34. SUBSEQUENT EVENTS
Proposed Dispositions
The Debt Reduction Plan contemplates the
sale of our interests in Protection One Europe with a targeted closing
of mid-2003 and the sale of our interest in Protection One with
a targeted closing by late 2003 or early 2004. Consistent with the
Debt Reduction Plan, on January 13, 2003, we announced that our
board of directors authorized management to explore alternatives
for disposing of our investments in Protection One and Protection
One Europe, and we have retained financial advisors to assist with
the possible sales. A special committee comprised of independent
directors of Protection One’s board of directors has been formed,
and the committee has also retained a financial advisor. As a result
of these decisions, these operations were classified as discontinued
operations during the first quarter of 2003 pursuant to the provisions
of SFAS No. 144.
As discontinued operations, we will be
required to determine the fair value of our investment, which will
be the net amount we expect to realize from the sale of the investment.
The investment must be reported at the lesser of our recorded basis
or the estimated fair value. If the fair value is less than our
recorded basis, we will be required to record an expense equal to
the amount by which our basis exceeds the estimated fair value,
which could be material.
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We solicited and received indications
of value for Protection One Europe from potential buyers. These
indications of value are within a range we would be willing to accept.
They indicated the recorded goodwill for Protection One Europe had
no value. Accordingly, we recorded a $36 million impairment charge
in the fourth quarter of 2002 to reflect the impairment of all remaining
goodwill at Protection One Europe. We are willing to accept offers
in the indicated range due to our ability to use the tax loss on
this sale to offset the taxes that would otherwise be due from our
sale of other investments. We will recognize a $58 million tax benefit
in the first quarter of 2003 when Protection One Europe is classified
as a discontinued operation.
Payments to
Protection One
On March 21, 2003, we paid approximately
$1.0 million to Protection One as reimbursement for information
technology services provided to us, and related costs incurred,
by a subsidiary of Protection One. On March 21, 2003, we also paid
approximately $3.6 million to Protection One as reimbursement for
aviation services provided by a subsidiary of Protection One and
for the repurchase of the stock of the subsidiary. These payments
were authorized by the KCC in an order issued March 11, 2003, which
is described in Note 3.
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