American Home Shield 2015 Annual Report Download - page 33

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personnel cannot travel to service locations due to hazardous road conditions. In addition, extreme temperatures can lead to an
increase in service requests related to household systems and appliances in our American Home Shield business, resulting in higher
claim frequency and costs and lower profitability. These or other weather conditions could adversely impact our business, financial
position, results of operations and cash flows.
Compliance with IRS rules for our 401(k) Plan could result in significant costs that adversely impact our financial position, results
of operations and cash flows.
In 2008, we amended our Profit Sharing and Retirement Plan, a tax qualified 401(k) defined contribution plan available to
substantially all of our employees (the “401(k) Plan”), to implement a qualified automatic contribution arrangement (“QACA”) under
the safe harbor provisions of the Internal Revenue Code of 1986, as amended (the “Code”). QACA plans, in general, require automatic
enrollment of employees into the retirement plan absent an affirmative election that such employees do not wish to participate.
Although we implemented processes to auto-enroll new hires after adopting the QACA plan in 2008, we have discovered that
we did not auto-enroll then existing employees who were not participating in the 401(k) Plan. In response, we implemented an auto-
enrollment process for affected active employees, and we are preparing to submit to the IRS a voluntary correction proposal to remedy
the issue for prior years. Our current estimate of the cost of the correction ranges from $23 million to approximately $85 million. We
recorded a charge in the consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2015
of $23 million. However, there can be no assurances as to the ultimate costs of the correction.
Increases in raw material prices, fuel prices and other operating costs could adversely impact our business, financial position,
results of operations and cash flows.
Our financial performance may be adversely affected by increases in the level of our operating expenses, such as fuel,
chemicals, refrigerants, appliances and equipment, parts, raw materials, wages and salaries, employee benefits, health care, vehicle
maintenance, contractor costs, self-insurance costs and other insurance premiums, as well as various regulatory compliance costs, all
of which may be subject to inflationary pressures.
In recent years, fuel prices have fluctuated widely, and previous increases in fuel prices increased our costs of operating
vehicles and equipment. Although in the twelve months of 2015 fuel prices remained relatively low, there can be no assurances that
rates will not return to historical levels. We cannot predict what effect global events or any future Middle East, Russia or other crisis
could have on fuel prices, but it is possible that such events could lead to higher fuel prices. With respect to fuel, our fleet has been
negatively impacted by significant increases in fuel prices in the past and could be negatively impacted in the future. Although we
hedge a significant portion of our fuel costs, we do not hedge all of those costs. We expect to use approximately 13 million gallons of
fuel in 2016. As of December 31, 2015, a ten percent change in fuel prices would result in a change of approximately $3 million in our
annual fuel cost before considering the impact of fuel swap contracts. Fuel price increases can also result in increases in the cost of
chemicals and other materials used in our business. We cannot predict the extent to which we may experience future increases in costs
of fuel, chemicals, refrigerants, appliances and equipment, parts, raw materials, wages and salaries, employee benefits, health care,
vehicle, self-insurance costs and other insurance premiums as well as various regulatory compliance costs and other operating costs.
To the extent such costs increase, we may be prevented, in whole or in part, from passing these cost increases through to our existing
and prospective customers, and the rates we pay to our subcontractors and suppliers may increase, any of which could have a material
adverse impact on our business, financial position, results of operations and cash flows.
We may not be able to attract and retain qualified key executives or transition smoothly to new leadership, which could adversely
impact us and our businesses and inhibit our ability to operate and grow successfully.
The execution of our business strategy and our financial performance will continue to depend in significant part on our
executive management team and other key management personnel. Any inability to attract in a timely manner other qualified key
executives, retain our leadership team and recruit other important personnel could have a material adverse impact on our business,
financial position, results of operations and cash flows.
Compliance with, or violation of, environmental, health and safety laws and regulations, including laws pertaining to the use of
pesticides, could result in significant costs that adversely impact our reputation, business, financial position, results of operations
and cash flows.
International, federal, state, provincial and local laws and regulations relating to environmental, health and safety matters
affect us in several ways. In the United States, products containing pesticides generally must be registered with the EPA, and similar
state agencies before they can be sold or applied. The failure to obtain or the cancellation of any such registration, or the withdrawal
from the marketplace of such pesticides, could have an adverse effect on our business, the severity of which would depend on the
products involved, whether other products could be substituted and whether our competitors were similarly affected. The pesticides
we use are manufactured by independent third parties and are evaluated by the EPA as part of its ongoing exposure risk assessment.
The EPA may decide that a pesticide we use will be limited or will not be re-registered for use in the United States. We cannot predict
the outcome or the severity of the effect of the EPA’s continuing evaluations.
In addition, the use of certain pesticide products is regulated by various international, federal, state, provincial and local
environmental and public health agencies. Although we strive to comply with such laws and regulations and have processes in place
designed to achieve compliance, given our dispersed locations, distributed operations and numerous associates, we may be unable to
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