ServiceMagic 2009 Annual Report Download - page 54

Table of Contents
Marketable Securities
The Company invests in certain marketable securities, which consist primarily of short-to-intermediate-term debt securities issued by the
U.S. government, U.S. government agencies, states of the U.S. and subdivisions thereof and investment grade corporate issuers. The unrealized
gains and losses on marketable securities, net of tax, are included in accumulated other comprehensive income as a separate component of
shareholders' equity. The specific-identification method is used to determine the cost of a security sold or the amount of unrealized gains and
losses reclassified from accumulated other comprehensive income into earnings.
The Company employs a methodology that considers available evidence in evaluating potential other-than-temporary impairment of its
investments. Investments are considered to be impaired when a decline in fair value below the amortized cost basis is determined to be other-
than-temporary. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair
value has been less than the amortized cost basis, the financial condition and near-term prospects of the issuer, and whether it is not more likely
than not that the Company will be required to sell the security before the recovery of the amortized cost basis, which may be maturity. If a
decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in current earnings and a new cost basis in the
investment is established. Future events may result in reconsideration of the nature of losses as other-than-temporary and market and other
factors may cause the value of the Company's investment in marketable securities to decline. During 2008, the Company concluded that the
decline in the ARO stock price was other-than-temporary and wrote the value of the 5.5 million shares of ARO stock down resulting in
impairment charges totaling $166.7 million. The impairment charges were determined to be other-than-temporary due to the significant decline
in, and the Company's assessment of the near-to-medium term prospects for a recovery of, the ARO stock price. During 2009, the Company sold
its 5.5 million shares of ARO stock, resulting in aggregate losses of $12.3 million. Prior to the sale of its last 1.1 million shares of ARO stock,
the Company concluded that the decline in the stock price of these remaining shares was other-than-temporary, due in part, to ARO's insolvency
filing on June 9, 2009, and recorded impairment charges totaling $4.6 million.
Allowance for Doubtful Accounts
We make judgments as to our ability to collect outstanding receivables and provide allowances when it is assessed that all or a portion of
the receivable will not be collected. The Company determines its allowance by considering a number of factors, including the length of time
accounts receivable are past due, the Company's previous loss history, the specific customer's ability to pay its obligation to the Company, and
the condition of the general economy and the customer's industry. The Company writes off accounts receivable when they become uncollectible.
The Company also maintains allowances to reserve for potential credits issued to customers or other revenue adjustments. The amount of these
reserves are based, in part, on historical experience. As of December 31, 2009, the Company's allowance for doubtful accounts is $11.3 million.
Income Taxes
Estimates of deferred income taxes and the significant items giving rise to the deferred assets and liabilities are shown in Note 4, and reflect
management's assessment of actual future taxes to be paid on items reflected in the consolidated financial statements, giving consideration to
both timing and the probability of realization. As of December 31, 2009, the balance of deferred tax assets, net, is $145.8 million. Actual income
taxes could vary from these estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of
our tax returns by the IRS, as well as actual operating results of the Company that vary significantly from anticipated results. We recognize
liabilities for uncertain tax positions based on the two-step process. The first step is to
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