UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2002.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________.
Commission File Number 1-14762
--------------------------
THE SERVICEMASTER COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-3858106
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3250 Lacey Road, Suite 600, Downers Grove, Illinois, 60515-1700
(Address of Principal Executive Offices, Zip Code)
(630) 663-2000
(Registrant's telephone number, including area code)
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
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 is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check whether the registrant is an accelerated filer (as
defined in Rule12b-2 of the Act).
Yes [x] No [ ]
The aggregate market value of shares of common stock held by non-affiliates
of the registrant as of June 28, 2002 was $3,990,819,969.
The number of shares of the registrant's common stock outstanding as of
March 28, 2003 was 299,221,298.
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the registrant's Annual Report to Shareholders for the
year ended December 31, 2002 are incorporated into Part I and Part II of this
Form 10-K.
Certain parts of the registrant's Proxy Statement for the 2003 Annual
Meeting of Shareholders are incorporated into Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 7
Item 3. Legal Proceedings..................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders................................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 10
Item 6. Selected Financial Data............................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 10
Item 8. Financial Statements and Supplementary Data........................................... 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure11
PART III
Item 10. Directors and Executive Officers of the Registrant.................................... 12
Item 11. Executive Compensation................................................................ 13
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters........................................................................ 13
Item 13. Certain Relationships and Related Transactions........................................ 13
Item 14. Controls and Procedures............................................................... 13
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 15
Signatures...................................................................................... 19
Certification of Chief Executive Officer........................................................ 21
Certification of Chief Financial Officer....................................................... 22
Exhibit Index................................................................................... 23
FORWARD-LOOKING STATEMENTS
This Form 10-K contains or incorporates by reference statements concerning
future results and other matters that may be deemed to be "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The ServiceMaster Company ("ServiceMaster") intends that these
forward-looking statements, which look forward in time and include everything
other than historical information, be subject to the safe harbors created by
such legislation. ServiceMaster notes that these forward-looking statements
involve risks and uncertainties that could affect its results of operations,
financial condition or cash flows. Factors that could cause actual results to
differ materially from those expressed or implied in a forward-looking statement
include the following, among others:
o extreme weather conditions that affect the demand for ServiceMaster's
services;
o competition in the markets served by ServiceMaster;
o labor shortages or increases in wage rates;
o unexpected increases in operating costs, such as higher insurance,
healthcare or fuel prices;
o increased governmental regulation of telemarketing;
o general economic conditions in the United States, especially as they
may affect home sales or consumer spending levels;
o time and expenses associated with integrating and winding down
businesses; and
o other factors described from time to time in documents filed
by ServiceMaster with the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
ServiceMaster is a national service company providing outsourcing services
to both residential and commercial customers. Its core services capabilities
include lawn care and landscape maintenance; termite and pest control; plumbing,
electrical, heating and air conditioning services; home warranty; and cleaning,
disaster restoration and furniture repair. These services are provided through a
network of over 5,400 company-owned and franchised locations operating under the
following leading brands: TruGreen ChemLawn, TruGreen LandCare, Terminix,
American Residential Services, Rescue Rooter, American Mechanical Services,
American Home Shield, AmeriSpec, Merry Maids, ServiceMaster Clean and Furniture
Medic. Incorporated in Delaware in 1991, ServiceMaster is the successor to
various entities dating back to 1947.
ServiceMaster is organized into five principal operating segments:
TruGreen; Terminix; American Home Shield; American Residential Services and
American Mechanical Services; and Other Operations. All subsidiaries of
ServiceMaster are wholly owned, except for The Terminix International Company
L.P., in which Allied Bruce-Terminix Companies, Inc. is a Class B limited
partner. The financial information for each operating segment for 2000, 2001 and
2002 contained in the Notes to the Consolidated Financial Statements included in
ServiceMaster's Annual Report to Shareholders for the year ended December 31,
2002 ("Annual Report to Shareholders for 2002") is incorporated by reference in
this Form 10-K.
CHANGE IN SEGMENT REPORTING
ServiceMaster previously reported its American Home Shield, American
Residential Services, American Mechanical Services, Merry Maids, ServiceMaster
Clean, AmeriSpec and Furniture Medic businesses as a single segment, the Home
Maintenance and Improvement segment. Due to ServiceMaster's sale of its
Management Services business and its exit from other businesses in 2001, certain
operations have become more significant for segment reporting purposes. In
addition, ServiceMaster's management and reporting structure changed during
2002. As a result, ServiceMaster has expanded its business segment reporting
which will allow for better ongoing visibility into the components of the
business. American Home Shield and AmeriSpec will now be reported together as
the American Home Shield segment. The combination of American Residential
Services and American Mechanical Services will now be reported together as the
American Residential Services and American Mechanical Services segment, and the
franchise operations of Merry Maids, ServiceMaster Clean and Furniture Medic
will now be reported
1
in the Other Operations segment. Previously reported financial information that
is incorporated by reference in this Form 10-K has been reclassified to reflect
the change in segment reporting.
SERVICES
TruGreen Segment
The TruGreen segment provides lawn care services primarily under the
TruGreen ChemLawn brand name and landscape maintenance services primarily under
the TruGreen LandCare brand name to residential and commercial customers.
Revenues derived from the TruGreen segment constituted 40%, 38% and 38% in 2000,
2001 and 2002, respectively, of the revenue from continuing operations of the
consolidated ServiceMaster enterprise. The TruGreen ChemLawn and TruGreen
LandCare businesses are seasonal in nature. Extreme weather conditions, such as
a drought, affect the demand for lawn care and landscape maintenance services
and may result in a decrease in revenues.
TruGreen ChemLawn. TruGreen ChemLawn is a leading provider of lawn care
services in the United States with approximately 3.4 million residential and
commercial customers. As of December 31, 2002, TruGreen ChemLawn provided these
services in 47 states and the District of Columbia through 201 company-owned
locations and 64 franchised locations. TruGreen ChemLawn also provides lawn care
services through a subsidiary in Canada and has entered into licensing
arrangements to provide these services in nine other countries, primarily in the
Middle East.
TruGreen LandCare. TruGreen LandCare is a leading provider of landscape
maintenance services in the United States with approximately 15,000 residential
and commercial customers. As of December 31, 2002, TruGreen LandCare provided
these services in 36 states and the District of Columbia through 132
company-owned locations. TruGreen LandCare has no international operations.
Terminix Segment
The Terminix segment provides termite and pest control services primarily
under the Terminix brand name to residential and commercial customers. Revenues
derived from the Terminix segment constituted 21%, 24% and 26% in 2000, 2001 and
2002, respectively, of the revenue from continuing operations of the
consolidated ServiceMaster enterprise. The Terminix business is seasonal in
nature. The termite swarm season, which generally occurs in early spring but
varies by region depending on climate, has historically increased the demand for
termite control services and resulted in an increase in revenues. Similarly,
increased pest activity in the warmer months has historically increased the
demand for pest control services and resulted in an increase in revenues.
Terminix is a leading provider of termite and pest control services in the
United States with over 2.9 million residential and commercial customers. As of
December 31, 2002, Terminix provided these services in 44 states and the
District of Columbia through 318 company-owned locations and 134 franchised
locations. Terminix also provides termite and pest control services through
subsidiaries in Mexico and the Netherlands and has entered into licensing
arrangements to provide these services in 29 other countries, primarily in Latin
America and the Middle East.
American Home Shield Segment
The American Home Shield segment provides home service contracts for
systems and appliances primarily under the American Home Shield brand name and
home inspection services primarily under the AmeriSpec brand name, in each case,
to residential customers. Revenues derived from the American Home Shield segment
constituted 9%, 11% and 12% in 2000, 2001 and 2002, respectively, of the revenue
from continuing operations of the consolidated ServiceMaster enterprise. The
American Home Shield and AmeriSpec businesses are seasonal in nature. Sales
volume in the American Home Shield segment depends, in part, on the number of
home resale closings which historically has been highest in the spring and
summer months. American Home Shield's costs
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related to service call volume is highest in the summer months, especially
during periods of unseasonably warm temperatures.
American Home Shield. American Home Shield is a leading provider of home
service contracts for systems and appliances in the United States with over 1.1
million residential customers. It provides residential customers with contracts
to repair or replace electrical, plumbing, central heating and central air
conditioning systems, hot water heaters and appliances that breakdown due to
normal wear and tear and administers those contracts through independent repair
contractors. As of December 31, 2002, American Home Shield issued and
administered home service contracts in all 50 states and the District of
Columbia. American Home Shield has also entered into a licensing arrangement to
provide these services in Saudi Arabia.
AmeriSpec. AmeriSpec is a leading provider of home inspection services in
the United States with approximately 130,000 residential customers. As of
December 31, 2002, AmeriSpec provided these services in 48 states and the
District of Columbia through three company-owned locations and 223 franchised
locations. AmeriSpec has no international operations.
American Residential Services and American Mechanical Services Segment
The American Residential Services and American Mechanical Services segment
provides electrical, heating, ventilation, air conditioning, plumbing and drain
cleaning services primarily under the American Residential Services, American
Mechanical Services and Rescue Rooter brand names to residential and commercial
customers. Revenues derived from the American Residential Services and American
Mechanical Services segment constituted 23%, 23% and 20% in 2000, 2001 and 2002,
respectively, of the revenue from continuing operations of the consolidated
ServiceMaster enterprise. The American Residential Services and American
Mechanical Services businesses are seasonal in nature, with the greatest
activity occurring in May through August during the peak air conditioning
season.
American Residential Services. American Residential Services, which
includes the business of Rescue Rooter, is a leading provider of electrical,
plumbing, heating, ventilation, air conditioning and drain cleaning services in
the United States with approximately 1.6 million residential customers. As of
December 31, 2002, American Residential Services provided these services in 26
states and the District of Columbia through 70 company-owned locations. American
Residential Services has also entered into a licensing arrangement to provide
plumbing and drain cleaning services under the Rescue Rooter brand name in Saudi
Arabia.
In the fourth quarter of 2002, a subsidiary of ServiceMaster repurchased
the outstanding minority equity interest in American Residential Services held
by management of American Residential Services, making it a wholly owned
ServiceMaster business.
American Mechanical Services. American Mechanical Services, a subsidiary of
American Residential Services, is a leading provider of electrical, heating,
ventilation and air conditioning services in the United States with
approximately 4,000 commercial customers. As of December 31, 2002, American
Mechanical Services provided these services in six states through 15
company-owned locations. American Mechanical Services has no international
operations.
Other Operations Segment
The Other Operations segment provides residential and commercial disaster
restoration and cleaning services primarily under the ServiceMaster and
ServiceMaster Clean brand names, domestic housekeeping services primarily under
the Merry Maids brand name and on-site furniture repair and restoration services
primarily under the Furniture Medic brand name. The Other Operations segment
also includes ServiceMaster's international operations and its headquarters
functions. Revenues derived from the Other Operations segment constituted 7%, 4%
and 4% in 2000, 2001 and 2002, respectively, of the revenue from continuing
operations of the consolidated ServiceMaster enterprise.
3
ServiceMaster Clean. ServiceMaster Clean is a leading franchisor in the
residential and commercial cleaning field in the United States with over 1
million residential and commercial customers. As of December 31, 2002,
ServiceMaster Clean provided these services in all 50 states through 2,983
franchised locations. ServiceMaster Clean also provides disaster restoration and
cleaning services through subsidiaries in Ireland, the United Kingdom and Spain
and has entered into licensing arrangements to provide these services in 18
other countries, primarily in Asia and the Middle East.
Merry Maids. Merry Maids is a leading provider of domestic house cleaning
services in the United States with approximately 278,000 residential customers.
As of December 31, 2002, these services were provided in 49 states and the
District of Columbia through 58 company-owned locations and 754 franchised
locations. Merry Maids also provides domestic house cleaning services through
subsidiaries in Denmark, Ireland and the United Kingdom and has entered into
licensing arrangements to provide these services in 10 other countries,
primarily in Asia.
Furniture Medic. Furniture Medic is a leading provider of on-site furniture
repair and restoration services in the United States with approximately 140,000
residential customers. As of December 31, 2002, Furniture Medic provided these
services in 46 states and the District of Columbia through 462 franchised
locations. Furniture Medic also provides on-site furniture repair and
restoration services through subsidiaries in France and the United Kingdom and
has entered into licensing arrangements to provide these services in Canada and
Saudi Arabia.
MARKETING AND DISTRIBUTION
ServiceMaster markets its services primarily through telemarketing,
television and radio advertising, yellow pages advertisements, print
advertisements, direct mail and door-to-door solicitation. Additionally,
American Home Shield markets its home service contracts through participating
real estate brokerage offices in conjunction with resales of single-family
residences and through financial institutions and insurance agencies.
HEADQUARTERS FUNCTIONS
Business Support Center. The Business Support Center coordinates
administration of payroll, benefits, risk management and travel services for
ServiceMaster's internal operations. Various administrative support departments
also provide personnel, communications, marketing, government and public
relations, administrative, accounting, financial, tax, human resources,
information technology and legal services. The Business Support Center is
headquartered in Downers Grove, Illinois, and has additional personnel located
in Memphis, Tennessee.
New Channels Development Group. In December 2002, ServiceMaster announced
the integration of ServiceMaster Home Service Center (formerly WeServeHomes.com)
into the enterprise marketing support function of ServiceMaster as the New
Channels Development Group. The New Channels Development Group actively
collaborates with ServiceMaster's marketing officers to identify opportunities
and establish priorities for opening new sales channels and developing
multi-brand marketing programs.
PATENTS, TRADEMARKS AND LICENSES
ServiceMaster holds various service marks, trademarks and trade names that
it deems particularly important to the advertising and franchising activities
conducted by each of its operating segments. These marks are registered in the
United States and over 97 other countries and are renewed at each registration
expiration date. ServiceMaster also holds various patents, trademarks, service
marks, trade names and copyrights, none of which are considered by ServiceMaster
to be material to its financial condition or results of operations, and owns
certain trade secrets, including training manuals, pricing models, customer
information and software source code.
4
FRANCHISES
Franchises are important to the TruGreen ChemLawn, Terminix, ServiceMaster
Clean, Merry Maids, AmeriSpec and Furniture Medic businesses. Total franchise
fees (initial and recurring) represented 2.5% of consolidated revenue in both
2002 and 2001 and 1.6% and 1.7% of consolidated operating expenses in 2002 and
2001, respectively. Total franchise fee income comprised 11.3% and 10.2% of
consolidated operating income in 2002 and 2001, respectively. Franchise
agreements made in the course of these businesses are generally for a term of
five years. ServiceMaster renews the majority of its franchise agreements prior
to their expiration.
SALE OF REMAINING EUROPEAN PEST CONTROL OPERATIONS
In September 2002, ServiceMaster sold the stock of its remaining Terminix
European pest control and property services subsidiaries to Ecolab Inc. The sale
included operations in the United Kingdom and the Republic of Ireland.
COMPETITION
The following information is based on estimates, which cannot be verified,
made by ServiceMaster's management. ServiceMaster competes with many other
companies in the sale of its services, franchises and products. Some of these
competitors are larger or have greater financial and marketing strength than
ServiceMaster. The principal methods of competition in ServiceMaster's
businesses include quality of service, name recognition, pricing, assurance of
customer satisfaction and reputation.
TruGreen Segment
Lawn Care Services. Competition in the market for lawn care services is
strong, coming mainly from local, independently owned firms and from homeowners
who care for their own lawns.
Landscape Maintenance Services. Competition in the market for landscape
maintenance services is strong, coming mainly from small, owner-operated
companies operating in a limited geographic market and, to a lesser degree, from
a few large companies operating in multiple markets, and from property owners
who perform their own landscaping services.
Terminix Segment
Termite and Pest Control Services. Competition in the market for termite
and pest control services is strong, coming mainly from thousands of regional
and local, independently owned firms, from homeowners who treat their own
termite and pest control problems and from one other large company which
operates on a national basis.
American Home Shield Segment
Home Service Contracts for Systems and Appliances. Competition in the
market for home service contracts for systems and appliances is strong, coming
mainly from regional providers of home warranties. American Home Shield competes
with these companies for access to real estate brokers, financial institutions
and insurance agents that distribute its home service contracts.
Home Inspection Services. Competition in the market for home inspection
services is strong, coming mainly from regional and local, independently owned
firms.
5
American Residential Services and American Mechanical Services Segment
Electrical, Heating, Ventilation and Air Conditioning Services. Competition
in the market for electrical, heating, ventilation and air conditioning services
is strong, coming mainly from local, independently owned firms throughout the
United States and a few national companies.
Plumbing and Drain Cleaning Services. Competition in the market for
plumbing and drain cleaning services is strong, coming mainly from local,
independently owned firms throughout the United States and one national company.
Other Operations Segment
Disaster Restoration and Cleaning Services. Competition in the market for
disaster restoration and cleaning services is strong, coming mainly from local,
independently owned firms and a few national companies.
House Cleaning Services. Competition in the market for house cleaning
services is strong, coming mainly from local, independently owned firms and a
few national companies.
Furniture Repair Services. Competition in the market for furniture repair
services is strong, coming mainly from local, independent contractors.
MAJOR CUSTOMERS
ServiceMaster has no single customer that accounts for more than 10% of its
operating revenue. Additionally, no operating segment has a 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 material adverse effect on ServiceMaster's financial condition or
results of operations.
REGULATORY COMPLIANCE
Government Regulations. ServiceMaster's operating segments are subject to
various federal, state and local laws and regulations, compliance with which
could reduce ServiceMaster's profitability or limit ServiceMaster's growth by
increasing operating costs, limiting or restricting the services provided by
ServiceMaster or the methods by which ServiceMaster sells those services or
conducts its business, or subjecting ServiceMaster to the possibility of
regulatory actions or proceedings.
These federal and state laws include laws relating to consumer protection
matters, permit and license requirements, workers' safety (the Occupational
Safety and Health Act) and employee benefits (the Consolidated Omnibus Budget
Reconciliation Act of 1985 and the Employee Retirement Income Security Act of
1974). Each operating segment must also meet the Department of Transportation
and Federal Motor Carrier Safety Administration requirements with respect to its
fleet of vehicles, and American Home Shield and AmeriSpec are regulated by the
Department of Insurance in certain states. In addition, the Health Insurance
Portability and Accountability Act of 1996, which becomes effective on April 14,
2003, will restrict the manner in which ServiceMaster operates some of its
employee benefit plans.
Consumer Protection and Telemarketing Matters. ServiceMaster is subject to
numerous federal and state laws and regulations designed to protect consumers,
including laws governing consumer privacy, the collection and use of consumer
data and telemarketing. Noncompliance with such laws or regulations can subject
ServiceMaster to fines or various forms of civil or criminal prosecution, any of
which could have an adverse effect on its financial condition and results of
operations.
At the federal level, the Federal Telephone Consumer Protection Act and the
Federal Telemarketing Sales Rule govern ServiceMaster's telephone sales
practices. At the state level, there are numerous statutes and regulations
targeted at direct telephone sales activities. For example, a growing number of
states have created
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statewide "do-not-call" registries, which prohibit telephone contact of those
registered with the state. The implementation of do-not-call lists requires
ServiceMaster's operating segments to seek additional channels from which to
market and to solicit new customers.
Franchise Matters. TruGreen ChemLawn, Terminix, ServiceMaster Clean, Merry
Maids, AmeriSpec, and Furniture Medic are subject to various federal and state
franchising laws and regulations governing franchise sales and marketing and
franchise trade practices, including applicable rules and regulations of the
Federal Trade Commission. These laws and regulations generally require
disclosure of business information in connection with the sale of franchises.
Certain state regulations also affect the ability of the franchisor to revoke or
refuse to renew a franchise. ServiceMaster deals with franchisees in good faith
and seeks to comply with regulatory requirements. From time to time,
ServiceMaster and one or more franchisees may become involved in a dispute
regarding the franchise relationship, including, among other things, payment of
royalties, location of stores, advertising, purchase of products by franchisees,
compliance with ServiceMaster standards and franchise renewal criteria. There
can be no assurance that compliance problems will not be encountered from time
to time, or that material disputes with one or more franchisees will not arise.
Environmental Matters. ServiceMaster's businesses are subject to various
federal, state and local laws and regulations regarding environmental matters.
Terminix is regulated under many federal and state environmental laws, including
the Federal Environmental Pesticide Control Act of 1972 and the Federal
Insecticide, Fungicide and Rodenticide Act of 1947. TruGreen ChemLawn and
TruGreen LandCare are also regulated under many federal and state environmental
laws, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986,
the Federal Insecticide, Fungicide and Rodenticide Act of 1947, the Resource
Conservation and Recovery Act of 1976 and the Clean Water Act. ServiceMaster
cannot predict the effect on its operations of possible future environmental
legislation or regulations. During 2002, there were no material capital
expenditures for environmental control facilities, and no such material
expenditures are anticipated in 2003.
EMPLOYEES
On December 31, 2002, ServiceMaster had a total of approximately 40,000
employees.
AVAILABLE INFORMATION
ServiceMaster maintains an Internet website at http://www.svm.com that
includes a hyperlink to a website maintained by a third-party where
ServiceMaster's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and all amendments to those reports are available
without charge as soon as reasonably practicable following the time that they
are filed with or furnished to the Securities and Exchange Commission.
ITEM 2. PROPERTIES
BUSINESS SUPPORT CENTER
In December 2002, ServiceMaster relocated its Business Support Center
headquarters to a new location within Downers Grove, Illinois. ServiceMaster
leases approximately 66,000 square feet of office space to accommodate personnel
from the Business Support Center. The lease expires at the end of 2012, but
ServiceMaster has an option to terminate the lease early after five years.
Additionally, ServiceMaster leases warehouse space in Naperville, Illinois.
ServiceMaster believes that this office facility and warehouse are suitable and
adequate to support the Business Support Center's current needs in the
Chicagoland area.
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OPERATING SEGMENTS
The headquarters for TruGreen ChemLawn, TruGreen LandCare, Terminix,
American Residential Services and Rescue Rooter are located in leased premises
at 860 Ridge Lake Boulevard, Memphis, Tennessee. The headquarters for
ServiceMaster Clean, Merry Maids, Furniture Medic, American Home Shield and
AmeriSpec are located in leased premises at 889 Ridge Lake Boulevard, Memphis,
Tennessee. The headquarters for American Mechanical Services are located in
leased premises at 8039 Laurel Lake Circle, Laurel, Maryland. In addition,
ServiceMaster leases space for a call center located at 6399 Shelby View Drive,
Memphis, Tennessee, offices located at 850 and 855 Ridge Lake Boulevard,
Memphis, Tennessee, training facilities located at 1650 Shelby Oaks Drive North,
Memphis, Tennessee and 3839 Forest Hill Irene Road, Memphis, Tennessee and a
warehouse located at 1575 Two Place, Memphis, Tennessee. ServiceMaster believes
that these headquarters, call center facility, offices, training facilities and
warehouse are suitable and adequate to support the current needs of its
operating segments in the Memphis and Laurel areas.
ServiceMaster's operating companies 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. ServiceMaster believes that these facilities, when considered with
the headquarters, call center facility, offices, training facilities and
warehouses described above are suitable and adequate to support the current
needs of its business.
Operating Owned Leased No. of
Company Facilities Facilities States
------- ---------- ---------- ------
TruGreen ChemLawn 8 282 40
TruGreen LandCare 1 144 26
Terminix 20 380 41
American Residential Services 4 88 26
American Mechanical Services 1 15 6
American Home Shield 1 8 5
ServiceMaster Clean 0 6 6
Merry Maids 0 58 25
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of conducting its business activities, ServiceMaster
becomes involved in judicial, administrative and regulatory proceedings
involving both private parties and governmental authorities. As of March 1,
2003, these proceedings included general and commercial liability actions and a
small number of environmental proceedings. ServiceMaster does not expect any of
these proceedings to have a material adverse effect on its financial condition
or results of operations.
In the fourth quarter of 2001, ServiceMaster announced the sale of certain
subsidiaries of its Terminix European pest control and property services
operations. In the fourth quarter of 2002, the purchaser made a claim for a
purchase price adjustment, relating to an alleged breach of certain conditions
in the purchase agreement. In the course of responding to that claim,
ServiceMaster discovered that personnel of the former operations had made
unsupported monthly adjustments to certain accounts. In recognition of these
facts, ServiceMaster agreed to an adjustment to the purchase price consisting of
an $8 million cash payment and the cancellation of a previously reserved note.
On March 14, 2003, ServiceMaster contacted the Securities and Exchange
Commission on its own initiative and has provided the Commission with
information regarding the activities at the former subsidiary.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Form 10-K, no
matters were submitted to a vote of security holders.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ServiceMaster's common stock is traded on the New York Stock Exchange under
the symbol "SVM." At March 28, 2003, ServiceMaster's common stock was held of
record by approximately 32,000 persons. ServiceMaster estimates that
approximately 35,000 persons held shares of its common stock in the names of
nominees.
The information contained in ServiceMaster's Annual Report to Shareholders
for 2002 under the captions "Statements of Shareholders' Equity" and "Cash
Dividends Per Share" in the Quarterly Operating Results table is incorporated by
reference in this Form 10-K. The following table sets forth the quarterly prices
of ServiceMaster's common stock, as reported on the New York Stock
Exchange-Composite Transactions:
2002 2001 2000
Price Per Share: High Low High Low High Low
First Quarter $14.50 $13.16 $12.00 $ 9.95 $14.94 $10.69
Second Quarter 15.50 12.70 12.00 9.84 13.75 10.63
Third Quarter 13.63 10.30 12.84 9.95 11.50 8.38
Fourth Quarter 12.15 8.89 14.20 10.06 11.50 8.25
ITEM 6. SELECTED FINANCIAL DATA
The information contained in ServiceMaster's Annual Report to Shareholders
for 2002 under the caption "Five Year Financial Summary" in the Financial
Statements section is incorporated by reference in this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in ServiceMaster's Annual Report to Shareholders
for 2002 under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" is incorporated by reference in this Form
10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in ServiceMaster's Annual Report to Shareholders
for 2002 under the caption "Quantitative and Qualitative Disclosures about
Market Risk" is incorporated by reference in this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Statements of Financial Position as of December 31, 2002
and 2001, the Consolidated Statements of Income, Cash Flows and Shareholders'
Equity for the years ended December 31, 2002, 2001 and 2000 and the Notes to the
Consolidated Financial Statements contained in ServiceMaster's Annual Report to
Shareholders for 2002 are incorporated by reference in this Form 10-K. The
report of Deloitte & Touche LLP dated March 26, 2003 on the Consolidated
Financial Statements contained in ServiceMaster's Annual Report to Shareholders
for 2002 are also incorporated by reference in this Form 10-K.
10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 20, 2002, ServiceMaster, with the approval of the Board of Directors
and its Audit and Finance Committee, dismissed Arthur Andersen LLP as its
independent auditors and engaged Deloitte & Touche LLP as its new independent
auditors. The appointment of Deloitte & Touche became effective on May 22, 2002.
During the two fiscal years ended December 31, 2001 and 2000, and the interim
period subsequent to December 31, 2001, and through May 20, 2002, there were no
disagreements between ServiceMaster and Arthur Andersen on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which, if not resolved to Arthur Andersen's satisfaction,
would have caused Arthur Andersen to make reference to the subject matter in
connection with its reports on ServiceMaster's consolidated financial statements
for such periods. Arthur Andersen's report on ServiceMaster's consolidated
financial statements for the years ended December 31, 2001 and 2000 did not
contain an adverse opinion or a disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope or accounting principles. During the
years ended December 31, 2001 and 2000, and the interim period from January 1,
2002 through May 20, 2002, there were no reportable events as described under
Item 304(a)(1)(v) of Regulation S-K. During the years ended December 31, 2001
and 2000, and through May 20, 2002, ServiceMaster did not consult with Deloitte
& Touche with respect to the application of accounting principles to a specified
transaction, either completed or proposed, the type of audit opinion that might
be rendered on ServiceMaster's consolidated financial statements, or any matter
that was the subject of a disagreement or a reportable event, as described in
Items 304(a)(2)(i) and (ii) of Regulation S-K.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information contained in ServiceMaster's Proxy Statement for the 2003
Annual Meeting of Shareholders under the heading "Item 1 - Election of
Directors" is incorporated by reference in this Form 10-K.
EXECUTIVE OFFICERS OF SERVICEMASTER
The following table shows (i) the names and ages (as of March 1, 2003) of
ServiceMaster's executive officers, (ii) all positions presently held by each
executive officer, and (iii) the year each person became an officer of
ServiceMaster. 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
---- --- ----------------- ----------
Jonathan P. Ward 48 Chairman and Chief Executive Officer 2001
Ernest J. Mrozek 49 President and Chief Operating Officer 1987
Steven C. Preston 42 Executive Vice President and Chief Financial Officer 1997
Steven B. Bono 50 Senior Vice President, Corporate Communications 2001
Mitchell T. Engel 50 Chief Marketing Officer 2002
James A. Goetz 45 Senior Vice President and Chief Information Officer 2000
Jim L. Kaput 42 Senior Vice President and General Counsel 2000
Elizabeth L. Reeves 49 Senior Vice President for People 2002
Mr. Ward is also a director of ServiceMaster. For biographical information
with respect to Mr. Ward, see "Item 1 - Election of Directors" in
ServiceMaster's Proxy Statement for the 2003 Annual Meeting of Shareholders.
Ernest J. Mrozek, age 49, is President and Chief Operating Officer. He
served as President of ServiceMaster Consumer and Commercial Services from
November 1998 to April 2002. From January 1997 to October 1998 he served as
President and Chief Operating Officer, ServiceMaster Consumer Services.
Steven C. Preston, age 42, 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.
Steven B. Bono, age 50, has served as Senior Vice President, Corporate
Communications since July 2001. He was on sabbatical from May 2000 to July 2001.
Mr. Bono served as Vice President, Communications Strategy of Jack Morton
Worldwide in Chicago, Illinois from September 1997 to May 2000. From January
1997 to August 1997, he served as Vice President, Strategic Executive Engagement
of American Telephone & Telegraph Company in Basking Ridge, New Jersey.
12
Mitchell T. Engel, age 50, is Chief Marketing Officer. He served as
Principal of Engel Marketing Services from April 1998 to April 2002. From
January 1996 to March 1998 he was President, Corporate Operations & Associated
Communication Companies, True North Communications.
James A. Goetz, age 45, is Senior Vice President and Chief Information
Officer. He served as Chief Information Officer of The ServiceMaster Home
Service Center L.L.C. from September 2000 to January 2002. From January 1999 to
August 2000, he was Director of Internet Services at IBM Global Services. From
May 1996 to December 1998, he was Director of Internet Partnering at IBM Global
Network.
Jim L. Kaput, age 42, 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.
Elizabeth L. Reeves, age 49, is Senior Vice President for People. She
served as Executive Vice President of Global Human Resources for Bcom3 from
October 2000 to September 2002. From March 1997 to September 2000 she was Group
Vice President, Human Resources for CNA.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The information contained in ServiceMaster's Proxy Statement for the 2003
Annual Meeting of Shareholders under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" is incorporated by reference in this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in ServiceMaster's Proxy Statement for the 2003
Annual Meeting of Shareholders under the headings "Compensation of Directors,"
"Executive Compensation" and "Agreements with Officers and Directors" is
incorporated by reference in this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information contained in ServiceMaster's Proxy Statement for the 2003
Annual Meeting of Shareholders under the headings "Ownership of Our Common
Stock" and "Equity Compensation Plan Information" is incorporated by reference
in this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in ServiceMaster's Proxy Statement for the 2003
Annual Meeting of Shareholders under the heading "Certain Transactions" is
incorporated by reference in this Form 10-K.
ITEM 14. CONTROLS AND PROCEDURES
ServiceMaster's Chairman and Chief Executive Officer, Jonathan P. Ward, and
ServiceMaster's Chief Financial Officer, Steven C. Preston, have evaluated
ServiceMaster's disclosure controls and procedures within 90 days of the filing
of this report.
Messrs. Ward and Preston have concluded that ServiceMaster's disclosure
controls and procedures provide reasonable assurance that ServiceMaster can meet
its disclosure obligations. ServiceMaster's disclosure controls and procedures
are based on a roll-up of financial and non-financial reporting that is
consolidated in the principal
13
executive office of ServiceMaster in Downers Grove, Illinois. The reporting
process is designed to ensure that information required to be disclosed by
ServiceMaster in the reports that it files or submits with the Securities and
Exchange Commission is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms.
There have been no significant changes in ServiceMaster's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
14
PART IV
ITEM 15. 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 ServiceMaster's
Annual Report to Shareholders for 2002 and are incorporated by
reference in Part II, Item 8 of this Form 10-K:
Report of Independent Auditors
Consolidated Statements of Income for the three
years ended December 31, 2002, 2001 (as restated)
and 2000 (as restated)
Consolidated Statements of Financial Position as of
December 31, 2002 and 2001 (as restated)
Consolidated Statements of Cash Flows for the three
years ended December 31, 2002, 2001 (as restated)
and 2000 (as restated)
Consolidated Statements of Shareholders' Equity for
the three years ended December 31, 2002, 2001 (as
restated) and 2000 (as restated)
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 Form 10-K:
Schedule II--Valuation and Qualifying Accounts
Independent Auditors' Report on Schedule
Exhibit 23--Independent Auditors' Consent
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.
3. Exhibits
The exhibits filed with this report are listed on pages 23-26 (the
"Exhibits Index"). Entries marked by an asterisk next to the exhibit's number
identify management contracts or compensatory plans, contracts or arrangements
in which a director or any of ServiceMaster's executive officers to be
identified in the summary compensation table included in ServiceMaster's Proxy
Statement for the 2003 Annual Meeting of Shareholders
15
participates or compensatory plans, contracts or arrangements adopted without
approval of security holders pursuant to which ServiceMaster may award equity
and in which any ServiceMaster employee currently participates.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of the
fiscal year covered by this Form 10-K.
16
SCHEDULE II
THE SERVICEMASTER COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions
Balance at Charged to
Beginning of Costs and Balance
Period Expenses Deductions (1) End of Period
-------------- -------------- -------------------------------------
AS OF DECEMBER 31, 2002:
Continuing Operations -
Allowance for doubtful accounts
Accounts receivable (current) 26,313 40,560 42,397 24,476
Notes receivable (current) 2,084 1,056 - 3,140
Reserves related to strategic actions in the fourth
quarter of 2001 (2) 36,000 (5,600) 14,900 15,500
Remaining Liabilities from Discontinued Operations (3)
LandCare Construction 34,100 2,600 22,700 14,000
Certified Systems, Inc. 23,800 3,500 13,700 13,600
Management Services 7,400 (4,500) 1,300 1,600
International businesses (4) 19,600 21,900 20,100 21,400
Other 16,100 600 6,300 10,400
AS OF DECEMBER 31, 2001:
Continuing Operations -
Allowance for doubtful accounts
Accounts receivable (current) 29,349 32,523 35,559 26,313
Notes receivable (current) 1,691 516 123 2,084
Reserves related to strategic actions in the fourth
quarter of 2001 (2) - 40,000 4,000 36,000
Remaining Liabilities from Discontinued Operations (3)
LandCare Construction 5,200 32,200 3,300 34,100
Certified Systems, Inc. 12,600 13,000 1,800 23,800
Management Services - 22,700 15,300 7,400
Other 800 15,300 - 16,100
AS OF DECEMBER 31, 2000:
Continuing Operations -
Allowance for doubtful accounts
Accounts receivable (current) 31,457 32,184 34,292 29,349
Notes receivable (current) 1,417 755 481 1,691
(1) Deductions in the allowance for doubtful accounts and notes receivable
reflect write-offs of uncollectible accounts Deductions for the
remaining items reflect cash payments, except for the items noted in
(4).
(2) Includes accruals for residual value guarantees on leased properties,
severance for former executives and terminated employees, and
transaction and other costs.
(3) The beginning balance represents the liabilities of the discontinued
operations that existed prior to the recording in the fourth quarter of
2001 of the costs related to exiting these operations and the reserves
for items recorded in the fourth quarter of 2001. Additions reflect the
costs recorded related to exiting these operations.
(4) The liabilities of this business assumed by the buyer of the sold
operations totaled $19.6 million. The Company recorded accruals in
connection with the 2002 sold operations and a cash adjustment to the
purchase price of the 2001 disposition.
17
INDEPENDENT AUDITORS' REPORT
To the Shareholders of The ServiceMaster Company:
We have audited the consolidated financial statements of The ServiceMaster
Company as of December 31, 2002 and 2001, and for each of the three years in the
period ended December 31, 2002, and have issued our report thereon dated March
26, 2003; such financial statements and report (which report expresses an
unqualified opinion and includes explanatory paragraphs relating to the
restatement of the Company's financial statements and the adoption of Statement
of Financial Accounting Standards No. 142, Goodwill and Other intangible Assets)
are included in The ServiceMaster Company's 2002 Annual Report to Shareholders
and are incorporated herein by reference. Our audits also included the
consolidated financial statement schedule of The ServiceMaster Company, listed
in Item 15. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 31, 2003
18
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
Date: March 31, 2003 By /s/ JONATHAN P. WARD
-------------------------------
Jonathan P. Ward
Chairman 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/ JONATHAN P. WARD Chairman and Chief Executive March 31, 2003
- ---------------------- Officer and Director
Jonathan P. Ward
/s/ STEVEN C. PRESTON Executive Vice President and March 31, 2003
- ---------------------- Chief Financial Officer (Principal
Steven C. Preston Financial Officer and Principal
Accounting Officer)
/s/ PAUL W. BEREZNY, JR. Director March 14, 2003
- ---------------------------
Paul W. Berezny, Jr.
/s/ BRIAN GRIFFITHS Director March 14, 2003
- ---------------------------
Brian Griffiths
/s/ SIDNEY E. HARRIS Director March 14, 2003
- ---------------------------
Sidney E. Harris
/s/ ROBERTO R. HERENCIA Director March 14, 2003
- ---------------------------
Roberto R. Herencia
/s/ HERBERT P. HESS Director March 14, 2003
- ---------------------------
Herbert P. Hess
Director
- ---------------------------
Michelle M. Hunt
19
/s/ JAMES D. McLENNAN Director March 14, 2003
- ----------------------
James D. McLennan
/s/ DALLEN W. PETERSON Director March 14, 2003
- ---------------------------
Dallen W. Peterson
/s/ BETTY JANE SCHEIHING Director March 14, 2003
- ------------------------
Betty Jane Scheihing
/s/ DONALD G. SODERQUIST Director March 28, 2003
- ------------------------
Donald G. Soderquist
/s/ DAVID K. WESSNER Director March 14, 2003
- ---------------------------
David K. Wessner
20
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Jonathan P. Ward, certify that:
1. I have reviewed this annual report on Form 10-K of The ServiceMaster Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Jonathan P. Ward
--------------------
Jonathan P. Ward
Chairman and Chief Executive Officer
21
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Steven C. Preston, certify that:
1. I have reviewed this annual report on Form 10-K of The ServiceMaster Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Steven C. Preston
---------------------
Steven C. Preston
Executive Vice President and Chief Financial Officer
22
Exhibits Index
Exhibit 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 registrant's Current Report on Form 8-K, No. 2 dated
February 26, 1998 (File No. 1-14762) (the "1998 8-K, No. 2").
3(ii) Bylaws of The ServiceMaster Company, as amended through April 26, 2002,
are incorporated by reference to Exhibit 3(ii) to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
(File No. 1-14762) (the "2002 10-Q").
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 registrant's 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
registrant's 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 registrant's
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
registrant's 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 registrant's
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 registrant's
Registration Statement on Form S-3 (File No. 333-91381), filed on
November 19, 1999 (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 registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 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.
23
Exhibits Index
Exhibit No. Description of Exhibit
- ----------------------------------------------------------------------------
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 $490,000,000 Credit Agreement dated as of December 12, 2001 among The
ServiceMaster Company, the Lenders, JPMorgan Chase Bank, Bank of
America, Bank One N.A., First Union National Bank and SunTrust Bank is
incorporated by reference to Exhibit 4.16 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2001 (File No.
1-14762) (the "2001 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* 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").
10.3* 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.
10.4* 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), filed on
October 4, 1994 (the "1994 S-8").
10.5* 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.
10.6* 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").
10.7* Form of Option Agreement for the 1997 Share Option Plan is incorporated
by reference to Exhibit 10.29 to the 1996 10-K.
10.8* 1998 Equity Incentive Plan is incorporated by reference to Exhibit
10.15 to the 1997 10-K.
10.9* 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.
10.10* 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.
10.11* 1998 Non-Employee Directors Discounted Stock Option Plan is
incorporated by reference to Exhibit 10.21 to the 1997 10-K.
10.12* 1998 Long-Term Performance Award Plan is incorporated by reference to
Exhibit 10.22 to the 1997 10-K.
10.13* 2000 Equity Incentive Plan is incorporated by reference to Exhibit 4.4
to the registrant's Registration Statement on Form S-8 (File No.
333-42680), filed on July 31, 2000 (the "2000 S-8").
10.14* Form of Option Agreement for the 2000 Equity Incentive Plan is
incorporated by reference to Exhibit 10.17 to the 2001 10-K.
24
Exhibits Index
Exhibit No. Description of Exhibit
- ----------------------------------------------------------------------------
10.15* Employment Agreement dated as of January 9, 2001 between The
ServiceMaster Company and Jonathan P. Ward is incorporated by reference
to Exhibit 10.19 to the Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 1-14762) (the "2000 10-K").
10.16* Stock Option Agreement dated as of January 9, 2001 between The
ServiceMaster Company and Jonathan P. Ward is incorporated by reference
to Exhibit 10.20 to the 2000 10-K.
10.17* WeServeHomes.com 2000 Stock Option/Stock Issuance Plan is incorporated
by reference to Exhibit 10.21 to the 2000 10-K.
10.18* Form of Stock Option Agreement for the WeServeHomes.com 2000 Stock
Option/Stock Issuance Plan is incorporated by reference to Exhibit
10.22 to the 2000 10-K.
10.19* Form of Stock Purchase Agreement for the WeServeHomes.com 2000 Stock
Option/Stock Issuance Plan is incorporated by reference to Exhibit
10.23 to the 2000 10-K.
10.20*+ 2001 Directors Stock Plan, as amended and restated effective January
24, 2003.
10.21* Form of Option Agreement for the 2001 Directors Stock Plan is
incorporated by reference to Exhibit 4.4 to the registrant's
Registration Statement on Form S-8 (File No. 333-65520), filed on July
20, 2001.
10.22* Letter Agreement dated as of June 1, 2001 between The ServiceMaster
Company and Carlos Cantu is incorporated by reference to Exhibit 10.1
to the registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001 (File No. 1-14762).
10.23* Letter Agreement dated as of March 21, 2002 between The ServiceMaster
Company and C. William Pollard is incorporated by reference to Exhibit
10.27 to the 2001 10-K.
10.24* Employment Agreement dated as of April 18, 2002 between The
ServiceMaster Company and Phillip B. Rooney is incorporated by
reference to Exhibit 10.1 to the 2002 10-Q.
10.25*+ Employment Agreement dated as of April 1, 2002 between The
ServiceMaster Company and Mitchell T. Engel.
10.26* 2001 Long-Term Performance Award Plan, as amended March 16, 2001, is
incorporated by reference to Exhibit 10.2 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001 (File No.
1-14762).
10.27* Form of Change in Control Severance Agreement is incorporated by
reference to Exhibit 10.30 to the 2001 10-K.
10.28* Form of Restricted Stock Award Agreement for the 2000 Equity Incentive
Plan is incorporated by reference to Exhibit 10.31 to the 2001 10-K.
10.29*+ ServiceMaster Deferred Compensation Plan, as amended and restated
effective October 24, 2002.
10.30* Form of 5.50% Convertible Debenture due January 9, 2011 issued to
Jonathan P. Ward is incorporated by reference to Exhibit 10.33 to the
2001 10-K.
10.31* Form of 5.50% Note due January 9, 2011 issued to Jonathan P. Ward is
incorporated by reference to Exhibit 10.34 to the 2001 10-K.
25
Exhibits Index
Exhibit No. Description of Exhibit
- ----------------------------------------------------------------------------
10.32* Form of 5.50% Convertible Debenture due May 10, 2011 issued to Jonathan
P. Ward is incorporated by reference to Exhibit 10.35 to the 2001 10-K.
10.33* Form of 5.50% Note due May 10, 2011 issued to Jonathan P. Ward is
incorporated by reference to Exhibit 10.36 to the 2001 10-K.
10.34* ServiceMaster Employee Share Purchase Plan, as amended and restated
effective October 4, 2001, is incorporated by reference to Exhibit
10.37 to the 2001 10-K.
10.35*+ 2002 Directors Deferred Fees Plan effective October 25, 2002.
13+ Annual Report to Shareholders for the year ended December 31, 2002 (the
"2002 Annual Report"). The parts of the 2002 Annual Report which are
expressly incorporated into this report by reference shall be deemed
filed with this report. All other parts of the 2002 Annual Report are
furnished for the information of the Securities and Exchange Commission
and are not filed with this report.
21+ Subsidiaries of ServiceMaster.
23+ Consent of Deloitte & Touche LLP.
99.1+ Certification of Chief Executive Officer.
99.2+ Certification of Chief Financial Officer.
99.3+ Statement on Scope and Organization of the Board of Directors of The
ServiceMaster Company dated March 8, 2002.
99.4+ Charter and Operating Guidelines of the Audit and Finance Committee
(Audit Capacity) dated as of July 19, 2002.
99.5+ Charter and Operating Guidelines of the Audit and Finance Committee
(Finance Capacity) dated as of July 19, 2002.
99.6+ Charter and Operating Guidelines of the Compensation and Leadership
Development Committee dated as of July 19, 2002.
99.7+ Charter and Operating Guidelines of the Governance and Nominating
Committee dated as of July 19, 2002.
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* Indicates compensatory plan, contract, or arrangement.
+ Filed herewith.
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EXHIBIT 21
SUBSIDIARIES OF THE SERVICEMASTER COMPANY
As of March 1, 2003, ServiceMaster had the following subsidiaries:
State or Country
of
Incorporation
Subsidiary or Organization
- ---------- ---------------
ServiceMaster Consumer Services Limited Partnership........................................................Delaware
ServiceMaster Consumer Services, Inc. ....................................................................Delaware
TruGreen Limited Partnership...............................................................................Delaware
TruGreen, Inc. ...........................................................................................Delaware
Barefoot Grass Canada, Inc. ..............................................................................Delaware
TruGreen LandCare L.L.C. 1.................................................................................Delaware
TruGreen Companies L.L.C...................................................................................Delaware
The Terminix International Company Limited Partnership.....................................................Delaware
Terminix International, Inc. .............................................................................Delaware
ServiceMaster Residential/Commercial Services Limited Partnership..........................................Delaware
SM Clean L.L.C.............................................................................................Delaware
Merry Maids Limited Partnership............................................................................Delaware
MM Maids L.L.C.............................................................................................Delaware
American Home Shield Corporation 2.........................................................................Delaware
AmeriSpec, Inc. ..........................................................................................Delaware
Furniture Medic Limited Partnership........................................................................Delaware
FM Medic L.L.C.............................................................................................Delaware
American Residential Services Holding L.L.C. 3.............................................................Delaware
ServiceMaster Aviation L.L.C...............................................................................Illinois
The ServiceMaster Acceptance Company Limited Partnership...................................................Delaware
ServiceMaster Acceptance Corporation.......................................................................Delaware
ServiceMaster Holding Corporation..........................................................................Delaware
ServiceMaster BSC L.L.C....................................................................................Delaware
ServiceMaster Funding Company L.L.C........................................................................Delaware
ServiceMaster Management Corporation.......................................................................Delaware
Steward Insurance Company...................................................................................Vermont
ServiceMaster Limited................................................................................United Kingdom
The ServiceMaster Home Service Center L.L.C................................................................Delaware
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1 .......TruGreen LandCare L.L.C. has 12 subsidiaries.
2 .......American Home Shield Corporation has 15 subsidiaries, including
AmeriSpec, Inc.
3 .......American Residential Services Holding L.L.C. has 22 subsidiaries.
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EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in registration Statement Nos.
333-81670, 333-73764, 333-65520, 333-53142, 333-50886, 333-42680, 333-33580,
333-78239, 333-74781, 033-55761 on Form S-8 and No. 333-91381 on Form S-3 of The
ServiceMaster Company of our report dated March 26, 2003 (which report expresses
an unqualified opinion and includes explanatory paragraphs relating to the
restatement of the Company's financial statements and adoption of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets),
appearing in and incorporated by reference in this Annual Report on Form 10-K of
The ServiceMaster Company for the year ended December 31, 2002.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 31, 2003
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