American Home Shield 2008 Annual Report Download - page 78

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 1. Significant Accounting Policies (Continued)
contracts relating to home warranty, termite baiting, termite inspection, pest control and lawn care services.
Deferred Customer Acquisition Costs: Customer acquisition costs, which are incremental and direct costs of obtaining a customer, are deferred and
amortized over the life of the related contract in proportion to revenue recognized. These costs include sales commissions and direct selling costs which can
be shown to have resulted in a successful sale.
Interim Reporting: TruGreen LawnCare has significant seasonality in its business. In the winter and spring, this business sells a series of lawn
applications to customers which are rendered primarily in March through October (the production season). This business incurs incremental selling expenses
at the beginning of the year that directly relate to successful sales for which the revenues are recognized in later quarters. On an interim basis, TruGreen
LawnCare defers these incremental selling expenses, pre-season advertising costs and annual repairs and maintenance procedures that are performed primarily
in the first quarter. These costs are deferred and recognized in proportion to the contract revenue over the production season, and are not deferred beyond the
calendar year-end. Other business segments of the Company also defer, on an interim basis, advertising costs incurred early in the year. These pre-season
costs are deferred and recognized approximately in proportion to revenue over the balance of the year, and are not deferred beyond the calendar year-end.
Advertising: As discussed in the "Interim Reporting" note above, certain pre-season advertising costs are deferred and recognized approximately in
proportion to the revenue over the year. Certain other advertising costs are expensed when the advertising occurs. The cost of direct-response advertising at
Terminix and TruGreen LawnCare, consisting primarily of direct-mail promotions, is capitalized and amortized over its expected period of future benefits.
Advertising 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 $151 million, $67 million, $75 million and $127 million, respectively.
Inventory: Inventories are recorded at the lower of cost (primarily on a weighted average cost basis) or market. The inventory primarily represents
finished goods to be used on the customers' premises or sold to franchisees.
Property and Equipment, Intangible Assets and Goodwill: Buildings and equipment used in the business are stated at cost and depreciated over their
estimated useful lives using the straight-line method for financial reporting purposes. The estimated useful lives for building and improvements range from 10
to 40 years, while the estimated useful lives for equipment range from 3 to 10 years. Leasehold improvements relating to leased facilities are depreciated over
the remaining life of the lease. Technology equipment as well as software and development have an estimated useful life of three to seven years. At
December 31, 2008, intangible assets consisted primarily of goodwill ($3,094 million), trade names ($2,408 million) and other intangible assets
($560 million).
As required by SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company's long-lived assets, including fixed assets
and intangible assets (other than goodwill), are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may
not be recoverable. If the carrying value is no longer recoverable based
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