UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2000
or
/ / 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 0-24762
FIRSTSERVICE CORPORATION
(Exact name of Registrant as specified in its charter)
ONTARIO, CANADA NOT APPLICABLE
(Province or other (I.R.S. employer
jurisdiction of incorporation identification number,
or organization) if applicable)
1140 BAY STREET
SUITE 4000
TORONTO, ONTARIO
CANADA M5S 2B4
(416) 960-9500
(Address and telephone number of Registrant's principal executive office)
FIRSTSERVICE CORPORATION
6300 PARK OF COMMERCE BLVD.
BOCA RATON, FLORIDA
U.S.A. 33487
(561) 989-5100
(Name, address and telephone number of agent for service in the United States)
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 the Registrant's common stock as
of the latest practicable date:
Subordinate Voting Shares: 12,401,793 as of December 31, 2000
Multiple Voting Shares: 662,847 as of December 31, 2000
FIRSTSERVICE CORPORATION
FORM 10-Q
For the Quarter Ended December 31, 2000
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
a) Statements of Earnings
For the Three Months and Nine Months Ended December 31, 2000 and 1999 3
b) Balance Sheets
As of December 31, 2000 and March 31, 2000 4
c) Statements of Cash Flows
For the Nine Months Ended December 31, 2000 and 1999 5
d) Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
2
FIRSTSERVICE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of U.S. dollars, except per share amounts)
(Unaudited)
Three Month Periods Nine Month Periods
Ended December 31 Ended December 31
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------
Revenues $ 96,957 $ 79,793 $ 320,514 $ 261,247
Cost of revenues 66,879 54,954 211,545 170,789
Selling, general and administrative expenses 22,339 18,994 67,323 56,370
Depreciation 1,914 1,641 5,480 4,726
Amortization 1,046 957 3,119 2,821
Interest 2,489 2,047 7,200 5,769
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Earnings before income taxes and minority interest 2,290 1,200 25,847 20,772
Income taxes 916 479 10,332 8,285
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Earnings before minority interest 1,374 721 15,515 12,487
Minority interest share of earnings 319 170 2,852 2,166
---------------------------------------------------------------------------------------------------------------------------
Net earnings $ 1,055 $ 551 $ 12,663 $10,321
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Earnings per share: Basic $0.08 $0.04 $0.97 $0.80
Diluted $0.08 $0.04 $0.92 $0.75
Weighted average shares outstanding: Basic 13,057 12,936 13,054 12,931
(in thousands) Diluted 13,908 13,666 13,772 13,742
The Condensed Consolidated Statements of Earnings have been prepared in
accordance with U.S. GAAP.
3
FIRSTSERVICE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
DECEMBER 31 March 31
2000 2000
---------------------------------------------------------------------------------------
(UNAUDITED) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $5,218 $ 3,297
Accounts receivable, net 63,673 53,170
Inventories 10,163 8,929
Prepaids and other assets 8,612 8,491
Deferred income taxes 916 1,063
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88,582 74,950
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Other receivables 5,997 4,405
Fixed assets 32,259 29,693
Other assets 3,470 4,074
Deferred income taxes 1,405 270
Goodwill 137,301 117,495
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180,432 155,937
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$ 269,014 $ 230,887
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 16,633 $ 11,752
Accrued liabilities 19,204 23,013
Income taxes payable 6,696 2,879
Unearned revenue 5,878 10,725
Long-term debt - current 4,054 2,733
Deferred income taxes - 459
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52,465 51,561
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LONG-TERM LIABILITIES
Long-term debt less current portion 123,056 102,177
Deferred income taxes 3,712 1,836
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126,768 104,013
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Minority interest 9,811 6,975
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SHAREHOLDERS' EQUITY
Capital stock 54,199 53,849
Receivables pursuant to company's share purchase plan (3,294) (3,294)
Retained earnings 28,279 15,614
Cumulative other comprehensive income 786 2,169
---------------------------------------------------------------------------------------
79,970 68,338
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$ 269,014 $ 230,887
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
The Condensed Consolidated Balance Sheets have been prepared in accordance with
U.S. GAAP.
4
FIRSTSERVICE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
(Unaudited)
Nine Month Periods
Ended December 31
2000 1999
---------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net earnings for the period $ 12,663 $ 10,321
Items not affecting cash
Depreciation and amortization 8,599 7,547
Deferred income taxes (16) 354
Minority interest share of earnings 2,852 2,166
Other 335 331
---------------------------------------------------------------------------------------------------
24,433 20,719
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable (7,119) 1,896
Inventories (705) (701)
Prepaids and other assets 631 23
Accounts payable and other current liabilities 894 4,625
Unearned revenue (5,764) (5,603)
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Net cash provided by operating activities 12,370 20,959
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INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (21,616) (19,041)
Purchase of minority shareholders' interest (649) -
Purchases of fixed assets, net (7,046) (6,525)
Decrease (increase) in other assets 8 (1,134)
Increase in other receivables (1,592) (675)
---------------------------------------------------------------------------------------------------
Net cash used for investing (30,895) (27,375)
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FINANCING ACTIVITIES
Net increase in long-term debt 21,136 15,825
Financing fees paid - (543)
Issuance of subordinate voting shares, net of repurchases 351 43
Dividends paid to minority shareholders of subsidiaries (175) (196)
---------------------------------------------------------------------------------------------------
Net cash provided by financing 21,312 15,129
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Effect of exchange rate changes on cash (866) (970)
---------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents during the period 1,921 7,743
Cash and cash equivalents, beginning of period 3,297 4,627
Cash and cash equivalents, end of period $ 5,218 $ 12,370
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
The Condensed Consolidated Statements of Cash Flows have been prepared in
accordance with U.S. GAAP.
5
FIRSTSERVICE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(in thousands of U.S. dollars)
(Unaudited)
1. DESCRIPTION OF THE BUSINESS - FirstService Corporation (the
"Company") is a provider of property and business services to
corporate, public sector and residential customers in the United
States and Canada. The Company's operations are conducted
through two principal operating divisions, Property Services
and Business Services. The Property Services division
includes residential property management ("Management
Services"), Security Services and Consumer Services and
represented approximately 80% of the Company's revenues for the
year ended March 31, 2000. The Business Services division
provides outsourcing services such as transaction processing
and literature fulfillment for corporations and government agencies.
2. SUMMARY OF PRESENTATION - The Condensed Consolidated
Financial Statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission for the
presentation of interim financial information. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the
information not misleading. In the opinion of management, the
condensed consolidated financial statements contain all
adjustments necessary to present fairly the financial position
of the Company as of December 31, 2000 and the results of its
operations for the three and nine months ended December 31, 2000
and 1999 and its cash flows for the nine months ended December
31, 2000 and 1999. All such adjustments are of a normal recurring
nature. The results of operations for the three and nine months
ended December 31, 2000 are not necessarily indicative of the
results to be expected for the year ended March 31, 2001. For
further information, refer to the consolidated financial
statements and footnotes thereto for the year ended March 31,
2000 contained in the Company's Form 10-K filed on June 29, 2000.
3. ACQUISITIONS - On July 20, 2000, the Company announced that it
had completed five acquisitions in its Property Services division.
Four of these were in Management Services, including: Argold
Management which serves 200 properties and 25,000 residential
units in the New York City market; two acquisitions in painting,
concrete restoration and plumbing to expand the Company's
ability to cross-sell maintenance services to managed communities
in South Florida; and Poolman, Inc., the leading swimming pool
management company in Phoenix, Arizona which increases the
cross-selling potential to the more than 120 communities managed by
the Company in that region. The fifth acquisition was in
6
Security Services, where the Company acquired BLW, Inc. (operating
as Security Services and Technologies ("SST")). SST is a leading
provider of electronic security systems and integration
services to large corporations and governments in the
Pennsylvania and New Jersey regions. These five acquisitions
generated revenues of approximately $20,000 during the calendar
year ended December 31, 1999.
The results of operations of these five acquisitions have
been included in the Condensed Consolidated Financial Statements
included herein since the applicable date of acquisition. These
acquisitions were accounted for using the purchase method. As
a result, the purchase prices have been allocated to the assets
acquired, including intangibles, based on their respective fair
values. The purchase price allocations are preliminary and subject
to adjustments.
On January 22, 2001 the Company announced that it had completed
three acquisitions in its Property Services division. In
Management Services, the Company acquired Dickinson
Management, Inc., a full-service residential property
management operation located in Jupiter, Florida serving 54
communities and over 8,000 residential units. In Consumer
Services, the Company acquired the Boston, Massachusetts
franchise of its California Closets franchise system. In Security
Services, the Company acquired Century Security, a Toronto based
provider of security services to the health care industry. These
acquisitions generated approximately $10,000 in annual revenues
in their last respective fiscal years prior to acquisition.
4. LONG-TERM DEBT - The Company's amended and restated lending
agreement provides a facility of approximately U.S. $163,000
comprised of tranches of Cdn. $50,000 and U.S. $130,000. The
amended facilities, which are used for acquisitions, capital
expenditures and working capital, provide a tax efficient
structure and effectively match long-term U.S. dollar
denominated assets with U.S. dollar denominated debt.
The revolving facilities provide that the Company may borrow
using Prime, LIBOR or Bankers Acceptance interest rate options
that vary within a range depending on certain leverage
ratios. Borrowings currently bear interest at the lender's cost of
funds rate plus 1.25%.
As security for the revolving credit facilities, the Company
has granted the lenders 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 interests. The Company is also required to comply with
certain operating and financial ratios.
7
5. COMPREHENSIVE INCOME - Total comprehensive income was $1,179 and
$691 for the three months ended December 31, 2000 and 1999,
respectively and $11,280 and $10,700 for the nine months ended
December 31, 2000 and 1999, respectively. Total comprehensive
income includes net earnings, foreign currency exchange
adjustments and current income taxes on realized foreign exchange
gains for income tax purposes.
6. SEGMENTED INFORMATION - The Company operates primarily through
three operating groups - Property Services (franchised), Property
Services (Company-owned) and Business Services. The Property
Services groups provide a variety of services to both
residential and commercial customers. Property Services
(Company-owned) provides security services, full-service
residential property management and lawn care. Property Services
(franchised) provides painting, decorating and disaster
restoration services. The Business Services group provides
services to governments, financial institutions and
corporations wishing to outsource a variety of non-core, primarily
labor intensive, "back office" functions. The Company derives
substantially all of its revenues from customers in the United
States and Canada.
OPERATING SEGMENTS
PROPERTY PROPERTY
FOR THE THREE MONTH PERIOD SERVICES SERVICES BUSINESS
ENDING DECEMBER 31,2000 (FRANCHISED) (COMPANY-OWNED) SERVICES CORPORATE CONSOLIDATED
----------------- ------------------ ------------- ------------- --------------
Revenue 15,543 62,782 18,570 62 96,957
----------------- ------------------ ------------- ------------- --------------
Operating profit 689 2,806 2,581 (1,297) 4,779
----------------- ------------------ ------------- ------------- --------------
PROPERTY PROPERTY
FOR THE THREE MONTH PERIOD SERVICES SERVICES BUSINESS
ENDING DECEMBER 31,1999 (FRANCHISED) (COMPANY-OWNED) SERVICES CORPORATE CONSOLIDATED
----------------- ------------------ ------------- ------------- --------------
Revenue 11,286 50,943 17,474 90 79,793
----------------- ------------------ ------------- ------------- --------------
Operating profit (117) 1,901 2,522 (1,059) 3,247
----------------- ------------------ ------------- ------------- --------------
PROPERTY PROPERTY
FOR THE NINE MONTH PERIOD SERVICES SERVICES BUSINESS
ENDING DECEMBER 31,2000 (FRANCHISED) (COMPANY-OWNED) SERVICES CORPORATE CONSOLIDATED
----------------- ------------------ ------------- ------------- --------------
Revenue 46,442 214,080 59,800 192 320,514
----------------- ------------------ ------------- ------------- --------------
Operating profit 8,271 17,956 10,452 (3,632) 33,047
----------------- ------------------ ------------- ------------- --------------
Total assets 47,279 141,781 75,229 4,725 269,014
----------------- ------------------ ------------- ------------- --------------
PROPERTY PROPERTY
FOR THE NINE MONTH PERIOD SERVICES SERVICES BUSINESS
ENDING DECEMBER 31,1999 (FRANCHISED) (COMPANY-OWNED) SERVICES CORPORATE CONSOLIDATED
----------------- ------------------ ------------- ------------- --------------
Revenue 40,976 165,830 54,186 255 261,247
----------------- ------------------ ------------- ------------- --------------
Operating profit 7,154 13,542 9,290 (3,445) 26,541
----------------- ------------------ ------------- ------------- --------------
Total assets 41,402 109,056 69,905 6,702 227,065
----------------- ------------------ ------------- ------------- --------------
8
GEOGRAPHIC SEGMENTS
FOR THE THREE MONTH PERIOD
ENDING DECEMBER 31,2000 CANADA UNITED STATES CONSOLIDATED
----------------- ------------------ -------------
Revenue 30,143 66,814 96,957
----------------- ------------------ -------------
FOR THE THREE MONTH PERIOD
ENDING DECEMBER 31,1999 CANADA UNITED STATES CONSOLIDATED
----------------- ------------------ -------------
Revenue 29,282 50,511 79,793
----------------- ------------------ -------------
FOR THE NINE MONTH PERIOD
ENDING DECEMBER 31,2000 CANADA UNITED STATES CONSOLIDATED
----------------- ------------------ -------------
Revenue 97,202 223,312 320,514
----------------- ------------------ -------------
Total assets 65,097 203,917 269,014
----------------- ------------------ -------------
FOR THE NINE MONTH PERIOD
ENDING DECEMBER 31,1999 CANADA UNITED STATES CONSOLIDATED
----------------- ------------------ -------------
Revenue 91,870 169,377 261,247
----------------- ------------------ -------------
Total assets 67,361 159,704 227,065
----------------- ------------------ -------------
7. COMPARATIVE FIGURES - Certain of the prior period's figures in
the Condensed Consolidated Statement of Cash Flows have been
reclassified to conform with the current period's presentation.
8. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS - In December 1999,
the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") 101 "Revenue Recognition in Financial
Statements", which was amended by SAB 101B in June 2000. SAB 101B
delayed the implementation date of SAB 101 to the fourth quarter
of the Company's fiscal 2001. The SAB provides guidance on
the recognition, presentation and disclosure of revenue in the
financial statements. The Company intends to adopt the SAB in the
fourth quarter of fiscal 2001. The impact of its adoption on the
consolidated financial statements is not expected to be material.
In 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") 133,
"Accounting for Derivative Instruments and Hedging Activities".
This Statement was subsequently amended as SFAS 138, "Accounting
for Certain Derivative Instruments and Certain Hedging
Activities". The Company intends to adopt this Statement on April
1, 2001. Adoption of this Statement is not expected to have a
material impact on the Company's financial statements.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(in U.S. dollars)
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains or incorporates by reference
certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company intends that such
forward-looking statements be subject to the safe harbors created by such
legislation. Such forward-looking statements involve risks and
uncertainties and include, but are not limited to, statements regarding
future events and the Company's plans, goals and objectives. Such
statements are generally accompanied by words such as "intend",
"anticipate", "believe", "estimate", "expect" or similar statements. The
Company's actual results may differ materially from such statements. Among
the factors that could result in such differences are the impact of
weather conditions, increased competition, labor shortages, the condition of
the United States and Canadian economies and the ability of the
Company to make acquisitions at reasonable prices. Although the
Company believes that the assumptions underlying its forward-looking
statements are reasonable, any of the assumptions could prove inaccurate
and, therefore, there can be no assurance that the results contemplated
in such forward-looking statements will be realized. The inclusion of
such forward-looking statements should not be regarded as a
representation by the Company or any other person that the future events,
plans or expectations contemplated by the Company will be achieved. The
Company notes that past performance in operations and share price are
not necessarily predictive of future performance.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
Revenues increased $17.2 million, or 21.5%, to $97.0 million in the
third quarter of fiscal 2001 from $79.8 million in the third quarter of
fiscal 2000. Approximately $9.0 million of the increase is attributable to
acquired companies owned less than one year including SST and several
smaller tuck-under acquisitions.
Earnings before interest, taxes, depreciation and amortization
("EBITDA") increased 32.4% to $7.7 million from $5.8 million in the prior
year period. EBITDA margins for the three months ended December 31, 2000,
increased 70 basis points to 8.0% from 7.3% in the prior year. The margin
improvement primarily reflects a change in the seasonal mix of business
driven by the rapid growth of the residential property management operations,
which carry consistent quarterly margins of 10-12% relative to the Company's
slower growth seasonal businesses that historically have generated losses
in the December and March quarters.
10
Depreciation for the quarter ended December 31, 2000 was $1.9 million, up
16.6% from the prior year quarter due largely to acquisitions. Amortization
was $1.0 million, up 9.3% due to the increase in goodwill resulting from
acquisitions completed during the past year.
Interest expense increased 21.6% over prior year levels to $2.5 million
as a result of increased borrowings related to acquisitions and higher
interest rates. All acquisitions completed during the past year have
been financed through the Company's credit facilities.
The income tax provision for the second quarter was approximately 40%
of earnings before taxes, consistent with the prior year.
Minority interest increased to $319 or 23.2% of earnings before
minority interest from $170 or 23.6% in the prior year quarter. The
87.6% increase reflects the 90.6% increase in earnings before minority
interest and also a change in the mix of earnings relative to the prior year
as certain operations having lower minority shareholdings contributed more
to consolidated earnings.
Net earnings were $1.1 million, up 91.5% over the prior year period,
while diluted earnings per share doubled to $0.08. Adding back
amortization would result in cash earnings per share of $0.15 for the
quarter compared to $0.11 in the prior year quarter.
Revenues for the Property Services division were $78.3 million, an increase
of approximately $16.0 million or 25.7 % over the prior year. Approximately
$9.0 million of the revenue increase resulted from acquisitions including
SST, which closed on July 1, 2000 and several tuck-under companies. The
balance of the increase resulted from internal growth of approximately 11.0%.
Property Services EBITDA grew 55.0% to $5.6 million or 7.1% of revenue
compared to $3.6 million or 5.8% of revenue in the prior year. The margin
increase reflects the change in seasonal mix discussed above.
Revenues for the Business Services division rose to $18.6 million for the
third quarter, a 6.3% increase over the prior year, all attributable to
internal growth. Business Services EBITDA was $3.4 million or 18.3% of
revenue, compared to $3.3 million and 19.0% of revenue in the prior year.
The margin decline is primarily attributable to start-up costs
associated with three significant contracts secured during the quarter by
the Company's BDP Business Data Services unit. Two of the contracts commenced
during the quarter and the third will start in the fourth quarter.
Corporate expenses increased to $1.2 million in the third quarter from
$1.1 million in the prior year period.
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
Revenues for the first nine months of fiscal 2001 increased 22.7% to
$320.5 million from $261.2 million in the first nine months of
fiscal 2000. Approximately $30 million of the increase was attributable to
acquired companies owned less than one year. The remaining increase
resulted from internal growth of approximately 11%.
11
EBITDA increased 22.2% to $41.6 million from $34.1 million in the prior
year period. EBITDA margins for the nine months ended December 31, 2000,
were 13.0% approximately the same as the 13.1% for the nine months ended
December 31, 1999.
Depreciation for the nine month period was $5.5 million up 16.0% from the
prior year period due largely to acquisitions. Amortization was $3.1 million,
up 10.6% due to the increase in goodwill that has resulted from
acquisitions completed during the past year.
Interest expense increased 24.8% over prior year levels to $7.2 million
as a result of increased borrowings related to acquisitions and higher
interest rates.
The income tax provision for the nine months ended December 31, 2000
was approximately 40.0% of earnings before taxes, consistent with the
prior year period.
Minority interest increased 31.7% to $2.9 million or 18.4% of earnings
before minority interest compared to $2.2 million or 17.3% in the prior
year period. The increase reflects the increase in earnings and the larger
contribution to earnings by non-wholly owned operations relative to the
prior year period.
Net income for the first nine months of fiscal 2001 was $12.7 million, up
22.7% over the first nine months of fiscal 2000, while diluted earnings
per share increased 22.7% to $0.92.
Nine months' revenues for the Property Services division were $260.7 million,
an increase of approximately $53.6 million or 26.0% over the prior
year. Approximately $30 million of the revenue increase resulted from
acquisitions including American Pool Enterprises, which closed on June 1,
1999, SST, which closed July 1, 2000 and several smaller tuckunder
acquisitions. The balance of the increase resulted from internal growth.
The Property Services EBITDA margin for the nine months was 12.4% compared to
12.6% in the prior year.
Nine months' revenues for the Business Services division were $59.8 million,
up 10.3% over the prior year, reflecting the impact of the acquisition of DDS
Southwest and internal growth of approximately 6.0%. The Business Services
EBITDA margin for the first nine months of fiscal 2001 was 21.4% of revenue,
up from 21.0% in the prior year.
Corporate expenses increased to $3.5 million in the first nine months of
fiscal 2001 from $3.3 million in the prior year period.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Certain segments of the Company's operations, which in the aggregate
comprise approximately 15% of revenues, are subject to seasonal variations.
Specifically, the demand for residential lawn care services, exterior
painting services, and commercial pool maintenance in the northern
United States and in Canada is highest during late spring, summer and early
fall and very low during winter. As a result, these operations generate a
large percentage of their annual revenues between April and September. The
Company has historically generated lower profits or net losses during its
third and fourth fiscal quarters, from October to March. Residential
property management, Security Services, Business
12
Services and many of the franchise systems generate revenues evenly
throughout the fiscal year.
The seasonality of the lawn care, painting and pool maintenance
operations results in variations in quarterly EBITDA margins. Variations
in quarterly EBITDA margins can also be caused by acquisitions which alter
the consolidated service mix. The Company's non-seasonal businesses
typically generate a consistent EBITDA margin over all four quarters,
while the Company's seasonal businesses experience high EBITDA margins in
the first two quarters, offset by negative EBITDA in the last two quarters.
As non-seasonal revenues increase as a percentage of total revenues, the
Company's quarterly EBITDA margin fluctuations should be reduced.
LIQUIDITY AND CAPITAL RESOURCES
Bank borrowings, proceeds from capital stock issues, and cash flow
from operations have historically been the funding sources for working
capital requirements, capital expenditures and acquisitions. Management
believes that funds from these sources will remain available and are
adequate to support ongoing operational requirements and near-term
acquisition growth.
In December 1996, FirstService entered into a lending agreement with a
syndicate of banks. The agreement, amended and restated in October 1997,
again in June, 1998 and most recently on April 1, 1999, currently provides
six-year committed revolving credit facilities for acquisitions of Cdn
$50 million and US $130 million. Outstanding indebtedness under the
facilities bears interest at a rate based on competitive floating reference
rates, as selected by the Company, such as LIBOR, plus a margin of 1.00%
to 1.50% per annum, depending on certain leverage ratios. The agreement
requires the Company to meet specific financial ratios and places certain
limitations on additional borrowing and the ability to pay dividends or sell
assets. As of December 31, 2000, the Company had drawn Cdn $6.1 million and
US $117.3 million under this lending agreement.
The Company is exposed to foreign currency exchange risk however the
exposure may be mitigated as the lending agreement provides that it may
borrow in Canadian or U.S. funds.
During the quarter ended December 31, 2000, capital expenditures were
$2.0 million primarily for leasehold improvements and equipment in the
Business Services division, as well as vehicles and equipment in
Management Services. Capital expenditures for the nine months ended
December 31, 2000 were $7.0 million.
In connection with certain acquisitions, the Company has agreed to
pay additional consideration based on operating results of the acquired
entities. The payment of any such amounts would be in cash and would result
in an increase in the purchase prices for such acquisitions and, as a
result, additional goodwill.
13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
1. a) Exhibits
3.1* Articles of Incorporation and Amendment
3.2* By-Laws and Amendments
10.1* Credit Facility dated April 1, 1999 among the company and
syndicate of bank lenders
10.2** FirstService Corporation Amended Stock Option Plan # 2
10.3** FirstService Corporation Amended Share Purchase Plan # 2
b) Reports on Form 8-K
None.
-------------------
* Incorporated by reference to the Company's report on Form 10-Q for the
period ended June 30, 1999.
** Incorporated by reference to the Company's report on Form 10-K for the year
ended March 31, 2000.
14
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: February 14, 2001
FIRSTSERVICE CORPORATION
By: ---------------------------------------------------
D. SCOTT PATTERSON
Senior Vice President and Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER & AUTHORIZED SIGNATORY)
15