreen, Terminix, and Home Maintenance and Improvement Groups
provide a variety of residential and commercial services under their respective
brands 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.
TruGreen Group
Lawn Care Services. TruGreen ChemLawn, both directly and through
independently owned franchisees, provides lawn care services to residential and
commercial customers. Competition within the lawn care market is strong, coming
mainly from local, independently-owned firms and from homeowners who care for
their lawns personally. TruGreen ChemLawn is the leading national lawn care
company within the lawn care market.
Lawn care services are regulated by law in most of the states in which
TruGreen ChemLawn operates. These laws require licensing which requires a
showing of technical competence and adequate bonding and insurance. Pesticide
products used in the lawn care industry are regulated primarily at the federal
level under the Federal Insecticide, Fungicide and Rodenticide Act, though there
is also limited state regulation. There are also many telemarketing laws that
regulate the sales practices of TruGreen ChemLawn. These laws, together with a
variety of state and local laws and regulations, may limit or prohibit the sale
of services and the use of certain pesticides, thereby possibly adversely
affecting the business of TruGreen ChemLawn.
Landscaping and Tree Services. TruGreen LandCare provides landscaping
installation, landscape maintenance, nursery and tree care services to
commercial and residential customers. Competition in the landscape and tree care
service industry is strong. Most competitors of TruGreen LandCare's landscape
and tree care services
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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 power line brush and tree clearing market is characterized by
a small number of large companies. Many of TruGreen LandCare's commercial
accounts, particularly in landscape construction and power line clearing, are
large contracts which can adversely affect the business if canceled.
Terminix Group
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, from homeowners who treat their termite and pest
control problems personally 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 operates. These laws require licensing which requires a
showing of technical competence and adequate bonding and insurance. The laws
also regulate the manner in which Terminix conducts and documents its pesticide
applications. The pest management 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. These local, state and federal laws and related
regulations may adversely affect the use of certain pesticides and the business
of Terminix.
Home Maintenance and Improvement Group
Heating, Ventilation and Air Conditioning Services. Competition in the
market for heating, ventilation and air conditioning services is strong in both
the residential and commercial sectors. American Residential Services 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 American Residential Services provides heating, ventilation, and air
conditioning services regulate these services. The level of regulation and
licensing varies from state to state.
Plumbing and Drain Cleaning Services. Competition in the market for
plumbing and drain cleaning services is strong 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 operates. 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. Competition in the
market for home systems and appliance warranty contracts is strong, coming
mainly from regional competitors in the real estate distribution channel,
marketed and sold through real estate professionals in connection with an
underlying residential real estate transaction. Some competition also derives
from insurance affiliated entities in the consumer segment. ServiceMaster
believes that American Home Shield maintains a favorable position in its
industry due to the system developed and used by American Home Shield for
accepting, dispatching, and fulfilling service calls from homeowners through a
nationwide network of independent contractors. American Home Shield also has a
computerized information system developed and owned by American Home Shield, and
an electronic digital voice communication system through which American Home
Shield handles requests for service. Many states in which American Home Shield
provides home systems and appliance warranty contracts regulate these services.
Residential and Commercial Cleaning Services. Competition in the market
for domestic house cleaning services is very strong. 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
8
franchisees, ServiceMaster Clean and Merry Maids have a small share of the
market for the cleaning of residential and commercial buildings. There are no
state or federal guidelines regulating residential and commercial cleaning
services.
Home Inspection Services. Competition within the home inspection market
is strong, coming mainly from regional and local, independently-owned firms. The
level of regulation and licensing varies from state to state. The home
inspection industry is unregulated at the federal level.
Furniture Repair Services. Competition in the market for furniture
repair services is strong, coming mainly from independent contractors.
ServiceMaster believes that Furniture Medic maintains a favorable position in
its industry due to its on-site delivery of services and its patented,
environmentally sensitive procedure for repairing furniture in the customer's
home. There are no state or federal guidelines regulating furniture repair
services.
ServiceMaster Management Services Group
Health Care. Within the market consisting of general healthcare
facilities having 50 or more beds, ServiceMaster is a leading supplier of plant
operations and maintenance, housekeeping, clinical equipment maintenance, and
laundry and linen management services. The majority of healthcare facilities
within this market not currently served by ServiceMaster assume direct
responsibility for managing their own non-medical support functions. There are
no state or federal guidelines regulating the services rendered by ServiceMaster
Management Services in the healthcare market.
ServiceMaster believes that its management services for healthcare
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 healthcare delivery, and payment for services (including in
particular changes in Medicare reimbursement regulations) continue to affect the
healthcare 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. 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 outsource more of their service
requirements. However, a majority of the educational facilities continue to
assume direct responsibility for managing their support functions. There are no
state or federal guidelines regulating the services rendered by ServiceMaster
Management Services in the education market.
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 outsource 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. There are no state
or federal guidelines regulating the services rendered by ServiceMaster
Management Services in the business and industry market.
Major Customers
ServiceMaster has no single customer that accounts for more than 10% of
its operating revenue. No part of ServiceMaster's business is dependent on a
single customer or a few customers, the loss of which would have a
9
material adverse effect on ServiceMaster's financial condition or results of
operation. Revenues from governmental sources are immaterial.
Employees
On December 31, 2000, 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 ServiceMaster's Annual Report to Shareholders for the year ended December 31,
2000.
Item 2. Properties
ServiceMaster and ServiceMaster Management Services Group
Chicago Area. The headquarters campus of ServiceMaster, which also
serves as headquarters for the ServiceMaster Management Services Group and
WeServeHomes.com, is owned by ServiceMaster and is located on a seventeen-acre
tract at One ServiceMaster Way, Downers Grove, Illinois. The campus contains two
office buildings. The headquarters building contains approximately 118,900
square feet of office space, 2,100 square feet of laboratory space, and space
for food service demonstrations, dining facilities, and the Kenneth and Norma
Wessner Training Center. ServiceMaster leases approximately half the space
(50,000 square feet) in the second building to a commercial tenant, with the
balance of the space utilized by ServiceMaster and WeServeHomes personnel. In
addition to the headquarters campus, ServiceMaster owns a 50,000 square foot
warehouse and distribution facility near Aurora, Illinois. We believe that these
office and warehouse facilities are suitable and adequate to support
ServiceMaster's current needs for administrative and warehouse space in the
Chicago area.
Cairo, Illinois. ServiceMaster owns five properties in Cairo, Illinois:
(1) a 36,000 square foot, three-story building used for manufacturing and
warehousing equipment, supplies and products used in the business; (2) a 30,000
square foot warehouse and package facility; (3) a 43,000 square foot three-story
warehouse and manufacturing building; (4) a 2,500 square foot building used for
a machine shop; and (5) a 6,000 square foot warehouse facility. ServiceMaster
also leases one warehouse property with 14,000 square feet in Cairo, Illinois.
We believe that these manufacturing and warehouse facilities are suitable and
adequate to support the current needs of ServiceMaster.
TruGreen, Terminix, and Home Maintenance and Improvement Groups
Memphis, Tennessee. The headquarters for TruGreen ChemLawn, TruGreen
LandCare, Terminix, American Home Shield, AmeriSpec, American Residential
Services, Rescue Rooter, and American Mechanical Services are located in leased
premises at 860 Ridge Lake Boulevard, Memphis, Tennessee. The headquarters for
ServiceMaster Clean, Merry Maids, and Furniture Medic are located in leased
premises at 889 Ridge Lake Boulevard, Memphis, Tennessee. Besides these two
headquarters facilities in Memphis, ServiceMaster leases space for a call center
located at 6399 Shelby View Drive, Memphis, Tennessee. The call center contains
approximately 60,000 square feet of office space from which telephone sales,
scheduling services, and other business functions are conducted. We believe that
these headquarters and call center facilities are suitable and adequate to
support the current office needs of the TruGreen, Terminix, and Home Maintenance
and Improvement Groups in the Memphis area.
The operating companies within these three groups own and lease a
variety of facilities throughout the United States for branch operations and for
office, storage, call center, and data processing space. The following chart
identifies for each operating company the number of owned facilities, the number
of leased facilities, and the number of states represented by those owned and
leased facilities. We believe that these facilities, when added to
10
the headquarters and call center facilities, are suitable and adequate to
support the current needs of the TruGreen, Terminix, and Home
Maintenance and Improvement Groups.
Operating Owned Leased No. of
Company Facilities Facilities States
- -------------- ---------- ---------- ------
TruGreen ChemLawn 9 271 43
TruGreen LandCare 1 177 28
Terminix 27 390 41
American Residential Services 6 58 23
Rescue Rooter 3 17 10
American Mechanical Services 1 15 7
American Home Shield 1 11 7
ServiceMaster Clean 0 5 5
Merry Maids 0 44 21
Furniture Medic 0 0 0
ServiceMaster Employer Services
The headquarters for ServiceMaster Employer Services and Certified
Systems, Inc., the principal subsidiary of ServiceMaster Employer Services, are
located at 3218 Highway 67, Mesquite, Texas. ServiceMaster Employer Services
leases other administrative facilities in Little Rock, Arkansas, and Memphis,
Tennessee. We believe that these office facilities are suitable and adequate to
support the current needs of ServiceMaster Employer Services.
Item 3. Legal Proceedings
In the ordinary course of conducting its business activities,
ServiceMaster becomes involved in judicial, administrative and regulatory
proceedings which involve both private parties and governmental authorities. As
of March 1, 2001, these proceedings included general and commercial liability
actions and a small number of environmental proceedings.
Ray D. Martin V. ServiceMaster. In June 1996, Ray D. Martin, a former
salesman employed by ServiceMaster Management Services, filed a lawsuit in the
State Court of Fulton County, Georgia (Civ. Action File No. 96VS114677J). The
complaint, as originally filed, contended that ServiceMaster had not paid Mr.
Martin the full amount of commission due to 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 ServiceMaster, thereby leaving only the question of
damages to be considered at the trial. At trial in September 1999, a jury
awarded the plaintiff compensatory damages and fees of approximately $1 million
and punitive damages of $135 million. In October 1999, ServiceMaster filed a
motion for judgment notwithstanding the verdict or, in the alternative, for a
new trial. On June 1, 2000 the trial court entered a new judgment in the amount
of $461,440 in compensatory damages and $45 million in punitive damages, as well
as amounts for attorneys fees and interest. ServiceMaster filed a notice of
appeal that same day. On June 13, 2000, Mr. Martin filed a notice of
cross-appeal. The appeal will be fully briefed by early spring 2001.
ServiceMaster believes that the award of $45 million in punitive damages is not
supported by the facts of the case or by applicable state law and that the
judgment will be reversed by the court of appeals. Under Georgia law, a judgment
accrues interest at the rate of 12% per annum. ServiceMaster continues to be
unable reasonably to estimate the ultimate outcome of this case, and
accordingly, minimal expense has been recorded. If the existing judgment is
sustained, or if the original judgment is reinstated (which is not anticipated
by ServiceMaster), then it would be likely that ServiceMaster's results of
operations for a particular year may be materially adversely affected. However,
ServiceMaster believes, based on advice from legal counsel, that the
11
ultimate outcome of this litigation is not expected to have a material adverse
effect on ServiceMaster's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year covered by this report, we
submitted no matters to a vote of security holders.
12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Except for the information set forth in the second and third sentences
of this Item 5, the portions of our Annual Report to Shareholders for 2000 under
the captions "Statements of Shareholders' Equity" (pages 60-61) and "Cash
Dividends Per Share" and "Price Per Share" in the Quarterly Operating Results
table (pages 80-81) supply the information required by this item, and these
portions are incorporated by reference. Our common stock is listed and traded on
the New York Stock Exchange under the symbol "SVM". At March 7, 2001, our common
stock was held of record by approximately 59,500 persons. We estimate that
approximately 42,000 persons held shares of our common stock in the names of
nominees.
Item 6. Selected Financial Data
The portion of the our Annual Report to Shareholders for 2000 in the
Financial Statements section under the caption "Eleven Year Financial Summary"
on pages 50-51 supplies the information required by this item, and that portion
is incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's discussion and analysis of financial condition and results
of operations for the three years ended December 31, 2000, is contained in the
Management Discussion and Analysis of Financial Condition and Results of
Operations section of our Annual Report to Shareholders for 2000 on pages 39-49
and is incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
ServiceMaster is exposed to market risk from changes in interest rates.
However, ServiceMaster generally maintains the majority of its debt at fixed
rates (over 85% at December 31, 2000 after considering swap agreements), and
therefore its exposure to short-term interest rate fluctuations is immaterial to
the consolidated financial statements of ServiceMaster as a whole. ServiceMaster
has from time to time, entered into interest rate swap or similar arrangements
to mitigate its exposure to interest rate fluctuations, and does not, as a
matter of policy, enter into hedging contracts for trading or speculative
purposes. Further disclosure is included in the Long-Term Debt note in the
Financial Statements of our Annual Report to Shareholders for 2000 on pages
73-74 and is incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated statements of financial position of ServiceMaster as
of December 31, 2000 and 1999, and the consolidated statements of income, cash
flows, and shareholders' equity for the years ended December 31, 2000, 1999, and
1998 and notes to the consolidated financial statements are contained in the
Management Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements sections of our Annual Report to
Shareholders for 2000 on pages 52-81 and are incorporated by reference. The
report of Arthur Andersen LLP thereon dated January 23, 2001, and the summary of
significant accounting policies are contained in the Financial Statements and
Management Discussion and Analysis of Financial Condition and Results of
Operations sections of our Annual Report to Shareholders for 2000 on pages 52-55
and are incorporated by reference.
13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
14
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The information contained under the heading "Election of Directors" in
the proxy statement for our 2001 Annual Meeting of Shareholders is incorporated
by reference.
Senior Management Advisers
Our Bylaws provide that our Board of Directors may appoint officers of
ServiceMaster 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 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
additional compensation for these services.
Our Board appointed the persons listed below as Senior Management
Advisers effective as of the 2000 annual meeting of the Board to serve until the
annual meeting of the Board in 2001 or until otherwise determined by the Board.
Robert D. Erickson, age 57, 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.
Jim L. Kaput, age 40, is Senior Vice President and General Counsel of
ServiceMaster. From June 1994 until he joined ServiceMaster in April 2000, Mr.
Kaput was a partner at the law firm of Sidley & Austin in Chicago, Illinois.
Donald K. Karnes, age 50, is President of TruGreen Group. He served as
Group President of ServiceMaster Consumer and Commercial Services from January
1996 to December 2000.
Robert F. Keith, age 44, is Group President of ServiceMaster Management
Services. He served as President and Chief Operating Officer, ServiceMaster
Management Services from January 1997 to October 1998, and President and Chief
Operating Officer, ServiceMaster Consumer Services from July 1994 to December
1996.
Ernest J. Mrozek, age 47, is President of ServiceMaster Consumer and
Commercial Services. He served as President and Chief Operating Officer,
ServiceMaster Consumer Services from January 1997 to October 1998, and Senior
Vice President and Chief Financial Officer of ServiceMaster from January 1995 to
December 1996.
Steven C. Preston, age 40, 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 1997 through June 1998. From August 1993
to March 1997, he was Senior Vice President and Corporate Treasurer for First
Data Corporation, Atlanta, Georgia.
Phillip B. Rooney, age 56, is President of Management Services Group.
He served as President of Business Services Group, from April 2000 to
December 2000. From April 1997 to April 2000 he served as Vice Chairman.
From May 1996 to February 1997 he was President and Chief Executive Officer
of Waste Management, Inc.,
15
Oakbrook, Illinois. Mr. Rooney is a director of Van Kampen Fund, Oak Brook,
Illinois, an investment management company and Illinois Tool Works, Inc.,
Glenview, Illinois, a diversified manufacturing company.
David M. Slott, age 42, is Chief Operating Officer of TruGreen Group.
He served as President and Chief Operating Officer of TruGreen from January 1996
to December 2000.
Richard W. Williams, age 51, is President of Education Management
Services. He served as Executive Vice President of Education Management
Services from January 1994 to April 1996.
Executive Officers of ServiceMaster
The following table shows (i) the names and ages (as of March 1, 2001)
of our executive officers; (ii) all positions presently held by each officer;
and (iii) the year each person became an officer. Each person has served as an
officer 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 Positions An Officer
- ------------------ ----- ---------------------------- ------------
C. William Pollard 62 Chairman and Director 1977
Jonathan P. Ward 46 President, Chief Executive Officer, and Director 2001
Carlos H. Cantu 67 Senior Chairman and Director 1986
Robert D. Erickson 57 Executive Vice President and a Senior Management Adviser 1976
Jim L. Kaput 40 Senior Vice President, General Counsel, and a Senior 2000
Management Adviser
Donald K. Karnes 50 President, TruGreen Group, and a Senior Management Adviser 1992
Robert F. Keith 44 Group President, Management Services, and 1986
a Senior Management Adviser
Ernest J. Mrozek 47 President, Consumer and Commercial Services, and a 1987
Senior Management Adviser
Steven C. Preston 40 Executive Vice President and Chief Financial Officer, and 1997
a Senior Management Adviser
Phillip B. Rooney 56 President, Management Services Group, and a Senior Management 1997
Adviser
David M. Slott 42 Chief Operating Officer, TruGreen Group, and a Senior 1990
Management Adviser
Richard W. Williams 51 President, Education Management Services, and a Senior 1982
Management Adviser
David P. Aldridge 41 Senior Vice President 1990
Patrick E. Moroney 47 Senior Vice President and Chief Information Officer 2000
16
Deborah A. O'Connor 38 Senior Vice President and Controller 1993
Eric R. Zarnikow 41 Senior Vice President and Treasurer 1994
Messrs. Pollard, Ward, and Cantu are also directors of ServiceMaster.
For biographical information with respect to these persons, see "Election
of Directors" in the proxy statement for our 2001 Annual Meeting of
Shareholders. Messrs. Erickson, Kaput, Karnes, Keith, Mrozek, Preston,
Rooney, Slott, and Williams are Senior Management Advisers. See page 15 for
biographical information with respect to these persons.
David P. Aldridge, age 41, has served as Senior Vice President, People,
since April 2000. He served as Vice President, Service Solutions Development,
from October 1997 to March 2000. Prior to 1997 he served as Vice President of
Integrated Services.
Patrick E. Moroney, age 47, has served as Senior Vice President and
Chief Information Officer since July 2000. He served Monsanto Corporation in
Chicago, Illinois, as Chief Information Officer from March 1997 to July 2000 and
as Director of Information Technology during 1995 and 1996.
Deborah A. O'Connor, age 38, has served as Senior Vice President and
Controller since December 1999. She served as Vice President and Controller from
January 1993 until December 1999.
Eric R. Zarnikow, age 41, has served as Senior Vice President and
Treasurer since December 1999. He served as Vice President and Treasurer from
May 1994 until December 1999.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The information contained under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" in the proxy statement for our 2001 Annual
Meeting of Shareholders is incorporated by reference.
Item 11. Executive Compensation
The information contained under the headings "Compensation of
Directors", "Executive Compensation", and "Certain Transactions-Employment of
Jonathan P. Ward" in the proxy statement for our 2001 Annual Meeting of
Shareholders is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Ownership of our Common
Stock" in the proxy statement for our 2001 Annual Meeting of Shareholders is
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The information contained under the heading "Certain Transactions" in
the proxy statement for our 2001 Annual Meeting of Shareholders is incorporated
by reference.
17
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
our Annual Report to Shareholders for 2000 on pages 52-81 and
are incorporated by reference:
Summary of Significant Accounting Policies
Report of Independent Public Accountants
Consolidated Statements of Income for the three
years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Financial Position as of
December 31, 2000 and 1999
Consolidated Statements of Cash Flows for the three
years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for
the three years ended December 31, 2000, 1999, and
1998.
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 II--Valuation and Qualifying Accounts
Report of Independent Public Accountants on Schedules
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.
18
3. Exhibits
The exhibits filed with this report are listed on pages 24-26
(the "Exhibits Index"). Certain entries in the Exhibits Index are management
contracts or compensatory plans in which a director or any of our named
executive officers does or may participate. Such entries are indicated by an
asterisk next to the exhibit's number. Reference is made to the Exhibits Index
for the filing with the Commission that contains such contract or plan.
(b) Reports on Form 8-K filed during the last quarter of 2000.
None
19
SCHEDULE II
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, 2000:
Allowance for doubtful accounts --
Accounts receivable (current) $37,203 40,926 42,375 $35,754
------- ------ ------ -------
Notes receivable (current) $1,808 889 481 $2,216
------ --- --- ------
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
------- --- --- ------
20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of The ServiceMaster Company:
We have audited in accordance with auditing standards generally accepted in the
United States, 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 23, 2001. 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
ServiceMaster'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 23, 2001
21
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 16, 2001 By /s/ JONATHAN P. WARD
------------------------
Jonathan P. Ward
President and Chief Executive Officer
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 the capacities and on the dates indicated.
Signature Title Date
/s/ C. WILLIAM POLLARD Chairman and Director March 16, 2001
- ---------------------------
C. William Pollard
/s/ JONATHAN P. WARD President, Chief Executive March 16, 2001
- --------------------------- Officer and Director
Jonathan P. Ward
/s/ CARLOS H. CANTU Senior Chairman and Director March 16, 2001
- ---------------------------
Carlos H. Cantu
/s/ STEVEN C. PRESTON Executive Vice President and March 16, 2001
- ---------------------- Chief Financial Officer (Principal
Steven C. Preston Financial Officer and Principal
Accounting Officer)
/s/ PAUL W. BEREZNY, JR. Director March 16, 2001
- ---------------------------
Paul W. Berezny, Jr.
/s/ BRIAN GRIFFITHS Director March 16, 2001
- ---------------------------
Brian Griffiths
22
/s/ SIDNEY E. HARRIS Director March 16, 2001
- ---------------------------
Sidney E. Harris
/s/ GLENDA A. HATCHETT Director March 16, 2001
- ---------------------------
Glenda A. Hatchett
/s/ HERBERT P. HESS Director March 16, 2001
- ---------------------------
Herbert P. Hess
/s/ MICHELE M. HUNT Director March 16, 2001
- ---------------------------
Michele M. Hunt
/s/ GUNTHER H. KNOEDLER Director March 16, 2001
- -----------------------
Gunther H. Knoedler
/s/ JAMES D. McLENNAN Director March 16, 2001
- ----------------------
James D. McLennan
/s/ VINCENT C. NELSON Director March 16, 2001
- ----------------------
Vincent C. Nelson
/s/ DALLEN W. PETERSON Director March 16, 2001
- -----------------------
Dallen W. Peterson
/s/ DONALD G. SODERQUIST Director March 16, 2001
- ------------------------
Donald G. Soderquist
/s/ CHARLES W. STAIR Director March 16, 2001
- -----------------------
Charles W. Stair
/s/ DAVID K. WESSNER Director March 16, 2001
- -----------------------
David K. Wessner
23
Exhibits Index
Exh.
No. Description of Exhibit
- ---- -------------------------------------------------------------------
3(i) 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 Current Report on Form 8-K, No. 2 dated February 26, 1998
(File No. 1-4762) (the "1998 8-K, No. 2").
3(ii)Bylaws of The ServiceMaster Company as amended through September 29, 2000
are incorporated by reference to Exhibit 1.4 to Amendment No. 1 to Form
8-A/A dated October 6, 2000 (File No. 1-14762).
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 1998 8-K, No.2.
4.2 Certificate of Designation, Preferences and Rights of Junior Participating
Preferred Stock, Series A, is incorporated by reference to Exhibit 4 to the
1998 8-K, No. 2.
4.3 Indenture dated as of August 15, 1997 between The ServiceMaster Company
and the Harris Trust and Savings Bank as trustee is incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form S-3
(File No. 333-32167) (the "1997 S-3").
4.4 First Supplemental Indenture dated as of August 15, 1997 between The
ServiceMaster Company 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 (File No. 1-14762) (the
"1997 10-K").
4.5 Second Supplemental Indenture dated as of January 1, 1998 between The
ServiceMaster Company and the Harris Trust and Savings Bank as trustee
is incorporated by reference to Exhibit 2 to the Current Report on Form
8-K, No. 1 dated February 26, 1998 (File No. 1-14762).
4.6 Third Supplemental Indenture dated as of March 2, 1998 between 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,
No. 3 dated February 27, 1998 (File No. 1-14762) (the "1998 8-K, No. 3").
4.7 Fourth Supplemental Indenture dated as of August 10, 1999 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 dated August 16, 1999 (File No. 1-14762) (the "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 is
incorporated by reference to Exhibit 4.16 to the Registration Statement
on Form S-3 (File No. 333-91381) (the "1999 S-3").
4.9 First Supplemental Indenture dated as of April 4, 2000 between The
ServiceMaster Company and Harris Trust and Savings Bank as trustee is
incorporated by reference to Exhibit 4.2 to the Quarterly Report on
Form 10-Q dated May 15, 2000 (File No. 1-14762) (the "2000 10-Q").
4.10 Forms of 6.95% Note due August 14, 2007 and 7.45% Note due August 14, 2027
are incorporated by reference to Exhibit 4.2 to the 1997 S-3.
4.11 Form of 7.10% Note due March 1, 2018 is incorporated by reference to
Exhibit 4.1 the 1998 8-K, No. 3.
4.12 Form of 7.25% Note due March 1, 2038 is incorporated by reference to
Exhibit 4.2 to the 1998 8-K, No. 3.
4.13 Form of 7.875% Note due August 15, 2009 is incorporated by reference to
Exhibit 4 to the 1999 8-K.
24
4.14 Form of 7.875% Note due August 15, 2009 is incorporated by reference to
Exhibit 5 to the 1999 8-K.
4.15 Form of 8.45% Note due April 15, 2005 is incorporated by reference to
Exhibit 4.1 to the 2000 10-Q.
4.16 $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.
10.1*Senior Executive Ownership Election Plan as approved by the Board of
Directors on December 10, 1999 is incorporated by reference to Exhibit 10.5
to the 1999 10-K.
10.2* Form of Directors Deferred Fees Plan is incorporated by reference to
Exhibit 10.18 to the ServiceMaster Limited Partnership Annual Report on
Form 10-K for the year ended December 31, 1990 (File No. 1-09378) (the
"1990 10-K").
10.3*Form of Directors Deferred Fees Agreement is incorporated by reference to
Exhibit 10.19 of the 1990 10-K.
10.4*Form of Deferred Fees Plan Trust is incorporated by reference to Exhibit
10.20 of the 1990 10-K.
10.5* 10-Plus Plan as amended September 3, 1991 is incorporated by reference
to Exhibit 10.21 to the ServiceMaster Limited Partnership Annual Report
on Form 10-K for the year ended December 31, 1991 (File No. 1-09378)
(the "1991 10-K").
10.6*Form of Option Agreement for the 10-Plus Plan as amended September 3, 1991
is incorporated by reference to Exhibit 10.22 to the 1991 10-K.
10.7* 1994 Non-Employee Directors Share Option Plan is incorporated by
reference to Exhibit 4.2 to the ServiceMaster Limited Partnership
Registration Statement on Form S-8 (File No. 33-55761) (the "1994
S-8").
10.8* Form of Option Agreement for the 1994 Non-Employee Director Share
Option Plan is incorporated by reference to Exhibit 4.3 to the 1994
S-8.
10.9* 1997 Share Option Plan is incorporated by reference to Exhibit 10.28 to
the ServiceMaster Limited Partnership Annual Report on Form 10-K for
the year ended December 31,1996 (File No. 1-09378) (the "1996 10-K").
10.10* Form of Option Agreement for the 1997 Share Option Plan is incorporated
by reference to Exhibit 10.29 to the 1996 10-K.
10.11* 1998 Equity Incentive Plan is incorporated by reference to Exhibit 10.15
to the 1997 10-K.
10.12* Form of Option Agreement for the 1998 Equity Incentive Plan
(Non-Qualifying Stock Options) is incorporated by reference to Exhibit
10.20 to the 1997 10-K.
10.13* Form of Option Agreement for the 1998 Equity Incentive Plan (Incentive
Stock Options) is incorporated by reference to Exhibit 10.21 to the
1997 10-K.
10.14* 1998 Non-Employee Directors Discounted Stock Option Plan is incorporated
by reference to Exhibit 10.21 to the 1997 10-K.
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10.15* 1998 Long-Term Performance Award Plan is incorporated by reference to
Exhibit 10.22 to the 1997 10-K.
10.16* 2000 Equity Incentive Plan is incorporated by reference to Exhibit 4.4 to
the Registration Statement on Form S-8 (File No. 333-42680) (the "2000
S-8").
10.17* Form of Option Agreement for the 2000 Equity Incentive Plan.
10.18* 2001 Long-Term Performance Award Plan is incorporated by reference to
Exhibit B to the Proxy Statement dated March 24, 2000 (File No. 1-14762).
10.19* Employment Agreement of Jonathan P. Ward dated as of January 9, 2001.
10.20* Stock Option Agreement of Jonathan P. Ward dated as of January 9, 2001.
10.21* WeServeHomes.com 2000 Stock Option/Stock Issuance Plan.
10.22* Form of Stock Option Agreement for the WeServeHomes.com 2000 Stock
Option/Stock Issuance Plan.
10.23* Form of Stock Purchase Agreement for the WeServeHomes.com 2000 Stock
Option/Stock Issuance Plan.
11 Exhibit regarding detail of income per share computation for each of
the three years ended December 31, 2000, 1999 and 1998 is incorporated
by reference to the footnote on page 57 of the 2000 Annual Report
(defined in Exhibit 13).
13 Annual Report to Shareholders for the year ended December 31, 2000 (the
"2000 Annual Report"). The parts of the 2000 Annual Report which are
expressly incorporated into this report by reference shall be deemed
filed with this report. All other parts of the 2000 Annual Report are
furnished for the information of the Commission and are not filed with
this report.
21 Subsidiaries of ServiceMaster.
23 Consent of Arthur Andersen LLP.
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