American Home Shield 2005 Annual Report Download - page 47

P. 4 5 SERVICEMASTER 2005 ANNUAL REPORT
Since August 1997, ServiceMaster has issued $1.1 billion
of unsecured debt securities pursuant to registration state-
ments filed with the Securities and Exchange Commission.
As of December 31, 2005, ServiceMaster had $550 million
of senior unsecured debt securities and equity interests
available for issuance under an effective shelf registration
statement.
The Company has a committed revolving bank credit facility
for up to $500 million that expires in May 2010. The facility
can be used for general Company purposes. As of
December 31, 2005, the Company had issued approxi-
mately $142 million of letters of credit under the facility and
had unused commitments of approximately $358 million.
There were no borrowings outstanding at that date. At the
Company’s current credit ratings, the interest rate under
the facility is LIBOR plus 75 basis points.
In December 2003 and January 2004, the Company
entered into interest rate swap agreements with a total
notional amount of $165 million. Under the terms of these
agreements, the Company pays a floating rate of interest
(based on a specified spread over six-month LIBOR) on the
notional amount and the Company receives a fixed rate of
interest at 7.88 percent on the notional amount. The impact
of these swap transactions was to convert $165 million of
the Company’s debt from fixed rate at 7.88 percent to a
variable rate based on LIBOR. In accordance with SFAS
133 “Accounting for Derivative Instruments and Hedging
Activities”, the Company’s interest rate swap agreements
are classified as fair value hedges and, as such, gains and
losses on the swaps as well as the gains and losses on the
related hedged items are recognized in current earnings.
Cash interest payments were $57 million in 2005, $60
million in 2004 and $61 million in 2003. Future scheduled
long-term debt payments are $19 million in 2006 (average
rate of 5.7 percent), $61 million in 2007 (average rate of 7.1
percent), $27 million in 2008 (average rate of 6.2 percent),
$184 million in 2009 (average rate of 8.1 percent) and $8
million in 2010 (average rate of 7.9 percent). In April 2005,
$137 million of the Company’s public debt matured and
was paid. The Company’s next significant debt maturity is
not until 2007.
Cash and Marketable Securities
Cash, money market funds and certificates of deposits,
with maturities of three months or less, are included in the
Statements of Financial Position caption “Cash and Cash
Equivalents.” Marketable securities are designated as
available for sale and recorded at current market value, with
unrealized gains and losses reported in a separate compo-
nent of shareholders’ equity. As of December 31, 2005 and
2004, the Company’s investments consist primarily of
domestic publicly traded debt of $108 million and $109
million, respectively and common equity securities of $144
million and $131 million, respectively.
The aggregate market value of the Company’s short-term
and long-term investments in debt and equity securities
was $252 million and $240 million and the aggregate cost
basis was $246 million and $226 million at December 31,
2005 and 2004, respectively.
Interest and dividend income received on cash and mar-
ketable securities was $20 million, $15 million, and $13
million, in 2005, 2004, and 2003, respectively. Gains and
losses on sales of investments, as determined on a specific
identification basis, are included in investment income in
the period they are realized. The Company periodically
reviews its portfolio of investments to determine whether
there has been an other than temporary decline in the value
of the investments from factors such as deterioration in the
financial condition of the issuer or the market(s) in which it
competes. The unrealized gains in the investment portfolio
were approximately $13 million and $16 million as of
December 31, 2005 and 2004, respectively. Unrealized
losses were approximately $7 million and $2 million as of
December 31, 2005 and 2004, respectively. The portion of
these unrealized losses older than one year at December
31 was less than $1 million for both 2005 and 2004. The
aggregate fair value of the investments with unrealized
losses totaled $133 million and $96 million at December
31, 2005 and 2004, respectively, and consist primarily of
corporate bonds and common equity securities.
Receivable Sales
The Company has an agreement to provide for the ongoing
revolving sale of a designated pool of accounts receivable
of TruGreen ChemLawn and Terminix to a wholly-owned,
bankruptcy-remote subsidiary, ServiceMaster Funding
LLC. ServiceMaster Funding LLC has entered into an
agreement to transfer, on a revolving basis, an undivided
percentage ownership interest in a pool of accounts receiv-
able to unrelated third party purchasers. ServiceMaster
Funding LLC retains an undivided percentage interest in
the pool of accounts receivable and bad debt losses for the
entire pool are allocated first to this retained interest. During
2005, 2004 and 2003, there were no receivables sold to
third parties under this agreement. However, the Company
may sell its receivables in the future which would provide an
alternative funding source. The agreement is a 364-day
facility that is renewable at the option of the purchasers.
The Company may sell up to $70 million of its receivables to
these purchasers and therefore has immediate access to
cash proceeds from these sales. The amount of the eligible
receivables varies during the year based on seasonality of
the business and will at times limit the amount available to
the Company.
Notes to the Consolidated Financial Statements