American Home Shield 2010 Annual Report Download - page 50

Table of Contents
The Company had the option to pay interest on outstanding amounts under the Permanent Notes entirely in cash ("Cash Interest"), entirely as PIK
Interest or 50 percent as Cash Interest and 50 percent as PIK Interest through July 15, 2011. Interest payable after July 15, 2011 is payable entirely as Cash
Interest. All interest payments due through January 2011 were paid entirely as Cash Interest. The Company has elected to pay all interest payable through
July 15, 2011 entirely as Cash Interest.
Cash and short- and long-term marketable securities totaled $391.2 million at December 31, 2010, compared with $385.6 million at December 31, 2009.
$240.1 million and $256.5 million of the cash and short- and long-term marketable securities balance as of December 31, 2010 and 2009, respectively, are
associated with regulatory requirements at American Home Shield and for other purposes and is identified as being potentially unavailable to be paid to the
Company by its subsidiaries. American Home Shield's investment portfolio has been invested in a combination of high quality, short duration fixed income
securities and equities. The Company closely monitors the performance of the investments. From time to time, the Company reviews the statutory reserve
requirements to which its regulated entities are subject and any changes to such requirements. These reviews may result in identifying current reserve levels
above or below minimum statutory reserve requirements, in which case the Company may adjust its reserves. The reviews may also identify opportunities to
satisfy certain regulatory reserve requirements through alternate financial vehicles, which could enhance our liquidity.
A portion of the Company's vehicle fleet and some equipment are 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 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. 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, 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 million 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.
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, forward interest rates)
and unobservable inputs (for example, forward commodity prices) at the balance sheet date.
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