American Home Shield 2008 Annual Report Download - page 57

Table of Contents
Financial Position—Continuing Operations
The Company has accounted for the Merger in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations", which
requires the cost of the Merger to be allocated to the assets and liabilities of the Company based on fair value.
Receivables are comparable to prior year levels.
Inventories increased from prior year levels, reflecting increased materials costs and general business growth.
Deferred customer acquisition costs increased from prior year levels as a result of recording these costs at fair value in connection with applying
purchase accounting related to the Merger.
There is seasonality in the lawn care operations. In the winter and spring, this business sells a series of lawn applications to customers, which are
rendered primarily in March through October. On an ongoing basis, these direct and incremental selling expenses which relate to successful sales will be
deferred and recognized over the production season and are not deferred beyond the calendar year-end. In addition, the Company will continue to capitalize
sales commissions and other direct contract acquisition costs relating to termite baiting, termite inspection and protection contracts and pest contracts, as well
as home warranty agreements. These costs vary with and are directly related to a new sale, and will be amortized over the life of the related contract.
Property and equipment increased from prior year levels, reflecting the $52.9 million acquisition of assets in connection with exiting certain of the
Company's fleet leases. The Company has no additional material capital commitments at this time.
The net decrease in intangible assets is a result of amortization expense and a trade name impairment being recorded.
Debt issue costs are comparable to prior year levels due to the payment of debt issuance costs related to the conversion of the amounts outstanding under
the Interim Loan Facility into the Permanent Notes being offset by the recording of amortization expense.
Accrued payroll and related expenses decreased from prior year levels relating to decreased bonus accruals, the payment of employee retention and
severance accruals related to the Company's corporate headquarters consolidation plan and payments due under change in control and severance agreements.
Other accrued liabilities increased from prior year levels as a result of increases in the fair value liability recorded related to fuel hedges and increases in
accrued interest.
Deferred revenue increased from prior year levels as a result of recording these amounts at fair value in connection with applying purchase accounting
related to the Merger.
Financial Position—Discontinued Operations
The assets and liabilities related to discontinued operations have been classified in a separate caption on the Consolidated Statements of Financial
Position. Assets and liabilities from discontinued operations have decreased reflecting the sale of the InStar business.
As part of the American Residential Services and American Mechanical Services sale agreements, the Company guaranteed obligations to third parties
with respect to bonds (primarily performance and license type), operating leases for which the Company has been released as being the primary obligor, real
estate leased and operated by the buyers, and other guarantees of payment. At the present time, the Company does not believe it is probable that the buyers
will default on their obligations subject to guarantee. The fair value of the Company's obligations related to these guarantees is not significant and no liability
has been recorded.
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