American Home Shield 2015 Annual Report Download - page 92

Table of Contents
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Under this transition services agreement, in the years ended December 31, 2015 and 2014, the Company recorded $25
million and $36 million, respectively, of fees due from New TruGreen, which is included as a reduction, net of costs incurred, in
Selling and administrative expenses in the consolidated statement of operations and comprehensive income (loss). As of December 31,
2015, all amounts owed by New TruGreen under this agreement have been paid.
During the year ended December 31, 2014, the Company processed certain of New TruGreen’s accounts payable
transactions. Through this process, in the year ended December 31, 2014, $97 million was paid on New TruGreen’s behalf, all of
which was repaid by New TruGreen.
In addition, the Company, New TruGreen and TGLP entered into (1) a separation and distribution agreement containing key
provisions relating to the separation of the TruGreen Business and the distribution of New TruGreen common stock to the Company’s
stockholders (including relating to specified TruGreen legal matters with respect to which the Company has agreed to retain liability,
as well as insurance coverage, non-competition, indemnification and other matters), (2) an employee matters agreement allocating
liabilities and responsibilities relating to employee benefit plans and programs and other related matters and (3) a tax matters
agreement governing the respective rights, responsibilities and obligations of the parties thereto with respect to taxes, including
allocating liabilities for income taxes attributable to New TruGreen and its subsidiaries generally to the Company for tax periods (or
portions thereof) ending on or before January 14, 2014 and generally to New TruGreen for tax periods (or portions thereof) beginning
after that date.
TruGreen Goodwill and Intangible Assets
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.
Goodwill – Prior Years
The Company performed an interim goodwill impairment analysis at TruGreen as of June 30, 2013 that resulted in a pre-tax
non-cash goodwill impairment of $417 million. After this impairment charge, there was no goodwill remaining at TruGreen. The
Company’s 2013 annual goodwill impairment analyses, which was performed as of October 1, did not result in any goodwill
impairments.
The goodwill impairment charge recorded in 2013 was primarily attributable to a decline in forecasted 2013 and future cash
flows at TruGreen over a defined projection period as of June 30, 2013 compared to the projections used in the last annual impairment
assessment performed on October 1, 2012. The changes in projected cash flows at TruGreen arose in part from the business challenges
at TruGreen. Although the Company projected future improvement in cash flows at TruGreen as a part of its June 30, 2013
impairment analysis, total cash flows and projected growth in those cash flows were lower than those projected at the time TruGreen
was last tested for impairment in 2012. The long term growth rates used in the impairment tests at June 30, 2013 and October 1, 2012
were the same and were in line with historical U.S. gross domestic product growth rates. The discount rate used in the June 30, 2013
impairment test was 100 bps lower than the discount rate used in the October 1, 2012 impairment test for TruGreen. The decrease in
the discount rate is primarily attributable to changes in market conditions which indicated an improved outlook for the U.S. financial
markets and a higher risk tolerance for investors since the 2012 analysis.
Intangible Assets – Prior Years
As a result of the TruGreen Spin-off, the Company was required to perform an interim impairment analysis as of January 14,
2014 on the TruGreen trade name. The assumptions were developed with the view of the TruGreen Business as a stand-alone
company, resulting in an increase in the assumed discount rate of 350 bps, as compared to the discount rate used in the October 1,
2013 impairment test for the TruGreen trade name. This interim impairment analysis resulted in a pre-tax non-cash trade name
impairment charge of $139 million ($84 million, net of tax) to reduce the carrying value of the TruGreen trade name to its estimated
fair value. This impairment charge was recorded in Loss from discontinued operations, net of income taxes, in the year ended
December 31, 2014. The impairment of the TruGreen trade name represented an adjustment of the carrying value of the asset to its
estimated fair value on a non-recurring basis using significant unobservable inputs on the date of the TruGreen Spin-off.
The Company performed an interim trade name impairment analysis at TruGreen as of June 30, 2013 resulting in a pre-tax
non-cash trade name impairment charge of $256 million recorded in the second quarter of 2013. The Company’s 2013 annual trade
name impairment analyses, which was performed as of October 1, did not result in any trade name impairments.
Based on the revenue results at TruGreen in the first six months of 2013 and a lower revenue outlook for the remainder of
2013 and future years, the Company concluded that there was an impairment indicator requiring the performance of an interim
indefinite lived intangible asset impairment test for the TruGreen trade name as of June 30, 2013. The impairment charge recorded in
the second quarter of 2013 was primarily attributable to a decrease in the assumed royalty rate and a decrease in projected future
growth in revenue at TruGreen over a defined projection period as of June 30, 2013 compared to the royalty rate and projections used
in the last annual impairment assessment performed on October 1, 2012. The decrease in the assumed royalty rate was due to lower
current and projected earnings as a percent of revenue as compared to the last annual impairment test. Although the Company
projected future growth in revenue at TruGreen as part of its June 30, 2013 impairment analysis, total projected revenue was lower
than the revenue projected at the time the trade name was last tested for impairment in October 2012. The changes in projected future
revenue growth at TruGreen arose in part from the business challenges at TruGreen. The long term revenue growth rates used in the
90 2015 Annual Report