-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, bZSzhT8JzVRi5imY5xPKoRhPWwgba3Ep6Gmj6mAn06jHVh/9dgpX0yaErwQ/AjSN elMHLQwDsiHzz8e+bWhcaQ== 0000806027-95-000014.txt : 19950516 0000806027-95-000014.hdr.sgml : 19950516 ACCESSION NUMBER: 0000806027-95-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICEMASTER LTD PARTNERSHIP CENTRAL INDEX KEY: 0000806027 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 363497008 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09378 FILM NUMBER: 95539792 BUSINESS ADDRESS: STREET 1: ONE SERVICEMASTER WAY CITY: DOWNERS GROVE STATE: IL ZIP: 60515 BUSINESS PHONE: 7089641300 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 10549 FORM 10-Q __x__ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 -------------- _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _____ Commission file number 1-9378 SERVICEMASTER LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Delaware 36-3497008 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) One ServiceMaster Way, Downers Grove, Illinois 60515 (Address of principal executive offices) (Zip Code) 708-271-1300 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No ____. Indicate the number of shares outstanding of each of the issuer's classes of shares: 78,325,434 shares on May 8, 1995. This document consists of 12 pages, including the cover page. TABLE OF CONTENTS Page No. ---- SERVICEMASTER LIMITED PARTNERSHIP (Registrant) - Part I. Financial Information - ------- --------------------- Consolidated Statements of Income for the three months ended March 31, 1995 and March 31, 1994 2 Consolidated Statements of Financial Position as of March 31, 1995 and December 31, 1994 3 Consolidated Statements of Cash Flows for the three months ended March 31, 1995 and March 31, 1994 4 Notes to Consolidated Financial Statements 5 Management Discussion and Analysis of Financial Condition and Results of Operations 6 Part II. Other Information - -------- ----------------- Exhibit 11 - Exhibit Regarding Detail of Income Per Share Computation 10 Signature 11 1
PART I. FINANCIAL INFORMATION SERVICEMASTER LIMITED PARTNERSHIP Consolidated Statements of Income (In thousands, except per share data) Three Months Ended March 31, 1995 1994 --------- --------- Operating Revenue . . . . . . . . . . . . . $ 707,764 $ 657,638 Operating Costs and Expenses: Cost of services rendered and products sold . . . . . . . . . . . . 571,812 543,274 Selling and administrative expenses . . . . 91,532 76,718 --------- --------- Total operating costs and expenses. . . . . 663,344 619,992 --------- --------- Operating Income. . . . . . . . . . . . . . 44,420 37,646 Non-operating Expense (Income): Interest expense. . . . . . . . . . . . . . 8,902 8,107 Interest income . . . . . . . . . . . . . . (1,359) (1,475) Minority interest*. . . . . . . . . . . . . 7,525 5,928 --------- --------- Income before Income Taxes. . . . . . . . . 29,352 25,086 Provision for income taxes. . . . . . . . . 472 540 --------- --------- Net Income. . . . . . . . . . . . . . . . . $ 28,880 $ 24,546 ========= ========= Net Income Per Share. . . . . . . . . . . . $ .37 $ .32 ==== ==== Cash Distributions Per Share. . . . . . . . $ .23 $ .23 ==== ==== Net income per share is based on 78,984 shares and 77,693 shares for the three months ended March 31, 1995 and 1994, respectively. * Includes General Partners' interest of $571 and $497 for the three months ended March 31, 1995 and 1994, respectively. See Notes to Consolidated Financial Statements
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SERVICEMASTER LIMITED PARTNERSHIP Consolidated Statements of Financial Position (In thousands) As of March 31, December 31, Assets 1995 1994 ---------- ----------- Current Assets: Cash and marketable securities, including cash and cash equivalents of $12,648 and $14,333, respectively. . $ 34,840 $ 34,444 Accounts and notes receivable, less allowances of $20,099 and $20,114, respectively. . . . . . . . . . . . . . . . 239,796 211,714 Inventories . . . . . . . . . . . . . . . . . . . . . . . . 42,933 36,062 Prepaid expenses and other assets . . . . . . . . . . . . . 95,803 48,825 ---------- ----------- Total current assets . . . . . . . . . . . . . . . . . . 413,372 331,045 ---------- ----------- Property and Equipment: At cost. . . . . . . . . . . . . . . . . . . . . . . . . 275,459 260,187 Less: accumulated depreciation . . . . . . . . . . . . . 135,930 131,739 ---------- ----------- Net property and equipment . . . . . . . . . . . . . . . 139,529 128,448 ---------- ----------- Contract rights, trade names, goodwill, and other, net of accumulated amortization of $109,764 and $105,619, respectively . . . . . . . . . . . . . . . 754,063 686,309 Notes receivable, long-term securities, and other assets. . 90,131 85,037 ---------- ----------- Total assets . . . . . . . . . . . . . . . . . . . . . . $ 1,397,095 $ 1,230,839 ========== =========== Liabilities And Shareholders' Equity Current Liabilities: Accounts payable. . . . . . . . . . . . . . . . . . . . . . $ 47,088 $ 44,272 Accrued liabilities . . . . . . . . . . . . . . . . . . . . 177,075 167,238 Deferred revenues . . . . . . . . . . . . . . . . . . . . . 111,800 84,658 Current portion of long-term obligations. . . . . . . . . . 9,335 8,227 ---------- ----------- Total current liabilities. . . . . . . . . . . . . . . . 345,298 304,395 ---------- ----------- Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . 452,775 386,511 Other Long-Term Obligations . . . . . . . . . . . . . . . . 99,299 97,395 Commitments and Contingencies . . . . . . . . . . . . . . . Minority and General Partners' Interest includes General Partners' interest of $1,287 in 1995 and $1,516 in 1994. . . . . . . . . . . . 126,903 135,272 Shareholders' Equity: Limited partners' equity - shares issued 80,879 at March 31, 1995 and 78,055 shares at December 31, 1994. . . . . . . . . . . . . . . . . . . . 441,395 364,673 Treasury shares at cost - 2,551 shares at March 31, 1995 and 2,033 shares at December 31, 1994 . . . . . . . . . . . . . . . . . . . . (59,751) (48,497) Share subscriptions receivable and restricted shares - 764 shares at March 31, 1995 and 810 shares at December 31, 1994 . . . . . . . . . . . . . . . . . . (8,824) (8,910) ---------- ----------- Total shareholders' equity . . . . . . . . . . . . . . . 372,820 307,266 ---------- ----------- Total liabilities and shareholders' equity . . . . . . . $ 1,397,095 $ 1,230,839 ========== =========== See Notes to Consolidated Financial Statements
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SERVICEMASTER LIMITED PARTNERSHIP Consolidated Statements of Cash Flows (In thousands) Three Months Ended March 31, 1995 1994 ----------- ---------- Cash and Cash Equivalents at January 1. . . . . . . . . . . $ 14,333 $ 17,271 Cash Flows from Operations: Net Income. . . . . . . . . . . . . . . . . . . . . . . . . 28,880 24,546 Adjustments to reconcile net income to net cash flows from operations: Depreciation . . . . . . . . . . . . . . . . . . . . . 8,991 7,683 Amortization . . . . . . . . . . . . . . . . . . . . . 4,145 3,716 Change in working capital, net of acquisitions: Receivables. . . . . . . . . . . . . . . . . . . . . (15,999) (16,656) Inventories and other current assets . . . . . . . . (53,130) (54,037) Accounts payable . . . . . . . . . . . . . . . . . . 2,197 6,915 Deferred revenues. . . . . . . . . . . . . . . . . . 27,160 25,955 Accrued liabilities. . . . . . . . . . . . . . . . . 7,531 9,567 Minority interest and other, net . . . . . . . . . . . 6,138 4,457 ------------ ---------- Net Cash Provided from Operations . . . . . . . . . . . . . 15,913 12,146 ----------- ---------- Cash Flows from Investing Activities: Property additions . . . . . . . . . . . . . . . . . . . (15,148) (8,721) Business acquisitions, net of cash acquired. . . . . . . (13,980) (7,235) Notes receivable and financial investments . . . . . . . (16,507) (2,674) Proceeds from sale of Education Food business. . . . . . 9,938 --- Net purchases of marketable securities . . . . . . . . . (920) (451) Payments to sellers of acquired businesses . . . . . . . (643) (636) Sale of equipment and other assets . . . . . . . . . . . 540 471 Sale of investment in Norrell Corporation. . . . . . . . --- 29,021 ----------- ---------- Net Cash Provided from (Used for) Investing Activities. . . (36,720) 9,775 ----------- ---------- Cash Flows from Financing Activities: Short-term borrowings, net . . . . . . . . . . . . . . . 64,211 5,110 Distributions to shareholders and shareholders' trust. . (26,924) (20,698) Purchase of treasury shares. . . . . . . . . . . . . . . (14,244) (4,917) Distributions to holders of minority interests . . . . . (3,147) (709) Payments of other obligations. . . . . . . . . . . . . . (3,142) (1,658) Proceeds from employee share option plans. . . . . . . . 2,223 2,998 Other. . . . . . . . . . . . . . . . . . . . . . . . . . 145 3,521 ----------- ---------- Net Cash Provided from (Used for) Financing Activities. . . 19,122 (16,353) ----------- ---------- Cash Increase (Decrease) during the Period. . . . . . . . . (1,685) 5,568 ----------- ---------- Cash and Cash Equivalents at March 31 . . . . . . . . . . . $ 12,648 $ 22,839 =========== ========== See Notes to Consolidated Financial Statements
4 SERVICEMASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: The consolidated financial statements include the accounts of the Partnership and its significant subsidiaries, collectively referred to as "the Partnership". Intercompany transactions and balances have been eliminated in consolidation. Note 2: The consolidated financial statements included herein have been prepared by the Partnership pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Partnership believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Partnership's latest Annual Report to shareholders and the Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1994. In the opinion of the Partnership, all adjustments, consisting only of normal and recurring adjustments, necessary to present fairly the financial position of ServiceMaster Limited Partnership as of March 31, 1995 and December 31, 1994, and the results of operations and cash flows for the three months ended March 31, 1995 and 1994, have been included. The results of operations for any interim period are not necessarily indicative of the results which might be obtained for a full year. Note 3: For interim accounting purposes, certain costs directly associated with the generation of lawn care revenues are initially deferred and recognized as expense as the related revenues are recognized. Full year results are not affected. Note 4: In the Consolidated Statements of Cash Flows, the caption Cash and Cash Equivalents includes investments in short-term, highly- liquid securities having a maturity of three months or less. Supplemental information relating to the Consolidated Statements of Cash Flows for the three months ended March 31, 1995 and 1994 is presented in the following table. The increase in interest paid in 1995 from 1994 is primarily due the refinancing of debt in first quarter of 1994 and increased debt balances reflecting increased seasonal borrowings.
(In thousands) 1995 1994 Cash paid or received for: -------- -------- - -------------------------- Interest expense, net of amounts capitalized. . . . $ 6,058 $ 3,524 Interest and dividend income. . . . . . . . . . . . $ 777 $ 561
5 SERVICEMASTER LIMITED PARTNERSHIP MANAGEMENT DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS FIRST QUARTER 1995 COMPARED TO FIRST QUARTER 1994 - ------------------------------------------------- Revenues increased 7.6% over the first quarter 1994 to $707.8 million due to internal growth and the inclusion of the European pest control acquisitions made in the second half of 1994, offset by the disposition of the Education Food Service business in February of this year. On a comparable basis, revenues increased approximately 9%. Net income was $28.9 million, reflecting a 17.7% increase over one year ago while net income per share was $.37, representing an increase of 15.6%. Earnings per share reflects the issuance of 2.8 million shares in connection with the TruGreen-ChemLawn minority interest acquisition, partially offset by the ongoing share repurchase program. Operating income increased 18%, to $44.4 million while margins increased to 6.3% of revenues from 5.7% in 1994, reflecting the favorable effects of leveraging throughout the enterprise and improved efficiencies in the Management Services unit. The Consumer Services business unit achieved accelerated growth in revenues and net income with each of the five companies achieving strong results. The TruGreen-Chemlawn operations had strong growth in revenues and profits resulting from excellent sales volume and favorable weather conditions in March. In addition, this unit again achieved a very successful first quarter marketing season, with full program residential customers up 13% over comparable prior year levels. This will primarily benefit revenues and profits in subsequent quarters when the services are rendered. The Terminix operations continued to increase both revenues and profits as a result of strong internal growth and encouraging improvements in both sales leads and customer retention. The ServiceMaster Residential and Commercial business continued to benefit from growth in disaster recovery services, which are provided by both franchisees and on a direct basis for more significant commercial projects. The Merry Maids operations continued their strong rate of growth as a result of increased revenues from existing franchises along with encouraging results experienced with its eight company-owned branches. American Home Shield achieved strong growth in both revenues and profits reflecting improvements in contract renewals and direct to consumer sales, despite weaker home resale markets in California and most of the rest of the country. The Management Services business unit realized the initial benefits of the market based restructuring that was implemented last year, as improved efficiencies led to an overall increase in profits during the quarter. Revenues were below prior year levels as a result of the disposition of the Education Food business in mid-February. The health care market achieved increased profits due to improved 6 efficiencies. Sales of new health care contracts showed encouraging improvements which will benefit revenues in future quarters. The education market was adversely effected by operating losses in the food service business prior to its disposition, as well as a modest reduction in revenues and profits from other services. The Business and Industry group experienced improved profitability through overhead reductions and productivity improvements offsetting revenue declines resulting from customer downsizing. Diversified Health Services produced strong results with sharply increased profits from management and consulting services and medical supply sales. International operations achieved solid growth in royalty fees from existing licensees while the acquisitions made in the second half of 1994 performed consistent with expectations and achieved modest net income after all acquisition costs in their first full quarter as part of ServiceMaster. Cost of services rendered and products sold increased 5.3% due to the growth of Consumer Services and the addition of the acquired European pest control businesses, but decreased as a percentage of revenue from 82.6% in 1994 to 80.8% in 1995. This decrease as a percentage of revenue reflects the changing mix of the business as Consumer Services and Diversified Health Services increase in size in relation to the overall business of the Partnership. The Consumer Services and Diversified Health Services units, along with the acquired direct International businesses, operate at a higher gross profit than the Management Services business unit but incur relatively higher selling and administrative expenses. Selling and administrative expenses increased 19.3% over prior year reflecting the increased volume in the Consumer Services businesses as well as the International acquisitions. Selling and administrative expenses as a percent of revenue increased to 12.9% of revenue in the first quarter of 1995 as compared to 11.7% of revenue one year ago. This increase as a percentage of revenue is also primarily attributable to the changing business mix of the Partnership. Interest expense increased reflecting the three European pest control acquisitions and increased seasonal borrowings, partially offset by the proceeds received from the sale of the Education Food business. The increase in minority interest expense primarily reflects the continued rapid growth in profits at the Consumer Services business unit. Financial Position - ------------------ Net cash provided from operations of $15.9 million was 31% above first quarter 1994. Due to the seasonality of the lawncare and pest control operating cycles, the Partnership's working capital needs are the highest during the first quarter. The current ratio improved to 1.2 from 1.1 at year end. 7 In January, 1995, Consumer Services acquired the 15% minority interest in TruGreen-ChemLawn. The interest was purchased through the issuance of 2,824,000 partnership shares and a contingent right to receive an additional payment in 1997, depending upon the magnitude of TruGreen-ChemLawn earnings and the performance of ServiceMaster shares in 1995 and 1996. When the contingency is resolved, any additional consideration due will be distributed and recorded. In February, 1995, the Partnership sold the Education Food business to Daka International, Inc. for $10 million in cash and a secured note of approximately $10.25 million which is payable in August, 1995. The gain realized on the sale was not material to overall results for the quarter. The increase in accounts and notes receivable reflects general business growth, increased activity in the seasonal Consumer Services businesses, the note receivable from the sale of the food service business and financial investments in the long term care industry. The increase in inventories is a result of normal seasonal build-ups in the pest control and lawncare businesses. Prepaids and other assets have increased from year end as the lawncare operation defers certain direct response marketing costs and other similar expenses in the first quarter, which are then amortized over the lawncare production season, when revenues are recognized. Deferred revenues also increased significantly reflecting customer prepayments for lawncare services. Property and equipment increased primarily due to general business growth in the Consumer Services business unit and acquisitions made in first quarter 1995. The Partnership has no material capital commitments at this time. Other short term liabilities increased from year end reflecting the seasonality of the business. Debt levels increased from year end due to the seasonal nature of the Partnership's operating cash flows, combined with the effects of acquisitions, share repurchases and other financial investments. Minority interest decreased from year end reflecting the acquisition of the TruGreen-ChemLawn minority interest described earlier, partially offset by the normal accruals of minority interest expense. Total shareholders equity increased by 21% to $373 million primarily as a result of the issuance of ServiceMaster shares in connection with the purchase of the TruGreen-ChemLawn minority interest during the quarter. In December, 1994, the Board of Directors of the Partnership authorized the repurchase of up to an additional $60 million of outstanding Partnership shares in the open market or in privately- 8 negotiated transactions. Shares repurchased under the program will be available for general Partnership purposes, including employee benefit programs and business acquisitions. As of March 31, 1995, approximately $41 million of the total amount authorized had not yet been expended. 9
Part II. OTHER INFORMATION SERVICEMASTER LIMITED PARTNERSHIP Exhibit 11 EXHIBIT REGARDING DETAIL OF INCOME PER SHARE COMPUTATION (In thousands, except per share data) Three Months Ended March 31, 1995 1994 --------- --------- Shares used for computing Primary Earnings per share-- Shares outstanding on weighted average basis . . . . . . . . . . . . . . . . . . . 77,328 75,795 Equivalent shares-- Options and subscriptions outstanding. . . . . . . . 1,656 1,898 --------- --------- Weighted average and equivalent shares for primary calculation . . . . . 78,984 77,693 ========= ========= Primary earnings per share. . . . . . . . . . . . . . $ .37 $ .32 ===== ===== Net income. . . . . . . . . . . . . . . . . . . . . . $ 28,880 $ 24,546 Interest on convertible debentures. . . . . . . . . . 475 600 --------- --------- Net income for fully diluted calculation. . . . . . . $ 29,355 $ 25,146 ========= ========= Shares used for computing fully diluted earnings per share-- Shares outstanding. . . . . . . . . . . . . . . . . . 78,984 77,693 Equivalent shares-- Shares issuable upon conversion of convertible debentures . . . . . . . . . . . . . . . 1,645 2,026 --------- --------- Weighted average and equivalent shares for fully diluted calculation. . . . . . . . . . . . 80,629 79,719 ========= ========= Fully diluted earnings per share. . . . . . . . . . . $ .36 $ .32 ==== =====
10 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 15, 1995 SERVICEMASTER LIMITED PARTNERSHIP (Registrant) By: s/Ernest J. Mrozek ----------------------------------- Ernest J. Mrozek Senior Vice President and Chief Financial Officer 11 EX-27 2
5 1,000 3-MOS DEC-31-1995 MAR-31-1995 12,648 22,192 259,895 20,099 42,933 413,372 275,459 135,930 1,397,095 345,298 452,775 0 0 0 372,820 1,397,095 0 707,764 0 571,812 91,532 0 8,902 29,352 472 28,880 0 0 0 28,880 .37 .36
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