American Home Shield 2011 Annual Report Download - page 58

Table of Contents
to the lessors. The fair value of the assets under all of the fleet and equipment leases is expected to substantially mitigate the Company's
guarantee obligations under the agreements. As of December 31, 2011, the Company's residual value guarantees related to the leased
assets totaled $32.2 million for which the Company has recorded as a liability the estimated fair value of these guarantees of
$0.7 million in the Consolidated Statements of Financial Position. This liability has been included in Other long-term liabilities above.
These obligations include commitments for various products and services including, among other things, inventory purchases,
telecommunications services, marketing and advertising services and other professional services. Arrangements are considered
purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing
structure and approximate timing of the transactions. Most arrangements are cancelable without a significant penalty and with short
notice (usually 30-120 days) and amounts reflected above include the minimum contractual obligation of the Company (inclusive of
applicable cancellation penalties). For obligations with significant penalties associated with termination, the minimum required
expenditures over the term of the agreement have been included in the table above.
Outsourcing agreements include commitments for the purchase of certain outsourced services from third party vendors (see further
discussion of the Company's agreement with IBM below). Because the services provided through these agreements are integral to the
operations of the Company and due to termination provisions contained in these agreements, the Company has concluded that it is
appropriate to include the total anticipated costs over the expected term of the agreements in the table above.
On December 11, 2008, the Company entered into an agreement with IBM pursuant to which IBM provides information technology
operations and applications development services (collectively, the "IT Services") to the Company. ServiceMaster pays IBM for the IT
Services under the agreement through a combination of fixed and variable charges, with variable charges fluctuating based on the
Company's actual need for IT Services. For the year ended December 31, 2011, the Company paid IBM $37.2 million for the IT
Services. The Company expects to phase out a significant portion of its use of IT Services from IBM by the end of 2013, but does not
expect its costs for IT Services to increase materially. The figures in the table above reflect expected spend with IBM of $32.5 million
for 2012 and $14.5 million for 2013 as the IT Services are reduced.
ServiceMaster has the right to terminate the agreement both for cause and for its convenience. Upon termination of the agreement for
convenience and in the case of certain other termination events, ServiceMaster would be required to pay a termination charge to IBM
of approximately $12.7 million. The Company does not expect to incur a termination charge in connection with the phase out of the IT
Services from IBM discussed above. IBM has the right to terminate the agreement only in the event of a failure by the Company to
make timely payment of any fees due and payable. In the event of termination by either party and upon the Company's request, IBM is
obligated to provide termination assistance services at agreed-upon pricing for up to 24 months.
(3)
(4)
Due to the uncertainty with respect to the timing of future cash flows associated with unrecognized tax benefits at December 31, 2011, the Company is
unable to reasonably estimate the period of cash settlement with the respective taxing authority. Accordingly, $9.0 million of unrecognized tax benefits have
been excluded from the contractual obligations table above. See the discussion of income taxes in Note 5 of the Consolidated Financial Statements.
As further described above in Liquidity, the Company sold $600 million aggregate principal amount of the 2020 Notes in February 2012. The Company
used $400 million of the proceeds of
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