American Home Shield 2002 Annual Report Download - page 46

Newly Issued Accounting Statements and Positions:
In April 2002, the Financial Accounting Standards
Board (FASB) issued SFAS 145, “Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections”. The
primary impact to the Company of this Statement is that
it rescinds SFAS 4 which required all material gains and
losses from the extinguishment of debt to be classified as
extraordinary items. SFAS 145 requires that the more
restrictive criteria of APB Opinion No. 30 will be used to
determine whether such gains or losses are extraordi-
nary. The Company intends to adopt this Statement in
its fiscal year 2003, as required by the Statement.
Adoption of this Statement will result in the reclassifi-
cation of the extraordinary losses into income from
continuing operations included in the accompanying
Consolidated Statements of Income.
In June 2002, the FASB issued SFAS 146, “Accounting
for Costs Associated with Exit or Disposal Activities”.
This Statement requires recording costs associated
with exit or disposal activities at their fair values when
a liability has been incurred. Under previous guidance,
certain exit costs were accrued upon management’s
commitment to an exit plan, which is generally before
an actual liability has been incurred. The provisions of
this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002.
In November 2002, the FASB issued Interpretation No.
45 (FIN 45), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guar-
antees of Indebtedness of Others”. FIN 45 elaborates on
the existing disclosure requirements for most guarantees,
including loan guarantees, such as standby letters of
credit. It also clarifies that at the time a company issues
a guarantee, the company must recognize an initial
liability for the fair value, or market value, of the obliga-
tions it assumes under that guarantee and must disclose
that information in its interim and annual financial
statements. FIN 45 will be effective for the Company on
a prospective basis to guarantees issued or modified
after December 31, 2002. The Company is assessing the
impact of this Statement on the Company's financial
position and results of operations. The disclosure
requirements in this interpretation have been adopted
by the Company.
In January 2003, the FASB issued Interpretation No.
46, “Consolidation of Variable Interest Entities” (FIN
46). Under this Interpretation, certain entities known
as “Variable Interest Entities” (VIE) must be consolidated
by the “primary beneficiary” of the entity. The primary
beneficiary is generally defined as having the majority
of the risks and rewards arising from the VIE. For VIE’s
in which a significant (but not majority) variable
interest is held, certain disclosures are required. The
Company is required to apply the requirements of FIN
46 starting with its third quarter 2003 Form 10-Q
filing. The Company is presently assessing the impact
of this Interpretation, however, it is not expected to have
a material impact on the Consolidated Financial
Statements. Based on information as of December 31,
2002, adoption of this Interpretation in 2003 could
result in approximately $5 million to $60 million of real
estate operating leases being included on the balance
sheet as assets with associated debt.
Business Segment Reporting
The business of the Company is conducted through
five operating segments: TruGreen, Terminix, American
Home Shield, ARS/AMS and Other Operations. Due to
the Company’s sale of its Management Services business
unit and its exit from other businesses in 2001, certain
operations have become more significant for segment
reporting purposes. In addition, the Company’s
management and reporting structure changed during
2002. As a result, the Company has expanded its
business segment reporting which will allow for better
ongoing visibility into the components of the business.
The companies that previously were reported in the
Home Maintenance & Improvement segment have been
further broken out into American Home Shield and the
combination of ARS/AMS. The franchise operations,
ServiceMaster Clean and Merry Maids, formerly in the
Home Maintenance & Improvement segment, are
reported in the Other Operations segment. In accordance
with Statement of Financial Accounting Standards No.
131, the Company’s reportable segments are strategic
business units that offer different services. The TruGreen
segment provides residential and commercial lawn care
and landscaping services through the TruGreen
ChemLawn and TruGreen LandCare companies. As a
result of the decision in the fourth quarter of 2001 to
exit the LandCare Construction business, the results of
the construction operations are now included in discon-
tinued operations for all periods. The Terminix segment
provides termite and pest control services to residential
and commercial U.S. customers. The American Home
Shield segment provides home warranties to consumers
that cover heating, ventilation, air conditioning
(HVAC), plumbing and certain appliances. This segment
also includes home inspection services provided by
AmeriSpec. The American Residential Services, (ARS)
and American Mechanical Services (AMS) segment provides
HVAC and plumbing services provided under the ARS,
AMS and Rescue Rooter brand names. The Other
Operations segment includes the franchise operations
of ServiceMaster Clean and Merry Maids, which provide
disaster restoration and cleaning services as well as the
Company’s headquarters operations which provides
various technology, marketing, finance and other support
services to the business units.
Information regarding the accounting policies used by
the Company is described in the Significant Accounting
Policies. The Company derives substantially all of its
revenues from customers in the United States with less
than one percent generated in foreign markets. Operating
expenses of the business units consist primarily of
direct costs. Identifiable assets are those used in carrying
out the operations of the business unit and include
intangible assets directly related to its operations.
42 ServiceMaster
Notes to Consolidated Financial Statements