American Home Shield 2011 Annual Report Download - page 62

Table of Contents
fees resulting from the sale of a franchise. These fees are fixed and are recognized as revenue when collectability is reasonably assured and all material
services or conditions relating to the sale have been substantially performed.
Customer acquisition costs, which are incremental and direct costs of obtaining a customer, are deferred and amortized over the life of the related
contract in proportion to revenue recognized. These costs include sales commissions and direct selling costs which can be shown to have resulted in a
successful sale.
Fixed assets and intangible assets with finite lives are depreciated and amortized on a straight-line basis over their estimated useful lives. These lives are
based on the Company's previous experience for similar assets, potential market obsolescence and other industry and business data. As required by accounting
standards for the impairment or disposal of long- lived assets, the Company's long-lived assets, including fixed assets and intangible assets (other than
goodwill), are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the
carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset, an impairment loss would be recognized equal to the
difference between the carrying amount and the fair value of the asset. Changes in the estimated useful lives or in the asset values could cause the Company to
adjust its book value or future expense accordingly.
As required under accounting standards for goodwill and other intangibles, goodwill is not subject to amortization, and intangible assets with indefinite
useful lives are not amortized until their useful lives are determined to no longer be indefinite. Goodwill and intangible assets that are not subject to
amortization are subject to assessment for impairment by applying a fair-value based test on an annual basis or more frequently if circumstances indicate a
potential impairment. The Company adopted the provisions of Accounting Standards Update ("ASU") 2011-8, "Testing Goodwill for Impairment," in the
fourth quarter of 2011. This ASU gives entities the option of performing a qualitative assessment before calculating the fair value of a reporting unit in Step 1
of the goodwill impairment test. If entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not greater
than its carrying amount, the two-step impairment test would not be required. For the 2011 annual goodwill impairment review performed as of October 1,
2011, the Company performed qualitative assessments on the Terminix, American Home Shield and ServiceMaster Clean reporting units. Based on these
assessments, the Company determined that, more likely than not, the fair values of Terminix, American Home Shield and ServiceMaster Clean were greater
than their respective carrying amounts. As a result, the two-step goodwill impairment test was not performed for Terminix, American Home Shield and
ServiceMaster Clean in 2011.
As permitted under accounting standards for goodwill and other intangibles prior to the adoption of ASU 2011-08, the Company carried forward a
reporting unit's valuation from the most recent valuation under the following conditions: the assets and liabilities of the reporting unit have not changed
significantly since the most recent fair value calculation, the most recent fair value calculation resulted in an amount that exceeded the carrying amount of the
reporting unit by a substantial margin and, based on the facts and circumstances of events that have occurred since the last fair value determination, the
likelihood that a current fair value calculation would result in an impairment would be remote. For the 2010 annual goodwill impairment review performed as
of October 1, 2010, the Company carried forward the valuations of the Terminix and ServiceMaster Clean reporting units completed as of October 1, 2009.
The Company did not carry forward the valuations for any trade names for the 2011 or 2010 annual trade name impairment reviews. For the 2009 annual
goodwill and trade name impairment reviews performed as of October 1, 2009, the Company did not carry forward the valuations of any reporting units or
trade names.
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