American Home Shield 2015 Annual Report Download - page 58

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40
(1) Represents the net investment gains and the interest and dividend income realized on the American Home Shield investment
portfolio.
(2) Represents investment income resulting from a change in the market value of investments within an employee deferred
compensation trust (for which there is a corresponding and offsetting change in compensation expense within income from
continuing operations before income taxes).
(3) Includes interest income on other cash balances.
Loss on Extinguishment of Debt
A loss on extinguishment of debt of $58 million was recorded in the year ended December 31, 2015 related to the
redemptions of the 8% 2020 Notes on February 17, 2015 and April 1, 2015 and the redemption of the 7% 2020 Notes on August 17,
2015. A loss on extinguishment of debt of $65 million was recorded in the year ended December 31, 2014 related to the repayment of
the Old Term Facilities and the partial redemption of the 2020 Notes on July 16, 2014. There were no debt extinguishments by us in
the year ended December 31, 2013. See Note 12 to the consolidated financial statements for more details.
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes was $270 million, $84 million and $86 million for the years ended
December 31, 2015, 2014 and 2013, respectively. The change in income from continuing operations before income taxes primarily
reflects the net effect of year-over-year changes in the following items:
Year Ended December 31,
(In millions) 2015 vs. 2014 2014 vs. 2013
Reportable segments and Corporate(1) $ 65 $ 107
Interest expense(2) 52 28
Impairment of software and other related costs(3) 47 (47)
401(k) Plan corrective contribution(4) (23) —
Consulting agreement termination fees(5) 21 (21)
Loss on extinguishment of debt(6) 7 (65)
Amortization expense(7) 14 (1)
Gain on sale of Merry Maids branches(8) 6 1
Other(9) (3) (4)
Increase (decrease) in income from continuing operations before income taxes $ 186 $ (2)
___________________________________
(1) Represents the net change in Adjusted EBITDA as described in “—Segment Review.”
(2) Represents the net change in interest expense as described in “—Interest Expense.”
(3) Represents a $47 million impairment of software and other related costs at American Home Shield recorded in the year ended
December 31, 2014 as described in “—Impairment of Software and Other Related Costs.”
(4) Represents the $23 million charge recorded in the year ended December 31, 2015 related to the 401(k) Plan as described in
“—401(k) Plan Corrective Contribution.”
(5) Represents the consulting agreement termination fees of $21 million recorded in the year ended December 31, 2014 as
described in “—Consulting Agreement Termination Fees.”
(6) Represents the $58 million and $65 million loss on extinguishment of debt recorded in the years ended December 31, 2015
and 2014, respectively, as described in “—Loss on Extinguishment of Debt.”
(7) Represents the net change in amortization expense as described in “—Amortization Expense.”
(8) Represents the $7 million and $1 million gain in the years ended December 31, 2015 and 2014, respectively, as described in
“—Gain on Sale of Merry Maids branches.”
(9) Primarily represents the net change in restructuring charges, management and consulting fees, stock-based compensation,
secondary offering fees, legal and environmental expenses and depreciation.
Provision for Income Taxes
The effective tax rate on income from continuing operations was 39.8 percent, 48.2 percent and 50.1 percent for the years
ended December 31, 2015, 2014 and 2013, respectively. The effective tax rate on income from continuing operations for the year
ended December 31, 2014 was affected by an adjustment to deferred state taxes as a result of a change in the state apportionment
factors attributable to the TruGreen Spin-off. The effective tax rate on income from continuing operations for the year ended
December 31, 2013 was affected by a one-time state valuation allowance increase as well as other state adjustments. For 2014 and
2013, the increased state tax expense applied against lower pre-tax income was the primary driver of a higher overall effective tax
rate. For a reconciliation of our effective tax rates to the statutory rate see Note 5 to the consolidated financial statements.
56 2015 Annual Report