American Home Shield 2008 Annual Report Download - page 61

Table of Contents
The aggregate impairment charge was primarily attributable to the use of lower projected future cash flows related to the hypothetical royalty rates
utilized in the DCF valuation analyses as compared to the allocation of purchase price pursuant to the Merger. Although the Company continues to project
future growth in cash flows, such growth is lower than that estimated at the time the trade names were recorded pursuant to the Merger. Had the Company
used a discount rate in assessing the impairment of its trade names that was 1% higher across all reporting units (holding all other assumptions unchanged),
the Company would have recorded an additional impairment charge of approximately $340 million.
The reduction in estimated future cash flows since the allocation of purchase price pursuant to the Merger reflects the impact of softer than anticipated
consumer demand. In addition, the terminal growth rates used in the analyses for both the allocation of purchase price pursuant to the Merger and the
October 1, 2008 impairment tests were the same and in line with historical U.S. gross domestic product growth rates.
As a result of the trade name impairment taken in 2008, the carrying values of the Company's impaired trade names were re-set to their estimated fair
values as of October 1, 2008. Consequently, any further decline in the estimated fair values of these trade names could result in additional trade name
impairments. Management has no reason to believe that any one reporting unit is more likely than any other to incur further impairments of its trade names. It
is possible that such impairments, if required, could be material and may need to be recorded prior to the fourth quarter of 2009 (i.e., during an interim period)
if the Company's results of operations or other factors require such assets to be tested for impairment at an interim date.
The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company has entered into specific
financial arrangements in the normal course of business to manage certain market risks, with a policy of matching positions and limiting the terms of contracts
to relatively short durations.
The Company has historically hedged a significant portion of its annual fuel consumption of approximately 28 million gallons. The Company has also
hedged the interest payments on a portion of its variable rate debt through the use of interest rate swap agreements. In accordance with SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities", the Company's fuel hedges and interest rate swap agreements are classified as cash flow
hedges and as such, the hedging instruments are recorded on the balance sheet as either an asset or liability at fair value, with the effective portion of changes
in the fair value attributable to the hedged risks recorded in other comprehensive income.
Newly Issued Accounting Statements and Positions
In September 2006, the FASB issued SFAS 157, "Fair Value Measurement". This Statement defines fair value, establishes a framework for measuring
fair value in accordance with GAAP, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value
measurements. In February 2008, the FASB approved FASB Staff Position FAS 157-2, "Effective Date of FASB Statement No. 157" ("FSP 157-2"), that
permits companies to partially defer the effective date of SFAS No. 157 for one year for non-financial assets and non-financial liabilities that are recognized
or disclosed at fair value in the financial statements on a nonrecurring basis. FSP 157-2 does not permit companies to defer recognition and disclosure
requirements for financial assets and financial liabilities or for non-financial assets and non-financial liabilities that are re-measured at least annually. SFAS
No. 157 therefore is effective for financial assets and financial liabilities and for non-financial assets and non-financial liabilities that are re-measured at least
annually for fiscal years beginning after November 15, 2007. It is effective for non-financial assets and non-financial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis for fiscal years beginning after November 15, 2008. In October 2008, the
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