<PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
__X__ ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _______________
Commission file number 1-14762
ServiceMaster Company Master Trust
The ServiceMaster Company
One ServiceMaster Way
Downers Grove, Illinois 60515
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
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 COMPANY MASTER TRUST
By: /s/Laine E. Malmquist
---------------------------------------------
Laine E. Malmquist,
Vice President & Treasury Manager
By: /s/Deborah A. O'Connor
---------------------------------------------
Deborah A. O'Connor,
Administrative Committee Member
By: /s/Barbara Carlisle
---------------------------------------------
Barbara Carlisle, Plan Manager
Date: March 27, 1998
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative Committee of the ServiceMaster Company Profit Sharing,
Savings and Retirement Plans and the Trustee of the ServiceMaster Company Master
Trust:
We have audited the accompanying statements of net assets available for
Plan benefits of the ServiceMaster Company Master Trust as of December 31, 1997
and 1996, and the related statements of changes in net assets available for Plan
benefits for each of the three years in the period ended December 31, 1997.
These financial statements and the schedules referred to below are the
responsibility of the Plans' Administrative Committee. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Plan benefits of
the Master Trust as of December 31, 1997 and 1996, and the changes in its net
assets available for Plan benefits, for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Assets Held
for Investment Purposes and Reportable Transactions are presented for purposes
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. 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.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 27, 1998
3
<PAGE>
SERVICEMASTER COMPANY MASTER TRUST
FEIN: #36-3497008
FINANCIAL STATEMENTS AND SCHEDULES
AS OF DECEMBER 31, 1997 AND 1996
I N D E X
---------
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS AS OF
DECEMBER 31, 1997 AND 1996
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN
BENEFITS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTES TO FINANCIAL STATEMENTS
SCHEDULE A - ITEM 27a - SCHEDULE OF ASSETS HELD FOR
INVESTMENT PURPOSES AS OF DECEMBER 31, 1997
SCHEDULE B - ITEM 27d - SCHEDULE OF 5% REPORTABLE
TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1997
4
<PAGE>
<TABLE>
<CAPTION>
SERVICEMASTER COMPANY MASTER TRUST
FEIN: #36-3497008
STATEMENTS OF NET ASSETS AVAILABLE
FOR PLAN BENEFITS
As of December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS:
Investments:
Cash................................................ $ 51,881 $ -
Money market fund................................... 2,773,714 1,725,601
Common stocks - ServiceMaster Company
shares, at market value........................... 108,213,417 70,751,462
Separate account - Liberty Mutual Group
Annuity Contract, at market value................. 117,585,000 99,582,772
Fixed income securities - Wellington
Management Account, at market value:
Tax-exempt bonds................................ 135,434 -
Foreign bonds................................... 1,075,187 -
Corporate bonds................................. 10,567,554 -
Government bonds................................ 24,052,809 -
Loans to participants............................... 5,197,715 4,358,806
-------------- -------------
Total Investments................................... $ 269,652,711 $ 176,418,641
Receivables:
Employer contributions.............................. $ 3,191,941 $ 2,709,317
Participant contributions........................... 918,559 337,449
Other............................................... 561,181 258,254
-------------- -------------
Total Receivables................................... $ 4,671,681 $ 3,305,020
-------------- --------------
Total Assets........................................ $ 274,324,392 $ 179,723,661
-------------- -------------
LIABILITIES - Accounts payable............................ 335,504 201,669
-------------- -------------
NET ASSETS AVAILABLE
FOR PLAN BENEFITS..................................... $ 273,988,888 $ 179,521,992
============= =============
The accompanying Notes to Financial Statements are an
integral part of these statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SERVICEMASTER COMPANY MASTER TRUST
FEIN: #36-3497008
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
Years Ended December 31,
------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Additions:
Contributions:
Participant................................... $ 10,504,770 $ 8,201,701 $ 6,994,834
Employer...................................... 3,495,827 3,003,006 2,513,522
Loan interest................................... 488,349 79,222 -
Loan fees....................................... 7,750 12,775 -
Interest income................................. 196,259 95,082 108,580
ServiceMaster share distributions............... 1,778,011 1,816,487 1,668,424
Liberty Mutual contract income.................. 1,923,294 4,212,320 4,360,287
Wellington Management Account
interest income............................... 2,595,680 - -
Realized/unrealized gains
on investments................................ 92,022,137 30,203,547 23,713,262
------------ ------------ ------------
Total Additions.................................... $113,012,077 $ 47,624,140 $ 39,358,909
------------ ------------ ------------
Deductions:
Benefits paid to former participants........... $ 17,910,617 $ 13,755,216 $ 17,850,022
Provision for income taxes..................... - 470,000 442,609
Administrative/investment expenses............. 634,564 433,707 398,123
------------ ------------ ------------
Total Deductions................................... $ 18,545,181 $ 14,658,923 $ 18,690,754
------------ ------------ ------------
Net increase....................................... 94,466,896 32,965,217 20,668,155
Net assets available for Plan benefits:
Beginning of year.............................. 179,521,992 146,556,775 125,888,620
------------ ------------ ------------
End of year.................................... $273,988,888 $179,521,992 $146,556,775
============ ============ ============
The accompanying Notes to Financial Statements are an
integral part of these statements.
</TABLE>
6
<PAGE>
SERVICEMASTER COMPANY MASTER TRUST
FEIN: #36-3497008
NOTES TO FINANCIAL STATEMENTS
1. Master Trust
Effective January 1, 1994, the account balances of the ServiceMaster
Company ("ServiceMaster" or the "Company") service partner plans were
transferred to newly established plans. All of the plans contain identical
provisions. The financial statements of the ServiceMaster Company Trust (the
"Trust") include all of the assets of the following plans, collectively referred
to as "the Plan."
1. Service Partners Education Company Profit Sharing, Savings
and Retirement Plan (formerly Service Partners East Company
Profit Sharing, Savings and Retirement Plan)
2. Service Partners Aviation Company Profit Sharing, Savings
and Retirement Plan (formerly Service Partners West Company
Profit Sharing, Savings and Retirement Plan)
3. Service Partners Health Care Company Profit Sharing, Savings
and Retirement Plan (formerly Service Partners Mid-America
Profit Sharing, Savings and Retirement Plan)
4. Service Partners Long Term Care Company Profit Sharing,
Savings and Retirement Plan (formerly Service Partners Southeast
Company Profit Sharing, Savings and Retirement Plan)
5. Service Partners Food Service Company Profit
Sharing, Savings and Retirement Plan
6. Service Partners Business & Industry Company Profit Sharing,
Savings and Retirement Plan
7. Service Partner Diversified Health Services Company Profit
Sharing, Savings and Retirement Plan
8. ServiceMaster Profit Sharing, Savings and Retirement Plan
2. Summary of Significant Accounting Policies
Asset Valuation - The investments of the Trust are valued in the
financial statements at their respective year-end market values.
Basis of Accounting - The transactions of the Trust are accounted for on
the accrual basis.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Expenses of the Plan - Certain administrative expenses of the Trust
(including investment management fees and other plan expenses) were paid from
the Plan assets.
Income Taxes - The Trust was required to pay federal income taxes related
to its share of taxable income from its direct holding of ServiceMaster Limited
Partnership shares. Effective December 26, 1997, ServiceMaster Limited
Partnership converted to corporate form through a tax-free reorganization. At
the time of reincorporation, each outstanding limited partnership share was
converted into one share of common stock of ServiceMaster Company. Under current
federal tax laws, the Trust will be exempt from federal income taxes on any
dividends that it may receive on its holdings of ServiceMaster Company common
stock.
Participating Employers - Employers participating in the Plan are various
subsidiaries and affiliates of ServiceMaster.
Use of Estimates - The preparation of the Trust's financial statements
requires the Administrative Committee to make certain estimates and assumptions
required under generally accepted accounting principles which may differ from
the actual results.
3. The Plan
Purpose - The purpose of the Plan is to emphasize ownership and provide
opportunity as presented below:
(a) to stimulate interest, ownership and committed participation in
building the service foundation of the Company;
(b) to share with Plan participants the economic benefits produced by
their efforts;
(c) to assist in providing Plan participants with retirement benefits.
Participation - The Plan was established as of January 1, 1976. As of
December 31, 1997, there were 4,599 participants in the Plan.
All employees (other than employees covered by a collective bargaining
agreement which does not provide for Plan participation or whose compensation is
regulated under the Register of Wage Determinations maintained by the United
States Department of Labor Standards Administration) of a participating employer
which has adopted the Plan who have completed one year of service (defined as at
least 1,000 hours of employment during the first 12 months of employment or any
plan year thereafter), attained age 18 years and elected to make contributions
to the Plan are eligible to participate in the Plan.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Participant Contributions - Participants may elect to contribute a
minimum of 1% of pay and up to 15% of pay. Pretax contributions up to the first
4% of pay (or $1,000, whichever is greater) are eligible for an employer
matching contribution.
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
ServiceMaster and its key business units. The employer's discretionary profit
sharing contribution was $3,495,827, $3,003,006 and $2,513,522 for 1997, 1996
and 1995, respectively.
Vesting Policy and Payment of Benefits - Upon termination of employment
and after completion of seven years of service or in the event of disability or
death, the participant or his beneficiary is entitled to receive the full amount
allocated to his account. If a participant's employment is terminated prior to
the completion of seven years of service for any reason, other than death or
disability, they will receive, in addition to the balance of their participant
contribution accounts, including any rollovers or tax deductible voluntary
contributions, that portion of the employer contribution account equal to 20%
after the completion of three years of service and 20% for each additional full
year of service (as defined in the Plan documents), up to 100% after seven years
of service.
Benefits are distributed to participants in cash (in a lump sum or
periodic payments) or ServiceMaster shares, as provided by the Plan.
Allocation of Employer Contributions - Employer profit sharing
contributions are allocated to each participant on the basis of their pretax
contributions up to the first 4% of pay (or $1,000 whichever is greater).
Forfeitures - Forfeitures represent amounts forfeited by participants
upon termination and are allocable to eligible participants in the same manner
as employer profit sharing contributions.
Participant Loans - In 1996, the Plan was amended to include a loan
program available to all participants who are current employees. Each loan is
secured by the participant's vested account balance and must be greater than
$500 but may not exceed the lesser of $50,000 or 50% of the participant's vested
account balance. Loan terms may not exceed a period of five years.
Amendment or Termination - The Plan may be amended or discontinued by the
Company (with respect to all participating employers) or by a participating
employer (with respect to its eligible employees) at any time. If a plan is
discontinued, participants with respect to whom the plan is terminated become
fully vested in their allocated account balances.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Federal Income Taxes
Tax Status of the Plan - The Plans have filed a request for a
determination letter with the Internal Revenue Service. However, the Plan
administrator believes that the Plans are currently designed and being operated
in compliance with the requirements of the Internal Revenue Code and that the
trust is tax-exempt as of the financial statement date.
Although the Trust is a tax-exempt entity, it was required to pay federal
income taxes related to its share of taxable income from its direct holding of
ServiceMaster Limited Partnership shares. Effective December 26, 1997,
ServiceMaster Limited Partnership converted to corporate form through a tax-free
reorganization. At the time of reincorporation, each outstanding limited
partnership share was converted into one share of common stock of ServiceMaster
Company. Under current federal tax laws, the Trust will be exempt from federal
income taxes on any dividends that it may receive on its holdings of
ServiceMaster Company common stock.
Tax Status of Each Participant - Participant contributions made on or
after April 1, 1988 are deductible by the participant for federal income tax
purposes when made to the Plan. Participants will be subject to tax on the
participant contributions, employer contributions and income credited to their
plan accounts when an actual distribution from the Plan is received. However,
participant contributions made prior to April 1, 1988 were not deductible for
federal income tax purposes when made to the Plan.
5. Reconciliation of Financial Statements to Form 5500
Internal Revenue Service Form 5500 ("Form 5500") requires that net assets
available for Plan benefits exclude amounts allocated to withdrawing
participants. (These are participants that have benefit claims which have not
been paid, but have been processed and approved for payment prior to year-end).
The following is a reconciliation of net assets available for Plan
benefits per the financial statements to the Form 5500's:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net assets available for benefits
per the financial statements.............. $ 273,988,888 $ 179,521,992 $ 146,556,775
Amounts allocated to
withdrawing participants.................. (2,796,311) (2,141,506) (3,155,616)
------------- ------------- -------------
Net assets available for benefits
per the Form 5500's....................... $ 271,192,577 $ 177,380,486 $ 143,401,159
============= ============= =============
</TABLE>
Amounts allocated to withdrawing participants for benefit claims that have been
processed and approved for payment prior to December 31 but not yet paid as of
that date, are recorded as benefits paid for that year on the Form 5500's.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500's:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Benefits paid to participants per
the financial statements..................... $ 17,910,617 $ 13,755,216 $ 17,850,022
Add: Amounts allocated to withdrawing
participants in current year................. 2,796,311 2,141,506 3,155,616
Less: Amounts allocated to withdrawing
participants from prior year................. (2,141,506) (3,155,616) (5,357,049)
------------- ----------- -----------
Benefits paid to participants per
the Form 5500's.............................. $ 18,565,422 $ 12,741,106 $ 15,548,589
============= ============= =============
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SERVICEMASTER COMPANY MASTER TRUST
SCHEDULE A-ASSETS HELD FOR INVESTMENT PURPOSES
ITEM 27a - Schedule of Assets for Investment Purposes
FEIN: #36-3497008
AS OF DECEMBER 31, 1997
IDENTITY OF ISSUER/ COST OR MARKET
DESCRIPTION OF INVESTMENT BOOK VALUE VALUE
- ------------------------- ---------- ------
<S> <C> <C>
CTC Illinois Trust Company (a):
Cash............................................. $ 51,881 $ 51,881
Money market fund ................................ 2,773,714 2,773,714
Common stocks - ServiceMaster
Company shares (3,699,604 shares) .............. 63,315,132 108,213,417
Fixed income securities - Wellington
Management Account:
Tax-exempt bonds ............................. 134,730 135,434
Foreign bonds ................................ 1,078,453 1,075,187
Corporate bonds .............................. 10,515,297 10,567,554
Government bonds ............................. 23,499,929 24,052,809
Liberty Life Assurance Company (a):
Separate account - Liberty Mutual Group
Annuity Contract (4,020,000
ServiceMaster shares) .......................... 68,675,000 117,585,000
Loans to participants (a) (interest ranging
from 9.25% to 9.50%) ............................. 5,197,715 5,197,715
------------ ------------
TOTAL INVESTMENTS ................................... $ 175,241,851 $ 269,652,711
============= =============
(a) Represents a party-in-interest.
The accompanying Notes to Financial Statements are an
integral part of this schedule.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SERVICEMASTER COMPANY MASTER TRUST
SCHEDULE B-REPORTABLE TRANSACTIONS
ITEM 27d - Schedule of 5% Reportable Transactions
FEIN: #36-3497008
FOR THE YEAR ENDED DECEMBER 31, 1997
Current
Value of
Asset on
Identity of Party Involved/ No. of Purchase Sales Transaction Gain
Description of Asset Transactions Price Proceeds Cost Date (Loss)
- --------------------------- ------------ -------- -------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
CTC Illinois Trust Company (a):
Money market fund
Purchases................. 216 $33,255,618 - $33,255,618 $33,255,618 -
Sales..................... 88 - $32,207,505 $32,207,505 $32,207,505 -
ServiceMaster Shares
Purchases................. 1 $64,428,750 - $64,428,750 $64,428,750 -
Sales..................... 1 - $68,675,000 $20,517,540 $68,675,000 $48,157,460
Liberty Life Assurance Company (a):
ServiceMaster Shares
Purchases................. 1 $68,675,000 - $68,675,000 $68,675,000 -
Sales..................... 1 - $64,428,750 $29,786,133 $64,428,750 $34,642,617
(a) Represents a party-in-interest.
The accompanying Notes to Financial Statements are an
integral part of this schedule.
</TABLE>
13
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants we hereby consent to the incorporation
by reference of our report, dated March 27, 1998, appearing in the ServiceMaster
Company Master Trust Annual Report on Form 11-K for the year ended December 31,
1997, to the Company's previously filed Registration Statement Number 2-75851 on
Form S-8.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 27, 1998
14
