American Home Shield 2008 Annual Report Download - page 60

Table of Contents
Company's estimates, which are based on assumed growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the
future cash flows of the respective reporting units. In addition, the market-based comparable and transaction approaches utilize comparable company public
trading values, comparable company historical results, research analyst estimates and, where available, values observed in private market transactions. If the
estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is
not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be
performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with its goodwill carrying amount
to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a
business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any
unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase
price paid. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment is recognized in an amount
equal to that excess.
The impairment test for other intangible assets not subject to amortization involves a comparison of the estimated fair value of the intangible asset with
its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The
estimates of fair value of intangible assets not subject to amortization are determined using a DCF valuation analysis. The DCF methodology used to value
trade names is known as the relief from royalty method and entails identifying the hypothetical cash flows generated by an assumed royalty rate that a third
party would pay to license the trade names and discounting them back to the valuation date. Significant judgments inherent in this analysis include the
selection of appropriate discount rates, selection of appropriate hypothetical royalty rates, estimating the amount and timing of estimated future cash flows
attributable to the hypothetical royalty rates and identification of appropriate terminal growth rate assumptions. The discount rates used in the DCF analyses
are intended to reflect the risk inherent in the projected future cash flows generated by the respective intangible assets.
Goodwill and indefinite-lived intangible assets, primarily the Company's trade names, are tested annually for impairment during the fourth quarter or
earlier upon the occurrence of certain events or substantive changes in circumstances. The Company's 2008 annual impairment analysis, which was performed
as of October 1, 2008, did not result in any goodwill impairments, but did result in a non-cash pre-tax impairment on its trade names of $60.1 million. The
impairment charge by business segment, as well as the remaining value of the trade names not subject to amortization by business segment as of
December 31, 2008, is as follows (in millions):
Balance as of
December 31, 2007 Impairment
Other
Activity
Balance as of
December 31, 2008
TruGreen LawnCare $ 783.6 $ — $ — $ 783.6
TruGreen LandCare 12.7 (1.4) — 11.3
Terminix 891.6 (16.5) — 875.1
American Home Shield 140.4 — — 140.4
Other Operations & Headquarters(1) 639.9 (42.2) — 597.7
Total $ 2,468.2 $ (60.1) $ — $ 2,408.1
The Other Operations and Headquarters segment includes the following trade names: ServiceMaster, ServiceMaster Clean, Merry Maids, Furniture
Medic and Amerispec.
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