American Home Shield 2010 Annual Report Download - page 91

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 9. Commitments and Contingencies (Continued)
the fleet and equipment leases is expected to substantially mitigate the Company's guarantee obligations under the agreements. At December 31, 2010, the
Company's residual value guarantees related to the leased assets totaled $53.5 million for which the Company has recorded as a liability the estimated fair
value of these guarantees of $1.1 million in the Consolidated Statements of Financial Position.
Prior to the Merger, the Company maintained lease facilities with banks totaling $65.2 million, which provided for the financing of branch properties to
be leased by the Company. In connection with the closing of the Merger, the Company amended these leases effective July 24, 2007. Among the
modifications, the Company extended the lease terms through July 24, 2010 and made a $22.0 million investment in the lease facilities. In July 2010, the
Company purchased the properties for $65.2 million. The Company's $22.0 investment in the lease facilities was returned to the Company upon purchase,
resulting in a net cash payment of $43.2 million. In the third quarter of 2009, the Company determined that it was probable that the fair value of the real
properties under operating leases would be below the total amount funded under the lease facilities at the end of the lease term. The Company's estimate of
this shortfall was $15.9 million, which was expensed over the remainder of the lease term. For the years ended December 31, 2010 and 2009, the Company
recorded charges of $10.4 million and $5.5 million, respectively, related to this shortfall.
Certain of the Company's assets, including a call center facility and equipment, are leased under capital leases with $4.7 million in remaining lease
obligations as of December 31, 2010. Future lease payments under capital leases are $1.5 million in 2011, $0.9 million in 2012, $0.5 million in 2013,
$0.5 million in 2014, $0.6 million in 2015 and $0.7 million in 2016 and thereafter.
In the normal course of business, the Company periodically enters into agreements that incorporate indemnification provisions. While the maximum
amount to which the Company may be exposed under such agreements cannot be estimated, the Company does not expect these guarantees and
indemnifications to have a material effect on the Company's business, financial condition, results of operations or cash flows.
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 policies from third party insurance carriers, which typically incorporate significant deductibles or
self-insured retentions. The Company is responsible for all claims that fall below the retention limits. As of December 31, 2010 and 2009, the Company had
accrued self-insured claims of $122.2 million and $131.3 million, respectively, which are included in Accrued Liabilities—Self-insured claims and related
expenses and Other long-term obligations on the Consolidated Statements of Financial Position. During the years ended December 31, 2010, 2009 and 2008,
the Company recorded provisions for uninsured claims totaling $31.5 million, $32.1 million and $35.9 million, respectively, and the Company paid claims
totaling $40.6 million, $47.0 million and $49.2 million, respectively. 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 includes 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.
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