American Home Shield 2006 Annual Report Download - page 55

Notes to the Consolidated Financial Statements
The combined franchise operations of ServiceMaster Clean and Merry Maids comprised approximately 5% of the consolidated
revenue in 2005, 2004, and 2003. These operations comprised approximately 11%, 11%, and 12% of consolidated operating income
(excluding the 2003 impairment charge) before headquarter overhead for 2005, 2004, and 2003, respectively.
The following table summarizes the segment goodwill that is not amortized. See the "Acquisitions" note and the "Goodwill and
Intangible Assets" note in the Notes to Consolidated Financial Statements for information relating to goodwill acquired and
amounts impaired, respectively.
(In thousands) 2005 2004 2003
TruGreen ChemLawn $ 700,029 $ 681,954 $ 652,534
Terminix 661,166 643,567 622,351
American Home Shield (1) 85,526 72,085 72,085
Other Operations 101,349 114,267 113,065
Total $ 1,548,070 $ 1,511,873 $ 1,460,035
(1) In the second quarter of 2005, approximately $13 million of enterprise goodwill was reclassified to the American Home Shield
segment from the Other Operations segment.
Goodwill and Intangible Assets
In accordance with SFAS 142, "Goodwill and Other Intangible Assets", the Company discontinued the amortization of goodwill
and indefinite lived intangible assets effective January 1, 2002. Goodwill and intangible assets that are not amortized 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 completed its annual assessment of impairment as of October 1.
In the third quarter of 2003, the Company recorded a non-cash impairment charge associated with the goodwill and intangible
assets at its TruGreen LandCare business unit. This charge, which is included in the results of continuing operations for 2003,
totaled $189 million pre-tax, $156 million after-tax, and $0.53 per diluted share. The impairment charge reported in continuing
operations included a portion of goodwill that was not deductible for tax purposes, resulting in a tax benefit of $33 million, or only
approximately 17 percent of the pre-tax impairment charge of $189 million. Also in the third quarter of 2003, the Company
recorded a non-cash impairment charge associated with the goodwill and intangible assets at its ARS and AMS operations. These
businesses are now being held pending sale, accordingly, the financial results for the ARS and AMS operations, as well as the
impairment charge related to these operations ($292 million pre-tax, $227 million after-tax), have been classified to the financial
statement caption "businesses held pending sale and discontinued operations" for all periods.
In April 2004, TruGreen ChemLawn acquired the assets of Greenspace Limited, Canada's largest professional lawn care service
company. Intangible assets recorded were less than $16 million. The balance of goodwill and intangible assets that were added
during 2004 relate to tuck-in acquisitions completed by Terminix and TruGreen ChemLawn.
The increase in goodwill and intangible assets in 2005 relates to tuck-in acquisitions completed throughout the year by Terminix
and TruGreen ChemLawn, as well as the acquisition of a distributorship by ServiceMaster Clean in the third quarter.
The table below summarizes the goodwill and intangible asset balances:
(In thousands) 2005 2004 2003
Goodwill (1) $ 1,548,070 $ 1,511,873 $ 1,460,035
Trade names(1) 215,493 204,793 204,793
Other intangible assets 49,981 45,679 35,323
Accumulated amortization (35,131) (29,677) (23,671)
Net other intangibles 14,850 16,002 11,652
Total $ 1,778,413 $ 1,732,668 $ 1,676,480
(1) Not subject to amortization.
(2) Amortization expense of $5 million, $6 million and $6 million was recorded in 2005, 2004 and 2003, respectively. Annual
amortization expense of $5 million in 2005 is expected to decline over the next five years.
Income Taxes
In January 2005, the Company reached a comprehensive agreement with the IRS regarding its examination of the Company's
federal income taxes through the year 2002. As previously disclosed, the Company had not been audited by the IRS during the
period in which it operated as a master limited partnership (1987 through 1997) or in subsequent years. Consequently, the
examination covered numerous significant matters, including the tax consequences resulting from the Company's reincorporation in
1997, and the sale of its large Management Services segment in November 2001. Pursuant to the agreement, the Company paid
taxes and interest (primarily in February 2005) to the IRS and various states in the amount of $131 million ($112 million of
increased taxes and $19 million of interest). These payments represented only one part of a four part agreement with the IRS, which
also included: tax savings of $25 million that were realized in 2004; a reduction of $45 million in the estimated tax payments made
during the second half of 2005 and a deferred tax asset totaling $57 million that will be realized through 2016.