American Home Shield 2003 Annual Report Download - page 54

52    ServiceMaster
Also in 2001, and in connection with the sale and disposition
of the TruGreen LandCare construction operations, the
Company repurchased at fair value the shares of TruGreen
that were previously purchased by management earlier in
the year. The purchase and sales prices of the shares were at
identical amounts of $12 million, which was charged to the
minority interest liability.
In January 2001, Jonathan P. Ward, President and Chief
Executive Officer of ServiceMaster, purchased from Service-
Master a 5.50 percent convertible debenture due January 9,
2011, with a face value of $1.1 million. The Company loaned
Mr. Ward the entire amount of the purchase price through a
5.50 percent full recourse loan due January 9, 2011. In May
2001, Mr. Ward purchased a second 5.50 percent convertible
debenture due May 10,2011,with a face value of $1.1 million.
The Company loaned 50 percent of the purchase price of this
second debenture with a 5.50 percent full recourse loan
due May 10, 2011. In October 2003, the Company redeemed
and cancelled the two convertible debentures issued to
Mr. Ward. Mr. Ward repaid the January 9, 2001 and May 10,
2001 loans in full. The impact of the settlement was less than
$100 thousand and was not material to the Consolidated
Financial Statements.
The Company has partially guaranteed a loan by a third party
bank to an employee totaling $13.7 million, which is fully
secured as of December 31, 2003 and 2002 by employee
owned shares of the Company. Payments by the Company
related to this note are not expected.
Long-Term Debt
Long-term debt includes the following:
(In thousands) 2003 2002
8.45% maturing in 2005 $ 137,499 $ 137,499
6.95% maturing in 2007 49,225 49,225
7.88% maturing in 2009 179,000 179,000
7.10% maturing in 2018 79,473 79,473
7.45% maturing in 2027 195,000 195,000
7.25% maturing in 2038 82,650 82,650
Other 96,424 112,628
Less current portion (33,781) (31,135)
Total long-term debt $ 785,490 $ 804,340
The Company is party to a number of debt agreements
which require it to maintain certain financial and other
covenants, including limitations on indebtedness (debt
cannot exceed 3.25 times earnings before interest, taxes,
depreciation, and amortization (EBITDA)) and a minimum
interest coverage ratio (EBITDA needs to exceed four times
interest expense).In addition,under certain circumstances,the
agreements may limit the Company’s ability to pay dividends
and repurchase shares of common stock. These limitations
are not expected to be a factor in the Company’s future divi-
dend and share repurchase plans. Failure by the Company to
maintain these covenants could result in the acceleration of
the maturity of the debt. At December 31,2003, the Company
was in compliance with the covenants related to these debt
agreements and based on its operating outlook for 2004,
expects to be able to maintain compliance in the future.
The Company does not have any debt agreements that contain
put rights or provide for acceleration of maturity as a result
of a change in credit rating. However, the Company has a
number of debt agreements which contain standard ratings-
based “pricing grids”where the interest rate payable under
the agreement changes as the Company’s credit rating
changes. While the Company does not expect a negative
change in credit ratings, the impact on interest expense
resulting from any changes in credit ratings is not expected
to be material to the Company.
Since August 1997, ServiceMaster has issued $1.1 billion of
unsecured debt securities pursuant to registration statements
filed with the Securities and Exchange Commission. As of
December 31, 2003, ServiceMaster had $550 million of
senior unsecured debt securities and equity interests available
for issuance under an effective shelf registration statement.
In the second quarter of 2002, the Company recorded a loss
on early extinguishment of debt of $15.4 million pre-tax
($9.2 million after-tax, or $.03 per diluted share), resulting
from the repurchase of a portion of its publicly traded debt.
Additionally, the Company recorded a pre-tax loss on early
extinguishment of debt of $16.0 million ($9.4 million after-
tax, or $.03 per diluted share) in the fourth quarter of 2001,
and a pre-tax gain on early extinguishment of debt of $10.2
million ($6.0 million after-tax, or $.02 per diluted share) in
the first quarter of 2001. In accordance with SFAS 145, these
gain/losses were reclassified from an extraordinary item
into continuing operations as interest expense in the accom-
panying Consolidated Statements of Operations. See the
“Newly Adopted Accounting Principles”section in the Notes
to Consolidated Financial Statements.
The Company has a committed revolving bank credit facility
for up to $490 million that expires in December 2004. The
Company expects to replace this facility prior to maturity.
The facility can be used for general Company purposes.As of
December 31, 2003, the Company had issued approximately
$153 million of letters of credit under the facility and had
unused commitments of approximately $337 million. At the
Company’s current credit ratings, the interest rate under the
facility is LIBOR plus 125 to 150 basis points depending
upon usage.
As of December 31, 2003, the Company had approximately
$5 million of annually renewable surety bonds outstanding
that primarily support obligations the Company has under
Notes to Consolidated Financial Statements