American Home Shield 2002 Annual Report Download - page 53

Portfolio Review and Dispositions in 2001
In October 2001, the Company’s Board of Directors
approved a series of strategic actions which were the
culmination of an extensive portfolio review process
that was initiated earlier in 2001. In the fourth quarter
of 2001, the Company sold its Management Services
business to ARAMARK Corporation for approximately
$800 million and recorded an after-tax gain of $404
million. (A portion of Management Services was not
sold as part of this transaction and represented a $15
million loss upon disposition). Also in the fourth quarter
of 2001, the Company’s Board of Directors approved the
exit of non-strategic and under-performing businesses
including TruGreen LandCare Construction, Certified
Systems Inc. (CSI), and certain Terminix operations in
Europe. The Company sold its TruGreen LandCare
Construction operations to Environmental Industries,
Inc. (EII) in certain markets and EII managed the wind-
down of commercial landscaping construction contracts
in the remaining markets. In addition, the Company
sold all of its customer contracts relating to the exit of
CSI (the Company’s professional employer organization)
to AMS Staff Leasing, N.A., Inc. In the fourth quarter of
2001, the Company sold certain subsidiaries of its Euro-
pean pest control and property services operations.
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
discovered 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.
At December 31, 2002, 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.
Reported “Discontinued operations” for all periods
presented include the operating results of the sold and
discontinued businesses noted above and the 2001
results include the gain from the sale of Management
Services, net of losses from the disposition of other entities.
The operating results and financial position of discon-
tinued operations are as follows:
(In thousands, except per share data)
Operating Results: 2002 2001 2000
Operating revenue $ 40,692 $ 2,271,376 $2,550,244
Income (loss) from
discontinued
operations before
income taxes 1,600 (27,232) 72,328
Provision for
income taxes 635 11,711 31,760
Income from
discontinued
operations 965 (38,943) 40,658
Gain on sale of
Management Services,
net of losses from
disposition of
other entities (4,840) 323,213 -
Income from
discontinued
operations $ (3,875) $ 284,270 $ 40,568
Diluted earnings
per share from
discontinued
operations $ (0.01) $ 0.95 $ 0.13
Financial Position: 2002 2001
Current assets $ 5,300 $ 46,700
Property, plant and equipment 400 12,300
Long-term assets -5,100
Total assets $ 5,700 $ 64,100
Current liabilities $ 32,200 $ 50,400
Long-term liabilities 28,800 50,600
Total liabilities $ 61,000 $101,000
In the fourth quarter of 2001, the Company recorded a
pretax charge primarily related to goodwill and asset
impairments and other items totaling $345 million.
Reserves and accrual balances remain on the financial
statements relating to these operations. Cash payments
incurred for the wind-down of LandCare construction
contracts, lease termination costs, workers compensation
and health claims as well as professional service fees
have been made during 2002. During the second
quarter of 2002, the Company completed the sale of its
ownership interest in five assisted living facilities.
These properties were financed through an operating
lease arrangement, whereby, the Company guaranteed
a portion of the residual value of the properties. At
December 31, 2001, a $13.5 million reserve was estab-
lished representing the amount by which the residual
value guarantees exceeded the value of bids to purchase
the facilities at that time. The final sales price was
significantly greater than these bid levels and the
Company realized a gain of $3.6 million from the sale on
the assisted living properties.
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Notes to Consolidated Financial Statements