American Home Shield 2002 Annual Report Download

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Table of contents

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    ServiceMaster Annual Report 2002

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    ... it is much, much more. Service is a shared experience that brings us close to our customers. Millions of times each year our people are summoned to b r i n g h e a l t h , s a f e t y, b e a u t y a n d o r d e r. We serve in our customer's home or at their place of business - in their kitchen or...

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    ...41 $ (0.55) 0.95 (0.01) $ $ 0.39 0.40 3% Total assets Total debt Shareholders' equity $ 3,414,938 835,475 1,218,700 $3,621,245 1,155,193 1,207,187 Cash Flows Cash from operations Share Price Range (Traded on the New York Stock Exchange under the symbol SVM) $ 381,049 $ 362,933 5% High...

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    ... marketing expertise, improving our service levels, listening better to our customers and to our own employees, building an unwavering capability to continuously improve and then sharing our best ideas across lines of business. We're doing all those things, and each one makes us a better company...

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    ... plumbing and HVAC segment, which includes American Residential Services (ARS) and American Mechanical Services (AMS). Revenues for this segment declined 12 percent for the full year. During the year, we worked to strengthen ARS, the larger of the two businesses in this segment, with a new president...

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    ... area of successful execution in 2002, we increased our focus on the customer. Our unrelenting commitment is to start with the customer's point of view and work back to ServiceMaster. And when we say "customer," we mean those who use our services - plus those who might use our services if we better...

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    .... Our Terminix termite and pest control business opened a Commercial Division and set up dedicated service centers in approximately 30 of its major markets. Growth rates for commercial accounts could easily exceed our residential growth rates in pest control. Our American Home Shield home warranty...

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    ... information technology, logistics, business integrations and management development. • Roberto R. Herencia, President, Banco Popular North America and Executive Vice President and Head of North America Operations for Popular, Inc. His areas of expertise include corporate finance, investment...

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    ... top-line sales, increased customer retention, expense control and continued strong cash flow. This is the time for us to keep pushing ahead, to understand our customers better - and our potential customers. And continue to bring data and process discipline to our work. It's what we call performing...

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    ServiceMaster: America's Service Brands for Home and Business

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    ...T More Americans trust their yards to our TruGreen ChemLawn business than to any other provider of lawn care services. We've built the industry's leading service brand, through attentive customer service, deep expertise in agronomics, and highly-trained employees who share their customers' pride in...

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    ...our customers a number of advantages that are tough for competitors to match. Our unconditional guarantee - backed by highly trained and certified Terminix Service Professionals - is the best in the business. We also offer cutting-edge technology for termite and pest control, such as termite baiting...

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    ... have ongoing partnerships with mortgage companies, banks and credit card companies to expand our reach. We are also launching partnership programs with top insurance agencies and targeting homeowners directly for purchasing home warranties. AmeriSpec, our home inspection business, is the leader of...

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    ...,000 small firms (two to seven employees). Beginning in 2003, customers will learn about the advantages of calling on ARS Service Express and Rescue Rooter for their HVAC and plumbing maintenance, replacement and repairs. These brands represent our promise to help homeowners feel more in control of...

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    ... services for busy homeowners who trust us to do the cleaning they don't have time to do. Our Furniture Medic technicians are also skilled in restoring the beauty, repairing damaged and aged furniture on-site and in our locations whether it's at the White House or any great American home or office...

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    ... customer level revenue •Home inspections AmeriSpec ARS Service Express Rescue Rooter •70 locations •1.6 million customers, $554 million customer level revenue •Residential/commercial plumbing, electrical, heating, ventilation, air conditioning maintenance, repair services AMS American...

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    ... by mistake. After all, it was 4:00AM, and things were still pretty chaotic. I was completing another Saturday nightshift at Ground Zero, where I was privileged to serve as a chaplain to the ..., and saw that instead of the usual writing, "Police Do Not Cross" it read, "GOD AT WORK." ServiceMaster 21

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    ...." In fact, The ServiceMaster Company was founded on faith-friendly values which are alive in the lives of the employees who serve customers every day. Now, we're not suggesting you turn the workplace into a church, synagogue or temple. Nor do we want the church to become a business. They are two...

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    ... for employees, management and shareholders. Notably, these findings are both biblically grounded and supported by cutting-edge economic and business research. Of course, like all great leadership insights, making your company faith-friendly has its challenges, given the complexity of corporate life...

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    ... Position 37 Consolidated Statements of Shareholders' Equity 38 Consolidated Statements of Cash Flows 39 Notes to the Consolidated Financial Statements 58 Report of Independent Auditors 59 Quarterly Cash Dividends and Price Per Share Data 60 Board of Directors/Company Information 24 ServiceMaster

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    ...revenue in 2002 from 10.7 percent in 2001. The decline in operating income reflects strong growth at American Home Shield offset by reduced volume in the heating, ventilation and air conditioning (HVAC) and plumbing businesses of ARS and AMS, increased workers compensation and health insurance costs...

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    ... decrease in profitable pest control customers from the Sears name in certain markets. New sales in these markets have not kept pace with cancellations and as a result, overall customer retention rates have shown a decline. The Company has begun to experience a reduction in revenue growth which...

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    ...marked reduction in construction activity. A decline in call volume for residential air conditioning and plumbing service resulted in the Company's decrease in revenue and profit. Margins declined in part due to higher marketing and insurance costs. In addition, lower revenue led to reduced leverage...

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    ... entities. In the fourth quarter of 2002, the purchaser of the Company's European pest control and property services operations made a claim for a purchase price adjustment (relating to the 2001 sale), relating to an alleged breach of certain conditions in the purchase agreement. In the course of...

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    ... by a cost structure that was in place to support a higher anticipated level of demand. Landscape maintenance revenue increased one percent compared to 2000. Revenue growth was negatively affected by management's decision to enforce stricter profitability standards on contract sales and renewals as...

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    ... better receivable and payables management, most notably in the TruGreen ChemLawn and ARS businesses. Property additions increased $19 million, reflecting the net purchase price relating to the residual value guarantees of leases for five assisted living facilities sold in the second quarter. Cash...

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    ...warranty contracts written at American Home Shield, increased volume in termite baiting contracts and customer prepayments in the lawn care business. As of the date of the Company's acquisition of ARS in 1999, certain members of management acquired, at fair market value, equity interests in the HVAC...

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    ... rating category reduction in the Company's credit ratings would increase expense on an annualized basis by approximately $1.3 million. The following table summarizes information about the Company's fixed rate debt instruments as of December 31, 2002 and presents the principal cash flows and related...

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    ...basic earnings per share Shares used to compute diluted earnings per share Shares outstanding, net of treasury shares Cash dividends per share Share price range: High price Low price Financial Position (at year end): Current assets Current liabilities Working capital Current ratio Total assets Total...

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    ... stations as well as home warranty services typically are sold through annual contracts for a one-time, upfront payment. Direct costs of these contracts (service costs for termite contracts and claim costs for warranty contracts) are expensed as incurred. The Company recognizes revenue over the life...

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    ... 6) 2000 2002 $ 3,589,089 2001 Operating Revenue Operating Costs and Expenses: $3,561,445 $3,421,802 Cost of services rendered and products sold Selling and administrative expenses Goodwill, trade name and other intangible amortization Charge (credit) for impaired assets and other items Total...

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    ... trade names Notes receivable Long-term securities and other assets Total Assets Liabilities and Shareholders' Equity: Current Liabilities: $3,414,938 Accounts payable Accrued liabilities: Payroll and related expenses Self-insured claims and related expenses Other Deferred revenues Liabilities...

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    ...Total comprehensive income Shareholder dividends Shares issued under options, debentures, grant plans and other (2,706 shares) Treasury shares purchased (4,985 shares) Balance December 31, 2002... amounts (net of tax) relating to comprehensive income: 2002 Unrealized holding gains (losses...

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    ... 303,167 Property additions Sale of equipment and other assets Business acquisitions, net of cash acquired Proceeds from business sales Notes receivable, financial investments and securities Proceeds from sale of Management Services Proceeds from sale of European businesses Net Cash Provided from...

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    ... stations as well as home warranty services typically are sold through annual contracts for a onetime, upfront payment. Direct costs of these contracts (service costs for termite contracts and claim costs for warranty contracts) are expensed as incurred. The Company recognizes revenue over the life...

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    ...of the inventory value at December 31, 2002. The remaining inventory is finished goods to be used on the customers' premises or sold to franchisees. Depreciation and Amortization: Buildings and equipment used in the business are stated at cost and depreciated over their estimated useful lives using...

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    ... collectibility of receivables. Income Taxes: The Company accounts for income taxes for employee stock options as compensation expense. The Company will use the "prospective method" of SFAS 148 and expense the fair value of new employee option grants awarded subsequent to 2002. If the Company...

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    ... termite and pest control services to residential and commercial U.S. customers. The American Home Shield segment provides home warranties to consumers that cover heating, ventilation, air conditioning (HVAC), plumbing and certain appliances. This segment also includes home inspection services...

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    ...) 2002 $1,372,984 924,384 423,526 718,892 149,303 $ 3,589,089 $ 171,235 127,441 47,890 17,342 (22,572) 341,336 171,235 127,441 47,890 17,342 (22,572) 341,336 % Change 2001 % Change 2000 Operating Revenue: TruGreen Terminix American Home Shield ARS/AMS Other Operations Total Operating Revenue...

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    ... for information relating to goodwill acquired and amounts impaired or part of a discontinued operation. (In thousands) 2002 $ 916,216 709,955 72,085 347,968 $ 112,106 2,158,330 % Change 2001 % Change 2000 TruGreen Terminix American Home Shield ARS/AMS Other Operations Total 1% 1 5 1% $ 910...

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    ... Financial Statements American Home Shield Deferred Acquisition Costs Reincorporation Tax In July 2002, the Company changed its method of accounting for deferred customer acquisition costs in its American Home Shield business from SFAS No. 60, "Accounting and Reporting by Insurance Enterprises...

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    ... loss, net of taxes Cumulative effect of accounting change, net of taxes Net income as adjusted under SFAS 142 Reported basic earnings per share from continuing operations before extraordinary loss and cumulative effect of accounting change Add back: Goodwill and trade name amortization, net...

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    ...) $(153,800) (1) The deferred tax liability relates primarily to the difference in the tax versus book basis of intangible assets. This liability does not represent expected future cash payments until a business unit of the Company is sold. Current Deferred Total Total tax payments in 2002 were...

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    ... acquired certain assets of Sears Termite and Pest Control, Inc., a company that provides pest control services and protection against termite damage to residential customers located primarily in the Southeast. The cash paid after assuming the liabilities to remediate the premises owned by current...

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    ...control and property services operations. In the fourth quarter of 2002, the purchaser of the Company's European pest control and property services operations made a claim for a purchase price adjustment (relating to the 2001 sale), relating to an alleged breach of certain conditions in the purchase...

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    ...acquired, at fair market value, equity interests in the HVAC and plumbing operations. In the fourth quarter of 2002, the Company repurchased at fair value the shares of ARS for approximately $3 million. Kleiner Perkins Caufield & Byers (KP) purchased a minority interest in ServiceMaster Home Service...

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    ...31, 2002, the Company had approximately $26 million of annually renewable surety bonds outstanding that primarily support obligations the Company has under insurance programs. If the surety bonds are not renewed, the Company expects to replace them with letters of credit issued under its bank credit...

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    ... caption "Cash and Cash Equivalents." Marketable securities are designated as available for sale and recorded at current market value, with unrealized gains and losses reported in a separate component of shareholders' equity. The Company's investments consist primarily of publicly traded debt and...

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    ...2002, there were 37.3 million Company shares available for issuance upon the exercise of employee options outstanding and future grants. Share options are issued at a price not less than the fair market value on the grant date and expire within ten years of the grant date. Certain options may permit...

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    ..., December 31, 2001 Transactions during 2002 Granted to employees Exercised or vested Terminated or resigned Total exercisable, December 31, 2002 Total outstanding, December 31, 2002 Options outstanding at December 31, 2002: Number Range of Exercise Prices Outstanding at 12/31/02 Weighted...

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    ... stock options whose market price is in excess of the exercise price and (In thousands, except per share data) For year ended 2002 Continuing Operations: Income Shares EPS For year ended 2001 Loss Shares EPS For year ended 2000 Income Shares EPS Basic EPS Effect of Dilutive Securities, net of tax...

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    ... reported 2002 quarterly results. The impact of the restatement on operating revenue, gross profit, income from continuing operations and earnings per share is presented below. For interim accounting purposes, TruGreen ChemLawn incurs pre-season advertising costs and annual repair and maintenance...

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    ... quarter and an extraordinary gain of $.02 per diluted share ($6 million after-tax) in the first quarter. In 2000, the Company changed its method of accounting for revenue from its termite baiting contracts. The cumulative effect of this accounting change as of January 1, 2000 was $11.1 million ($18...

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    ... financial statements have been restated. As discussed in the Newly Adopted Accounting Principles note to the consolidated financial statements, effective January 1, 2002, the Company adopted SFAS 142, Goodwill and Other Intangible Assets. Chicago, Illinois March 26, 2003 58 ServiceMaster

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    Quarterly Cash Dividends and Price Per Share Data 2002 2001 2000 %Chg Cash Dividends Per Share: First Quarter Second Quarter Third Quarter Fourth Quarter $...prices of ServiceMaster's common stock, as reported on the New York Stock Exchange Composite Transactions: 2002 2001 2000 Price Per Share...

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    ...Santa Rosa, California LaGrange, Georgia 901-681-1800 Independent Auditors: Terminix Chief Marketing Officer James A. Goetz 901-766-1333 American Residential Services/ Rescue Rooter Senior Vice President and Chief Information Officer Jim L. Kaput Deloitte & Touche LLP Chicago, Illinois Transfer...

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    ServiceMaster The ServiceMaster Company 3250 Lacey Road Suite 600 Downers Grove, Illinois 60515 630-663-2000 www.svm.com

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