UNITED STATES
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, 2003
or
Transition Report Pursuant to Section 15(d)
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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)
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 28, 2004
SERVICEMASTER PROFIT
SHARING AND
RETIREMENT PLAN
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2003 AND 2002, AND FOR THE YEAR
ENDED DECEMBER 31, 2003, AND SUPPLEMENTAL SCHEDULES AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 2003 AND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
TABLE OF CONTENTS
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PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of December 31, 2003 and 2002 2
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 2003 3
Notes to Financial Statements 4
SUPPLEMENTAL SCHEDULES:
Form 5500, Schedule H, Part IV, Line 4i--Schedule of Assets (Held at End of Year)
as of December 31, 2003 12
Form 5500, Schedule H, Part IV, Question 4a--Delinquent Participant Contributions
for the Year Ended December 31, 2003 13
EXHIBITS:
23.1 Consent of Independent Registered Public Accounting Firm 14
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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Equity Plans Administrative Committee
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 (the "Plan") as of
December 31, 2003 and 2002, and the related statement of changes in net assets
available for benefits for the year ended December 31, 2003. 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 audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (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, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2003 and 2002, and the changes in net assets available for benefits for the year
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.
Our audits were conducted 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) as of December 31, 2003 and the supplemental schedule of
delinquent participant contributions for the year ended December 31, 2003, are
presented for the purpose of additional analysis and are not required parts 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 schedules are
the responsibility of the Plan's management. Such schedules have been subjected
to the auditing procedures applied in our audit of the basic 2003 financial
statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
June 24, 2004
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2003 AND 2002
------------------------------------------------------------------------------------------------------------------------------
2003 2002
ASSETS:
Non-interest-bearing cash $ 14,511 $ 74,024
Investments:
Participant-directed investments (Note 3) 231,761,624 191,438,812
The ServiceMaster Company Common Stock Fund (Note 4) 51,438,841 50,583,739
------------ ------------
Total investments 283,200,465 242,022,551
------------ ------------
Receivables:
Employer contribution receivable 4,284,128 8,675,073
Employee contribution receivable 702,936 724,658
------------ ------------
Total receivables 4,987,064 9,399,731
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $288,202,040 $251,496,306
============ ============
See notes to financial statements.
2
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2003
--------------------------------------------------------------------------------
ADDITIONS:
Contributions:
Employee contributions $ 22,338,619
Rollover contributions 1,008,395
Employer contributions (Note 1) 4,279,007
------------
Total contributions 27,626,021
------------
Investment income:
Net appreciation in fair value of investments 34,154,796
Dividends from The ServiceMaster Company Common Stock Fund 1,992,139
Interest from participant loans 577,158
Other cash earnings 14,351
------------
Net investment income 36,738,444
------------
Total additions 64,364,465
------------
NET TRANSFERS INTO THE PLAN 160,950
------------
DEDUCTIONS:
Benefits paid to participants 27,439,945
Deemed distributions of loans to participants 342,261
Administrative expenses 37,475
------------
Total deductions 27,819,681
------------
INCREASE IN NET ASSETS 36,705,734
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 251,496,306
------------
End of year $288,202,040
============
See notes to financial statements.
3
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002, AND FOR THE YEAR ENDED DECEMBER 31, 2003
--------------------------------------------------------------------------------
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
covering substantially all nonunion employees of The ServiceMaster Company
and its subsidiaries (the "Company") who have completed 90 days of service
and are at least 18 years of age. Leased employees and employees who are or
who become covered by a collective bargaining agreement which does not allow
for Plan participation, are not eligible to participate in the Plan. The Plan
is administered by the Equity Plans Administrative Committee. Putnam
Fiduciary Trust Company serves as the trustee of the Plan. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974 ("ERISA"), as amended.
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 Internal Revenue Code ("IRC") limitations. The first 4% of pretax
compensation (base contribution) contributed to the Plan is eligible for a
discretionary employer matching contribution. The Company matching
contribution is determined each year by the Board of Directors. The matching
contribution may differ among employee groups. Half of the Company's matching
contribution is received in shares of The ServiceMaster Company common stock
and is invested directly in The ServiceMaster Company Common Stock Fund and
the other half is received in cash and is invested according to the
participants' direction. In 2004, the Company remitted to the Plan 196,468
shares of The ServiceMaster Company common stock at a fair value of
$2,151,319 and the remainder of the employer matching contribution was made
in cash. After the Company matching contribution is made, participants have
complete investment discretion over all Company contributions. The Board of
Directors approved a Company matching contribution of 32.5% of participants'
base contribution across all employee groups for the year ended December 31,
2003. Participants may also contribute amounts representing distributions
from other qualified plans.
PARTICIPANT ACCOUNTS- Individual accounts are maintained for each Plan
participant. Each participant's account is credited with the participant's
contribution and an allocation of the Company's discretionary contribution
and Plan earnings, and charged with withdrawals and an allocation of Plan
losses and administrative expenses, 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.
INVESTMENTS- Participants direct the investment of their contributions into
various investment options offered by the Plan, which currently consist of
The ServiceMaster Company Common Stock Fund, ten mutual funds and three
common/collective trust funds.
4
VESTING- Participants are vested immediately in their contributions plus
actual earnings thereon. Vesting in the Company's contributions, and earnings
thereon, is based on the following schedule, except in the event of death or
permanent disability, in which case the participant immediately becomes 100%
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
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%. Principal and interest are paid
ratably through payroll deductions.
BENEFIT 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 The
ServiceMaster Company common stock in the participant's account can be taken
in-kind or in cash.
FORFEITURES- During 2003 and 2002, forfeitures were first used to reinstate
all rehired participants' forfeitures and then were allocated to eligible
participants in the same manner as employer matching contributions.
Unallocated forfeitures were $288,297 and $396,535 at December 31, 2003 and
2002, respectively. During 2003, the plan was amended such that forfeitures
utilized in 2004 and after will be used first to reinstate all rehired
participants' forfeitures and then will be used to offset a portion of the
employer's matching contribution and/or used to pay certain plan expenses
normally paid by the Company. Forfeitures in the amount of $396,535 were used
to reinstate rehired participants' balances and/or allocated to all Plan
participants for the year ended December 31, 2003.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING- The accompanying financial statements have been prepared
in accordance 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 The ServiceMaster Company Common Stock
Fund, mutual funds, common/collective trust 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
5
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.
INVESTMENT VALUATION AND INCOME RECOGNITION- The Plan's investments, other
than the ServiceMaster 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 ServiceMaster 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 are normally held to maturity, and meet
the fully benefit responsive requirements of 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, 2003
and 2002 was 4.56% and 4.90%, respectively. The crediting interest rate
resets daily and there is no minimum crediting interest rate. The aggregate
average yield for the year ended December 31, 2003 was 4.45%. There were no
reserves against contract value for credit risk of the contract issuers or
otherwise. Book Value approximated fair value at December 31, 2003 and 2002
of $23,242,050 and $23,384,218, respectively.
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
and maintenance fees.
PAYMENT OF BENEFITS- Benefit payments to participants are recorded upon
distribution. There were no amounts, exclusive of distributions for which
participants have elected to be paid on an installment basis, allocated to
accounts of persons who had elected to withdraw from the Plan but had not yet
been paid at December 31, 2003.
6
3. INVESTMENTS
The Plan's investments that represented 5% or more of the Plan's net assets
available for benefits as of December 31, 2003 and 2002 are as follows:
2003 2002
Putnam Investors Fund, 1,966,629 and 1,955,405 shares,
respectively $ 22,242,569 $ 17,422,656
The George Putnam Fund of Boston CL Y,
3,807,533 and 3,479,481 shares, respectively 64,804,219 51,600,706
The Putnam Fund for Growth & Income CL Y,
1,165,867 and 1,169,835 shares, respectively 20,670,826 16,564,863
Putnam Bond Index Fund, 2,926,408 and 3,346,531 shares,
respectively 39,506,507 43,672,224
Putnam S&P 500 Index Fund, 767,076 and 702,118
shares, respectively 21,309,375 15,193,824
ServiceMaster Stable Value Fund, 23,238,464 and 22,931,226
shares, respectively 23,238,464 22,931,226
The ServiceMaster Company Common Stock Fund,
4,415,351 and 4,557,094 shares, respectively 51,438,841* 50,583,739*
* Includes both participant-directed and nonparticipant-directed amounts.
During 2003, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated, as
follows:
Mutual funds* $24,262,067
Common/collective trust funds* 7,139,303
The ServiceMaster Company Common Stock Fund 2,753,426
------------
Net appreciation of investments $34,154,796
============
*The appreciation on mutual funds and common/collective trust funds includes
dividends, interest, and miscellaneous cash earnings on those investments.
7
4. THE SERVICEMASTER COMPANY COMMON STOCK FUND
Investments in the Plan are participant-directed, except for half of the
Company's matching contribution, which is invested directly in The
ServiceMaster Company Common Stock Fund. 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, 2003 and 2002 and the significant
components of the changes in net assets relating to The ServiceMaster Company
Common Stock Fund for the year ended December 31, 2003 is as follows:
AS OF DECEMBER 31,
-------------------------------------
2003 2002
Net assets:
The ServiceMaster Company Common Stock Fund $ 51,438,841 $ 50,583,739
============ ============
Changes in net assets:
Contributions $ 6,178,715
Transfers into the Plan 1,199
Other cash earnings 30
Dividends from The ServiceMaster Company Common
Stock Fund 1,992,139
Net investment appreciation 2,753,426
Benefits paid to participants (5,987,669)
Net transfers into other investments (4,081,321)
Administrative expenses (1,417)
-----------
Net change 855,102
The ServiceMaster Company Common Stock Fund--beginning of year 50,583,739
-----------
The ServiceMaster Company Common Stock Fund--end of year $ 51,438,841
============
5. RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds and interests in
common/collective trust funds managed by Putnam Fiduciary Trust Company
("PFTC"). PFTC acts as trustee, as defined by the Plan, and record keeper for
the Plan. The Plan also allows participants to invest in Company stock and
allows loans to participants. In addition, one-half of the Company matching
contribution is invested directly in The ServiceMaster Company Common Stock
Fund. After the Company matching contribution is made, participants have
complete investment direction over all Company matching contributions. These
transactions qualify as party-in-interest transactions. Fees paid by the Plan
for investment management services were included as a reduction of the return
earned on each fund.
At December 31, 2003 and 2002, the Plan held 4,415,351 and 4,557,094 shares,
respectively, of common stock of The ServiceMaster Company, the sponsoring
employer, with a cost basis of $46,145,904 and $48,597,770, respectively.
During the year ended December 31, 2003, the Plan recorded dividend income of
$1,992,139 from its investment in The ServiceMaster Company Common Stock
Fund.
8
6. PLAN TERMINATION
Although it has not expressed any intention to do so, the Company has the
right under the Plan to discontinue its contributions at any time and
terminate the Plan, subject to the provisions of ERISA. In the event the Plan
is terminated, participants would become 100% vested in their accounts.
7. FEDERAL INCOME TAX STATUS
The Internal Revenue Service had determined and informed the Company by a
letter dated August 27, 2002, that the Plan and related trust were designed
in accordance with the applicable regulations of the Internal Revenue Code.
The Plan has been amended since receiving the determination letter; however,
the Company and the plan administrator believe that the Plan is currently
designed and being operated in compliance with the applicable requirements of
the Internal Revenue Code and the Plan and related trust continue to be
tax-exempt. Therefore, no provision for income tax has been included in the
financial statements.
8. NONEXEMPT PARTY-IN-INTEREST TRANSACTIONS
In connection with a temporary administrative change to the frequency of its
payroll processing for a small test population of employees, the Company
inadvertently remitted the June 27, 2003 participant contributions of $36 to
the trustee on July 30, 2003 and the July 30, 2003 and July 31, 2003
participant contributions of $4,973 and $106, respectively, on September 3,
2003, which was later than required by D.O.L. Regulation 2510.3-102. The
Company filed Form 5330 with the Internal Revenue Service and paid the
required excise tax on the transactions. In addition, participant accounts
were credited with the amount of investment income which would have been
earned had the participant contribution been remitted on a timely basis.
9. SUBSEQUENT EVENT
Effective January 1, 2004, the Plan was amended to increase the maximum
pre-tax compensation deferral rate that participants can elect to contribute
to the Plan from 15% to 75%.
10. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per
the financial statements to the Form 5500:
DECEMBER 31,
---------------------------------
2003 2002
Net assets available for benefits per the financial statements $ 288,202,040 $ 251,496,306
Deemed distributions not recorded in the financial statements - (198,761)
------------- -------------
Net assets available for benefits per the Form 5500 $ 288,202,040 $ 251,297,545
============= =============
9
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
Year ended
December 31,
2003
Benefits paid to participants per the financial statements $ 27,439,945
Less: Deemed distributions not recorded in the financial
statements for 2002 (198,761)
-------------
Benefits paid to participants per the Form 5500 $ 27,241,184
=============
******
10
SUPPLEMENTAL SCHEDULES
11
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
FORM 5500, SCHEDULE H, PART IV, LINE 4i--
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2003
----------------------------------------------------------------------------------------------------------------
(b) Identity of issue/ (e) Current
(a) (c) Description of Investment (d) Cost Value
MUTUAL FUNDS:
* Putnam Investors Fund N/A $ 22,242,569
* The George Putnam Fund of Boston CL Y N/A 64,804,219
American Century Growth Fund N/A 1,027,321
* The Putnam Fund for Growth & Income CL Y N/A 20,670,826
Vanguard Life Strategy Income Fund N/A 3,176,716
Vanguard Life Strategy Conservative Growth Fund N/A 4,124,877
Vanguard Life Strategy Growth Fund N/A 11,772,169
Neuberger & Berman Genesis Trust N/A 5,473,011
One Group Mid Cap Growth Fund N/A 3,116,087
* Putnam International Growth Fund N/A 1,278,144
COMMON/COLLECTIVE TRUST FUNDS:
* Putnam Bond Index Fund N/A 39,506,507
* ServiceMaster Stable Value Fund N/A 23,238,464
* Putnam S & P 500 Index Fund N/A 21,309,375
EMPLOYER SECURITIES--common shares:
* The ServiceMaster Company Common Stock Fund $ 46,145,904 51,438,841
* PARTICIPANT LOANS (Interest rates generally from 5.00% to
10.50% maturing 2004 to 2011) N/A 10,021,339
-----------
Total $ 283,200,465
=============
* Party-in-interest.
N/A: Cost information is not required for participant-directed investments
and, therefore, is not included. The ServiceMaster Company Common
Stock Fund includes both participant-directed and
nonparticipant-directed investments.
12
SERVICEMASTER PROFIT SHARING AND RETIREMENT PLAN
FORM 5500, SCHEDULE H, PART IV, QUESTION 4a--
DELINQUENT PARTICIPANT CONTRIBUTIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
------------------------------------------------------------------------------------------------------------------------------------
Question 4a "Did the employer fail to transmit to the plan any participant contributions within the time period described
in 29 CFR 2510.3-102", was answered "yes".
Identity of Party Relationship to Plan, Employer,
Involved or Other Party-in-Interest Description of Transactions Amount
The ServiceMaster Company Employer/Plan Sponsor Participant contributions for employees were not funded $ 36
within the time period prescribed by D.O.L. Regulation
2510.3-102. The June 27, 2003 participant contribution
was deposited on July 30, 2003.
The ServiceMaster Company Employer/Plan Sponsor Participant contributions for employees were not funded $ 4,973
within the time period prescribed by D.O.L. Regulation
2510.3-102. The July 30, 2003 participant contribution
was deposited on September 3, 2003.
The ServiceMaster Company Employer/Plan Sponsor Participant contributions for employees were not funded $ 106
within the time period prescribed by D.O.L. Regulation
2510.3-102. The July 31, 2003 participant contribution
was deposited on September 3, 2003.
13