American Home Shield 2009 Annual Report Download - page 80

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, limited liability companies
and corporations. Intercompany transactions and balances have been eliminated.
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,
2009 and December 31, 2008 and the Consolidated Statements of Operations, Shareholder's Equity and Cash Flows for the years ended December 31, 2009
and 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 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 service contracts 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 2009, 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.
The allowance for receivables is developed based on several factors including overall customer credit quality, historical write-off experience and specific
account analyses that project the ultimate collectability of the outstanding balances. As such, these factors may change over time causing the reserve level to
vary.
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