American Home Shield 2015 Annual Report Download - page 95

Table of Contents
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Company accrues for these liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated.
Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified.
In March 2015, the Company was informed that the DOJ initiated a criminal investigation into allegations that a local
Terminix branch used methyl bromide as a fumigant at a resort in St. John, U.S. Virgin Islands, resulting in serious injuries to
four members of a family vacationing there. The U.S. Virgin Islands government is also investigating the matter, as is the EPA.
The EPA also requested information concerning the possible distribution, sale or use of methyl bromide in Puerto Rico. During
the year ended December 31, 2015, the Company recorded in its consolidated statement of operations and comprehensive
income (loss) a charge of $3 million in connection with civil claims related to the U.S. Virgin Islands matter, an amount equal
to its insurance deductible under the Company’s general liability insurance program, although no assurance can be given
regarding its insurance coverage or recoveries in connection with such civil claims.
The Company continues to cooperate fully with all relevant governmental authorities in their investigations and have
had discussions with the DOJ concerning potential resolution of the criminal investigation. Although the Company has recorded
in its consolidated statement of operations and comprehensive income (loss) a charge of $8 million as a result of those
discussions, the amount and extent of any further potential penalties, fines, sanctions, costs and damages that the federal or
other governmental authorities may yet impose, investigation or other costs and reputational harm, as well as the impact of any
civil, criminal or other claims or judicial, administrative or regulatory proceedings resulting from or related to the U.S. Virgin
Islands incident, which could be material, is not currently known or reasonably estimable, and any such penalties, fines,
sanctions, costs or damages may not be covered under the Company’s general liability insurance program.
On September 15, 2015, a lawsuit was filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach
County, Florida, styled Carl Robert McCaughey, et al. v. Terminix International Company Limited Partnership, Sunland Pest
Control Services, Inc., et al. (Case No. 32080796). The lawsuit alleges that fumigation of a Florida family’s residence by
Sunland, a subcontractor of Terminix, resulted in serious injuries to one of the family’s children, alleges claims for negligence
and strict liability, and seeks an unspecified amount of monetary and punitive damages. The court has set a trial date in
September 2016. The DOJ and other federal and state agencies are investigating the matter, and the DOJ has filed criminal
charges against Sunland and two persons associated with Sunland. The Company continues to cooperate fully with all relevant
governmental authorities. The amount and extent of any potential penalties, fines, sanctions, costs and damages that the federal
or other governmental authorities may impose, investigation or other costs and reputational harm, as well as the impact of any
civil, criminal or other claims or judicial, administrative or regulatory proceedings resulting from or related to this incident,
which could be material, is not currently known or reasonably estimable, and any such penalties, fines, sanctions, costs or
damages may not be covered under the Company’s general liability insurance program.
For more information on the 401(k) Plan corrective contribution, see Note 11 to the consolidated financial statements.
In addition to the matters discussed above, in the ordinary course of conducting business activities, the Company and its
subsidiaries become involved in judicial, administrative and regulatory proceedings involving both private parties and governmental
authorities. These proceedings include insured and uninsured matters that are brought on an individual, collective, representative and
class action basis, or other proceedings involving regulatory, employment, general and commercial liability, automobile liability, wage
and hour, environmental and other matters. The Company has entered into settlement agreements in certain cases, including with
respect to putative collective and class actions, which are subject to court or other approvals. If one or more of the Company’s
settlements are not finally approved, the Company could have additional or different exposure, which could be material. Subject to the
paragraphs above, the Company does not expect any of these proceedings to have a material effect on its reputation, business,
financial position, results of operations or cash flows; however, the Company can give no assurance that the results of any such
proceedings will not materially affect its reputation, business, financial position, results of operations and cash flows.
Note 10. Related Party Transactions
On July 24, 2007, the Company was taken private pursuant to a merger transaction, and, following the completion of the
merger and other subsequent transactions and prior to the Company’s initial public offering, the significant majority of the Company’s
outstanding common stock was owned by investment funds managed by, or affiliated with the Equity Sponsors. Upon completion of
the secondary public offerings in February, May and November 2015, the CD&R Funds and StepStone Funds no longer hold the
Company’s common stock. See Note 1 to the consolidated financial statements for further details on the Company’s ownership
structure.
Consulting Agreements
The Company was a party to a consulting agreement with CD&R under which CD&R provided the Company with ongoing
consulting and management advisory services. The annual consulting fee payable under the consulting agreement with CD&R was
$6 million. The Company was also a party to consulting agreements with StepStone, JPMorgan and Ridgemont. Pursuant to the
consulting agreements, the Company was required to pay aggregate annual consulting fees of $1 million to StepStone, JPMorgan and
Ridgemont. Under these agreements, the Company recorded consulting fees of $4 million and $7 million for the years ended
December 31, 2014 and 2013, respectively, which is included in Selling and administrative expenses in the consolidated statements of
operations and comprehensive income (loss).
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