American Home Shield 2007 Annual Report Download - page 38

repurchases will depend on various factors such as the Company's commitment to maintain investment grade credit ratings and
other strategic investment opportunities.
Liquidity
Cash and short and long-term marketable securities totaled approximately $421 million at December 31, 2006, compared with
approximately $367 million at December 31, 2005. Approximately $412 million of the cash and short and long-term marketable
securities balance is associated with regulatory requirements at American Home Shield and for other purposes. Based on the
Company's normal annual dividends and other payments from regulated American Home Shield subsidiaries, recent changes in
regulations in certain states, and a reevaluation of the level of required reserves in other states, the Company currently estimates that
approximately 25 percent to 35 percent of the balance at December 31, 2006 could be liquidated and used to reduce debt or to fund
other liquidity needs. Total debt at December 31, 2006 was $690 million, approximately $32 million more than the amount at
December 31, 2005. Approximately 56 percent of the Company's debt matures beyond five years and 44 percent beyond fifteen
years. The Company's next public debt maturity is in August 2007. The Company currently has both the intent and ability to pay
this debt with other long-term financing.
Management believes that funds generated from operating activities and other existing resources provide it with significant
financial flexibility which will continue to be adequate to satisfy its ongoing working capital needs. The Company maintains a
revolving credit facility of $500 million. At December 31, 2006, the Company had $30 million outstanding under this facility and
had issued approximately $133 million of letters of credit, resulting in unused commitments of approximately $337 million. The
Company also has $550 million of senior unsecured debt and equity securities available for issuance under an effective shelf
registration statement. In addition, the Company has an arrangement enabling it to sell, on a revolving basis, certain receivables to
unrelated third party purchasers. The agreement is a 364-day facility that is renewable at the option of the purchasers. The Company
may sell up to $70 million of its receivables to these purchasers in the future and therefore would have immediate access to cash
proceeds from these sales. The amount of the eligible receivables varies during the year based on seasonality of the business that
will at times limit the amount available to the Company. During 2006, there were no receivables sold to third parties under this
agreement.
The Company is party to a number of debt agreements which require it to maintain certain financial and other covenants, including
limitations on indebtedness (debt cannot exceed 3.25 times EBITDA, as defined) and interest coverage ratio (EBITDA needs to
exceed four times interest expense). In addition, under certain circumstances, the agreements may limit the Company's ability to
pay dividends and repurchase shares of common stock. These limitations are not expected to be an inhibiting factor in the
Company's future dividend and share repurchase plans. Failure by the Company to maintain these covenants could result in the
acceleration of the maturity of the debt. At December 31, 2006, and throughout the year, the Company was in compliance with the
covenants and, based on its operating outlook for 2007, expects to be able to maintain compliance in the future. The Company does
not have any debt agreements that contain put rights or provide for acceleration of maturity as a result of a change in credit rating.
The Company maintains operating lease facilities with banks totaling $68 million which provide for the acquisition and
development of branch properties to be leased by the Company. At December 31, 2006 there was approximately $68 million funded
under these facilities. Approximately $15 million of these leases have been included on the balance sheet as assets with related debt
as of December 31, 2006 and 2005. The remaining funded balances are treated as operating leases. Approximately $15 million of
the available facility expires in January 2008 and the remaining $53 million expires in September 2009. The Company has
guaranteed the residual value of the properties under the leases up to 82 percent of the fair market value at the commencement of
the lease. At December 31, 2006, the Company's residual value guarantee related to the leased assets totaled $53 million for which
the Company has recorded the estimated fair value of this guarantee (approximately $0.7 million) in the Consolidated Statements of
Financial Position.
The majority of the Company's fleet and some equipment is leased through operating leases. The lease terms are non-cancelable for
the first twelve month term, and then are month-to-month, cancelable at the Company's option. There are residual value guarantees
(ranging from 70 percent to 87 percent depending on the agreement) on these vehicles and equipment, which historically have not
resulted in significant net payments to the lessors. At December 31, 2006, there were approximately $229 million of residual value
guarantees relating to the Company's fleet and equipment leases. The fair value of the assets under the leases is expected to fully
mitigate the Company's obligations under the agreements. At December 31, 2006 the Company has recorded the estimated fair
value of this guarantee (approximately $1.1 million) in the Consolidated Statements of Financial Position.
The following table presents the Company's contractual obligations and commitments:
(In millions) Total < 1 Yr 2-3 Yrs 4-5
Yrs >5 Yrs
Debt balances* $ 690 $ 71 $ 215 $ 19 $ 385
Non-cancelable
operating leases 243 73 106 44 20
Purchase obligations:
Telecommunications 32 26 6 — —
Supply agreements
and other 77 59 13 2 3
Other long-term liabilities:*
Insurance claims 202 89 54 16 43
Discontinued
operations 15 8 3 1 3