American Home Shield 2011 Annual Report Download - page 36

Table of Contents
as a result of continued inflation in the cost of health care services and due to certain provisions of the Patient Protection and Affordable Care Act.
The Company has entered into multiple interest rate swap agreements as further discussed in Note 12 to the Consolidated Financial Statements. Changes
in interest rates, after the impact of the interest rate swap agreements, improved the Company's non-operating expenses by approximately $13.7 million for
the year ended December 31, 2011 compared to 2010 and $3.3 million for the year ended December 31, 2010 compared to 2009 by virtue of the effect on
floating rate debt, offset, in part, by the negative effect on investment income.
Operating and Non-Operating Expenses
The Company reported cost of services rendered and products sold of $1.814 billion for the year ended December 31, 2011 compared to $1.777 billion
for the year ended December 31, 2010. As a percentage of revenue, these costs decreased to 56.6 percent for the year ended December 31, 2011 from
56.8 percent for the year ended December 31, 2010. Residual value guarantee charges of $9.2 million related to synthetic leases were recorded in 2010 at
TruGreen for which there was no similar charge in 2011 and contributed 29 basis points ("bps") to the improvement in cost of services rendered and products
sold as a percentage of revenue. The remaining 9 bps increase as a percentage of revenue primarily reflects an increase in fuel and fertilizer prices and
contract claims costs, offset, in part, by a reduction in termite damage claims expense, the favorable impact of acquiring assets in connection with exiting
certain fleet leases and cost reductions realized through ongoing initiatives.
The Company reported cost of services rendered and products sold of $1.777 billion for the year ended December 31, 2010 compared to $1.691 billion
for the year ended December 31, 2009. As a percentage of revenue, these costs for the year ended December 31, 2010 were comparable to the year ended
December 31, 2009 at 56.8 percent. Residual value guarantee charges of $9.2 million and $4.7 million related to synthetic leases were recorded in 2010 and
2009, respectively, at TruGreen and negatively impacted the change in cost of services rendered and products sold as a percentage of revenue by 14 bps. The
remaining change as a percentage of revenue primarily reflects an increase in incentive compensation expense, contract claims costs at American Home
Shield and product distribution revenue at Terminix, which has lower margins than termite or pest revenue, offset, in part, by the favorable impact of
acquiring assets in connection with exiting certain fleet leases and a reduction in fuel and fertilizer prices and health care costs.
The Company reported selling and administrative expenses of $880.5 million for the year ended December 31, 2011 compared to $896.0 million for the
year ended December 31, 2010. As a percentage of revenue, these costs decreased to 27.5 percent for the year ended December 31, 2011 from 28.6 percent for
the year ended December 31, 2010. Key executive transition charges of $6.6 million and $5.5 million were incurred in 2011 and 2010, respectively, which
negatively impacted the change in selling and administrative expenses as a percentage of revenue by 4 bps. The remaining 114 bps improvement as a
percentage of revenue primarily reflects a reduction in sales and marketing expense, legal related expense and spending in the Company's centers of
excellence, offset, in part, by an increase in technology related costs driven by our new CRM system at American Home Shield and for PCI standards
compliance purposes.
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