American Home Shield 2010 Annual Report Download - page 105

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 19. Fair Value of Financial Instruments (Continued)
A reconciliation of the beginning and ending fair values of financial instruments valued using significant unobservable inputs (Level 3) is presented as
follows:
(In thousands)
Fuel Swap
Contract
Assets (Liabilities)
Balance at December 31, 2008 $ (24,924)
Total gains (losses) (realized and unrealized):
Included in earnings(1) (25,305)
Included in other comprehensive loss 31,840
Settlements, net 25,305
Balance at December 31, 2009 $ 6,916
Total gains (losses) (realized and unrealized):
Included in earnings(1) 6,015
Included in other comprehensive income (267)
Settlements, net (6,015)
Balance at December 31, 2010 $ 6,649
Gains (losses) included in earnings are reported in cost of services rendered and
products sold.
(1)
The Company uses derivative financial instruments to manage risks associated with changes in fuel prices and interest rates. The Company does not hold
or issue derivative financial instruments for trading or speculative purposes. In designating its derivative financial instruments as hedging instruments under
accounting standards for derivative instruments, the Company formally documents the relationship between the hedging instrument and the hedged item, as
well as the risk management objective and strategy for the use of the hedging instrument. This documentation includes linking the derivatives to forecasted
transactions. The Company assesses at the time a derivative contract is entered into, and at least quarterly thereafter, whether the derivative item is effective in
offsetting the projected changes in cash flows of the associated forecasted transactions. All of the Company's designated hedging instruments are classified as
cash flow hedges.
The Company has historically hedged a significant portion of its annual fuel consumption of approximately 25 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. Substantially all of the Company's fuel
swap contracts and interest rate swap contracts are classified as cash flow hedges, and, as such, the hedging instruments are recorded on the Consolidated
Statement of Financial Position 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. Any change in the fair value of the hedging instrument resulting from ineffectiveness, as defined by accounting
standards, is recognized in current period earnings. Cash flows related to fuel and interest rate derivatives are classified as operating activities in the
Consolidated Statements of Cash Flows.
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