American Home Shield 2008 Annual Report Download - page 49

Table of Contents
2.0 percent for the combined periods for the year ended December 31, 2007 over the year ended December 31, 2006. Terminix reported a 4.3 percent increase
in operating income and a 16.5 percent increase in Comparable Operating Performance for the combined periods for the year ended December 31, 2007,
compared to the year ended December 31, 2006. The segment's overall revenue growth reflected strong growth in pest control revenues and increases in
termite contract renewals, offset, in part, by a double digit percentage decline in revenue from termite completions. Pest control revenues increased
8.1 percent for the combined periods for the year ended December 31, 2007 as compared to the year ended December 31, 2006, as the impact of acquisitions
more than offset a decrease in new unit sales. In October 2006, Terminix acquired SafeGuard Pest Control, a company with annual revenues of over
$23 million. A 3.5 percent increase in renewal revenues for the combined periods for the year ended December 31, 2007 was supported by improved pricing
and a 10 basis point improvement in termite customer retention.
Revenue from termite completions declined 12.5 percent for the combined periods for the year ended December 31, 2007, due primarily to a weak
annual termite swarm season. The strong growth in operating income and Comparable Operating Performance reflects lower termite materials costs, effective
management of seasonal staffing of production and sales labor, and reduced overhead spending, offset, in part, by increased provisions for certain legal
matters.
American Home Shield Segment
The American Home Shield segment, which provides home warranties to consumers that cover HVAC, plumbing and other systems and appliances,
reported a 4.2 percent decrease in revenue for the combined periods for the year ended December 31, 2007 compared to the year ended December 31, 2006.
Revenue for the Successor period from July 25, 2007 to December 31, 2007 has been reduced by $55.3 million (non-cash) as a result of recording deferred
revenue at its fair value in connection with purchase accounting. This only impacts revenue and operating income as the non-cash effects attributable to
purchase accounting are excluded from Comparable Operating Performance. Excluding purchase accounting, revenue increased 5.6 percent for the combined
periods for the year ended December 31, 2007 over the year ended December 31, 2006. American Home Shield reported a 76.4 percent decrease in operating
income and a 14.9 percent increase in Comparable Operating Performance for the combined periods for the year ended December 31, 2007 over the year
ended December 31, 2006. New contract sales and renewal units, which are reported as earned revenue over the subsequent twelve-month contract period,
increased 5.3 percent. Contract unit sales from customer renewals increased 7.2 percent, reflecting a larger base of renewable customers and a 370 basis point
improvement in retention. Sales in the real estate channel were supported by the favorable impact of the Realogy agreement signed during the third quarter of
2006, with overall unit sales growth through this channel of 4.5 percent. Real estate unit sales, excluding the impact of sales from the Realogy agreement,
declined 12.7% due to continued softness in the home resale market throughout most of the country. The increase in Comparable Operating Performance for
the combined periods for the year ended December 31, 2007 includes a $4.9 million increase in interest and investment income from the American Home
Shield investment portfolio as compared to 2006, a decrease in the incidence of contract claims from the levels experienced last year and the beneficial
impacts of increases in prices and service fees per claim.
Other Operations and Headquarters Segment
This segment includes the operations of ServiceMaster Clean and Merry Maids, as well as the Company's headquarters functions. The segment reported
a 9.0 percent increase in revenue for the combined periods for the year ended December 31, 2007 compared to the year ended December 31, 2006. The
ServiceMaster Clean and Merry Maids operations reported a combined
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