American Home Shield 2005 Annual Report Download - page 48

SERVICEMASTER 2005 ANNUAL REPORT P.46
Comprehensive Income
Comprehensive income, which encompasses net income,
unrealized gains on marketable securities, and the effect of
foreign currency translation is disclosed in the Statements
of Shareholders’ Equity.
Other Comprehensive Income
(In thousands) 2005 2004 2003
Net unrealized holding
gains arising
in period $ 4,582 $ 7,745 $ 15,559
Tax expense 1,833 3,098 6,224
Net of tax amount $ 2,749 $ 4,647 $ 9,335
Net gains realized $ 8,228 $ 6,370 $ 3,855
Tax expense 3,291 2,549 1,542
Net of tax amount $ 4,937 $ 3,821 $ 2,313
Accumulated comprehensive income included the following
components as of December 31:
(In thousands) 2005 2004 2003
Net unrealized gains
on securities, net of tax $ 4,624 $ 6,812 $ 5,986
Foreign currency
translation 2,573 3,992 1,946
Total $ 7,197 $ 10,804 $ 7,932
Shareholders’ Equity
The Company has authorized one billion shares of common
stock with par value of $.01. In February 2006, the
Company announced the declaration of a cash dividend of
$.11 per share payable on February 28, 2006 to shareholders
of record on February 17, 2006.
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 effi-
ciently when acquiring privately held companies. The
Company plans to use the shares over time in connection
with purchases of small acquisitions. There were approxi-
mately 4.3 million shares available for issuance under this
registration statement at December 31, 2005.
As of December 31, 2005, there were 32 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 performance
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
denominator of its earnings per share calculations.
In December 2004, the FASB issued SFAS 123 (revised
2004), “Share-Based Payment” (SFAS 123(R)). SFAS
123(R) replaces SFAS 123, “Accounting for Stock-Based
Compensation” (SFAS 123), and supersedes APB Opinion
No. 25, “Accounting for Stock Issued to Employees”. SFAS
123(R) requires that stock options and share grants be
recorded at fair value and this value is recognized as
compensation expense over the vesting period. The
Statement requires that compensation expense be recorded
for newly issued awards as well as the unvested portion of
previously issued awards that remain outstanding as of the
adoption of this Statement. The requirements of SFAS
123(R) become effective beginning with the Company’s
2006 fiscal year (January 1, 2006). The Company had
previously disclosed that it had expected to restate prior
periods as if the Statement were in effect for all periods. As
permitted by this Statement, the Company will instead
prospectively apply the provisions of this Statement effective
January 1, 2006.
In the first quarter of 2003, the Company adopted SFAS 123
and has been expensing the fair value of new employee
option grants awarded subsequent to 2002 using the
prospective method as described in SFAS 148, “Accounting
for Stock-Based Compensation – Transition and Disclosure,
an amendment of FASB Statement No. 123”.
Beginning in 2005, the fair value of each option award was
estimated on the date of the grant using a lattice-based
option valuation model. Prior to 2005, the Company used
the Black-Scholes option pricing model. This change was
made in order to provide a better estimate of fair value, as
the lattice-based model reflects the impact of stock price
changes on exercise behavior, and changes in volatility and
interest rates.
Notes to the Consolidated Financial Statements