American Home Shield 2005 Annual Report Download - page 45

P. 4 3 SERVICEMASTER 2005 ANNUAL REPORT
(In thousands, except per share data)
Operating Results: 2005 2004 2003
Operating revenue $ 764,888 $ 691,552 $ 738,615
ARS/AMS operating income 11,695 5,534 10,023
Headquarter support and
insurance costs previously
allocated to ARS/AMS 10,294 6,714 4,879
Favorable conclusion of
certain obligations related
to international pest control
operations 11,000 ——
Impairment charge —— (291,800)
Other discontinued operations (2,634) (3,793) (4,482)
Provision (benefit) for
income taxes(1) 11,991 (6,149) (59,148)
Income (loss) from businesses
held pending sale and
discontinued operations $ 18,364 $ 14,604 $ (222,232)
Diluted income (loss) from
businesses held pending
sale and discontinued
operations $ 0.06 $ 0.05 $ (0.75)
(1) 2004 includes a $9 million non-cash reduction in the tax provision of businesses held
pending sale and discontinued operations related to a comprehensive agreement with
the IRS regarding its examination of the Company’s federal income taxes through the year 2002.
Financial Position: 2005 2004
Current assets $ 135,100 $ 112,501
Long-term assets 77,340 80,397
Total assets $ 212,440 $ 192,898
Current liabilities $ 97,294 $ 91,396
Long-term liabilities 10,130 9,615
Total liabilities $ 107,424 $ 101,011
The table below summarizes the activity during the twelve
months ended December 31, 2005 for the remaining liabilities
from the discontinued operations, with $11 million of the
decrease during the year reflecting the favorable conclu-
sion of certain obligations related to the previously sold
international pest control operations. The remaining obligations
primarily relate to long-term self-insurance claims. The
Company believes that the remaining reserves continue to
be adequate and reasonable.
Balance at Cash Balance at
Dec. 31, Payments Income/ Dec. 31,
(In thousands) 2004 or Other (Expense) 2005
Remaining
liabilities of
discontinued
operations:
LandCare
Construction $ 4,492 $ 2,365 $ (985) $ 3,112
LandCare
utility line
clearing
business 6,616 2,843 535 3,238
Certified
Systems, Inc.
and other 8,485 1,325 (2,526) 9,686
International
Businesses (1) 11,000 — 11,000 —
(1) The 2005 activity reflects the favorable conclusion of certain obligations related to the
previously sold international pest control operations.
Commitments and Contingencies
The Company leases certain property and equipment
under various operating lease arrangements. Most of the
property leases provide that the Company pay taxes, insurance
and maintenance applicable to the leased premises. As
leases for existing locations expire, the Company expects
to renew the leases or substitute another location and lease.
Rental expense for 2005, 2004 and 2003 was $163 million,
$147 million and $135 million, respectively. Future long-
term non-cancelable operating lease payments are
approximately $80 million in 2006, $64 million in 2007, $49
million in 2008, $37 million in 2009, $21 million in 2010, and
$26 million in 2011 and thereafter.
The majority of the Company’s fleet and some equipment
are leased through operating leases. Lease terms are
non-cancelable for the first twelve month term and then are
month-to-month leases, cancelable at the Company’s
option. There are residual value guarantees (ranging from
70 percent to 87 percent depending on the agreement) on
these vehicles and equipment, which historically have not
resulted in significant net payments to the lessors. There
are no net payments reflected in the future minimum lease
obligation as the leases are cancelable and there are no
expected net payments due under the guarantees. At
December 31, 2005 there was approximately $259 million
of residual value guarantee relating to the Company’s fleet
and equipment leases. The fair value of the assets under
the leases is expected to fully mitigate the Company’s
obligations under the agreements.
The Company maintains operating lease facilities with
banks totaling $68 million which provide for the financing of
branch properties to be leased by the Company. At
December 31, 2005, approximately $68 million was funded
under these facilities. Approximately $15 million of these
leases have been included on the balance sheet as assets
with related debt as of December 31, 2005. The balance of
the funded amount is treated as operating leases.
Approximately $15 million of the total facility expires in
January 2008 and $53 million expires in September 2009.
The Company has guaranteed the residual value of the
properties under the leases up to 82 percent of the fair market
value at the commencement of the lease. At December 31,
2005, the Company’s residual value guarantee related to
the leased assets totaled $56 million for which the
Company has recorded the estimated fair value of this
guarantee (approximately $0.9 million) in the Consolidated
Statements of Financial Position.
Notes to the Consolidated Financial Statements