American Home Shield 2015 Annual Report Download - page 90

Table of Contents
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Significant components of the Company’s deferred tax balances are as follows:
As of December 31,
(In millions) 2015 2014
Long-term deferred tax assets (liabilities):
Intangible assets(1) $ (719) $ (718)
Property and equipment (21) (19)
Prepaid expenses and deferred customer acquisition costs (17) (16)
Receivables allowances 13 12
Self-insured claims and related expenses 11 9
Accrued liabilities 30 34
Other long-term obligations (14) (25)
Net operating loss and tax credit carryforwards 37 90
Less valuation allowance (7) (7)
N
et Long-term deferred tax liability $ (687) $ (640)
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(1) The deferred tax liability relates primarily to the difference in the tax versus book basis of intangible assets. The Company
had $760 million and $764 million of deferred tax liability included in this net deferred tax liability as of December 31, 2015
and 2014, respectively, that will not actually be paid unless certain business units of the Company are sold.
As of December 31, 2015, the Company had deferred tax assets, net of valuation allowances, of $31 million for federal and
state net operating loss and capital loss carryforwards, which expire at various dates up to 2034. The Company also had deferred tax
assets, net of valuation allowances, of $1 million for federal and state credit carryforwards which expire at various dates up to 2034.
The federal and state net operating loss carryforwards in the filed income tax returns included unrecognized tax benefits taken in prior
years. The net operating losses for which a deferred tax asset is recognized for financial statement purposes in accordance with ASC
740 are presented net of these unrecognized tax benefits.
As a result of certain realization requirements of ASC 718, the table of deferred tax assets and liabilities shown above does
not include certain deferred tax assets as of December 31, 2014 that arose directly from tax deductions related to equity compensation
greater than compensation recognized for financial reporting. Equity was increased by $3 million when such deferred tax assets were
realized as of December 31, 2015. The Company uses ASC 740 ordering when determining when excess tax benefits have been
realized.
For the year ended December 31, 2011, the Company reorganized certain foreign subsidiaries in conjunction with its
international growth initiatives and evaluated its liquidity requirements in the United States and the capital requirements of its foreign
subsidiaries. Based on these factors, the Company considers undistributed earnings of its foreign subsidiaries as of December 31, 2015
to be indefinitely reinvested. Accordingly, the Company has not recorded any material deferred taxes for U.S. or foreign withholding
taxes on the excess of the amount for financial reporting purposes over the tax basis of investments in foreign subsidiaries that are
essentially permanent in duration. Cumulative undistributed earnings of the Company’s foreign subsidiaries amounted to $56 million
and $53 million as of December 31, 2015 and 2014, respectively. This amount becomes taxable upon a repatriation of assets from the
subsidiary or a sale or liquidation of the subsidiary. Should these earnings become taxable, the Company could be subject to U.S.
income taxes (subject to an adjustment for foreign tax credits) and withholding taxes in various jurisdictions. Determination of the
amount of any unrecognized deferred income tax liability on this temporary difference is not practicable due to the complexities of the
hypothetical calculation. The amount of cash associated with indefinitely reinvested foreign earnings was approximately $17 million
and $20 million as of December 31, 2015 and 2014, respectively. The Company does not anticipate the need to repatriate funds to the
United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with
domestic debt service requirements.
Note 6. Acquisitions
Acquisitions have been accounted for using the acquisition method and, accordingly, the results of operations of the acquired
businesses have been included in the Company’s consolidated financial statements since their dates of acquisition. The assets and
liabilities of these businesses were recorded in the financial statements at their estimated fair values as of the acquisition dates.
2015
During the year ended December 31, 2015, the Company completed several pest control and termite acquisitions. The total
net purchase price for these acquisitions was $125 million. The Company recorded goodwill of $74 million and other intangibles,
primarily customer relationships, of $46 million related to these acquisitions.
The fair value of assets acquired and liabilities assumed from the acquisition of Alterra was based on a preliminary valuation,
and the Company’s estimates and assumptions are subject to change within the measurement period. In particular, the Company is still
evaluating the fair value of certain intangible assets. As the Company finalizes the fair value of assets acquired and liabilities assumed,
additional purchased price adjustments may be recorded during the measurement period in 2016.
88 2015 Annual Report