American Home Shield 2010 Annual Report Download - page 63

Table of Contents
risks associated with dispositions, including failure to obtain appropriate value for the disposed businesses, post-closing claims being levied
against us, and disruption to our other businesses during the sale process or thereafter;
risks associated with budget deficits at federal, state and local levels resulting from deteriorating economic conditions, which could result in
federal, state and local governments decreasing their purchasing of our products or services and/or increasing taxes or other fees on businesses to
generate more tax revenues, which could adversely impact our business, financial position, results of operations and cash flows;
regulations imposed by several states related to our home service and insurance subsidiaries limiting the amount of funds that can be paid to the
Company by its subsidiaries;
the timing, structuring and success of our business process outsourcing, including any current or future outsourcing of all or portions of our
information technology, call center, certain human resource functions and other corporate functions, and risks associated with such outsourcing;
and
other factors described from time to time in documents that we file with the SEC.
You should read this report completely and with the understanding that actual future results may be materially different from expectations. All forward-
looking statements made in this report are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this
report, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to
reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, changes in future operating results over time or otherwise.
Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless
expressed as such, and should only be viewed as historical data.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The economy and its impact on discretionary consumer spending, labor wages, fuel prices, fertilizer and other material costs, home re-sales,
unemployment rates, insurance costs and medical costs could have a material adverse impact on future results of operations.
The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company has entered into specific
financial arrangements, primarily interest rate swaps and fuel hedges, 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 effect of derivative financial instrument transactions could have a
material impact on the Company's financial statements.
In February 2008, the Company entered into two three-year interest rate swap agreements and a four-year interest rate swap agreement, effective
March 3, 2008. The total notional amount of the three-year swap agreements was $250.0 million, and the total notional amount of the four-year swap
agreement was $250.0 million. Under the terms of the agreements, the Company will pay a weighted average fixed rate of interest of 3.15% on the
$250.0 million notional amount under the three-year swap agreements and 3.48% on the $250.0 million notional amount under the four-year swap agreement,
and the Company will receive a floating rate of interest (based on three month LIBOR) on the notional amount. Therefore, during the term of the swap
agreements, the effective
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