American Home Shield 2009 Annual Report Download - page 46

Table of Contents
American Home Shield, ServiceMaster Clean and Other Operations and Headquarters as described in our "Segment
Review (Year ended December 31, 2008 compared with the Successor period from July 25, 2007 to December 31, 2007
and the Predecessor period from January 1, 2007 to July 24, 2007)".
The Company experienced significant increases in its fuel costs in the first nine months of 2008. The Company's fleet, which consumes approximately
25 million gallons of fuel on an annual basis, continued to be negatively impacted by significant increases in oil prices. Historically, the Company has hedged
a significant portion of its estimated annual fuel usage. Fuel costs, after the impacts of the hedges, increased $9.8 million for the year ended December 31,
2008 compared to the combined periods for the year ended December 31, 2007.
Health care costs experienced strong inflationary pressures for the year ended December 31, 2008. In total, health care and related costs increased
$9.2 million for the year ended December 31, 2008 as compared to the combined periods for the year ended December 31, 2007.
Changes in short term interest rates had a beneficial impact on the Company's business on both operating income (loss) and non-operating expense
(income) by virtue of the effect on variable rate-based fleet and occupancy leases which was offset, in part, by the negative effect on investment income. Short
term interest rates improved the Company's results of operations by $26.5 million pre-tax for the year ended December 31, 2008 compared to the combined
periods for the year ended December 31, 2007.
Operating and Non-Operating Expenses
The Company reported cost of services rendered and products sold of $2,024.2 million for the year ended December 31, 2008 compared to
$898.5 million and $1,196.3 million for the Successor period from July 25, 2007 to December 31, 2007 and the Predecessor period from January 1, 2007 to
July 24, 2007, respectively. The year ended December 31, 2008 and the Successor period from July 25, 2007 to December 31, 2007 include an $0.8 million
(non-cash) and $10.1 million (non-cash) decrease, respectively, in cost of services rendered and products sold from recording deferred costs of services at
their fair value in connection with purchase accounting. Excluding the impact of purchase accounting, these costs decreased as a percentage of revenue to
60.5 percent for the year ended December 31, 2008 from 61.6 percent for the combined periods for year ended December 31, 2007. This decrease primarily
reflects the impact of improved labor efficiency at Terminix, offset, in part, by increases in fuel, fertilizer, healthcare and other factor costs throughout the
enterprise.
The Company reported selling and administrative expenses of $843.3 million for the year ended December 31, 2008 compared to $331.1 million and
$530.7 million for the Successor period from July 25, 2007 to December 31, 2007 and the Predecessor period from January 1, 2007 to July 24, 2007,
respectively. The year ended December 31, 2008 and the Successor period from July 25, 2007 to December 31, 2007 include a $14.0 million (non-cash) and
$44.2 million (non-cash) decrease, respectively, in selling and administrative expenses resulting from recording deferred customer acquisition costs at their
fair value in connection with purchase accounting. Excluding the impact of purchase accounting, these costs decreased as a percentage of revenue to
25.6 percent for the year ended December 31, 2008 from 26.5 percent for the combined periods for the year ended December 31, 2007. The decrease in selling
and administrative expenses as a percentage of revenue primarily reflects lower functional support costs, improved sales labor efficiency at TruGreen
LawnCare and Terminix, and lower compensation charges for the Company due primarily to a decrease in the market value of investments within an
employee deferred compensation trust (for which there is a corresponding and offsetting decrease within interest and net investment loss (income)).
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