American Home Shield 2010 Annual Report Download - page 77

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 1. Significant Accounting Policies (Continued)
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.
Stock-Based Compensation: The Company accounts for stock-based compensation under accounting standards for share based payments, which
require that stock options and share grants be measured at fair value and this value is recognized as compensation expense over the vesting period.
Newly Issued Accounting Statements and Positions:
In September 2009, the FASB issued ASU 2009-13, "Multiple-Deliverable Revenue Arrangements," which amends the multiple-element arrangement
guidance under ASC 605, "Revenue Recognition." This standard amends the criteria for separating consideration received for products or services in multiple-
deliverable arrangements. This standard establishes a selling price hierarchy for determining the selling price of a deliverable, eliminates the residual method
of allocation, and requires that total arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling
price method. In addition, this standard significantly expands required disclosures related to a vendor's multiple-deliverable revenue arrangements. This
standard is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 (calendar
year 2011). The Company does not expect the adoption of this standard to have a material effect on its Consolidated Financial Statements.
In December 2009, the FASB issued ASU 2009-17, "Accounting by Enterprises Involved with Variable Interest Entities" ("ASU 2009-17"). ASU
2009-17 formally incorporates into the FASB Codification amendments to FASB Interpretation No. 46(R) made by Statement of Financial Accounting
Standards ("SFAS") 167 to require that a comprehensive qualitative analysis be performed to determine whether a holder of variable interests in a variable
interest entity also has a
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