financial discussion

OPERATING SEGMENT PERFORMANCE
Our operating segments have similar products and services and we are organized to manage our operations geographically. Our operating segments have been aggregated into three reportable segments: United States Cleaning & Sanitizing, United States Other Services, and International Cleaning & Sanitizing. We evaluate the performance of our International operations based on fixed management rates of currency exchange. Therefore, International sales and operating income totals, as well as the International financial information included in this financial discussion, are based on translation into U.S. dollars at the fixed currency exchange rates used by management for 2003. All other accounting policies of the reportable segments are consistent with accounting principles generally accepted in the United States of America and the accounting policies of the company described in Note 2 of the notes to consolidated financial statements. Additional information about our reportable segments is included in Note 16 of the notes to consolidated financial statements.

Sales by Operating Segment

(thousands)	2003	2002	2001
Net sales    United States       Cleaning & Sanitizing	$1,694,323	$1,615,171	$1,548,882
Other Services	320,444	308,329	273,020
Total United States	2,014,767	1,923,500	1,821,902
International Cleaning       & Sanitizing	1,560,557	1,497,935	474,089
Total	3,575,324	3,421,435	2,295,991
Effect of foreign currency       translation	186,495	(17,850)	24,719
Consolidated	$3,761,819	$3,403,585	$2,320,710

The following chart presents the comparative percentage change in net sales for each of our operating segments for 2003 and 2002 (excluding Europe in 2002). European operations have been excluded in the percent change for 2002 since they were consolidated for the first time in 2002, making the percentage comparison not meaningful.

Sales Growth Information

	Percent Change from Prior Year
	2003	2002
Net sales    United States Cleaning & Sanitizing       Institutional	5%	6%
Kay	12	9
Textile Care	(10)	3
Professional Products	9	(4)
Water Care Services	4	(3)
Vehicle Care	4	3
Food & Beverage	3	1
Total United States       Cleaning & Sanitizing	5%	4%
United States Other Services       Pest Elimination	11%	7%
GCS Service	(7)	19
Total United States Other Services	4%	13%
Total United States	5%	6%
International Cleaning & Sanitizing       Europe	4%	---%
Asia Pacific	3	2
Latin America	7	9
Canada	4	8
Other	21	25
Total International Cleaning & Sanitizing       (excluding Europe in 2002)	4%	7%
Consolidated (excluding Europe in 2002)	11%	5%

UNITED STATES CLEANING & SANITIZING

Sales of our United States Cleaning & Sanitizing operations were $1.7 billion in 2003 and increased 5 percent over net sales of $1.6 billion in 2002. Business acquisitions had no effect on the growth in sales for 2003. Sales benefited from good growth in our Kay and Professional Products operations, which were partially offset by lower sales in Textile Care. The increase in our Institutional division reflected its continued efforts to generate new accounts, the successful introduction of new products and improved customer service. Trends in the foodservice, hospitality and healthcare industries were challenging in early 2003 but showed signs of improvement late in the year. Kay's sales increase reflects solid growth in its food retail services business and to quickservice restaurants as well as through the introduction of new products and programs. Textile Care sales decreased, particularly to distributors, due to soft industry demand and strong competition within the industry. Textile Care is focusing on improving its service and reestablishing its relationships with distributors in an effort to increase sales growth. Textile Care is also continuing to take a selective approach to new customers to ensure they meet our profit guidelines. Sales of Professional Products increased due to strong gains in the healthcare market offsetting the continuing phase-out of the specialty business. Our introduction of the first solid-based product offering to the acute care market in the second quarter of 2003 helped drive the sales growth in the healthcare market. Professional Products' janitorial sales were also positively impacted in 2003 by a long-term supply agreement that began in December 2002. Effective January 2004, our Professional Products division was reorganized to better serve janitorial and healthcare customers by splitting the Professional Products division into two divisions, Professional Products and Healthcare. Our Food & Beverage sales were driven by improved retention and corporate account growth in the dairy, soft drink, meat and poultry and food markets. This increase was partially offset by a decrease in agricultural sales due to overall market weakness. Water Care Services had good growth in sales to the food and beverage, hospitality, healthcare and commercial accounts due to solid gains in new customer accounts. Vehicle Care sales were again driven by new business with major oil companies and successful new product introductions.

UNITED STATES OTHER SERVICES

Sales of our United States Other Services operations increased 4 percent to $320 million in 2003, from $308 million in 2002. Business acquisitions had no effect on the growth in sales for 2003. Pest Elimination's sales in 2003 reflected strong growth in both contract sales, due to the addition of new large accounts, and non-contract services, due to the aggressive efforts of the sales force. GCS Service sales decreased in 2003 due to service interruptions caused by the restructuring of field operations and the transition to a new centralized administration center, which began operation in 2003. In an effort to increase sales going forward, GCS Service implemented productivity improvement measures in the fourth quarter of 2003.

INTERNATIONAL CLEANING & SANITIZING

Management rate sales for our International Cleaning & Sanitizing segment were $1.6 billion for 2003, an increase of 4 percent over sales in 2002. Excluding the effects of acquisitions and divestitures, sales increased 3 percent. Sales in Europe, excluding the effects of acquisitions and divestitures, increased 2 percent. Successful new housekeeping and Ecotemp programs were partially offset by a weak European economy and strong competition. We are focusing on expanding our Pest Elimination business in Europe through acquisitions such as the Terminix operations in the United Kingdom, which was purchased in December 2002, and Nigiko with operations in France, acquired in January 2004. We expect to leverage the success of this business in the United States to become a global provider of pest elimination services. The increase in Asia Pacific was driven by Japan, New Zealand and Northeast Asia. In Japan, sales to chain restaurants and resort hotel customers improved and New Zealand is showing strong growth in its pest elimination services business. In Northeast Asia, Korea's growth was propelled by strong Institutional sales while China experienced excellent growth in its Food & Beverage sales. Good growth in these areas was partially offset by a sales decline in Australia due to soft Food & Beverage and Water Care business. Sales in Latin America, excluding acquisitions, grew 6 percent in 2003 and most Latin America countries experienced good growth except Venezuela, where a country-wide strike at the beginning of 2003 resulted in virtually no sales for the first two fiscal months of 2003. Mexico, the Caribbean and Central America all had double-digit sales growth in 2003. Growth in Latin America is being fueled by good growth in food retail programs, a demand for improved sanitation and expansion of pest elimination services. Sales in Canada increased due to continued focus on obtaining new customers and selling additional solutions to existing customers, partially offset by the impact of the Severe Acute Respiratory Syndrome (SARS) outbreak in Canada.

Operating Income by Operating Segment

(thousands)	2003	2002	2001
Operating income    United States       Cleaning & Sanitizing	$ 285,212	$ 271,838	$ 246,936
Other Services	21,031	33,051	29,338
Total United States	306,243	304,889	276,274
International Cleaning       & Sanitizing	159,866	138,373	44,575
Total	466,109	443,262	320,849
Corporate	(4,834)	(46,008)	(4,938)
Effect of foreign currency       translation	21,383	(1,388)	2,268
Consolidated	$ 482,658	$ 395,866	$ 318,179
Operating income as a percent of net sales    United States       Cleaning & Sanitizing	16.8%	16.8%	15.9%
Other Services	6.6	10.7	10.7
Total	15.2	15.9	15.2
International Cleaning       & Sanitizing	10.2	9.2	9.4
Consolidated	12.8%	11.6%	13.7%

Operating income of our United States Cleaning & Sanitizing operations increased 5 percent in 2003. Operating income as a percent of sales remained the same in 2003 as 2002 due to the investments in developing the sales force and higher operating costs being offset by cost savings initiatives. We added 100 sales-and-service associates to our United States Cleaning & Sanitizing operations during 2003.

Operating income of United States Other Services operations decreased 36 percent. As a percentage of net sales, operating income decreased significantly as well. Pest Elimination had strong operating income growth, while GCS Service results reflected an operating loss. Strong growth in both contract and non-contract services, coupled with tight expense control, has helped fuel Pest Elimination's growth. GCS Service results reflected an operating loss due to a decrease in sales resulting from operational issues encountered with a transition to a centralized administration center and the related costs invested in this initiative. This lost revenue adversely impacted operating income due to the relatively fixed nature of GCS Service's expenses. During 2003, we added 95 sales-and-service associates to our United States Other Services operations.

Operating income of our International Cleaning & Sanitizing operations rose 16 percent in 2003 at management rates. Excluding the effects of acquisitions and divestitures, operating income increased 13 percent. Our international operating income margin also increased in 2003 over 2002. Operating income as a percent of net sales excluding acquisitions and divestitures was 10.7 in 2003 versus 9.7 in 2002. This result was due to good operating income growth and margin improvement in our European, Asia Pacific and Canadian businesses. Operating income growth was also good in Latin America. The primary reason for these significant improvements was due to the successful introduction of new products and programs as well as careful cost management. We added 80 sales-and-service associates to our International Cleaning & Sanitizing operations during 2003.

Operating income margins of our International operations are less than those realized for our U.S. operations. The lower International margins are due to (i) higher costs of importing raw materials and finished goods, (ii) the additional costs caused by the difference in scale of International operations where many operating locations are smaller in size and (iii) the additional cost of operating in numerous and diverse foreign jurisdictions. Proportionately larger investments in sales, technical support and administrative personnel are also necessary in order to facilitate the growth of our International operations.

2002 compared with 2001
Sales of our United States Cleaning & Sanitizing operations were $1.6 billion in 2002 and increased 4 percent over net sales of $1.5 billion in 2001. Business acquisitions had no effect on the growth in sales for 2002. Sales benefited from good growth in sales of U.S. Institutional and Kay operations. U.S. Institutional operations sales growth during 2002 reflected good growth driven primarily by the non-travel portion of the business. Trends in sales to the travel-related business also showed improvement over the course of 2002. Sales of Kay's U.S. operations increased over 2001 with strong growth in both its food retail business and sales to the quickservice market. Textile Care sales increased from 2001 due to increased sales to existing customers as well as sales to new customers. Professional Products sales decreased in 2002 due to both a decline in the core sales of the Janitorial market and a decrease in the non-core specialty business reflecting a planned restructuring of the JaniSource business. Professional Products' sales, however, were positively impacted at the end of 2002 due to a long-term supply agreement that became effective in December 2002. Water Care Services sales decreased from 2001 due to customer cost cutting and consolidations. Water Care also continued to exit non-core markets. Vehicle Care sales growth for 2002 was primarily due to new business with major oil companies as well as new product introductions. Food & Beverage sales increased slightly from 2001 with good growth in sales to the dairy, beverage and meat & poultry markets which were partially offset by weak agricultural sales.

Sales of United States Other Services operations increased 13 percent to $308 million in 2002, from $273 million in 2001. Excluding the effects of business acquisitions, sales increased 4 percent for 2002. Pest Elimination's sales in 2002 included strong growth in non-contract services, and were partially offset by a slowdown in the growth of contract services. GCS Service sales growth increased over 2001, reflecting the continued expansion of its operations through acquisitions and a focus on integrating past acquisitions. Excluding the effects of businesses acquired, GCS Service sales decreased 1 percent for 2002. The results reflected the division's focus on standardizing operating procedures and the impact of the hospitality slowdown on the GCS business. United States Other Services also includes modest sales from the addition of EcoSure operations in January 2002.

Management rate-based sales of our International Cleaning & Sanitizing operations reached $1.5 billion for 2002, an increase of 216 percent over sales of $0.5 billion in 2001. International Cleaning & Sanitizing includes European sales of $1.0 billion for 2002. Prior to 2002, we included the results of our former European joint venture operations in our financial statements using the equity method of accounting. Excluding Europe's sales, International Cleaning & Sanitizing sales growth was 7 percent for 2002. Excluding all business acquisitions and divestitures, sales also increased 7 percent in 2002. European sales, although not consolidated prior to 2002, increased 8 percent over 2001 due to good growth in sales to the food and beverage markets and European acquisitions. For the Asia Pacific region, Japan, New Zealand and China showed good sales growth for the year while Australia's sales declined due to the sale of its Hygiene Services business. Asia Pacific's sales increased 3 percent in 2002, excluding business acquisitions and divestitures. The increase in Asia Pacific sales was primarily from the institutional and food and beverage markets. Latin America sales increased 7 percent in 2002, excluding business acquisitions, with good growth in all countries except Venezuela due to the economic impact of the devaluation of its currency. Sales in Canada increased over the prior year due to good growth in sales to the institutional market.

Operating income of our United States Cleaning & Sanitizing operations was $272 million in 2002, an increase of 10 percent from operating income of $247 million in 2001. As a percentage of net sales, operating income increased from 15.9 percent in 2001 to 16.8 percent in 2002. The improvement in reported operating income margins reflected tight cost controls, savings from cost reduction initiatives, the sale of new products and the impact of adopting SFAS No. 142. Operating income in 2001 does not reflect the effect of SFAS No. 142, and thus includes amortization expenses related to goodwill of $10.6 million. If the provisions of SFAS No. 142 had been applied retroactively to January 1, 2001, operating income for our United States Cleaning & Sanitizing operations would have increased 6 percent and the operating income margin for our U.S. Cleaning & Sanitizing operations would have been 16.6 percent for 2001. We added 105 sales-and-service associates to our United States Cleaning & Sanitizing operations during 2002.

Operating income of our United States Other Services operations increased 13 percent to $33 million in 2002. The operating income margin for United States Other Services was 10.7 percent for both 2002 and 2001. Operating income in 2001 does not reflect the effect of SFAS No. 142 and includes $1.9 million of amortization expense related to goodwill. Excluding acquisitions and the effects of SFAS No. 142, operating income increased 3 percent over 2001. Excluding acquisitions and including the pro forma effects of SFAS No. 142 on 2001, the operating income margin for United States Other Services was 11.4 percent for both 2002 and 2001. Pest Elimination had strong operating income growth due to increased productivity and cost controls. Operating income for GCS Service declined due to investments in the division's infrastructure and systems. During 2002, we added 75 sales-and-service associates to our United States Other Services operations.

Operating income of our International Cleaning & Sanitizing operations rose 210 percent to $138 million in 2002 from operating income of $45 million in 2001. The International operating income margin decreased from 9.4 percent in 2001 to 9.2 percent in 2002. Operating income in 2001 does not reflect the effect of SFAS No. 142 and includes $5.3 million of amortization expense related to goodwill. Excluding acquisitions and including the pro forma effects of SFAS No. 142 on 2001, operating income increased 15 percent over 2001. Excluding acquisitions (primarily Europe) and including the pro forma effects on SFAS No. 142 on 2001, the operating income margin for International increased to 10.3 percent of net sales from 9.6 percent in 2001. Significant operating income growth and margin improvement from Asia Pacific, Latin America and Canada contributed to the increase. We added 510 sales-and-service associates to our International Cleaning & Sanitizing operations, including Europe, during 2002.