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(dollars in thousands, except per share amounts.)
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On June 29, 2001, the Company completed refinancing transactions that retired (1) the $600,000 unsecured revolving credit facility under which $442,000 was outstanding, which was scheduled to mature on April 30, 2002, (2) $99,900 of the 6.70 percent Notes which mature in 2003, (3) $100,103 of the 6.40 percent ROARS which will mature or be remarketed in 2003, subject to market conditions and (4) $64,762 of privately held senior notes, which had varying maturities from fiscal years 2002 through 2007. These amounts constituted all of the Company’s long-term debt, except for $99,997 in publicly held senior notes that remain outstanding and $23,697 of debt incurred or assumed in connection with acquisitions, of which $21,271 remains outstanding. The Company also incurred charges in the third quarter of fiscal year 2001 in the amount of $5,472 (net of a $3,648 income tax benefit) relating to the early extinguishment of debt.
The new financing consisted of a $550,000 senior secured credit facility and $300,000 of senior subordinated notes. The senior secured credit facility consists of (1) a $175,000 four-year revolving credit facility (on which the Company had drawn $50,000 at the closing of the refinancing transactions), (2) a $75,000 18-month asset sale term loan and (3) a $300,000 five-year Term Loan B.
The $75,000 18-month asset sale term loan was outstanding upon the completion of the refinancing transactions, and it was repaid in full in August 2001. The $50,000 outstanding under the revolving credit facility was repaid in full by October 31, 2001. The $300,000 Term Loan B was outstanding upon the completion of the refinancing transactions, and $30,000 in prepayments were made in October 2001. The following annual amounts will be amortized on a quarterly basis each fiscal year for Term Loan B: $2,500 per year for 2002 and 2003, $3,906 for 2004, $69,844 for 2005 and $191,250 for 2006.
The applicable margins for Eurodollar rate loans under the revolving credit facility and Term Loan B are generally subject to quarterly adjustments based upon the Company’s consolidated leverage ratio. The applicable margins range from 200 to 275 basis points for revolving loans and 312.5 to 337.5 basis points for Term Loan B. In addition, the Company will pay a commitment fee of 50.0 to 62.5 basis points, based on the Company’s consolidated leverage ratio, on the unused portion of the revolving credit facility. In December 1998, the Company entered into an interest rate swap agreement on a notional amount of $200,000. Under the terms of the agreement, effective March 4, 1999, the Company pays a fixed rate of 4.915 percent and receives three-month LIBOR. The swap expires on March 4, 2002 at which time the $200,000 becomes subject to short-term variable interest rates. As of October 31, 2001, the Company had $270,000 outstanding under its Term Loan B, $70,000 of which was not hedged by the interest rate swap agreement and was subject to short-term variable interest rates averaging approximately 5.6 percent.
The new senior secured credit facility contains affirmative and negative covenants. The covenants include required reserves, mandatory prepayments from the proceeds of certain asset sales and debt and equity offerings, limitations on liens, limitations on mergers, consolidations and asset sales, limitations on incurrence of debt, limitations on dividends, stock redemptions and the redemption and/or prepayment of other debt, limitations on investments and acquisitions, limitations on lease payments, limitations on negative pledges and limitations on transactions with affiliates. In addition, the credit agreement contains the following financial covenants: (1) a maximum leverage ratio, (2) a minimum fixed charge coverage ratio and (3) a minimum interest coverage ratio. The financial covenants are required to be calculated on a consolidated basis after giving pro forma effect to permitted asset dispositions and acquisitions. Capital expenditures are limited to $35,000 in fiscal year 2001, $45,000 in fiscal year 2002, $50,000 in fiscal year 2003 and $55,000 for each fiscal year thereafter, with a provision for the carryover of certain unused amounts under certain circumstances.
The Company’s obligations under the new senior secured credit facility are guaranteed by all of its existing and future direct and indirect subsidiaries formed under the laws of the United States, any state thereof or the District of Columbia, except for specified excluded subsidiaries. The remaining 6.70 percent Notes and 6.40 percent ROARS are not guaranteed by the Company’s subsidiaries.
All obligations under the new senior secured credit facility, including the guarantees, are secured by a first priority perfected security interest in (1) all capital stock and other equity interests of the Company’s existing and future direct and indirect domestic subsidiaries, other than certain domestic subsidiaries acceptable to the agents, (2) 65 percent of the voting equity interests and 100 percent of all other equity interests (other than directors qualifying shares) of all direct existing and future foreign subsidiaries and (3) all other existing and future assets and properties of the Company and the guarantors, except for real property, vehicles and other specified exclusions.
In December 1996, the Company issued $100,000 of 6.70 percent Notes due 2003. In connection with the refinancing transactions described above, the Company repurchased $99,900 of these Notes on June 29, 2001. The remaining 6.70 percent Notes are now secured equally and ratably with the new senior secured credit facility. The 6.70 percent Notes are not redeemable prior to maturity and are not entitled to the benefit of any mandatory redemption or sinking fund. Interest on the 6.70 percent Notes is payable semi-annually on December 1 and June 1 of each year. As of October 31, 2001 and 2000, the carrying value of these notes, including accrued interest, was $103 and $102,773, whereas the fair value was $102 and $65,573, respectively.
In April 1998, the Company issued $200,000 of 6.40 percent Remarketable Or Redeemable Securities (“ROARS”) due May 1, 2013 (remarketing date May 1, 2003). In connection with the refinancing transactions described above, the Company repurchased $100,103 of the ROARS on June 29, 2001. The remaining 6.40 percent ROARS are now secured equally and ratably with the new senior secured credit facility. Interest on the 6.40 percent ROARS is payable semi-annually on November 1 and May 1 of each year. Outstanding 6.40 percent ROARS must be redeemed by the Company or remarketed by the remarketing dealer on May 1, 2003. If the remarketing dealer does not elect to remarket the 6.40 percent ROARS, the Company must redeem them on May 1, 2003 for 100 percent of their principal amount plus accrued interest. If the remarketing dealer elects to remarket the 6.40 percent ROARS, the Company may override that election by choosing to redeem them on May 1, 2003 for 100 percent of their principal amount plus accrued interest, in which case the Company will be obligated to pay the remarketing dealer the value of its remarketing right, which was $6,876 as of October 31, 2001. If the 6.40 percent ROARS are remarketed, holders immediately prior to May 1, 2003 must tender them to the remarketing dealer for purchase on May 1, 2003 for a purchase price of 100 percent of their principal amount plus accrued interest. Except as described above, the 6.40 percent ROARS are not redeemable prior to maturity and are not entitled to the benefit of any mandatory redemption or sinking fund. If remarketed, the 6.40 percent ROARS will become due May 1, 2013, and the coupon for the remaining term will be 5.44 percent (which was the 10-year United States Treasury rate at the time of initial issuance) plus the Company’s then current credit spread. As of October 31, 2001 and 2000, the carrying value of these notes, including accrued interest and the unamortized portion of the remarketing option premium, was $105,293 and $211,146, whereas the fair value was $105,704 and $136,444, respectively.
The indenture governing the 6.40 percent ROARS and 6.70 percent Notes contains covenants that, among other things, and subject to some exceptions, (1) restrict the Company’s ability and the ability of its subsidiaries to create liens and enter into sale leaseback transactions and (2) restrict the Company’s ability (but not its subsidiaries’ ability) to sell all or substantially all of its assets, or merge or consolidate with other companies.
The 10.75 percent senior subordinated notes due in 2008 are general unsecured obligations of the Company, are subordinated in right of payment to all existing and future senior debt of the Company and are pari passu in right of payment with any future senior subordinated indebtedness of the Company. The notes are guaranteed by all of the domestic subsidiaries of the Company, other than certain specified subsidiaries (see Note 12). Interest on the notes accrues at the rate of 10.75 percent per annum and is payable semi-annually in arrears on January 1 and July 1. As of October 31, 2001, the carrying value, including accrued interest, and fair value of the senior subordinated notes were $310,929 and $335,887, respectively.
The indenture governing the 10.75 percent senior subordinated notes limits the Company’s and its subsidiaries’ ability to borrow money, create liens, pay dividends on or redeem or repurchase stock, make investments, sell stock in subsidiaries, restrict dividends or other payments from subsidiaries, enter into transactions with affiliates and sell assets or merge with other companies. The notes are redeemable at the option of the Company on or after July 1, 2005. In addition, prior to July 1, 2004, the Company may redeem up to 35 percent of the notes with the net cash proceeds from specified equity offerings. The Company must offer to purchase the notes at 101 percent of their face amount, plus accrued interest, if the Company experiences specific kinds of changes in control.
Section 10.9 of the Company’s credit agreement permits the payment of dividends on the Company’s common stock in an aggregate amount of up to $8,500 in any fiscal year, provided that the Company’s consolidated leverage ratio is not greater than 2.75 to 1.00, the Company’s fixed charge ratio is not less than 2.25 to 1.00 and there is no default or event of default. In addition, Section 4.07 of the indenture governing the Company’s senior subordinated notes permits the payment of dividends if the aggregate dividends and other restricted payments since the issuance of the notes are less than the sum of, generally, 50 percent of the Company’s consolidated net income plus 100 percent of net cash proceeds from the sale of any equity interests, in each case since the issuance of the notes, plus $15,000; provided, that the Company is able to incur at least one dollar of additional indebtedness under the fixed charge coverage ratio covenant and there is no default or event of default. Under these restrictions, the Company is prohibited from the payment of any dividends as of October 31, 2001.
As of October 31, 2001, the Company’s subsidiaries had approximately $21,271 of long-term debt that represents notes the subsidiaries issued as part of the purchase price of acquired businesses or debt the subsidiaries assumed in connection with acquisitions, and $2,603 of this amount is debt associated with assets held for sale. Approximately $9,715 of this debt is secured by liens on the stock or assets of the related subsidiaries.
Scheduled principal payments of the Company’s long-term debt, including $2,603 of debt associated with assets held for sale, for the fiscal years ending October 31, 2002 through October 31, 2006, are approximately $6,922 in 2002, $106,891 in 2003, $8,776 in 2004, $71,770 in 2005 and $192,229 in 2006. Current maturities of long-term debt of $6,828 as of October 31, 2001, as reported in the Company’s consolidated balance sheets, include $191 relating to the unamortized ROARS remarketing option premium and exclude $285 related to debt associated with assets held for sale.
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