American Home Shield 2009 Annual Report Download - page 63

Table of Contents
reporting unit's services back to historical levels. The cost savings assumption was based primarily on cost efficiencies achieved as a part of TruGreen
LawnCare's reorganization of field leadership and restructuring of branch operations. The key uncertainty in the cost savings assumption is TruGreen
LawnCare's ability to achieve the forecasted savings from this reorganization and restructuring.
For the TruGreen LandCare reporting unit, the revenue growth assumption had the most significant influence on the estimation of fair value. The revenue
growth assumption was based on expected sales growth to new customers, increased penetration of enhancement services to existing customers, improved
retention rates and cross-selling to commercial customers of other business segments within the Company. The key uncertainties in the revenue growth
assumption are the degree and timing of the economic recovery and whether such recovery drives an increase in consumer demand for enhancement services
back to historical levels, along with the ability of TruGreen LandCare to successfully cross-sell its services to customers at other business segments.
The Company's 2007 trade name impairment analysis, which was performed as of October 1, 2007, did not result in any impairment. The 2009 and 2008
trade name impairment analyses, which were performed as of October 1 of each year, resulted in non-cash pre-tax impairments of $28.0 million and
$60.1 million in 2009 and 2008, respectively. The impairment charges by business segment, as well as the remaining value of the trade names not subject to
amortization by business segment as of December 31, 2009 and 2008, are as follows (in millions):
Balance as of
December 31,
2007
2008
Impairment
Balance as of
December 31,
2008
2009
Impairment
Balance as of
December 31,
2009
TruGreen LawnCare $ 783.6 $ — $ 783.6 $ (21.4) $ 762.2
TruGreen LandCare 12.7 (1.4) 11.3 (1.4) 9.9
Terminix 891.6 (16.5) 875.1 — 875.1
American Home Shield 140.4 — 140.4 — 140.4
ServiceMaster Clean 153.6 (1.0) 152.6 — 152.6
Other Operations and
Headquarters(1) 486.3 (41.2) 445.1 (5.2) 439.9
Total $ 2,468.2 $ (60.1) $ 2,408.1 $ (28.0) $ 2,380.1
The Other Operations and Headquarters segment includes Merry Maids.
The aggregate impairment charge in 2009 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 projected future cash flows used in the 2008 impairment analysis. 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 tested for impairment in 2008. The
aggregate impairment charge in 2008 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. Had the Company used a discount rate in assessing the
impairment of its trade names that was one percent higher across all business segments (holding all other assumptions unchanged), the Company would have
recorded an additional impairment charge of approximately $300 million in 2009.
The reduction in estimated future cash flows since the 2008 impairment analysis 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, 2009 and 2008
impairment tests were the same and in line with historical U.S. gross domestic product growth rates.
59
(1)