American Home Shield 2003 Annual Report Download - page 56

54    ServiceMaster
Receivable Sales
The Company has an agreement to provide for the ongoing
revolving sale of a designated pool of accounts receivable of
TruGreen 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 pur-
chasers. 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. The Company recorded a $3 million pre-tax
loss in 2001 related to this program which was recorded in
minority interest and other expense.At December 31, 2003,
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 in the future
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,
unrealized gains on marketable securities, and the effect of
foreign currency translation is disclosed in the Statement of
Shareholders’Equity.
Other Comprehensive Income
(In thousands) 2003 2002 2001
Unrealized holding
gains (losses)
arising in period $ 15,559 $ (7,941) $ (3,601)
Tax expense 6,224 (3,196) (2,382)
Net of tax amount $ 9,335 $ (4,745) $ (1,219)
Gains (losses) realized $ 3,855 $ (1,460) $ 3,845
Tax expense 1,542 (584) 705
Net of tax amount $ 2,313 $ (876) $ 3,140
Accumulated comprehensive income included the following
components as of December 31:
(In thousands) 2003 2002 2001
Unrealized gains
(losses) on securities $ 5,986 $ (1,036) $ 2,833
Foreign currency
translation 1,946 187 (5,329)
Total $ 7,932 $ (849) $ (2,496)
Shareholders’Equity
The Company has authorized one billion shares of common
stock with par value of $.01 and 11 million shares of pre-
ferred stock. There were no shares of preferred stock issued
or outstanding. The Company records its dividend liability
in the consolidated financial statements on the record date.
As of December 31, 2003, the Company had declared a cash
dividend of $.105 per share to shareholders of record on
January 9, 2004. In March 2004, the Company declared a
cash dividend of $.105 per share to shareholders of record on
April 9, 2004.
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 4.7 million
shares available for issuance under this registration state-
ment at December 31,2003.
As of December 31, 2003, there were 44.9 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. Shares of restricted stock are non-transferable and
subject to forfeiture if the holder does not remain continu-
ously 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.A holder of a
restricted stock award has rights as a shareholder of the
Company and 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.
Beginning in 2003, the Company is 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 –
Transition and Disclosure, an amendment of FASB State-
ment 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.
Notes to Consolidated Financial Statements