-----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, GMGBLj0IwfC8XYh1r1E6cM6+4n6KoAylC1KI2RFGe/IuG+mxfDULP/0aWAYErm7Z 67iVa5MDUQE/0G2tNOQVeQ== 0000806027-97-000014.txt : 19970515 0000806027-97-000014.hdr.sgml : 19970515 ACCESSION NUMBER: 0000806027-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 97605373 BUSINESS ADDRESS: STREET 1: ONE SERVICEMASTER WAY CITY: DOWNERS GROVE STATE: IL ZIP: 60515 BUSINESS PHONE: 7089641300 10-Q 1 1ST QUARTER 10Q 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 March 31, 1997 -------------- _______ 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: 182,753,179 shares on May 7, 1997. (This reflects the repurchase of 40.7 million (post split) shares from WMX Technologies Inc. on April 1, 1997 and the three-for-two share split declared May 9, 1997 and payable to shareholders of record as of June 11, 1997.) This document consists of 11 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, 1997 and March 31, 1996 2 Consolidated Statements of Financial Position as of March 31, 1997 and December 31, 1996 3 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and March 31, 1996 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 9 Signature 10 1
PART I. FINANCIAL INFORMATION SERVICEMASTER LIMITED PARTNERSHIP Consolidated Statements of Income (In thousands, except per share data) Three Months Ended March 31, 1997 1996 ----------- -------- Operating Revenue.............................................. $ 817,136 $ 740,299 Operating Costs and Expenses: Cost of services rendered and products sold............................................ 657,145 598,183 Selling and administrative expenses............................ 101,391 91,779 ----------- ----------- Total operating costs and expenses............................. 758,536 689,962 ----------- ----------- Operating Income............................................... 58,600 50,337 Non-operating Expense (Income): Interest expense............................................... 10,392 8,918 Interest and investment income................................. (2,567) (2,679) Minority interest*............................................. 2,148 1,837 ----------- ----------- Income before Income Taxes..................................... 48,627 42,261 Provision for income taxes..................................... 1,767 1,748 ----------- ----------- Net Income..................................................... $ 46,860 $ 40,513 =========== =========== Net Income Per Share........................................... $ .21 $ .19 ===== ===== Cash Distributions Per Share................................... $ .11 $ .11 ===== ===== Net income per share is based on 220,803 shares and 218,243 shares for the three months ended March 31, 1997 and 1996, respectively. All share and per share data have been restated to reflect the three-for-two share split declared May 9, 1997 and payable to shareholders of record as of June 11, 1997. The Partnership is not currently subject to federal and state income taxes. However, under current law, this tax status will expire at the end of 1997, after which the Partnership will be taxed as a corporation. A reincorporating plan has been approved by the shareholders and the Partnership currently expect to reincorporate, on a tax-free basis to shareholders, by December 31, 1997. It is currently estimated that the effective tax rate upon reincorporation will be approximately 40 percent of pretax earnings. This estimate is necessarily subject to change based on changes in circumstances, statutory tax rates, etc. Proforma earnings per share would be $.13 in 1997, and $.11 in 1996, assuming reincorporation had occurred at the beginning of each respective year. * Includes General Partners' interest of $936 and $818 for the three months ended March 31, 1997 and 1996, respectively.
See Notes to Consolidated Financial Statements 2
SERVICEMASTER LIMITED PARTNERSHIP Consolidated Statements of Financial Position (In thousands) As of March 31, December 31, 1997 1996 ------------ ------------ Assets Current Assets: Cash and marketable securities, including cash and cash equivalents of $43,182 and $72,009, respectively............. $ 85,852 $ 114,413 Accounts and notes receivable, less allowances of $25,835 and $26,287, respectively......................................... 287,546 270,401 Inventories.......................................................... 53,099 43,529 Prepaid expenses and other assets.................................... 132,142 70,991 ------------ ------------- Total current assets............................................. 558,639 499,334 ------------ ------------- Property and Equipment: At cost........................................................... 337,369 320,713 Less: accumulated depreciation................................... 185,295 174,313 ------------ ------------- Net property and equipment....................................... 152,074 146,400 ------------ ------------- Intangible assets, primarily trade names and goodwill, net of accumulated amortization of $178,051 and $170,623, respectively........................................ 1,351,020 1,088,444 Notes receivable, long-term securities, and other assets............. 123,891 112,663 ------------ ------------- Total assets.....................................................$ 2,185,624 $ 1,846,841 ============ ============= Liabilities And Shareholders' Equity Current Liabilities: Accounts payable.....................................................$ 76,697 $ 66,025 Accrued liabilities.................................................. 230,392 205,567 Deferred revenues.................................................... 183,555 138,339 Current portion of long-term obligations............................. 17,912 15,621 ------------ ------------- Total current liabilities........................................ 508,556 425,552 ------------ ------------- Long-Term Debt....................................................... 572,863 482,315 Other Long-Term Obligations.......................................... 130,010 125,299 Commitments and Contingencies ....................................... Minority and General Partners' Interest includes General Partners' interest of $1,222 in 1997 and $1,604 in 1996................................. 2,003 16,908 Shareholders' Equity................................................. 972,192 796,767 ------------ ------------- Total liabilities and shareholders' equity.......................$ 2,185,624 $ 1,846,841 ============ =============
See Notes to Consolidated Financial Statements 3
SERVICEMASTER LIMITED PARTNERSHIP Consolidated Statements of Cash Flows (In thousands) Three Months Ended March 31, 1997 1996 ------------ ------------ Cash and Cash Equivalents at January 1................................ $ 72,009 $ 23,113 Cash Flows from Operations: Net Income............................................................ 46,860 40,513 Adjustments to reconcile net income to net cash flows from operations: Depreciation................................................... 10,972 9,552 Amortization................................................... 7,428 5,667 Change in working capital, net of acquisitions: Receivables.................................................. (12,403) (4,697) Inventories and other current assets......................... (65,210) (71,216) Accounts payable............................................. 2,906 2,847 Deferred revenues............................................ 39,197 27,426 Accrued liabilities.......................................... (642) 5,841 Minority interest and other, net............................... 1,320 4,958 ------------- ------------ Net Cash Provided from Operations..................................... 30,428 20,891 ------------- ------------ Cash Flows from Investing Activities: Business acquisitions, net of cash acquired....................... (96,405) (21,390) Property additions................................................ (12,970) (9,859) Notes receivable and financial investments........................ (1,558) 5,848 Payments to sellers of acquired businesses........................ (1,062) (787) Net purchases of investment securities............................ (763) (1,852) Sale of equipment and other assets .............................. 553 389 ------------- ------------ Net Cash Used for Investing Activities................................ (112,205) (27,651) ------------- ------------ Cash Flows from Financing Activities: Borrowings, net................................................... 100,785 63,892 Payments of borrowings and other obligations...................... (14,618) (7,851) Distributions to shareholders and shareholders' trust............. (24,815) (23,265) Purchase of treasury shares....................................... (10,151) (26,519) Proceeds from employee share option plans......................... 1,957 1,820 Distributions to holders of minority interests.................... (208) (2,178) ------------- ------------ Net Cash Provided from Financing Activities........................... 52,950 5,899 ------------- ------------ Cash Decrease during the Period....................................... (28,827) (861) ------------- ------------ Cash and Cash Equivalents at March 31................................. $ 43,182 $ 22,252 ============= =============
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, 1996. 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, 1997 and December 31, 1996, and the results of operations and cash flows for the three months ended March 31, 1997 and 1996, 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 9, 1997, the Partnership's Board of Directors declared a three-for-two share split effective June 25, 1997, for shareholders of record on June 11, 1997. All share and per share data have been restated for all periods presented to reflect this three-for-two split. Note 5: In February 1997, the FASB issued Statement No. 128, "earnings per share" (SFAS 128). SFAS 128 is effective for financial statements for periods ending after December 15, 1997. Therefore, the Partnership will adopt this statement and reflect its disclosure in the Partnership's 1997 annual report. SFAS 128 requires dual presentation of basic and diluted earnings per share. Basic earnings per share includes no dilution from options, debentures or other financial instruments and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could participate in the earnings of an entity. This statement requires that prior period earnings per share data presented be restated. First quarter 1997 earnings per share data on a restated basis would reflect basic earnings per share of $.22 and diluted earnings per share of $.21. Note 6: 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, 1997 and 1996 is presented in the following table. The increase in interest paid in 1997 is primarily due to the timing of payments as well as overall higher debt balances.
(In thousands) 1997 1996 --------- --------- Cash paid or received for: Interest expense............................................ $ 10,842 $ 6,657 Interest and dividend income................................ $ 1,942 $ 1,815
5 SERVICEMASTER LIMITED PARTNERSHIP MANAGEMENT DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996 - ------------------------------------------------- Revenues increased 10 percent over the first quarter of 1996 to $817 million reflecting solid 7 percent growth from base operations and the effect of acquisitions. The two recent acquisitions (Premier Manufacturing Support Services which was acquired late last year and Barefoot Inc. ("Barefoot") which was purchased in February, 1997) added incremental revenues that more than offset the adverse impact from the termination of a large contract in the Management Services segment. Operating income increased 16 percent, to $58.6 million while margins improved to 7.2 percent of revenue (from 6.8 percent of revenue in 1996), reflecting growth in the higher margin business units. Net income was $46.9 million, reflecting a 16 percent increase over one year ago while net income per share was $.21, representing an increase of 11 percent. The first quarter is typically the slowest quarter of the year due to the investments made in the seasonal lawn care and pest control operations. The Consumer Services business unit achieved strong double digit increases in revenues and profits. The two largest companies, TruGreen-ChemLawn and Terminix each had strong internal revenue growth, and combined with the successful integration of the Barefoot customers, contributed to an overall 17 percent increase in segment revenues. The TruGreen-ChemLawn operations experienced a strong start with first quarter results reflecting favorable weather conditions throughout many parts of the country, which contrasted to harsh conditions last year, and resulted in acceleration of initial service applications in the first quarter of 1997. The company also achieved a favorable response to its pre-season marketing program which lays the foundation for growth in future quarters. Terminix achieved good increases in revenues and significantly improved margins reflecting favorable weather conditions, strong cost controls and good growth in the high margin renewal business. American Home Shield achieved very strong double digit increases in both revenues and profits, with sharp increases in gross contracts written, as well as continued improvements in the rate and magnitude of contract renewals. Merry Maids and Residential/Commercial reported profits consistent with last year but achieved solid revenue growth for the quarter, reflecting the continued conversion of franchises and distributorships to company owned operations as well as the growth in disaster restoration services. The Management Services business unit achieved a solid overall increase in revenues primarily reflecting the Premier acquisition, with a modest increase in profits for the quarter. The health care market, which includes Diversified Health Services, achieved a good increase in profits with improved sales and customer retention. Diversified Health Services and the traditional Management Services' long term care accounts performed well reflecting strong revenue and profit growth which was offset by declines in the acute care sector of the market due to continued competitive pressures. Revenues and profits in the education market declined due to the loss of a significant contract and initial investments at several new accounts. The business and industry group achieved 6 excellent growth in revenues and profits, resulting from the Premier acquisition as well as increased margins at several accounts. The International operations achieved modest revenue growth with profits below prior year levels reflecting investments in the European joint ventures and unfavorable currency exchange rates. Cost of services rendered and products sold increased 10 percent due to general business growth, but decreased as a percentage of revenue from 80.8 percent in 1996 to 80.4 percent in 1997. 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. Selling and administrative expenses increased 11 percent due to general business growth. As a percent of revenue, selling and administrative expenses were consistent with 1996 levels at 12.4 percent. Interest expense increased over the prior year primarily due to increased debt levels associated with the purchase of Barefoot. The increase in the provision for taxes is attributable to strong growth at American Home Shield (which is organized in the corporate form and subject to taxes) offset by reduced requirements in foreign tax payments. FINANCIAL POSITION - ------------------- Net cash provided from operations of $30.4 million was 46 percent above first quarter 1996, reflecting increased prepayments for services in the lawn care operations combined with accelerated production due to favorable weather conditions and the timing of the Barefoot acquisition. 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. 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. On February 24, 1997, the Partnership completed the acquisition of Barefoot, the second largest professional residential lawn care services company in the United States for approximately $237 million, consisting of $146 million of Partnership's shares and the remainder in cash. The increase in accounts and notes receivable over year end levels reflects an increase due to general business growth, increased seasonal activity in the Consumer Services segment and the acquisition of Barefoot. 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 marketing costs that are incurred during the first quarter 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, 7 reflecting strong growth and increases in customer prepayments for lawncare services. Property and equipment increased primarily due to business growth in the Consumer and Management Services business units as well as the acquisition of Barefoot in the first quarter of 1997. Intangible assets increased from year end, primarily reflecting the effect of the acquisition of Barefoot. The increase in other assets is also primarily due to Barefoot. Accounts payable and other liabilities increased from year end reflecting seasonal activity in the Consumer Services businesses and the acquisition of Barefoot. Debt levels increased due to the seasonal nature of the Partnership's operating cash flows, combined with the effects of the Barefoot acquisition and share repurchases. 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 $972 million in 1997 from $797 million at December 31, 1996 reflecting strong earnings growth as well as the shares issued to acquire Barefoot, partially offset 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 March 31, 1997, approximately $62 million of the total amount authorized had not yet been expended. Cash distributions paid directly to shareholders totalled $24 million or $.11 per share an increase of 6 percent. On April 1, 1997, ServiceMaster repurchased the entire 19 percent ownership interest that WMX Technologies, Inc. ("WMX") had held in the Partnership for approximately $626 million. WMX had owned 40.7 million restricted shares of ServiceMaster, and also had an option to purchase an additional 2.8 million shares which was cancelled as part of the transaction. This transaction is expected to be immediately additive to earnings per share and will provide significant, incremental tax benefits to the company. The transaction was financed with a new $1 billion multi-currency revolving credit agreement, which provides a 364 day revolving credit facility of $250 million with a one year term loan option (two year total term) and a five year revolving credit facility of $750 million. Management is evaluating a number of long-term financing alternatives for both this transaction and the cash portion of the Barefoot acquisition. Subject to market conditions, the Partnership currently anticipates that approximately 50 percent of the $858 million combined value of the WMX and Barefoot transactions will be ultimately refinanced through equity issuances within the next two years. 8
Part II. OTHER INFORMATION SERVICEMASTER LIMITED PARTNERSHIP Exhibit 11 EXHIBIT REGARDING DETAIL OF INCOME PER SHARE COMPUTATION (In thousands, except per share data) Three Months Ended March 31, 1997 1996 ----- ----- Net income.....................................................$ 46,860 $ 40,513 Interest on convertible debentures............................. 465 472 ---------- ----------- Net income for fully diluted calculation.......................$ 47,325 $ 40,985 ========== =========== Shares used for computing primary earnings per share-- Shares outstanding on weighted average basis................................................ 216,309 212,121 Equivalent shares-- Options and subscriptions outstanding........................ 4,494 6,122 ---------- ----------- Weighted average and equivalent shares for primary calculation.................... 220,803 218,243 ========== =========== Primary earnings per share..................................... $ .21 $ .19 ====== ====== Shares used for computing fully diluted earnings per share-- Shares outstanding (weighted average basis with options and subscriptions)....... 221,175 218,504 Equivalent shares-- Shares issuable upon conversion of convertible debentures....................................... 3,627 3,627 ---------- ----------- Weighted average and equivalent shares for fully diluted calculation................................ 224,802 222,131 ========== =========== Fully diluted earnings per share............................... $ .21 $ .18 ===== ====== All share and per share data have been restated to reflect the three-for-two share split declared May 9, 1997 and payable to shareholders of record as of June 11, 1997.
9 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 14, 1997 SERVICEMASTER LIMITED PARTNERSHIP (Registrant) By: /s/Steven C. Preston ---------------------------------------------- Steven C. Preston Senior Vice President and Chief Financial Officer 10 EX-27 2 FDS --
5 1000 3-MOS DEC-31-1997 JAN-1-1997 MAR-31-1997 42,670 43,182 313,381 25,835 53,099 558,639 337,369 185,295 2,185,624 508,556 572,863 0 0 0 972,192 2,185,624 0 817,136 0 657,145 101,391 0 10,392 48,627 1,767 48,860 0 0 0 46,860 .21 .21
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