For further information contact:
Ernie Mrozek (CFO) 901.766.1268
Steve Bono (COM) 630.663.2150
Bruce Byots (INV) 630.663.2906
FOR IMMEDIATE RELEASE
February 13, 2006
SERVICEMASTER REPORTS 2005 RESULTS
FULL YEAR REVENUE AND EPS GROWTH IN LINE WITH PREVIOUS EXPECTATIONS
TRUGREEN CHEMLAWN AND TERMINIX EACH EXCEED $1 BILLION IN REVENUES
CASH FLOW AGAIN SUBSTANTIALLY EXCEEDS NET INCOME
ARS / AMS NOW REFLECTED AS BUSINESSES HELD PENDING SALE
FOURTH QUARTER EPS FROM CONTINUING OPERATIONS UP 14% ON A COMPARABLE BASIS
DOWNERS GROVE, Illinois, February 13, 2006 - THE SERVICEMASTER COMPANY
(NYSE: SVM) today announced fourth quarter 2005 earnings per share from
continuing operations of $.08, a 14 percent increase and revenues of $720
million, a 5 percent increase compared to the prior year. Excluding the one-time
benefit of $.49 resulting from the Company's previously announced agreement with
the IRS, earnings per share from continuing operations in the fourth quarter of
2004 were $.07.
For the full year, earnings per share from continuing operations were $.61,
a 9 percent increase and revenues were $3.2 billion, up 6 percent over 2004.
Earnings per share from continuing operations were $1.06 in 2004, and totaled
$.56 excluding the aforementioned tax benefit.
On February 2, 2006, the Company announced its intention to sell American
Residential Services and American Mechanical Services. These two businesses are
now reflected in the Company's financial statements as Businesses Held Pending
Sale. An accompanying exhibit, which reflects certain supplemental financial
results including these two businesses, is intended to provide information that
can be used to compare to the Company's previously reported results and forward
looking statements.
1
"I am proud of what our team was able to accomplish in 2005. By delivering
our service as promised over 45 million times last year, we achieved solid
revenue and earnings per share growth," said Jonathan Ward, Chairman and CEO.
"We grew the top line in every business segment. And two of our core businesses,
Terminix and TruGreen ChemLawn, each surpassed $1 billion in sales for the first
time."
"This was accomplished as we continued to strengthen our core capabilities
and position ourselves for future growth," continued Ward. "As we begin 2006,
our strategic framework will help us to focus on our most important strategies
and to pursue them with greater intensity."
OUTLOOK
"Two consecutive years of achieving our revenue and earnings targets, give
us confidence and momentum heading into the new year. As we deliver our business
plan for 2006, we will also concentrate on the successful integration of InStar,
the divestiture of ARS and AMS, and streamlining our support functions through
Project Accelerate," said Ward.
"Going forward, our Company will be comprised of leading service brands
that collectively have strong cash flow, higher revenue growth potential,
greater operating margins and stronger returns on invested capital," continued
Ward.
"We believe that our improved portfolio, combined with solid execution of
our business strategies, will enable us to deliver mid to high single-digit
revenue growth and low double-digit earnings per share growth in 2006 from a
base of earnings from continuing operations of $.61," said Ward.
"Based on the actions we are taking this year, our target is to achieve
high single digit revenue growth and earnings per share growth in the mid-teen
level during 2007 and beyond, with cash from operations growing and continuing
to substantially exceed net income," concluded Ward.
2
REVIEW OF CASH FLOWS AND BALANCE SHEET
Net cash flow provided from operating activities was $243 million in 2005,
compared to $370 million in 2004. This decrease reflects the net tax payments in
2005 of $86 million that were associated with the favorable and previously
disclosed IRS agreement. Also contributing to the cash flow variance was a
favorable, nonrecurring reduction in 2004 tax payments of approximately $25
million that was also related to the IRS agreement. A final factor is increased
working capital usage of $31 million, resulting primarily from a higher level of
incentive compensation payments made in early 2005 relating to 2004. Operating
cash flows are expected to continue to significantly exceed reported net income
in the future.
Total debt on December 31, 2005 was $658 million, approximately $147
million below December 31, 2004 levels. This debt reduction and the previously
mentioned IRS payment were funded using a combination of operating cash flows
and existing cash resources.
BUSINESS REVIEW BY SEGMENT
Beginning with this release, the businesses previously included in the
TruGreen segment will be further broken out to improve visibility. The Company's
lawn care business, TruGreen ChemLawn, and its commercial landscaping business,
TruGreen LandCare, will now be reported as separate segments. American
Residential Services (ARS) and American Mechanical Services (AMS), which had
been reported as a separate segment, will now be reported as Businesses Held
Pending Sale as a result of the Company's previously mentioned announcement.
TRUGREEN CHEMLAWN
The TruGreen ChemLawn segment reported full year revenues of $1.02 billion,
up approximately 4.5 percent compared to the prior year. Revenue growth resulted
primarily from improved price realization, and increases in supplemental
customer services and commercial services. Customer counts increased modestly,
as the successful expansion of neighborhood selling efforts and direct mail
programs were offset by a reduction in telemarketing sales, a reduced level of
acquisitions and a modest decline in customer retention, primarily in Canada.
Operating income for the year declined $4 million in total, as increased
revenues and reduced safety-related costs were offset by higher fuel and
fertilizer
3
costs, the first time absorption of first quarter seasonal losses in the
Canadian operations ($3 million) which were acquired in April of 2004, and the
effects of the $4 million gain in 2004 from the sale of a support facility.
In the fourth quarter, revenues of $203 million were up 4 percent compared
to 2004, while operating income increased $2 million, or 8 percent. Revenue and
profit growth resulted from an increased level of production, as well as the
favorable timing of certain expenses.
TRUGREEN LANDCARE
The TruGreen LandCare segment reported full year revenues of $453 million,
up 3 percent compared to the prior year. Revenue growth primarily reflected
increased enhancement sales and growth in contract maintenance revenues. Full
year operating income improved by $9 million reflecting improvements in labor,
material and safety-related costs, partially offset by higher fuel costs and
investments in the sales organization, which are expected to contribute to
enhanced revenue growth in the future. The improved results also reflect the
favorable effect on comparability of one-time branch shutdown costs that were
incurred last year.
In the fourth quarter, revenues of $116 million were up 7 percent compared
to 2004, while operating income increased $5 million. Revenue and profit growth
resulted from an increased level of hurricane-related enhancement revenues and
improved labor management techniques, including more timely reductions in
seasonal workforce.
TERMINIX
Terminix reported full year revenues of $1.1 billion, up 6 percent compared
to the prior year. Solid growth was achieved in revenues from initial termite
applications as an expanded sales force and geographic presence generated
encouraging increases in unit sales despite a relatively weak termite swarm.
Termite renewal revenues experienced solid growth, reflecting improved pricing,
partially offset by a slight decrease in customer retention. Terminix also
realized solid growth in pest control revenues, reflecting the impact of
acquisitions, partially offset by a slight decline in customer retention.
Operating income for the year increased by $13 million, a 10 percent increase.
In addition to higher revenues, the
4
segment benefited from improved labor and material cost efficiencies resulting
from the new termite liquid application technique and the new termite bait
product, as well as reduced safety related costs. These favorable factors more
than offset the effects of higher fuel costs and a $10 million unfavorable
correction in estimating prior years' termite damage claim reserves. New termite
damage claims continue to trend favorably. In addition, as previously disclosed,
Terminix recorded an $8 million favorable but non-recurring adjustment in 2004.
In the fourth quarter, revenues of $236 million were up 5 percent compared
to 2004. Operating income increased by $2 million or 10 percent, reflecting the
favorable termite labor and material cost factors mentioned above.
AMERICAN HOME SHIELD
The American Home Shield (AHS) segment reported full year revenues of $529
million, up 8 percent compared to the prior year. New contract sales, which are
reported as earned revenues over the subsequent twelve month contract period,
increased 7 percent over 2004 levels. AHS experienced solid growth in customer
renewals and strong growth in its direct-to-consumer channel, while the real
estate channel had modest annual growth, with improved results in the second
half of the year. Warranty contract renewals were supported by an overall
improved customer retention rate, while consumer sales benefited from an
expanded and more selectively targeted direct mail program. Operating income for
the year declined by $1 million as revenue growth was more than offset by higher
claim costs associated with summer weather that was much hotter than the
generally mild conditions that prevailed in 2004. This led to a 3 percent
increase in the rate of service requests, as well as a higher cost per claim,
which had a combined adverse impact on operating income of approximately $15
million. Income comparisons between years were also impacted by investments in
market penetration and customer retention initiatives in 2005, as well as a $5.5
million cumulative negative adjustment to deferred revenue and operating income
recorded in the third quarter of 2004.
In the fourth quarter, revenues of $119 million were up 5 percent compared
to 2004. New contract sales increased 3 percent, reflecting improvements in real
estate sales, modest growth in renewals and consumer sales that were flat due to
an acceleration of mailings into
5
earlier periods of the year. Operating income in the quarter decreased by $4
million, reflecting the unfavorable factors that impacted the full year.
OTHER OPERATIONS
The Other Operations segment, which includes the Company's franchised
operations and its Business Support Center, reported full-year revenues of $177
million, up 8 percent. The ServiceMaster Clean and Merry Maids franchise
operations reported a combined revenue increase of 8 percent, driven by strong
internal growth in residential maid service, continued double-digit increases in
disaster restoration and improvements in commercial cleaning. The overall
segment operating loss for the year was $(53) million compared with $(52)
million in 2004. Favorable trending of prior year insurance claims, as well as a
strong increase in profits from the franchise businesses, were offset by
increases in costs of certain strategic investments.
In the fourth quarter, revenues of $46 million were up 8 percent. The
ServiceMaster Clean and Merry Maids franchise operations reported combined
revenue increases of 8 percent. Operating loss for the quarter was $(16) million
compared with $(18) million in 2004.
NON-OPERATING EXPENSE / (INCOME)
Non-Operating Expenses for the full year were $45 million compared with $53
million in 2004. This improvement reflected an increase in gains on the AHS
investment portfolio and a decrease in interest expense due to lower outstanding
debt balances. In the fourth quarter, Non-Operating Expenses were $14 million,
comparable to the prior year.
BUSINESSES HELD PENDING SALE AND DISCONTINUED OPERATIONS
Revenues from the combined ARS and AMS businesses now held pending sale
increased 11 percent in both the fourth quarter and full year. Operating income
net of taxes increased by approximately $1 million in the fourth quarter and $6
million for the full year, as sharp improvements in volume and mix of
replacement sales and more favorable weather conditions offset lower profits
from commercial installation projects.
6
For the full year, 2005 net income from previously discontinued operations
totaled $5 million, reflecting the favorable conclusion of certain obligations
related to international pest control businesses sold in prior years. In 2004,
as a result of the comprehensive IRS agreement discussed previously, the Company
recognized a non-cash reduction in the tax provision related to discontinued
operations, thereby increasing net income reported under that caption by $9
million.
TAX TREATMENT OF COMMON STOCK DIVIDEND
The Company currently expects that approximately 60 percent of its 2006
dividends on common stock will be taxable as dividend income for federal income
tax purposes. This is lower than the previously disclosed taxability percentage
for 2005 dividends of 87 percent, primarily due to one-time effects of the
pending dispositions. The 2006 estimate is subject to change, based on the
outcome of future events. Any portion of the dividend that is not taxable would
be treated as a return of capital and would generally be applied to reduce the
cost basis of the shares. The Company expects that the taxable portion of its
dividend will rebound sharply in 2007, and grow to be fully taxable over the
succeeding few years.
CONFERENCE CALL DETAILS
The Company will review these results and discuss its outlook in a call at
10:00 a.m. CT on February 13, 2006. Interested parties may listen to the call at
(888) 391-0072. The conference call will include Jon Ward, Chairman and Chief
Executive Officer, and Ernie Mrozek, President and Chief Financial Officer. The
call will be broadcast live and can be accessed at the ServiceMaster web site,
www.svm.com. The call will be archived on the site for 30 days and may also be
accessed for seven days at (800) 633-8284 (#21282044).
COMPANY OVERVIEW
ServiceMaster currently provides outsourcing services for residential and
commercial customers through a network of over 5,500 company-owned and
franchised service centers and business units operating under leading brands,
which include Terminix, TruGreen ChemLawn, TruGreen LandCare, ARS Service
Express, Rescue Rooter, American Mechanical Services, ServiceMaster Clean,
American Home Shield, Amerispec, Merry Maids, and Furniture Medic.
7
As America's Service Brands for Home and Business, the core service
capabilities of the Company include lawn care and landscape maintenance, termite
and pest control, home warranty, disaster restoration, cleaning, furniture
repair, plumbing, heating and air conditioning services.
BUSINESS SEGMENTS
The Company is primarily comprised of five business segments: The TruGreen
ChemLawn segment includes the lawn care operations. The TruGreen LandCare
segment includes commercial landscaping services. The Terminix segment includes
termite and pest control services. The American Home Shield segment offers
warranty contracts on home systems and appliances and home inspection services
through AmeriSpec. The Other Operations segment includes the Company's
franchised operations, which include ServiceMaster Clean, Merry Maids, Furniture
Medic, the Company's international operations and headquarters.
FORWARD-LOOKING STATEMENTS
This press release contains statements concerning future results and other
matters that may be deemed to be "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. The Company intends
that these forward-looking statements, which look forward in time and include
everything other than historical information, be subject to the safe harbors
created by such legislation. The Company notes that these forward-looking
statements involve risks and uncertainties that could affect its results of
operations, financial condition or cash flows. Factors that could cause actual
results to differ materially from those expressed or implied in a
forward-looking statement include the following (among others): weather
conditions that affect the demand for the Company's services; changes in the
source and intensity of competition in the markets served by the Company; labor
shortages or increases in wage rates; unexpected increases in operating costs,
such as higher insurance premiums, self insurance and healthcare claim costs;
higher fuel prices; changes in the types or mix of the Company's service
offerings or products; increased governmental regulation including telemarketing
and environmental restrictions; general economic conditions in the United
States, especially as they may affect home sales or consumer spending levels;
and other factors described from time to time in documents filed by the Company
with the Securities and Exchange Commission.
8
THE SERVICEMASTER COMPANY
(In thousands, except per share data)
Statements of Operations
Three Months Ended Twelve Months Ended
December 31, December 31,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Operating Revenue $ 719,599 $ 683,372 $ 3,239,478 $ 3,068,068
Operating Costs and Expenses:
Cost of services
rendered and
products sold 464,864 441,572 2,011,978 1,919,220
Selling and
administrative
expenses 200,311 194,284 881,963 818,534
Amortization expense 1,528 1,593 5,454 6,006
----------- ----------- ----------- -----------
Total operating costs
and expenses 666,703 637,449 2,899,395 2,743,760
----------- ----------- ----------- -----------
Operating Income 52,896 45,923 340,083 324,308
Non-operating Expense (Income):
Interest expense 13,270 15,560 56,999 60,708
Interest and
investment income (1,716) (3,950) (19,832) (15,469)
Minority interest and
other expense, net 2,045 2,046 8,218 8,225
----------- ----------- ----------- -----------
Income from
Continuing Operations
before Income Taxes 39,297 32,267 294,698 270,844
Provision (benefit) for
income taxes (1) 15,335 (138,061) 114,137 (45,779)
----------- ----------- ----------- -----------
Income from Continuing
Operations (1) 23,962 170,328 180,561 316,623
Income from businesses
held pending sale and
discontinued
operations, net of
income taxes (1,2) 3,003 11,580 18,364 14,604
----------- ----------- ----------- -----------
Net Income $ 26,965 $ 181,908 $ 198,925 $ 331,227
=========== =========== =========== ===========
Diluted Earnings Per Share (1,3):
Income from continuing
operations $ 0.08 $ 0.56 $ 0.61 $ 1.06
Income from businesses
held pending sale and
discontinued
operations (2) 0.01 0.04 0.06 0.05
------ ------ ------ ------
Diluted Earnings
Per Share $ 0.09 $ 0.60 $ 0.67 $ 1.11
====== ====== ====== ======
Number of Shares -
Basic 290,759 290,119 291,251 290,514
Number of Shares -
Diluted 295,509 303,962 296,807 303,568
- ----------------------------------------------------------------------
Dividends Per Share $ 0.11 $ 0.11 $ 0.44 $ 0.43
====== ====== ====== ======
Price Range Per Share:
High Price $14.28 $13.87 $14.28 $13.87
Low Price 11.69 12.30 $11.69 $10.65
- ----------------------------------------------------------------------
9
THE SERVICEMASTER COMPANY
(In thousands)
Condensed Balance Sheets As of
December 31, December 31,
Assets 2005 2004
------------ ------------
Cash and cash equivalents $ 114,508 $ 256,626
Marketable securities 104,807 103,681
Receivables, net of allowances 309,567 279,685
Inventories and other current assets 159,731 226,259
Assets in businesses held pending sale
and discontinued operations 135,100 112,501
------------ ------------
Total Current Assets 823,713 978,752
------------ ------------
Intangible assets, primarily trade
names and goodwill, net of
accumulated amortization 1,778,413 1,732,668
Property and equipment, net of
accumulated depreciation 161,827 162,923
Long-term marketable securities 147,332 135,824
Notes receivable and other assets 40,245 49,638
Assets in businesses held pending
sale and discontinued operations 77,340 80,397
------------ ------------
Total Assets $ 3,028,870 $ 3,140,202
============ ============
Liabilities and Equity
Current liabilities $ 839,155 $ 913,284
Liabilities in businesses held pending
sale and discontinued operations 97,294 91,396
Current debt maturities 19,222 23,247
------------ ------------
Total Current Liabilities 955,671 1,027,927
------------ ------------
Long-term debt 638,928 781,841
Other long-term obligations 269,501 229,284
Liabilities in businesses held pending
sale and discontinued operations 10,130 9,615
Minority interest 100,000 100,000
Shareholders' equity 1,054,640 991,535
------------ ------------
Total Liabilities and
Shareholders' Equity $ 3,028,870 $ 3,140,202
============ ============
Twelve Months Ended
December 31,
Statements of Cash Flows 2005 2004
------------ ------------
Cash and Cash Equivalents at January 1 $ 256,626 $ 228,161
Cash Flows from Operating Activities:
Net Income 198,925 331,227
Adjustments to reconcile net income to net
cash flows from operating activities:
Income from businesses held pending sale
and discontinued operations (18,364) (14,604)
Non-cash reduction in continuing
operations tax expense (1) --- (149,722)
Depreciation 44,313 42,680
Amortization 5,454 6,006
Change in working capital, net
of acquisitions:
Change in tax accounts:
Deferred income taxes 60,941 66,639
Resolution of income tax audits (1) (86,356) 25,000
Other changes in working capital 22,947 54,115
Other, net 14,848 8,716
------------ ------------
Net Cash Provided from Operating Activities 242,708 370,057
------------ ------------
Cash Flows from Investing Activities:
Property additions (41,771) (45,346)
Sale of equipment and other assets 2,838 6,606
Business acquisitions, net of cash acquired (33,719) (40,184)
Notes receivable, financial investments
and securities (8,371) (45,580)
------------ ------------
Net Cash Used for Investing Activities (81,023) (124,504)
------------ ------------
Cash Flows from Financing Activities:
Borrowings of debt 930,287 ---
Payments of debt (1,094,102) (37,042)
Purchase of ServiceMaster stock (52,324) (63,085)
Shareholders' dividends (128,048) (125,476)
Other 29,518 16,631
------------ ------------
Net Cash Used for Financing Activities (314,669) (208,972)
------------ ------------
Cash Flows from Businesses Held Pending Sale
and Discontinued Operations:
Cash provided from (used for) operating
activities of businesses held pending
sale and discontinued operations 14,181 (1,189)
Cash used for investing activities of
businesses held pending sale and
discontinued operations (3,315) (6,927)
------------ ------------
Net Cash Provided from (Used for)
Businesses Held Pending Sale and
Discontinued Operations 10,866 (8,116)
------------ ------------
Cash Increase (Decrease) During the Period (142,118) 28,465
------------ ------------
Cash and Cash Equivalents at December 31 $ 114,508 $ 256,626
============ ============
10
Notes:
(1) In January 2005, the Company reached a comprehensive agreement with the
Internal Revenue Service (IRS) regarding its examination of the Company's
federal income taxes through the year 2002. As a result of this agreement, the
Company recorded a non-cash reduction in its fourth quarter and full year 2004
tax provision, thereby increasing net income by approximately $159 million.
Approximately $150 million related to continuing operations ($.49 per diluted
share) and $9 million related to discontinued operations ($.03 per diluted
share).
Pursuant to this agreement, the Company paid taxes and interest (primarily in
the first quarter of 2005) to the IRS and various states in the amount of $131
million. These payments represent only one part of a four part agreement with
the IRS, which also included: tax savings of $25 million that were realized in
2004; a reduction of $45 million in the required estimated tax payments in 2005
and a deferred tax annuity totaling $57 million that will be realized through
2016.
As previously disclosed, in the second quarter of 2005, the IRS commenced the
audits of the Company's tax returns for 2003 and 2004. The IRS has concluded
these audits and there were no significant adjustments or payments resulting
from these audits.
(2) In February 2006, the Company announced its intention to sell its American
Residential Services (ARS) and American Mechanical Services (AMS) companies so
it can concentrate resources on its main growth companies. These operations were
previously disclosed as the Company's ARS/AMS segment. Because the Company
intends to sell these companies, the results of these operations are classified
as "Businesses held pending sale and discontinued operations" in all periods.
The Company has expanded its business segment reporting to allow for better
ongoing visibility into the components of the business. The companies that
previously were reported in the TruGreen segment have been further broken out
into the TruGreen ChemLawn segment and the TruGreen LandCare segment.
(3) The weighted-average common shares for the diluted earnings per share
calculation include the incremental effect related to outstanding options and
stock appreciation rights (SARS) whose market price is in excess of the grant
price. Shares potentially issuable under convertible securities have been
considered outstanding for purposes of the diluted earnings per share
calculations. In computing diluted earnings per share, the after-tax interest
expense related to convertible securities is added back to net income in the
numerator, while the diluted shares in the denominator include the shares
issuable upon conversion of the securities. Shares potentially issuable under
convertible securities have been considered outstanding for the three and twelve
months ended December 31, 2004. For the three and twelve months ended December
31, 2005, shares potentially issuable under convertible securities have not been
considered outstanding as their inclusion results in a less dilutive
computation. Had the inclusion of convertible securities not resulted in a less
dilutive computation for the three and twelve months ended December 31, 2005,
incremental shares attributable to the assumed conversion of the securities
would have increased shares outstanding by 8.0 million shares for both periods
and the after-tax interest expense related to the convertible securities that
would have been added to the net income in the numerator would have been $1.2
million for the three month period and $4.9 million for the twelve month period.
The following table reconciles both the numerator and the denominator of the
basic earnings per share from continuing operations computation to the numerator
and the denominator of the diluted earnings per share from continuing operations
computation:
(in thousands, except per share data)
Three months ended
December 31, 2005
Continuing Operations: Income Shares EPS
- ---------------------- -------- ------- ------
Basic EPS $ 23,962 290,759 $ 0.08
Effect of dilutive securities,
net of tax:
Options & SARS 4,750
Convertible Securities --- ---
-------- -------
Diluted EPS $ 23,962 295,509 $ 0.08
======== ======= ======
Three months ended
December 31, 2004
Continuing Operations: Income Shares EPS
- ---------------------- -------- ------ ------
Basic EPS $170,328 290,119 $ 0.59
Effect of dilutive securities,
net of tax:
Options & SARS 5,843
Convertible Securities 1,178 8,000
-------- -------
Diluted EPS $171,506 303,962 $ 0.56
======== ======= ======
Twelve months ended
December 31, 2005
Continuing Operations: Income Shares EPS
- ---------------------- -------- ------ ------
Basic EPS $180,561 291,251 $ 0.62
Effect of dilutive securities,
net of tax:
Options & SARS 5,556
Convertible Securities --- ---
-------- -------
Diluted EPS $180,561 296,807 $ 0.61
======== ======= ======
Twelve months ended
December 31, 2004
Continuing Operations: Income Shares EPS
- ---------------------- -------- ------ ------
Basic EPS $316,623 290,514 $ 1.09
Effect of dilutive securities,
net of tax:
Options & SARS 5,054
Convertible Securities 4,712 8,000
-------- -------
Diluted EPS $321,335 303,568 $ 1.06
======== ======= ======
11
THE SERVICEMASTER COMPANY
(In thousands)
Segment Summaries
For the three months ended December 31,
2005 2004 % Change
----------- ----------- ----------
Operating Revenue:
TruGreen ChemLawn $ 202,622 $ 194,833 4%
TruGreen LandCare 115,934 107,973 7%
Terminix 235,938 224,551 5%
American Home Shield 118,792 113,175 5%
Other Operations 46,313 42,840 8%
----------- ----------- ----------
Total Operating Revenue $ 719,599 $ 683,372 5%
=========== =========== ==========
Operating Income:
TruGreen ChemLawn $ 27,934 $ 25,942 8%
TruGreen LandCare 7,733 2,260 242%
Terminix 23,497 21,395 10%
American Home Shield 10,157 14,600 -30%
Other Operations (16,425) (18,274) 10%
----------- ----------- ----------
Total Operating Income $ 52,896 $ 45,923 15%
=========== =========== ==========
For the twelve months ended December 31,
2005 2004 % Change
----------- ----------- ----------
Operating Revenue:
TruGreen ChemLawn $ 1,024,641 $ 980,816 4%
TruGreen LandCare 453,323 438,833 3%
Terminix 1,056,285 996,900 6%
American Home Shield 528,687 487,395 8%
Other Operations 176,542 164,124 8%
----------- ----------- ----------
Total Operating Revenue $ 3,239,478 $ 3,068,068 6%
=========== =========== ==========
Operating Income:
TruGreen ChemLawn $ 171,758 $ 175,666 -2%
TruGreen LandCare 4,317 (4,482) N/M
Terminix 145,568 132,827 10%
American Home Shield 70,959 71,986 -1%
Other Operations (52,519) (51,689) -2%
----------- ----------- ----------
Total Operating Income $ 340,083 $ 324,308 5%
=========== =========== ==========
The combined operations of ServiceMaster Clean and Merry Maids comprised
approximately 6% of the consolidated revenue for the three months ended December
31, 2005 and 2004 and 5% of the consolidated revenue for the twelve months ended
December 31, 2005 and 2004. These operations comprised approximately 16% of the
consolidated operating income before headquarter overheads for the three months
ended December 31, 2005 and 2004, and 11% of the consolidated operating income
before headquarter overheads for the twelve months ended December 31, 2005 and
2004.
As of December 31,
2005 2004 % Change
----------- ----------- ----------
Capital Employed:
TruGreen ChemLawn $ 812,873 $ 795,254 2%
TruGreen LandCare 33,900 33,720 1%
Terminix 652,230 631,370 3%
American Home Shield 207,864 168,223 24%
Other Operations and Businesses
Held Pending Sale and
Discontinued Operations 105,923 268,056 -60%
----------- ----------- ----------
Total Capital Employed $ 1,812,790 $ 1,896,623 -4%
=========== =========== ==========
12
Capital employed is defined as the segment's total assets less liabilities,
exclusive of debt balances. The Company believes these figures are useful to
investors in helping them compute return on capital measures and therefore
better understand the performance of the Company's business segments.
Key Performance Indicators
Rolling twelve month metrics
as of December 31,
2005 2004
---------- ----------
TruGreen ChemLawn -
Growth in Full Program Contracts 1% 8%
Customer Retention Rate 61.2% 62.2%
Terminix -
Growth in Pest Control Customers 3% 7%
Pest Control Customer Retention Rate 77.2% 78.1%
Growth in Termite Customers 0% 0%
Termite Customer Retention Rate 87.2% 87.9%
American Home Shield -
Growth in Warranty Contracts 6% 5%
Customer Retention Rate 57.4% 55.2%
13
Exhibit: Non-GAAP Measure Disclosure
Within this press release, the Company provided certain non-GAAP (Generally
Accepted Accounting Principles) measures. The Company does not intend for this
information to be considered in isolation or as a substitute for the related
GAAP measures. The Company believes that these non-GAAP measures provide an
important perspective on the performance of the Company's operations.
(in thousands, except per share data)
Three Months Ended
December 31,
2005 2004
----------- -----------
Reported revenue from continuing
operations $ 719,599 $ 683,372
Revenue of ARS/AMS 194,797 175,722
----------- -----------
Revenue including ARS/AMS $ 914,396 $ 859,094
Reported income from continuing
operations $ 23,962 $ 170,328
IRS tax agreement --- 149,722
----------- -----------
Income from continuing operations
excluding IRS tax agreement $ 23,962 $ 20,606
ARS/AMS operating income,
net of tax (1) 3,935 3,237
----------- -----------
Income excluding the IRS tax agreement
and including the ARS/AMS operations $ 27,897 $ 23,843
Diluted Earnings Per Share:
EPS from continuing operations $ 0.08 $ 0.56
Impact of IRS tax agreement --- 0.49
------ ------
EPS from continuing operations
excluding IRS tax agreement $ 0.08 $ 0.07
Impact of ARS/AMS operating income,
net of tax 0.01 0.01
------ ------
EPS excluding the IRS tax agreement
and including the ARS/AMS operations $ 0.09 $ 0.08
====== ======
Twelve Months Ended
December 31,
2005 2004
----------- -----------
Reported revenue from continuing
operations $ 3,239,478 $ 3,068,068
Revenue of ARS/AMS 764,888 690,500
----------- -----------
Revenue including ARS/AMS $ 4,004,366 $ 3,758,568
Reported income from continuing
operations $ 180,561 $ 316,623
IRS tax agreement --- 149,722
----------- -----------
Income from continuing operations
excluding IRS tax agreement $ 180,561 $ 166,901
ARS/AMS operating income,
net of tax (1) 13,302 7,434
----------- -----------
Income excluding the IRS tax agreement
and including the ARS/AMS operations $ 193,863 $ 174,335
Diluted Earnings Per Share:
EPS from continuing operations $ 0.61 $ 1.06
Impact of IRS tax agreement --- 0.49
------ ------
EPS from continuing operations
excluding IRS tax agreement $ 0.61 $ 0.56
Impact of ARS/AMS operating income,
net of tax 0.04 0.03
------ ------
EPS excluding the IRS tax agreement
and including the ARS/AMS operations $ 0.65 $ 0.59
====== ======
(1) The following reconciles the results of the ARS/AMS operating income as
reported when these businesses were a separate business segment within the
enterprise's continuing operations to the ARS/AMS operating income, net of tax
which is now classified in results of "businesses held pending sale and
discontinued operations":
Three Months Ended
December 31,
2005 2004
----------- -----------
ARS/AMS business segment
operating income $ 5,147 $ 3,267
Headquarter support and
insurance allocations 1,357 2,066
----------- -----------
ARS/AMS operating income before
previously allocated expenses 6,504 5,333
Tax expense 2,569 2,096
----------- -----------
ARS/AMS operating income, net of tax $ 3,935 $ 3,237
Twelve Months Ended
December 31,
2005 2004
----------- -----------
ARS/AMS business segment
operating income $ 11,695 $ 5,534
Headquarter support and
insurance allocations 10,294 6,714
----------- -----------
ARS/AMS operating income before
previously allocated expenses 21,989 12,248
Tax expense 8,687 4,814
----------- -----------
ARS/AMS operating income, net of tax $ 13,302 $ 7,434
14