American Home Shield 2009 Annual Report Download - page 86

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 1. Significant Accounting Policies (Continued)
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 $300.0 million in 2009.
The reduction in estimated future cash flows since the 2008 impairment analysis reflects the impact of softer than anticipated consumer demand. In
addition, the terminal growth rates used in the analyses for both the allocation of purchase price pursuant to the Merger and the October 1, 2009 and 2008
impairment tests were the same and in line with historical U.S. gross domestic product growth rates.
As a result of the trade name impairment taken in 2009, the carrying values of the Company's impaired trade names were re-set to their estimated fair
values as of October 1, 2009. Consequently, any further decline in the estimated fair values of these trade names could result in additional trade name
impairments. Management has no reason to believe that any one business segment is more likely than any other to incur further impairments of its trade
names. It is possible that such impairments, if required, could be material and may need to be recorded prior to the fourth quarter of 2010 (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.
Fair Value of Financial Instruments and Credit Risk: See Note 21 for information relating to the fair value of financial instruments.
Financial instruments, which potentially subject the Company to financial and credit risk, consist principally of investments and receivables. Investments
consist primarily of publicly traded debt and common equity securities. The Company periodically reviews its portfolio of investments to determine whether
there has been an other than temporary decline in the value of the investments from factors such as deterioration in the financial condition of the issuer or the
market(s) in which it competes. The majority of the Company's receivables have little concentration of credit risk due to the large number of customers with
relatively small balances and their dispersion across geographical areas. The Company maintains an allowance for losses based upon the expected
collectability of receivables.
Income Taxes: The Company is included in the consolidated U.S. federal income tax return of Holdings. State and local returns are filed both on a
separate company basis and on a combined unitary basis with Holdings. Current and deferred income taxes are provided for on a separate company basis. The
Company accounts for income taxes using an asset and liability approach for the expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred income taxes are provided to reflect the differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements. Valuation allowances are established when necessary to reduce deferred income tax assets to the amounts
expected to be realized.
The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in its tax return. The
Company recognizes potential interest and penalties related to its uncertain tax positions in income tax expense.
79