American Home Shield 2003 Annual Report Download - page 48

46    ServiceMaster
(In thousands) 2003 % Change 2002 % Change 2001
TruGreen $ 652,534 (16%) $ 780,043 1% $ 774,400
Terminix 622,351 1 618,055 1 613,708
American Home Shield 72,085 –72,085 –72,085
ARS/AMS 56,171 (83) 337,491 –337,386
Other Operations 113,065 1 112,106 5 106,599
Total $ 1,516,206 (21%) $ 1,919,780 1% $ 1,904,178
The following table summarizes the previously amortized
goodwill by segment at December 31 that, beginning on
January 1, 2002 is no longer amortized. See the “Acquisi-
Goodwill and Intangible Assets
In accordance with SFAS 142,“Goodwill and Other Intangible
Assets”, the Company discontinued the amortization of
goodwill and indefinite lived intangible assets effective
January 1, 2002. Goodwill and intangible assets that are not
amortized are subject to assessment for impairment by
applying a fair-value based test on an annual basis or more
frequently if circumstances indicate a potential impairment.
The Company’s annual assessment date is October 1.
Throughout the first half of the year, management believed
that the significant declines in the operating results of these
businesses were due to temporary conditions and that the
operations, with an anticipated good summer season, would
show ongoing improvement which would support the
amount of goodwill and intangible assets on the balance
sheet. The Company had discussed such events and trends in
its press releases and periodic filings with the Securities and
Exchange Commission. In the third quarter of 2003, the
results did not improve. In addition, the Company identified
certain branch closures at ARS and announced the sale of its
utility line clearing operations at TruGreen LandCare. The
lack of a good summer season, combined with declining
profitability in the base businesses, led management to con-
clude that the businesses were unlikely to meet the previous
projections which had supported the carrying value. As a
result, the Company recorded a non-cash impairment
charge to reduce the carrying value of the assets to $56 million,
their estimate fair value.
A valuation was performed during the third quarter of 2003
which incorporated third quarter 2003 performance. The
fair value of goodwill and other intangible assets was
determined primarily by utilizing a discounted cash flow
methodology. Based on the evaluation, it was determined
that the fair value of the Company’s goodwill and intangible
assets was less than their carrying value. The Company used
an independent valuation firm to confirm the Company’s
assessment of the fair value of its goodwill and other intangible
assets. In the third quarter of 2003, the Company recorded a
non-cash impairment charge totaling $481 million pre-tax
or $383 million net of tax.The charge consisted of $224 million
at American Residential Services, $68 million at American
Mechanical Services and $189 million at TruGreen LandCare.
The impairment charge included a portion of goodwill that
was not deductible for tax purposes, resulting in a tax benefit
of $98 million or approximately 20 percent of the pre-tax
charge amount.
tions”and “Dispositions”notes in the Notes to Consolidated
Financial Statements for information relating to goodwill
acquired and amounts impaired.
Notes to Consolidated Financial Statements