EX-99.1 2 ex991.htm NEWS RELEASE DATED OCTOBER 31, 2006 News Release Dated October 31, 2006
EXHIBIT 99.1


 
COMPANY CONTACTS:

Jay S. Hennick
Founder & CEO
 
D. Scott Patterson
President & COO
 
John B. Friedrichsen
Senior Vice President & CFO

(416) 960-9500

 
FOR IMMEDIATE RELEASE
 
FirstService reports record second quarter results
 
Highlights:
Second quarter
Year to date
 
-Revenues up 24%
-Revenues up 27%
 
-EBITDA up 12%
-EBITDA up 19%
 
-Adjusted EPS up 17%
-Adjusted EPS up 25%

Increases financial outlook - fiscal 2007 adjusted EPS range now $1.23 to $1.31
 
TORONTO, Ontario, October 31, 2006 - FirstService Corporation (NASDAQ: FSRV; TSX: FSV) today reported record results for its second quarter ended September 30, 2006 and updated its financial outlook for its fiscal year ending March 31, 2007. All amounts are in US dollars.
 
Quarterly revenues were $338.7 million, an increase of 24% relative to the same period last year. EBITDA (see definition and reconciliation below) increased 12% to $32.1 million versus $28.7 million in the prior year. Adjusted diluted earnings per share from continuing operations for the quarter increased 17% to $0.42 versus $0.36 in the prior year period. The adjustment to earnings per share represents the non-cash and rapid amortization of short-lived intangible assets, relating to pending commercial real estate brokerage transactions and listings, recognized on acquisitions in the Company’s Commercial Real Estate Services unit during the past twelve months.



- 1 -

Cash flow from operations for the quarter was $26.1 million, up 49% from the $17.5 million reported in the second quarter last year.
 
For the six months ended September 30, 2006, revenues were $664.2 million, an increase of 27% relative to the same period one year ago, while EBITDA increased 19% to $69.3 million. Adjusted diluted earnings per share from continuing operations were $0.89, up 25% relative to the prior year period.
 
“We continue to be pleased with our results and remain confident we will achieve our internal growth targets for the year” said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. “Our cash flows and balance sheet are very strong and, in addition to the acquisition of Service America which we announced this morning, we hope to complete at least one other acquisition before year end”, he concluded.
 
About FirstService Corporation
FirstService is a leader in the rapidly growing property services sector, providing services in the following areas: commercial real estate; residential property management; property improvement and integrated security services. Market-leading brands include Colliers International in commercial real estate; The Continental Group in residential property management; consumer brands California Closets, Paul Davis Restoration, Pillar to Post Home Inspections and CertaPro Painters in property improvement; and Intercon Security and SST in integrated security.
 
FirstService is a diversified property services company with more than US$1.2 billion in annualized revenues and over 13,000 employees worldwide. More information about FirstService is available at www.firstservice.com.
 
Segmented Quarterly Results
Revenues in Commercial Real Estate Services totalled $142.4 million for the quarter, an increase of 37%. Acquisitions contributed 32% of the increase while internal growth of 5% represented the balance. Internal growth was led by the Australian and Central European operations, which reported strong brokerage activity and corresponding market share gains. Second quarter EBITDA was $7.9 million compared to $7.7 million during the year-ago period. The margin in the current period was primarily impacted by additional costs and reduced revenue productivity resulting from the expansion and relocation of several offices in the western United States.
 
Residential Property Management revenues increased to $110.4 million for the quarter, 20% higher than in the prior year period. Substantially all of the growth was internally generated with continued strength in the Florida, New York, New Jersey and Washington, D.C. markets. EBITDA for the quarter was $11.9 million, up 27% from $9.4 million one year ago.



- 2 -

Revenues in Property Improvement Services totalled $44.0 million, an increase of 9% over the prior year period. Internal revenue growth was 6%, with the balance of the growth resulting from recent acquisitions. EBITDA in the second quarter was $13.5 million, up 6% from $12.8 million last year.
 
Integrated Security Services revenues for the second quarter were $41.8 million, an increase of 17% relative to the prior year period. After adjusting for changes in foreign exchange rates, internal growth was 12%. The majority of the growth was attributable to increased sales of new systems and installation services in the US compared to the year ago period. Quarterly EBITDA was $2.1 million, up 20% versus $1.8 million in the prior year.
 
Quarterly corporate costs were $3.4 million, relative to $2.9 million in the prior year period. The increase was primarily attributable to foreign exchange as most corporate operating expenses are denominated in Canadian dollars.
 
A comparison of segmented EBITDA to operating earnings is provided below.
 
Updated Financial Outlook
FirstService is updating the outlook for its fiscal year ending March 31, 2007 issued on August 1, 2006 to reflect the operating results achieved for the first half of the fiscal year as well as the recently announced acquisition of Service America.
 
(in millions of US dollars, except
  
Year ending
  
per share amounts)
  
March 31, 2007
  
   
Updated
  
Previous
  
Revenues
  
 
$1,225 - $1,300
  
 
$1,200 - $1,275
  
EBITDA
  
 
$107.5 - $115.5
  
 
$105 - $114
  
Adjusted EPS
  
 
$1.23 - $1.31
  
 
$1.20 - $1.30
  

Note: EPS refers to adjusted diluted earnings per share from continuing operations. The outlook assumes (i) no further acquisitions or divestitures completed during the outlook period and (ii) current economic conditions in the markets in which the Company operates remaining unchanged and in particular the market for commercial real estate services. Actual results may differ materially. The Company undertakes no obligation to continue to update this information.

Conference Call
FirstService will be holding a conference call on Tuesday, October 31, 2006 at 11:00 a.m. Eastern Time to discuss the results for the second quarter as well as the updated outlook for fiscal 2007. The call will be simultaneously web cast and can be accessed live or after the call at www.firstservice.com in the “Investor Relations / News Releases” section.



- 3 -

Forward-looking Statements
This press release includes 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 the Ontario Securities Commission.
 
- 30 -



- 4 -

FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
(in thousands of US dollars, except per share amounts)
(unaudited)


       
Three months ended
  
Six months ended
  
       
September 30
  
September 30
  
       
2006
  
2005
  
2006
  
2005
  
Revenues
        
$
338,681
  
$
272,320
  
$
664,185
  
$
523,536
  
                                 
Cost of revenues
          
217,084
    
172,591
    
422,231
    
328,519
  
Selling, general and administrative expenses
          
89,528
    
71,050
    
172,618
    
136,995
  
Depreciation and amortization other than backlog
          
5,120
    
3,760
    
9,962
    
7,531
  
Amortization of brokerage backlog (1)
          
2,076
    
489
    
4,150
    
1,158
  
                                 
Operating earnings
          
24,873
    
24,430
    
55,224
    
49,333
  
Interest expense, net
          
2,571
    
2,749
    
5,307
    
5,992
  
Other (income) expense
          
(228
)
  
(513
)
  
(2,383
)
  
(1,187
)
           
22,530
    
22,194
    
52,300
    
44,528
  
Income taxes
          
7,479
    
7,352
    
17,708
    
14,388
  
           
15,051
    
14,842
    
34,592
    
30,140
  
Minority interest share of earnings
          
3,078
    
3,614
    
8,486
    
7,948
  
                                 
Net earnings from continuing operations
          
11,973
    
11,228
    
26,106
    
22,192
  
Net earnings from discontinued operations, net of tax (2)
          
-
    
2,564
    
-
    
2,720
  
Net earnings before cumulative effect of change in accounting principle
          
11,973
    
13,792
    
26,106
    
24,912
  
Cumulative effect of change in accounting principle,net of tax (3)
          
-
    
-
    
(1,353
)
  
-
  
                                 
Net earnings
        
$
11,973
  
$
13,792
  
$
24,753
  
$
24,912
  
                                 
Net earnings (loss) per share
                                
Basic
                                
    Continuing operations
        
$
0.40
  
$
0.37
  
$
0.87
  
$
0.73
  
    Discontinued operations
          
-
    
0.09
    
-
    
0.09
  
    Cumulative effect of change in accounting principle
          
-
    
-
    
(0.04
)
  
-
  
         
$
0.40
  
$
0.46
  
$
0.83
  
$
0.82
  
                                 
Diluted (4)
                                
    Continuing operations
        
$
0.38
  
$
0.35
  
$
0.81
  
$
0.69
  
    Discontinued operations
          
-
    
0.09
    
-
    
0.09
  
    Cumulative effect of change in accounting principle
          
-
    
-
    
(0.04
)
  
-
  
         
$
0.38
  
$
0.44
  
$
0.77
  
$
0.78
  
                                 
Adjusted diluted net earnings per share from continuing operations (5)
        
$
0.42
  
$
0.36
  
$
0.89
  
$
0.71
  
                                 
Weighted average shares outstanding:
    
Basic
    
29,840
    
30,256
    
29,927
    
30,230
  
(in thousands)
    
Diluted
    
30,261
    
31,023
    
30,373
    
30,959
  


Notes to Condensed Consolidated Statements of Earnings
(1) Amortization of short-lived brokerage backlog intangible assets recognized upon the acquisitions of Commercial Real Estate Services businesses in the past twelve months. Brokerage backlog represents the fair value of pending commercial real estate brokerage transactions and listings as at the acquisition date. Amortization is recorded to coincide with the completion of the related brokerage transactions.
(2) Represents earnings of Resolve Corporation, the Business Services segment, which operations were sold in March 2006.
(3) Cumulative effect of the adoption of SFAS No. 123(R), Share Based Payment, on April 1, 2006.
(4) Numerators for diluted earnings per share calculations have been adjusted to reflect dilution from stock options at subsidiaries. The adjustment for the quarter ended September 30, 2006 was $425 (2005 - $270) and six months ended September 30, 2006 was $1,302 (2005 - $701).
(5) See “Reconciliation of operating earnings, net earnings and net earnings per share to adjusted operating earnings, adjusted net earnings and adjusted net earnings per share” below.



- 5 -

Reconciliation of Operating Earnings, Net Earnings and Net Earnings Per Share to Adjusted Operating Earnings, Adjusted Net Earnings and Adjusted Net Earnings Per Share
(in thousands of US dollars, except per share amounts)
(unaudited)
 
The Company is presenting adjusted earnings measures to eliminate the impact of amortization of the short-lived brokerage backlog intangible asset recognized upon the acquisitions of Commercial Real Estate Services businesses within the past twelve months. All of the adjustments are non-cash and are considered “non-GAAP financial measures” under OSC and SEC guidelines. The following tables provide a reconciliation of the adjusted measures:


   
Three months ended
  
Six months ended
  
   
September 30
  
September 30
  
   
2006
  
2005
  
2006
  
2005
  
Adjusted operating earnings
  
$
26,949
  
$
24,919
  
$
59,374
  
$
50,491
  
Amortization of brokerage backlog
    
(2,076
)
  
(489
)
  
(4,150
)
  
(1,158
)
Operating earnings
  
$
24,873
  
$
24,430
  
$
55,224
  
$
49,333
  
                           
                           
Adjusted net earnings from continuing operations
  
$
13,055
  
$
11,541
  
$
28,335
  
$
22,933
  
Amortization of brokerage backlog
    
(2,076
)
  
(489
)
  
(4,150
)
  
(1,158
)
Deferred income taxes
    
774
    
176
    
1,495
    
417
  
Minority interest
    
220
    
-
    
426
    
-
  
Net earnings from continuing operations
  
$
11,973
  
$
11,228
  
$
26,106
  
$
22,192
  
                           
                           
Adjusted diluted net earnings per share from continuing operations
  
$
0.42
  
$
0.36
  
$
0.89
  
$
0.71
  
Amortization of brokerage backlog, net of income taxes
    
(0.04
)
  
(0.01
)
  
(0.08
)
  
(0.02
)
Diluted net earnings per share from continuing operations
  
$
0.38
  
$
0.35
  
$
0.81
  
$
0.69
  



- 6 -

Reconciliation of EBITDA to Operating Earnings
(in thousands of US dollars)
(unaudited)
 
EBITDA is defined as net earnings from continuing operations before minority interest share of earnings, income taxes, interest, depreciation and amortization. The Company uses EBITDA to evaluate operating performance and as a measure for debt covenants with its lenders. EBITDA is an integral part of the Company’s planning and reporting systems. Additionally, the Company uses multiples of current and projected EBITDA in conjunction with discounted cash flow models to determine its overall enterprise valuation and to evaluate acquisition targets. The Company believes EBITDA is a reasonable measure of operating performance because of the low capital intensity of its service operations. The Company believes EBITDA is a financial metric used by many investors to compare companies, especially in the services industry, on the basis of operating results and the ability to incur and service debt. EBITDA is not a recognized measure of financial performance under United States generally accepted accounting principles (GAAP), and should not be considered as a substitute for operating earnings, net earnings or cash flows from operating activities, as determined in accordance with GAAP. The Company’s method of calculating EBITDA may differ from other issuers and accordingly, EBITDA may not be comparable to measures used by other issuers. A reconciliation of EBITDA to operating earnings appears below.


   
Three months ended
  
Six months ended
  
   
September 30
  
September 30
  
   
2006
  
2005
  
2006
  
2005
  
EBITDA
  
$
32,069
  
$
28,679
  
$
69,336
  
$
58,022
  
Depreciation and amortization other than backlog
    
(5,120
)
  
(3,760
)
  
(9,962
)
  
(7,531
)
Amortization of brokerage backlog
    
(2,076
)
  
(489
)
  
(4,150
)
  
(1,158
)
Operating earnings
  
$
24,873
  
$
24,430
  
$
55,224
  
$
49,333
  



- 7 -

Condensed Consolidated Balance Sheets
(in thousands of US dollars)
(unaudited)
 
   
September 30
  
March 31
  
   
2006
  
2006
  
Assets
              
Cash and cash equivalents
  
$
116,946
  
$
167,938
  
Accounts receivable
    
171,999
    
128,276
  
Inventories
    
34,377
    
27,267
  
Prepaids and other current assets
    
25,226
    
31,928
  
    Current assets
    
348,548
    
355,409
  
Fixed assets
    
53,795
    
48,733
  
Other non-current assets
    
41,241
    
39,600
  
Goodwill and intangibles
    
321,967
    
267,262
  
    Total assets
  
$
765,551
  
$
711,004
  
               
Liabilities and shareholders’ equity
              
Accounts payable and accrued liabilities
  
$
178,974
  
$
149,875
  
Other current liabilities
    
19,058
    
16,187
  
Long term debt - current
    
20,907
    
18,646
  
    Current liabilities
    
218,939
    
184,708
  
Long term debt - non-current
    
215,800
    
230,040
  
Deferred income taxes
    
33,863
    
30,041
  
Minority interest
    
40,015
    
28,463
  
Shareholders’ equity
    
256,934
    
237,752
  
    Total liabilities and equity
  
$
765,551
  
$
711,004
  
               
               
               
               
Total debt, excluding interest rate swaps
  
$
236,707
  
$
248,686
  
Total debt, net of cash, excluding interest rate swaps
    
119,761
    
80,748
  



- 8 -

Condensed Consolidated Statements of Cash Flows
(in thousands of US dollars)
(unaudited)     
 
   
Three months ended
  
Six months ended
  
   
September 30
  
September 30
  
   
2006
  
2005
  
2006
  
2005
  
Operating activities
                          
Net earnings from continuing operations
  
$
11,973
  
$
11,228
  
$
26,106
  
$
22,192
  
Items not affecting cash:
                          
    Depreciation and amortization
    
7,196
    
4,249
    
14,112
    
8,689
  
    Deferred income taxes
    
(532
)
  
(1,140
)
  
(3,334
)
  
(1,786
)
    Minority interest share of earnings
    
3,078
    
3,614
    
8,486
    
7,948
  
    Other
    
1,841
    
200
    
983
    
7
  
                           
Changes in operating assets and liabilities
    
2,498
    
1,494
    
(21,865
)
  
(4,089
)
Discontinued operations
    
-
    
(2,144
)
  
-
    
802
  
Net cash provided by operating activities
    
26,054
    
17,501
    
24,488
    
33,763
  
Investing activities
                          
Acquisitions of businesses, net of cash acquired
    
(5,103
)
  
(1,369
)
  
(40,986
)
  
(5,461
)
Purchases of fixed assets, net
    
(4,290
)
  
(4,604
)
  
(10,753
)
  
(10,073
)
Other investing activities
    
(2,949
)
  
(552
)
  
(1,349
)
  
(1,856
)
Discontinued operations
    
-
    
(3,728
)
  
-
    
(4,916
)
Net cash used in investing
    
(12,342
)
  
(10,253
)
  
(53,088
)
  
(22,306
)
Financing activities
                          
Increase (decrease) in long-term debt, net
    
24
    
(1,649
)
  
(14,967
)
  
27,540
  
Other financing activities
    
(37
)
  
387
    
(7,700
)
  
(1,349
)
Discontinued operations
    
-
    
2,032
    
-
    
1,083
  
Net cash (used in) provided by financing
    
(13
)
  
770
    
(22,667
)
  
27,274
  
Effect of exchange rate changes on cash
    
524
    
3,672
    
275
    
3,448
  
Increase (decrease) in cash and cash equivalents
    
14,223
    
11,690
    
(50,992
)
  
42,179
  
Cash and cash equivalents, beginning of period
    
102,723
    
67,947
    
167,938
    
37,458
  
Cash and cash equivalents, end of period
  
$
116,946
  
$
79,637
  
$
116,946
  
$
79,637
  



- 9 -

Segmented Revenues, EBITDA and Operating Earnings
(in thousands of US dollars)
(unaudited)


           
Property
              
   
Commercial
  
Residential
  
Improve-
  
Integrated
          
   
Real Estate
  
Property
  
ment
  
Security
          
   
Services
  
Management
  
Services
  
Services
  
Corporate
  
Consolidated
  
Three months ended September 30
                                      
2006
                                      
Revenues
  
$
142,402
  
$
110,383
  
$
44,032
  
$
41,795
  
$
69
  
$
338,681
  
EBITDA
    
7,932
    
11,937
    
13,518
    
2,108
    
(3,426
)
  
32,069
  
Operating earnings
    
4,158
    
10,376
    
12,415
    
1,419
    
(3,495
)
  
24,873
  
                                       
2005
                                      
Revenues
  
$
103,948
  
$
91,959
  
$
40,534
  
$
35,873
  
$
6
  
$
272,320
  
EBITDA
    
7,654
    
9,406
    
12,778
    
1,758
    
(2,917
)
  
28,679
  
Operating earnings
    
6,330
    
8,059
    
11,894
    
1,100
    
(2,953
)
  
24,430
  
                                       
Six months ended September 30
                                      
2006
                                      
Revenues
  
$
280,288
  
$
214,349
  
$
85,693
  
$
83,710
  
$
145
  
$
664,185
  
EBITDA
    
24,033
    
23,186
    
24,656
    
4,226
    
(6,765
)
  
69,336
  
Operating earnings
    
16,722
    
20,107
    
22,461
    
2,839
    
(6,905
)
  
55,224
  
                                       
                                       
2005
                                      
Revenues
  
$
203,252
  
$
176,040
  
$
75,756
  
$
68,374
  
$
114
  
$
523,536
  
EBITDA
    
19,439
    
18,036
    
22,313
    
3,476
    
(5,242
)
  
58,022
  
Operating earnings
    
16,487
    
15,392
    
20,600
    
2,178
    
(5,324
)
  
49,333
  



 
- 10 -