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This Financial Discussion should be read in conjunction with the information
on Forward-Looking Statements and Risk Factors found at the
end of the Financial Discussion.
Despite being faced with continuing challenges from the global
economic environment, we delivered a very strong financial performance
in 2003. Our ability to leverage our wide range of offerings resulted
in double-digit earnings per share growth, strong operating cash flow, a
healthy return on investment and an improved balance sheet for 2003.
We continue to successfully implement our Circle the Customer – Circle
the Globe growth strategy to generate strong financial results.
Several important items impacted our financial results in 2003.
 We continued to find new markets in which to grow our business.
Strong sales growth in Kay resulted from servicing the developing fastcasual
restaurant market segment and food retail business. Professional
Products introduced the first solid-based product offering for surgical
instrument cleaning in the acute care market segment. Our International
locations continue to expand the successful Pest Elimination business to
new geographies.
We made appropriate decisions to improve the profitability of certain
business units. We have exited low-margin accounts within
Professional Products, Textile Care and areas in Europe. This has negatively
impacted sales growth in 2003.
We continued to invest in future growth during 2003. This included
investing in our sales-and-service force and in acquiring such businesses
as Adams Healthcare. We also made investments to improve the
service efficiency of GCS Service. While GCS Service had lower sales
and an operating loss in 2003, we have better positioned the business
for the long term.
Our sales associates grew our business by gaining new independent
and chain accounts, as well as growing business at existing customers.
We faced competition in our markets and we countered with our
innovative product offerings and our superior customer service.
Operating cash flow in 2003 continued to be very strong and
allowed us to make acquisitions, pay down $108 million of debt, reacquire
over $227 million of our common stock and make $75 million in
additional voluntary contributions to our U.S. pension plan.
Currency translation had a positive impact on our financial results
in 2003, adding approximately $12 million to net income.
An improvement in our annual effective income tax rate from 39.8
percent in 2002 to 38.1 percent in 2003 added approximately $7 million
to net income. The acquisition of our former European joint venture business
at the end of fiscal year 2001 has allowed us to have a more tax
efficient structure.
The combination of all of these factors helped us exceed all three
of our long-term financial objectives in 2003. These objectives are (i) 15
percent growth in diluted income per common share, (ii) 20 percent
return on beginning shareholders' equity and (iii) an investment grade or
"A" rated balance sheet. Specifically, here is what we accomplished:
Diluted net income per share was $1.06 for 2003, up 33 percent
from $0.80 in 2002. Included
in 2003 net income is a gain
of $11.1 million, or $6.7 million
net of tax, from the sale
of an equity investment. For
2002, net income includes (i)
a transitional impairment
charge of $4.0 million after
tax ($0.02 per diluted share)
from the adoption of
Statement of Financial
Accounting Standards (SFAS)
No. 142, (ii) a one-time gain
of $3.5 million after tax from
benefit plan changes, (iii)
special charges of $32.4 million
after-tax related to
restructuring activities and
the integration of our
European operations and (iv)
a gain of $1.9 million after
tax ($0.01 per diluted share)
from discontinued operations.
These items are of a nonrecurring
nature and are not
necessarily indicative of
future operating results.
Return on beginning
shareholders' equity was 25
percent for 2003 compared
with 24 percent in 2002. The
items discussed above affected
the return for 2002.
Adjusting for these items,
return on beginning shareholders'
equity was 27 percent.
This was the twelfth
consecutive year we exceeded our long-term financial objective of a
20 percent return on beginning shareholders' equity.
We maintained our debt rating within the "A" categories of the
major rating agencies during 2003.
As a result of our continued strong financial performance and
related stock price increases, on June 6, 2003, we paid a two-for-one
stock split in the form of a 100 percent stock dividend to shareholders
of record on May 23, 2003. All per share, shares outstanding and market
price data have been adjusted to reflect the stock split.
Net income divided by beginning equity.
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We expect to acquire additional businesses which fit with our
Circle the Customer — Circle the Globe growth strategy.
We remain concerned about the possible adverse impact of global
terrorism, unforeseen hostilities and public health epidemics on the sensitive
travel and tourism industries.
We expect currency translation to have a favorable impact on
2004 but to a lesser extent than we experienced in 2003.
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