-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KpMe4Mz+h+YA4OmMGzdklbw4BWmmg8Ic5NzCBRow/KKRVEm7zSCvnLR3IeyxK+ig u056imSdwCVcvMxZy/qlUw== 0000806027-96-000021.txt : 19960816 0000806027-96-000021.hdr.sgml : 19960816 ACCESSION NUMBER: 0000806027-96-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96612916 BUSINESS ADDRESS: STREET 1: ONE SERVICEMASTER WAY CITY: DOWNERS GROVE STATE: IL ZIP: 60515 BUSINESS PHONE: 7089641300 10-Q 1 SECOND QTR 1996 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ___x___QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 ------------- _______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) 630-271-1300 (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: 141,704,408 shares on August 9, 1996 (this figure reflects the three-for-two share split declared May 3, 1996 and paid to shareholders of record as of June 10, 1996). 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 and the six months ended June 30, 1996 and June 30, 1995 2 Consolidated Statements of Financial Position as of June 30, 1996 and December 31, 1995 3 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and June 30, 1995 4 Notes to Consolidated Financial Statements 5 Management Discussion and Analysis of Financial Position 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 Six Months Ended June 30, June 30, 1996 1995 1996 1995 --------- --------- ----------- ---------- Operating Revenue................................$ 916,931 $ 852,791 $ 1,657,230 $ 1,560,555 Operating Costs and Expenses: Cost of services rendered and products sold.............................. 695,426 652,063 1,293,609 1,226,369 Selling and administrative expenses.............. 138,597 127,358 230,376 216,396 --------- --------- ----------- ---------- Total operating costs and expenses............... 834,023 779,421 1,523,985 1,442,765 --------- --------- ----------- ---------- Operating Income................................. 82,908 73,370 133,245 117,790 Non-operating Expense (Income): Interest expense................................. 9,904 9,492 18,822 18,394 Interest income.................................. (2,451) (2,143) (5,130) (3,502) Minority interest*............................... 2,761 14,585 4,598 22,110 --------- --------- ----------- ---------- Income before Income Taxes....................... 72,694 51,436 114,955 80,788 Provision for income taxes....................... 1,430 1,276 3,178 1,748 --------- --------- ----------- ---------- Net Income.......................................$ 71,264 $ 50,160 $ 111,777 $ 79,040 ========= ========= =========== ========== Net Income Per Share.............................$ .49 $ .42 $ .77 $ .67 ========= ========= =========== ========== Cash Distributions Per Share.....................$ .16 $ .16 $ .32 $ .31 1/3 ========= ========= =========== ========== Net income per share is based on 144,836 shares and 119,054 shares for the three months ended June 30, 1996 and 1995, respectively, and 145,165 share and 118,766 shares for the six months ended June 30, 1996 and 1995 respectively. All share and per share data have been restated to reflect the three-for-two share split declared May 3, 1996 and paid to shareholders of record as of June 10, 1996. * Includes General Partners' interest of $1,453 and $1,016 for the three months ended June 30, 1996 and 1995, respectively, and $2,271 and $1,603 for the six months ended June 30, 1996 and 1995, respectively. See Notes to Consolidated Financial Statements
2
SERVICEMASTER LIMITED PARTNERSHIP Consolidated Statements of Financial Position (In thousands) As of June 30, December 31, Assets 1996 1995 ------------ --------- Current Assets: Cash and marketable securities, including cash and cash equivalents of $20,454 and $23,113, respectively............. $ 56,310 $ 49,429 Accounts and notes receivable, less allowances of $23,397 and $20,468, respectively......................................... 282,131 243,649 Inventories.......................................................... 46,761 40,583 Prepaid expenses and other assets.................................... 108,503 59,578 ------------ ------------- Total current assets............................................. 493,705 393,239 ------------ ------------- Property and Equipment: At cost........................................................... 314,420 292,283 Less: accumulated depreciation.................................... 162,544 146,431 ------------ ------------- Net property and equipment....................................... 151,876 145,852 ------------ ------------- Intangible assets, primarily trade names and goodwill, net of accumulated amortization of $148,917 and $133,275, respectively........................................ 1,062,620 1,021,050 Notes receivable, long-term securities, and other assets............. 100,983 89,749 ------------ ------------- Total assets..................................................... $ 1,809,184 $ 1,649,890 ============ ============= Liabilities And Shareholders' Equity Current Liabilities: Accounts payable..................................................... $ 63,823 $ 50,456 Accrued liabilities.................................................. 186,757 193,799 Deferred revenues.................................................... 139,906 115,244 Current portion of long-term obligations............................. 12,499 13,431 ------------ ------------- Total current liabilities........................................ 402,985 372,930 ------------ ------------- Long-Term Debt....................................................... 482,250 411,903 Other Long-Term Obligations.......................................... 123,278 105,700 Commitments and Contingencies ....................................... Minority and General Partners' Interest includes General Partners' interest of $1,880 in 1996 and $1,392 in 1995................................. 13,842 12,697 Shareholders' Equity................................................. 786,829 746,660 ------------ ------------- Total liabilities and shareholders' equity....................... $ 1,809,184 $ 1,649,890 ============ ============= See Notes to Consolidated Financial Statements
3
SERVICEMASTER LIMITED PARTNERSHIP Consolidated Statements of Cash Flows (In thousands) Six Months Ended June 30, 1996 1995 ------------ ---------- Cash and Cash Equivalents at January 1................................ $ 23,113 $ 14,333 Cash Flows from Operations: Net Income............................................................ 111,777 79,040 Adjustments to reconcile net income to net cash flows from operations: Depreciation................................................... 19,901 18,268 Amortization................................................... 15,642 11,401 Change in working capital, net of acquisitions: Receivables.................................................. (40,348) (39,931) Inventories and other current assets......................... (54,213) (42,163) Accounts payable............................................. 11,044 7,447 Deferred revenues............................................ 19,905 21,149 Accrued liabilities.......................................... 181 1,013 Minority interest and other, net............................... 4,268 21,746 ------------ ------------- Net Cash Provided from Operations..................................... 88,157 77,970 ------------ ------------- Cash Flows from Investing Activities: Business acquisitions, net of cash acquired....................... (30,718) (19,041) Property additions................................................ (23,470) (24,023) Net purchases of long-term marketable securities.................. (10,463) (1,952) Proceeds from sale of businesses.................................. 4,526 20,057 Payments to sellers of acquired businesses........................ (1,685) (1,317) Sale of equipment and other assets .............................. 863 1,102 Notes receivable and financial investments........................ 13 (15,613) ------------ ------------- Net Cash Used for Investing Activities................................ (60,934) (40,787) ------------ ------------- Cash Flows from Financing Activities: Short-term borrowings, net........................................ 103,959 98,300 Distributions to shareholders and shareholders' trust............. (45,027) (56,117) Payments of borrowings and other obligations...................... (44,743) (36,766) Purchase of treasury shares....................................... (44,219) (21,567) Distributions to holders of minority interests.................... (2,769) (8,827) Proceeds from employee share option plans......................... 2,917 2,761 Other............................................................. --- 201 ------------ ------------- Net Cash Used for Financing Activities................................ (29,882) (22,015) ------------ ------------- Cash Increase (Decrease) during the Period............................ (2,659) 15,168 ------------ ------------- Cash and Cash Equivalents at June 30.................................. $ 20,454 $ 29,501 ============ ============= 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, 1995. 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 June 30, 1996 and December 31, 1995, and the results of operations for the three month and six month periods ended June 30, 1996 and 1995, and the cash flows for the six months ended June 30, 1996 and 1995, 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. All such costs are fully recognized within the fiscal year in which they are incurred. Note 4: On May 3, 1996, the Partnership's Board of Directors declared a three-for-two share split effective June 24, 1996, for shareholders of record on June 10, 1996. All share and per share data have been restated for all periods presented to reflect this three-for-two split. Note 5: 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 six months ended June 30, 1996 and 1995 is presented in the following table. The increase in interest paid in 1996 from 1995 is primarily due to timing of interest and fees paid on revolving debt and higher revolving credit balances in the first half of 1996. (In thousands) 1996 1995 ------- ------- Cash paid or received for: - -------------------------- Interest expense, net of amounts capitalized.................$ 17,890 $ 16,773 Interest and dividend income.................................$ 3,668 $ 3,326 5 SERVICEMASTER LIMITED PARTNERSHIP MANAGEMENT DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995 - --------------------------------------------------- Revenues increased to $917 million in the second quarter of 1995, an 8% overall increase, but with more rapid growth in higher margin service lines. Net income was $71.3 million, reflecting a 42% increase over one year ago while net income per share grew 17% to $.49. Net income and earnings per share both include the effects of the December 1995 acquisition of WMX Technologies, Inc.'s minority ownership interest in Consumer Services, which eliminated the 28% minority interest expense in Consumer Services' earnings and increased the number of shares outstanding by approximately 27 million (on a post split basis). Operating income increased 13%, to $82.9 million, while operating margins increased from 8.6% to 9.0% of revenue, reflecting the continued rapid growth of higher margin business units and the favorable effects of overhead leveraging throughout the enterprise. The Consumer Services business unit achieved a 15% increase in revenues and stronger growth in net income, despite adverse weather conditions. TruGreen-ChemLawn achieved strong double-digit gains in both revenues and profits despite an unusually long winter and a cool, wet spring in many parts of the country. Continued growth in the residential customer base and strong commercial sales, combined with the favorable effects of new service initiatives such as interior plantscaping and home fertilizer delivery, helped offset the weather related adversities. Terminix achieved strong growth in revenues and profits with both termite completions and pest control revenues increasing at double-digit rates, reflecting favorable marketing results as well as management's continued focus on customer satisfaction and retention. American Home Shield continued to achieve excellent overall growth in both revenues and profits, resulting from very strong new contract sales and continuing improvement in renewal rates. Merry Maids achieved double-digit revenue growth with increased fees from existing customers and encouraging results from company-owned branches. ServiceMaster Residential and Commercial achieved good growth in revenues and profits, reflecting an increase in company-owned distributors, which offset a decline in large disaster recovery projects. The Management Services business unit recorded a solid overall increase in profits, reflecting wind down costs incurred in 1995 relating to the sale of the education food service business that were nonrecurring, as well as the ongoing benefits of cost controls and improved customer retention in all three markets. Revenues were consistent with prior year levels, as reductions in Healthcare were offset by improvements in Education and Business & Industry. The Healthcare market recorded reduced revenues and profits, reflecting difficult industry conditions in the acute care sector of the market. The Education market had a modest reduction in profits. However, new starts and customer retention both improved over prior year levels. The Business & Industry market reported strong increases in both revenues and profits, reflecting encouraging results in the aviation and food processing sectors. Diversified Health Services continued to realize significant growth, with strong revenue increases in the major service lines and improvements in rehabilitation services which were started in 1995. The results also reflect the successful integration of DTEC, a pharmacy management company, which was acquired early in 1996. The International operations also achieved double-digit increases in revenues and profits. On a consolidated basis, cost of services rendered and products sold increased 7% due to general business growth, but decreased as a percentage of revenue from 76.5% in 1995 to 75.8% in 1996. This decrease primarily reflects the changing 6 mix of the business as Consumer Services increases in size in relationship to the overall business of the Partnership. The Consumer Services business units generally operate at higher gross profit levels than the other major business units but also incur somewhat higher selling and administrative expenses. Consolidated selling and administrative expenses increased 9% due to general business growth and increased to 15.1% of revenue in 1996 from 14.9% in 1995. As described above, this increase as a percentage of revenue is primarily attributable to the changing business mix of the Partnership. Interest expense increased over the prior year reflecting increased borrowings relating to acquisitions and treasury share repurchases made in 1996. The decrease in minority interest expense primarily reflects the purchase of the Consumer Services minority interest from WMX Technologies, Inc., in December of 1995. The increase in the provision for income taxes is primarily attributable to strong growth at American Home Shield (which is organized in corporate form and subject to taxes) and increases in certain state taxes. SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 - ------------------------------------------------------------------------- Revenues for the six months were $1.7 billion, a 6% increase over 1995. Operating income increased 13%, to $133 million, while margins increased to 8.0% of revenue from 7.5% in 1995, reflecting the combined effects of the continued rapid growth of higher margin business units and the favorable effects of overhead leveraging throughout the enterprise. Net income was $111.8 million, a 41% increase, while earnings per share totalled $.77, an increase of 15%. Results for the six months include the effects of the December, 1995 transaction with WMX Technologies, Inc., which increased the number of shares outstanding by approximately 27 million (on a post split basis) and eliminated the 28% minority interest expense in Consumer Services' earnings. The Consumer Services business segment continued to achieve strong, double-digit growth in revenues and profits. The TruGreen-Chemlawn operations had solid growth in revenues and profits despite late winter and wet spring weather throughout many parts of the country, which contrasted to generally mild conditions in the previous year. Terminix achieved solid increases in revenues and profits as a result of increases in pest control revenues and termite completions, sharp improvements in termite contract renewals and improved efficiencies. American Home Shield had excellent growth in revenues and profits, with increased sales in all major geographic markets and continuing improvements in contract renewals. The Merry Maids and Residential and Commercial operations both had increased revenues and profits and continued their expansion of direct operations. The Management Services business segment recorded solid growth in profits for the first six months, reflecting the elimination of losses incurred in 1995 prior to the sale of the education food service business, as well as the ongoing benefit of strong cost controls and improved customer retention. Revenues were consistent with prior year levels, as reductions in Healthcare were offset by improvements in Education and Business & Industry. The Healthcare market was slightly below last year in revenues and profits, reflecting difficult conditions in the acute care sector of the industry, but customer retention has shown good improvement. Profits in the Education business declined slightly, but new starts and customer retention have improved significantly over prior year levels. The Business & Industry group achieved double-digit growth in revenues and profits, reflecting strong growth in the aviation market. 7 ServiceMaster Diversified Health Services continued to achieve excellent growth in revenues and profits reflecting solid increases in management services from the DTEC acquisition and rehabilitation services. International operations achieved solid growth in the European pest control operations and growth in royalty fees from existing licensees. On a consolidated basis, cost of services rendered and products sold increased 5.5% due to general business growth, but decreased as a percentage of revenue from 78.6% in 1995 to 78.1% in 1996. This decrease primarily reflects the changing mix of the business as Consumer Services increases in size in relationship to the overall business of the Partnership. The Consumer Services business units generally operate at higher gross profit levels than the other major business units but also incur somewhat higher selling and administrative expenses. Consolidated selling and administrative expenses increased 6.5% over prior year levels. As a percent of revenue, selling and administrative expenses were consistent with 1995 at 13.9%. Interest income increased over the prior year due to realized gains on the sale of marketable securities at American Home Shield in 1996, whereas slight losses were realized in 1995. Minority interest expense decreased due to the purchase of the Consumer Services minority interest from WMX Technologies, Inc. in December of 1995. Income taxes increased from prior year reflecting strong growth in the American Home Shield and International operations. FINANCIAL POSITION - ------------------- Net cash provided from operations of $88.2 million grew 13% compared to the first six months of 1995. Due to the seasonality of the lawncare and pest control operating cycles, the Partnerships' working capital needs are significantly higher in the first half of the year than in the second half, with a corresponding impact on funds provided from operations. Management believes that funds generated from operations and other existing resources will continue to be adequate to satisfy the ongoing working capital needs of the Partnership. The increase in accounts and notes receivable over year-end levels reflects traditional seasonal buildups in the Consumer Services business, partially offset by the collection of short term notes receivable from specific financing projects. The increase in inventories is a result of normal seasonal build-ups in the pest control and lawncare businesses. Prepaid expenses and other assets have increased from year end as the lawncare operation defers certain marketing costs that are incurred during the first six months but are directly associated with revenues that are realized in subsequent quarters of the current year. These costs are then amortized over the balance of the current lawncare production season, as the related revenues are recognized. Deferred revenues also increased significantly, reflecting strong growth at American Home Shield and increases in customer prepayments for lawncare services. Property and equipment increased slightly due to general business growth. The Partnership has no material capital commitments at this time. Accounts payable increased from year end reflecting seasonal activity in the Consumer Services business. Debt levels increased due to the seasonal nature of the Partnership's operating cash flows, combined with the effects of acquisitions and share repurchases. In early July, the Partnership completed a $125 million private placement of debt at an overall effective interest rate of 7.4%, with the proceeds used to repay floating rate bank debt. 8 The Partnership is a party to a number of long-term debt agreements which require it to maintain compliance with certain financial covenants, including limitations on indebtedness, restricted payments, fixed charge coverage ratios and net worth. The Partnership is in compliance with the covenants related to these debt agreements. Total shareholders' equity increased to $787 million in 1996 from $747 million at December 31, 1995 reflecting strong earnings offset in part by distributions and treasury share repurchases. In December, 1995, the Board of Directors of the Partnership authorized the repurchase of up to $150 million of outstanding Partnership shares in the open market or in privately-negotiated transactions. As of June 30, 1996, approximately $104 million of the total amount authorized had not yet been expended. Cash distributions paid directly to shareholders totalled $46 million ($.32 per share) for the six months ended June 30, 1996, in comparison to $37 million ($.31 1/3 per share) in 1995. This reflects the increase in the authorized payments per share announced last December (4% increase for the year as a whole) as well as the higher number of shares outstanding. Distributions to the shareholders' trust decreased from first half 1995 levels, reflecting differences in the timing of payments. For the year as a whole, such distributions are expected to increase over prior year levels. 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 Six Months Ended June 30, June 30, 1996 1995 1996 1995 ---------- -------- --------- ------- Shares used for computing Primary Earnings per share-- Shares outstanding on weighted average basis...................................... 140,935 116,058 141,174 116,027 Equivalent shares-- Options and subscriptions outstanding.............. 3,901 2,996 3,991 2,739 ---------- --------- --------- -------- Weighted average and equivalent shares for primary calculation.......... 144,836 119,054 145,165 118,766 ========== ========= ========= ======== Primary earnings per share........................... $ .49 $ .42 $.77 $.67 ====== ====== ==== ==== Net income........................................... $ 71,264 $ 50,160 $ 111,777 $ 79,040 Interest on convertible debentures................... 465 475 938 950 ---------- --------- --------- -------- Net income for fully diluted calculation............. $ 71,729 $ 50,635 $ 112,715 $ 79,990 ========== ========= ========= ======== Shares used for computing fully diluted earnings per share-- Shares outstanding................................... 145,137 119,234 145,403 119,201 Equivalent shares-- Shares issuable upon conversion of convertible debentures............................. 2,418 2,453 2,418 2,453 ---------- --------- --------- --------- Weighted average and equivalent shares for fully diluted calculation...................... 147,555 121,687 147,821 121,654 ========== ========= ======== ========= Fully diluted earnings per share..................... $ .49 $ .42 $ .76 $ .66 ===== ====== ===== ===== All share and per share data have been restated to reflect the three-for-two share split declared May 3, 1996 and payable to shareholders of record as of June 10, 1996.
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: August 12, 1996 SERVICEMASTER LIMITED PARTNERSHIP (Registrant) By: /s/Ernest J. Mrozek --------------------------------- Ernest J. Mrozek Senior Vice President and Chief Financial Officer 11 EX-27 2 FDS 6 MONTHS
5 1,000 6-mos DEC-31-1996 JUN-30-1996 20,454 35,856 305,528 23,397 46,761 493,705 314,420 162,544 1,809,184 402,985 482,250 0 0 0 786,829 1,809,184 0 1,657,230 0 1,293,609 230,376 0 18,822 114,955 3,178 111,777 0 0 0 111,777 .77 .76
-----END PRIVACY-ENHANCED MESSAGE-----