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): NOVEMBER 30, 2001
-----------------
THE SERVICEMASTER COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 1-14762 36-3858106
-------- ------- ----------
(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction of Identification Number)
Incorporation or Organization)
ONE SERVICEMASTER WAY, DOWNERS GROVE, ILLINOIS 60515
---------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (630) 271-1300
--------------
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
1
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 30, 2001, The ServiceMaster Company, a Delaware
corporation (the "Company"), issued a press release announcing the completion of
the sale of its Management Services business unit to ARAMARK Corporation, a
Delaware corporation ("ARAMARK"), for approximately $800 million in cash,
subject to adjustment.
A copy of the press release issued by the Company on November
30, 2001 with respect to the sale is attached hereto as Exhibit 99.1.
As further discussed in Item 5., the sale of the Management
Services business was one part of a series of strategic actions being taken by
the Company as a result of an extensive portfolio review process initiated
earlier in the year. The pro forma financial information provided in Item 7.
presents the pro forma impact of the sale of the Management Services business
unit as well as the impact of the other strategic actions resulting from the
portfolio review.
ITEM 5. OTHER EVENTS.
The Company's Form 10-Q filing for the quarterly period ended
September 30, 2001 included summarized financial information for the nine month
period ended September 30, 2001 on a pro forma basis assuming the Company's
Restructuring described below had occurred at the beginning of the year. To
supplement the pro forma financial information already provided in the Form 10-Q
filing, the Company is also providing in Item 7. comparative pro forma financial
information for the nine month period ended September 30, 2000.
The following summarizes the results of the Company's
portfolio review and strategic actions as disclosed in the Company's Form 10-Q
filing for the quarterly period ended September 30, 2001. On October 3, 2001,
the Company's Board of Directors approved a series of strategic actions (the
"Restructuring") 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. The Company's Board of Directors approved an agreement to
sell the Management Services business to ARAMARK for $800 million, which is
expected to result in net after-tax cash proceeds in excess of $600 million. The
Management Services business provides a variety of supportive management
services to institutional healthcare, education, and commercial facilities. The
all-cash transaction closed on November 30, 2001. The Company expects to report
in the fourth quarter of 2001 an after-tax accounting gain of approximately $385
million from this sale. As part of the sale of Management Services, the Company
also agreed to sell to ARAMARK its headquarters facilities located in Downers
Grove, Illinois.
2
Also on October 3, 2001, the Company's Board of Directors
approved the exit of certain non-strategic and unprofitable businesses including
TruGreen LandCare Construction and Certified Systems Inc. (CSI), as well as
certain other small operations. The Company expects to record a non-recurring
after-tax charge in the fourth quarter of 2001 in the range of $300 million to
$365 million, related primarily to goodwill and asset impairments.
The Company expects to complete its exit from these businesses
during the first half of 2002. Approximately 80 percent of the total charge
relates to the wind-down of the TruGreen LandCare Construction operations. The
Company has sold certain TruGreen LandCare Construction operations to
Environmental Industries, Inc. (EII) and has entered into an agreement with EII
to manage the current backlog of TruGreen LandCare Construction contracts. In
addition, relating to the discontinuance of CSI (the Company's professional
employer organization), the Company has sold all of its customer contracts to
AMS Staff Leasing, N.A., Inc. and is in the process of winding-down CSI's
remaining operations.
Approximately $45 million of the charge is expected to result
in cash payments for items such as severance, lease termination costs and loss
contracts. The remaining amount of the charge is expected to consist of goodwill
and asset impairments.
On October 30, 2001, the Company closed the sale of certain
subsidiaries of its European pest control and property services operations for
$101 million, consisting of $94 million in cash and $7 million in seller
financing. The net impact of this transaction is not material to the
consolidated statements of income. The Company continues to provide pest control
services in the United Kingdom and Ireland.
The net cash proceeds from the Restructuring (which includes all of the
above items) is estimated to exceed $650 million. These net cash proceeds will
be used in the near term to reduce outstanding debt. The Company expects its
debt reduction program to be completed in the first quarter of 2002.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION.
The following table sets forth the Company's pro forma
consolidated summaries of operations for the nine month periods ended September
30, 2001 and 2000 and the year ended December 31, 2000 and the pro forma
condensed consolidated balance sheet as of September 30, 2001. The following
tables present the pro forma impact of the sale of the Management Services
business unit and the other strategic actions resulting from the Company's
Restructuring described in Item 5. The pro forma financial information gives
effect to these transactions as if they had occurred at September 30, 2001 for
purposes of the pro forma condensed consolidated balance sheet, and, for
purposes of the consolidated summaries of operations, on January 1, 2001 and
2000, respectively.
3
THE SERVICEMASTER COMPANY
PRO FORMA CONSOLIDATED SUMMARY OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30, 2001
MANAGEMENT
REPORTED SERVICES OTHER (1) PRO FORMA
-------------- -------------- ------------- -------------
Operating Revenue $3,153,529 NOTE (2) $ (385,726) $ 2,767,803
OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold 2,271,454 (368,379) 1,903,075
Selling and administrative expenses 633,892 (26,096) 607,796
------------------------------------------------------------
Total operating costs and expenses 2,905,346 (394,475) 2,510,871
------------------------------------------------------------
OPERATING INCOME 248,183 NOTE (2) 8,749 256,932
NON-OPERATING EXPENSE (INCOME):
Interest expense 97,347 (27,660) 69,687
Interest and investment income (14,672) (14,672)
Minority interest and other expense (income), net 3,312 3,312
------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 162,196 36,409 198,605
Provision for income taxes 69,951 13,620 83,571
------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM 92,245 22,789 115,034
Income from discontinued segment (Management
Services), net of income taxes 27,815 (27,815)
Extraordinary gain, net of income taxes 6,003 6,003
------------------------------------------------------------
NET INCOME $ 126,063 $ (27,815) $ 22,789 $ 121,037
============================================================
DILUTED EARNINGS PER SHARE:
Income from Continuing Operations $ 0.31 $ 0.07 $ 0.38
Income from Discontinued Operations 0.09 (0.09)
Extraordinary gain 0.02 0.02
------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ 0.42 $ (0.09) $ 0.07 $ 0.40
============================================================
AMORTIZATION EXPENSE AFTER-TAX (3) $ 37,062 $ (5,240) $ 31,822
EARNINGS PER SHARE EQUIVALENT $ 0.12 $ (0.02) $ 0.10
Diluted Shares Outstanding was 311,044 for the Nine Months Ended September 30,
2001.
4
THE SERVICEMASTER COMPANY
PRO FORMA CONSOLIDATED SUMMARY OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30, 2000
MANAGEMENT
REPORTED SERVICES OTHER (1) PRO FORMA
-------------- -------------- ------------- -------------
Operating Revenue $3,128,714 NOTE (2) $ (523,343) $ 2,605,371
OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold 2,262,531 (481,107) 1,781,424
Selling and administrative expenses 572,482 (29,000) 543,482
------------------------------------------------------------
Total operating costs and expenses 2,835,013 (510,107) 2,324,906
------------------------------------------------------------
OPERATING INCOME 293,701 NOTE (2) (13,236) 280,465
NON-OPERATING EXPENSE (INCOME):
Interest expense 103,048 (29,970) 73,078
Interest and investment income (19,675) (19,675)
Minority interest and other expense (income), net (9,062) (9,062)
------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 219,390 16,734 236,124
Provision for income taxes 94,176 5,728 99,904
------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 125,214 11,006 136,220
Income from discontinued segment (Management
Services), net of income taxes 27,941 (27,941)
------------------------------------------------------------
NET INCOME $ 153,155 $ (27,941) $ 11,006 $ 136,220
============================================================
DILUTED EARNINGS PER SHARE:
Income from Continuing Operations $ 0.41 $ 0.03 $ 0.44
Income from Discontinued Operations 0.09 (0.09)
------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ 0.50 $ (0.09) $ 0.03 $ 0.44
============================================================
AMORTIZATION EXPENSE AFTER-TAX (3) $ 34,801 - $ (5,362) $ 29,439
EARNINGS PER SHARE EQUIVALENT $ 0.12 - $ (0.02) $ 0.10
Diluted Shares Outstanding was 307,317 for the Nine Months Ended September 30,
2000.
5
THE SERVICEMASTER COMPANY
PRO FORMA CONSOLIDATED SUMMARY OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 2000
MANAGEMENT
REPORTED SERVICES OTHER (1) PRO FORMA
-------------- -------------- ------------- -------------
Operating Revenue $5,970,615 $ (1,904,199) $ (664,774) $ 3,401,642
OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold 4,696,467 (1,726,717) (617,026) 2,352,724
Selling and administrative expenses 857,249 (111,118) (38,333) 707,798
------------------------------------------------------------
Total operating costs and expenses 5,553,716 (1,837,835) (655,359) 3,060,522
------------------------------------------------------------
OPERATING INCOME 416,899 (66,364) (9,415) 341,120
NON-OPERATING EXPENSE (INCOME):
Interest expense 136,831 (40,560) 96,271
Interest and investment income (25,002) (25,002)
Minority interest and other expense (income), net (13,237) (13,237)
------------------------------------------------------------
INCOME BEFORE INCOME TAXES 318,307 (66,364) 31,145 283,088
Provision for income taxes 133,319 (26,214) 11,203 118,308
------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 184,988 (40,150) 19,942 164,780
Cumulative Effect of Accounting Change (11,161) (11,161)
------------------------------------------------------------
NET INCOME $ 173,827 $ (40,150) $ 19,942 $ 153,619
============================================================
DILUTED EARNINGS PER SHARE:
Income Before Cumulative Effect of Accounting Change $ 0.61 $ (0.13) $ 0.06 $ 0.54
Cumulative Effect of Accounting Change (0.04) (0.04)
------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ 0.57 $ (0.13) $ 0.06 $ 0.50
============================================================
AMORTIZATION EXPENSE AFTER-TAX (3) $ 46,888 - $ (7,106) $ 39,782
EARNINGS PER SHARE EQUIVALENT $ 0.15 - $ (0.02) $ 0.13
Diluted Shares Outstanding was 305,518 for the Year Ended December 31, 2000.
6
THE SERVICEMASTER COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
AS OF SEPTEMBER 30, 2001
MANAGEMENT
REPORTED SERVICES OTHER (4) PRO FORMA
-------------- -------------- ------------- -------------
Assets
CURRENT ASSETS:
Cash and marketable securities $ 110,040 $ - $ (5,282) $ 104,758
Receivables less allowance 470,712 - (77,434) 393,278
Inventories 84,059 - (8,050) 76,009
Prepaid expenses and other assets 230,622 - (8,910) 221,712
-------------- -------------- ------------- -------------
Total Current Assets 895,433 - (99,676) 795,757
-------------- -------------- ------------- -------------
PROPERTY AND EQUIPMENT:
At cost 535,193 - (36,086) 499,107
Less: accumulated depreciation 308,905 - (7,356) 301,549
-------------- -------------- ------------- -------------
Net property and equipment 226,288 - (28,730) 197,558
-------------- -------------- ------------- -------------
Intangible assets, primarily trade names and goodwill,
net of accumulated amortization 2,561,766 - (453,200) 2,108,566
Investment in discontinued segment 57,026 (57,026) - -
Notes receivable, long-term securities, and other assets 140,073 - (6,262) 133,811
-------------- -------------- ------------- -------------
Total Assets $3,880,586 $ (57,026) $ (587,868) $ 3,235,692
============== ============== ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Current Liabilities $1,026,717 $ 9,209 $ (51,195) $ 984,731
Long-Term Debt 1,365,567 (551,035) (61,441) 753,091
Deferred Tax Liability 114,947 99,000 (116,988) 96,959
Other Long-Term Obligations 76,757 - (2,126) 74,631
Minority Interest 108,532 - - 108,532
Commitments and Contingencies
Total Shareholders' Equity 1,188,066 385,800 (356,118) 1,217,748
-------------- -------------- ------------- -------------
Total Liabilities and Shareholders' Equity $3,880,586 $ (57,026) $ (587,868) $ 3,235,692
============== ============== ============= =============
7
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
(1) "Other" in the Pro Forma Consolidated Summary of Operations Includes the
Operations Other Than the Management Services Segment Discussed in Item 5.
That are Being Sold or Discontinued as Well as Interest On the Proceeds
From the Sales of the Management Services Segment and the European Pest
Control Operations That are Used to Pay Down Debt Balances.
(2) Management Services' Revenue and Operating Income Have Been Eliminated From
the Reported Income Statement.
(3) After-tax Amortization Expense Represents the Increase in Earnings Per Share
Expected by the Adoption of Sfas 142.
(4) "Other" in the Pro Forma Condensed Consolidated Balance Sheet Includes the
Operations Other Than the Management Services Segment Discussed in Item 5.
That are Being Sold or Discontinued as Well as the Expected Charge Related
to Exiting These Businesses.
8
(c) EXHIBITS.
Exhibit
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------------------
2.1 Purchase Agreement dated as of October 3, 2001 between the Company
and ARAMARK.
2.2 First Amendment to Purchase Agreement dated as of November 30, 2001
between the Company and ARAMARK.
99.1 Press Release issued by the Company on November 30, 2001.
9
SIGNATURE
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: December 17, 2001 By: /S/ STEVEN C. PRESTON
---------------------------------
Steven C. Preston
Executive Vice President and
Chief Financial Officer
10
EXHIBIT INDEX
Exhibit
NUMBER DESCRIPTION OF EXHIBIT
-------- ---------------------------
2.1 Purchase Agreement dated as of October 3, 2001, as amended by
the First Amendment to Purchase Agreement dated as of November
30, 2001, between the Company and ARAMARK.
2.2 First Amendment to Purchase Agreement dated as of November 30,
2001 between the Company and ARAMARK.
99.1 Press release issued by the Company on November 30, 2001.
8