American Home Shield 2004 Annual Report Download - page 55

2004 annual report ServiceMaster 53
Receivable Sales
The Company has an agreement to provide for the ongoing
revolving sale of a designated pool of accounts receivable of
TruGreen ChemLawn and Terminix to a wholly-owned,
bankruptcy-remote subsidiary, ServiceMaster Funding LLC.
ServiceMaster Funding LLC has entered into an agreement to
transfer, on a revolving basis, an undivided percentage ownership
interest in a pool of accounts receivable to unrelated third party
purchasers. ServiceMaster Funding LLC retains an undivided
percentage interest in the pool of accounts receivable and bad
debt losses for the entire pool are allocated first to this retained
interest. During 2004, there were no receivables sold to third
parties under this agreement. However, the Company may sell
its receivables in the future which would provide an alternative
funding source. The agreement is a 364-day facility that is
renewable at the option of the purchasers. The Company may
sell up to $65 million of its receivables to these purchasers and
therefore has immediate access to cash proceeds from these
sales. The amount of the eligible receivables varies during the
year based on seasonality of the business and will at times limit
the amount available to the Company.
Comprehensive Income
Comprehensive income, which encompasses net income, unre-
alized gains on marketable securities, and the effect of foreign
currency translation is disclosed in the Statements of Share-
holders’ Equity.
Other Comprehensive Income
(In thousands) 2004 2003 2002
Unrealized holding
gains (losses)
arising in period $7,745$ 15,559 $ (7,941)
Tax expense (benefit) 3,098 6,224 (3,196)
Net of tax amount $ 4,647 $ 9,335 $ (4,745)
Gains (losses) realized $ 6,370 $ 3,855 $ (1,460)
Tax expense (benefit) 2,549 1,542 (584)
Net of tax amount $ 3,821 $ 2,313 $ (876)
Accumulated comprehensive income included the following
components as of December 31:
(In thousands) 2004 2003 2002
Unrealized gains (losses)
on securities, net of tax $ 6,812 $ 5,986 $ (1,036)
Foreign currency
translation 3,992 1,946 187
Total $ 10,804 $ 7,932 $ (849)
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.
In February 2005, the Company announced the declaration of
a cash dividend of $.11 per share to shareholders of record on
February 14, 2005. This dividend was paid on February 28, 2005.
The Company has an effective shelf registration statement
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
acquisitions. There were approximately 4.4 million shares avail-
able for issuance under this registration statement at December
31, 2004.
As of December 31, 2004, there were 42.3 million Company
shares available for issuance upon the exercise of employee
stock options outstanding and future grants. Stock 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
and restricted stock awards carry a vesting period and are
restricted as to the sale or transfer of the shares. Restricted stock
awards are non-transferable and subject to forfeiture if the holder
does not remain continuously employed by the Company during
the vesting period, or if the restricted stock is subject to perfor-
mance measures, if those performance measures are not
attained. The Company includes the vested and unvested portions
of the restricted stock awards in shares outstanding in the denom-
inator of its earnings per share calculations.
Beginning in 2003, the Company has been accounting for
employee stock options as compensation expense in accordance
with SFAS 123, “Accounting for Stock-Based Compensation.”
SFAS 148, “Accounting for Stock-Based Compensation - Transi-
tion 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 is using the “prospective
method” permitted under SFAS 148 and is expensing the fair value
of new employee option grants awarded subsequent to 2002.