American Home Shield 2002 Annual Report Download - page 56

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 would normally expect to renew the leases or
substitute another location and lease.
The majority of the Company’s vehicle fleet is leased
through operating leases. Lease terms are non-cance-
lable for the first 12 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, 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,
2002 there was approximately $257 million of residual
value relating to the Company’s fleet.
Rental expense for 2002, 2001 and 2000 was $159 million,
$160 million and $147 million, respectively. Future
long-term noncancelable operating lease payments are
$63.0 million in 2003, $49.7 million in 2004, $39.8
million in 2005, $31.8 million in 2006, $25.2 million in
2007 and $51.5 million thereafter.
The Company maintains operating lease facilities with
banks totaling $95 million which provide for the acqui-
sition and development of properties to be leased by the
Company. 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, 2002, approximately $72 million
was funded under these facilities. Of the $95 million in
facilities, $80 million expires in October 2004 and $15
million expires in January 2008. Approximately $15
million of these leases that involve constructed properties
have been recorded on the balance sheet as capital leases
with related assets and debt recorded as of December 31,
2002 and 2001.
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. The Company’s
investments consist primarily of publicly traded debt
and common equity securities.
As of December 31, 2002, the aggregate market value
of the Company’s short- and long-term investments in
debt and equity securities was $116.7 million and the
aggregate cost basis was $119.1 million.
Interest and dividend income received on cash and
marketable securities was $10.6 million, $9.7 million,
and $10.0 million, in 2002, 2001, and 2000, respectively.
Gains and losses on sales of investments, as determined
on a specific identification basis, are included in invest-
ment 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. As a result
of such a review, the Company wrote down the value of
its investment portfolio by $4 million, pretax in 2001.
Receivable Sales
In 2001, the Company entered into an agreement
which provides for the ongoing revolving sale of a
designated pool of accounts receivable of TruGreen and
Terminix to a wholly-owned, bankruptcy-remote
subsidiary, ServiceMaster Funding LLC. ServiceMaster
Funding LLC has entered into an agreement to transfer,
on a revolving basis, an undivided percentage owner-
ship interest in a pool of accounts receivable to unrelated
third party purchasers. ServiceMaster Funding LLC
retains an undivided percentage interest in the pool of
accounts receivable and bad debt losses for the entire
pool are allocated first to this retained interest. The
Company recorded a $3 million pretax loss in 2001
related to this program which was recorded in minority
interest expense. At December 31, 2002, there were no
receivables sold to third parties under this agreement.
However, the Company may sell its receivables in the
future which would provide an alternative funding
source. The agreement is a 364-day facility that is
renewable at the option of the purchasers. The Company
may sell up to $65 million of its receivables to these
purchasers in the future and therefore has immediate
access to cash proceeds from these sales. The amount of
the eligible receivables varies during the year based on
seasonality of the business and will at times limit the
amount available to the Company.
52 ServiceMaster
Notes to Consolidated Financial Statements