American Home Shield 2010 Annual Report Download - page 38

Table of Contents
Year Ended December 31,
(In thousands) 2010 2009 2008
Total Segment Operating Income $ 257,890 $ 257,157 $ 197,762
Non-operating Expense (Income):
Interest expense 286,979 299,377 347,231
Interest and net investment (income) loss (9,358) (7,079) 10,052
Gain on extinguishment of debt — (46,106) —
Other expense 733 748 652
(Loss) Income from Continuing Operations before Income Taxes (20,464) 10,217 (160,173)
Benefit for income taxes (6,433) (4,390) (38,300)
(Loss) Income from Continuing Operations (14,031) 14,607 (121,873)
Loss from discontinued operations, net of income taxes (528) (1,112) (4,526)
Net (Loss) Income $ (14,559) $ 13,495 $ (126,399)
Interest and net investment income (loss) is primarily comprised of investment income and realized gain (loss) on our American Home Shield segment investment
portfolio. Cash, short-term and long-term marketable securities associated with regulatory requirements in connection with American Home Shield and for other
purposes totaled $240.1 million as of December 31, 2010. American Home Shield interest and net investment income (loss) was $6.2 million, $2.0 million and
($8.2) million for the years ended December 31, 2010, 2009 and 2008, respectively. The balance of interest and net investment income (loss) primarily relates to
(i) investment income (loss) from our employee deferred compensation trust (for which there is a corresponding and offsetting change in compensation expense
within (loss) income from continuing operations before income taxes) and (ii) interest income on other cash balances.
Represents residual value guarantee charges related to a synthetic lease for operating properties that did not result in additional cash payments to exit the facility at
the end of the lease term in July 2010. In the third quarter of 2009, the Company determined that it was probable that the fair value of the real properties under
operating leases would be below the total amount funded under the lease facilities at the end of the lease term. The Company's estimate of this shortfall was
$15.9 million, which was expensed over the remainder of the lease term. The Company recorded charges of $10.4 million and $5.5 million in the years ended
December 31, 2010 and 2009, respectively, related to this shortfall.
Represents non-cash impairment charges of $46.9 million, $28.0 million and $60.1 million recorded in the years ended December 31, 2010, 2009 and 2008,
respectively, to reduce the carrying value of goodwill and trade names as a result of the Company's interim and annual impairment testing of goodwill and
indefinite-lived intangible assets. See Note 1 to the Consolidated Financial Statements for further information.
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.
Represents (i) restructuring charges related to a reorganization of field leadership and a restructuring of branch operations at TruGreen LawnCare, a branch
optimization project at Terminix and information technology outsourcing at Other Operations and Headquarters and (ii) Merger related charges.
Represents management and consulting fees payable to certain related parties. See Note 10 to the Consolidated Financial Statements for further information on
management and consulting fees.
There are no adjustments necessary to reconcile operating loss from discontinued operations, the most directly comparable financial measure under GAAP, to
Adjusted EBITDA or Comparable Operating Performance from discontinued operations for the years ended December 31, 2010, 2009 or 2008.
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TruGreen LawnCare Segment
The TruGreen LawnCare segment, which provides lawn, tree and shrub care services, reported a 4.6 percent increase in revenue, a 73.1 percent increase
in operating income and a 5.0 percent increase in Comparable Operating Performance for the year ended December 31, 2010 compared to 2009. The revenue
results reflect improved price realization and higher sales of expanded services, offset, in part, by a 1.7 percent decline in customer counts. The decline in
customer counts was driven by a 210 basis point reduction in the customer retention rate, offset, in part, by an increase in new unit sales generated in our
neighborhood selling channel. 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 improved $8.9 million for the year ended December 31, 2010 compared to 2009. In addition
to the favorable impact of increased revenue, TruGreen LawnCare's Comparable Operating Performance reflects reduced fuel, fertilizer and health care costs,
offset, in part, by increased investments in sales and marketing, increased provisions for incentive compensation and increased costs related to our ongoing
initiatives to transform our branch operations and to improve customer service.
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