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, 2002
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
3250 LACEY 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: June 25, 2003
2
ServiceMaster Profit Sharing and Retirement Plan
Financial Statements as of December 31, 2002 and 2001, and for the Year Ended
December 31, 2002, and supplemental Schedule as of and for the Year Ended
December 31, 2002, and Independent Auditors' Report
3
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of December 31, 2002
and 2001
Statement of Changes in Net Assets Available for Benefits for the Year
Ended December 31, 2002
Notes to Financial Statements
SUPPLEMENTAL SCHEDULE:
Form 5500, Schedule H, Part IV, Line 4i - Schedule of Assets (Held at End of
Year) as of December 31, 2002
EXHIBITS:
23.1 Consent of Independent Public Accountants
99.1 Certification Pursuant to Section 1350 of Chapter 63 of Title 18 Of
The United States Code
All other schedules required by Section 2520.103-10 of the Department of Labor's
Rules and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974 have been omitted because they are not applicable.
4
INDEPENDENT AUDITORS' REPORT
To the Equity Plans Administrative Committee of the
ServiceMaster Profit Sharing and Retirement Plan:
We have audited the accompanying statement of net assets available for benefits
of the ServiceMaster Profit Sharing and Retirement Plan as of December 31, 2002,
and the related statement of changes in net assets available for benefits for
the year then ended. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statement of the Plan as
of December 31, 2001 was audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on that financial statement in
their report dated May 31, 2002.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such 2002 financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan at December 31,
2002, and the changes in net assets available for benefits for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
Our audit was conducted for the purpose of forming an opinion on the 2002 basic
financial statements taken as a whole. The supplemental schedule of assets (held
at the end of year) as of December 31, 2002, is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is 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. This schedule is the responsibility of
the Plan's management. Such schedule has been subjected to the auditing
procedures applied in our audit of the basic 2002 financial statements and, in
our opinion, is fairly stated in all material respects when considered in
relation to the basic financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Chicago, Illinois
June 23, 2003
5
Below is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with the Plan's filing on Form 11-K for the year ended December 31,
2001. This audit report has not been reissued by Arthur Andersen LLP in
connection with the filing on Form 11-K.
INDEPENDENT AUDITORS' REPORT
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
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SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
2002 2001
ASSETS:
Investments (Note 3):
Participant-directed investments $191,438,812 $274,039,981
The ServiceMaster Common Stock Fund (Note 4) 50,583,739 133,919,334
----------- -----------
Total investments 242,022,551 407,959,315
Non-interest-bearing cash 74,024 221,892
Employer contribution receivable 8,675,073 10,750,357
Employee contribution receivable 724,658 -
----------- ------------
NET ASSETS AVAILABLE FOR BENEFITS $251,496,306 $418,931,564
============ ============
7
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------
CONTRIBUTIONS:
Participant contributions $ 22,842,946
Rollover contributions 1,482,053
Employer contributions 8,694,122
------------
Total contributions 33,019,121
------------
INVESTMENT RESULTS:
Net (depreciation) in fair value of investments (33,139,238)
Dividends 6,360,663
Interest 674,610
------------
Net investment loss (26,103,965)
BENEFITS PAID TO PARTICIPANTS (28,118,390)
ADMINISTRATIVE EXPENSES (36,145)
NET TRANSFERS OUT OF PLAN (Note 1) (146,195,879)
------------
DECREASE IN NET ASSETS (167,435,258)
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 418,931,564
------------
End of year $ 251,496,306
=============
See notes to financial statements.
8
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001, AND FOR THE
YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------
1. DESCRIPTION OF THE PLAN
GENERAL--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. The ServiceMaster Profit
Sharing and Retirement Plan (the "Plan") is a defined contribution plan
established by The ServiceMaster Company and its subsidiaries (the
"Company") to whom the Plan has been extended to provide eligible employees
with a program to save for retirement. The Plan is administered by the
Equity Plans Administrative Committee. It is subject to the provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended.
SALE OF MANAGEMENT SERVICES--The Management Services segment of the Company
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. Account balances of Management Services participants of $146,195,879
in cash, Company stock, and participant loans were transferred out of the
Plan between February 28, 2002 and March 27, 2002 to a successor plan
sponsored by ARAMARK Corporation.
ELIGIBILITY--Full and part-time nonunion employees of the Company who have
completed 90 days of service and are at least 18 years of age are eligible
to participate in the Plan. 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 The
ServiceMaster Company common stock, nine 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
the Company and the key business units. The matching contribution may
differ for different employee groups. Half of the Company's matching
contribution is invested directly in The ServiceMaster Company common stock
fund and the other half is invested according to the participants'
direction. Effective May 15, 2002, after the Company matching contribution
is made, participants have complete investment discretion over all Company
contributions. The Board of Directors approved a Company match contribution
of 65% of participants' base contribution across all business units for the
year ended December 31, 2002.
PARTICIPANT ACCOUNTS--Individual accounts are maintained for each Plan
participant. Each participant's account is credited with the participant's
contribution and allocations of (a) the Company's contribution, (b) Plan
earnings and (c) forfeitures. The participant's accounts are charged with
Plan losses and administrative fees, where applicable. Allocations are
based on participant contributions or account
9
balances, as defined. The benefit to which a participant is entitled is the
benefit that can be provided from the participant's vested account.
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 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. Unallocated
forfeitures were $396,535 and $906,929 at December 31, 2002 and 2001,
respectively.
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%.
BENEFITS PAYMENTS--A participant may elect to have the value of his or her
vested account (minus any outstanding loan balance) distributed to him or
her 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
his or her account, or monthly, quarterly, or annual installments for a
specified number of years not to exceed the participant's life expectancy
and that of his or her beneficiary. At the time of distribution, shares of
ServiceMaster stock in the participant's account can be taken in-kind or in
cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING--The accompanying financial statements have been
prepared using the accrual method of accounting in conformity with
accounting principles generally accepted in the United States of America.
USE OF ESTIMATES--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires the Plan to make estimates and assumptions that affect the
reported amounts of net assets available for benefits and changes therein.
Actual results could differ from those estimates. The Plan utilizes various
investment instruments, including mutual funds and investment contracts.
Investment securities, in general, are exposed to various risks, such as
interest rate, credit, and overall market volatility. Due to the level of
risk associated with certain investment securities, it is reasonably
possible that changes in the values of investment securities will occur in
the near term and that such changes could materially affect the amounts
reported in the financial statements.
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INVESTMENT VALUATION AND INCOME RECOGNITION--The Plan's investments, other
than the 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. Participant loans are valued at the outstanding loan balances.
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.
The Stable Value Fund invests in guaranteed investment contracts, funding
agreements and security-backed investment contracts, and 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 aggregate average
crediting interest rate of the Investment Contracts as of December 31, 2002
and 2001 was 4.90% and 6.36%, respectively. The aggregate average yield for
the year ended December 31, 2002 was 4.73%. There are no reserves against
contract value for credit risk of the contract issuers or otherwise. Book
Value approximates fair value at December 31, 2002 and 2001.
ADMINISTRATIVE EXPENSES--Administrative expenses are paid by the Plan to
the extent not paid by the Company. Expenses paid by the Company include
payments to third-party service providers for trust, investment and legal
services, among others. Expenses paid by the Plan include participant loan
initiation fees and loan maintenance fees.
PAYMENT OF BENEFITS--Benefit payments to participants are recorded upon
distribution. Amounts allocated to accounts of persons who have elected to
withdraw from the Plan but have not yet been paid were $233,532 at December
31, 2002. This amount also includes distributions for which participants
have elected to be paid on an installment basis.
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3. INVESTMENTS
The Plan's investments that represented five percent or more of the Plan's
net assets available for benefits as of December 31, 2002 and 2001 are as
follows:
2002 2001
Putnam Investors Fund, 1,955,405 and 2,697,542 shares,
respectively $ 17,422,656 $ 31,453,334
The George Putnam Fund of Boston CL Y,
3,479,481 and 3,665,683 shares, respectively 51,600,706 61,473,500
The Putnam Fund for Growth & Income CL Y,
1,169,835 and 1,415,741 shares, respectively 16,564,863 25,143,550
Putnam Bond Index Fund, 3,346,531 and 4,873,343 shares,
respectively 43,672,224 57,944,046
Putnam S&P 500 Index Fund, 702,118 and 861,717 shares,
respectively 15,193,824 23,998,828
Putnam Stable Value Fund, 22,931,226 and 43,273,907 shares,
respectively 22,931,226 43,273,907
The ServiceMaster Company common stock fund,
4,557,094 and 9,704,300 shares, respectively 50,583,739* 133,919,334*
* Includes both participant-directed and nonparticipant-directed amounts.
During 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
(depreciated), as follows:
Mutual funds:
Putnam Investors Fund $ (6,238,493)
The George Putnam Fund of Boston CL Y (6,547,206)
The Putnam Fund for Growth & Income CL Y (4,385,088)
Vanguard Life Strategy Income Fund (86,217)
Vanguard Life Strategy Conservative Growth Fund (291,622)
Vanguard Life Strategy Growth Fund (1,548,464)
One Group Mid Cap Growth Fund (85,422)
Neuberger & Berman Genesis Trust (160,383)
Putnam International Growth Fund (39,510)
--------------
Mutual funds total (19,382,405)
--------------
Common collective trust funds:
Putnam Bond Index Fund 4,226,936
Putnam S&P 500 Index Fund (4,441,431)
--------------
Common collective trust funds total: (214,495)
--------------
The ServiceMaster Company common stock fund (13,542,338)
--------------
Net depreciation of investments $ (33,139,238)
==============
12
4. THE SERVICEMASTER COMMON STOCK FUND
Investment in the Plan is participant-directed, except that half of the
Company's matching contribution is invested directly in The ServiceMaster
Company common stock fund. Effective May 15, 2002, after the Company
matching contribution is made, participants have complete investment
discretion over all Company contributions. Participants, at their
discretion, may also direct their investment to The ServiceMaster Company
common stock fund. Information about the net assets as of December 31, 2002
and 2001 and the significant components of the changes in net assets
relating to The ServiceMaster Company common stock fund for the year ended
December 31, 2002 is as follows:
AS OF DECEMBER 31,
2002 2001
Net assets:
The ServiceMaster Company common stock fund $ 50,583,739 $ 133,919,334
============= =============
YEAR ENDED
DECEMBER 31, 2002
Changes in net assets:
Additions:
Contributions $ 7,395,973
Interest and dividend income 2,406,669
Deductions:
Benefits paid to participants (7,486,186)
Net transfers into other investments (5,338,417)
Transfers from Plan (66,770,030)
Net depreciation (13,542,338)
Other expenses (1,266)
-----------
Net change (83,335,595)
The ServiceMaster common stock fund--beginning of year 133,919,334
------------
The ServiceMaster common stock fund--end of year $ 50,583,739
============
5. 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.
At December 31, 2002 and 2001, the Plan held 4,557,094 and 9,704,300
shares, respectively, of common stock of The ServiceMaster Company, the
sponsoring employer, with a cost basis of $48,597,770 and $106,164,668,
respectively. During the year ended December 31, 2002, the Plan recorded
dividend income of $2,406,669 from its investment in The ServiceMaster
common stock fund.
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6. PLAN TERMINATION
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 the Company
contributions account balances.
7. FEDERAL INCOME TAX STATUS
The Plan received a favorable determination letter from the Internal
Revenue Service dated August 27, 2002. 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, and no provision for
income tax is included in the financial statements.
******
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SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
FORM 5500, SCHEDULE H, PART IV, LINE 4i--
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2002
----------------------------------------------------------------------------------------------------------------
(B) IDENTITY OF ISSUE/ (E) CURRENT
(a) (c) Description of Investment (d) Cost Value
MUTUAL FUNDS:
* Putnam Investors Fund N/A $ 17,422,656
* The George Putnam Fund of Boston CL Y N/A 51,600,706
* The Putnam Fund for Growth & Income CL Y N/A 16,564,863
Vanguard Life Strategy Income Fund N/A 2,137,167
Vanguard Life Strategy Conservative Growth Fund N/A 2,794,008
Vanguard Life Strategy Growth Fund N/A 7,153,552
Neuberger & Berman Genesis Trust N/A 1,458,131
One Group Mid Cap Growth Fund N/A 586,722
* Putnam International Growth Fund N/A 331,659
COMMON COLLECTIVE TRUST FUNDS:
* Putnam Bond Index Fund N/A 43,672,224
* Putnam S & P 500 Index Fund N/A 15,193,824
EMPLOYER SECURITIES--common shares:
* The ServiceMaster Company common stock fund $ 48,597,770 50,583,739
STABLE VALUE FUND:
* Putnam Stable Value Fund, common collective fund N/A 22,931,226
Massachusetts Mutual Life Insurance Company,
guaranteed investment contact, 4.9%, maturing 2003 N/A 441,613
* PARTICIPANT LOANS (Interest rates generally from 5.25% to
10.5% maturing 2002 to 2012) N/A 9,150,461
----------
Total $ 242,022,551
=============
* Party-in-interest.
N/A: Cost information is not required for participant-directed investments and,
therefore, is not included. The ServiceMaster common stock fund includes
both participant-directed and nonparticipant-directed investments.
15