American Home Shield 2008 Annual Report Download - page 103

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 10. 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 the year ended December 31, 2008, the Successor period from July 25, 2007 to December 31, 2007, the Predecessor period from
January 1, 2007 to July 24, 2007, and the year ended December 31, 2006 was $139 million, $72 million, $97 million and $172 million, respectively. Future
long-term non-cancelable operating lease payments are approximately $70 million in 2009, $53 million in 2010, $39 million in 2011, $28 million in 2012,
$19 million in 2013, and $44 million in 2014 and thereafter.
The majority of the Company's vehicle fleet and some equipment are leased through operating leases. The lease terms are non-cancelable for the first
twelve month term, and then are month-to-month. There are residual value guarantees by the Company (ranging from 70 percent to 84 percent of the
estimated terminal value at the inception of the lease depending on the agreement) relative to these vehicles and equipment, which historically have not
resulted in significant net payments to the lessors. At December 31, 2008, there was approximately $110 million of residual value relating to the Company's
fleet and equipment leases. The fair value of the assets under all of the fleet and equipment leases is expected to substantially mitigate the Company's
guarantee obligations under the agreements. At December 31, 2008, the Company has recorded the estimated fair value of this guarantee of approximately
$2 million in the Consolidated Statements of Financial Position.
The Company maintains lease facilities with banks totaling $65 million, which provide for the financing of branch properties to be leased by the
Company. At December 31, 2008, approximately $65 million was funded under these facilities. Approximately $12 million of these leases are treated as
capital leases and have been included on the balance sheet as assets with related debt as of December 31, 2008. The balance of the funded amount is treated as
operating leases. The Company has guaranteed the residual value of the properties under the leases up to 73 percent of the fair market value at the
commencement of the lease. At December 31, 2008, the Company's residual value guarantee related to the leased assets totaled $53 million for which the
Company has recorded the estimated fair value of this guarantee of approximately $0.1 million in the Consolidated Statements of Financial Position. In
connection with the closing of the Merger, the Company amended these leases effective July 24, 2007. Among the modifications, the Company extended the
lease terms through July 24, 2010. The operating lease and capital lease classifications of these leases did not change as a result of the modifications.
Certain of the Company's assets, including certain branch properties discussed above, a call center facility, and equipment, are leased under capital leases
with approximately $21.2 million in remaining lease obligations as of December 31, 2008. Future lease payments under capital leases are approximately
$1.8 million in 2009, $14.5 million in 2010, $1.7 million in 2011, $0.9 million in 2012, and $0.5 million in 2013, and $1.8 million in 2014 and thereafter.
In the normal course of business, the Company periodically enters into agreements that incorporate indemnification provisions. While the maximum
amount to which the Company may be exposed under such agreements cannot be estimated, the Company does not expect these guarantees and
indemnifications to have a material effect on the Company's business, financial condition, annual results of operations or cash flows.
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