American Home Shield 2011 Annual Report Download - page 25

Table of Contents
For example, in 2011 we recorded pre-tax non-cash impairment charges of $36.7 million to reduce the carrying value of TruGreen's trade name as a
result of our annual impairment testing of goodwill and intangible assets. Additionally, as a result of the decision to sell TruGreen LandCare, we recorded a
$34.2 million impairment charge ($21.0 million, net of tax) in the first quarter of 2011 to reduce the carrying value of TruGreen LandCare's assets to their
estimated fair value less cost to sell in accordance with applicable accounting standards. Upon completion of the sale, a $6.2 million loss on sale ($1.9 million,
net of tax) was recorded in loss from discontinued operations, net of tax. In the second quarter of 2010, we recorded a pre-tax non-cash impairment charge of
$46.9 million, of which $43.0 million was related to the remaining goodwill at TruGreen LandCare and $3.9 million related to TruGreen LandCare's trade
name. In 2009, we recorded pre-tax non-cash impairment charges of $28.0 million (of which $1.4 million was related to the trade name of TruGreen
LandCare) to reduce the carrying value of trade names as a result of our annual impairment testing of goodwill and intangible assets. Based upon future
economic and financial market conditions, the operating performance of our reporting units and other factors, including those listed above, future impairment
charges could be incurred. All impairments related to TruGreen LandCare are recorded in (loss) income from discontinued operations, net of income taxes.
Our franchisees could take actions that could harm our business.
Our franchisees are contractually obligated to operate their businesses in accordance with the standards set forth in our agreements with them. Each
franchising brand also provides training and support to franchisees. However, franchisees are independent third parties that we do not control, and the
franchisees own, operate and oversee the daily operations of their businesses. As a result, the ultimate success of any franchise operation rests with the
franchisee. If franchisees do not successfully operate their businesses in a manner consistent with required standards, royalty payments to us will be adversely
affected and a brand's image and reputation could be harmed, which in turn could adversely impact our business, financial position, results of operations and
cash flows. In addition, our relationship with our franchisees could become strained if we impose new standards or assert more rigorous enforcement practices
of the required standards. It is also possible that creditors, or other claimants, of a franchisee, could, in the event such creditors and claimants cannot collect
from our franchisee or otherwise, attempt to make claims against us under various legal theories. These claims could have a material adverse impact on our
reputation, business, financial position, results of operations and cash flows.
Changes in accounting, securities and other rules or interpretations could adversely impact our financial position and results of operations.
Changes in accounting, securities and other rules applicable to our business, including proposed revisions to the rules related to accounting for leases and
reserves for, and disclosures relating to, legal contingencies, could (i) affect our reported results of operations and financial position, (ii) potentially decrease
the comparability of our financial statements to others within our industry and (iii) increase our liability exposure.
Risks Related to Our Capital Structure and Our Debt
We are indirectly owned and controlled by the Equity Sponsors, and their interests as equity holders may conflict with the interests of our other
stakeholders.
We are indirectly owned and controlled by the Equity Sponsors, who have the ability to control our policies and operations. The directors appointed by
affiliates of the Equity Sponsors and their affiliates are able to make decisions affecting our capital structure, including decisions to issue or repurchase capital
stock, pay dividends and incur or repurchase debt. The interests of the Equity
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