American Home Shield 2002 Annual Report Download - page 32

The Other Operations segment increased expenditures
in 2002 on technology and major operational initiatives
to improve operating efficiency and build greater
customer and employee satisfaction. Capital employed
in this segment includes the discontinued operations
and therefore is significantly reduced from the prior
year, reflecting the prior year divestitures of businesses.
Discontinued Operations
During the third quarter of 2002, the Company sold its
Terminix operations in the United Kingdom. The
impact of this sale was not material to the consolidated
financial statements.
In 2001 the Company sold its Management Services
business to ARAMARK Corporation for approximately
$800 million. The all-cash transaction closed on November
30, 2001 and the Company recorded an after-tax gain of
$404 million from this sale. (A portion of Management
Services was not sold as part of this transaction and
represented a $15 million loss upon disposition). In
addition, the Company exited several non-strategic and
under-performing businesses including TruGreen
LandCare Construction, Certified Systems Inc. (CSI),
and certain Terminix Europe operations. The TruGreen
LandCare Construction operations were sold to Envi-
ronmental Industries, Inc. (EII) in certain markets. EII
managed the wind-down of the contracts in the remaining
markets. The Company also sold all of its customer
contracts relating to CSI (the Company’s professional
employer organization) to AMS Staff Leasing, N.A., Inc.
Reported “Discontinued operations” for all periods
presented include the operating results of the sold and
discontinued businesses noted above and 2001 also
includes the gain from the sale of Management Services,
net of losses from the disposition of other entities.
In the fourth quarter of 2002, the purchaser of the
Company’s European pest control and property services
operations made a claim for a purchase price adjustment
(relating to the 2001 sale), relating to an alleged breach
of certain conditions in the purchase agreement. In the
course of responding to that claim, the Company dis-
covered that personnel of the former operations had
made unsupported monthly adjustments to certain
accounts. The Company subsequently agreed to an
adjustment to the purchase price consisting of an $8
million cash payment and the cancellation of a previously
reserved note receivable of $7 million. This $8 million
charge was recorded in 2002.
The components of discontinued operations are as follows:
(In thousands) 2002 2001 2000
Management
Services income* $-$ 33,172 $ 40,683
Income (loss) from
other discontinued
operations 965 (72,115) (115)
Gain on sale of
Management Services,
net of losses from
disposition of
other entities (4,840) 323,213 -
Discontinued
operations $ (3,875) $284,270 $ 40,568
* This business was sold on November 30, 2001, consequently the
2001 results reflect eleven months of operations.
2001 Compared with 2000
Consolidated Review
Revenues for 2001 increased four percent to $3.6 billion.
The Company reported an operating loss in 2001 of $23
million compared to operating income of $321 million
in 2000. The Company reported a loss from continuing
operations in 2001 of $164 million (after the $279
million after-tax impact of the charge), income from
discontinued operations of $284 million, and a $3 million
extraordinary loss from the early extinguishment of
debt. Net income was $116 million in 2001 and $154
million in 2000 and diluted earnings per share was $.39
in 2001 and $.50 in 2000.
Diluted earnings per share from continuing operations
was a loss of $(.55) in 2001 compared to income of $.41
in 2000. As previously noted, diluted earnings per
share from continuing operations for 2001 includes a
charge of $.94 per diluted share ($345 million pretax)
primarily related to goodwill and asset impairments
and other items.
In 2001, the Company reported an operating loss of
$23 million compared to operating income of $321 million
in 2000. The 2001 figure includes a $345 million charge
primarily related to goodwill and asset impairments
and other items. In addition, both 2001 and 2000
include amortization expense that has been eliminated
under SFAS 142. Operating income margins on a
comparable basis after adjusting for the charge and
SFAS 142 decreased to 10.7 percent in 2001 from 11.1
percent in 2000. The events of September 11th and the
already weakened economy contributed to earnings
pressure during the third and fourth quarters of 2001
by bringing caution and changes in consumer buying
behavior. The Company experienced the downturn in
the economy as customers began deferring the replacement
of HVAC units, landscape and lawn care customers
showed a reduced propensity to purchase enhance-
ments and there were increased skips in maid service.
28 ServiceMaster
Management Discussion & Analysis of Financial Condition & Results of Operations