American Home Shield 2002 Annual Report Download - page 39

(In thousands, except per share data) (Restated 6) (Restated 6)
For years ended December 31, 2002 2001 2000
Operating Revenue $ 3,589,089 $3,561,445 $3,421,802
Operating Costs and Expenses:
Cost of services rendered and products sold 2,481,226 2,480,472 2,431,912
Selling and administrative expenses 761,085 688,429 601,835
Goodwill, trade name and other intangible amortization (1) 7,442 70,890 67,204
Charge (credit) for impaired assets and other items (2) (2,000) 344,831 -
Total operating costs and expenses 3,247,753 3,584,622 3,100,951
Operating Income 341,336 (23,177) 320,851
Non-operating Expense (Income):
Interest expense 77,519 128,033 136,831
Interest and investment income (6,431) (11,972) (19,861)
Minority interest and other expense (income), net 6,682 5,657 (13,237)
Income from Continuing Operations before Income Taxes 263,566 (144,895) 217,118
Provision for income taxes 93,468 19,569 92,844
Income from Continuing Operations before Extraordinary
Items and Cumulative Effect of Accounting Change 170,098 (164,464) 124,274
Discontinued operations, net of income taxes (3) (3,875) 284,270 40,568
Extraordinary loss, net of income taxes (4) (9,229) (3,422) -
Cumulative effect of accounting change, net of income taxes (5) -- (11,161)
Net Income $ 156,994 $ 116,384 $ 153,681
Basic Earnings Per Share:
Income from continuing operations before extraordinary items
and cumulative effect of accounting change $ 0.57 $ (0.55) $ 0.41
Discontinued operations, net (3) (0.01) 0.95 0.13
Extraordinary loss, net (4) (0.03) (0.01) -
Cumulative effect of accounting change, net (5) -- (0.04)
Basic Earnings Per Share $ 0.52 $ 0.39 $ 0.51
Diluted Earnings Per Share:
Income from continuing operations before extraordinary items
and cumulative effect of accounting change $ 0.56 $ (0.55) $ 0.41
Discontinued operations, net (3) (0.01) 0.95 0.13
Extraordinary loss, net (4) (0.03) (0.01) -
Cumulative effect of accounting change, net (5) -- (0.04)
Diluted Earnings Per Share $ 0.52 $ 0.39 $ 0.50
(1) The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”, which eliminates
the amortization of goodwill and intangible assets with indefinite lives beginning in 2002. Had the provisions of SFAS 142 been applied to 2001
and 2000, amortization expense would have been reduced by $60 million ($42 million after-tax, $0.14 per diluted share) in 2001 and $58 million
($40 million after-tax, $0.13 per diluted share) in 2000.
(2) The Company recorded a pretax charge of $345 million ($279 million, after-tax) or $.94 per diluted share in the fourth quarter of 2001, related
primarily to goodwill and asset impairments as well as other items.
(3) In the fourth quarter of 2001, the Company’s Board of Directors approved a series of actions related to the strategic review of its portfolio of
businesses that commenced earlier in 2001. These actions included the sale in November 2001 of the Company’s Management Services business
as well as the decision to exit non-strategic and under performing businesses including TruGreen LandCare Construction and Certified
Systems, Inc., as well as certain Terminix operations in Europe. During the third quarter of 2002, the Company sold its remaining European
Terminix operations. These operations are classified in “Discontinued operations” for all periods presented. See “Portfolio Review and Dispositions
in 2001” section in the Notes to the Consolidated Financial Statements.
(4) In 2002 and 2001, the Company repurchased a portion of its public debt securities and in 2001 the Company prepaid some of its longer-term
debt. The net impact of these transactions was extraordinary losses of $9 million ($15 million pretax) and $3 million ($6 million pretax) in 2002
and 2001, respectively. The Company intends to adopt SFAS 145 beginning in fiscal 2003. Adoption of this Statement in 2003 will result in the
reclassification of the extraordinary losses into income from continuing operations.
(5) In 2000, the Company changed its method of accounting for revenue from its termite baiting contracts. The cumulative effect of this accounting
change as of January 1, 2000 was $11.1 million ($18.9 million pretax).
(6) See the “Restatement” section in the Notes to the Consolidated Financial Statements for the basis of the restatement and the financial statement
impact.
See accompanying Notes to the Consolidated Financial Statements.
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Consolidated Statements of Income