American Home Shield 2007 Annual Report Download - page 58

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Notes to the Consolidated Financial Statements
The following table presents the proforma impact on continuing operations for the years ended December 31, 2005 and 2004 of
compensation expense relating to stock option awards as computed under SFAS 123(R):
(In thousands,
except per share data) 2005 2004
Net income as reported (income from
continuing operations) $ 180,561 $ 316,623
Add back: Stock-based compensation
expense included in reported net
income, net of related tax effects 2,280 1,729
Deduct: Stock-based compensation expense
determined under SFAS 123(R) (5,742) (6,346)
Proforma net income $ 177,099 $ 312,006
Basic Earnings Per Share:
As reported $ 0.62 $ 1.09
Proforma 0.61 1.07
Diluted Earnings Per Share:
As reported $ 0.61 $ 1.06
Proforma 0.60 1.04
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 Issued Accounting Statements and Positions: In July 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. 48 "Accounting for Uncertain Tax Positions" (FIN 48). FIN 48 provides guidance on the accounting for and
disclosure of tax positions accounted for in accordance with SFAS 109. FIN 48 requires that the effects of a tax position be
initially recognized when it is "more likely than not" (which is defined as a greater than 50 percent chance) that the position will
be sustained upon examination by the taxing authorities. In addition, FIN 48 requires additional disclosures regarding tax
positions. FIN 48 is effective beginning January 1, 2007. The Company has assessed the impact of FIN 48 to the Company's
consolidated financial position, results of operations and cash flows. The Company does not expect the adoption of this
Statement to have a material effect on these Consolidated Financial Statements.
In September 2006, the Financial Accounting Standards Board issued SFAS 157, "Fair Value Measurement". This Statement
defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. There are no new fair value measurements required. This Statement is
effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently assessing
the impact of this Statement to the Company's consolidated financial position, results of operations and cash flows; however, the
Company does not expect the adoption of this Statement to have a material effect on these Consolidated Financial Statements.
In February 2007, the Financial Accounting Standards Board issued SFAS 159, "The Fair Value Option for Financial Assets and
Financial Liabilities". This Statement permits entities to choose to measure at fair value many financial instruments and certain
other items such as investments, debt and derivative instruments. This Statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of this Statement on its
Consolidated Financial Statements.
Recently Adopted Accounting Principles: As discussed in the "Stock-Based Compensation" section above, the Company
adopted the provisions of SFAS 123(R) effective January 1, 2006 using the modified prospective method. The adoption of SFAS
123(R) reduced earnings per share in 2006 by less than $.01.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulleting No. 108 (SAB 108). SAB 108
states that registrants should use both the balance sheet approach and an income statement approach when quantifying and
evaluating the materiality of misstatements. SAB 108 provides guidance on correcting errors under the dual approach and
provides transition guidance for correcting errors in prior years. SAB 108 was effective for the year ending December 31, 2006
and its adoption did not have a material impact on the Company's consolidated financial position, results of operations or cash
flows.
Business Segment Reporting
The business of the Company is conducted through five reportable segments: TruGreen LawnCare, TruGreen LandCare,
Terminix, American Home Shield and Other Operations and Headquarters.
In accordance with SFAS 131, "Disclosures About Segments of an Enterprise and Related Information", the Company's
reportable segments are strategic business units that offer different services. The TruGreen LawnCare segment provides
residential and commercial lawn care services. The TruGreen LandCare segment provides landscaping services primarily to
commercial customers. The Terminix segment provides termite and pest control services to residential and commercial
customers. The American Home Shield segment provides home warranties to consumers that cover HVAC, plumbing and other
home systems and appliances. This segment also includes home inspection services provided by AmeriSpec. The Other