American Home Shield 2015 Annual Report Download - page 82

Table of Contents
64
Advertising
On an interim basis, certain advertising costs are deferred and recognized approximately in proportion to the revenue over the
year and are not deferred beyond the calendar year-end. Certain other advertising costs are expensed when the advertising occurs. The
cost of direct-response advertising at Terminix, consisting primarily of direct-mail and digital promotions, is capitalized and amortized
over its expected period of future benefits. Deferred advertising costs are included in Prepaid expenses and other assets on the
consolidated statements of financial position. Advertising expense for the years ended December 31, 2015, 2014 and 2013 was $113
million, $122 million and $114 million, respectively.
Inventory
Inventories are recorded at the lower of cost (primarily on a weighted-average cost basis) or market. The Company’s
inventory primarily consists of finished goods to be used on the customers’ premises or sold to franchisees.
Property and Equipment, Intangible Assets and Goodwill
Property and equipment consist of the following:
Estimated
As of December 31, Useful Lives
(In millions) 2015 2014 (Years)
Land $ 6 $ 6 N/A
Buildings and improvements 38 35 10 - 40
Technology and communications 200 185 3 - 7
Machinery, production equipment and vehicles 146 124 3 - 9
Office equipment, furniture and fixtures 17 19 5 - 7
408 369
Less accumulated depreciation (248) (233)
N
et property and equipment $ 160 $ 136
Depreciation of property and equipment, including depreciation of assets held under capital leases, was $47 million,
$48 million and $48 million for the years ended December 31, 2015, 2014 and 2013, respectively.
The Company recorded an impairment charge of $47 million ($28 million, net of tax) in the year ended December 31, 2014
related to its decision in the first quarter of 2014 to abandon its efforts to deploy a new operating system at American Home Shield.
This impairment represented an adjustment of the carrying value of the asset to its estimated fair value of zero on a non-recurring
basis.
As of December 31, 2015 and 2014, goodwill was $2,129 million and $2,069 million, respectively, and intangible assets
consisted primarily of indefinite-lived trade names in the amount of $1,608 million and other intangible assets in the amount of
$96 million and $88 million, respectively.
Fixed assets and intangible assets with finite lives are depreciated and amortized on a straight-line basis over their estimated
useful lives. These lives are based on the Company’s previous experience for similar assets, potential market obsolescence and other
industry and business data. As required by accounting standards for the impairment or disposal of long-lived assets, the Company’s
fixed assets and finite-lived intangible assets are tested for recoverability whenever events or changes in circumstances indicate their
carrying amounts may not be recoverable. If the carrying value is no longer recoverable based upon the undiscounted future cash
flows of the asset, an impairment loss would be recognized equal to the difference between the carrying amount and the fair value of
the asset. Changes in the estimated useful lives or in the asset values could cause the Company to adjust its book value or future
expense accordingly.
As required under accounting standards for goodwill and other intangibles, goodwill is not subject to amortization, and
intangible assets with indefinite useful lives are not amortized until their useful lives are determined to no longer be indefinite.
Goodwill and intangible assets that are not subject to amortization are subject to assessment for impairment by applying a fair-value
based test on an annual basis or more frequently if circumstances indicate a potential impairment. The Company adopted the
provisions of ASU 2011-08, “Testing Goodwill for Impairment,” in the fourth quarter of 2011. This ASU gives entities the option of
performing a qualitative assessment before calculating the fair value of a reporting unit in Step 1 of the goodwill impairment test. If
entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not greater than its
carrying amount, the two-step impairment test would not be required. For the 2015, 2014 and 2013 annual goodwill impairment
analysis performed as of October 1 of each year, the Company did not perform qualitative assessments on any reporting unit, but
instead completed Step 1 of the goodwill impairment test for all reporting units.
Goodwill and indefinite-lived intangible assets, primarily the Company’s trade names, are assessed annually for impairment
during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. The Company’s
2015, 2014, and 2013 annual impairment analyses, which were performed as of October 1 of each year, did not result in any goodwill
or trade name impairments to continuing operations.
80 2015 Annual Report