<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 10549
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, 1994
--------------
_____ 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)
708-964-1300
(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: 76,778,813 shares on May 12, 1994.
This document consists of 11 pages, including the cover page.
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TABLE OF CONTENTS
Page
No.
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SERVICEMASTER LIMITED PARTNERSHIP (Registrant) -
Part I. Financial Information
- - ------- ---------------------
Consolidated Statements of Income for the
three months ended March 31, 1994 and March 31, 1993 2
Consolidated Statements of Financial Position
as of March 31, 1994 and December 31, 1993 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 1994 and March 31, 1993 4
Notes to Consolidated Financial Statements 5
Management Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information
- - -------- -----------------
Exhibit 11 - Exhibit Regarding Detail of Income
Per Share Computation 9
Signature 10
1
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<TABLE>
PART I. FINANCIAL INFORMATION
<CAPTION>
SERVICEMASTER LIMITED PARTNERSHIP
Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended
March 31,
1994 1993
---------- ------------
<S> <C> <C>
Operating Revenue. . . . . . . . . . . . . . . . . . . . $ 657,638 $ 585,130
Operating Costs and Expenses:
Cost of services rendered
and products sold. . . . . . . . . . . . . . . . . . . 543,274 492,032
Selling and administrative expenses. . . . . . . . . . . 76,718 60,552
---------- ------------
Total operating costs and expenses . . . . . . . . . . . 619,992 552,584
---------- ------------
Operating Income . . . . . . . . . . . . . . . . . . . . 37,646 32,546
Non-operating Expenses (Income):
Interest expense . . . . . . . . . . . . . . . . . . . . 8,107 8,569
Interest income. . . . . . . . . . . . . . . . . . . . . (1,475) (1,425)
Minority interest* . . . . . . . . . . . . . . . . . . . 5,928 3,400
---------- ------------
Income before Income Taxes . . . . . . . . . . . . . . . 25,086 22,002
Provision for income taxes . . . . . . . . . . . . . . . 540 770
---------- ------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 24,546 $ 21,232
========== ============
Net Income Per Share . . . . . . . . . . . . . . . . . . $ .32 $ .28
===== =====
Cash Distributions Per Share . . . . . . . . . . . . . . $ .23 $ .22
===== =====
Net income per share is based on 77,693 shares and 76,094 shares for the three months ended
March 31, 1994 and 1993, respectively.
* Includes General Partners' interest of $497 and $405 for the three months ended March 31,
1994 and 1993, respectively.
</TABLE>
See Notes to Consolidated Financial Statements
2
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<TABLE>
<CAPTION>
SERVICEMASTER LIMITED PARTNERSHIP
Consolidated Statements of Financial Position
(In thousands) As of
March 31, December 31,
Assets 1994 1993
-------------- ---------------
<S> <C> <C>
Current Assets:
Cash and marketable securities, including cash and
cash equivalents of $22,839 and $17,271, respectively . . . . . . . . . . $ 39,210 $ 32,730
Accounts and notes receivable, less allowances of $19,319
and $19,438 respectively. . . . . . . . . . . . . . . . . . . . . . . . . 190,793 173,278
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,197 37,870
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . . 94,873 47,447
-------------- ---------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 370,073 291,325
-------------- ---------------
Property and Equipment:
At cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,299 226,452
Less: accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . 113,869 110,677
-------------- ---------------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . 116,430 115,775
-------------- ---------------
Contract rights, trade names, goodwill, and other,
net of accumulated amortization of $88,012
and $84,296 respectively. . . . . . . . . . . . . . . . . . . . . . . . . 609,763 604,613
Investment in Norrell Corporation. . . . . . . . . . . . . . . . . . . . . . --- 26,948
Notes receivable, long-term securities, and other assets . . . . . . . . . . 87,798 83,800
-------------- ---------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,184,064 $ 1,122,461
============== ===============
Liabilities And Shareholders' Equity
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,391 $ 34,154
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,005 133,984
Deferred revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,820 66,865
Seasonal borrowings and
current portion of long-term obligations. . . . . . . . . . . . . . . . . . 10,891 4,612
-------------- ---------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 305,107 239,615
-------------- ---------------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380,663 384,509
Other Long-Term Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 94,718 91,605
Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . --- ---
Minority and General Partners' Interest
includes General Partners' interest of
$1,473 in 1994 and $1,576 in 1993 . . . . . . . . . . . . . . . . . . . . 111,696 117,513
Shareholders' Equity:
Limited partners' equity - shares issued 78,055
at March 31, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . 333,801 328,320
Treasury shares at cost - 1,870 shares at
March 31, 1994 and 1,629 shares at
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,568) (29,571)
Share subscriptions receivable and restricted shares -
774 shares at March 31, 1994 and 872 shares
at December 31, 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . (9,353) (9,530)
-------------- ---------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 291,880 289,219
-------------- ---------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $ 1,184,064 $ 1,122,461
============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
SERVICEMASTER LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
March 31,
1994 1993
-------------- --------------
<S> <C> <C>
Cash and Cash Equivalents at January 1 . . . . . . . . . . . . . . . . . . . . $ 17,271 $ 27,576
Cash Flows from Operations:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,546 21,232
Adjustments to reconcile net income
to net cash flows from operations:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,683 7,618
Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,716 3,692
Provisions for losses on receivables. . . . . . . . . . . . . . . . . . 741 1,062
Change in working capital, net of acquisitions:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,247) (7,237)
Inventories and other current assets. . . . . . . . . . . . . . . . . (54,037) (48,613)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,915 3,484
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 25,955 28,907
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 9,567 628
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,633 3,062
-------------- --------------
Net Cash Provided from Operations. . . . . . . . . . . . . . . . . . . . . . . 9,472 13,835
-------------- --------------
Cash Flows from Investing Activities:
Sale of investment in Norrell Corporation. . . . . . . . . . . . . . . . . 29,021 5,524
Property additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,721) (6,160)
Business acquisitions, net of cash acquired. . . . . . . . . . . . . . . . (7,235) (2,709)
Payments to sellers of acquired businesses . . . . . . . . . . . . . . . . (636) (674)
Sale of equipment and other assets . . . . . . . . . . . . . . . . . . . . 471 1,056
Net sales (purchases) of long-term securities. . . . . . . . . . . . . . . (258) (157)
Net sales (purchases) of marketable securities . . . . . . . . . . . . . . (193) 201
-------------- --------------
Net Cash Provided from (Used for) Investing Activities . . . . . . . . . . . . 12,449 (2,919)
-------------- --------------
Cash Flows from Financing Activities:
Distributions to shareholders and to shareholders' trust . . . . . . . . . (20,698) (16,865)
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,110 15,000
Purchase of treasury shares. . . . . . . . . . . . . . . . . . . . . . . . (4,917) (4,916)
Proceeds from employee share option plans. . . . . . . . . . . . . . . . . 2,998 1,238
Payment of long-term debt and other long-term obligations. . . . . . . . . (1,658) (277)
Distributions to minority investors. . . . . . . . . . . . . . . . . . . . (709) (4,294)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,521 (130)
-------------- --------------
Net Cash Used for Financing Activities . . . . . . . . . . . . . . . . . . . . (16,353) (10,244)
-------------- --------------
Cash Increase during the Period. . . . . . . . . . . . . . . . . . . . . . . . 5,568 672
-------------- --------------
Cash and Cash Equivalents at March 31. . . . . . . . . . . . . . . . . . . . . $ 22,839 $ 28,248
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
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, 1993. 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, 1994 and
December 31, 1993, and the results of operations and cash flows for
the three months ended March 31, 1994 and 1993, 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. Full year results are not affected.
Note 4: On May 7, 1993, the Board of Directors for the Corporate
General Partners declared a three-for-two share split effective June 22,
1993, for shareholders of record on June 7, 1993. All share and per
share data have been restated for all periods presented to reflect this
three-for-two share split.
Note 5: In the Consolidated Statements of Cash Flows, the caption
Cash and Cash Equivalents includes investments in short-term, highly-
liquid securities having a maturity of three months or less.
Supplemental information relating to the Consolidated Statements of
Cash Flows for the three months ended March 31, 1994 and 1993 is
presented in the following table. The decrease in interest paid in
1994 from 1993 is primarily due to reduced debt balances reflecting
reduced seasonal borrowings.
<TABLE>
<CAPTION>
(In thousands)
1994 1993
----------- -----------
<S> <C> <C>
Cash paid or received for:
- - --------------------------
Interest expense, net of amounts capitalized . . . . . . . . . . . . $ 3,524 $ 4,134
Interest and dividend income . . . . . . . . . . . . . . . . . . . . $ 561 $ 657
</TABLE>
5
<PAGE>
SERVICEMASTER LIMITED PARTNERSHIP
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
FIRST QUARTER 1994 COMPARED TO FIRST QUARTER 1993
- - -------------------------------------------------
Revenues increased 12.4% over the first quarter 1993 to $657.6
million due to internal growth and the inclusion of VHA Long Term
Care, which was acquired in late August 1993. Net income was $24.5
million, reflecting a 15.6% increase over one year ago while net
income per share was $.32, representing an increase of 14.3%.
Operating margins improved to 5.7% from 5.6% during the quarter
due to effective spending controls and continuing profitability
improvements in the Consumer Services businesses.
The Consumer Services business unit achieved solid growth in
revenues and net income with strong performances at all units. The
TruGreen-Chemlawn operations had good growth in revenues and
profits resulting from strong sales volume and favorable weather
conditions in March. In addition, this unit received an excellent
response to its off-season residential marketing program, which should
benefit revenues and profits in subsequent quarters when the services
are rendered. The Terminix operations continued to increase both
revenues and profits as productivity related improvements in margins
more than offset the effects on volume of unfavorable weather
conditions in many parts of the country during the first two months of
the quarter. The Merry Maids operations continued their strong rate
of growth as a result of both franchise sales and increased revenues
from existing franchises. The ServiceMaster licensed franchise
cleaning business had strong growth in revenues and profits resulting
in part from increased disaster restoration services, reflecting more
severe weather conditions in the first quarter of 1994. American
Home Shield had encouraging results for the first quarter with
substantial increases in both gross contracts written and in contract
renewals, reflecting the effects of improved home resales in California
and other parts of the country.
The Management Services business unit continued to achieve growth
in both revenues and profits, despite continuing uncertainties
regarding the nature and direction of health care reform, which have
resulted in a lengthening of the sales process in the health care
market. Despite these effects, the health care market achieved modest
growth in revenue and profits. The education market again
experienced solid growth in revenue with profits growing to a lesser
degree due to higher start-up costs at certain large facilities. The
industrial/commercial market continued to be adversely impacted by
downsizing and general economic conditions, with profits reduced
below prior year levels.
Cost of services rendered and products sold increased 10.4% due to
the growth of both the Consumer Services and Management Services
6
<PAGE>
businesses but decreased as a percentage of revenue from 84.1% in
1993 to 82.6% in 1994. This decrease as a percentage of revenue
reflects the changing mix of the business as the Consumer Services
business unit increases in size in relation to the overall business of the
Partnership. The Consumer Services business unit operates at a
higher gross profit than the Management Services business unit but
incurs relatively higher selling and administrative expenses.
Selling and administrative expenses increased to 11.7% of revenue in
the first quarter of 1994 as compared to 10.3% of revenue one year
ago. This increase as a percentage of revenue is also primarily
attributable to the changing business mix of the Partnership.
Interest expense decreased due to lower average debt balances
outstanding for the first quarter reflecting lower seasonal borrowings
as a result of the cash received from the sale of the investment in
Norrell. Interest income increased slightly from 1993 due to higher
invested balances. The increase in minority interest expense primarily
reflects increased profitability in the Consumer Services business, as
well as the additional 5.76% interest in the Consumer Services
business that was acquired by WMX Technologies in June of 1993.
Financial Position
- - ------------------
Cash and marketable securities totalled $39.2 million at March 31,
1994 an increase of $6.5 million from year end. Net cash provided
from operations of $9.5 million was below first quarter 1993 levels
due to timing factors, including increased seasonal spending that will
benefit future quarters and a slight acceleration of the timing of the
annual payments to the Partnership profit sharing plans. Because of
the seasonality of the pest control and lawncare operating cycles, the
Partnership's working capital needs are highest during the first
quarter. The current ratio of 1.2 was consistent with year end levels.
The increase in accounts and notes receivable reflect general business
growth and the increased activity in the seasonal Consumer Services
businesses. 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 direct response marketing costs and
other similar expenses in the first quarter, which are then amortized
over the lawncare production season, when revenues are recognized.
Deferred revenues also increased significantly, due to increased sales
at American Home Shield and customer prepayments for lawncare
services.
Property and equipment increased primarily due to general business
growth in both the Consumer Services and Management Services
business units. The Partnership has no material capital commitments
at this time.
7
<PAGE>
In February, 1994, the Partnership sold its minority interest in Norrell
Corporation for approximately $29 million in cash. A gain of
approximately $1.8 million (net of transaction costs) was recognized
on the sale, A non-recurring charge of approximately $1.5 million
was recognized to reduce the carrying value of the remaining land
held for resale in California that was originally acquired as part of the
acquisition of American Home Shield. Both of these items have been
classified in the non-operating section of the first quarter income
statement.
Other short term liabilities increased from year end reflecting the
seasonality of the business as well as the reclassification of $14.6
million in preferred shares of a subsidiary of the Partnership held by
the principal shareholder of Norrell Corporation that will be redeemed
in May of 1994.
The current portion of long-term obligations increased due to
borrowings made to meet the seasonal working capital needs of the
Partnership during the quarter.
Minority interest decreased from year end reflecting the reclass of the
preferred shares to short-term liabilities partially offset by the normal
accruals of minority interest expense and the effects of the sale of
small minority equity interests in the Partnerships' Management
Services subsidiary to members of senior management of that unit. As
described in Form 10-K, these interests were sold at fair market value,
as confirmed by an independent appraisal. Proceeds were recorded as
additional minority interest in the consolidated balance sheet. This
transaction did not have a material effect on the first quarter
consolidated financial statements.
Total shareholders equity increased by 1% to $292 million as a result
of strong earnings, partially offset by distributions to shareholders and
share repurchases. Cash distributions paid directly to shareholders
totalled $17.7, or $.23 per share. Distributions totalling $2.3 million
were also made to the trust established for the benefit of
shareholders.
On April 29, 1994, the Board of Directors of the Partnership
authorized the repurchase of up to $30 million of outstanding
Partnership shares in the open market or in privately-negotiated
transactions. Shares repurchased under the program will be available
for general Partnership purposes, including employee benefit programs
and business acquisitions.
8
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<TABLE>
Part II. OTHER INFORMATION
<CAPTION>
SERVICEMASTER LIMITED PARTNERSHIP
Exhibit 11
EXHIBIT REGARDING DETAIL OF INCOME PER SHARE COMPUTATION
(In thousands, except per share data)
Three Months Ended
March 31,
1994 1993
---------- ------------
<S> <C> <C>
Shares used for computing
Primary Earnings per share--
Shares outstanding on weighted
average basis. . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,795 74,847
Equivalent shares--
Options and subscriptions outstanding. . . . . . . . . . . . . . . . 1,898 1,247
----------- ------------
Weighted average and
equivalent shares for primary calculation. . . . . . . . . . . . . . 77,693 76,094
=========== ============
Primary earnings per share . . . . . . . . . . . . . . . . . . . . . . $ .32 $ .28
====== ======
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,546 $ 21,232
Interest on convertible debentures . . . . . . . . . . . . . . . . . . 600 600
----------- ------------
Net income for fully diluted calculation . . . . . . . . . . . . . . . $ 25,146 $ 21,832
=========== ============
Shares used for computing fully
diluted earnings per share--
Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 77,693 76,219
Equivalent shares--
Shares issuable upon conversion of
convertible debentures . . . . . . . . . . . . . . . . . . . . . . . 2,026 2,220
----------- ------------
Weighted average and equivalent shares
for fully diluted calculation. . . . . . . . . . . . . . . . . . . . 79,719 78,439
=========== ============
Fully diluted earnings per share . . . . . . . . . . . . . . . . . . . $ .32 $ .28
===== ======
</TABLE>
9
<PAGE>
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 13, 1994
SERVICEMASTER LIMITED PARTNERSHIP
(Registrant)
By: s/Ernest J. Mrozek
---------------------------------------------
Ernest J. Mrozek
Vice President, Treasurer, and Chief Financial Officer
10
