American Home Shield 2008 Annual Report Download - page 54

Table of Contents
month-to-month. There are residual value guarantees by the Company (ranging from 70 percent to 84 percent of the estimated terminal value at the inception
of the lease depending on the agreement) relative to these vehicles and equipment, which historically have not resulted in significant net payments to the
lessors. At December 31, 2008, there was approximately $110 million of residual value relating to the Company's fleet and equipment leases. 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. At
December 31, 2008, the Company has recorded the estimated fair value of this guarantee of approximately $2 million in the Consolidated Statement of
Financial Position. The Company's primary vehicle fleet lessor has elected not to renew its agreement with the Company which expired December 21, 2008.
This election did not affect vehicle leases in place with this lessor prior to expiration of the agreement. We expect to fulfill our ongoing vehicle fleet needs
through direct purchases of vehicles. The Company's expected capital requirement for fleet vehicles in 2009 is expected to range from $30 million to
$40 million.
The Company holds certain financial instruments that are measured at fair value on a recurring basis. The fair values of these instruments are measured
using both the market and income approaches. For investments in marketable securities, deferred compensation trust assets and derivative contracts, which are
carried at their fair values, the Company's fair value estimates incorporate quoted market prices, other observable inputs (for example, interest rates) and
unobservable inputs (for example, forward commodity prices) at the balance sheet date.
Under the terms of its fuel swap contracts, the Company is required to post collateral in the event that the fair value of the contracts exceeds a certain
agreed upon liability level. As of December 31, 2008, the fair value of the Company's fuel swap contracts was a liability of $24.9 million and the Company
posted approximately $26.8 million in letters of credit as collateral for these contracts, $12.0 million of which were posted under the Company's Revolving
Credit Facility. The continued use of letters of credit for this purpose could limit the Company's ability to post letters of credit for other purposes and could
limit the Company's borrowing availability under the Revolving Credit Facility to the extent that the letters of credit are posted under the Revolving Credit
Facility. However, the Company does not expect the fair value of its outstanding fuel swap contacts to materially impact its financial position or liquidity.
The Company's ongoing liquidity needs are expected to be funded by net cash provided by operating activities and, as required, borrowings under the
Revolving Credit Facility and accounts receivable securitization arrangement. We expect that cash provided from operations and available capacity under the
Revolving Credit Facility and accounts receivable securitization arrangement will provide sufficient funds to operate our business, make expected capital
expenditures and meet our foreseeable liquidity requirements, including payment of interest and principal on our debt. As of December 31, 2008, the
Company had $319 million of remaining capacity available under the Revolving Credit Facility and $26 million of remaining capacity under the accounts
receivable securitization arrangement.
The Company may from time to time repurchase or otherwise retire the Company's debt and take other steps to reduce the Company's debt or otherwise
improve the Company's financial position. These actions may include open market debt repurchases, negotiated repurchases and other retirements of
outstanding debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, trading levels of the Company's
debt from time to time, the Company's cash position and other considerations. Affiliates of the Company may also purchase the Company's debt from time to
time, through open market purchases or other transactions. In such cases, the Company's debt may not be retired, in which case the Company would continue
to pay interest in accordance with the terms of the debt and the Company would continue to reflect the debt as outstanding in its statement of financial
position.
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