American Home Shield 2002 Annual Report Download - page 36

The Company continues to maintain minority investors
in Terminix. This minority ownership reflects an interest
issued to the prior owners of the Allied Bruce Terminix
Companies in connection with that acquisition. This
equity security is convertible into eight million Service-
Master common shares. The ServiceMaster shares are
included in the shares used for the calculation of diluted
earnings per share.
Total shareholders’ equity increased one percent to
$1.2 billion, reflecting earnings partially offset by
dividends paid to shareholders. Cash dividends paid to
shareholders totaled $123 million, or $.41 per share,
compared to $.40 per share in 2001. The total amount of
cash dividends increased four percent from the prior
year primarily reflecting the per share increase.
In January 2003, the Company paid a cash dividend of
$.105 per share and in March 2003, declared a second
quarter cash dividend of $.105 per share payable on
April 30, 2003. The timing and amount of future
dividend increases are at the discretion of the Board of
Directors and will depend on, among other things, the
Company’s capital structure objectives and cash
requirements. In July 2000, the Board of Directors
authorized $350 million for share repurchases. In 2002,
the Company repurchased $52 million of its shares.
There remains approximately $229 million available for
repurchases under the July 2000 authorization. Decisions
relating to any future share repurchases will depend on
various factors such as the Company’s commitment to
maintain investment grade credit ratings and other
strategic investment opportunities.
Quantitative and Qualitative Disclosures
about Market Risk
The economy and its impact on discretionary consumer
spending, labor wages, fuel prices, insurance costs and
medical inflation rates could be significant to future
operating earnings.
The Company does not hold or issue financial instru-
ments for trading or speculative purposes. The Company
has entered into specific financial arrangements in the
normal course of business to manage certain market
risks, with a policy of matching positions and limiting
the terms of contracts to relatively short durations. The
effect of financial instrument transactions is not material
to the Company’s financial statements.
The Company generally maintains the majority of its
debt at fixed rates. Over 95 percent of total debt at
December 31, 2002 and December 31, 2001 was at a
fixed rate. The payments on the approximately $72
million of funding outstanding under the Company’s
real estate operating lease facilities as well as its vehicle
fleet and equipment operating leases (approximately
$257 million in residual value) are tied to floating
interest rates. Nonetheless, the Company believes its
exposure to interest rate fluctuations is not significant
to its overall results of operations.
The Company has several debt and lease agreements
where the interest rate or rent payable under the agree-
ments automatically adjusts based on changes in the
Company’s credit ratings. While the Company is not
currently expecting a change in its credit ratings, based
on amounts outstanding at December 31, 2002, a one
rating category improvement in the Company’s credit
ratings would reduce expense on an annualized basis by
approximately $0.7 million. A one rating category
reduction in the Company’s credit ratings would
increase expense on an annualized basis by approximately
$1.3 million.
The following table summarizes information about the
Company’s fixed rate debt instruments as of December
31, 2002 and presents the principal cash flows and
related weighted-average interest rates by expected
maturity dates. The fair value of the Company's fixed
rate debt was approximately $880 million at December
31, 2002.
Expected Maturity Date
There-
(In millions) 2003 2004 2005 2006 2007 after Total
Fixed rate
debt $ 31 $ 24 $151 $ 11 $ 59 $559 $835
Avg. Rate 4.2% 4.8% 8.2% 6.0% 6.7% 7.5% 7.2%
32 ServiceMaster
Management Discussion & Analysis of Financial Condition & Results of Operations