American Home Shield 2005 Annual Report Download - page 49

P. 4 7 SERVICEMASTER 2005 ANNUAL REPORT
Under the lattice-based model, expected volatilities are
based on a term structure of implied volatilities from traded
options on the Company’s stock and historical volatility of the
Company’s stock. The Company uses historical data to
estimate option exercise and employee termination within the
valuation model. The expected term of options granted is
derived from the output of the option valuation model and
represents the period of time that options granted are expected
to be outstanding. The range of risk-free rates for periods
within the contractual life of the options is based on the U.S.
Treasury forward curve rate and uses a term structure.
The lattice-based model used the following assumption for
options awarded in 2005: range of expected volatility 27.66
percent to 47.56 percent; weighted-average volatility of
28.24 percent; expected life (in years) of 6; dividend yield of
3.41 percent; risk-free rate in the range of 2.98 percent to
4.65 percent; and the weighted-average risk-free rate of
4.06 percent.
For awards valued using the Black-Scholes option pricing
model, the computation of fair value was based on the
following weighted-average assumptions in 2004 and
2003: risk-free rates of 3.7 percent and 3.6 percent,
respectively; dividend yields of 4.0 percent and 4.2 percent,
respectively; share price volatility of 30.6 percent and 30.8
percent, respectively; and average expected lives of six to
seven years. The Company has estimated the value of
these options assuming a single weighted-average
expected life for the entire award.
Notes to the Consolidated Financial Statements
Options and grant transactions during the last three years are summarized below:
Share Grants/
Stock Price Weighted Avg. Restricted Price
Options Range (1) Exercise Price Stock Range
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
Transactions during 2005
Granted to employees 2,103,103 $12.14 – 13.72 $ 13.43 598,723 $12.56–13.82
Exercised or vested (2,385,142) $8.75 – 13.83 $ 9.90 (270,695) $ 3.82–13.80
Terminated or resigned (2,173,615) $8.75 – 37.40 $ 12.26 (144,842) $ 9.95–13.42
Total exercisable, December 31, 2005 22,057,309 $8.40 – 77.56 $ 13.33 — —
Total outstanding, December 31, 2005 29,508,273 $8.40 – 77.56 $ 12.96 1,582,877 $ 5.53–13.82
(1) The options priced at $77.56 are options assumed by the Company as a result of business acquisitions.
Options outstanding at December 31, 2005:
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise Prices at 12/31/05 Term Exercise Price at 12/31/05 Exercise Price
$ 8.40 – 10.78 11,290,694 4 Years $ 10.00 7,869,386 $ 9.86
$10.80 – 15.94 12,351,967 4 Years $ 12.50 8,322,311 $ 12.15
$16.12 – 22.33 5,522,211 3 Years $ 18.18 5,522,211 $ 18.18
$27.20 – 77.56 343,401 1 Year $ 43.25 343,401 $ 43.25
$ 8.40 – 77.56 29,508,273 3.9 Years $ 12.96 22,057,309 $ 13.33