American Home Shield 2015 Annual Report Download - page 104

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Table of Contents
86
market value of a share of its common stock immediately prior to the TruGreen Spin-off ($15.75 per share), or the “Option
Conversion Ratio.”
To allow the Company’s employees to retain the intrinsic value of their stock options prior to the TruGreen Spin-off, the
Company also adjusted the number of shares underlying the options of such employees. The number of shares underlying the options
was adjusted by dividing the number of shares underlying the options held by each employee by the Option Conversion Ratio. The
Company refers to these adjustments collectively as the “Option Conversion.” The change in the number of shares underlying options
and the adjustment of the exercise price pursuant to the Option Conversion represent modifications to the Company’s share based
compensation awards. As a result of the Option Conversion the Company compared the fair value of the awards following the
TruGreen Spin-off with the fair value of the original awards. The comparison did not yield incremental value. Accordingly, the
Company did not record any incremental compensation expense as a result of the Option Conversion.
Note 18. Fair Value Measurements
The period-end carrying amounts of receivables, accounts payable and accrued liabilities approximate fair value because of
the short maturity of these instruments. The period-end carrying amounts of long-term notes receivable approximate fair value as the
effective interest rates for these instruments are comparable to period-end market rates. The period-end carrying amounts of short- and
long-term marketable securities also approximate fair value, with unrealized gains and losses reported net of tax as a component of
accumulated other comprehensive income (loss) on the consolidated statements of financial position, or, for certain unrealized losses,
reported in interest and net investment income in the consolidated statements of operations and comprehensive income (loss) if the
decline in value is other than temporary. The carrying amount of total debt was $2,752 million and $3,026 million and the estimated
fair value was $2,813 million and $3,102 million as of December 31, 2015 and December 31, 2014, respectively. The fair value of the
Company’s debt is estimated based on available market prices for the same or similar instruments which are considered significant
other observable inputs (Level 2) within the fair value hierarchy. The fair values presented reflect the amounts that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
The fair value estimates presented in this report are based on information available to the Company as of December 31, 2015 and
2014.
The Company has estimated the fair value of its financial instruments measured at fair value on a recurring basis using the
market and income approaches. For investments in marketable securities, deferred compensation trust assets and derivative contracts,
which are carried at their fair values, the Company’s fair value estimates incorporate quoted market prices, other observable inputs
(for example, forward interest rates) and unobservable inputs (for example, forward commodity prices) at the balance sheet date.
Interest rate swap contracts are valued using forward interest rate curves obtained from third-party market data providers. The
fair value of each contract is the sum of the expected future settlements between the contract counterparties, discounted to present
value. The expected future settlements are determined by comparing the contract interest rate to the expected forward interest rate as
of each settlement date and applying the difference between the two rates to the notional amount of debt in the interest rate swap
contracts.
Fuel swap contracts are valued using forward fuel price curves obtained from third-party market data providers. The fair
value of each contract is the sum of the expected future settlements between the contract counterparties, discounted to present value.
The expected future settlements are determined by comparing the contract fuel price to the expected forward fuel price as of each
settlement date and applying the difference between the contract and expected prices to the notional gallons in the fuel swap contracts.
The Company regularly reviews the forward price curves obtained from third-party market data providers and related changes in fair
value for reasonableness utilizing information available to the Company from other published sources.
The Company has not changed its valuation techniques for measuring the fair value of any financial assets and liabilities
during the year. Transfers between levels, if any, are recognized at the end of the reporting period. There were no significant transfers
between levels during each of the years ended December 31, 2015 and 2014.
102 2015 Annual Report