American Home Shield 2008 Annual Report Download - page 45

Table of Contents
corresponding and offsetting decrease in compensation expense within loss (income) from continuing operations before income taxes).
Represents an increase in charges related to the Merger which cannot be capitalized as part of the purchase cost for financial reporting
purposes.
Represents an increase in restructuring charges primarily resulting from Fast Forward and the consolidation of the Company's corporate
headquarters into its operations support center in Memphis, Tennessee.
Represents an increase in income from continuing operations before income taxes, non-cash purchase accounting adjustments, interest
expense, interest and net investment income, merger related charges and restructuring charges supported by the improved results at
TruGreen LawnCare, Terminix, TruGreen LandCare and American Home Shield as described in our "Segment Review (The Successor
period from July 25, 2007 to December 31, 2007 and the Predecessor period from January 1, 2007 to July 24, 2007 compared to the year
ended December 31, 2006)."
The Company continued to experience significant increases in its fuel costs. The Company's fleet, which consumes approximately 28 million gallons
annually, continued to be negatively impacted by significant increases in oil prices. Historically, the Company has hedged approximately two-thirds of its
estimated annual fuel usage. Fuel costs, after the impacts of the hedges, increased approximately $8 million pre-tax in the combined periods for the year ended
December 31, 2007 compared to the year ended December 31, 2006.
Health care costs continued to experience strong inflationary pressures for the combined periods for the year ended December 31, 2007. In total, health
care and related costs did not increase significantly for the combined periods for the year ended December 31, 2007 as inflationary increases were offset by
favorable experience in self-insured claims.
Changes in short term interest rates have had a beneficial impact on the Company's business on both operating income (loss) and non-operating expense
(income) by virtue of its effect on variable rate-based fleet and occupancy leases, as well as floating rate debt which was partially offset by the negative effect
on investment income. On a combined basis, declines in short term interest rates improved the Company's results by approximately $1 million pre-tax for the
combined periods for the year ended December 31, 2007 compared to the year ended December 31, 2006.
Operating and Non-Operating Expenses
The Company reported cost of services rendered and products sold of $1,196.3 million for the Predecessor period from January 1, 2007 to July 24, 2007
and $898.5 million for the Successor period from July 25, 2007 to December 31, 2007 compared to $2,082.1 million for the year ended December 31, 2006.
The Successor period from July 25, 2007 to December 31, 2007 includes a $10.1 million (non-cash) decrease in cost of services rendered and products sold
from recording deferred costs of services at their fair value in connection with purchase accounting. Excluding purchase accounting, as a percentage of
revenue, these costs decreased to 61.6 percent for the combined periods for the year ended December 31, 2007 from 62.5 percent for the year ended
December 31, 2006. This decrease primarily reflects the impact of improved labor efficiency at Terminix and a decrease in the incidence of contract claims at
American Home Shield, offset by increases in fuel and other factor costs throughout the enterprise.
The Company reported selling and administrative expenses of $530.7 million for the Predecessor period from January 1, 2007 to July 24, 2007 and
$331.1 million for the Successor period from July 25, 2007 to December 31, 2007 compared to $896.7 million for the year ended December 31, 2006. The
Successor period from July 25, 2007 to December 31, 2007 includes a $44.2 million (non-cash) decrease in selling and administrative expenses resulting from
recording deferred customer acquisition costs at their fair value offset by increased depreciation as a result of
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