EX-99.1 2 ex991.htm NEWS RELEASE DATED MAY 17, 2006 News Release dated May 17, 2006
EXHIBIT 99.1


COMPANY CONTACTS:
 
 
Jay S. Hennic
Founder & CEO
 
 
D. Scott Patterson
President & COO
 
 
John B. Friedrichsen
Senior Vice President & CFO
 
  (416) 960-9500
 
       
FOR IMMEDIATE RELEASE
FirstService reports record fourth quarter and yearend results

Exceeds $1 billion in revenues for the first time

Yearend highlights: 
 
•
Revenues $1.1 billion, up 64%
 
•
EBITDA $89 million, up 57%
 
•
Net earnings up 54%
 
•
Diluted EPS up 51%
 
•
Net after-tax gain of $36 million on sale of Resolve Corporation

TORONTO, Canada, May 17, 2006 - FirstService Corporation (Nasdaq: FSRV; TSX: FSV) today reported record results for its fourth quarter and year ended March 31, 2006. All amounts are in US dollars.

For the year ended March 31, 2006, revenues were $1.068 billion, up 64% versus the prior year period, while EBITDA (see definition and reconciliation below) was up 57% to $88.8 million. Operating results exclude the Resolve Corporation business services operation which is classified as a discontinued operation for all periods presented. Adjusted net earnings from continuing operations were $32.3 million, up 54% from $21.0 million in the prior year, while adjusted diluted earnings per share from continuing operations were $1.01, up 51%. The adjustment (see reconciliations below) represents non-cash amortization of short-lived intangible assets relating to pending
 
 
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brokerage transactions and listings recognized on recent acquisitions in the Company’s commercial real estate services platform.

Fourth quarter revenues were $247.9 million, an increase of 24% relative to the same period last year. EBITDA increased 90% to $10.1 million. Adjusted net earnings from continuing operations were $1.9 million versus a loss of $0.5 million in the prior year period. Adjusted diluted earnings per share from continuing operations were $0.06 versus a loss of $0.03 in the prior year period.

“Our strong fiscal 2006 results, solid capital base and the favorable operating environments in each of our service lines position FirstService to continue delivering outstanding results for our shareholders in fiscal 2007 and beyond”, said Jay S. Hennick, Founder and Chief Executive Officer. “The sale of Resolve was an important step as we sharpen our focus as a property services company competing in global markets. FirstService has $300 million in available capital to invest in long-term growth opportunities and we will continue to capitalize on strong internal growth and appropriate acquisitions,” he added.

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; California Closets, Paul Davis Restoration, Pillar to Post Home Inspections and CertaPro Painters in property improvement; and Intercon Security and Security Services & Technologies in integrated security services.

FirstService is a diversified property services company with more than US$1 billion in annualized revenues and over 12,000 employees worldwide. More information about FirstService is available at www.firstservice.com. 

Segmented Quarterly Results
The company’s Commercial Real Estate Services operation generated revenues of $93.9 million for the fourth quarter, representing growth of 32%. Internal growth was 15% relative to the same period one year ago resulting from continuing robust brokerage activity, particularly along the North American west coast and in Australia. The balance of the growth was attributable to the November 2005 acquisition of Los Angeles-based Colliers Seeley. Fourth quarter EBITDA was $5.5 million, at a margin of 5.8%, up dramatically from $0.4 million at a margin of 0.6% reported in the prior year quarter. The increase in margin was attributable to changes in the variable broker commission structure that result in lower commission expense early in the calendar year until minimum thresholds are
 
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achieved and higher expense later in the year, provided production targets are met by brokers. The margin was also impacted by lower administrative spending during the quarter.

Residential Property Management revenues increased to $87.3 million for the quarter, 27% higher than in the prior year period. Substantially all of the growth was attributable to contractual property management fee revenues. EBITDA for the quarter was $6.1 million, up 10% from $5.5 million one year ago, while margins were 7.0% versus 8.0% primarily due to changes in revenue mix with proportionately less higher-margin ancillary services revenues compared to the prior year period.

Revenues in Property Improvement Services totalled $25.9 million, an increase of 9% over the prior year period. Internal growth in this seasonally slow quarter was 4%. EBITDA for the fourth quarter was $0.4 million, an increase of $0.2 million relative to last year.

Integrated Security Services revenues in the fourth quarter were $40.6 million, a 12% increase relative to the prior year period. Excluding the impact of foreign exchange, growth was 8%. Revenue growth was attributable to higher levels of commercial security systems installation activity. Quarterly EBITDA was $1.4 million versus $2.1 million in the prior year period, a result of lower gross margins in certain markets consistent with results posted in earlier quarters of fiscal 2006.

On March 17, 2006, the Company completed the sale of its Resolve business services operation. An after-tax gain on sale of discontinued operations of $35.8 million was recorded. Excluding this gain, discontinued operations reported after-tax earnings of $5.6 million for the fiscal year ended March 31, 2006, relative to $6.6 million in the prior year. The difference was primarily a result of a gain on the settlement of a long term contract by Resolve during the comparative prior year fourth quarter ended March 31, 2005.

Quarterly corporate costs were $3.2 million, $0.3 million higher than in the prior year quarter. Included in both periods were performance-based executive compensation accruals and costs for Sarbanes-Oxley compliance work.

A comparison of segmented EBITDA to operating earnings is provided below.

Repurchases of FirstService Shares
During the period from October 31, 2005 to March 14, 2006, the Company purchased 571,650 Subordinate Voting Shares for cancellation through the facilities of the Toronto Stock Exchange and Nasdaq National Market at an average cost of $23.98 per share pursuant to a normal course issuer bid. The repurchases represented approximately
 
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1.9% of the total shares outstanding prior to the repurchase and were funded from operating cash flow and cash on hand. During the quarter ended March 31, 2006, the number of shares repurchased was 98,950.
 
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Adoption of New Stock Option Accounting Standard
The Company has been recording compensation expense related to stock options granted since April 1, 2003. Effective April 1, 2006, FirstService adopted FASB Statement No. 123(R) Share-Based Payment (“SFAS 123R”). SFAS 123R requires that share-based compensation transactions, including grants of employee stock options, be accounted for using a fair value based method and prescribes detailed calculation methods. The adoption of SFAS 123R will result in a cumulative effect of an accounting policy charge of $1.0 million, which will be recorded in the quarter ended June 30, 2006, and represents a non-recurring, non-cash expense.

Financial Outlook
Based on the results of fiscal 2006 and the completion of the Company’s annual budgeting process, FirstService is reiterating the outlook for fiscal 2007 previously issued on March 20, 2006.
 
     
Fiscal year ending
March 31, 2007 (1)
(in millions of US dollars, except per share amounts)
      
Revenues
    
$1,125 - $1,200
EBITDA (2)
    
$96 - $105
Adjusted diluted net earnings per share (3)
    
$1.12 - $1.22
    Notes
1.
The outlook assumes: (i) no further acquisitions or divestitures completed during the outlook period (ii) exclusion of expected impact of one-time cumulative effect adjustments upon adoption of SFAS 123(R) on April 1, 2006 and (iii) 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.
 
2.
EBITDA is defined as net earnings before minority interest share of earnings, income taxes, interest, depreciation and amortization. EBITDA is not a recognized measure of financial performance under 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.
 
3.
Diluted net earnings per share is adjusted for the impact of accelerated amortization of short-lived intangible assets acquired in connection with commercial real estate acquisitions completed during the past year.

Conference Call
FirstService will be holding a conference call on Wednesday, May 17, 2006 at 11:00AM Eastern Time to discuss results for the fourth quarter and full fiscal year as well as the 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.

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,
 
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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 and U.S. Securities and Exchange Commission.
 
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FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
(in thousands of US dollars, except per share amounts)
(unaudited)
 
   
Three months ended
March 31
  
Year ended
March 31
  
   
2006
  
2005
  
2006
  
2005
  
                   
Revenues
  
$
247,947
  
$
200,110
  
$
1,068,134
  
$
651,376
  
Cost of revenues
    
162,181
    
123,621
    
684,280
    
422,784
  
Selling, general and administrative expenses
    
75,647
    
71,152
    
295,050
    
172,179
  
Depreciation
    
3,426
    
3,372
    
12,340
    
9,603
  
Amortization of intangibles other than backlog
    
1,046
    
1,026
    
3,684
    
2,769
  
Amortization of short-lived brokerage backlog (1)
    
2,684
    
3,777
    
7,554
    
8,735
  
Operating earnings (loss)
    
2,963
    
(2,838
)
  
65,226
    
35,306
  
Other (income) expense (2)
    
(47
)
  
(375
)
  
(3,776
)
  
(375
)
Interest expense
    
3,113
    
2,732
    
11,879
    
7,192
  
     
(103
)
  
(5,195
)
  
57,123
    
28,489
  
Income taxes
    
(2,015
)
  
(2,128
)
  
17,208
    
7,014
  
     
1,912
    
(3,067
)
  
39,915
    
21,475
  
Minority interest share of earnings
    
1,441
    
(193
)
  
11,881
    
6,085
  
Net earnings (loss) from continuing operations
    
471
    
(2,874
)
  
28,034
    
15,390
  
Earnings from discontinued operations, net of income
taxes
    
142
    
2,955
    
5,644
    
6,617
  
Gain (loss) on sale of discontinued operations, net of
income taxes
    
35,819
    
(736
)
  
35,819
    
1,200
  
Net earnings (loss)
  
$
36,432
  
$
(655
)
$
69,497
  
$
23,207
  
                           
Net earnings (loss) per share
                          
Basic
                          
Continuing operations
  
$
0.02
  
$
(0.10
)
$
0.93
  
$
0.52
  
Discontinued operations
    
-
    
0.10
    
0.18
    
0.22
  
Sale of discontinued operations
    
1.19
    
(0.02
)
  
1.19
    
0.04
  
   
$
1.21
  
$
(0.02
)
$
2.30
  
$
0.78
  
                           
Diluted (3)
                          
Continuing operations
  
$
0.01
  
$
(0.11
)
$
0.87
  
$
0.49
  
Discontinued operations
    
-
    
0.09
    
0.18
    
0.21
  
Sale of discontinued operations
    
1.17
    
(0.02
)
  
1.16
    
0.04
  
   
$
1.18
  
$
(0.04
)
$
2.21
  
$
0.74
  
                           
Adjusted diluted net earnings (loss) per share from continuing operations (4)
  
$
0.06
  
$
(0.03
)
$
1.01
  
$
0.67
  
                           
Weighted average shares            Basic
    
30,035
    
30,065
    
30,171
    
29,777
  
outstanding: (in thousands)           Diluted          
    
30,683
    
30,743
    
30,896
    
30,467
  
 
Notes:
(1) Amortization of short-lived brokerage backlog intangible assets recognized upon recent acquisitions in the commercial real estate services segment. 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) Other income for the year ended March 31, 2006 includes a $2,012 pre-tax gain on the disposal of two businesses recognized during the quarter ended December 31, 2005.
(3) Numerators for diluted earnings per share calculations have been adjusted to reflect dilution from stock options outstanding at subsidiaries. The adjustment for the three months ended March 31, 2006 is $269 (2005 - $569) and for the year ended March 31, 2006 is $1,253 (2005 - $569).
(4) 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.
 
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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 brokerage businesses. This amortization is being eliminated because the Company believes the short-lived and non-cash nature of this charge is not reflective of the operating performance of the Company. All of the adjustments are considered “non-GAAP financial measures” under OSC and SEC guidelines. The following tables provide a reconciliation of the adjusted measures:


   
Three months ended
March 31
  
Year ended
March 31
  
   
2006
  
2005
  
2006
  
2005
  
                   
Adjusted operating earnings
  
$
5,647
  
$
939
  
$
72,780
  
$
44,041
  
Amortization of brokerage backlog
    
(2,684
)
  
(3,777
)
  
(7,554
)
  
(8,735
)
Operating earnings (loss)
  
$
2,963
  
$
(2,838
)
$
65,226
  
$
35,306
  
                           
Adjusted net earnings (loss) from continuing operations
  
$
1,885
  
$
(457
)
$
32,332
  
$
20,980
  
Amortization of brokerage backlog
    
(2,684
)
  
(3,777
)
  
(7,554
)
  
(8,735
)
Deferred income taxes
    
1,064
    
1,360
    
2,892
    
3,145
  
Minority interest
    
206
    
-
    
364
    
-
  
Net earnings (loss) from continuing operations
  
$
471
  
$
(2,874
)
$
28,034
  
$
15,390
  
                           
Adjusted diluted net earnings (loss) per share from continuing operations
  
$
0.06
  
$
(0.03
)
$
1.01
  
$
0.67
  
Amortization of brokerage backlog, net of deferred income taxes
    
(0.05
)
  
(0.08
)
  
(0.14
)
  
(0.18
)
Diluted net earnings (loss) per share from continuing operations
  
$
0.01
  
$
(0.11
)
$
0.87
  
$
0.49
  

 
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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
March 31
  
Year ended
March 31
  
   
2006
  
2005
  
2006
  
2005
  
                   
EBITDA
  
$
10,119
  
$
5,337
  
$
88,804
  
$
56,413
  
Depreciation
    
(3,426
)
  
(3,372
)
  
(12,340
)
  
(9,603
)
Amortization of intangibles other than brokerage backlog
    
(1,046
)
  
(1,026
)
  
(3,684
)
  
(2,769
)
Amortization of brokerage backlog
    
(2,684
)
  
(3,777
)
  
(7,554
)
  
(8,735
)
Operating earnings (loss)
  
$
2,963
  
$
(2,838
)
$
65,226
  
$
35,306
  
 
 
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Condensed Consolidated Balance Sheets
(in thousands of US dollars)
(unaudited)


   
March 31
2006
  
March 31
2005
  
           
Assets
              
Cash and cash equivalents
  
$
167,938
  
$
37,458
  
Accounts receivable
    
128,276
    
168,927
  
Inventories
    
27,267
    
20,878
  
Prepaids and other current assets
    
31,698
    
21,507
  
 Current assets
    
355,179
    
248,770
  
Fixed assets
    
48,733
    
57,241
  
Other non-current assets
    
39,911
    
22,754
  
Goodwill and intangibles
    
267,262
    
297,963
  
 Total assets
  
$
711,085
  
$
626,728
  
Liabilities and shareholders’ equity
              
Accounts payable and accrued liabilities
  
$
149,875
  
$
155,429
  
Other current liabilities
    
15,144
    
9,147
  
Long term debt - current
    
18,646
    
18,206
  
 Current liabilities
    
183,665
    
182,782
  
Long term debt - non-current
    
230,040
    
201,809
  
Deferred income taxes
    
31,165
    
29,802
  
Minority interest
    
28,463
    
26,464
  
Shareholders’ equity
    
237,752
    
185,871
  
Total liabilities and equity
  
$
711,085
  
$
626,728
  
               
               
               
               
Total debt, excluding interest rate swaps
  
$
248,686
  
$
219,732
  
Total debt, net of cash, excluding interest rate swaps
    
80,748
    
182,274
  

 
 
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Condensed Consolidated Statements of Cash Flows
(in thousands of US dollars)
(unaudited)  
   
   
Year ended March 31
  
   
2006
  
2005
  
Operating activities
              
Net earnings from continuing operations
  
$
28,034
  
$
15,390
  
Items not affecting cash:
              
Depreciation and amortization
    
23,578
    
21,107
  
Deferred income taxes
    
(4,325
)
  
473
  
Minority interest share of earnings
    
11,881
    
6,086
  
               
Changes in operating assets and liabilities
    
(8,992
)
  
(12,145
)
Other operating activities
    
7,519
    
5,531
  
Net cash provided by operating activities
    
57,695
    
36,442
  
Investing activities
              
Acquisitions of businesses, net of cash acquired
   
(26,088
)
  
(58,978
)
Purchases of fixed assets, net
    
(18,837
)
  
(12,499
)
Other investing activities
    
95,436
    
3,022
  
Net cash provided by (used in) investing
    
50,511
    
(68,455
)
Financing activities
              
Increases in long-term debt
    
36,052
    
48,630
  
Other financing activities
    
(12,793
)
  
2,087
  
Net cash provided by financing
    
23,259
    
50,717
  
Effect of exchange rate changes on cash
   
(985
)
  
3,134
  
Increase in cash and cash equivalents during the period
    
130,480
    
21,838
  
Cash and cash equivalents, beginning of period
    
37,458
    
15,620
  
Cash and cash equivalents, end of period
  
$
167,938
  
$
37,458
  

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

    Residential   Commercial   Integrated   Property          
    Property   Real Estate   Security    Improvement          
   
 Management
  
 Services
  
  Services
  
Services
  
Corporate
  
Consolidated
  
Three months ended March 31
                                      
                                       
2006
                                      
Revenues
  
$
87,342
  
$
93,941
  
$
40,598
  
$
25,926
  
$
140
  
$
247,947
  
EBITDA
    
6,102
    
5,494
    
1,399
    
372
    
(3,248
)
  
10,119
  
Operating
earnings
    
4,496
    
1,671
    
751
    
(666
)
  
(3,289
)
  
2,963
  
                                       
                                       
2005
                                      
Revenues
  
$
68,874
  
$
70,936
  
$
36,251
  
$
23,842
  
$
207
  
$
200,110
  
EBITDA
    
5,543
    
413
    
2,130
    
155
    
(2,904
)
  
5,337
  
Operating
earnings
    
3,960
    
(4,232
)
  
1,044
    
(640
)
  
(2,970
)
  
(2,838
)


Year ended March 31
                                      
                                       
2006
                                      
Revenues
  
$
346,133
  
$
438,434
  
$
149,063
  
$
134,136
  
$
368
  
$
1,068,134
  
EBITDA
    
31,390
    
36,465
    
7,660
    
25,765
    
(12,476
)
  
88,804
  
Operating
earnings
    
25,767
    
25,079
    
5,005
    
22,016
    
(12,641
)
  
65,226
  
                                       
                                       
2005
                                      
Revenues
  
$
275,229
  
$
120,535
  
$
143,160
  
$
111,779
  
$
673
  
$
651,376
  
EBITDA
    
24,088
    
11,144
    
10,286
    
19,867
    
(8,972
)
  
56,413
  
Operating
earnings
    
18,917
    
1,276
    
7,468
    
16,796
    
(9,151
)
  
35,306
  





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