FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of July 2011.
Commission File Number: 000-24762
FirstService Corporation
(Translation of registrant's name into English)
1140 Bay Street, Suite 4000
Toronto, Ontario, Canada
M5S 2B4
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F [ ] Form 40-F [ x]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes [ ] No [ x ]
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- .
EXHIBIT INDEX
Exhibit
Description of Exhibit
99.1
Quarterly earnings release dated July 27, 2011
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.
| FirstService Corporation (Registrant) |
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| Date: July 27, 2011 | /s/ JOHN B. FRIEDRICHSEN John B. Friedrichsen Senior Vice President and Chief Financial Officer |
EXHIBIT 99.1
Operating highlights:
| Three months ended | Six months ended | |||
| June 30 | June 30 | |||
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2011 | 2010 | 2011 | 2010 |
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| Revenues (millions) | $ 565.5 | $ 501.4 | $ 1,043.9 | $ 903.8 |
| Adjusted EBITDA (millions) (note 1) | 46.8 | 44.6 | 69.4 | 64.6 |
| Adjusted EPS (note 2) | 0.54 | 0.48 | 0.68 | 0.63 |
TORONTO, July 27, 2011 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV) (Nasdaq:FSRV) preferred shares – (TSX:FSV.PR.U) today reported results for its second quarter ended June 30, 2011. All amounts are in US dollars.
Revenues for the second quarter were $565.5 million, a 13% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) was $46.8 million, up 5% from $44.6 million, and Adjusted EPS (note 2) was $0.54, up 13% from $0.48 reported in the prior year quarter. GAAP EPS was $0.11 per share in the quarter, compared to $0.08 for the same quarter a year ago.
For the six months ended June 30, 2011, revenues were $1.04 billion, a 16% increase relative to the comparable prior year period, Adjusted EBITDA was $69.4 million, up 7%, while Adjusted EPS was $0.68, up 8%. GAAP EPS for the six month period was a loss of $0.22, compared to earnings of $0.06 in the prior year period.
"FirstService delivered solid results for the second quarter in each of its three operating divisions, despite challenging market conditions in certain regions and an uneven global economic recovery," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService. "At FirstService Residential Management, we recently completed two important acquisitions, augmenting our already strong presence in Las Vegas and adding a new platform in Toronto which was a strategic priority for us. During the quarter, we also completed a strategic review of our Property Services division and decided to reorganize operations to reduce costs. In addition, we believe transitioning managerial oversight to the executive team at FirstService will better align the division for growth. We would like to thank Steven Rogers for his long and dedicated service to our Company and look forward to his continuing involvement as a director," he added.
About FirstService Corporation
FirstService Corporation is a global leader in the rapidly growing real estate services sector, providing a variety of services in commercial real estate, residential property management and property services. As one of the largest property managers in the world, FirstService manages more than 2.4 billion square feet of residential and commercial properties through its three industry-leading service platforms: Colliers International, the third largest global player in commercial real estate services; FirstService Residential Management, the largest manager of residential communities in North America; and Property Services, including North America's largest provider of property preservation, maintenance and management of residential and commercial properties through franchise and contractor networks.
FirstService generates over US$2.2 billion in annual revenues and has more than 20,000 employees worldwide. More information about FirstService is available at www.firstservice.com.
Segmented Quarterly Results
Commercial Real Estate Services revenues totalled $245.7 million for the second quarter, up 13% relative to the prior year quarter. Revenue growth was comprised of 4% internal growth measured in local currencies, a 6% favourable impact from foreign currency translation and 3% growth from recent acquisitions. Internal growth was driven by strong year over year revenue increases in the Europe and Asia Pacific regions. Adjusted EBITDA was $11.1 million, relative to $13.1 million reported in the prior year quarter. Second quarter results were negatively impacted by an adjustment to reduce revenues in the Americas region by $3.3 million resulting from an internal review of a series of property management contracts with one client group where it was determined, in consultation with the client, that a portion of the management fees previously recorded were not chargeable. Excluding this item, Adjusted EBITDA would have been $14.4 million for the quarter, a 10% increase relative to the prior year period.
Residential Property Management revenues were $195.7 million for the second quarter, up 16% relative to the prior year quarter. Revenue growth was comprised of 7% internal growth and 9% from recent acquisitions. Adjusted EBITDA for the quarter was $17.9 million, up 9% from $16.5 million in the prior year period.
Property Services revenues totalled $124.0 million, up 8% from $115.0 million in the prior year period, attributable evenly to franchise and contractor network services growth. Adjusted EBITDA for the second quarter was $21.1 million, up 10% versus $19.3 million in the prior year quarter.
Corporate costs were $3.8 million in the second quarter, relative to $4.7 million in the prior year period. The current quarter's results were positively impacted by a reduction in performance-based compensation accruals relative to the prior year period.
Strategic Review and Reorganization of Property Services
During the past twelve months, FirstService was approached by certain parties interested in acquiring the franchise operations within the Property Services division. As a result, the Company engaged financial advisors to investigate strategic alternatives, including a potential sale. After exploring the alternatives, the Company concluded it was not in the best interests of its shareholders to sell the franchise operations.
One of the outcomes of the review was a transition of managerial oversight of the division to the executive team at FirstService and the purchase of the balance of the shares in the division the Company did not already own subsequent to quarter end, for total consideration of $29.9 million.
The total cost of the strategic review and reorganization, including severance and advisory fees, was $4.3 million and was recorded as a reorganization charge as of June 30, 2011. As a result, the Company expects to realize annual administrative cost savings of $2.5 million and a reduction in the non-controlling interest share of earnings, both items together resulting in accretion to earnings per share in the future.
Increase to Borrowing Capacity
On July 6, 2011, the Company exercised the accordion provision of its credit agreement, thereby increasing the size of its credit facility by $50.0 million, to $275.0 million, on the same terms as the original credit facility. The credit facility matures on September 6, 2012.
Deferred Income Tax Valuation Allowance
During the second quarter, the Company recorded an increase in its valuation allowance with respect to deferred income tax assets, which increased income tax expense by $4.7 million and decreased GAAP earnings per share by $0.14. In the prior year quarter, the valuation allowance amounted to $2.6 million, or $0.08 per share. For the six months ended June 30, 2011, the increase to income tax expense and reduction to GAAP earnings per share were $9.0 million and $0.27, respectively (2010 - $6.5 million and $0.20, respectively). The valuation allowance relates to tax loss carry-forwards in the Company's Commercial Real Estate operations, which remain available to offset income tax over the next 15 to 20 years.
Conference Call
FirstService will be holding a conference call on Wednesday, July 27, 2011 at 11:00 a.m. Eastern Time to discuss results for the second quarter. The call will be simultaneously web cast and can be accessed live or after the call at www.firstservice.com in the "Investors / Newsroom" section.
Forward-looking Statements
This press release includes or may include forward-looking statements. Forward-looking statements include the Company's financial performance outlook and statements regarding goals, beliefs, strategies, objectives, plans or current expectations. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Such factors include: (i) general economic and business conditions, which will, among other things, impact demand for the Company's services and the cost of providing services; (ii) the ability of the Company to implement its business strategy, including the Company's ability to acquire suitable acquisition candidates on acceptable terms and successfully integrate newly acquired businesses with its existing businesses; (iii) changes in or the failure to comply with government regulations; and (iv) other factors which are described in the Company's filings with applicable Canadian and United States securities regulatory authorities (which factors are adopted herein).
Summary financial information is provided in this press release. This press release should be read in conjunction with the Company's quarterly financial statements and MD&A to be made available on SEDAR at www.sedar.com.
Notes
1. Reconciliation of net earnings to Adjusted EBITDA:
Adjusted EBITDA is defined as net earnings, adjusted to exclude: (i) income tax; (ii) other expense (income); (iii) interest expense; (iv) depreciation and amortization; (v) acquisition-related items; (vi) stock-based compensation expense and (vii) reorganization charges. We use Adjusted EBITDA to evaluate our own operating performance and our ability to service debt, as well as an integral part of our planning and reporting systems. Additionally, we use this measure in conjunction with discounted cash flow models to determine the Company's overall enterprise valuation and to evaluate acquisition targets. We present Adjusted EBITDA as a supplemental measure because we believe such measure is useful to investors as a reasonable indicator of operating performance because of the low capital intensity of the Company's service operations. We believe this measure is a financial metric used by many investors to compare companies, especially in the services industry. This measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings, net earnings or cash flow from operating activities, as determined in accordance with GAAP. Our method of calculating Adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings to Adjusted EBITDA appears below.
| Three months ended | Six months ended | |||
| (in thousands of US$) | June 30 | June 30 | ||
| 2011 | 2010 | 2011 | 2010 | |
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| Net earnings | $ 10,932 | $ 14,674 | $ 9,642 | $ 21,311 |
| Income tax | 12,041 | 11,174 | 16,496 | 10,961 |
| Other expense (income) | 862 | 1,280 | 1,939 | 2,912 |
| Interest expense, net | 4,305 | 4,579 | 8,686 | 8,655 |
| Operating earnings | 28,140 | 31,707 | 36,763 | 43,839 |
| Depreciation and amortization | 13,356 | 12,087 | 25,426 | 23,598 |
| Acquisition-related items | 502 | 348 | 1,374 | (4,211) |
| Stock-based compensation expense | 476 | 436 | 1,542 | 1,418 |
| Reorganization charge | 4,338 | -- | 4,338 | -- |
| Adjusted EBITDA | $ 46,812 | $ 44,578 | $69,443 | $ 64,644 |
2. Reconciliation of net earnings (loss) attributable to common shareholders and net earnings (loss) per common share to adjusted net earnings and adjusted net earnings per share:
Adjusted earnings per common share is defined as diluted net earnings (loss) per common share, adjusted for the effect, after income tax, of: (i) the non-controlling interest redemption increment; (ii) acquisition-related items; (iii) amortization expense related to intangible assets recognized in connection with acquisitions; (iv) stock-based compensation expense; (v) reorganization charges and (vi) deferred income tax valuation allowances related to tax loss carry-forwards. We believe this measure is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company and enhances the comparability of operating results from period to period. Adjusted diluted net earnings per common share from continuing operations is not a recognized measure of financial performance under GAAP, and should not be considered as a substitute for diluted net earnings per common share from continuing operations, as determined in accordance with GAAP. Our method of calculating this non-GAAP measure may differ from other issuers and, accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings (loss) attributable to common shareholders to adjusted net earnings and of diluted net earnings (loss) per common share to adjusted earnings per common share appears below.
| Three months ended | Six months ended | |||
| (in thousands of US$) | June 30 | June 30 | ||
| 2011 | 2010 | 2011 | 2010 | |
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| Net earnings (loss) attributable to common shareholders | $ 3,360 | $ 2,294 | $ (6,517) | $ 1,768 |
| Non-controlling interest redemption increment | 1,739 | 5,930 | 7,555 | 6,220 |
| Acquisition-related items | 502 | 348 | 1,374 | (4,211) |
| Amortization of intangible assets | 5,773 | 5,258 | 10,707 | 10,009 |
| Stock-based compensation expense | 476 | 436 | 1,542 | 1,418 |
| Reorganization charge | 4,338 | -- | 4,338 | -- |
| Income tax on adjustments | (3,568) | (1,964) | (5,680) | (3,953) |
| Deferred income tax valuation allowance | 4,731 | 2,572 | 9,005 | 6,470 |
| Non-controlling interest on adjustments | (734) | (415) | (1,277) | 1,123 |
| Adjusted net earnings | $ 16,617 | $14,459 | $ 21,047 | $18,844 |
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| Three months ended | Six months ended | |||
| (in US$) | June 30 | June 30 | ||
| 2011 | 2010 | 2011 | 2010 | |
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| Diluted net earnings (loss) per common share | $ 0.11 | $ 0.08 | $ (0.22) | $ 0.06 |
| Non-controlling interest redemption increment | 0.06 | 0.19 | 0.25 | 0.20 |
| Acquisition-related items | 0.02 | 0.01 | 0.05 | (0.07) |
| Amortization of intangible assets, net of tax | 0.11 | 0.11 | 0.21 | 0.21 |
| Stock-based compensation expense, net of tax | 0.01 | 0.01 | 0.03 | 0.03 |
| Reorganization charge | 0.09 | -- | 0.09 | -- |
| Deferred income tax valuation allowance | 0.14 | 0.08 | 0.27 | 0.20 |
| Adjusted earnings per common share | $ 0.54 | $ 0.48 | $ 0.68 | $ 0.63 |
| FIRSTSERVICE CORPORATION | ||||
| Condensed Consolidated Statements of Earnings (Loss) | ||||
| (in thousands of US dollars, except per share amounts) | ||||
| Three months | Six months | |||
| ended June 30 | ended June 30 | |||
| (unaudited) | 2011 | 2010 | 2011 | 2010 |
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| Revenues | $ 565,472 | $ 501,372 | $1,043,854 | $ 903,763 |
| Cost of revenues | 355,819 | 309,300 | 656,433 | 558,122 |
| Selling, general and administrative expenses | 167,655 | 147,930 | 323,858 | 282,415 |
| Depreciation | 7,583 | 6,829 | 14,719 | 13,589 |
| Amortization of intangible assets | 5,773 | 5,258 | 10,707 | 10,009 |
| Acquisition-related items (1) | 502 | 348 | 1,374 | (4,211) |
| Operating earnings | 28,140 | 31,707 | 36,763 | 43,839 |
| Interest expense, net | 4,305 | 4,579 | 8,686 | 8,655 |
| Other expense (income) | 862 | 1,280 | 1,939 | 2,912 |
| Earnings before income tax | 22,973 | 25,848 | 26,138 | 32,272 |
| Income tax (2) | 12,041 | 11,174 | 16,496 | 10,961 |
| Net earnings | 10,932 | 14,674 | 9,642 | 21,311 |
| Non-controlling interest share of earnings | 3,307 | 3,924 | 3,553 | 8,272 |
| Non-controlling interest redemption increment | 1,739 | 5,930 | 7,555 | 6,220 |
| Net earnings (loss) attributable to Company | 5,886 | 4,820 | (1,466) | 6,819 |
| Preferred share dividends | 2,526 | 2,526 | 5,051 | 5,051 |
| Net earnings (loss) attributable to common shareholders | $ 3,360 | $ 2,294 | $ (6,517) | $ 1,768 |
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| Net earnings (loss) per common share | ||||
| Basic | $ 0.11 | $ 0.08 | $ (0.22) | $ 0.06 |
| Diluted | $0.11 | $0.08 | $(0.22) | $ 0.06 |
| Adjusted earnings per common share (3) | $0.54 | $ 0.48 | $ 0.68 | $ 0.63 |
| Weighted average common shares (thousands) | ||||
| Basic | 30,093 | 30,110 | 30,184 | 29,903 |
| Diluted | 30,615 | 30,371 | 30,701 | 30,152 |
Notes to Condensed Consolidated Statements of Earnings
(1) Acquisition-related items include contingent acquisition consideration fair value adjustments, contingent acquisition consideration-related compensation expense, settlements of contingent liabilities of acquired entities initially recognized at the acquisition date and transaction costs.
(2) Income tax expense for the three months ended June 30, 2011 includes a $4,731 valuation allowance related to deferred income tax assets (2010 - $2,572); income tax expense for the six months ended June 30, 2011 includes a $9,005 valuation allowance (2010 - $6,470).
(3) See definition and reconciliation above.
| Condensed Consolidated Balance Sheets | ||
| (in thousands of US dollars) | ||
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| (unaudited) | June 30, 2011 | December 31, 2010 |
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| Assets | ||
| Cash and cash equivalents | $ 81,604 | $ 100,359 |
| Restricted cash | 3,199 | 4,337 |
| Accounts receivable | 290,691 | 262,654 |
| Inventories | 12,099 | 9,140 |
| Prepaid expenses and other current assets | 49,669 | 43,140 |
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Current assets |
437,262 | 419,630 |
| Other non-current assets | 49,150 | 50,726 |
| Fixed assets | 84,864 | 86,134 |
| Goodwill and intangible assets | 583,050 | 573,051 |
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Total assets |
$1,154,326 | $1,129,541 |
| Liabilities and shareholders' equity | ||
| Accounts payable and accrued liabilities | $ 318,186 | $ 346,157 |
| Other current liabilities | 30,334 | 26,498 |
| Long-term debt - current | 24,814 | 39,249 |
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Current liabilities |
373,334 | 411,904 |
| Long-term debt - non-current | 266,869 | 201,491 |
| Convertible unsecured subordinated debentures | 77,000 | 77,000 |
| Other liabilities | 33,168 | 32,365 |
| Deferred income tax | 31,967 | 33,175 |
| Non-controlling interests | 179,534 | 174,358 |
| Shareholders' equity | 192,454 | 199,248 |
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Total liabilities and equity |
$1,154,326 | $1,129,541 |
| Supplemental balance sheet information | ||
| Total debt | $ 368,683 | $ 317,740 |
| Total debt excluding convertible debentures | 291,683 | 240,740 |
| Total debt, net of cash | 287,079 | 217,381 |
| Total debt excluding convertible debentures, net of cash | 210,079 | 140,381 |
| Consolidated Statements of Cash Flows | ||||
| (in thousands of US dollars) | ||||
| Three months ended | Six months ended | |||
| June 30 | June 30 | |||
| (unaudited) | 2011 | 2010 | 2011 | 2010 |
| Cash provided by (used in) | ||||
| Operating activities | ||||
| Net earnings | $ 10,932 | $ 14,674 | $ 9,642 | $ 21,311 |
| Items not affecting cash: | ||||
| Depreciation and amortization | 13,356 | 12,087 | 25,426 | 23,598 |
| Deferred income tax | (555) | (2,833) | (1,321) | (3,226) |
| Other | 1,830 | 2,869 | 4,820 | (4,493) |
| Changes in operating assets and liabilities | (1,438) | 14,515 | (63,594) | (21,074) |
| Net cash provided by (used in) operating activities | 24,125 | 41,312 | (25,027) | 16,116 |
| Investing activities | ||||
| Acquisition of businesses, net of cash acquired | (8,689) | (2,031) | (9,873) | (4,463) |
| Purchases of fixed assets | (7,828) | (8,827) | (13,172) | (15,120) |
| Other investing activities | 30 | 3,606 | (474) | 4,276 |
| Net cash used in investing activities | (16,487) | (7,252) | (23,519) | (15,307) |
| Financing activities | ||||
| Increase in long-term debt, net | (7,002) | 10,184 | 50,943 | 10,405 |
| Purchases of non-controlling interests | (59) | (17,143) | (1,497) | (17,188) |
| Dividends paid to preferred shareholders | (2,526) | (2,526) | (5,051) | (5,051) |
| Other financing activities | (2,369) | (2,666) | (16,512) | (1,008) |
| Net cash (used in) provided by financing activities | (11,956) | (12,151) | 27,883 | (12,842) |
| Effect of exchange rate changes on cash | 596 | (1,879) | 1,908 | 2,484 |
| (Decrease) increase in cash and cash equivalents | (3,722) | 20,030 | (18,755) | (9,549) |
| Cash and cash equivalents, beginning of period | 85,326 | 70,199 | 100,359 | 99,778 |
| Cash and cash equivalents, end of period | $ 81,604 | $ 90,229 | $ 81,604 | $ 90,229 |
| Segmented Revenues, Adjusted EBITDA and Operating Earnings | |||||
| (in thousands of US dollars) | |||||
| Commercial | Residential | ||||
| Real Estate | Property | Property | |||
| (unaudited) | Services | Management | Services | Corporate | Consolidated |
| Three months ended June 30 | |||||
| 2011 | |||||
| Revenues | $ 245,731 | $ 195,657 | $ 124,042 | $ 42 | $ 565,472 |
| Adjusted EBITDA | 11,086 | 17,929 | 21,138 | (3,817) | 46,336 |
| Stock-based compensation | 476 | ||||
| 46,812 | |||||
| Operating earnings | 4,053 | 14,474 | 13,491 | (3,878) | 28,140 |
| 2010 | |||||
| Revenues | $ 217,143 | $ 169,172 | $ 115,019 | $ 38 | $ 501,372 |
| Adjusted EBITDA | 13,056 | 16,505 | 19,275 | (4,694) | 44,142 |
| Stock-based compensation | 436 | ||||
| 44,578 | |||||
| Operating earnings | 6,322 | 13,186 | 16,938 | (4,739) | 31,707 |
| Commercial | Residential | ||||
| Real Estate | Property | Property | |||
| Services | Management | Services | Corporate | Consolidated | |
| Six months ended June 30 | |||||
| 2011 | |||||
| Revenues | $ 441,330 | $ 363,891 | $ 238,551 | $ 82 | $ 1,043,854 |
| Adjusted EBITDA | 13,659 | 29,383 | 32,397 | (7,538) | 67,901 |
| Stock-based compensation | 1,542 | ||||
| 69,443 | |||||
| Operating earnings | 685 | 21,271 | 22,472 | (7,665) | 36,763 |
| 2010 | |||||
| Revenues | $ 371,228 | $ 316,023 | $ 216,431 | $ 81 | $ 903,763 |
| Adjusted EBITDA | 13,909 | 28,126 | 30,155 | (8,964) | 63,226 |
| Stock-based compensation | 1,418 | ||||
| 64,644 | |||||
| Operating earnings | 5,863 | 21,497 | 25,539 | (9,060) | 43,839 |
CONTACT: Jay S. Hennick
Founder & CEO
D. Scott Patterson
President & COO
John B. Friedrichsen
Senior Vice President & CFO
(416) 960-9500