American Home Shield 2015 Annual Report Download - page 65

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(1) During the years ended December 31, 2014 and 2013, the Company recorded pre-tax non-cash impairment charges of $139
million ($84 million, net of tax) and $673 million ($521 million, net of tax), respectively, associated with the goodwill and
trade name at its former TruGreen business, which is reported in Loss from discontinued operations, net of income taxes in
the consolidated statements of operations and comprehensive income (loss). See Note 7 to the consolidated financial
statements for more details.
Liquidity and Capital Resources
Liquidity
We are highly leveraged, and a substantial portion of our liquidity needs are due to service requirements on our significant
indebtedness. The agreements governing the Credit Facilities contain covenants that limit or restrict our ability, including the ability of
certain of our subsidiaries, to incur additional indebtedness, repurchase debt, incur liens, sell assets, make certain payments (including
dividends) and enter into transactions with affiliates. As of December 31, 2015, we were in compliance with the covenants under the
agreements that were in effect on such date.
Our ongoing liquidity needs are expected to be funded by cash on hand, net cash provided by operating activities and, as
required, borrowings under our credit facilities. We expect that cash provided from operations and available capacity under the
Revolving Credit Facility will provide sufficient funds to operate our business, make expected capital expenditures and meet our
liquidity requirements for the following 12 months, including payment of interest and principal on our debt. As of December 31, 2015,
there was $133 million of letters of credit outstanding and $167 million of available borrowing capacity under the Revolving Credit
Facility. The letters of credit are posted to satisfy collateral requirements under our automobile, general liability and workers’
compensation insurance program and fuel swap contracts.
Cash and short- and long-term marketable securities totaled $377 million as of December 31, 2015, compared with
$495 million as of December 31, 2014. As described below, on February 17, 2015, we redeemed $190 million in aggregate principal
amount of the 8% 2020 Notes at a redemption price of 106.0% of the principal amount using available cash. On April 1, 2015, we
redeemed the remaining $200 million in aggregate principal amount of the 8% 2020 Notes at a redemption price of 106.0% of the
principal amount using net proceeds from the April Incremental Term Loans, together with cash on hand. On August 17, 2015, we
redeemed the remaining $488 million in aggregate principal amount of the 7% 2020 Notes at a redemption price of 105.25% of the
principal amount using net proceeds from the August Incremental Term Loans, together with cash on hand.
On February 23, 2016, our board of directors authorized a three-year share repurchase program, under which we may
repurchase up to $300 million of outstanding shares of our common stock. We expect to fund the share repurchases from operating
cash flow.
Cash and short- and long-term marketable securities include balances associated with regulatory requirements at American
Home Shield. See “—Limitations on Distributions and Dividends by Subsidiaries.” American Home Shield’s investment portfolio has
been invested in a combination of high-quality, debt securities and equity securities. We closely monitor the performance of the
investments. From time to time, we review the statutory reserve requirements to which our 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 we may adjust our reserves. The reviews may also identify opportunities to satisfy certain
regulatory reserve requirements through alternate financial vehicles.
As of December 31, 2015, we had posted $129 million in letters of credit as collateral under our automobile, general liability
and workers’ compensation insurance program, which were issued under the Revolving Credit Facility. Additionally, under the terms
of our fuel swap contracts, we are required to post collateral in the event the fair value of the contracts exceeds a certain agreed upon
liability level and in other circumstances when required by the counterparty. As of December 31, 2015, the estimated fair value of our
fuel swap contracts was a net liability of $4 million, and we had posted $4 million in letters of credit as collateral under our fuel
hedging program, which were also issued under the Revolving Credit Facility. The continued use of letters of credit for this purpose in
the future could limit our ability to post letters of credit for other purposes and could limit our borrowing availability under the
Revolving Credit Facility. However, we do not expect the fair value of the outstanding fuel swap contracts to materially impact our
financial position or liquidity. We may from time to time repurchase or otherwise retire or extend our debt and/or take other steps to
reduce our debt or otherwise improve our financial position, results of operations or cash flows. These actions may include open
market debt repurchases, negotiated repurchases, other retirements of outstanding debt and/or opportunistic refinancing of debt or the
utilization of cash or marketable securities to satisfy collateral requirements. The amount of debt that may be repurchased or otherwise
retired or refinanced, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt
covenants and other considerations.
Term Loan Facility
On July 1, 2014, in connection with our initial public offering, we terminated the Old Term Facilities and entered into the
Term Loan Facility. Borrowings under the Term Loan Facility, together with $243 million of available cash and $120 million of net
proceeds of the initial public offering, were used to repay in full the $2,187 million outstanding under the Old Term Facilities. In
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