American Home Shield 2010 Annual Report Download - page 92

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 9. Commitments and Contingencies (Continued)
Accruals for home service contract 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.
In the ordinary course of conducting business activities, the Company and its subsidiaries become involved in judicial, administrative and regulatory
proceedings involving both private parties and governmental authorities. These proceedings include, on an individual, collective and class action basis,
regulatory, insured and uninsured employment, general, and commercial liability, wage and hour and environmental proceedings. Additionally, the Company
has entered into settlement agreements in certain cases, including putative collective and class actions, which are subject to court approval. If one or more of
the Company's settlements are not finally approved, the Company could have additional or different exposure, which could be material. At this time, the
Company does not expect any of these proceedings to have a material effect on its reputation, business, financial position, results of operations or cash flows;
however, the Company can give no assurance that the results of any such proceedings may not prove to be material to its reputation, business, financial
position, results of operations and cash flows.
Note 10. Related Party Transactions
In connection with the Merger and the related transactions, the Company entered into a consulting agreement with CD&R under which CD&R provided
the Company with on-going consulting and management advisory services in exchange for an annual management fee of $2.0 million, which was payable
quarterly. On July 30, 2009, the consulting agreement was amended and the annual management fee payable under the consulting agreement with CD&R was
increased from $2.0 million to $6.25 million in order to align our fee structure with market rates. Under this agreement, the Company recorded management
fees for the years ended December 31, 2010, 2009 and 2008 of $6.25 million, $6.25 million and $2.0 million, respectively. The amended consulting
agreement also provides that CD&R may receive additional fees in connection with certain subsequent financing and acquisition or disposition transactions.
The amended consulting agreement will terminate on July 24, 2017, unless terminated earlier at CD&R's election.
In addition, in August 2009, the Company entered into consulting agreements with Citigroup, BAS and JPMorgan, each of which is an Equity Sponsor or
an affiliate of an Equity Sponsor. Under the consulting agreements, Citigroup, BAS and JPMorgan each provide the Company with on-going consulting and
management advisory services through June 30, 2016 or the earlier termination of the existing consulting agreement between the Company and CD&R. The
Company pays annual management fees of $0.5 million, $0.5 million and $0.25 million to Citigroup, BAS and JPMorgan, respectively. The Company
recorded consulting fees related to these agreements of $1.25 million for the years ended December 31, 2010 and 2009. On September 30, 2010, Citigroup
transferred the management responsibility for, and its proprietary interests in, certain investment funds that own shares of common stock of Holdings to
StepStone and Lexington Partners Advisors LP. Citigroup also assigned its obligations and rights under its consulting agreement to StepStone, and
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