American Home Shield 2004 Annual Report Download - page 56

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54 ServiceMaster 2004 annual report
notes to the consolidated financial statements
Prior to 2003, the Company accounted for employee share
options under the intrinsic method of Accounting Principles
Board Opinion 25, as permitted under GAAP. Accordingly, no
compensation cost had been recognized in the accompanying
financial statements in 2002 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
estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions
in 2004, 2003 and 2002: risk-free interest rates of 3.7 percent,
3.6 percent and 4.5 percent, respectively; dividend yields of 4.0
percent, 4.2 percent, and 3.2 percent, respectively; share price
volatility of 30.6 percent, 30.8 percent, and 31.4 percent; and
average expected lives of six to seven years. The options granted
to employees in 2004, 2003 and 2002 have weighted-average
fair values of $2.35, $2.14 and $3.51, 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.
Options and grant transactions during the last three years are
summarized below:
Weighted Avg. Share Grants/
Stock Price Exercise Restricted Price
Options Range(1) Price Stock Range
Total exercisable, December 31, 2001 15,237,607 $ 2.25 – 77.56 $ 12.36 – –
Total outstanding, December 31, 2001 29,331,885 $ 2.25 – 77.56 $ 12.40 100,519 $ 2.86 — 7.96
Transactions during 2002
Granted to employees 4,939,141 $ 9.09 — 15.10 $ 13.08 179,000 $ 10.51-13.80
Exercised or vested (1,586,248) $ 2.25 – 14.55 $ 7.60 (46,632) $ 2.86 - 7.96
Terminated or resigned (871,439) $ 5.14 – 73.53 $ 16.37 – –
Total exercisable, December 31, 2002 18,089,830 $ 2.25 – 77.56 $ 13.05 – –
Total outstanding, December 31, 2002 31,813,339 $ 2.25 – 77.56 $ 12.64 232,887 $ 2.86 – 13.80
Transactions during 2003
Granted to employees 2,432,674 $ 8.40 – 11.21 $ 9.91 364,419 $ 9.50 – 11.97
Exercised or vested (1,296,101) $ 6.44 – 11.50 $ 7.70 (56,092) $ 2.86 – 13.80
Terminated or resigned (1,240,146) $ 2.25 – 37.40 $ 13.49 (3,514) $ 9.95
Total exercisable, December 31, 2003 20,346,581 $ 6.44 – 77.56 $ 13.16 – –
Total outstanding, December 31, 2003 31,709,766 $ 6.44 – 77.56 $ 12.60 537,700 $ 3.03 – 13.80
Transactions during 2004
Granted to employees 2,049,680 $ 8.63 – 13.06 $ 10.79 988,309 $10.73 – 12.86
Exercised or vested (1,250,434) $ 6.44 – 11.50 $ 8.20 (109,827) $ 3.03 – 13.80
Terminated or resigned (545,085) $ 6.44 – 37.40 $ 12.57 (16,491) $ 9.95 – 11.17
Total exercisable, December 31, 2004 22,573,344 $ 8.40 – 77.56 $ 13.26 – –
Total outstanding, December 31, 2004 31,963,927 $ 8.40 – 77.56 $ 12.66 1,399,691 $ 3.82 – 13.80
(1) The options priced at $73.53 to $77.56 are options assumed by the Company as a result of business acquisitions.