American Home Shield 2009 Annual Report Download - page 27

Table of Contents
$28.0 million and $60.1 million, respectively. These charges are included in the results of continuing operations for 2009 and 2008. In
the fourth quarter of 2007, the Company recorded a non-cash impairment charge associated with the goodwill at its InStar business in
the amount of $12.9 million. This charge is classified within the financial statement caption "(loss) income from discontinued
operations, net of income taxes". In the first quarter of 2006, the Company recorded a $42.0 million impairment charge for expected
losses on the disposition of American Residential Services and American Mechanical Services. This charge is classified within the
financial statement caption "(loss) income from discontinued operations, net of income taxes".
In addition to the impairment charges noted above, the Company also recorded impairment charges of $6.3 million and $18.1 million for
the year ended December 31, 2008 and the Successor period from July 25, 2007 to December 31, 2007, respectively, related to the long-
lived assets (other than goodwill) at its InStar business in connection with the decision to sell the InStar business. This charge is
classified within the financial statement caption "(loss) income from discontinued operations, net of income taxes".
The 2009 results include a $46.1 million ($29.6 million, net of tax) gain on extinguishment of debt related to the completion of open
market purchases of $89.0 million in face value of the Company's Permanent Notes.
In the third and fourth quarters of 2009, the Company recorded a reduction to income tax expense of $12.1 million and $3.1 million,
respectively, related to changes in state tax rates used to measure deferred taxes.
In the fourth quarter of 2008, the Company recorded a reduction in income tax benefit of $8.3 million resulting from the establishment
of a valuation allowance related to certain deferred tax assets for which the realization in future years is not more likely than not. In the
fourth quarter of 2006, the Company recorded a reduction in income tax expense of $7.0 million resulting from the favorable resolution
of state tax items related to a prior non-recurring transaction.
(2)
(3)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Merger Agreement
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.
Immediately following the completion of the Merger, all of the outstanding capital stock of Holdings, the ultimate parent company of ServiceMaster, was
owned by investment funds sponsored by, or affiliated with the Equity Sponsors.
Equity contributions totaling $1,431.1 million from the Equity Sponsors, together with (i) borrowings under a new $1,150.0 million senior unsecured
interim loan facility ("Interim Loan Facility"), (ii) borrowings under a new $2,650.0 million senior secured term loan facility, and (iii) cash on hand at
ServiceMaster, were used, among other things, to finance the aggregate Merger Consideration, to make payments in satisfaction of other equity-based
interests in ServiceMaster under the Merger Agreement, to settle existing interest rate swaps, to redeem or provide for the repayment of certain of the
Company's existing indebtedness and to pay related transaction fees and expenses. In addition, letters of credit issued under a new $150.0 million pre-funded
letter of credit facility were used to replace and/or secure letters of credit previously issued under a ServiceMaster credit facility that was terminated as of the
Closing Date. On the Closing Date, the Company also entered into, but did not then draw under, the Revolving Credit Facility.
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