American Home Shield 2011 Annual Report Download - page 117

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 19. Fair Value of Financial Instruments (Continued)
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 21 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. 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 Statements 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
accumulated other comprehensive loss. 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.
The effect of derivative instruments on the Consolidated Statements of Operations and accumulated other comprehensive loss on the Consolidated
Statements of Financial Position for the years ended December 31, 2011 and 2010, respectively, is presented as follows:
Effective Portion of
Gain (Loss) Reclassified from
Accumulated Other
Comprehensive Loss
into Income
Effective Portion of
(Loss) Gain Recognized in
Accumulated Other
Comprehensive Loss
(In thousands)
Derivatives designated as
Cash Flow Hedge
Relationships
Location of Gain (Loss)
included in Income
Year ended December 31, 2011
Fuel swap contracts $ (7,382) $ 9,739 Cost of services
rendered and
products sold
$ 271 Loss (income) from
discontinued
operations, net of
income tax
Interest rate swap contracts $ 28,340 $ (37,613)Interest expense
Effective Portion of
Gain (Loss) Reclassified from
Accumulated Other
Comprehensive Loss
into Income
Effective Portion of
(Loss) Gain Recognized in
Accumulated Other
Comprehensive Loss
Derivatives designated as
Cash Flow Hedge
Relationships
Location of Gain (Loss)
included in Income
Year ended December 31, 2010
Fuel swap contracts $ (267) $ 5,316 Cost of services
rendered and
products sold
$ 699 Loss (income) from
discontinued
operations, net of
income tax
Interest rate swap contracts $ 4,035 $ (48,970)Interest expense
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