American Home Shield 2002 Annual Report Download - page 57

Comprehensive Income
Comprehensive income, which encompasses net
income, unrealized gains on marketable securities, and
the effect of foreign currency translation is disclosed in
the Statement of Shareholders’ Equity.
(In thousands) 2002 2001 2000
Unrealized holding
gains (losses)
arising in period $ (7,941) $ (3,601) $ 20,553
Tax expense (3,196) (2,382) 8,447
Net of tax amount $ (4,745) $ (1,219) $ 12,106
Gains (losses)
realized $ (1,460) $ 3,845 $ 15,173
Tax expense (584) 705 6,236
Net of tax amount $ (876) $ 3,140 $ 8,937
Accumulated comprehensive income included the
following components as of December 31:
(In thousands) 2002 2001 2000
Unrealized gains
(losses) on
securities $ (1,036) $ 2,833 $ 7,192
Foreign currency
translation 187 (5,329) (16,469)
Total $ (849) $ (2,496) $ (9,277)
Shareholders’ Equity
The Company has authorized one billion shares of
common stock with par value of $.01 and 11 million
shares of preferred stock. There were no shares of
preferred stock issued or outstanding.
The Company has an effective shelf registration state-
ment to issue shares of common stock in connection
with future, unidentified acquisitions. This registration
statement allows the Company to issue registered
shares much more efficiently when acquiring privately
held companies. The Company plans to use the shares
over time in connection with purchases of small acquisi-
tions. There were approximately 4.7 million shares
available for issuance under this registration statement
at December 31, 2002.
As of December 31, 2002, there were 37.3 million
Company shares available for issuance upon the exercise
of employee options outstanding and future grants.
Share options are issued at a price not less than the fair
market value on the grant date and expire within ten
years of the grant date. Certain options may permit the
holder to pay the option exercise price by tendering
Company shares that have been owned by the holder
without restriction for an extended period. Share
grants carry a vesting period and are restricted as to the
sale or transfer of the shares.
Beginning in 2003, the Company will account for
employee stock options as compensation expense in
accordance with SFAS 123, “Accounting for Stock-
Based Compensation.” SFAS 148, “Accounting for
Stock-Based Compensation – Transition and Disclosure,
an amendment of FASB Statement No. 123”, provides
alternative methods of transitioning to the fair value
based method of accounting for employee stock options
as compensation expense. The Company will use the
“prospective method” of SFAS 148 and expense the fair
value of new employee option grants awarded subsequent
to 2002. If the Company continues its historical pattern
of option granting, the impact would be approximately
$.005 per share in 2003, growing to approximately $.03
per share over five years.
Prior to 2003, the Company has accounted for employee
share options under the intrinsic method of Accounting
Principles Board Opinion 25, as permitted under GAAP.
Accordingly, no compensation cost has been recognized
in the accompanying financial statements related to
these options. See the “Stock-Based Compensation” note
in the “Significant Accounting Policies” section for the
proforma net income and earnings per share under the
fair value based method of SFAS 123. In computing this
proforma impact, the fair value of each option is esti-
mated on the date of grant based on the Black-Scholes
option pricing model with the following weighted-average
assumptions in 2002, 2001 and 2000: risk-free interest
rates of 4.5 percent, 4.8 percent and 6.1 percent, respectively;
distribution yields of 3.2 percent 3.7 percent and 4.1
percent, respectively; and average expected lives of six
to seven years. The options granted to employees in
2002, 2001 and 2000 have weighted-average fair values
of $3.51, $2.41 and $2.19, respectively and vest ratably
over five years. The Company has estimated the value of
these options assuming a single weighted-average
expected life for the entire award.
ServiceMaster 53
Notes to Consolidated Financial Statements