Fitch Ratings Affirms ServiceMaster At 'BBB-'; Rating Outlook Positive.Business Editors NEW YORK--(BUSINESS WIRE)--July 3, 2003 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed the 'BBB-' ratings on The ServiceMaster Company's (SVM SVM Support Vector Machines SVM School of Veterinary Medicine SVM Solaris Volume Manager SVM Space Vector Modulation SVM Storage Virtualization Manager (StoreAge) SVM Service Module (also abbreviated as S/M) ) senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. and bank credit facility. The Rating Outlook is Positive. The affirmation affects $830 million of SVM's debt. The ratings reflect SVM's diverse portfolio of consumer services that generate strong and consistent cash flows and provides some stability to revenues and operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before . SVM is the U.S. market leader in providing such services as lawn care (TruGreen), termite termite or white ant, common name for a soft-bodied social insect of the order Isoptera. Termites are easily distinguished from ants by comparison of the base of the abdomen, which is broadly joined to the thorax in termites; in ants, there is pest control (Terminix), appliance service through warranty contracts (American Home Shield) and plumbing, HVAC (Heating Ventilation Air Conditioning) In the home or small office with a handful of computers, HVAC is more for human comfort than the machines. In large datacenters, a humidity-free room with a steady, cool temperature is essential for the trouble-free , and electrical work (American Residential Services), to name a few. The ratings also consider how seasonal weather patterns affect SVM's TruGreen, Terminix, and ARS business units, given the outdoor nature of these businesses. Following the sale of its Management Services business in 2001, SVM repaid about $1 billion in debt and improved its credit profile. SVM continues to focus on brand development, as well as improving customer service. SVM is also diversifying its various marketing initiatives. However, SVM's TruGreen segment could be adversely affected given the telemarketing 'No Call Lists' legislation that recently took effect. Nonetheless, approximately 82-85% of TruGreen sales are expected to be generated from telemarketing initiatives, down from about 95% a year ago. During 2002, while SVM revenues increased 0.8% to about $3.6 billion, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become decreased 10.2% to $397 million after taking out the effects of the charge for impaired assets. The decline in EBITDA reflects increased worker's compensation and health insurance costs, declining volumes in the HVAC and plumbing businesses, as well as increased expenditures related to company wide initiatives. Nonetheless, revenues for TruGreen, Terminix and American Home Shield, SVM's three largest segments, increased 5.3% to about $2.7 billion and operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. 5% to approximately $347 million as a result of modestly improved customer retention rates, the better management of operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , and the impact of new marketing strategies. While revenues and operating income decreased for both TruGreen and Terminix during the first quarter of 2003 primarily due to the effects of the unfavorable weather, SVM is confident that it will be able to capture revenue losses in TruGreen by the end of the third quarter, by accelerating its production schedule. SVM believes that it will be unable to make up Terminix' first quarter revenues, however, as heavy precipitation has left several regions of the country with overall higher moisture levels, warmer weather could result in an increase in termite and pest activity. In 2002, leverage decreased to 2.1 times (x) from 2.6x in 2001, and EBITDA coverage of interest improved to 5.2x from 3.5x for the same period. Credit protection measures were primarily strengthened as a result of lower debt levels. In 2003, leverage and coverage are expected to improve modestly through higher EBITDA, resulting from increased efficiency and lower debt levels. Cash flow generation readily supports SVM's working capital needs, capital expenditures and dividends. Bolt-on acquisitions and modest share repurchases are not expected to adversely impact credit metrics. |
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