Exh. 1
FOR IMMEDIATE RELEASE
January 27, 1998
SERVICEMASTER ACHIEVES 20 PERCENT EPS GROWTH
AND 27TH CONSECUTIVE YEAR OF REVENUE AND PROFIT
GROWTH
DOWNERS GROVE, Illinois -- ServiceMaster (NYSE:SVM) today reported its 27th
consecutive year of growth in revenue and profits. Customer level revenue was up
13 percent to $5.6 billion. Earned revenue increased 15 percent to $4 billion,
reflecting growth from base operations and acquisitions. Basic and diluted
earnings per share (EPS) before a one-time gain relating to the ServiceMaster
reincorporation were $1.39 and $1.33, respectively, which represent increases of
20 percent and 19 percent over the prior year, respectively. Net income on this
basis was $264 million. For the fourth quarter, basic EPS was up 20 percent to
$.36 and diluted EPS increased 17 percent to $.34, compared with 1996.
On December 26, 1997, ServiceMaster converted from a publicly traded partnership
to a corporation, making it subject to corporate income tax in future years.
Assuming the Company was a tax-paying entity, proforma basic and diluted EPS
before the impact of a one-time gain were $.86 and $.82, up 21 and 19 percent,
respectively. The proforma quarterly results on this basis included basic and
diluted EPS of $.22 and $.21, up 16 and 17 percent.
Upon reincorporation, the Company recognized a significant increase in the tax
basis of its assets, resulting in future cash tax savings exceeding $25 million
per year for the next 15 years. ServiceMaster also recorded a $65 million gain,
which represents the difference between the tax basis and book value of its
assets. Actual reported net income for the full year, including the effect of
the gain, was $329 million, resulting in basic and diluted EPS of $1.73 and
$1.66.
Revenue for the quarter and twelve months reflects ServiceMaster Employer
Services, which the Company formed through an acquisition of a professional
employer organization in August. This had a significant impact on revenues, but
did not contribute materially to profits. While reported operating margins were
8.7 percent, operating margins excluding ServiceMaster Employer Services
increased 50 basis points to 9 percent for the year, reflecting continued
economies of scale in Consumer Services and more rapid growth in the Company's
higher margin businesses. Results also reflect the April 1997 repurchase by
ServiceMaster of Waste Management's 19 percent ownership interest (40.7 million
shares on a post-split basis) in ServiceMaster. This transaction increased
interest expense and reduced shares outstanding.
Cash from operations grew 9 percent to $372 million, exceeding reported net
income, prior to the one-time gain, by 41 percent or $108 million. This
exceptional cash flow was supported by the Company's low capital expenditures
and working capital needs and its high level of non-cash expenses.
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"We are pleased with our excellent 1997 performance, which is the result of more
than 200,000 dedicated associates successfully identifying and exceeding
customer expectations. Thanks to them, and to the strong network of services we
have built, we enter 1998 with exciting growth opportunities," said
ServiceMaster President and Chief Executive Officer Carlos H. Cantu. "1997
marked the 50th anniversary of the formation of ServiceMaster and another year
of delivering outstanding value to our shareholders, customers and associates.
In 1997, ServiceMaster shareholders received a total return on their investment
significantly in excess of market averages and they have enjoyed an average
compounded total return exceeding 24 percent over the last 20 years."
ServiceMaster Consumer Services achieved another year of strong double-digit
growth, posting revenues of $1.5 billion, up 15 percent over 1996, and proforma
profits of $126 million, up 22 percent. TruGreen-ChemLawn reported excellent
revenues and profits, with an increased customer base, solid sales of ancillary
services and successful integration of acquisitions and new business lines.
Terminix posted growth in both revenues and profits, resulting from increased
customer retention and growth in both termite completions and pest control.
American Home Shield achieved very strong revenue and profit growth with
excellent performance and momentum in all aspects of the business. The Company's
franchise operations also reported revenue and profit growth.
ServiceMaster Management Services posted its first year with annual revenues in
excess of $2 billion, representing a 7 percent increase over 1996 levels. This
growth reflects the acquisition of Premier and an increase in Healthcare.
Proforma profits of $55 million were consistent with 1996 levels. Healthcare
achieved solid revenue growth. Strong performance in Integrated Service and
growth in the Company's services to the long-term care sector were partially
offset by slower sales in the acute care sector. Profits in Healthcare were
unchanged from 1996. Education reported lower revenues and profits, resulting
from the loss of a major account. Education revenues and profits increased
excluding the impact of this termination. The Business & Industry Group achieved
double-digit growth in revenues and profits, reflecting the Premier acquisition,
solid performance in ongoing businesses, and increases in the aviation market.
ServiceMaster serves more than 9 million customers in the United States and in
35 countries around the world, with annual customer level revenue of $5.6
billion. ServiceMaster is a network of quality service companies with two major
operating segments, ServiceMaster Consumer Services and ServiceMaster Management
Services.
ServiceMaster Consumer Services now includes eight market- leading companies--
TruGreen-ChemLawn, Terminix, American Home Shield, Rescue Rooter, ServiceMaster
Residential and Commercial Services, Merry Maids, AmeriSpec and Furniture Medic-
- - - which operate through the ServiceMaster Quality Service Network of over 5,800
U.S. company-owned locations and franchised businesses.
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ServiceMaster Management Services is the leading facilities management company
serving health care, education, and business and industrial facilities with
management of plant operations and maintenance, housekeeping, clinical equipment
maintenance, food service, laundry, grounds and energy. This segment includes
ServiceMaster Diversified Health Services, which provides development and
management services for subacute, rehabilitation, home health, long-term care,
senior living and pharmacy programs.
In accordance with the Private Securities Litigation Reform Act of 1995, the
Company notes that statements that look forward in time, which include
everything other than historical information, involve risks and uncertainties
that may affect the Company's actual results of operations. Factors which could
cause actual results to differ materially include the following (among others):
weather conditions adverse to certain of the Company's Consumer Services
businesses, the entry of additional competitors in any of the markets served by
the Company, labor shortages, consolidation of hospitals in the healthcare
market, the condition of the U.S. economy, and other factors listed from time to
time in the Company's filings with the Securities and Exchange Commission.
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THE SERVICEMASTER COMPANY
Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended Twelve Months Ended
Dec. 31, Dec. 31,
1997 1996 1997 1996
---------- --------- ---------- ----------
Operating Revenue $1,043,458 $ 873,871 $3,961,502 $3,458,328
Operating Costs and Expenses:
Cost of services rendered
and products sold 814,816 679,299 3,058,160 2,681,008
Selling and administra-
tive expenses 139,761 114,632 559,409 482,102
---------- --------- ---------- ----------
Total operating costs
and expenses 954,577 793,931 3,617,569 3,163,110
---------- --------- ---------- ----------
Operating Income 88,881 79,940 343,933 295,218
Non-operating Expense (Income):
Interest expense 22,689 9,640 76,447 38,298
Interest and
investment income (3,895) (2,718) (14,304) (10,183)
Minority interest 1,315 6,485 7,511 14,706
---------- --------- ---------- ----------
Income before
Income Taxes 68,772 66,533 274,279 252,397
Provision for
income taxes (1) 3,022 1,970 10,203 7,257
Tax benefit relating to
change in tax status 65,000 - 65,000 -
---------- --------- ---------- ----------
Net Income $ 130,750 $ 64,563 $ 329,076 $ 245,140
---------- --------- ---------- ----------
Proforma Information:
- - ------------------------
Income before
Income Taxes 68,772 66,533 274,279 252,397
Corporate provision
for income taxes (1) 27,784 26,880 110,809 101,968
---------- --------- ---------- ----------
Net Income $ 40,988 $ 39,653 $ 163,470 $ 150,429
---------- --------- ---------- ----------
Per share (1 and 2):
Basic $0.22 $0.19 $0.86 $0.71
Diluted $0.21 $0.18 $0.82 $0.69
Cash Distributions
Per Share $0.12 $0.11 $0.47 $0.44
========== ========= ========== ==========
Price Range Per Share:
High Price $29.25 $17.75 $29.50 $17.75
Low Price $21.00 $15.83 $16.38 $12.92
- - ----------------------------------------------------------------------
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Notes:
1. The Company converted from partnership to corporate form in a tax-free
exchange for shareholders on December 26, 1997. Prior to the conversion, the
Partnership was not subject to federal and state income taxes, its taxable
income was allocated to the Company's shareholders. As a result of the
conversion, the Company is a taxable entity and is responsible for such
payments. Proforma information is presented to compare the continuing results
of operations as if the Company was a taxable corporation in 1997 and 1996.
The proforma provision for income taxes has been calculated assuming that the
Company's effective tax rate was approximately 40% of pretax earnings. The
Company's historical net income per share as a Partnership was as follows:
Twelve months ended December 31,
----------------------------------
Before one-time tax benefit Actual
--------------------------- ------
1997 1996 1997 1996
---- ---- ---- ----
Basic $1.39 $1.16 $1.73 $1.16
Diluted 1.33 1.12 1.66 1.12
2. The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" which requires the dual presentation of basic and
diluted earnings per share. Basic earnings per share replaces the previously
required presentation of primary earnings per share. All share and per share
data reflect the three-for-two share splits in June 1997 and June 1996.
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THE SERVICEMASTER COMPANY
Condensed Consolidated Balance Sheets
(In thousands)
As Of
Dec. 31, Dec. 31,
Assets 1997 1996
---------- ----------
Current Assets:
Cash and marketable securities, including
cash and cash equivalents
of $64,876 and $72,009, respectively $ 124,124 $ 114,413
Receivables, net of allowances 299,138 270,401
Inventories and other current assets 170,822 114,520
---------- ----------
Total current assets 594,084 499,334
---------- ----------
Intangible assets, primarily trade names and
goodwill, net of accumulated amortization 1,563,309 1,098,466
Property and equipment, net of accum. deprec. 158,270 146,400
Notes receivable, l-t securities, and other 159,561 102,641
---------- ----------
Total assets $2,475,224 $1,846,841
========== ==========
Liabilities and Equity
Current liabilities $ 558,177 $ 425,552
Long-term debt 1,247,845 482,315
Other long-term obligations 144,764 125,299
Minority interest - 16,908
Shareholders' equity 524,438 796,767
---------- ----------
Total liab. and shareholders' equity $2,475,224 $1,846,841
========== ==========
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Condensed Consolidated Statements of Cash Flows
(In thousands) Twelve Months Ended
December 31,
1997 1996
---------- ----------
Cash and Cash Equivalents at January 1 $ 72,009 $ 23,113
Cash Flows from Operations:
Net Income 329,076 245,140
Adjustments to reconcile net income to net
cash flows from operations:
Depreciation 45,392 41,658
Amortization 47,670 37,348
Deferred tax asset recorded upon
reincorporation (65,000) -
Change in working capital, net of acquisitions 14,470 9,294
Minority interest and other, net 281 7,946
---------- ----------
Net Cash Provided from Operations 371,889 341,386
---------- ----------
Property additions (46,232) (42,952)
---------- ----------
Free Operating Cash Flows 325,657 298,434
---------- ----------
Cash Flows from Investing Activities:
Business acquisitions, net of cash acquired (233,689) (58,473)
Net purchases of investment securities (16,753) (20,075)
Payments to sellers of acquired businesses (4,723) (3,742)
Sale of equipment and other assets 4,134 2,664
Notes receivable and financial investments (3,593) 3,304
Proceeds from sale of businesses - 4,526
---------- ----------
Net Cash Used for Investing Activities (254,624) (71,796)
---------- ----------
Cash Flows from Financing Activities:
Borrowings, net 888,528 123,732
Payment of borrowings and other obligations (160,155) (82,857)
Purchase of ServiceMaster shares (657,191) (76,556)
Distributions to shareholders
and shareholders' trust (155,883) (146,520)
Proceeds from employee share option plans 6,526 6,835
Distributions to holders of minority interests (542) (3,074)
Other 551 698
---------- ----------
Net Cash Used for Financing Activities (78,166) (177,742)
---------- ----------
Cash Increase (Decrease) during the Period (7,133) 48,896
---------- ----------
Cash and Cash Equivalents at December 31 $ 64,876 $ 72,009
========== ==========
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