American Home Shield 2008 Annual Report Download - page 76

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 1. Significant Accounting Policies (Continued)
The allowance for receivables is developed based on several factors including overall customer credit quality, historical write-off experience and specific
account analyses that project the ultimate collectibility of the outstanding balances. As such, these factors may change over time causing the reserve level to
vary.
The Company carries insurance policies on insurable risks at levels which it believes to be appropriate, including workers' compensation, auto and
general liability risks. The Company purchases insurance from third-party insurance carriers. These policies typically incorporate significant deductibles or
self-insured retentions. The Company is required to pay all claims that fall within the retention limits. In determining the Company's accrual for self-insured
claims, the Company uses historical claims experience to establish both the current year accrual and the underlying provision for future losses. This
actuarially determined provision and related accrual include both known claims, as well as incurred but not reported claims. The Company adjusts its estimate
of accrued self-insured claims when required to reflect changes based on factors such as changes in health care costs, accident frequency and claim severity.
Accruals for warranty claims in the American Home Shield business are made based on the Company's claims experience and actuarial projections.
Termite damage claim accruals are recorded based on both the historical rates of claims incurred within a contract year and the cost per claim. Current activity
could differ causing a change in estimates. The Company has certain liabilities with respect to existing or potential claims, lawsuits, and other proceedings.
The Company accrues for these liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting
adjustments, which could be material, are recorded in the period the adjustments are identified.
The Company records deferred income tax balances based on the net tax effects of temporary differences between the carrying value of assets and
liabilities for financial reporting purposes and income tax purposes. The Company records its deferred tax items based on the estimated value of the tax basis.
The Company adjusts tax estimates when required to reflect changes based on factors such as changes in tax laws, results of tax authority reviews and
statutory limitations.
The Company accounts for uncertain tax positions in accordance with FIN 48. Accordingly, the Company reports a liability for unrecognized tax benefits
resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes potential interest and penalties related to its
uncertain tax positions in income tax expense.
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, the potential for market obsolescence and other industry and business data. 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 part of applying purchase accounting related to the merger, the Company has established useful lives for
depreciable and amortizable assets and assigned fair values to its tangible and intangible assets.
The Company does not amortize its goodwill or indefinite-lived intangible assets. The Company tests these assets for impairment, at a minimum, on an
annual basis (October 1st) by applying a
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