American Home Shield 2009 Annual Report Download - page 85

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 1. Significant Accounting Policies (Continued)
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 2009, 2008 and 2007 annual impairment analyses,
which were performed as of October 1 of each year, did not result in any goodwill impairments. 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.(1)
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
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