<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, 1995
--------------
_____ 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)
708-271-1300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes __X__ No
____.
Indicate the number of shares outstanding of each of the issuer's classes
of shares: 78,325,434 shares on May 8, 1995.
This document consists of 12 pages, including the cover page.
<PAGE>
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, 1995 and March 31, 1994 2
Consolidated Statements of Financial Position
as of March 31, 1995 and December 31, 1994 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 1995 and March 31, 1994 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 10
Signature 11
1
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
SERVICEMASTER LIMITED PARTNERSHIP
Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended
March 31,
1995 1994
--------- ---------
<S> <C> <C>
Operating Revenue . . . . . . . . . . . . . $ 707,764 $ 657,638
Operating Costs and Expenses:
Cost of services rendered
and products sold . . . . . . . . . . . . 571,812 543,274
Selling and administrative expenses . . . . 91,532 76,718
--------- ---------
Total operating costs and expenses. . . . . 663,344 619,992
--------- ---------
Operating Income. . . . . . . . . . . . . . 44,420 37,646
Non-operating Expense (Income):
Interest expense. . . . . . . . . . . . . . 8,902 8,107
Interest income . . . . . . . . . . . . . . (1,359) (1,475)
Minority interest*. . . . . . . . . . . . . 7,525 5,928
--------- ---------
Income before Income Taxes. . . . . . . . . 29,352 25,086
Provision for income taxes. . . . . . . . . 472 540
--------- ---------
Net Income. . . . . . . . . . . . . . . . . $ 28,880 $ 24,546
========= =========
Net Income Per Share. . . . . . . . . . . . $ .37 $ .32
==== ====
Cash Distributions Per Share. . . . . . . . $ .23 $ .23
==== ====
Net income per share is based on 78,984 shares and 77,693 shares for the three months ended
March 31, 1995 and 1994, respectively.
* Includes General Partners' interest of $571 and $497 for the three months ended March 31,
1995 and 1994, respectively.
See Notes to Consolidated Financial Statements
</TABLE>
2
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<TABLE>
<CAPTION>
SERVICEMASTER LIMITED PARTNERSHIP
Consolidated Statements of Financial Position
(In thousands) As of
March 31, December 31,
Assets 1995 1994
---------- -----------
<S> <C> <C>
Current Assets:
Cash and marketable securities, including cash and
cash equivalents of $12,648 and $14,333, respectively. . $ 34,840 $ 34,444
Accounts and notes receivable, less allowances of $20,099
and $20,114, respectively. . . . . . . . . . . . . . . . 239,796 211,714
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 42,933 36,062
Prepaid expenses and other assets . . . . . . . . . . . . . 95,803 48,825
---------- -----------
Total current assets . . . . . . . . . . . . . . . . . . 413,372 331,045
---------- -----------
Property and Equipment:
At cost. . . . . . . . . . . . . . . . . . . . . . . . . 275,459 260,187
Less: accumulated depreciation . . . . . . . . . . . . . 135,930 131,739
---------- -----------
Net property and equipment . . . . . . . . . . . . . . . 139,529 128,448
---------- -----------
Contract rights, trade names, goodwill, and other,
net of accumulated amortization of $109,764
and $105,619, respectively . . . . . . . . . . . . . . . 754,063 686,309
Notes receivable, long-term securities, and other assets. . 90,131 85,037
---------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . $ 1,397,095 $ 1,230,839
========== ===========
Liabilities And Shareholders' Equity
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . $ 47,088 $ 44,272
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 177,075 167,238
Deferred revenues . . . . . . . . . . . . . . . . . . . . . 111,800 84,658
Current portion of long-term obligations. . . . . . . . . . 9,335 8,227
---------- -----------
Total current liabilities. . . . . . . . . . . . . . . . 345,298 304,395
---------- -----------
Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . 452,775 386,511
Other Long-Term Obligations . . . . . . . . . . . . . . . . 99,299 97,395
Commitments and Contingencies . . . . . . . . . . . . . . .
Minority and General Partners' Interest
includes General Partners' interest of
$1,287 in 1995 and $1,516 in 1994. . . . . . . . . . . . 126,903 135,272
Shareholders' Equity:
Limited partners' equity - shares issued 80,879
at March 31, 1995 and 78,055 shares at
December 31, 1994. . . . . . . . . . . . . . . . . . . . 441,395 364,673
Treasury shares at cost - 2,551 shares at
March 31, 1995 and 2,033 shares at
December 31, 1994 . . . . . . . . . . . . . . . . . . . . (59,751) (48,497)
Share subscriptions receivable and restricted shares -
764 shares at March 31, 1995 and 810 shares
at December 31, 1994 . . . . . . . . . . . . . . . . . . (8,824) (8,910)
---------- -----------
Total shareholders' equity . . . . . . . . . . . . . . . 372,820 307,266
---------- -----------
Total liabilities and shareholders' equity . . . . . . . $ 1,397,095 $ 1,230,839
========== ===========
See Notes to Consolidated Financial Statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SERVICEMASTER LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
March 31,
1995 1994
----------- ----------
<S> <C> <C>
Cash and Cash Equivalents at January 1. . . . . . . . . . . $ 14,333 $ 17,271
Cash Flows from Operations:
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . 28,880 24,546
Adjustments to reconcile net income
to net cash flows from operations:
Depreciation . . . . . . . . . . . . . . . . . . . . . 8,991 7,683
Amortization . . . . . . . . . . . . . . . . . . . . . 4,145 3,716
Change in working capital, net of acquisitions:
Receivables. . . . . . . . . . . . . . . . . . . . . (15,999) (16,656)
Inventories and other current assets . . . . . . . . (53,130) (54,037)
Accounts payable . . . . . . . . . . . . . . . . . . 2,197 6,915
Deferred revenues. . . . . . . . . . . . . . . . . . 27,160 25,955
Accrued liabilities. . . . . . . . . . . . . . . . . 7,531 9,567
Minority interest and other, net . . . . . . . . . . . 6,138 4,457
------------ ----------
Net Cash Provided from Operations . . . . . . . . . . . . . 15,913 12,146
----------- ----------
Cash Flows from Investing Activities:
Property additions . . . . . . . . . . . . . . . . . . . (15,148) (8,721)
Business acquisitions, net of cash acquired. . . . . . . (13,980) (7,235)
Notes receivable and financial investments . . . . . . . (16,507) (2,674)
Proceeds from sale of Education Food business. . . . . . 9,938 ---
Net purchases of marketable securities . . . . . . . . . (920) (451)
Payments to sellers of acquired businesses . . . . . . . (643) (636)
Sale of equipment and other assets . . . . . . . . . . . 540 471
Sale of investment in Norrell Corporation. . . . . . . . --- 29,021
----------- ----------
Net Cash Provided from (Used for) Investing Activities. . . (36,720) 9,775
----------- ----------
Cash Flows from Financing Activities:
Short-term borrowings, net . . . . . . . . . . . . . . . 64,211 5,110
Distributions to shareholders and shareholders' trust. . (26,924) (20,698)
Purchase of treasury shares. . . . . . . . . . . . . . . (14,244) (4,917)
Distributions to holders of minority interests . . . . . (3,147) (709)
Payments of other obligations. . . . . . . . . . . . . . (3,142) (1,658)
Proceeds from employee share option plans. . . . . . . . 2,223 2,998
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 145 3,521
----------- ----------
Net Cash Provided from (Used for) Financing Activities. . . 19,122 (16,353)
----------- ----------
Cash Increase (Decrease) during the Period. . . . . . . . . (1,685) 5,568
----------- ----------
Cash and Cash Equivalents at March 31 . . . . . . . . . . . $ 12,648 $ 22,839
=========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
4
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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, 1994. 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, 1995 and
December 31, 1994, and the results of operations and cash flows for
the three months ended March 31, 1995 and 1994, 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: 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, 1995 and 1994 is
presented in the following table. The increase in interest paid in 1995
from 1994 is primarily due the refinancing of debt in first quarter of
1994 and increased debt balances reflecting increased seasonal
borrowings.
<TABLE>
<CAPTION>
(In thousands)
1995 1994
Cash paid or received for: -------- --------
- --------------------------
<S> <C> <C>
Interest expense, net of amounts capitalized. . . . $ 6,058 $ 3,524
Interest and dividend income. . . . . . . . . . . . $ 777 $ 561
</TABLE>
5
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SERVICEMASTER LIMITED PARTNERSHIP
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
FIRST QUARTER 1995 COMPARED TO FIRST QUARTER 1994
- -------------------------------------------------
Revenues increased 7.6% over the first quarter 1994 to $707.8 million
due to internal growth and the inclusion of the European pest control
acquisitions made in the second half of 1994, offset by the disposition
of the Education Food Service business in February of this year. On a
comparable basis, revenues increased approximately 9%. Net income
was $28.9 million, reflecting a 17.7% increase over one year ago
while net income per share was $.37, representing an increase of
15.6%. Earnings per share reflects the issuance of 2.8 million shares
in connection with the TruGreen-ChemLawn minority interest
acquisition, partially offset by the ongoing share repurchase program.
Operating income increased 18%, to $44.4 million while margins
increased to 6.3% of revenues from 5.7% in 1994, reflecting the
favorable effects of leveraging throughout the enterprise and improved
efficiencies in the Management Services unit.
The Consumer Services business unit achieved accelerated growth in
revenues and net income with each of the five companies achieving
strong results. The TruGreen-Chemlawn operations had strong
growth in revenues and profits resulting from excellent sales volume
and favorable weather conditions in March. In addition, this unit
again achieved a very successful first quarter marketing season, with
full program residential customers up 13% over comparable prior year
levels. This will primarily benefit revenues and profits in subsequent
quarters when the services are rendered. The Terminix operations
continued to increase both revenues and profits as a result of strong
internal growth and encouraging improvements in both sales leads
and customer retention. The ServiceMaster Residential and
Commercial business continued to benefit from growth in disaster
recovery services, which are provided by both franchisees and on a
direct basis for more significant commercial projects. The Merry
Maids operations continued their strong rate of growth as a result of
increased revenues from existing franchises along with encouraging
results experienced with its eight company-owned branches. American
Home Shield achieved strong growth in both revenues and profits
reflecting improvements in contract renewals and direct to consumer
sales, despite weaker home resale markets in California and most of
the rest of the country.
The Management Services business unit realized the initial benefits of
the market based restructuring that was implemented last year, as
improved efficiencies led to an overall increase in profits during the
quarter. Revenues were below prior year levels as a result of the
disposition of the Education Food business in mid-February. The
health care market achieved increased profits due to improved
6
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efficiencies. Sales of new health care contracts showed encouraging
improvements which will benefit revenues in future quarters. The
education market was adversely effected by operating losses in the
food service business prior to its disposition, as well as a modest
reduction in revenues and profits from other services. The Business
and Industry group experienced improved profitability through
overhead reductions and productivity improvements offsetting revenue
declines resulting from customer downsizing.
Diversified Health Services produced strong results with sharply
increased profits from management and consulting services and
medical supply sales. International operations achieved solid growth
in royalty fees from existing licensees while the acquisitions made in
the second half of 1994 performed consistent with expectations and
achieved modest net income after all acquisition costs in their first full
quarter as part of ServiceMaster.
Cost of services rendered and products sold increased 5.3% due to the
growth of Consumer Services and the addition of the acquired
European pest control businesses, but decreased as a percentage of
revenue from 82.6% in 1994 to 80.8% in 1995. This decrease as a
percentage of revenue reflects the changing mix of the business as
Consumer Services and Diversified Health Services increase in size in
relation to the overall business of the Partnership. The Consumer
Services and Diversified Health Services units, along with the acquired
direct International businesses, operate at a higher gross profit than
the Management Services business unit but incur relatively higher
selling and administrative expenses.
Selling and administrative expenses increased 19.3% over prior year
reflecting the increased volume in the Consumer Services businesses
as well as the International acquisitions. Selling and administrative
expenses as a percent of revenue increased to 12.9% of revenue in the
first quarter of 1995 as compared to 11.7% 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 increased reflecting the three European pest control
acquisitions and increased seasonal borrowings, partially offset by the
proceeds received from the sale of the Education Food business. The
increase in minority interest expense primarily reflects the continued
rapid growth in profits at the Consumer Services business unit.
Financial Position
- ------------------
Net cash provided from operations of $15.9 million was 31% above
first quarter 1994. Due to the seasonality of the lawncare and pest
control operating cycles, the Partnership's working capital needs are
the highest during the first quarter. The current ratio improved to 1.2
from 1.1 at year end.
7
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In January, 1995, Consumer Services acquired the 15% minority
interest in TruGreen-ChemLawn. The interest was purchased through
the issuance of 2,824,000 partnership shares and a contingent right to
receive an additional payment in 1997, depending upon the
magnitude of TruGreen-ChemLawn earnings and the performance of
ServiceMaster shares in 1995 and 1996. When the contingency is
resolved, any additional consideration due will be distributed and
recorded.
In February, 1995, the Partnership sold the Education Food business
to Daka International, Inc. for $10 million in cash and a secured note
of approximately $10.25 million which is payable in August, 1995.
The gain realized on the sale was not material to overall results for
the quarter.
The increase in accounts and notes receivable reflects general business
growth, increased activity in the seasonal Consumer Services
businesses, the note receivable from the sale of the food service
business and financial investments in the long term care industry.
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 reflecting customer prepayments for lawncare
services.
Property and equipment increased primarily due to general business
growth in the Consumer Services business unit and acquisitions made
in first quarter 1995. The Partnership has no material capital
commitments at this time.
Other short term liabilities increased from year end reflecting the
seasonality of the business. Debt levels increased from year end due
to the seasonal nature of the Partnership's operating cash flows,
combined with the effects of acquisitions, share repurchases and other
financial investments.
Minority interest decreased from year end reflecting the acquisition of
the TruGreen-ChemLawn minority interest described earlier, partially
offset by the normal accruals of minority interest expense.
Total shareholders equity increased by 21% to $373 million primarily
as a result of the issuance of ServiceMaster shares in connection with
the purchase of the TruGreen-ChemLawn minority interest during the
quarter.
In December, 1994, the Board of Directors of the Partnership
authorized the repurchase of up to an additional $60 million of
outstanding Partnership shares in the open market or in privately-
8
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negotiated transactions. Shares repurchased under the program will
be available for general Partnership purposes, including employee
benefit programs and business acquisitions. As of March 31, 1995,
approximately $41 million of the total amount authorized had not yet
been expended.
9
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<TABLE>
<CAPTION>
Part II. OTHER INFORMATION
SERVICEMASTER LIMITED PARTNERSHIP
Exhibit 11
EXHIBIT REGARDING DETAIL OF INCOME PER SHARE COMPUTATION
(In thousands, except per share data)
Three Months Ended
March 31,
1995 1994
--------- ---------
<S> <C> <C>
Shares used for computing
Primary Earnings per share--
Shares outstanding on weighted
average basis . . . . . . . . . . . . . . . . . . . 77,328 75,795
Equivalent shares--
Options and subscriptions outstanding. . . . . . . . 1,656 1,898
--------- ---------
Weighted average and
equivalent shares for primary calculation . . . . . 78,984 77,693
========= =========
Primary earnings per share. . . . . . . . . . . . . . $ .37 $ .32
===== =====
Net income. . . . . . . . . . . . . . . . . . . . . . $ 28,880 $ 24,546
Interest on convertible debentures. . . . . . . . . . 475 600
--------- ---------
Net income for fully diluted calculation. . . . . . . $ 29,355 $ 25,146
========= =========
Shares used for computing fully
diluted earnings per share--
Shares outstanding. . . . . . . . . . . . . . . . . . 78,984 77,693
Equivalent shares--
Shares issuable upon conversion of
convertible debentures . . . . . . . . . . . . . . . 1,645 2,026
--------- ---------
Weighted average and equivalent shares
for fully diluted calculation. . . . . . . . . . . . 80,629 79,719
========= =========
Fully diluted earnings per share. . . . . . . . . . . $ .36 $ .32
==== =====
</TABLE>
10
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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 15, 1995
SERVICEMASTER LIMITED PARTNERSHIP
(Registrant)
By: s/Ernest J. Mrozek
-----------------------------------
Ernest J. Mrozek
Senior Vice President and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 12,648
<SECURITIES> 22,192
<RECEIVABLES> 259,895
<ALLOWANCES> 20,099
<INVENTORY> 42,933
<CURRENT-ASSETS> 413,372
<PP&E> 275,459
<DEPRECIATION> 135,930
<TOTAL-ASSETS> 1,397,095
<CURRENT-LIABILITIES> 345,298
<BONDS> 452,775
<COMMON> 0
0
0
<OTHER-SE> 372,820
<TOTAL-LIABILITY-AND-EQUITY> 1,397,095
<SALES> 0
<TOTAL-REVENUES> 707,764
<CGS> 0
<TOTAL-COSTS> 571,812
<OTHER-EXPENSES> 91,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,902
<INCOME-PRETAX> 29,352
<INCOME-TAX> 472
<INCOME-CONTINUING> 28,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,880
<EPS-PRIMARY> .37
<EPS-DILUTED> .36
</TABLE>
