American Home Shield 2003 Annual Report Download - page 53

ServiceMaster    51
At December 31, 2003, the Company has certain assets on its
financial statements relating to discontinued operations,
primarily receivables. Management is actively collecting the
outstanding receivables. The Company believes that the
remaining assets are presented at their net realizable value.
The table below summarizes the activity during the twelve
months ended December 31, 2003 for the remaining liabili-
ties from the discontinued operations. The Company
believes that the remaining reserves continue to be adequate
and reasonable.
Balance at Cash Balance at
Dec. 31, Payments Income/ Dec. 31,
(In thousands) 2002 or Other (Expense) 2003
Remaining liabilities
from discontinued
operations
LandCare
Construction $ 13,974 $ 6,822 $ –$ 7,152
LandCare utility
line clearing
business (1) 6,393 185 (2,803) 9,011
Certified
Systems, Inc. 13,586 2,562 –11,024
Management
Services 1,569 1,286 –283
International
businesses 21,348 10,331 (1,000) 12,017
Other 10,436 1,147 –9,289
(1) In September 2003,the Company sold the assets and related operational obligations
of Trees, Inc., the utility line clearing operations of TruGreen LandCare. The Com-
pany retained certain liabilities and recorded accruals in connection with the sold
operations.
2001 Charge
In the fourth quarter of 2001, the Company recorded a
pre-tax charge primarily related to goodwill and asset
impairments and other items totaling $345 million. At the
end of 2001, there were approximately $36 million of
reserves and accruals relating to severance, losses on residual
value guarantees, and other claims. Throughout 2002
approximately $15 million was paid relating to these
reserves.There was $5.6 million recorded as reduced expense
in 2002 relating to the favorable settlement of several items.
In 2003 there were payments of $3.5 million relating to these
items and $1.3 million of favorable resolution. The ending
reserve balance is approximately $10.5 million and relates
primarily to long-term severance agreements that extend
over several years.(Unrelated to these reserves,the Company
also recorded a $3.2 million charge in 2002 relating to the
retirement of a key executive. This severance will be paid out
over three years.)
Commitments and Contingencies
The Company carries insurance policies on insurable risks at
levels which it believes to be appropriate, including workers’
compensation,auto and general liability risks. The Company
has self-insured retention limits and insured layers of excess
insurance coverage above such self-insured retention limits.
Accruals for self-insurance losses and warranty claims in the
American Home Shield business are made based on the
Company’s claims experience and actuarial assumptions.
The Company has certain liabilities with respect to existing
or potential claims, lawsuits, and other proceedings. The
Company accrues for these liabilities when it is probable
that future costs will be incurred and such costs can be
reasonably estimated.
In the ordinary course of conducting its business activities,
the Company becomes involved in judicial, administrative
and regulatory proceedings involving both private parties
and governmental authorities. These proceedings include
general and commercial liability actions and a small number
of environmental proceedings. The Company does not
expect any of these proceedings to have a material adverse
effect on its Consolidated Financial Statements.
Employee Benefit Plans
Discretionary contributions to qualified profit sharing and
non-qualified deferred compensation plans were made in
the amount of $4.5 million in 2003, $9.2 million in 2002 and
$8.9 million in 2001. Under the Employee Share Purchase
Plan, the Company contributed $.8 million in 2003, $.9 mil-
lion in 2002 and $.8 million in 2001. These funds defrayed
part of the cost of the shares purchased by employees.
Minority Interest Ownership
and Related Parties
The Company continues to have minority investors in Ter-
minix. This minority ownership reflects an interest issued to
the prior owners of the Allied Bruce Terminix Companies in
connection with that acquisition.Their related equity security
is exchangeable into eight million ServiceMaster common
shares. The ServiceMaster shares are included in the shares
used in the calculation of diluted earnings per share.
Kleiner Perkins Caufield & Byers (KP) purchased a minority
interest in ServiceMaster New Channels Development
(SMNCD) (formerly known as the ServiceMaster Home
Service Center) in January 2000 for $15 million and exercised
an option to purchase an additional $5 million in January
2001. In May 2000, certain members of ServiceMaster
management purchased a minority interest in SMNCD for
approximately $1 million. The Company had allocated
losses in SMNCD to KP’s minority interest in 2000 and 2001
based on its relative priority in liquidation until such interest
was reduced to zero in 2001.In December 2001,the Company
acquired,at fair value, the minority interest SMNCD held by
KP. The entire purchase price of $20 million was allocated
to goodwill. The Company also purchased management’s
ownership in SMNCD for approximately $1 million.
Notes to Consolidated Financial Statements