American Home Shield 2003 Annual Report Download - page 58

56    ServiceMaster
Earnings Per Share
Basic earnings per share is computed by dividing income
available to common stockholders by the weighted-average
number of shares outstanding for the period. The weighted
average common shares for the diluted earnings per share
calculation includes the incremental effect related to out-
standing options whose market price is in excess of the exer-
cise price. Shares potentially issuable under convertible
securities have been considered outstanding for purposes of
the diluted earnings per share calculations. In computing
diluted earnings per share, the after-tax interest expense
related to convertible debentures is added back to net
income in the numerator, while the diluted shares in the
denominator include the shares issuable upon conversion of
the debentures. Due to the losses incurred in 2003 and 2001,
the denominator does not include the effects of options as it
would result in a less dilutive computation. As a result,diluted
earnings per share are the same as basic earnings per share.
Had the Company recognized income from continuing
Quarterly Operating Results (Unaudited)
Quarterly operating results and related growth for the last
three years in revenues,gross profit,income from continuing
operations, income from discontinued operations and earn-
ings per share are shown in the table below. As discussed in
the “Interim Reporting”section in the Significant Accounting
Policies, for interim accounting purposes, TruGreen Chem-
Lawn incurs pre-season advertising costs and annual repair
and maintenance procedures that are performed in the first
operations in 2003 and 2001, incremental shares attributable
to the assumed exercise of outstanding options would have
increased diluted shares outstanding by 3.9 million and 4.6
million shares,respectively. Shares potentially issuable under
convertible securities have not been considered outstanding
for all periods presented as their inclusion results in a less
dilutive computation. Had the inclusion of convertible secu-
rities not resulted in a less dilutive computation in 2002,
incremental shares attributable to the assumed conversion of
the debentures would have increased shares outstanding by
8.2 million shares and the after-tax interest expense related
to the convertible debentures that would have been added to
net income in the numerator would have been $4.8 million.
The following table reconciles both the numerator and the
denominator of the basic earnings per share from continuing
operations computation to the numerator and the denomi-
nator of the diluted earnings per share from continuing
operations computation.
quarter. These costs are deferred and recognized as expense
in proportion to the related revenues.Full year results are not
affected. In the fourth quarter of 2003, the Company corrected
its historical method of recognizing renewal revenue from
certain Terminix and American Home Shield customers who
have prepaid. This adjustment reduced operating and pre-
tax income by $12 million, or $.02 per share in the fourth
quarter of 2003.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
For year ended 2003 For year ended 2002 For year ended 2001
Continuing Operations: Loss Shares EPS Income Shares EPS Loss Shares EPS
Basic EPS $(221,975) 295,610 $(0.75) $157,303 300,383 $0.52 $(172,219) 298,659 $(0.58)
Effect of Dilutive Securities:
Options –5,529 –
Diluted EPS $(221,975) 295,610 $(0.75) $157,303 305,912 $0.51 $(172,219) 298,659 $(0.58)