SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): March 18, 2002
THE SERVICEMASTER COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-14762 36-3858106
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(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation or Organization) Identification No.)
2300 WARRENVILLE ROAD, DOWNERS GROVE, ILLINOIS 60515
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (630) 271-1300
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NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS
As further discussed below, the Company completed in the fourth quarter of 2001
its strategic portfolio review, which resulted in the Company selling and
exiting certain businesses. In Item 7., the Company is providing the previously
reported quarterly consolidated income statement information for 2001 and 2000
separated between results of continuing operations and the results of
discontinued operations. In addition, Item 7. includes quarterly business
segment reporting for 2001.
PORTFOLIO REVIEW AND STRATEGIC ACTIONS
On October 3, 2001 the Company's Board of Directors approved a series of
strategic actions which were the culmination of an extensive portfolio review
process that was initiated in the first quarter. The goal of the portfolio
review was to increase shareholder value by creating a focused and aligned
company that provides the greatest return and growth potential. The Company
determined it could best achieve these goals with a portfolio of businesses
which support the business strategy to become America's Home Service Company and
have attractive cash flow and return characteristics. In addition, the Company
believed it was critical to strengthen its balance sheet through the reduction
of debt, thereby providing it with financial flexibility to invest in future
growth opportunities. As part of this determination, the Company's Board of
Directors approved an agreement to sell the Management Services business to
ARAMARK Corporation (ARAMARK) for approximately $800 million. The Management
Services business provided a variety of supportive management services to
institutional healthcare, education, and commercial facilities. The all-cash
transaction closed on November 30, 2001 and the Company recorded an after-tax
accounting gain of $384 million, or $1.23 per diluted share from this sale.
In the fourth quarter, the Company's Board of Directors also approved the exit
of non-strategic and underperforming businesses including TruGreen LandCare
Construction and Certified Systems Inc. (CSI), as well as certain other small
operations. The Company sold its TruGreen LandCare Construction operations to
Environmental Industries, Inc. (EII) in certain markets and entered into an
agreement with EII to manage the wind-down of commercial landscaping
construction contracts in the remaining markets. In addition, the Company sold
all of its customer contracts relating to the exit of CSI (the Company's
professional employer organization), to AMS Staff Leasing, N.A., Inc. and has
almost completed the wind-down of its remaining operations.
On October 30, 2001, the Company closed the sale of certain subsidiaries of its
European pest control and property services operations for $101 million. The
consideration consisted of $94 million of cash and the transfer of certain
liabilities to the acquirer and $7 million in seller financing. The net impact
of this transaction was not material to the consolidated statements of income.
The Company continues to provide pest control services in the United Kingdom and
Ireland.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 144) which amends certain requirements of
the previously issued pronouncement on asset impairment, Statement of Financial
Accounting Standards No. 121. SFAS 144 also
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expands the definition of a discontinued operation as previously defined by
Accounting Principles Board Opinion No. 30. This statement is required to be
adopted for fiscal years beginning after December 15, 2001, however early
application of this statement is permissible. The Company adopted SFAS 144
effective January 1, 2001 and has classified the results of certain business
units that it has sold or is winding-down, including Management Services,
TruGreen LandCare Construction, Certified Systems Inc., and the sold Terminix
Europe entities as discontinued operations in the accompanying financial
schedules. The fourth quarter 2001 operating income of $308 million from
discontinued operations includes the gain from the sale of Management Services
net of losses from the disposition of other entities ($304 million), as well as
the net income from the discontinued operations ($4 million). As the Management
Services business was sold on November 30, 2001, the fourth quarter 2001 results
include only two months of operations of this business.
CHARGE FOR IMPAIRED ASSETS AND OTHER ITEMS
In the fourth quarter of 2001, in connection with the strategic portfolio
review, the Company recorded a pretax charge of $397 million for asset
impairments and other items. This charge included the write-down of $350 million
of goodwill; $300 million associated with the landscaping operations and $50
million related to the remaining European pest control operations. The remaining
amount of the charge includes accruals for guarantees relating to the residual
value of certain properties, severance arrangements for former executives and
terminated employees, and other items.
EXTRAORDINARY LOSS
In the fourth quarter of 2001, the Company used a portion of the cash proceeds
from the sale of Management Services to pay down debt balances and recorded an
extraordinary loss of $.03 per diluted share ($9 million after-tax) resulting
from the early extinguishment of debt. This was partially offset by the
realization of gains ($.02 per diluted share; $6 million after-tax) resulting
from the repurchase of certain ServiceMaster corporate bonds in the first
quarter of 2001.
CHANGE IN ACCOUNTING PRINCIPLE
In December 1999, the Staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition," leading the
Company to change in 2000 its method of accounting for revenue from its termite
baiting contracts. This change in method of accounting was effective January 1,
2000. The cumulative effect of the accounting change, as of January 1, 2000,
resulted in a non-cash charge that reduced net income by $11.1 million, ($18.9
million pretax). The cumulative after-tax effect on diluted earnings per share
was a reduction of $.04.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired:
Not applicable.
(b) Pro Forma Financial Information:
Not applicable.
(c) Exhibits:
99.1 Quarterly Consolidated Statements of Income for 2001 and 2000
99.2 Quarterly Business Segment Disclosures for 2001
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
THE SERVICEMASTER COMPANY
Date: March 18, 2002 By: /S/ STEVEN C. PRESTON
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Steven C. Preston
Executive Vice President and
Chief Financial Officer
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Exhibit Index
Exhibit
NUMBER DESCRIPTION OF EXHIBIT
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99.1 Quarterly Consolidated Statements of Income for 2001 and 2000
99.2 Quarterly Business Segment Disclosures for 2001
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