Notes to financial statements
Note 13: Discontinued Operations
In December 1996, we decided to sell our insurance brokerage, Minet, and in May 1997, we completed the sale to Aon Corporation. As a result, we accounted for Minet as a discontinued operation in 1997 and 1996. Proceeds from the sale of Minet to Aon were $107 million.
The following table summarizes our discontinued operations for 1997 and 1996:
(In thousands)
December 31
1997
1996
Operating loss, before income taxes
$ (18,815)
$ -
401
Income tax expense
-
Operating loss, net of taxes
(19,216)
-
Loss on disposal, before income taxes
(380,036)
(103,280)
(291,493)
Income tax benefit
(35,530)
Loss on disposal, net of taxes
(88.543)
(67,750)
Loss from discontinued operations
$ (107,759)
$ (67,750)
In 1996, we recorded a pretax loss of $380 million on the disposal of Minet, which represented the estimated difference between its fair value and carrying value by the time we would finalize the sale. That loss provision encompassed Minet's estimated operating losses through the date of disposal, the realization of previously unrealized foreign exchange losses, pension and postretirement curtailment gains, and estimated selling costs.
We also recorded a net $291 million tax benefit in 1996, consisting of a $353 million tax benefit on the provision for loss on disposal reduced by a valuation allowance of $62 million. Our federal income tax carrying value of Minet was substantially higher than our carrying value for financial statement purposes, so the tax benefit was not proportionate to the pretax loss.
In 1997, we recorded an additional pretax loss on disposal of $103 million (with a corresponding tax benefit of $36 million), which resulted primarily from our agreement to be responsible for certain severance, employee benefits, future lease commitments and other costs related to Minet.
We agreed to indemnify Aon against any future professional liability claims for events that occurred prior to the sale. Since this indemnification relates to claims that had not yet been discovered or reported, it is not possible to estimate a range of the potential liability. The company monitors its exposure under these claims on a regular basis. We believe reserves for reported claims are adequate, but the company still does not have information on unreported claims to estimate a range of additional liability. The company purchased insurance to cover a portion of its exposure to such claims. The insurance covers claims reported three years from the date of sale, with the option to renew the contract for an additional three years. The policy provides $125 million maximum coverage with a $25 million aggregate deductible.