SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20547
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): July 26, 1999
THE SERVICEMASTER COMPANY
(Exact name of registrant as specified in its certificate)
Commission File Number:
Delaware One ServiceMaster Way 36-3858106
Downers Grove, IL 60515
(State or other jurisdiction (Address of (I.R.S. Employer
of incorporation or organization) executive office) Identification No.)
Registrant's telephone number, including area code: (630) 271-1300
Item 5. Other Events
Issuance of News Releases Regarding Results of Second Quarter 1999 and First Six
Months of 1999 Operations and Election of Bill Pollard as Chief Executive
Officer.
The ServiceMaster Company ("ServiceMaster") announced the election of C. William
Pollard as Chief Executive Officer effective October 1, 1999 through a news
release date July 26, 1999. A copy of this news release is attached to and made
a part of this Form 8-K.
ServiceMaster also announced the results of operations for the second quarter
and the first six months of 1999 through a news release dated July 26, 1999. A
copy of this news release with financial statements annexed thereto is attached
to and made a part of this Form 8-K.
Item 7. Financial Statements and Exhibits
Financial Statements:
1. Condensed Consolidated Balance sheets of The ServiceMaster Company as
of June 30, 1999 and December 31, 1998 and Condensed Consolidated
Statements of Cash Flows of The ServiceMaster Company for the six
months ended June 30, 1999 and 1998. (Attached to Exhibit 2).
2. Consolidated Statements of Income of The ServiceMaster Company for the
three months ended June 30, 1999 and 1998 and the six months ended
June 30, 1999 and 1998. (Attached to Exhibit 2).
Exhibits:
1. News Release dated July 26, 1999 regarding election
of C. William Pollard as Chief Executive Officer
2. News Release dated July 26, 1999 regarding results of
operations for the second quarter of 1999.
1
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE SERVICEMASTER COMPANY
(Registrant)
By: /s/ Vernon T. Squires
-----------------------------------------
Vernon T. Squires
Sr. Vice President and General Counsel
2
EXHIBIT 1
For further information contact:
Claire Buchan,VP Comm, (630)271-2150
Bruce Duncan, VP IR, (630)271-2187
Steve Preston, CFO, (630)271-2637
FOR IMMEDIATE RELEASE
July 26, 1999
SERVICEMASTER NAMES BILL POLLARD CHIEF EXECUTIVE OFFICER
DOWNERS GROVE, Illinois -- ServiceMaster (NYSE:SVM) today announced
that its Board of Directors has elected C. William Pollard, 61, as Chief
Executive Officer, effective October 1, 1999. Pollard will continue to serve as
Chairman of the ServiceMaster Board of Directors. Carlos Cantu, 65, current
President and Chief Executive Officer, will retire from active management on
October 1, 1999, but will continue as a member of the Board of Directors and its
executive committee.
Pollard joined ServiceMaster in 1977 and served as the Company's Chief
Executive Officer from 1983-1993. He has served as Chairman of the Board since
1990. Since he joined ServiceMaster, the Company has grown from $234 million in
customer level revenues to $6.4 billion. During Pollard's first tenure as CEO,
he led the Company's entry into Consumer Services through the acquisitions of
Terminix, TruGreen, ChemLawn, American Home Shield, and Merry Maids. Consumer
Services now represents approximately 85 percent of ServiceMaster operating
income. During Pollard's CEO tenure, ServiceMaster earnings per share tripled.
"Bill has the vision and experience that make him the ideal person to
lead ServiceMaster into the 21st century," Cantu said. "The work of the
Selection Committee has been completed and our Board of Directors has determined
that Bill's knowledge of the business, our people and our culture would provide
continuity of leadership and would position the Company to take advantage of
growth opportunities. Over the past 12 years, Bill and I have served as partners
in building this business and I am delighted that he has agreed to reassume the
role of CEO of our Company."
Pollard said, "I look forward to this opportunity of leadership and
service. ServiceMaster has become a way of life for me. As a result of Carlos'
leadership, we have strong market positions and accelerated growth in our major
service lines. Since he became CEO, profitability and total return have both
been in excess of 20 percent on an annual compounded basis. He has inspired the
people of ServiceMaster to build one of the world's most respected companies and
one of the nation's most powerful service delivery networks. I'm excited about
once again joining hands with this great team of people and working closely with
Phil Rooney, our Chief Operating Officer, Steve Preston, our Chief Financial
Officer, and the other members of the senior management team."
Prior to joining ServiceMaster, Pollard was a faculty member and a Vice
President at Wheaton College from 1972 to 1977. From 1963 to 1972, he practiced
law, specializing in corporate finance and tax. Pollard received his bachelor of
arts degree from Wheaton College and his law degree from
Northwestern University School of Law. Bill and his wife Judy have been married
for 40 years. They have four children and 12 grandchildren.
In addition to his work at ServiceMaster, Pollard serves as a director
of Herman Miller, Inc. and UnumProvident Corporation. He is also a director of a
number of education, religious and not-for-profit organizations, including
Wheaton College, The Drucker Foundation, and The Billy Graham Evangelical
Association, and he is actively involved in teaching and speaking on subjects
related to management and ethics. Pollard is the author of the best selling book
The Soul of the Firm.
ServiceMaster provides outsourcing services to more than 10.5 million
customers in the United States and in 41 countries around the world, with annual
customer level revenue of $6.4 billion. The core service capabilities of the
Company include lawn care and landscaping, termite and pest control, plumbing,
heating and air conditioning maintenance and repair, appliance maintenance and
repair, cleaning, plant maintenance and supportive management.
These services are provided through a network of over 5,800
company-owned and franchised service centers and business units, operating under
leading brands which include TruGreen-ChemLawn, TruGreen-LandCare, Terminix,
American Home Shield, Rescue Rooter, American Residential Services,
ServiceMaster Residential and Commercial Services, Merry Maids, AmeriSpec,
Furniture Medic and ServiceMaster Management Services.
In accordance with the Private Securities Litigation Reform Act of
1995, the Company notes that statements that look forward in time, which include
everything other than historical information, involve risks and uncertainties
that may affect the Company's actual results of operations. Factors which could
cause actual results to differ materially include the following (among others):
weather conditions adverse to certain of the Company's Consumer and Commercial
Services businesses, the entry of additional competitors in any of the markets
served by the Company, labor shortages, consolidation of hospitals in the
healthcare market, the condition of the U.S. economy, the inability of key
suppliers to achieve timely Y2K compliance in their delivery systems or the
inability of the Company to make its own systems Y2K compliant, and other
factors listed from time to time in the Company's filings with the Securities
and Exchange Commission.
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EXHIBIT 2
For further information contact:
Claire Buchan,VP Comm, (630)271-2150
Bruce Duncan, VP IR, (630)271-2187
Steve Preston, CFO, (630)271-2637
FOR IMMEDIATE RELEASE
July 26, 1999
SERVICEMASTER REPORTS SECOND QUARTER RESULTS
DOWNERS GROVE, Illinois -- ServiceMaster (NYSE:SVM) today
reported record second quarter revenues of $1.5 billion, up 23 percent over the
second quarter ended June 30, 1998, reflecting strong growth from both base
operations and acquisitions. Net income before non-recurring unusual items was
$69 million, up 23 percent over second quarter 1998. Earnings per share before
non-recurring items increased 16 percent to $.22. During the quarter, the
Company realized an after-tax gain of $30 million, relating primarily to the
sale of its Premier Automotive business, and recorded a one-time after-tax
charge of $81 million, relating to its Diversified Health Services business.
These items reduced net income from ongoing operations by $51 million. As a
result, the Company reported net income of $18 million, with earnings per share
of $.06.
For the six months, revenue increased 19 percent to $2.7 billion. Net
income before the non-recurring items rose 22 percent to $105 million, with
earnings per share increasing 17 percent to $.34. Reported net income after
non-recurring items was $54 million, with earnings per share of $.17.
In the prior quarter, the Company announced that it was undertaking a
strategic review and assessment of its Diversified Health Services business, in
light of changes in government policy and the resulting financial difficulties
of a number of its customers. Diversified Health Services provides general
management services for long-term care facilities and also a number of ancillary
services, including rehabilitation, medical supplies, pharmacy, and design and
build services. In addition, the Company has supported certain customers through
credit arrangements. The Company has evaluated this business and the credit
risks involved, and has determined to reduce substantially the scope of services
offered, including ancillary services, and eliminate all future credit extension
agreements. As a result, there will be an after-tax special charge of $30
million relating to customer receivables, loans, other investments and costs,
and the wind-down of ancillary services. There also will be an after-tax charge
of $51 million for the write-down of goodwill relating to these businesses.
"As a result of the fundamental changes in government policies, the
markets served and the services offered by Diversified Health Services have
financial and collection risks that are greater than we will continue to absorb.
We will reduce our ancillary service offering and limit our general management
services to those customers that have strong financial positions. In light of
this substantial reduction of the business, we believe it is appropriate to
write-down goodwill relating to this business unit. Only $12 million of the
total charges will result in cash payments, while the sale of businesses,
primarily of Premier, will generate after-tax cash proceeds in excess of $50
million. Following these
actions, the ServiceMaster businesses which are directly dependent on government
reimbursement will represent approximately one percent of the Company's total
business," said ServiceMaster President and Chief Executive Officer Carlos H.
Cantu.
"These actions reflect our continued focus on applying resources to our
core service capabilities. Consumer and Commercial Services had a strong second
quarter and now represents 85 percent of our operating income. We continue to be
very optimistic about the future growth of this major segment of the business.
While the Management Services segment did not achieve the same growth, it
continues to be a major contributor to our cash position and our return on
capital," Cantu said.
The Consumer and Commercial Services segment achieved revenues of $911
million as strong growth in base operations and new businesses contributed to 57
percent growth. Operating income rose 38 percent to $126 million.
TruGreen-ChemLawn reported solid revenue and profit growth, bolstered by strong
momentum in the commercial landscape operations. At Terminix, excellent revenue
and profit growth resulted from increases in termite completions and renewals,
improved branch efficiencies and successful integration of acquisitions.
American Home Shield achieved double-digit growth in revenue and profits,
reflecting increases in warranty contracts sold across all channels of
distribution. The combined Rescue Rooter and American Residential Services
operations posted strong growth, with continued productivity improvements in the
plumbing operation and good initial results from the combination of the
businesses. Strong revenue and profit gains at
ServiceMaster Residential and Commercial Services and Merry Maids were supported
by increases in license sales, enhanced marketing initiatives and the ongoing
success of company-owned branches.
Management Services posted revenue from continuing operations of $468
million, up two percent. Strong sales in the Education and Business & Industry
markets offset the impact of a decline in Healthcare revenues. Operating income
from continuing operations improved six percent to $17 million, reflecting
strong overhead controls.
ServiceMaster provides outsourcing services to more than 10.5 million
customers in the United States and in 41 countries around the world, with annual
customer level revenue of $6.4 billion. The core service capabilities of the
Company include lawn care and landscaping, termite and pest control, plumbing,
heating and air conditioning maintenance and repair, appliance maintenance and
repair, cleaning, plant maintenance and supportive management.
These services are provided through a network of over 5,800
company-owned and franchised service centers and business units, operating under
leading brands which include TruGreen-ChemLawn, TruGreen-LandCare, Terminix,
American Home Shield, Rescue Rooter, American Residential Services,
ServiceMaster Residential and Commercial Services, Merry Maids, AmeriSpec,
Furniture Medic and ServiceMaster Management Services.
In accordance with the Private Securities Litigation Reform Act of
1995, the Company notes that statements that look forward in time, which include
everything other than historical information, involve risks and uncertainties
that may affect the Company's actual results of operations. Factors which could
cause actual results to differ materially include the following
(among others):weather conditions adverse to certain of the Company's Consumer
and Commercial Services businesses, the entry of additional competitors in any
of the markets served by the Company, labor shortages, consolidation of
hospitals in the healthcare market, the condition of the U.S. economy, the
inability of key suppliers to achieve timely Y2K compliance in their
delivery systems or the inability of the Company to make its own systems
Y2K compliant, and other factors listed from time to time in the Company's
filings with the Securities and Exchange Commission.
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THE SERVICEMASTER COMPANY
Condensed Consolidated Balance Sheets As of
(In thousands) June 30, December 31,
1999 1998
------------- --------------
Assets
Current Assets:
Cash and cash equivalents $ 53,934 $ 66,400
Marketable securities 55,713 54,022
Receivables, net of allowances 575,120 372,375
Inventories and other current assets 299,817 177,405
------------- -------------
Total current assets 984,584 670,202
------------- -------------
Intangible assets, primarily trade names and goodwill,net of accumulated amortization 2,370,531 1,884,002
Property and equipment, net of accumulated depreciation 309,647 212,160
Notes receivable, long-term securities, and other assets 144,417 148,487
------------- -------------
Total assets $ 3,809,179 $ 2,914,851
============= =============
Liabilities and Equity
Current liabilities $ 845,811 $ 753,697
Long-term debt 1,644,961 1,076,167
Other long-term obligations 125,043 128,501
Shareholders' equity 1,193,364 956,486
------------- -------------
Total liabilities and shareholders' equity $ 3,809,179 $ 2,914,851
============= =============
Six Months Ended
Condensed Consolidated Statements of Cash Flows June 30,
(In thousands) 1999 1998
------------- -------------
Cash and Cash Equivalents at January 1 $ 66,400 $ 64,876
Cash Flows from Operations:
Net Income 53,644 85,674
Adjustments to reconcile net income to net cash flows from operations:
Depreciation and amortization 55,305 47,916
Non-recurring items, net 51,300 ---
Deferred 1998 tax payment (78,478) ---
Change in working capital, net of acquisitions (52,017) (26,996)
Other, net (1,948) 779
------------ ------------
Net Cash Provided from Operations 27,806 107,373
------------ ------------
Memo: Net Cash Provided from Operations Excluding 1998 Tax Payment 106,284
Cash Flows from Investing Activities:
Property additions (50,203) (40,241)
Sale of equipment and other assets 2,861 2,814
Business acquisitions, net of cash acquired (419,034) (144,053)
Proceeds from sale of businesses 68,260 ---
Notes receivable and financial investments (16,606) (2,657)
Net purchases of investment securities (6,577) (2,133)
Payments to sellers of acquired businesses (6,506) (5,130)
------------ ------------
Net Cash Used for Investing Activities (427,805) (191,400)
------------ ------------
Cash Flows from Financing Activities:
Borrowings, net 666,639 185,571
Payment of borrowings and other obligations (223,936) (293,632)
Shareholders' dividends (54,985) (34,718)
Purchase of ServiceMaster stock (12,354) (4,019)
Proceeds from employee share plans 11,669 5,877
Proceeds from stock offering - 209,391
Other 500 3,005
------------ ------------
Net Cash Provided from Financing Activities 387,533 71,475
------------ ------------
Cash Decrease during the Period (12,466) (12,552)
------------ ------------
Cash and Cash Equivalents at June 30 $ 53,934 $ 52,324
============ ============
THE SERVICEMASTER COMPANY
Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Operating Revenue $ 1,537,074 $ 1,244,627 $ 2,652,136 $ 2,226,415
Operating Costs and Expenses:
Cost of services rendered and products sold 1,168,837 951,366 2,068,652 1,746,163
Selling and administrative expenses 226,098 179,466 362,717 296,684
Other, net 85,500 --- 85,500 ---
------------ ------------ ------------ -------------
Total operating costs and expenses 1,480,435 1,130,832 2,516,869 2,042,847
------------ ------------ ------------ -------------
Operating Income 56,639 113,795 135,267 183,568
Non-operating Expense (Income):
Interest expense 28,890 24,545 50,838 48,640
Interest and investment income (5,649) (5,389) (9,270) (8,824)
------------ ------------ ------------ -------------
Income before Income Taxes 33,398 94,639 93,699 143,752
Provision for income taxes 15,363 38,235 40,055 58,078
------------ ------------ ------------ -------------
Net Income $ 18,035 $ 56,404 $ 53,644 $ 85,674
============ ============ ============ =============
Per Share :
Basic $ 0.06 $ 0.20 $ 0.18 $ 0.30
======= ======= ======= =======
Diluted $ 0.06 $ 0.19 $ 0.17 $ 0.29
======= ======= ======= =======
Number of Shares :
Basic 310,431 286,778 305,047 283,001
Diluted 318,179 296,441 313,099 292,610
Dividends Per Share $ 0.09 $ 0.08 $ 0.18 $ 0.16
======= ======= ======= =======
Price Range Per Share $20 15/16 - 17 5/16 $25 1/2 - 17 15/16 $22 - 17 5/16 $25 1/2 - 16 1/2
In the second quarter of 1999, the Company realized an after-tax gain of $30
million ($50.1 million pretax) relating to the sales of its Premier automotive
business and its remaining 15% interest in ServiceMaster Energy Management, and
recorded a one-time after-tax charge of $81 million ($135.6 million pretax)
relating to its Diversified Health Services business. Excluding the impact of
these items, net income and earnings per share were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
Net Income before non-recurring items, net $ 69,335 $ 56,404 $ 104,944 $ 85,674
Per Share before non-recurring items, net:
Basic $ 0.22 $ 0.20 $ 0.34 $ 0.30
======= ======= ======= =======
Diluted $ 0.22 $ 0.19 $ 0.34 $ 0.29
======= ======= ======= =======
Notes:
1. The consolidated financial statements include all adjustments which, in the
opinion of management, are necessary for a fair presentation of the results
for the periods indicated. Certain amounts from prior periods have been
reclassified to conform with the current presentation. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
Annual Report to shareholders.
2. Results from any interim period are not necessarily indicative of results
which might be obtained for a full year.
3. On July 28, 1998, the Board of Directors of the Company declared a
three-for-two share split effective August 26, 1998, for shareholders of
record on August 12, 1998. All share and per share data have been restated
for all periods presented to reflect the three-for-two share split.
4. The Company files a report, Form 10-Q, with the Securities and Exchange
Commission. After August 13, 1999, a copy of this report can be obtained by
writing the Secretary of the Company at One ServiceMaster Way, Downers
Grove, Illinois 60515.
In accordance with the Private Securities Litigation Reform Act of 1995, the
Company notes that statements that look forward in time, which include
everything other than historical information, involves risks and
uncertainties that may affect the Company's actual results of operations.
Factors which could cause actual results to differ materially include the
following (among others): weather conditions adverse to certain of the
Company's Consumer and Commercial Services businesses, labor shortages, the
entry of additional competitors in any of the markets served by the Company,
consolidation of hospitals in the healthcare market, the condition of the
U.S. economy, the inability of key suppliers to achieve timely Y2K
compliance in their delivery systems or the inability of the Company to make
its own systems Y2K compliant, and other factors listed from time to time in
the Company's filings with the Securities and Exchange Commission.