American Home Shield 2009 Annual Report Download - page 41

Table of Contents
Includes residual value guarantee charges that do not result in additional cash payments to exit the facility at the end of the lease term. In the third quarter of 2009,
the Company determined that it was probable that the fair value of certain properties under operating leases would be below the guaranteed residual value at the end
of the lease term. The Company's current estimate of this shortfall is $11.8 million, which will be expensed over the remainder of the lease term (expires July 24,
2010).
The Merger was accounted for using purchase accounting. This adjustment represents the aggregate, non-cash adjustments (other than amortization and
depreciation) attributable to the application of purchase accounting.
Includes restructuring charges related to (i) a reorganization of field leadership and a restructuring of branch operations at TruGreen LawnCare, (ii) a branch
optimization project at Terminix, (iii) Fast Forward, (iv) the Company's consolidation of its corporate headquarters into its operations support center in Memphis,
Tennessee and the closing of its former headquarters in Downers Grove, Illinois, and (v) organizational changes at TruGreen LandCare and Merger related charges.
Represents management and consulting fees payable to certain related parties. A management fee is payable to CD&R pursuant to a consulting agreement under
which CD&R provides the Company with on-going consulting and management advisory services in exchange for an annual management fee of $6.25 million,
which is payable quarterly. On July 30, 2009, the annual management fee payable under the consulting agreement with CD&R was increased from $2.0 million to
$6.25 million in order to align the fee structure with current market rates. The full year management fee was applied in 2009.
In addition, in August 2009, the Company entered into consulting agreements with Citigroup, BAS and JPMorgan, each of which is an Equity Sponsor or an
affiliate of an Equity Sponsor. Under the consulting agreements, Citigroup, BAS and JPMorgan each will provide the Company with on-going consulting and
management advisory services until June 30, 2016 or the earlier termination of the existing consulting agreement between the Company and CD&R. The Company
will pay annual management fees of $0.5 million, $0.5 million and $0.25 million to Citigroup, BAS and JPMorgan, respectively. The Company recorded consulting
fees related to these agreements of $1.25 million for the year ended December 31, 2009.
The table included in "Discontinued Operations" below presents reconciliations of operating loss, the most directly comparable financial measure under GAAP, to
Adjusted EBITDA and Comparable Operating Performance for the periods presented.
(3)
(4)
(5)
(6)
(7)
TruGreen LawnCare Segment
The TruGreen LawnCare segment, which includes lawn, tree and shrub care services, reported a 4.2 percent decrease in revenue, a 39.3 percent decrease
in operating income and a 6.7 percent decrease in Comparable Operating Performance for the year ended December 31, 2009 compared to 2008. The revenue
results were adversely impacted by soft consumer demand and $14.3 million of incremental discounts offered on full program accounts in 2009 designed to
offset the impacts of a difficult economic environment. Customer counts at December 31, 2009 were 0.9 percent higher than last year's level due primarily to
a 210 basis point improvement in the customer retention rate, offset, in part, by a decline in new unit sales in the first and second quarter. TruGreen LawnCare
is continuing its efforts to improve customer retention by focusing on the overall quality of service delivery, including the lawn quality audit program, the
reduction of lawn specialist turnover and the continued improvement of overall communication with customers.
TruGreen LawnCare's Comparable Operating Performance declined $12.4 million for the year ended December 31, 2009 compared to 2008, which
includes the impact of $8.4 million of restructuring charges related to a reorganization of field leadership and a restructuring of branch operations. TruGreen
LawnCare's Comparable Operating Performance also reflects increased sales and marketing expenses, unfavorable trending in health care costs, and increased
overhead expenses, offset, in part, by improved management of seasonal staffing of production labor, reduced fuel and fertilizer costs and a $15.7 million
reduction in vehicle lease expense driven by lower vehicle fleet counts and the favorable impact of acquiring assets in connection with exiting certain fleet
leases in 2008.
TruGreen LandCare Segment
The TruGreen LandCare segment, which includes landscape maintenance services, reported a 17.1 percent decrease in revenue, a 146.7 percent increase
in operating income and a 17.5 percent increase in Comparable Operating Performance for the year ended December 31, 2009 compared to 2008. The decline
in revenue included a 12.4 percent decline in base contract maintenance revenue and a 26.9 percent decline in enhancement revenue. Revenue in the first
quarter of 2009 was adversely impacted by TruGreen LandCare's continued efforts to improve the quality of its customer mix by pruning less profitable jobs,
implementing stricter pricing on new sales and increasing the average size of new proposals and sales. In addition, revenue trends were adversely impacted by
soft consumer demand and pricing concessions.
37