American Home Shield 2010 Annual Report Download - page 60

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allocation of purchase price pursuant to the Merger. The terminal growth rates used in the analyses for both the allocation of purchase price pursuant to the
Merger and the October 1, 2010, 2009 and 2008 impairment tests were the same and in line with historical U.S. gross domestic product growth rates. 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 $267.0 million in 2010.
As a result of the trade name impairment taken in 2009, the carrying values of the Company's impaired trade names were adjusted to their estimated fair
values as of October 1, 2009. Further, the October 1, 2010 estimated fair value of the trade names at the TruGreen LawnCare, TruGreen LandCare, and Other
Operations and Headquarters (in particular the Merry Maids trade name) business segments were not significantly in excess of their carrying values.
Consequently, any further decline in the estimated fair values of these trade names will result in additional trade name impairments. It is possible that such
impairments, if required, could be material and may need to be recorded prior to the fourth quarter of 2011 (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 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. In accordance with accounting standards
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 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2009-13, "Multiple-Deliverable
Revenue Arrangements," which amends the multiple-element arrangement guidance under ASC 605, "Revenue Recognition." This standard amends the
criteria for separating consideration received for products or services in multiple-deliverable arrangements. This standard establishes a selling price hierarchy
for determining the selling price of a deliverable, eliminates the residual method of allocation, and requires that total arrangement consideration be allocated at
the inception of the arrangement to all deliverables using the relative selling price method. In addition, this standard significantly expands required disclosures
related to a vendor's multiple-deliverable revenue arrangements. This standard is effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010 (calendar year 2011). The Company does not expect the adoption of this standard to have a
material effect on its Consolidated Financial Statements.
In December 2009, the FASB issued ASU 2009-17, "Accounting by Enterprises Involved with Variable Interest Entities" ("ASU 2009-17"). ASU
2009-17 formally incorporates into the FASB Codification amendments to FASB Interpretation No. 46(R) made by Statement of Financial Accounting
Standards ("SFAS") 167 to require that a comprehensive qualitative analysis be performed to determine whether a holder of variable interests in a variable
interest entity also has a controlling financial interest in that entity. In addition, the amendments require that the same type of analysis be applied to entities
that were previously designated as qualifying special-purpose
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