Three
months ended
December 31 |
Nine
months ended
December 31 |
||||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
Revenues
|
$
|
342,002
|
$
|
218,184
|
$
|
946,070
|
$
|
565,927
|
|||||
Cost
of revenues
|
222,684
|
137,017
|
603,051
|
373,312
|
|||||||||
Selling,
general and administrative expenses
|
91,393
|
56,863
|
247,304
|
127,241
|
|||||||||
Depreciation
|
4,517
|
3,879
|
13,447
|
10,536
|
|||||||||
Amortization
of intangibles other than brokerage backlog
|
1,043
|
739
|
2,798
|
2,041
|
|||||||||
Amortization
of brokerage backlog
|
3,712
|
4,958
|
4,870
|
4,958
|
|||||||||
Operating
earnings
|
18,653
|
14,728
|
74,600
|
47,839
|
|||||||||
Other
income, net
|
(2,542
|
)
|
(341
|
)
|
(3,729
|
)
|
(341
|
)
|
|||||
Interest
expense
|
3,722
|
2,797
|
11,746
|
7,357
|
|||||||||
Earnings
before income taxes and minority interest
|
17,473
|
12,272
|
66,583
|
40,823
|
|||||||||
Income
taxes
|
6,606
|
3,587
|
22,637
|
11,903
|
|||||||||
Earnings
before minority interest
|
10,867
|
8,685
|
43,946
|
28,920
|
|||||||||
Minority
interest share of earnings
|
2,714
|
3,380
|
10,881
|
6,684
|
|||||||||
Net
earnings from continuing operations
|
8,153
|
5,305
|
33,065
|
22,236
|
|||||||||
Net
(loss) earnings from discontinued operations, net of income
Taxes
|
-
|
(363
|
)
|
-
|
1,626
|
||||||||
Net
earnings
|
$
|
8,153
|
$
|
4,942
|
$
|
33,065
|
$
|
23,862
|
|||||
Net
earnings (loss) per share
|
|||||||||||||
Basic
|
|||||||||||||
Continuing
operations
|
$
|
0.27
|
$
|
0.17
|
$
|
1.10
|
$
|
0.74
|
|||||
Discontinued
operations
|
-
|
(0.01
|
)
|
-
|
0.06
|
||||||||
$
|
0.27
|
$
|
0.16
|
$
|
1.10
|
$
|
0.80
|
||||||
Diluted
|
|||||||||||||
Continuing
operations
|
$
|
0.25
|
$
|
0.17
|
$
|
1.04
|
$
|
0.73
|
|||||
Discontinued
operations
|
-
|
(0.01
|
)
|
-
|
0.05
|
||||||||
$
|
0.25
|
$
|
0.16
|
$
|
1.04
|
$
|
0.78
|
December
31, 2005
|
March
31, 2005
|
||||||
Assets
|
|||||||
Current
assets
|
|||||||
Cash
and cash equivalents
|
$
|
76,834
|
$
|
37,458
|
|||
Accounts
receivable, net of allowance of $9,072 (March 31, 2005 -
$8,471)
|
197,223
|
168,927
|
|||||
Income
taxes recoverable
|
1,142
|
2,498
|
|||||
Inventories
|
23,901
|
20,878
|
|||||
Prepaids
and other assets
|
23,361
|
12,591
|
|||||
Deferred
income taxes
|
5,873
|
6,418
|
|||||
328,334
|
248,770
|
||||||
Other
receivables
|
10,177
|
7,077
|
|||||
Interest
rate swaps
|
-
|
283
|
|||||
Fixed
assets
|
66,330
|
57,241
|
|||||
Other
assets
|
8,637
|
6,402
|
|||||
Deferred
income taxes
|
6,090
|
8,992
|
|||||
Intangible
assets
|
74,687
|
61,423
|
|||||
Goodwill
|
245,983
|
236,540
|
|||||
411,903
|
377,958
|
||||||
$
|
740,238
|
$
|
626,728
|
||||
Liabilities
and shareholders’ equity
|
|||||||
Current
liabilities
|
|||||||
Accounts
payable
|
$
|
50,017
|
$
|
41,905
|
|||
Accrued
liabilities
|
156,069
|
113,524
|
|||||
Income
taxes payable
|
5,489
|
3,673
|
|||||
Unearned
revenues
|
5,042
|
5,154
|
|||||
Long-term
debt - current
|
18,489
|
18,206
|
|||||
Deferred
income taxes
|
-
|
320
|
|||||
235,106
|
182,782
|
||||||
Long-term
debt - non-current
|
230,302
|
201,809
|
|||||
Deferred
income taxes
|
33,186
|
29,802
|
|||||
Minority
interest
|
30,783
|
26,464
|
|||||
294,271
|
258,075
|
||||||
Shareholders’
equity
|
|||||||
Capital
stock
|
73,558
|
73,542
|
|||||
Contributed
surplus
|
1,710
|
805
|
|||||
Receivables
pursuant to share purchase plan
|
(2,148
|
)
|
(2,148
|
)
|
|||
Retained
earnings
|
126,162
|
103,011
|
|||||
Cumulative
other comprehensive earnings
|
11,579
|
10,661
|
|||||
210,861
|
185,871
|
||||||
$
|
740,238
|
$
|
626,728
|
Issued
and
outstanding shares |
Capital
stock
|
Contributed
surplus |
Receivables
pursuant to share purchase plan |
Retained
earnings |
Cumulative
other
comprehensive earnings |
Total
shareholders’
equity |
||||||||||||||||
Balance,
March 31, 2004
|
29,499,730
|
$ | 68,557 | $ | 183 | $ | (2,148 |
)
|
$ | 81,972 |
$
|
6,537 |
$
|
155,101 | ||||||||
Comprehensive
earnings:
|
||||||||||||||||||||||
Net
earnings
|
-
|
-
|
-
|
-
|
23,862
|
-
|
23,862
|
|||||||||||||||
Foreign
currency
translation
adjustments
|
-
|
-
|
-
|
-
|
-
|
1,779
|
1,779
|
|||||||||||||||
Comprehensive
earnings
|
25,641
|
|||||||||||||||||||||
Subordinate
Voting Shares:
|
||||||||||||||||||||||
Purchased
for
cancellation
|
(218,000
|
)
|
(1,518
|
)
|
-
|
-
|
(1,144
|
)
|
-
|
(2,662
|
)
|
|||||||||||
Stock
option expense
|
-
|
-
|
427
|
-
|
-
|
-
|
427
|
|||||||||||||||
Stock
options exercised
|
569,750
|
5,225
|
-
|
-
|
-
|
-
|
5,225
|
|||||||||||||||
Balance,
December 31, 2004
|
29,851,480
|
$
|
72,264
|
$
|
610
|
$
|
(2,148
|
)
|
$
|
104,690
|
$
|
8,316
|
$
|
183,732
|
Balance,
March 31, 2005
|
30,192,788
|
$ | 73,542 | $ | 805 | $ | (2,148 |
)
|
$ | 103,011 | $ | 10,661 | $ | 185,871 | ||||||||
Comprehensive
earnings:
|
||||||||||||||||||||||
Net
earnings
|
- | - | - | - |
33,065
|
- |
33,065
|
|||||||||||||||
Foreign
currency
translation
adjustments
|
-
|
-
|
-
|
-
|
-
|
918
|
918
|
|||||||||||||||
Comprehensive
earnings
|
33,983
|
|||||||||||||||||||||
Subordinate
Voting Shares:
|
||||||||||||||||||||||
Purchased
for
cancellation
|
(472,700
|
)
|
(1,278
|
)
|
(9,914
|
)
|
(11,192
|
)
|
||||||||||||||
Stock
option expense
|
-
|
-
|
905
|
-
|
-
|
-
|
905
|
|||||||||||||||
Stock
options exercised
|
176,900
|
1,294
|
-
|
-
|
-
|
-
|
1,294
|
|||||||||||||||
Balance,
December 31, 2005
|
29,896,988
|
$
|
73,558
|
$
|
1,710
|
$
|
(2,148
|
)
|
$
|
126,162
|
$
|
11,579
|
$
|
210,861
|
Three
months ended
December 31 |
Nine
months ended
December 31 |
|||||||||||
2005
|
2004
|
2005
|
2004
|
|||||||||
Cash
provided by (used in)
|
||||||||||||
Operating
activities
|
||||||||||||
Net
earnings from continuing operations
|
$
|
8,153
|
$
|
5,305
|
$
|
33,065
|
$
|
22,236
|
||||
Items
not affecting cash:
|
||||||||||||
Depreciation
and amortization
|
9,272
|
9,576
|
21,115
|
17,535
|
||||||||
Deferred
income
taxes
|
(1,279
|
)
|
(184
|
)
|
(1,499
|
)
|
(911
|
)
|
||||
Minority
interest share of earnings
|
2,714
|
3,380
|
10,881
|
6,684
|
||||||||
Other
|
(1,240
|
)
|
486
|
(94
|
)
|
743
|
||||||
Changes
in non-cash working capital:
|
||||||||||||
Receivables
|
(16,543
|
)
|
(4,861
|
)
|
(24,454
|
)
|
(18,671
|
)
|
||||
Inventories
|
(445
|
)
|
(3,408
|
)
|
(2,782
|
)
|
(5,054
|
)
|
||||
Prepaids
and
other assets
|
(8,416
|
)
|
(2,370
|
)
|
(9,705
|
)
|
933
|
|||||
Payables
and
accruals
|
45,367
|
14,160
|
44,493
|
12,709
|
||||||||
Unearned
revenue
|
(1,079
|
)
|
(846
|
)
|
(319
|
)
|
(579
|
)
|
||||
Net
cash provided by operating activities
|
36,504
|
21,238
|
70,701
|
35,625
|
||||||||
Investing
activities
Acquisitions
of businesses, net of cash acquired
|
(9,738
|
)
|
(46,517
|
)
|
(14,015
|
)
|
(54,209
|
)
|
||||
Purchases
of minority shareholders’ interests, net
|
(10,428
|
)
|
(1,693
|
)
|
(11,612
|
)
|
(2,506
|
)
|
||||
Disposals
of businesses
|
2,326
|
-
|
2,326
|
-
|
||||||||
Purchases
of fixed assets
|
(5,592
|
)
|
(3,341
|
)
|
(20,581
|
)
|
(10,656
|
)
|
||||
Purchases
of other assets
|
(260
|
)
|
(495
|
)
|
(1,860
|
)
|
(623
|
)
|
||||
(Increases)
decreases in other receivables
|
(1,790
|
)
|
2,708
|
(2,480
|
)
|
3,929
|
||||||
Net
cash used in investing activities
|
(25,482
|
)
|
(49,338
|
)
|
(48,222
|
)
|
(64,065
|
)
|
||||
Financing
activities
|
||||||||||||
Increases
in long-term debt, net
|
328
|
48,401
|
28,951
|
47,944
|
||||||||
(Repurchases)
issuances of Subordinate Voting Shares, net
|
(10,568
|
)
|
1,944
|
(9,898
|
)
|
2,563
|
||||||
Financing
fees paid
|
(53
|
)
|
-
|
(1,207
|
)
|
-
|
||||||
Dividends
paid to minority shareholders of subsidiaries
|
(79
|
)
|
(235
|
)
|
(944
|
)
|
(409
|
)
|
||||
Net
cash (used in) provided by financing activities
|
(10,372
|
)
|
50,110
|
16,902
|
50,098
|
|||||||
Net
cash (used in) provided by discontinued operations
|
-
|
(120
|
)
|
-
|
4,431
|
|||||||
Effect
of exchange rate changes on cash
|
(3,453
|
)
|
1,746
|
(5
|
)
|
3,260
|
||||||
(Decrease)
increase in cash and cash equivalents during the
period
|
(2,803
|
)
|
23,636
|
39,376
|
29,349
|
|||||||
Cash
and cash equivalents, beginning of period
|
79,637
|
21,333
|
37,458
|
15,620
|
||||||||
Cash
and cash equivalents, end of period
|
$
|
76,834
|
$
|
44,969
|
$
|
76,834
|
$
|
44,969
|
1.
|
DESCRIPTION
OF THE BUSINESS - FirstService Corporation (the “Company”) is a provider
of property and business services to commercial, residential and
institutional customers in the United States, Canada and several
other
countries. The Company’s operations are conducted through five segments:
Residential Property Management, Commercial Real Estate Services,
Integrated Security Services, Property Improvement Services and
Business
Services.
|
2.
|
SUMMARY
OF PRESENTATION - These condensed consolidated financial statements
have
been prepared by the Company in accordance with the disclosure
requirements for the presentation of interim financial information
pursuant to applicable Canadian securities law. Certain information
and
footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles
(“GAAP”) in the United States have been condensed or omitted in accordance
with such disclosure requirements, although the Company believes
that the
disclosures are adequate to make the information not misleading.
These
interim financial statements should be read in conjunction with
the
consolidated financial statements for the fiscal year ended March
31,
2005.
|
These
interim financial statements follow the same accounting policies
as the
most recent annual financial statements. In the opinion of management,
the
condensed consolidated financial statements contain all adjustments
necessary to present fairly the financial position of the Company
as at
December 31, 2005 and the results of operations and its cash flows
for the
three and nine month periods ended December 31, 2005. All such
adjustments
are of a normal recurring nature. The results of operations for
the nine
month period ended December 31, 2005 are not necessarily indicative
of the
results to be expected for the fiscal year ending March 31,
2006.
|
|
3.
|
DISPOSITIONS
OF BUSINESSES - On April 1, 2004, the Company sold substantially
all of
the assets of the lawn care operation carried on by its subsidiary
Greenspace Services Ltd. to a third party. During the quarter ended
March
31, 2005, the Company sold (i) substantially all of the assets
of the
South Florida concrete restoration operations carried on by its
subsidiary
Aqua-Shield Corp. to a third party and (ii) all of the shares of
its
subsidiary Stained Glass Overlay, Inc., a franchisor of decorative
glass
treatments, to an officer of that entity.
|
The
above disposed businesses are reported as discontinued operations.
The
operating results of the discontinued operations are as
follows:
|
Operating
results
|
Three
months ended
December 31 |
Nine
months ended
December
31
|
|||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
Revenues
|
$
|
-
|
$
|
3,700
|
$
|
-
|
$
|
11,701
|
|||||
Earnings
from discontinued operations before
income
taxes
|
-
|
(241
|
)
|
-
|
(549
|
)
|
|||||||
Provision
for income taxes
|
-
|
(103
|
)
|
-
|
(239
|
)
|
|||||||
Net
earnings from discontinued operations
|
-
|
(138
|
)
|
-
|
(310
|
)
|
|||||||
Net
gain on disposal
|
-
|
(225
|
)
|
-
|
1,936
|
||||||||
Net
(loss) earnings from discontinued
operations
|
$
|
-
|
$
|
(363
|
)
|
$
|
-
|
$
|
1,626
|
||||
Net
earnings per share from discontinued
operations
|
|||||||||||||
Basic
|
$
|
-
|
$
|
(0.01
|
)
|
$
|
-
|
$
|
0.06
|
||||
Diluted
|
-
|
(0.01
|
)
|
-
|
0.05
|
Balance
sheets
|
December
31, 2005
|
March
31, 2005
|
|||||
Current
assets
|
$
|
1,223
|
$
|
7,246
|
|||
Non-current
assets
|
-
|
-
|
|||||
Total
assets
|
$
|
1,223
|
$
|
7,246
|
|||
Current
liabilities
|
$
|
361
|
$
|
1,286
|
|||
Non-current
liabilities
|
-
|
-
|
|||||
Total
liabilities
|
$
|
361
|
$
|
1,286
|
4.
|
ACQUISITIONS
OF BUSINESSES - On November 23, 2005, the Company completed the
acquisition of 82.3% of the shares of Colliers Seeley International,
Inc.
(“Seeley”), the Los Angeles affiliate of the Colliers International
commercial real estate services network. The Company also completed
two
other individually insignificant acquisitions. The preliminary
purchase
price allocations are as follows:
|
Seeley
|
Aggregate
other
|
|||||
Current
assets
|
$
|
2,296
|
$
|
404
|
||
Non-current
assets
|
2,030
|
211
|
||||
Current
liabilities
|
(8,698
|
)
|
(416
|
)
|
||
Non-current
liabilities
|
(5,024
|
)
|
(826
|
)
|
||
Minority
interest
|
(865
|
)
|
-
|
|||
(10,261
|
)
|
(627
|
)
|
|||
Cash
consideration
|
$
|
7,955
|
$
|
2,661
|
||
Acquired
intangible assets
|
12,329
|
2,380
|
||||
Acquired
goodwill
|
5,887
|
908
|
||||
Contingent
consideration
|
||||||
at
date
of acquisition
|
$
|
2,000
|
$
|
350
|
In
the prior year period, business acquisitions were completed for
cash
consideration of $62,131.
|
|
Certain
vendors, at the time of acquisition, are entitled to receive
contingent
consideration if the acquired businesses achieve specified earnings
levels
during the two- to four-year periods following the dates of acquisition.
Such contingent consideration is issued at the expiration of
the
contingency period. As at December 31, 2005, there was contingent
consideration outstanding of up to $11,700 ($14,200 as at March
31, 2005).
The contingencies will expire during the period extending to
January 2009.
Vendors are entitled to receive interest on contingent consideration
issued to them, which interest is calculated from the acquisition
date to
the payment date at interest rates ranging from 5% to 7%. The
contingent
consideration will be recorded when the contingencies are resolved
and the
consideration is issued or becomes issuable, at which time the
Company
will record the fair value of the consideration, including interest,
as
additional costs of the acquired businesses. There was $3,399
of
contingent consideration issued during the nine months ended
December 31,
2005 (2004 - $5,529) and allocated to goodwill.
|
|
The
goodwill acquired during the nine months ended December 31, 2005
is not
expected to be deductible for income tax
purposes.
|
5.
|
TRANSACTIONS
IN MINORITY SHAREHOLDERS’ INTERESTS - During the nine months ended
December 31, 2005, the Company completed purchases of shares
from minority
shareholders for cash consideration of $11,612 (2004 - $1,693).
The
purchase prices for the 2005 transactions were allocated as
follows:
minority interest $6,650; intangible assets $5,953; goodwill
$1,168;
deferred income tax liability $2,159. Included in the 2005
purchases is an
additional 11.2% interest in CMN Holdco Inc., the parent company
of the
Commercial Real Estate Services operations, from several minority
shareholders for an aggregate purchase price of
$10,007.
|
6.
|
OTHER
INCOME - Other income is comprised of the
following:
|
Three
months ended
December 31 |
Nine
months ended
December
31
|
||||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
Gains
on disposals of businesses
|
$
|
2,012
|
$
|
-
|
$
|
2,012
|
$
|
-
|
|||||
Earnings
from equity investments
|
732
|
341
|
1,544
|
341
|
|||||||||
Dilution
gain on sale of shares of subsidiary
|
-
|
-
|
115
|
-
|
|||||||||
(Losses)
gains on financial instruments
|
(202
|
)
|
-
|
58
|
-
|
||||||||
$
|
2,542
|
$
|
341
|
$
|
3,729
|
$
|
341
|
7.
|
LONG-TERM
DEBT - On April 1, 2005 the Company entered into an amended and
restated
credit agreement with a syndicate of banks to provide a $110,000
committed
senior revolving credit facility with a three year term to replace
its
previous $90,000 facility. The amended revolving credit facility
bears
interest at 1.00% to 2.25% over floating reference rates, depending
on
certain leverage ratios. On the same date, the Company issued
$100,000 of
5.44% fixed rate Senior Secured Notes (the “5.44% Notes”). The 5.44% Notes
have a final maturity of April 1, 2015 with five equal annual
principal
repayments beginning on April 1, 2011. The proceeds of the private
placement were used to repay outstanding balances on the previous
revolving credit facility.
|
On
June 29, 2005, the Company made a $14,286 scheduled principal
repayment on
its 8.06% Senior Secured Notes (the “8.06% Notes”).
|
|
The
credit facility and the notes rank equally in terms of seniority.
The
Company has granted the lenders and Note-holders various security
including the following: an interest in all of the assets of
the Company
including the Company’s share of its subsidiaries, an assignment of
material contracts and an assignment of the Company’s “call rights” with
respect to shares of the subsidiaries held by minority
partners.
|
|
.
|
The
covenants and other limitations within the amended and restated
credit
agreement and the Note agreements are substantially the same.
The
covenants require the Company to maintain certain ratios including
leverage, fixed charge coverage, interest coverage and net worth.
The
Company is limited from undertaking certain mergers, acquisitions
and
dispositions without prior approval
|
8.
|
FINANCIAL
INSTRUMENTS - The Company terminated its interest rate swap agreements
to
exchange fixed rates for variable rates in December 2005. On
the 8.06%
Notes, an interest rate swap exchanged the fixed rate on $64,285
of
principal for LIBOR + 250.5 basis points and another exchanged
the fixed
rate on $21,429 for LIBOR + 445 basis points. The termination
resulted in
a net gain of $120. On the 6.40% Senior Secured Notes, an interest
rate
swap agreement exchanging the fixed rate on $20,000 of principal
for a
variable rate of LIBOR + 170 basis points was terminated in May
2005 for a
net loss of $48.
|
In
connection with its commercial mortgage operations, the Company
has
interest rate swaps to convert the fixed rates on its mortgage
assets to
floating rates. The notional amount of these swaps at December
31, 2005
was C$34,666 (US$29,806) (March 31, 2005 - $nil). Though the
swaps have
been arranged to hedge movements in interest rates that could
affect the
spread between the rates on the mortgage assets and the underlying
funding, the swaps are not being accounted for as hedges, and
accordingly
gains or losses are being recognized in earnings. At December
31, 2005, a
loss of $68 was recognized.
|
The
Company from time to time purchases and sells foreign currencies
using
forward contracts, which have not been specifically identified
as hedges.
The values of these contracts are marked to market with resulting
gains
and losses included in earnings. At December 31, 2005 the Company
had
outstanding two foreign currency contracts to purchase an aggregate
of
C$2,465 at a weighted average rate of C$1.2325 per US$1.0000
in March
2006, the fair value of which represented a gain of C$145 (US$126)
as at
December 31, 2005. The purpose of the contracts is to match
expected
future Canadian dollar denominated expenses at the Canadian
Business
Services operations to US dollar denominated revenues.
|
|
9.
|
EARNINGS
PER SHARE - The following table reconciles the numerators used
to
calculate diluted earnings per
share:
|
Three
months ended
December 31 |
Nine
months ended
December 31 |
||||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
Net
earnings from continuing operations
|
$
|
8,153
|
$
|
5,305
|
$
|
33,065
|
$
|
22,236
|
|||||
Dilution
of net earnings resulting from
assumed
exercise of stock options in
subsidiaries
|
(283
|
)
|
-
|
(984
|
)
|
-
|
|||||||
Net
earnings from continuing operations for
diluted
earnings per share calculation
purposes
|
$
|
7,870
|
$
|
5,305
|
$
|
32,081
|
$
|
22,236
|
|||||
Net
earnings
|
$
|
8,153
|
$
|
4,942
|
$
|
33,065
|
$
|
23,862
|
|||||
Dilution
of net earnings resulting from
assumed
exercise of stock options in
subsidiaries
|
(283
|
)
|
-
|
(984
|
)
|
-
|
|||||||
Net
earnings for diluted earnings per share
calculation
purposes
|
$
|
7,870
|
$
|
4,942
|
$
|
32,081
|
$
|
23,862
|
(in
thousands)
|
Three
months ended
December 31 |
Nine
months ended
December
31
|
|||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
Basic
shares
|
30,185
|
29,802
|
30,215
|
29,683
|
|||||||||
Assumed
exercise of Company stock options
|
730
|
574
|
736
|
572
|
|||||||||
Diluted
shares
|
30,915
|
30,376
|
30,951
|
30,255
|
10.
|
STOCK-BASED
COMPENSATION - The Company has a stock option plan for officers
and key
full-time employees of the Company and its subsidiaries. Options
are
granted at the market price for the underlying shares on the
date of
grant. Each option vests over a four-year period and expires
five years
from the date granted and allows for the purchase of one Subordinate
Voting Share.
|
Effective
April 1, 2003, the Company began accounting for stock options
as
compensation expense in accordance with SFAS No. 123, Accounting
for Stock-Based Compensation
(“SFAS 123”). SFAS No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure, an
amendment of
SFAS 123
(“SFAS 148”) provides alternative methods of transitioning to the fair
value based method of accounting for employee stock options as
compensation expense. The Company is using the prospective method
under
SFAS 148 and is expensing the fair value of new option grants
awarded
subsequent to March 31, 2003. The financial statements for the
three
months ended December 31, 2005 include $343 of stock option expense
(2004
- $292). The financial statements for the nine months ended December
31,
2005 include $905 of stock option expense (2004 -
$427).
|
|
|
Prior
to April 1, 2003, the Company had accounted for stock options
under the
intrinsic value method under Accounting Principles Board Opinion
No. 25,
Accounting
for Stock Issued to Employees,
as permitted by GAAP. Had compensation expense been determined
under the
fair value method under SFAS 123 for all periods, pro forma
reported net
earnings and earnings per share would reflect the
following:
|
Three
months ended
December 31 |
Nine
months ended
December 31 |
||||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
Net
earnings, as reported
|
$
|
8,153
|
$
|
4,942
|
$
|
33,065
|
$
|
23,862
|
|||||
Less:
stock-based compensation expense
determined
under fair value method
|
(158
|
)
|
(457
|
)
|
(474
|
)
|
(1,371
|
)
|
|||||
Pro
forma net earnings
|
$
|
7,995
|
$
|
4,485
|
$
|
32,591
|
$
|
22,491
|
|||||
Reported
earnings per share:
|
|||||||||||||
Basic
|
$
|
0.27
|
$
|
0.16
|
$
|
1.10
|
$
|
0.80
|
|||||
Diluted
|
0.25
|
0.16
|
1.04
|
0.78
|
|||||||||
Pro
forma net earnings per share:
|
|||||||||||||
Basic
|
$
|
0.26
|
$
|
0.15
|
$
|
1.08
|
$
|
0.76
|
|||||
Diluted
|
0.25
|
0.15
|
1.02
|
0.74
|
11.
|
CONTINGENCIES
- In the normal course of operations, the Company is subject to
routine
claims and litigation incidental to its business. Litigation currently
pending or threatened against the Company includes disputes with
former
employees and commercial liability claims related to services provided
by
the Company. The Company believes resolution of such proceedings,
combined
with amounts set aside, will not have a material impact on the
Company’s
financial condition or the results of operations.
|
12.
|
SEGMENTED
INFORMATION - The Company has five reportable operating segments.
The
segments are grouped with reference to the nature of services provided
and
the types of clients that use those services. The Company assesses
each
segment’s performance based on operating earnings or operating earnings
before depreciation and amortization. Residential Property Management
provides property management, maintenance, landscaping and other
ancillary
services to residential community associations in the United States.
Commercial Real Estate Services provides brokerage, property management
and advisory services to commercial customers in North America,
Australia
and several other countries. Integrated Security Services provides
security systems installation, maintenance, monitoring and manpower
to
primarily commercial customers in Canada and the United States.
Property
Improvement Services provides franchised and Company-owned property
services to consumers in the United States and Canada. Business
Services
provides marketing support and business process outsourcing services
to
corporate and institutional clients in Canada and the United States.
Corporate includes the expenses of the Company’s
headquarters.
|
|
Residential
Property Management
|
Commercial
Real Estate Services
|
Integrated
Security Services
|
Property
Improvement Services
|
Business
Services
|
Corporate
|
Consolidated
|
|||||||||||||||
Three
months ended December 31
|
||||||||||||||||||||||
2005
|
||||||||||||||||||||||
Revenues
|
$
|
82,751
|
$
|
141,241
|
$
|
40,091
|
$
|
32,454
|
$
|
45,351
|
$
|
114
|
$
|
342,002
|
||||||||
Operating
earnings
|
5,879
|
6,921
|
2,076
|
2,082
|
5,723
|
(4,028
|
)
|
18,653
|
||||||||||||||
2004
|
||||||||||||||||||||||
Revenues
|
$
|
62,918
|
$
|
49,599
|
$
|
37,196
|
$
|
26,812
|
$
|
41,258
|
$
|
401
|
$
|
218,184
|
||||||||
Operating
earnings
|
3,204
|
5,167
|
2,282
|
1,892
|
4,725
|
(2,542
|
)
|
14,728
|
Nine
months ended December 31
|
||||||||||||||||||||||
2005
|
||||||||||||||||||||||
Revenues
|
$
|
258,791
|
$
|
344,493
|
$
|
108,465
|
$
|
108,210
|
$
|
125,883
|
$
|
228
|
$
|
946,070
|
||||||||
Operating
earnings
|
21,271
|
23,408
|
4,254
|
22,682
|
12,337
|
(9,352
|
)
|
74,600
|
||||||||||||||
2004
|
||||||||||||||||||||||
Revenues
|
$
|
206,355
|
$
|
49,599
|
$
|
106,909
|
$
|
87,937
|
$
|
114,661
|
$
|
466
|
$
|
565,927
|
||||||||
Operating
earnings
|
14,957
|
5,167
|
6,424
|
17,436
|
10,036
|
(6,181
|
)
|
47,839
|
|
United
States
|
Canada
|
Other
|
Consolidated
|
|||||||||
Three
months ended December 31
|
|||||||||||||
2005
|
|||||||||||||
Revenues
|
$
|
205,947
|
$
|
88,091
|
$
|
47,964
|
$
|
342,002
|
|||||
Total
long-lived assets
|
282,941
|
82,436
|
21,623
|
387,000
|
|||||||||
2004
|
|||||||||||||
Revenues
|
$
|
65,608
|
$
|
131,406
|
$
|
21,170
|
$
|
218,184
|
|||||
Total
long-lived assets
|
251,226
|
75,826
|
29,280
|
356,332
|
Nine
months ended December 31
|
|||||||||||||
2005
|
|||||||||||||
Revenues
|
$
|
567,510
|
$
|
254,101
|
$
|
124,459
|
$
|
946,070
|
|||||
2004
|
|||||||||||||
Revenues
|
$
|
151,583
|
$
|
393,174
|
$
|
21,170
|
$
|
565,927
|
(in
thousands of US$, except per share amounts)
|
Q1
|
Q2
|
Q3
|
Q4
|
|||||||||
FISCAL
2006
|
|||||||||||||
Revenues
|
$
|
287,897
|
$
|
316,171
|
$
|
342,002
|
|||||||
Operating
earnings
|
25,925
|
30,022
|
18,653
|
||||||||||
Net
earnings
|
11,120
|
13,792
|
8,153
|
||||||||||
Net
earnings per share
|
|||||||||||||
Basic
|
0.37
|
0.46
|
0.27
|
||||||||||
Diluted
|
0.35
|
0.44
|
0.25
|
||||||||||
FISCAL
2005
|
|||||||||||||
Revenues
|
$
|
167,043
|
$
|
180,700
|
$
|
218,184
|
$
|
246,362
|
|||||
Operating
earnings
|
14,404
|
18,707
|
14,728
|
3,389
|
|||||||||
Net
earnings from continuing operations
|
7,251
|
9,681
|
5,305
|
410
|
|||||||||
Net
earnings (loss) from discontinued operation
|
2,142
|
(153
|
)
|
(363
|
)
|
(1,065
|
)
|
||||||
Net
earnings
|
9,393
|
9,528
|
4,942
|
(655
|
)
|
||||||||
Net
earnings per share
|
|||||||||||||
Basic
|
0.32
|
0.32
|
0.17
|
(0.02
|
)
|
||||||||
Diluted
|
0.31
|
0.31
|
0.16
|
(0.04
|
)
|
||||||||
FISCAL
2004
|
|||||||||||||
Revenues
|
$
|
151,810
|
|||||||||||
Operating
earnings
|
5,535
|
||||||||||||
Net
earnings from continuing operations
|
3,981
|
||||||||||||
Net
earnings (loss) from discontinued operation
|
(2,347
|
)
|
|||||||||||
Net
earnings
|
1,634
|
||||||||||||
Net
earnings per share
|
|||||||||||||
Basic
|
0.06
|
||||||||||||
Diluted
|
0.05
|
||||||||||||
OTHER
DATA
|
|||||||||||||
EBITDA
- Fiscal 2006
|
$
|
31,957
|
$
|
35,833
|
$
|
27,925
|
|||||||
EBITDA
- Fiscal 2005
|
18,273
|
22,797
|
24,304
|
$
|
13,047
|
||||||||
EBITDA
- Fiscal 2004
|
9,512
|
Contractual
obligations
|
Payments
due by period
|
|||||||||||||||
(in
thousands of US$)
|
Total
|
Less
than 1 year
|
1-3
years
|
4-5
years
|
After
5 years
|
|||||||||||
Long-term
debt
|
$
243,120
|
$
17,224
|
$
32,462
|
$
28,572
|
$
164,862
|
|||||||||||
Capital
lease obligations
|
5,671
|
1,265
|
4,406
|
-
|
-
|
|||||||||||
Operating
leases
|
154,624
|
26,116
|
53,202
|
37,957
|
37,349
|
|||||||||||
Unconditional
purchase obligations
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
Other
long-term obligations
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
Total
contractual obligations
|
$
|
403,415
|
$
|
44,605
|
$
|
90,070
|
$
|
66,529
|
$
|
202,211
|
(in
thousands of US$)
|
Three
months ended
December 31 |
Nine
months ended
December
31
|
|||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
EBITDA
|
$
|
27,925
|
$
|
24,304
|
$
|
95,715
|
$
|
65,374
|
|||||
Depreciation
and amortization
|
9,272
|
9,576
|
21,115
|
17,535
|
|||||||||
Operating
earnings
|
18,653
|
14,728
|
74,600
|
47,839
|
|||||||||
Other
income, net
|
(2,542
|
)
|
(341
|
)
|
(3,729
|
)
|
(341
|
)
|
|||||
Interest
expense
|
3,722
|
2,797
|
11,746
|
7,357
|
|||||||||
Income
taxes
|
6,606
|
3,587
|
22,637
|
11,903
|
|||||||||
Minority
interest
|
2,714
|
3,380
|
10,881
|
6,684
|
|||||||||
Net
earnings from continuing operations
|
$
|
8,153
|
$
|
5,305
|
$
|
33,065
|
$
|
22,236
|
Three
months ended
December 31 |
Nine
months ended
December 31 |
||||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
Adjusted
operating earnings
|
$
|
22,365
|
$
|
19,686
|
$
|
79,470
|
$
|
52,797
|
|||||
Amortization
of brokerage backlog
|
(3,712
|
)
|
(4,958
|
)
|
(4,870
|
)
|
(4,958
|
)
|
|||||
Operating
earnings
|
$
|
18,653
|
$
|
14,728
|
$
|
74,600
|
$
|
47,839
|
(in
thousands of US$, except per share amounts)
|
Three
months ended
December 31 |
Nine
months ended
December
31
|
|||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
Adjusted
net earnings from continuing
operations
|
$
|
10,296
|
$
|
8,478
|
$
|
35,949
|
$
|
25,409
|
|||||
Amortization
of brokerage backlog
|
(3,712
|
)
|
(4,958
|
)
|
(4,870
|
)
|
(4,958
|
)
|
|||||
Deferred
income taxes
|
1,411
|
1,785
|
1,828
|
1,785
|
|||||||||
Minority
interest
|
158
|
-
|
158
|
-
|
|||||||||
Net
earnings from continuing operations
|
$
|
8,153
|
$
|
5,305
|
$
|
33,065
|
$
|
22,236
|
|||||
Adjusted
diluted net earnings per share from
continuing
operations
|
$
|
0.32
|
$
|
0.28
|
$
|
1.13
|
$
|
0.83
|
|||||
Amortization
of brokerage backlog, net of
deferred
income
taxes and minority interest
|
(0.07
|
)
|
(0.11
|
)
|
(0.09
|
)
|
(0.10
|
)
|
|||||
Diluted
net earnings per share from continuing
operations
|
$
|
0.25
|
$
|
0.17
|
$
|
1.04
|
$
|
0.73
|
•
|
Economic
conditions, including consumer spending, business spending on
customer
relations and promotion, and employment levels influencing business
real
estate demand.
|
•
|
Commercial
real estate property values, vacancy rates, and general conditions
of
financial liquidity for real estate
transactions.
|
•
|
Extreme
weather conditions impacting demand for our services or our ability
to
perform those services.
|
•
|
Political
conditions, including any outbreak or escalation of terrorism
or
hostilities and the impact thereof on our
business.
|
•
|
Competition
in the markets served by the
Company.
|
•
|
Labor
shortages or increases in wage and benefit
costs.
|
•
|
The
effects of changes in interest rates on our cost of
borrowing.
|
•
|
Unexpected
increases in operating costs, such as insurance, workers’ compensation,
health care and fuel prices.
|
•
|
Changes
in the frequency or severity of insurance incidents relative
to our
historical experience.
|
•
|
The
effects of changes in foreign currency exchange rates in relation
to the
US dollar.
|
•
|
Our
ability to make acquisitions at reasonable prices and successfully
integrate acquired operations.
|
•
|
Changes
in government policies at the federal, state/provincial or local
level
that may adversely impact our student loans processing or textbook
fulfillment activities.
|