American Home Shield 2008 Annual Report Download - page 101

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 9. Restructuring Charges
The Company is engaged in a reorganization and restructuring of certain of its businesses and support functions known as Fast Forward. Among the
purposes of Fast Forward is to eliminate layers and bureaucracy and simplify work processes in order to better align the Company's work processes around its
operational and strategic objectives. Fast Forward is being implemented in phases. The first phase involved, among other things, a reduction in work force and
various process improvements, including the closing of American Home Shield's call center located in Santa Rosa, California. The second phase includes the
organization of certain corporate support functions into centers of excellence which are expected to deliver higher quality services to our business units at
lower costs, the outsourcing to third party vendors of various business activities that currently are handled internally, as well as other employee workforce
reductions expected to result in cost-savings.
In connection with Fast Forward, the Company incurred costs of approximately $10.5 million ($6.4 million after-tax) and $9.8 million ($6.0 million
after-tax) for the year ended December 31, 2008 and for the Successor period from July 25, 2007 to December 31, 2007, respectively. Such costs include lease
termination and other costs related to closing the Santa Rosa call center of approximately $0.5 million and $3.7 million for the year ended December 31, 2008
and for the Successor period from July 25, 2007 to December 31, 2007, respectively; and severance and other costs of approximately $10.0 million and
$6.1 million for the year ended December 31, 2008 and for the Successor period from July 25, 2007 to December 31, 2007, respectively.
The first phase of Fast Forward was substantially completed in the first quarter of 2008, and the second phase is underway. As part of the second phase
of Fast Forward, on December 11, 2008, the Company entered into an agreement with IBM pursuant to which IBM will provide information technology
operations and applications development services to the Company. The initial term of the agreement is seven years. The agreement commenced on
December 11, 2008 and the services are expected to be phased in over a six month period. In connection with the agreement, the Company expects to
eliminate approximately 275 positions. As a result of the elimination of positions and the transition of information technology services to IBM, the Company
expects to incur charges related to, among other things, employee retention and severance costs and transition fees paid to IBM. Almost all charges related to
the agreement will be cash charges, and, in accordance with GAAP, these costs will be expensed throughout the transition period.
The Company expects that it will incur additional costs in order to implement the second phase of Fast Forward but is currently unable to estimate the
aggregate amount or timing of such charges or the anticipated related cash outlays.
The results for the Successor period ended December 31, 2007 and the Predecessor period ended July 24, 2007 include restructuring charges related to
the Company's consolidation of its corporate headquarters into its operations support center in Memphis, Tennessee and the closing of its headquarters in
Downers Grove, Illinois. The transition to Memphis was substantially completed in 2007. Almost all costs related to the transition were cash expenditures,
and, in accordance with GAAP, these costs were expensed throughout the transition period. In the Successor period from July 25, 2007 to December 31, 2007,
the Company recognized charges of approximately $8.3 million ($5.1 million after-tax), which consisted of $6.0 million of employee retention and severance
and $2.3 million of recruiting and related costs. In the Predecessor period from January 1, 2007 to July 24, 2007, the Company recognized charges of
approximately $16.9 million ($10.7 million after-tax), which consisted of $12.8 million of employee retention and severance and
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