American Home Shield 2006 Annual Report Download - page 25

Capital employed in the Other Operations segment decreased reflecting lower cash balances as the Company used existing cash
resources as well as cash generated from operations during 2005 to fund the tax payments related to the IRS agreement and the
repayment of $137 million of public debt that matured in April 2005.
Businesses Held Pending Sale and Discontinued Operations
The Company intends to sell its American Residential Services (ARS) and American Mechanical Services (AMS) companies so it
can concentrate resources on its main growth businesses. The Company has retained an investment banking firm to serve as its
financial advisor in this process. The ARS/AMS operations provide heating, ventilation, air conditioning (HVAC), plumbing and
electrical installation and repair services and were previously disclosed as the Company's ARS/AMS segment. Because the
Company intends to sell these companies, their operating results are reported within the financial statement caption "businesses
held pending sale and discontinued operations" for all periods. Revenues from the combined ARS and AMS businesses increased
11 percent in 2005. Operating income net of taxes increased by approximately $6 million in 2005, as sharp improvements in
volume and mix of replacement sales and more favorable weather conditions offset lower profits from commercial installation
projects.
Net income from previously discontinued operations totaled $5 million in 2005, primarily reflecting the favorable conclusion of
certain obligations related to international pest control businesses sold in prior years.
In 2004, as a result of the comprehensive IRS agreement discussed previously, the Company recognized a non-cash reduction in the
tax provision related to discontinued operations, thereby increasing net income reported under that caption by $9 million.
Included in the 2003 loss of businesses held pending sale and discontinued operations was an impairment charge ($292 million pre-
tax, $227 million after-tax) associated with the goodwill and intangible assets of the ARS and AMS operations.
The components of income (loss), net of income taxes of businesses held pending sale and discontinued operations for 2005, 2004
and 2003 are as follows:
(In thousands) 2005 2004 2003
ARS/AMS operating income $ 11,695 $ 5,534 $ 10,023
Headquarter support and insurance costs previously allocated to ARS/AMS 10,294 6,714 4,879
ARS/AMS operating income before previously allocated expenses 21,989 12,248 14,902
Provision for income taxes 8,687 4,814 7,467
ARS/AMS operating income, net of tax 13,302 7,434 7,435
Reduction in tax provision related to IRS agreement — 9,465 —
Impairment charge, net of tax — — (226,955)
Other discontinued operations, net of tax 5,062 (2,295) (2,712)
Income (loss) from businesses held pending sale and discontinued operations $ 18,364 $ 14,604 $ (222,232)
2004 Compared with 2003
Revenue from continuing operations for 2004 was $3.1 billion, a six percent increase over 2003, with approximately five percent of
the growth derived from internal sources.
The Company reported income from continuing operations in 2004 of $317 million and income from businesses held pending sale
and discontinued operations of $15 million. Total net income of $331 million in 2004 compared with a net loss of ($225) million in
2003. Diluted earnings per share were $1.11 in 2004 and a loss of ($.76) in 2003.
Diluted earnings per share from continuing operations were $1.06 in 2004 compared with a loss of ($.01) in 2003. As more fully
discussed below, the diluted earnings per share from continuing operations for 2004 included a $.49 per share ($150 million) non-
cash reduction in the tax provision and the 2003 amount included a non-cash goodwill and intangible assets impairment charge of
$0.53 per diluted share ($189 million pre-tax, $156 million after-tax). Operating income for 2004 was $324 million, compared with
$111 million in 2003. The 2003 results include the $189 million non-cash impairment charge.
The increase in operating income in 2004 reflects the impact of the 2003 impairment charge, strong profit growth at American
Home Shield and TruGreen ChemLawn, a reduced level of operating loss in TruGreen LandCare and improved profits at
ServiceMaster Clean and Terminix, as well as a $4 million gain that TruGreen ChemLawn realized in the third quarter of 2004 from
the sale of a support facility.
2003 Impairment Charge
In the third quarter of 2003, the Company recorded a non-cash impairment charge associated with the goodwill and intangible
assets at its TruGreen LandCare business unit. This charge, which is included in the results of continuing operations for 2003,
totaled $189 million pre-tax, $156 million after-tax, and $0.53 per diluted share. Also in the third quarter of 2003, the Company
recorded a non-cash impairment charge associated with the goodwill and intangible assets at its ARS and AMS operations. The
Company is currently holding these operations for sale, accordingly, the financial results for the ARS and AMS operations, as well
as the impairment charge related to these operations ($292 million pre-tax, $227 million after-tax), have been reclassified to
"businesses held pending sale and discontinued operations" for all periods.
Operating and Non-Operating Expenses