American Home Shield 2008 Annual Report Download - page 75

Table of Contents
Notes to the Consolidated Financial Statements
Note 1. Significant Accounting Policies
The consolidated financial statements include the accounts of ServiceMaster and its majority-owned subsidiary partnerships and corporations.
Intercompany transactions and balances have been eliminated. The financial results as well as the assets and liabilities related to InStar, American Residential
Services and American Mechanical Services have been classified in the financial statement caption "discontinued operations" in all periods due to the sale of
InStar in 2008 and the sale of American Residential Services and American Mechanical Services in 2006.
Basis of Presentation: On March 18, 2007, ServiceMaster entered into the Merger Agreement with Holdings and Acquisition Co. The Merger
Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, Acquisition Co. would merge with and into
ServiceMaster, with ServiceMaster as the surviving corporation.
On the Closing Date, the Merger was completed, and each issued and outstanding share of ServiceMaster common stock, other than shares held by
ServiceMaster or Holdings or their subsidiaries and shares held by stockholders who validly perfected their appraisal rights under Delaware law, was
converted into the right to receive $15.625 in cash. Each share of ServiceMaster common stock owned by ServiceMaster, Holdings or Acquisition Co. or any
of their respective direct or indirect wholly-owned subsidiaries was cancelled and retired, and no consideration was paid in exchange for it.
Although ServiceMaster continued as the same legal entity after the Merger, the accompanying consolidated financial statements are presented for two
periods: Predecessor and Successor, which relate to the period preceding the Merger and the period succeeding the Merger, respectively. The Company refers
to the operations of ServiceMaster for both the Predecessor and Successor periods. The consolidated statements of financial position as of December 31, 2008
and December 31, 2007 and the consolidated statements of operations, shareholder's equity and cash flows for the year ended December 31, 2008 and the
period from July 25, 2007 to December 31, 2007 reflect the financial position, operations and cash flows of the Successor period. The consolidated statements
of operations, shareholder's equity and cash flows for the period from January 1, 2007 to July 24, 2007 and the year ended December 31, 2006 reflect the
operations and cash flows of the Predecessor period.
As a result of the consummation of the Merger and the application of purchase accounting described in Note 3, the consolidated financial statements for
the Predecessor and Successor are not comparable.
Summary: The preparation of the consolidated financial statements requires management to make certain estimates and assumptions required under
GAAP which may differ from actual results. The more significant areas requiring the use of management estimates relate to revenue recognition; the
allowance for uncollectible receivables; accruals for self-insured retention limits related to medical, workers' compensation, auto and general liability
insurance claims; accruals for home warranty and termite damage claims; the possible outcome of outstanding litigation; accruals for income tax liabilities as
well as deferred tax accounts; the deferral and amortization of customer acquisition costs; useful lives for depreciation and amortization expense; the valuation
of marketable securities; and the valuation of tangible and intangible assets. In 2008, there have been no changes in the significant areas that require estimates
or in the underlying methodologies used in determining the amounts of these associated estimates.
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