SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
Annual Report Pursuant to Section 15(j)
Of the Securities Exchange Act of 1934
X Annual Report Pursuant to Section 15(d)
----
Of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2001
or
Transition Report Pursuant to Section 15(d)
-----
Of the Securities Exchange Act of 1934
For the Transition Period from _____________ to _____________
Commission File Number 1-14762
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
Full Title of Plan
THE SERVICEMASTER COMPANY
2300 Warrenville Road
Downers Grove, Illinois 60515
Name of Issuer of the
Securities Held Pursuant to the Plan
And the Address of the Principal Executive Office
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Committee and Plan administrators have duly caused this annual report to be
signed by the undersigned thereunto duly authorized.
SERVICEMASTER Profit Sharing and Retirement Plan
By: /s/Deborah A. O'Connor
------------------------------------
Deborah A. O'Connor
Senior Vice President and Controller
By: /s/Eric R. Zarnikow
------------------------------------
Eric R. Zarnikow
Senior Vice President and Treasurer
Date: May 31, 2002
2
ServiceMaster Profit Sharing and Retirement Plan
Financial Statements and Schedules
As of December 31, 2001 and 2000
Together With Auditors' Report
Employer Identification Number 36-3858106
Plan Number 001
3
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
December 31, 2001 and 2000
(Employer Identification Number 36-3858106, Plan Number 001)
TABLE OF CONTENTS
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of December 31, 2001
and 2000
Statement of Changes in Net Assets Available for Benefits for the Year
Ended December 31, 2001
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
SCHEDULES:
Schedule H, Line 4i--Schedule of Assets (Held at End of
Year)--December 31, 2001 Schedule I
Schedule H, Line 4j--Schedule of Reportable Transactions
for the YearEnded December 31, 2001 Schedule II
4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Benefits Administration Committee of the
ServiceMaster Profit Sharing and Retirement Plan
We have audited the accompanying statements of net assets available for benefits
of the ServiceMaster Profit Sharing and Retirement Plan as of December 31, 2001
and 2000, and the related statement of changes in net assets available for
benefits for the year ended December 31, 2001. These financial statements are
the responsibility of the Plan's Benefits Administration Committee. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the
ServiceMaster Profit Sharing and Retirement Plan as of December 31, 2001 and
2000, and the changes in net assets available for benefits for the year ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets (Held
at End of Year) and Schedule of Reportable Transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements, but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's Benefits Administration
Committee. The supplemental schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen
Chicago, Illinois
May 31, 2002
5
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
As of December 31, 2001 and 2000
(Employer Identification Number 36-3858106, Plan Number 001)
2001 2000
ASSETS: ------------ ------------
Investments (Note 3) $407,959,315 $358,759,484
Non-interest-bearing cash 221,892 49,311
Receivable--employer contribution 10,750,357 11,164,390
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $418,931,564 $369,973,185
============ ============
The accompanying Notes to Financial Statements and Schedules are an
integral part of these statements.
6
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For the Year Ended December 31, 2001
(Employer Identification Number 36-3858106, Plan Number 001)
ADDITIONS:
Additions to net assets attributed to-
Investment income-
Net appreciation in fair value of investments $ 12,963,925
Interest and dividend income 10,381,291
------------
Total investment income 23,345,216
Contributions-
Participant 29,204,725
Employer 10,750,357
Rollover 1,142,733
------------
Total contributions 41,097,815
------------
Total additions 64,443,031
------------
DEDUCTIONS:
Deductions from net assets attributed to-
Benefits paid to participants (34,513,772)
Other expenses (38,864)
------------
Total deductions (34,552,636)
------------
TRANSFERS TO THE PLAN (Note 1) 19,067,984
------------
Net increase 48,958,379
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 369,973,185
------------
End of year $418,931,564
============
The accompanying Notes to Financial Statements and Schedules
are an integral part of this statement.
7
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
December 31, 2001 and 2000
1. DESCRIPTION OF PLAN
The ServiceMaster Profit Sharing and Retirement Plan (the "Plan") is a
defined contribution plan established by The ServiceMaster Company (the
"Company") and its affiliates and subsidiaries to whom the Plan has been
extended to provide eligible employees with a program to save for
retirement. The Plan was amended and restated effective as of July 1, 1999.
It is subject to the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA"), as amended. The following description of the Plan
provides only general information. Participants should refer to the Plan
agreement for a more complete description of the Plan's provisions.
2001 PLAN CHANGES
During 2001, the Benefits Administration Committee (the "Committee")
resolved to merge the following plans into the Plan effective between
February 15, 2001, through December 31, 2001:
Pennington Lawn Service, Inc. Profit Sharing and 401(k)
Plan $ 204,919
ARS 401(k) Plan 15,296,677
C&C Mechanical Retirement Savings Plan 800,509
Tenet Healthcare Corporation Retirement Savings Plan 785,045
The Southern Tree & Landscape Companies 401(k) Profit
Sharing Plan 649,996
R.L. Company, Inc. Employee Retirement Plan 693,814
ABASH, Inc. 401(k) Plan 97,342
Able Air 401(k) Plan 136,465
Redwood Retirement Savings Plan 101,127
Showcase Landscape Inc. Employee Savings & Investment
Plan 193,279
L. Care USA Inc. 401(k) Profit Sharing Plan and Trust 55,593
MDI/RPM 401(k) Plan 53,218
-----------
Total transfers to the Plan $19,067,984
===========
In the fourth quarter of 2001, the Company's Board of Directors approved a
series of actions related to the strategic review of its portfolio of
businesses that commenced earlier in the year. The Management Services
segment was sold to ARAMARK Corporation on November 30, 2001. As of that
date, employees of this segment were no longer eligible to contribute to
the Plan. Eligible participants of the Management Services segment did
receive a matching contribution from ServiceMaster for the 2001 plan year.
During the first quarter of 2002, the account balances of these
participants totaling approximately $142 million were transferred to an
ARAMARK-sponsored plan.
8
ELIGIBILITY
Full and part-time nonunion employees who have completed one year of
service and are at least 18 years of age are eligible to participate in the
Plan. Effective July 1, 2001, the Plan was amended to reduce the service
period requirement from one year to 90 days. Leased employees and employees
who are or who become covered by a collective bargaining agreement, which
do not allow for Plan participation, are not eligible to participate in the
Plan.
PARTICIPANT CONTRIBUTIONS
Participants may elect to contribute a minimum of 1% up to a maximum of 15%
of pretax annual compensation, as defined in the Plan, subject to certain
limitations. The first 4% of pretax compensation (base contribution)
contributed to the Plan is eligible for a discretionary employer matching
contribution. Participants may also contribute amounts representing
distributions from other qualified plans. Participants direct the
investment of their contributions into various investment options offered
by the Plan, which currently consist of ServiceMaster Company common stock,
six mutual funds and three common/collective trust funds.
EMPLOYER CONTRIBUTIONS
The Company's contribution is discretionary and the amount of contribution
from Company profits is determined each year by the Board of Directors
after a review of the overall financial performance of ServiceMaster and
the key business units. The matching contribution may differ for different
employee groups and, historically, has ranged from 55% to 70% of a
participant's base contribution. One-half of the Company matching
contribution is invested directly in the ServiceMaster Company common stock
fund and the other one-half is invested according to the participants'
direction. The Board of Directors approved a Company contribution for the
year ended December 31, 2001.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution
and allocations of (a) the Company's contribution, (b) Plan earnings (c)
and forfeitures. The participant's accounts are charged with administrative
fees, where applicable. Allocations are based on participant contributions
or account balances, as defined. The benefit to which a participant is
entitled is the benefit that can be provided from the participant's vested
account.
9
VESTING
Participants are vested immediately in their contributions plus actual
earnings thereon. Vesting in the Company's contribution is based on the
following schedule, except for in the event of death or permanent
disability, in which case the participant becomes immediately vested:
Completed Years Percent
of Service Vested
---------------------------------- -------
Less than 2 years of service 0%
2 years of service but less than 3 25
3 years of service but less than 4 50
4 years of service but less than 5 75
5 years of service or more 100
=======
FORFEITURES
Forfeitures are used first to reinstate all rehired participants'
forfeitures and then are allocated to eligible participants in the same
manner as employer profit sharing contributions.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $500 up to a
maximum of the lesser of: (a) $50,000 or (b) 50% of their vested account
balance (limited to the value of the participant's contributions and
earnings thereon), minus their highest outstanding loan balance in the
previous 12 months. A participant's loan is secured by the balance in the
participant's account and bears interest at the prime interest rate as
listed in The Wall Street Journal on the first business day of the month in
which the loan is issued, plus 1%.
BENEFIT PAYMENTS
A participant may elect to have the value of their vested account (minus
any outstanding loan balance) distributed to them upon permanent
disability, upon reaching normal retirement age (65), or upon termination
of employment. A participant may elect to receive either a lump-sum amount
equal to the value of the participant's vested interest in their account,
or monthly, quarterly, or annual installments for a specified number of
years not to exceed the participant's life expectancy and that of their
beneficiary. At the time of distribution, shares of ServiceMaster stock in
the participant's account can be taken in kind or in cash.
TERMINATION OF THE PLAN
The Company currently intends to continue the Plan indefinitely. However,
the Company has the right under the Plan to discontinue contributions and
terminate the Plan at any time, subject to the provisions of ERISA. If the
Plan is terminated, participants will become fully vested in their Company
contributions account balances.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared under the accrual method
of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the Plan's
Benefits Administration Committee to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and changes therein,
and disclosure of contingent assets and liabilities. These estimates could
differ from actual results.
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments, other than the Putnam Stable Value Fund, are stated
at fair value based on quoted market prices or estimated fair value as
reported by the Plan's trustee. Shares of mutual funds are valued at the
net asset value of shares held by the Plan at year-end.
The Putnam Stable Value Fund invests primarily in guaranteed investment
contracts or funding agreements and security-backed investment contracts or
separate accounts issued or wrapped by insurance companies, banks, or other
financial institutions (collectively referred to herein as "Investment
Contracts"). Investment Contracts are carried at cost plus accrued interest
("Book Value"). Investment Contracts will normally be held to maturity, and
meet the fully benefit responsive requirements of the AICPA Statement of
Position 94-4, "Reporting of Investment Contracts Held by Health and
Welfare Benefit Plans and Defined Contribution Pension Plans." The Book
Value of Investment Contracts will be adjusted to reflect any issuer
defaults or other evidence of impairment under an investment contract
should they occur. The aggregate average crediting interest rate of the
Investment Contracts as of December 31, 2001 and 2000, was 6.36% and 6.42%,
respectively. The aggregate average yield for the year ended December 31,
2001, was 6.4%. As of December 31, 2001 and 2000, 83.4% and 87.1%,
respectively, of the Putnam Stable Value Fund's assets were invested in
Investment Contracts, with the remainder of the assets invested in
high-quality money market instruments. There are no reserves against
contract value for credit risk of the contract issuers or otherwise. The
Plan's interest in the estimated fair value of the underlying fund assets
approximates contract value.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded on
the ex-dividend date.
PAYMENT OF BENEFITS
Benefit payments are recorded when paid.
ADMINISTRATIVE EXPENSES
Administrative expenses are paid by the Plan to the extent not paid by the
Company.
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3. INVESTMENTS
The following presents investments that represent 5% or more of the Plan's
net assets as of December 31, 2001 and 2000:
2001 2000
-------------- --------------
Putnam Bond Index Fund, 4,873,343 and
5,287,916 shares, respectively $ 57,944,046 $ 58,219,959
Putnam Investors Fund, 2,697,542 and 1,834,597
shares, respectively 31,453,334 28,381,220
The George Putnam Fund of Boston CL Y,
3,665,683 and 2,859,395 shares, respectively 61,473,500 49,210,193
The Putnam Fund for Growth & Income CL Y,
1,415,741 and 1,151,131 shares, respectively 25,143,550 22,516,115
Putnam S&P 500 Index Fund, 861,717 and
771,205 shares, respectively 23,998,828 24,431,774
Putnam Stable Value Fund, 43,273,907 and
41,580,768 shares, respectively 43,273,907 41,580,768
ServiceMaster Company common stock,
9,704,300 and 9,475,214 shares, respectively 133,919,334* 108,964,963*
*Includes both participant and nonparticipant-directed amounts.
During 2001, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated in value by
$12,963,925 as follows:
Mutual funds $(11,614,431)
Common collective trust funds 1,473,519
Common stock 23,104,837
------------
$12,963,925
=============
The Plan provides for various investments that, in general, are exposed to
various risks such as interest rate, credit and overall market volatility
risks. Due to the level of risk associated with certain investment
securities, it is reasonably possible that changes in the values of
securities will occur in the near term and that such changes could
materially affect the amounts reported in the statements of net assets
available for benefits.
4. NONPARTICIPANT-DIRECTED INVESTMENT
As of December 31, 2001, investment in the Plan is participant-directed,
except that one-half of the Company's matching contribution is invested
directly in The ServiceMaster Company common stock. (As discussed in Note
7, in the second quarter of 2002, the Company eliminated the requirement
that one-half of the Company's matching contribution be invested directly
into the ServiceMaster Company common stock.) Participants, at their
discretion, may also direct their investment to The ServiceMaster Company
common stock. The following information includes both participant and
nonparticipant-directed investment balances. Information about the net
assets of The ServiceMaster Company common stock fund as of December 31,
2001 and 2000, and the significant components of the changes in the net
assets for the year ended December 31, 2001, is as follows:
12
December 31
---------------------------------
2001 2000
------------- -------------
Net assets-
The ServiceMaster Company common stock $133,919,334 $108,964,963
============= =============
Year Ended
Dec.31,2001
-------------
Changes in net assets-
Additions-
Contributions $ 8,578,612
Interest and dividend income 3,900,870
Transfers into the Plan 606,920
Net appreciation 23,104,837
Deductions-
Benefits paid to participants (7,751,119)
Net transfers from participant-directed investments
(3,484,111)
Other expenses (1,638)
-------------
Net change in net assets $24,954,371
=============
5. TAX STATUS OF THE PLAN
The Plan received a favorable determination letter from the Internal
Revenue Service dated February 26, 1996. The Plan was amended and restated
effective July 1, 1999. However, the plan administrator believes that the
Plan is currently designed and being operated in compliance with the
applicable requirements of the Internal Revenue Code. Therefore, the plan
administrator believes that the Plan was qualified and the related trust
was tax-exempt as of the financial statement dates.
6. RELATED-PARTY TRANSACTIONS
The Plan invests in shares of mutual funds and interests in common
collective trust funds managed by Putnam Fiduciary Trust Company ("PFTC").
PFTC acts as trustee and record keeper for the Plan. The Plan also invests
in Company stock and allows loans to participants. These transactions
qualify as party-in-interest transactions, which are exempt from the
prohibited transaction rules.
7. SUBSEQUENT EVENT
In the second quarter of 2002, the Plan eliminated the requirement that
one-half of the Company matching contribution be invested directly in the
ServiceMaster Company common stock fund. Participants are permitted to
invest past and future matching contributions in any of the investment
funds available within the Plan. In addition, three additional mutual funds
were added as investment options.
13
Schedule I
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
SCHEDULE H, LINE 4i--SCHEDULE OF ASSETS
(HELD AT END OF YEAR)
December 31, 2001
(Employer Identification Number 36-3858106, Plan Number 001)
(b) Identity of Issue/ (e) Current
(a) (c) Description of Investment (d) Cost Value
-------- ------------------------------------------------------ -------------- ------------------
MUTUAL FUNDS:
* Putnam Investors Fund N/A $ 31,453,334
* The George Putnam Fund of Boston CL Y N/A 61,473,500
* The Putnam Fund for Growth & Income CL Y N/A 25,143,550
Vanguard Life Strategy Income Fund N/A 2,641,639
Vanguard Life Strategy Conservative Growth Fund N/A 4,531,452
Vanguard Life Strategy Growth Fund N/A 11,280,916
COMMON COLLECTIVE TRUST FUNDS:
* Putnam Bond Index Fund N/A 57,944,046
* Putnam S&P 500 Index Fund N/A 23,998,828
* Putnam Stable Value Fund N/A 43,273,907
EMPLOYER SECURITIES--common shares:
* The ServiceMaster Company common stock $106,164,668 133,919,334
GUARANTEED INVESTMENT CONTRACT:
Massachusetts Mutual Life Insurance Company, 4.9%
420,934 420,934
* PARTICIPANT LOANS, 6.5% to 10.5% N/A 11,877,875
============== ---------------
$407,959,315
===============
*Represents a party-in-interest.
Cost information is omitted for all investments that are fully
participant directed.
The accompanying Notes to Financial Statements and Schedules are an integral
part of this schedule.
Schedule II
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
SCHEDULE H, LINE 4j--SCHEDULE OF REPORTABLE TRANSACTIONS (a)
For the Year Ended December 31, 2001
(Employer Identification Number 36-3858106, Plan Number 001)
SALES
-----------------------------------------------------------------
(H) CURRENT VALUE
OF ASSET ON
(A) IDENTITY OF (B) DESCRIPTION (C) PURCHASE (D) SELLING (G) COST OF TRANSACTION (I) REALIZED
PARTY INVOLVED OF ASSET PRICE PRICE ASSET DATE GAIN
------------------ -------------------- ------------- ------------- ------------- ------------ -------------
The ServiceMaster Employer securities-
Company common shares $18,512,387 $17,269,768 $16,881,776 $17,269,768 $387,992
(a) Represents transactions or a series of transactions related to
nonparticipant-directed investments in excess of 5% of the fair value of
Plan assets at the beginning of the year.
The accompanying Notes to Financial Statements and Schedules are an integral
part of this schedule.
14
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, dated May 31, 2002, included in this Form 11-K, into the ServiceMaster
Profit Sharing and Retirement Plan's previously filed Registration Statement
File No. 333-89037.
/s/ Arthur Andersen
Chicago, Illinois
May 31, 2002
15