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Quarterly operating highlights:
March 31, 2009 March 31, 2008
------------------ --------------------
Revenues $ 361.0 million $ 369.1 million
EBITDA $ 12.4 million $ 0.4 million
Adjusted EPS $ 0.08 $ (0.19)
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TORONTO, April 29, 2009 (GLOBE NEWSWIRE) -- FirstService Corporation (Nasdaq:FSRV) (TSX:FSV) (TSX:FSV.PR.U) today reported results for the three months ended March 31, 2009, the first quarter of its new fiscal year ending December 31, 2009. All amounts are in U.S. dollars.
For the quarter ended March 31, 2009, revenues were $361.0 million, a decrease of 2% relative to the same period in the prior year, EBITDA (1) was $12.4 million up significantly from $0.4 million and Adjusted EPS (2) was $0.08, an improvement over $(0.19) reported in the prior year period. GAAP EPS from continuing operations was $(1.56) in the quarter compared to $(0.32) for the same quarter a year ago.
"FirstService reported very respectable financial results for the first quarter with strong performances from our Residential Property Management operations and exceptional year over year results from our Property Services operation, particularly Paul Davis Restoration, the largest insurance claims restoration company in America and Field Asset Services, one of America's largest providers of property preservation and foreclosure services," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. "While we continue to face difficult market conditions in Commercial Real Estate, we are confident that steps taken to streamline our operations will position us very well once market conditions return to normal," he concluded.
About FirstService Corporation
FirstService is a global diversified leader in the rapidly growing real estate services sector, providing services in the following three areas: commercial real estate; residential property management; and property services. Industry-leading service platforms include: FirstService Commercial Real Estate Services, the fourth largest global player in commercial real estate; FirstService Residential Management, the largest manager of residential communities in North America; and TFC, North America's largest provider of property services through franchise and contractor networks.
FirstService is a diversified property services company with more than US$1.7 billion in annualized revenues and over 18,000 employees worldwide. More information about FirstService is available at www.firstservice.com.
Segmented Quarterly Results
Revenues in Commercial Real Estate Services totalled $118.5 million for the quarter, down 30% relative to the prior year quarter. Excluding the impact of acquisitions, revenues declined 37% (29% on a local currency basis) primarily as a result of a reduction in property sales activity and the impact of the global economic slowdown. The quarterly EBITDA loss, before a non-recurring $3.2 million cost containment charge, was $11.5 million, versus a loss of $11.6 million in the year-ago period.
Residential Property Management revenues increased to $146.6 million for the quarter, up 4% versus the prior year period, attributable to an 8% increase in property management contract revenue, offset by a decline in ancillary service revenues. EBITDA for the quarter was $11.5 million, up 15% from $10.0 million in the prior year period.
Revenues in Property Services totalled $95.9 million, an increase of 59% over the prior year period. The revenue increase was attributable primarily to Field Asset Services. Revenues declined 32% in the segment's consumer-oriented franchise operations, as most of these operations continued to be negatively impacted by the weak U.S. economy. EBITDA in the first quarter was $13.5 million, versus $3.1 million in the prior year period primarily because of the strong revenues generated at Field Asset Services.
Quarterly corporate costs were $2.8 million, relative to $2.5 million in the prior year period.
Goodwill Impairment Charge and Deferred Income Tax Charge
During the quarter, the Company concluded that it was necessary to take a non-cash goodwill impairment charge in its Commercial Real Estate segment as a result of the operating performance of its North American and European reporting units. The amount is currently estimated at $30.0 million and is expected to be finalized upon the filing of the Company's quarterly financial statements on SEDAR within the next two weeks. The estimated amount represents 20% of the Commercial Real Estate segment's goodwill prior to the charge and 8.5% of consolidated goodwill prior to the charge. This non-cash impairment charge does not affect the Company's liquidity, cash flow or compliance with debt covenants.
Also during the quarter, the Company recorded a non-cash valuation allowance with respect to deferred income tax assets, which increased income tax expense by $12.5 million and reduced earnings per share by $0.39. The valuation allowance relates to tax loss carry-forwards in the Company's North American Commercial Real Estate operations. The loss carry-forwards remain available to offset taxes over the next 20 years.
Adoption of New Accounting Standards
On January 1, 2009, the Company adopted two new accounting standards - SFAS No. 141R, Business Combinations ("SFAS 141R") and SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 ("SFAS 160").
SFAS 141R impacts the accounting for business acquisitions made in 2009 and going forward, with new requirements to expense transaction costs as incurred and record the fair value of contingent consideration at the acquisition date, with subsequent changes in fair value recorded on the statement of earnings. The impact of SFAS 141R on the quarter's results was insignificant.
SFAS 160 and corresponding changes to related guidance materially change the manner in which the Company accounts for non-controlling interests ("NCI"), formerly referred to as minority interests. NCI is now required to be recorded on the balance sheet at its redemption amount, rather than disclosed in the notes to the financial statements, and the adjustment was required to be applied retrospectively to prior periods. The impact of the adoption of these standards as at January 1, 2009 was a $146.7 million increase in NCI, with a corresponding decrease to shareholders' equity. Changes in the redemption amount affected earnings per share prospectively commencing January 1, 2009; earnings per share of prior periods were not required to be revised.
Conference Call
FirstService will be holding a conference call on Wednesday, April 29, 2009 at 11:00 am Eastern Daylight Time to discuss results for the first quarter. The call will be simultaneously web cast and can be accessed live or after the call at www.firstservice.com in the "Investors / Newsroom" section.
Footnotes
1. Reconciliation of net loss from continuing operations to EBITDA:
Three months ended
(in thousands of U.S. dollars) March 31
--------------------
(unaudited) 2009 2008
-------- --------
Net loss from continuing operations $(44,744) $(6,190)
Income taxes 7,491 (8,632)
Other expense (income) (91) (826)
Interest expense, net 2,654 3,845
-------- --------
Operating loss (34,690) (11,803)
Depreciation 5,739 5,563
Amortization of intangible assets 6,521 5,249
Goodwill impairment charge 30,000 --
-------- --------
7,570 (991)
Stock-based compensation expense 1,637 1,375
Cost containment 3,212 --
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EBITDA $12,419 $384
-------- --------
EBITDA is defined as net earnings from continuing operations before income taxes, interest, depreciation and amortization, stock-based compensation expense and other non-cash or non-recurring expenses. The Company uses EBITDA to evaluate operating performance. 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.
2. Reconciliation of net loss and net loss per common share from
continuing operations to adjusted net earnings and adjusted net
earnings per share:
(in thousands of U.S. dollars) Three months ended
March 31
-------------------
(unaudited) 2009 2008
-------- --------
Net loss attributable to common
shareholders $(48,956) $(33,402)
Non-controlling interest redemption
increment 2,008 21,425
Company share of net loss from
discontinued operations, net of tax 3,318 2,481
Amortization of intangible assets 6,521 5,249
Goodwill impairment charge 30,000 --
Stock-based compensation expense 1,637 1,375
Cost containment 3,212 --
Income tax on adjustments (3,747) (2,253)
Deferred income tax valuation allowance 12,482 --
Non-controlling interest on adjustments (3,971) (534)
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Adjusted net earnings (loss) from continuing
operations $2,504 $(5,659)
-------- --------
(in US dollars) Three months ended
March 31
-------------------
(unaudited) 2009 2008
-------- --------
Diluted net loss per common share from
continuing operations $(1.56) $(0.32)
Non-controlling interest redemption
increment 0.07 --
Amortization of intangible assets, net of
income tax 0.13 0.10
Goodwill impairment charge 0.95 --
Stock-based compensation expense, net of
income tax 0.03 0.03
Cost containment 0.07 --
Deferred income tax valuation allowance 0.39 --
-------- --------
Adjusted diluted net earnings (loss) per
common share from continuing operations $0.08 $(0.19)
-------- --------
The Company is presenting adjusted earnings measures to eliminate the impact of: (i) the NCI redemption increment in connection with SFAS 160 and related guidance; (ii) amortization expense related to intangible assets recognized in connection with acquisitions; (iii) a non-recurring goodwill impairment charge; (iv) stock-based compensation expense and (v) non-recurring cost containment expenses in the Commercial Real Estate segment. All of the adjustments are considered "non-GAAP financial measures" under OSC and SEC guidelines.
Forward-looking Statements
This press release includes forward-looking statements. Forward-looking statements include the Company's financial performance outlook and statements regarding goals, beliefs, strategies, objectives, plans or current expectations. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Such factors include: (i) general economic and business conditions, which will, among other things, impact demand for the Company's services and the cost of providing services; (ii) the ability of the Company to implement its business strategy, including the Company's ability to acquire suitable acquisition candidates on acceptable terms and successfully integrate newly acquired businesses with its existing businesses; (iii) changes in or the failure to comply with government regulations; and (iv) other factors which are described in the Company's filings with the Ontario Securities Commission.
Summary financial information is provided in this press release. This press release should be read in conjunction with the Company's full quarterly financial statements and MD&A to be made available on SEDAR at www.sedar.com.
FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
---------------------------------------------
(in thousands of U.S. dollars, except per share amounts)
Three months ended
March 31
--------------------
(unaudited) 2009 2008
--------- ---------
Revenues $361,009 $369,131
Cost of revenues 227,612 233,354
Selling, general and administrative expenses 125,827 136,768
Depreciation 5,739 5,563
Amortization of intangible assets 6,521 5,249
Goodwill impairment charge (1) 30,000 --
--------- ---------
Operating loss (34,690) (11,803)
Other expense (income) (91) (826)
Interest expense, net 2,654 3,845
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(37,253) (14,822)
Income taxes (2) 7,491 (8,632)
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Net loss from continuing operations (44,744) (6,190)
Discontinued operations, net of tax (3) (3,921) (3,543)
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Net loss (48,665) (9,733)
Non-controlling interest share of earnings
(loss) (4,242) (372)
Non-controlling interest redemption increment 2,008 21,425
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Net loss attributable to Company $(46,431) $(30,786)
Preferred share dividends 2,525 2,616
--------- ---------
Net loss attributable to common shareholders $(48,956) $(33,402)
========= =========
Net loss per common share (4)
Basic
Continuing operations $(1.56) $(0.32)
Discontinued operations (0.11) (0.08)
--------- ---------
$(1.67) $(0.40)
========= =========
Diluted (5)
Continuing operations $(1.56) $(0.32)
Discontinued operations (0.11) (0.08)
--------- ---------
$(1.67) $(0.40)
========= =========
Adjusted diluted net earnings (loss) per
common share from continuing operations (6) $0.08 $(0.19)
========= =========
Weighted average common shares
outstanding: (in thousands) Basic 29,356 29,983
Diluted 29,371 30,389
Notes to Condensed Consolidated Statements of Earnings
(1) Estimated goodwill impairment charge in connection with the
Commercial Real Estate segment. The amount is expected to be
finalized upon the filing of the Company's quarterly financial
statements on SEDAR within the next two weeks.
(2) Income tax expense for the three months ended March 31, 2009
includes a $12,482 non-cash valuation allowance charge related
to deferred income tax assets (2008 - nil).
(3) Reflects: (i) the Integrated Security segment; (ii) the Canadian
commercial mortgage securitization operation; and (iii) the
Chicago-based US mortgage brokerage and servicing operation.
(4) Based on the implementation rules within SFAS 160 and related
guidance, comparative earnings per share for the quarter ended
March 31, 2008 were not restated for the changes in accounting
for NCI.
(5) Numerators for diluted earnings per share calculations have been
adjusted to reflect dilution from stock options at a subsidiary.
The adjustment for the quarter ended March 31, 2009 was nil
(2008 - nil).
(6) See definition and reconciliation above.
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands of U.S. dollars)
March 31 Dec. 31
(unaudited) 2009 2008
---------- ----------
Assets
------
Cash and cash equivalents $56,756 $79,642
Restricted cash 9,243 10,240
Accounts receivable 167,895 175,520
Inventories 10,749 10,572
Prepaids and other current assets 53,252 50,674
Assets held for sale 11,795 14,210
---------- ----------
Current assets 309,690 340,858
Fixed assets 75,399 76,789
Other non-current assets 32,103 39,363
Goodwill and intangibles 491,832 527,124
Assets held for sale 4,191 6,503
---------- ----------
Total assets $913,215 $990,637
========== ==========
Liabilities and shareholders' equity
------------------------------------
Accounts payable and accrued liabilities $172,838 $215,992
Other current liabilities 40,510 35,242
Long term debt - current 25,082 20,899
Liabilities related to assets held for sale 2,087 12,946
---------- ----------
Current liabilities 240,517 285,079
Long term debt - non-current 280,733 245,470
Other liabilities 22,128 21,832
Deferred income taxes 42,708 42,072
Liabilities related to assets held for sale 619 278
Non-controlling interest 178,080 196,765
Shareholders' equity 148,430 199,141
---------- ----------
Total liabilities and equity $913,215 $990,637
========== ==========
Total debt $305,815 $266,369
---------- ----------
Total debt, net of cash 249,059 186,727
---------- ----------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(in thousands of U.S. dollars)
Three months ended
(unaudited) March 31
--------------------
2009 2008
--------- ---------
Operating activities
Net loss from continuing operations $(44,744) $(6,190)
Items not affecting cash:
Depreciation and amortization 12,260 10,812
Goodwill impairment charge 30,000 --
Deferred income taxes 2,218 (18,476)
Other 851 3,056
--------- ---------
585 (10,798)
Changes in operating assets and liabilities (31,548) (11,024)
Discontinued operations (8,012) 6,411
--------- ---------
Net cash used in operating activities (38,975) (15,411)
--------- ---------
Investing activities
Acquisitions of businesses, net of cash
acquired (11,829) (19,361)
Purchases of fixed assets, net (4,208) (7,102)
Other investing activities 3,311 6,189
Discontinued operations 17 3
--------- ---------
Net cash used in investing activities (12,709) (20,271)
--------- ---------
Financing activities
Increase in long-term debt, net 37,528 24,392
Preferred share dividends (2,525) (2,616)
Other financing activities (2,906) (3,425)
Discontinued operations -- 140
--------- ---------
Net cash provided by financing activities 32,097 18,491
--------- ---------
Effect of exchange rate changes on cash (2,581) (4,179)
--------- ---------
Decrease in cash and cash equivalents (22,168) (21,370)
Cash and cash equivalents, beginning of period
including cash held by discontinued operations $ 80,049 $102,036
--------- ---------
Cash and cash equivalents, end of period
including cash held by discontinued operations $57,881 $80,666
========= =========
Segmented Revenues, EBITDA and Operating Earnings
-------------------------------------------------
(in thousands of U.S. dollars)
Commercial
Real Residential
Estate Property Property
(unaudited) Services Management Services Corporate Consolidated
--------------------------------------------------------
Three months
ended March
31
2009
Revenues $118,489 $146,617 $95,882 $21 $361,009
EBITDA (14,692) 11,534 13,507 (2,779) 7,570
Stock-based
compensation 1,637
Cost
containment 3,212 3,212
-------- --------
(11,480) 12,419
-------- --------
Operating
earnings
(loss) (52,133) 8,728 11,563 (2,848) (34,690)
2008
Revenues $168,282 $140,474 $60,308 $67 $369,131
EBITDA (11,638) 10,023 3,104 (2,480) (991)
Stock-based
compensation 1,375
--------
384
--------
Operating
earnings
(loss) (17,516) 6,952 1,378 (2,617) (11,803)