American Home Shield 2003 Annual Report Download - page 45

ServiceMaster    43
Prior to 2003, the Company had accounted for employee
share options under the intrinsic method of Accounting
Principles Board Opinion 25,as permitted under GAAP. Had
compensation expense for employee options been deter-
mined under the fair-value based method of SFAS 123 for all
periods, proforma reported net income and net earnings per
share would reflect the following:
(In thousands, except per share data)
2003 2002 2001
Net income (loss)
as reported $ (224,687) $ 156,994 $ 116,384
Add back:Stock-based
compensation expense
included in reported
net income,net of
related tax effects 609 ––
Deduct: Stock-based
compensation expense
determined under fair-
value method,net of
related tax effects (6,179) (7,576) (7,613)
Proforma net
income (loss) $ (230,257) $ 149,418 $ 108,771
Basic Earnings
Per Share:
As reported $ (0.76) $ 0.52 $ 0.39
Proforma (0.78) 0.50 0.36
Diluted Earnings
Per Share:
As reported $ (0.76) $ 0.51 $ 0.39
Proforma (0.78) 0.49 0.36
See the “Shareholders’Equity”note to the consolidated financial statements for a description
of the assumptions used to compute the above stock based compensation expense.
Newly Adopted Accounting Principles: In April
2002, the Financial Accounting Standards Board (FASB)
issued SFAS 145,“Rescission of FASB Statements No. 4, 44,
and 64,Amendment of FASB Statement No.13,and Technical
Corrections”. The primary impact to the Company of this
Statement is that it rescinds SFAS 4 which required all material
gains and losses from the extinguishment of debt to be classified
as extraordinary items. SFAS 145 requires that the more
restrictive criteria of APB Opinion No. 30 will be used to
determine whether such gains or losses are extraordinary.
Beginning in 2003, the Company adopted the provisions of
this statement and as such has reclassified the extraordinary
losses in 2002 and 2001 into income from continuing opera-
tions in the accompanying Consolidated Statements of
Operations. In the second quarter of 2002, the Company
recorded an extraordinary loss of $.03 per diluted share
($15.4 million pre-tax, $9.2 million after-tax) from the early
extinguishment of debt. In the first quarter of 2001 the
Company recorded an extraordinary gain of $.02 per diluted
share ($10.1 million pre-tax, $6.0 million after-tax) on the
early extinguishment of debt. In the fourth quarter of 2001
the Company recorded an extraordinary loss of $.03 per
diluted share ($16.0 million pre-tax, $9.4 million after-tax)
on the early extinguishment of debt. As a result of the
Company’s adoption of SFAS 145 in 2003, these gains/losses
have been reclassified into continuing operations as interest
expense, thereby adjusting the previously reported 2002 and
2001 basic and diluted earnings per share from continuing
operations by the same aforementioned amounts.
During 2003, the Company adopted SFAS 146,“Accounting
for Costs Associated With Exit or Disposal Activities”. This
Statement requires recording costs associated with exit or
disposal activities at their fair values when a liability has been
incurred. The adoption of this Statement did not have a
material impact on the Consolidated Financial Statements.
In January 2003, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 46,“Consolidation
of Variable Interest Entities”(FIN 46).Under this Interpreta-
tion, certain entities known as “variable interest entities”
(VIE) must be consolidated by the “primary beneficiary”of
the entity. The primary beneficiary is generally defined as
having the majority of the risks and rewards arising from the
VIE. In December 2003,the FASB issued FASB Interpretation
No.46, Revised,which revised the originally issued document
to include, among other items, additional exclusion provi-
sions for which an entity would not be required to apply FIN
46. Certain requirements of FIN 46R are required to be
applied no later than the first quarter of 2004. The Company
is currently assessing the impact of FIN 46R and does not
expect its adoption to have a material impact on the Consoli-
dated Financial Statements.
Business Segment Reporting
The business of the Company is conducted through five
operating segments: TruGreen, Terminix, American Home
Shield,ARS/AMS and Other Operations. In accordance with
Statement of Financial Accounting Standards No. 131, the
Company’s reportable segments are strategic business units
that offer different services. The TruGreen segment provides
residential and commercial lawn care and landscaping
services through the TruGreen ChemLawn and TruGreen
LandCare companies. The Terminix segment provides
Notes to Consolidated Financial Statements