American Home Shield 2006 Annual Report Download - page 63

Notes to the Consolidated Financial Statements
Long-Term Debt
Long-term debt includes the following:
(In thousands) 2005 2004
8.45% maturing in 2005 $ — $ 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 72,802 82,241
Less current portion (19,222) (23,247)
Total long-term debt $ 638,928 $ 781,841
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 an inhibiting factor in the Company's future dividend and share repurchase plans. Failure
by the Company to maintain these covenants could result in the acceleration of the maturity of the debt. Throughout 2005, the
Company was in compliance with the covenants related to these debt agreements and, based on its operating outlook for 2006,
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 if and when 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, 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 approximately $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 component 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 marketable 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