American Home Shield 2011 Annual Report Download - page 83

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 1. Significant Accounting Policies (Continued)
analysis did not result in any impairment. The impairment charges by business segment for the years ended December 31, 2011, 2010 and 2009, as well as the
remaining value of the trade names not subject to amortization by business segment as of December 31, 2011 and 2010 are as follows:
(In thousands) TruGreen Terminix
American
Home
Shield
ServiceMaster
Clean
Other
Operations &
Headquarters(1) Total
Balance at
Dec. 31,
2008 $783,600 $875,100 $140,400 $ 152,600 $ 445,100 $2,396,800
2009
Impairment (21,400) — — — (5,200) (26,600)
Balance at
Dec. 31,
2009 and
2010 762,200 875,100 140,400 152,600 439,900 2,370,200
2011
Impairment (36,700) — — — — (36,700)
Balance at
Dec. 31,
2011 $725,500 $875,100 $140,400 $ 152,600 $ 439,900 $2,333,500
The Other Operations and Headquarters segment includes Merry Maids.(1)
The impairment charge in 2011 was primarily attributable to the use of higher discount rates in the DCF valuation analyses as compared to the discount
rates used in the 2010 impairment analyses. Although the projected future growth in cash flows in 2011 were slightly higher than in the 2010 valuation, the
increase in the discount rates more than offset the improved cash flows. The increase in the discount rates is primarily attributable to changes in market
conditions which indicated a lower risk tolerance in 2011 as compared to 2010. This lower risk tolerance is exhibited through the marketplace's desire for
higher returns in order to accept market risk. The aggregate impairment charge in 2009 was primarily attributable to the use of lower projected future cash
flows related to the hypothetical royalty rates utilized in the DCF valuation analyses as compared to the projected future cash flows used in the 2008
impairment analysis. Although the Company projected future growth in cash flows, such growth was lower than that estimated at the time the trade names
were tested for impairment in 2008. The terminal growth rates used in the analyses for the October 1, 2011, 2010 and 2009 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 $114.8 million in 2011.
As a result of the trade name impairment taken in 2011, the carrying value of the TruGreen trade name was adjusted to its estimated fair value as of
October 1, 2011. Further, the October 1, 2011 estimated fair value of the trade name at the ServiceMaster Clean business segment was not significantly in
excess of its carrying value. 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 2012 (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.
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