UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2018~~March 31, 2019


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-36507

ServiceMaster Global Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware		20-8738320
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

150 Peabody Place, Memphis, Tennessee 38103

(Address of principal executive offices) (Zip Code)

901-597-1400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


	Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).


	Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐
		~~(Do not check if a smaller reporting company)~~	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


	Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common, par value $0.01	SERV	NYSE

The number of shares of the registrant’s common stock outstanding as of ~~July 25, 2018: 135,557,854~~April 30, 2019:135,964,207 shares of common stock, par value $0.01 per share.

Table of Contents

TABLE OF CONTENTS


	Page No.
Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations and Comprehensive Income	3

Condensed Consolidated Statements of Financial Position	4
4
Condensed Consolidated Statements of Stockholders’ Equity	5

Condensed Consolidated Statements of Cash Flows	5 6

Notes to Condensed Consolidated Financial Statements	6 7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3. Quantitative and Qualitative Disclosures About Market Risk	43 38

Item 4. Controls and Procedures	44 39

Part II. Other Information	44 39

Item 1. Legal Proceedings	44 39

Item 1A. Risk Factors	45 39

Item ~~5. Other Information~~2. Unregistered Sales of Registered Securities and Use of Proceeds	45 41

Item 6. Exhibits	47 41

Signature	42
48

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(In millions, except per share data)



	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2018		2017		2018		2017		2019		2018
Revenue	$	874	$	807	$	1,549	$	1,450	$	482	$	428
Cost of services rendered and products sold		467		415		829		761		261		226
Selling and administrative expenses		225		206		422		392		136		125
Amortization expense		7		7		12		14		6		3
Acquisition-related costs										1		—
Fumigation related matters		—		1		—		2		1		—
Impairment of software and other related costs		—		—		—		2
Restructuring charges		—		1		12		3		7		12
American Home Shield spin-off charges		8		—		15		—
Realized (gain) on investment in frontdoor, inc.										(40)		—
Interest expense		37		38		75		75		27		37
Interest and net investment income		(1)		(1)		(2)		(1)		(1)		—
Loss on extinguishment of debt		—		3		—		3		6		—
Income from Continuing Operations before Income Taxes		130		137		185		199		79		23
Provision for income taxes		34		52		48		76		9		6
Income from Continuing Operations		96		85		137		123		70		17
Gain from discontinued operations, net of income taxes		—		—		—		1		—		23
Net Income	$	96	$	85	$	136	$	124	$	70	$	40
Total Comprehensive Income	$	99	$	84	$	149	$	124	$	68	$	50
Weighted-average common shares outstanding - Basic		135.5		133.7		135.4		134.1		135.8		135.2
Weighted-average common shares outstanding - Diluted		135.8		135.0		135.7		135.5		136.4		135.6
Basic Earnings Per Share:
Income from Continuing Operations	$	0.71	$	0.64	$	1.01	$	0.92	$	0.51	$	0.12
Gain from discontinued operations, net of income taxes		—		—		—		—		—		0.17
Net Income		0.71		0.64		1.01		0.92		0.51		0.30
Diluted Earnings Per Share:
Income from Continuing Operations	$	0.71	$	0.63	$	1.01	$	0.91	$	0.51	$	0.12
Gain from discontinued operations, net of income taxes		—		—		—		—		—		0.17
Net Income		0.71		0.63		1.00		0.91		0.51		0.30

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements



	As of		As of		As of		As of
	June 30,		December 31,		March 31,		December 31,
	2018		2017		2019		2018
Assets:
Current Assets:
Cash and cash equivalents	$	449	$	475	$	255	$	224
Marketable securities		25		25
Receivables, less allowances of $22 and $23, respectively		202		570
Investment in frontdoor, inc.						—		445
Receivables, less allowances of $20 and $21, respectively						183		186
Inventories		46		41		46		45
Prepaid expenses and other assets		92		94		64		61
Deferred customer acquisition costs		—		36
Total Current Assets		814		1,242		548		962
Other Assets:
Property and equipment, net		245		237		201		201
Operating lease right-of-use assets						105		—
Goodwill		2,396		2,256		2,037		1,956
Intangible assets, primarily trade names, service marks and trademarks, net		1,743		1,692		1,603		1,588
Restricted cash		89		89		89		89
Notes receivable		43		41		44		43
Long-term marketable securities		21		22		17		21
Deferred customer acquisition costs		94		—		74		77
Other assets		86		68		52		87
Total Assets	$	5,530	$	5,646	$	4,769	$	5,023
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable	$	159	$	115	$	94	$	89
Accrued liabilities:
Payroll and related expenses		58		63		47		60
Self-insured claims and related expenses		142		117		55		58
Accrued interest payable		13		15		20		14
Other		68		56		57		61
Deferred revenue		290		663		100		95
Current portion of lease liability						17		—
Current portion of long-term debt		61		144		52		49
Total Current Liabilities		791		1,174		443		425
Long-Term Debt		2,675		2,643		1,289		1,727
Other Long-Term Liabilities:
Deferred taxes		529		493		483		484
Other long-term obligations, primarily self-insured claims		188		169		156		182
Long-term lease liability						119		—
Total Other Long-Term Liabilities		717		662		757		666
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Common stock $0.01 par value (authorized 2,000,000,000 shares with 147,079,375 shares issued and 135,557,005 outstanding at June 30, 2018 and 146,662,232 shares issued and 135,141,048 outstanding at December 31, 2017)		2		2
Common stock $0.01 par value (authorized 2,000,000,000 shares with 147,605,165 shares issued and 136,046,435 outstanding at March 31, 2019 and 147,209,928 shares issued and 135,687,558 outstanding at December 31, 2018)						2		2
Additional paid-in capital		2,336		2,321		2,318		2,309
Accumulated deficit		(745)		(895)
Retained Earnings						226		156
Accumulated other comprehensive income		20		5		3		5
Less common stock held in treasury, at cost (11,522,370 shares at June 30, 2018 and 11,521,184 shares at December 31, 2017)		(267)		(267)
Less common stock held in treasury, at cost (11,558,730 shares at March 31, 2019 and 11,552,370 shares at December 31, 2018)						(269)		(267)
Total Stockholders' Equity		1,347		1,167		2,280		2,204
Total Liabilities and Stockholders' Equity	$	5,530	$	5,646	$	4,769	$	5,023

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements



							Retained		Accumulated
					Additional		Earnings		Other
			Common		Paid-in		(Accumulated		Comprehensive		Treasury				Total
	Shares		Stock		Capital		Deficit)		Income		Shares		Amount		Equity
Balance December 31, 2017		147	$	2	$	2,321	$	(895)	$	5		(12)	$	(267)	$	1,167
Net income		—		—		—		40		—		—		—		40
Other comprehensive income, net of tax		—		—		—		—		10		—		—		10
Total comprehensive income		—		—		—		40		10		—		—		50
Cumulative effect of accounting changes		—		—		—		14		2		—		—		16
Exercise of stock options		—		—		2		—		—		—		—		2
Stock-based employee compensation		—		—		4		—		—		—		—		4
Balance March 31, 2018		147	$	2	$	2,328	$	(841)	$	17		(12)	$	(267)	$	1,239

Balance December 31, 2018		147	$	2	$	2,309	$	156	$	5		(12)	$	(267)	$	2,204
Net income		—		—		—		70		—		—		—		70
Other comprehensive loss, net of tax		—		—		—		—		(2)		—		—		(2)
Total comprehensive income (loss)		—		—		—		70		(2)		—		—		68
Exercise of stock options		—		—		5		—		—		—		—		5
Stock-based employee compensation		—		—		4		—		—		—		—		4
Repurchase of common stock		—		—		—		—		—		—		(2)		(2)
Balance March 31, 2019		148	$	2	$	2,318	$	226	$	3		(12)	$	(269)	$	2,280

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements



	Six Months Ended				Three Months Ended
	June 30,				March 31,
	2018		2017		2019		2018
Cash and Cash Equivalents and Restricted Cash at Beginning of Period	$	563	$	386	$	313	$	563
Cash Flows from Operating Activities from Continuing Operations:
Net Income		136		124		70		40
Adjustments to reconcile net income to net cash provided from operating activities:
Gain from discontinued operations, net of income taxes		—		(1)		—		(23)
Depreciation expense		40		37		19		17
Amortization expense		12		14		6		3
Amortization of debt issuance costs		3		3		1		1
Amortization of lease right-of-use assets						5		—
Fumigation related matters		—		2		1		—
Payments on fumigation related matters		—		(1)		(1)		—
Impairment of software and other related costs		—		2
Realized (gain) on investment in frontdoor, inc.						(40)		—
Loss on extinguishment of debt		—		3		6		—
Deferred income tax (benefit) provision		10		(2)
Deferred income tax provision						3		2
Stock-based compensation expense		8		9		4		4
Gain on sale of marketable securities						(1)		—
Restructuring charges		12		3		7		12
Payments for restructuring charges		(8)		(3)		(5)		(4)
American Home Shield spin-off charges		15		—
Payments for American Home Shield spin-off charges		(7)		—
Other		(4)		7		13		9
Change in working capital, net of acquisitions:
Receivables		(6)		(24)		8		14
Inventories and other current assets		(24)		(13)		(2)		(10)
Accounts payable		37		18		6		9
Deferred revenue		12		28		5		5
Accrued liabilities		21		18		(24)		(11)
Accrued interest payable		(2)		(1)		6		3
Current income taxes		22		37		4		12
Net Cash Provided from Operating Activities from Continuing Operations		279		260		90		84
Cash Flows from Investing Activities from Continuing Operations:
Property additions		(49)		(34)		(9)		(20)
Government grant fundings for property additions		7		—		—		1
Sale of equipment and other assets		1		1
Business acquisitions, net of cash acquired		(149)		(12)		(100)		(92)
Purchases of available-for-sale securities		(9)		(7)
Sales and maturities of available-for-sale securities		10		2		3		—
Origination of notes receivable		(54)		(54)		(25)		(23)
Collections on notes receivable		49		50		42		24
Other investments		—		(1)
Net Cash Used for Investing Activities from Continuing Operations		(194)		(56)		(89)		(110)
Cash Flows from Financing Activities from Continuing Operations:
Borrowings of debt						600		—
Payments of debt		(116)		(46)		(572)		(95)
Repurchase of common stock		—		(85)		(2)		—
Issuance of common stock		6		7		5		2
Net Cash Used for Financing Activities from Continuing Operations		(110)		(124)
Net Cash Provided from (Used for) Financing Activities from Continuing Operations						31		(93)
Cash Flows from Discontinued Operations:
Cash provided from operating activities		—		1
Net Cash Provided from Discontinued Operations		—		1
Cash (Decrease) Increase During the Period		(25)		81
Cash (used for) provided from operating activities						(1)		58
Cash used for investing activities						—		(3)
Net Cash (Used for) Provided from Discontinued Operations						(1)		55
Cash Increase (Decrease) During the Period						31		(64)
Cash and Cash Equivalents and Restricted Cash at End of Period	$	538	$	467	$	344	$	500

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

ServiceMaster Global Holdings, Inc. and its majority-owned subsidiary partnerships, limited liability companies and corporations (collectively, “ServiceMaster,” the “Company,” “we,” ~~“us,~~“us” and “our”) is a leading provider of essential services to residential and commercial ~~services. The Company’s services include~~customers in the termite, ~~and~~ pest control, ~~home service plans, disaster~~cleaning and restoration ~~janitorial, residential cleaning, cabinet and wood furniture repair and home inspection. The Company provides these services~~markets, operating through an extensive service network of ~~company-owned, franchised~~more than 8,000 company‑owned locations and ~~licensed locations operating primarily under~~franchise and license agreements. Our mission is to simplify and improve the ~~following leading brands: Terminix, American Home Shield,~~quality of our customers’ lives by delivering services that help them protect and maintain their homes or businesses, typically their most highly valued assets. Our portfolio of well‑recognized brands includes AmeriSpec (home inspections), Copesan (commercial national accounts pest management), Furniture Medic (cabinet and furniture repair), Merry Maids (residential cleaning), ServiceMaster Clean (commercial cleaning), ServiceMaster Restore ~~ServiceMaster Clean, Merry Maids, Furniture Medic~~(restoration), Terminix (residential termite and ~~AmeriSpec.~~pest control) and Terminix Commercial (commercial termite and pest control). All consolidated Company subsidiaries are wholly-owned. Intercompany transactions and balances have been eliminated.

The unaudited condensed consolidated financial statements have been prepared by ~~the Company~~us in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). ~~The Company recommends~~We recommend that the quarterly unaudited condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, as filed with the SEC (the ~~“2017~~“2018 Form 10-K”). The unaudited condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results that might be achieved for aany other interim period or for the full year.

On ~~July 26, 2017,~~October 1, 2018, we completed the ~~Company announced that it intends to separate its~~spin-off of our American Home Shield ~~business from its Terminix and Franchise Services Group businesses by means~~business. The separation was effectuated through a pro rata dividend (the “Distribution”) to our stockholders of ~~a spin-off~~approximately 80.2% of the outstanding shares of common stock of frontdoor, inc. (“Frontdoor”), which was formed as a wholly owned subsidiary to hold our American Home Shield business. The Distribution was made to our stockholders of record as of the close of business on September 14, 2018 (the “Record Date”), and such stockholders received one share of Frontdoor common stock for every two shares of ServiceMaster common stock held as of the close of business on the Record Date.

In March 2019, we exchanged all of the 19.8% of the outstanding shares of common stock of Frontdoor we retained for certain of our outstanding indebtedness, which obligations were subsequently cancelled and discharged upon delivery to ~~Company stockholders, resulting~~us. See Note 12 for further discussion regarding this transaction.

The American Home Shield Segment is reported in two publicly traded companies. The spin-off is designed to create two independent companies, each with an enhanced strategic focus, simplified operating structure, distinct investment identity and strong financial profile. The transaction is expected to be completed late in the third quarter of 2018, subject to satisfaction of customary conditions, including the effectiveness of a Registration Statementthis Quarterly Report on Form 10 and final approval by the Company’s board of directors. The Company has received a favorable private letter ruling from the IRS regarding the tax-free treatment of the distribution to the Company’s stockholders.10-Q in discontinued operations.

~~The Company’s~~Our significant accounting policies are described in Note 2 to the audited consolidated financial statements included in ~~the Company’s 2017~~our 2018 Form 10-K. There have been no material changes to the significant accounting policies for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, other than those described below.

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2014-09, “Revenue from Contracts with Customers,~~2016-02, “Leases (Topic 842)” ~~to provide a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. On January 1, 2018, the Company adopted~~(codified within FASB Accounting Standards Codification (“ASC”) 606 using the modified retrospective method to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605, “~~Revenue Recognition~~.” The Company implemented internal controls and system functionality where necessary to enable the preparation of financial information on adoption. See Note 3 to the condensed consolidated financial statements for more details.

~~In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities~~” to change how entities measure certain equity investments, to require the disclosure of changes in the fair value of financial liabilities measured under the fair value option that are attributable to a company’s own credit, and to change certain other disclosure requirements. The changes in ASU 2016-01 specifically require that the changes in fair value of all investments in equity securities be recognized in net income. ~~In March 2018, the FASB issued an amendment to this standard (ASU 2018-03), which provides further clarification regarding this standard.~~ The Company adopted this ASU on January 1, 2018. As a result of the adoption, less than $1 million of gains and less than $1 million of losses related to the Company’s equity investments were recognized in Net income for the three and six months ended June 30, 2018, respectively, and approximately $2 million was reclassified from Accumulated other comprehensive income (“AOCI”) to Accumulated deficit related to unrealized gains on available-for-sale equity securities upon adoption. Additionally, the Company holds minority interests in several strategic investments which do not have readily determinable fair values. The carrying amount of these investments at June 30, 2018 is approximately $4 million. These investments are recorded at cost and will be remeasured upon the occurrence of observable price changes or impairments. No adjustments to the carrying amount were made during the period.

~~In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The ASU clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted~~

for as acquisitions (or disposals) of assets or businesses by providing a screen to determine when an integrated set of assets or activities is not a business. The Company adopted this ASU on January 1, 2018. The consolidated financial statements may be impacted if an acquisition does not qualify as a business combination under the ASU. Such acquisitions would be accounted for as asset purchases.

~~In May 2017, the FASB issued ASU 2017-09, “Stock Compensation – Scope of Modification Accounting~~.” The ASU clarifies the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. The Company adopted this ASU on January 1, 2018 and will apply the guidance prospectively to awards modified on or after the adoption date.

~~In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~” allowing a reclassification from AOCI to Retained Earnings for stranded tax effects resulting from the corporate income tax rate change in the Tax Cuts and Jobs Act (the “Act” or “U.S. Tax Reform”). It is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. As allowed by the ASU, the Company elected to early adopt the amendments of this ASU on January 1, 2018 and reclassified approximately $4 million of unrealized losses from AOCI to Accumulated deficit.

~~Following are the results of the adoption of these standards on the Company’s consolidated statements of stockholders’ equity previously reported:~~

~~In February 2016, the FASB issued ASU 2016-02, “Leases (Topic~~ 842)” which is the final standard on accounting for leases. In July 2018, the FASB issued ASU 2018-10 and ASU 2018-11, which amend ASU 2016-02 to provide companies an alternative transition method whereby it may elect to recognize and measure leases by applying the cumulative impact of adopting ASU 2016-02 to the opening retained earnings balance in the period of adoption, thereby removing the requirement that the financial statements of prior periods be restated. We utilized this alternative transition method. While both lessees and lessors are affected by the new guidance, the effects on lessees are much more significant. The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases. Entities are required to use a modified retrospective approach to adopt the guidance. The amendments in this ASU ~~2016-02~~ are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. To date, the Company has performed the following: A transition team has been established to implement the required changes; the Company has substantially completed its inventory of all leases; an initial assessment of the Company’s leases and embedded leases is underway; and the Company has begun the process of implementing new controls to assist in the measurement of right-of-use assets and lease liabilities and related disclosures. The Company plans to adoptWe adopted the new lease ~~standard in~~guidance effective January 1, 2019, and elected the ~~first quarter~~available practical expedients upon adoption. See Note 13 for further discussion of ~~2019.~~ our lease assets and liabilities.

The ~~Company expects~~impacts of the adoption ~~will increase the amount~~ of ~~total assets and total liabilities that is reported relative to such amounts prior to adoption and is currently evaluating the impact of adoption~~this ASU on ~~its~~our condensed consolidated statements of ~~operations and comprehensive income.~~financial position are as follows:


	As previously reported,		Impact of adopting
(In millions)	December 31, 2018		ASC 842		January 1, 2019
Operating lease right-of-use assets	$	—	$	107	$	107
Finance lease assets, within Property and equipment, net		89		—		89
Total right-of-use assets	$	89	$	107	$	195
Other assets		87		—		86
Total assets	$	5,023	$	106	$	5,129

Current portion of long-term lease liability	$	—	$	15	$	15
Long-term lease liability		—		120		120
Current finance lease liability, within Current portion of long-term debt		31		—		31
Long-term finance lease liability, within Long-term debt		60		—		60
Total lease liabilities	$	90	$	135	$	225
Accrued liabilities, Other		61		(1)		60
Other long-term obligations, primarily self-insured claims		182		(28)		155
Total liabilities	$	2,818	$	106	$	2,925

In August 2017, the FASB issued ASU 2017-12, ~~“Der~~“~~ivatives~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The ASU simplifies certain aspects of hedge accounting and improves disclosures of hedging arrangements through the elimination of the requirement to separately measure and report hedge ineffectiveness. The ASU generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item in order to align financial reporting of hedging relationships with economic results. Entities must apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements must be applied prospectively. ~~The Company is currently evaluating~~We adopted this ASU on January 1, 2019, and it did not have a significant impact on our financial condition or the ~~impact~~results of the adoption of ASU 2017-12, including transition elections and required disclosures, on the Company’s consolidated financial statements and plans to adopt the new standard in the first quarter of 2019.our operations.

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements.” This ASU does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. Certain updates are applicable immediately while others provide for a transition period to adopt as part of the next fiscal year beginning after December 15, 2018. We adopted this ASU on January 1, 2019, and it did not have a significant impact on our financial condition or the results of our operations.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangements plus any optional renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The ~~Company~~amendments in ASU 2018-15 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We early adopted this ASU on January 1, 2019, resulting in the capitalization of certain development costs, primarily related to our implementation of Salesforce to replace legacy operating systems.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018, with relief provided for filings made shortly after the final rule’s effective date in SEC Question 105.09 of the Exchange Act Forms C&DIs. We adopted this final rule on November 5, 2018, and modified our disclosures as necessary, which included the presentation of a condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2019 and 2018.

In October 2018, the FASB issued ASU No. 2018-16, “Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes,” which amends ASC 815, Derivatives and Hedging. This ASU adds the OIS rate based on SOFR to the list of permissible benchmark rates for hedge accounting purposes. We adopted the ASU on January 1, 2019, and it did not have a significant impact on our financial condition or the results of our operations.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions and reasonable and supportable forecasts. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as the credit quality. The amendments in ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments —Credit Losses.” This ASU does not change the core principle of the guidance in ASU 2016-13; instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses standard. This ASU will have the same effective date and transition requirements as ASU 2016-13. We are currently evaluating ~~this guidance to determine~~ the impact ~~it may~~the adoption of ASU 2016-13 and ASU 2018-19 will have on ~~its~~our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement.”This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The ~~Company has~~amendments in ASU 2018-13 will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for the removed disclosures and delayed adoption is permitted until fiscal 2021 for the new disclosures. We are currently evaluating the disclosure changes necessary to our consolidated financial statements.

We have reviewed all other recently issued, but not yet effective, accounting pronouncements and ~~does~~do not expect the future adoption of any such pronouncements will have a material impact on ~~its~~our financial condition or the results of ~~its~~our operations.

Effective January 1, 2018, we adopted ASC 606, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.

The following table presents ~~the Company’s~~our reportable segment revenues, disaggregated by revenue source. TWe~~he Company disaggregates~~ disaggregate revenue from contracts with customers into major product lines. ~~The Company has~~We have determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. As noted in the business segment reporting information in Note ~~15, the Company’s~~16, our reportable segments are Terminix ~~American Home Shield~~ and ~~Franchise Services Group.~~ServiceMaster Brands.


	Terminix				American Home Shield				Franchise Services Group				Total				Terminix				ServiceMaster Brands				Total
	Three months ended June 30,				Three months ended June 30,				Three months ended June 30,				Three months ended June 30,				Three months ended March 31,				Three months ended March 31,				Three months ended March 31,
(In millions)		2018		2017		2018		2017		2018		2017		2018		2017		2019		2018		2019		2018		2019		2018
Major service line
Pest Control	$	254	$	229	$	—	$	—	$	—	$	—	$	254	$	229
Termite and Other Services		178		177		—		—		—		—		178		177
Home Service Plans		—		—		355		326		—		—		355		326
Residential Pest Control																	$	158	$	140	$	—	$	—	$	158	$	140
Commercial Pest Control																		89		62		—		—		89		62
Termite and Home Services																		156		151		—		—		156		151
Royalty Fees		—		—		—		—		35		32		35		32		—		—		34		33		34		33
Janitorial National Accounts		—		—		—		—		16		12		16		12
Commercial Cleaning National Accounts																		—		—		17		15		17		15
Sales of Products and Other		24		23		—		—		12		8		36		31		16		15		11		12		27		27
Corporate		—		—		—		—		—		—		—		1
Total	$	456	$	428	$	355	$	326	$	64	$	52	$	874	$	807	$	419	$	368	$	62	$	60	$	482	$	428

	Terminix				American Home Shield				Franchise Services Group				Total
	Six months ended June 30,				Six months ended June 30,				Six months ended June 30,				Six months ended June 30,
(In millions)		2018		2017		2018		2017		2018		2017		2018		2017
Major service line
Pest Control	$	456	$	430	$	—	$	—	$	—	$	—	$	456	$	430
Termite and Other Services		328		326		—		—		—		—		328		326
Home Service Plans		—		—		602		553		—		—		602		553
Royalty Fees		—		—		—		—		68		63		68		63
Janitorial National Accounts		—		—		—		—		31		23		31		23
Sales of Products and Other		39		37		—		—		24		16		63		53
Corporate		—		—		—		—		—		—		1		1
Total	$	823	$	794	$	602	$	553	$	123	$	102	$	1,549	$	1,450

At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or a bundle of goods and services) that is distinct. To identify the performance obligation, the Company considers all of the goods and services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.

~~Pest control services can be for one-time or recurring services.~~ Revenues from pest control services are recognized at the agreed-upon contractual amount over time as the services are provided, most of which are started and completed within one day, as the customer simultaneously receives and consumes the benefits of the services as they are performed. Upon completion of service, a receivable is recorded related to this revenue as the Company has an unconditional right to invoice and receive payment. Payments are typically received shortly after services have been rendered.

The Company eradicates termites through the use of baiting systems and non-baiting methods (e.g., fumigation or liquid treatments). Termite services using liquid and baiting systems are sold through annual renewable contracts. The Company also performs other termite and other related services, including wildlife exclusion, crawl space encapsulation and attic insulation, which may be one-time or renewable services. Revenue for termite services are recognized at the agreed-upon contractual amount upon the completion of the service. All termite services are generally started and completed within one day. ~~Upon completion of the service,~~ ~~a receivable is recorded related to this revenue as the Company has an unconditional right to invoice and receive payment. Payments are typically received shortly after services have been rendered.~~

Most termite services can be renewed after the initial year. Revenue on renewal contracts is recognized upon completion of an annual inspection and receipt of payment from the customer which evidences the extension of the contract into a renewal period. Advanced r~~enewal payments generate a contract liability and are deferred until the related renewal period.~~

Termite inspection and protection contracts are frequently sold through annual contracts. For these contracts, the Company has a stand ready obligation of which the customer receives and consumes the benefits over the annual period. Associated service costs are expensed as incurred. The Company measures progress toward satisfaction of its stand ready obligation over time using costs incurred as the measure of progress under the input method, which results in straight-line recognition of revenue. Payments are received at the commencement of the contract, which generates a contract liability, or in installments over the contract period.

Product revenues are generated from selling products to distributors and franchisees. Revenues from product sales are generally recognized once control of the products transfers to the customer. A receivable is recorded related to these sales as the Company has an unconditional right to invoice and receive payment. Payments are typically received shortly after a customer is invoiced.

Home service plan contracts are sold through annual renewable contracts and customer payments are received at the commencement of the contract or in installments over the contract period, which generates a contract liability. The Company recognizes revenue related to these contracts at the agreed-upon contractual amount over time using the input method in proportion to the costs expected to be incurred in performing services under the contracts. As the costs to fulfill the obligations of the service plan contracts are incurred on an other than straight-line basis, the Company utilizes historical evidence to estimate the expected claims expense and related timing of such costs. This adjustment to the straight-line revenue creates a contract asset or contract liability. The Company regularly reviews its estimates of claims costs and adjusts the estimates when appropriate.

The Company has franchise agreements in its ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic and AmeriSpec businesses. Royalty fee revenue consists principally of sales-based royalties received as part of the consideration for the franchise right and is calculated as a percentage of customer level revenue. Revenue is recognized by the Company at the agreed-upon contractual rates over time as the customer level revenue is generated by the franchisees. A receivable is recognized for an estimate of the unreported royalty fees, which are reported and remitted to the Company in arrears.

National account revenues are recognized at the agreed-upon contractual amounts over time as services are completed based on contractual arrangements to provide services at the customers’ locations. The Company engages either a franchisee or non-franchisee business to perform the services. Under these agreements, the Company is directly responsible for providing the services and receives payment directly from the customer. A receivable is recorded related to this revenue as the Company has an unconditional right to invoice and receive payment. Payments are typically received shortly after services have been rendered.

Product revenues are generated from selling products to franchisees. Revenues from product sales are generally recognized once control of the products transfers to the customer. A receivable is recorded related to these sales as the Company has an unconditional right to invoice and receive payment. Payments are typically received shortly after a customer is invoiced.

Initial franchise fees result from the sale of a franchise license, which includes the use of the name, trademarks and proprietary methods. The franchise license is considered symbolic intellectual property and revenue related to the sale of this right is recognized at the agreed-upon contractual amount over the term of the initial franchise agreement.

Franchisees contribute a percentage of customer level revenue into a national advertising fund managed by the Company. In cases where the Company has ultimate control of the marketing and advertising, the Company recognizes both revenue and expense for the amount earned. Prior to the adoption of ASC 606, this revenue was recorded net of the ~~advertising expense incurred.~~ ~~The impact to revenues as a result of applying ASC 606 was an increase of $4 million and $7 million for the three and six months ended June 30, 2018, respectively.~~

In addition, the Company has contractual arrangements with several national insurance companies to maintain a call center which receives and provides non-recurring disaster recovery and restoration referrals from the insurers to qualifying franchisees. The Company receives a referral fee from the franchisee. The Company recognizes the referral fee at the agreed-upon contractual amount as revenue in the month the referral is issued.

The Company capitalizes the incremental costs of obtaining a contract with a customer, primarily commissions, and recognizes the expense on a straight-line basis over the expected customer relationship period. As of January 1, 2018, the date the Company adopted ASC 606, the Company capitalized a total of $61 million at Terminix and $21 million at American Home Shield in deferred customer acquisition costs related to contracts that were not completed. As of June 30, 2018, the Company had capitalized a total of $71 million at Terminix and $21 million at American Home Shield in deferred customer acquisition costs related to contracts that were not completed. In the three and six months ended June 30, 2018, the amount of amortization was $16 million and $32 million, respectively, at Terminix and $6 million and $11 million, respectively, at American Home Shield. There was no impairment loss in relation to costs capitalized.

The Company capitalizes the incremental costs of selling a new franchise license, primarily commissions, and recognizes the expense over the term of the initial franchise agreement. As of January 1, 2018, the date the Company adopted ASC 606, the Company capitalized a total of $1 million in deferred customer acquisition costs related to contracts that were not completed. As of June 30, 2018, the Company had capitalized a total of $1 million in deferred customer acquisition costs related to contracts that were not completed. In the three and six months ended June 30, 2018, the amount of amortization was less than $1 million. There was no impairment loss in relation to costs capitalized.

Timing of revenue recognition may differ from the timing of invoicing to customers. Contracts with customers are generally for a period of one year or less and are generally renewable. ~~The Company records~~We record a receivable related to revenue recognized on services once ~~the Company has~~we have an unconditional right to invoice and receive payment in the future related to the services provided. All accounts receivables are recorded within Receivables, less allowances, on the condensed consolidated statements of financial position. The current portion of Notes receivable, which ~~represent~~represents amounts financed for customers through ~~the Company’s~~our financing subsidiary, are included within Receivables, less allowances, on the condensed consolidated statement of financial position and totaled ~~$45~~$40 million and $42 million as of ~~June 30, 2018.~~March 31, 2019 and December 31, 2018, respectively.

Deferred revenue represents a contract liability and is recognized when cash payments are received in advance of the performance of services, including when the amounts are refundable. For Terminix, amounts are recognized as revenue upon completion of services. ~~For American Home Shield, amounts are recognized as revenue in proportion to the costs expected to be incurred in performing services under the Company’s contracts.~~


	As of		As of		As of		As of
(In millions)	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Terminix	$	97	$	90	$	96	$	91
American Home Shield(1)		188		573
Franchise Services Group(2)		11		—
ServiceMaster Brands(1)						11		11
Total	$	297	$	663	$	107	$	101

Changes in deferred revenue for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 were as follows (in millions):

There was approximately ~~$93 million and $196~~$27 million of revenue recognized in the three ~~and six~~ months ended ~~June 30,~~March 31, 2019, that was included in the deferred revenue balance as of December 31, 2018. There was approximately $29 million of revenue recognized in the three months ended March 31, 2018, that was included in the deferred revenue balance as of January 1, ~~2018.~~

~~The Company’s contracts with customers may include multiple performance obligations. For such arrangements,~~2018, the date we ~~allocate revenue to each performance obligation based on its relative standalone selling price. Any discounts given are allocated to the services to which the discounts relate.~~

The Company offers certain interest-free contracts to customers where payments are received over a period not exceeding one year. Additionally, certain Terminix customers may pay in advance for services and American Home Shield customers have the option to pay for an annual home service plan in advance. The Company does not adjust the promised amount of consideration for the effects of these financing components. At contract inception, the period of time between the performance of services and the customer payment is one year or less.

~~Revenue is recognized net of any taxes collected from customers which are subsequently remitted to taxing authorities.~~

~~The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.~~

Certain non-commission related incremental costs to obtain a contract with a customer are expensed as incurred because the amortization period would have been one year or less. These costs are included in Selling and administrative expenses on the condensed consolidated statements of operations and comprehensive income.

The Company utilizes the portfolio approach to recognize revenue in situations where a portfolio of contracts have similar characteristics. The revenue recognized under the portfolio approach is not materially different than if every individual contract in the portfolio was accounted for separately.

~~Impact of~~adopted ASC ~~606 on the Condensed Consolidated Financial Statements~~606.

The Company recorded a net reduction to opening retained earnings of $16 million, net of tax, as of January 1, 2018 due to the cumulative impact of adopting ASC 606. Changes to the condensed consolidated statements of operations and comprehensive income include: i) costs of obtaining a contract that would have been incurred regardless of whether the contract was obtained, such as direct mail and digital advertising, are now expensed as incurred; ii) initial fees and the related commissions from sales of franchise licenses, previously recognized in the year of the sale, are now recognized over the term of the initial franchise agreement; iii) Franchise Services Group national advertising fund income, previously recorded net of advertising expense incurred for the Company’s advertising programs, will now be reported gross, generally with offsetting increases to both revenue and expense such that there will not be a significant, if any, impact on net income; and iv) commissions costs at Terminix and American Home Shield incremental to a successful sale are deferred and recognized over the expected customer relationship period. Previously, commissions and other sales-related costs were deferred and recognized over the initial contract period.

Changes to the condensed consolidated statements of financial position include: i) the reclassification of Receivables to contract assets which are presented net of contract liabilities within Deferred revenue and ii) the reclassification of Deferred customer acquisition costs to long-term assets as costs are recognized ~~over the expected customer relationship period~~, which is in excess of one year. Previously, when a customer elected to pay for their home service plan contract on a monthly basis, Receivables and Deferred revenue were recorded based on the total amount due from the customer. Receivables were reduced as amounts were paid, and the Deferred revenue was amortized over the life of the contract. Currently, only the portion of the contract that is due in the current month will be recorded within Receivables.

The following tables compare affected lines of the condensed consolidated financial statements as prepared under the provisions of ASC 606 to a presentation of these financial statements under the prior revenue recognition guidance (in millions):

As of June 30, 2018
Condensed Consolidated Statement of Financial Position

As reported

Under Prior Revenue Recognition Guidance
Current Assets:

Receivables

$
202

$
612
Prepaid expenses and other assets

92

104
Deferred customer acquisition costs

—

41
Other Assets:

Deferred customer acquisition costs

94

—
Total Assets

$
5,530

$
5,901

Current Liabilities:

Deferred revenue

$
290

$
696
Other Long-Term Liabilities:

Deferred taxes

529

521
Other long-term obligations, primarily self-insured claims

188

181
Total Liabilities

4,184

4,575

Accumulated deficit

(745)

(761)
Accumulated other comprehensive income

20

20
Net Income

136

132
Liabilities and Equity

$
5,530

$
5,901

The adoption of ASC 606 had no significant impact on the Company’s cash flows. The aforementioned impacts resulted in offsetting shifts in cash flows from operations between net income and various change in working capital line items.

~~The Company~~We incurred restructuring charges of ~~less than $1~~$7 million ~~(less than $1~~($5 million, net of tax) and $1$12 million ($19 million, net of tax) in the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $12 million ($10 million, net of tax) and $3 million ($2 million, net of tax) in the six months ended June 30, 2018 and 2017, respectively~~respectively. Restructuring charges were comprised of the following:



	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions)	2018		2017		2018		2017		2019		2018
Terminix(1)	$	(1)	$	—	$	2	$	1	$	2	$	2
Corporate(2)		—		—		3		—
Leadership transition(3)		—		—		—		1
ServiceMaster Brands(2)										1		—
Corporate(3)										4		3
Global Service Center relocation(4)		1		1		7		1		—		7
Total restructuring charges	$	—	$	1	$	12	$	3	$	7	$	12

The pretax charges discussed above are reported in Restructuring charges in the unaudited condensed consolidated statements of operations and comprehensive income. ~~Certain restructuring comparative figures in the condensed consolidated statements~~

A reconciliation of the beginning and ending balances of accrued restructuring charges, which are included in Accrued liabilities—Other on the unaudited condensed consolidated statements of financial position, is presented as follows:

We expect substantially all of our accrued restructuring charges to be paid by December 31, 2019.

On October 1, 2018, we completed the spin-off of our American Home Shield business. The separation was effectuated through a Distribution to our stockholders of approximately 80.2% of the outstanding shares of common stock of Frontdoor, which was formed as a wholly owned subsidiary to hold our American Home Shield business. The Distribution was made to our stockholders of record as of the close of business on September 14, 2018, and such stockholders received one share of Frontdoor common stock for every two shares of ServiceMaster common stock held as of the close of business on the Record Date.

In March 2019, we exchanged all of the 19.8% of the outstanding shares of common stock of Frontdoor we retained for certain of our outstanding indebtedness, which obligations were subsequently cancelled and discharged upon delivery to us. See Note 12 for further discussion regarding this transaction.

The American Home Shield Segment is reported in this Quarterly Report on Form 10-Q in discontinued operations.

In connection with the American Home Shield spin-off, the Company and Frontdoor entered into (1) a separation and distribution agreement containing key provisions relating to the separation of Frontdoor effectuated through the Distribution, as well as insurance coverage, non-competition, indemnification and other matters, (2) an employee matters agreement allocating liabilities and responsibilities relating to employee benefit plans and programs and other related matters and (3) a tax matters agreement governing the respective rights, responsibilities and obligations of the parties thereto with respect to taxes, including allocating liabilities for income taxes attributable to Frontdoor and its subsidiaries generally to the Company for tax periods (or portions thereof) ending on or before October 1, 2018, and generally to Frontdoor for tax periods (or portions thereof) beginning after that date.

The charges for the transition services are designed to allow us to fully recover the direct costs of providing the services, plus specified margins and any out-of-pocket costs and expenses. The services provided under the transition services agreement will terminate at various specified times, and in no event later than December 31, 2019. Frontdoor may terminate the transition services agreement (or certain services under the transition services agreement) for convenience upon 90 days written notice, in which case Frontdoor will be required to reimburse us for early termination costs. Under this transition services agreement, in the three months ended March 31, 2019, we recorded approximately $1 million of fees from Frontdoor, which is included, net of costs incurred, in Selling and administrative expenses in the condensed consolidated statements of operations and comprehensive income. Payments received during the three months ended March 31, 2019 totaled approximately $1 million.

The Company and Frontdoor also entered into a sublease agreement for the space Frontdoor retained in our Global Service Center and Memphis customer care center after the spin-off. We recognized approximately $1 million of rental income and $3 million of other cost reimbursements related to these sublease agreements during the three months ended March 31, 2019, recorded as a reduction of Selling and administrative expenses on the condensed consolidated statements of operations and comprehensive income. Payments received under the sublease agreements during the three months ended March 31, 2019 totaled approximately $2 million.

The historical results of the American Home Shield business, including the results of operations, cash flows and related assets and liabilities, are reported as discontinued operations for all periods presented herein.

Gain from discontinued operations, net of income taxes, for all periods presented includes the operating results of Frontdoor and previously sold businesses.

The following selected financial information of American Home Shield is included in the statements of cash flows:

~~The company expects substantially all of its accrued restructuring charges to be paid by December 31, 2019.~~

The Company’s financial statements include nonrecurring costs incurred to evaluate, plan and execute the spin-off of the American Home Shield business to Company stockholders. These costs are primarily related to third-party consulting and other incremental costs directly associated with the spin-off process. At December 31, 2017, the Company had $1 million of American Home Shield spin-off charges accrued, and $2 million of prepaid spin-off charges which were recognized during the six months ended June 30, 2018. The Company’s results for the three and six months ended June 30, 2018 include American Home Shield spin-off charges of $8 million ($6 million, net of tax) and $15 million ($12 million, net of tax), respectively. Of this amount, $7 million was unpaid and accrued at June 30, 2018 in Accrued liabilities – Other and Accounts payable on the condensed consolidated statements of financial position. The Company expects substantially all of the American Home Shield spin-off charges to be paid within one year.

The Company expects to incur aggregate charges related to the spin-off of $35 million to $45 million in 2018. In addition, incremental capital expenditures will be required to effect the spin-off in 2018 and will range from $20 million to $30 million, principally reflecting costs to replicate information technology systems historically shared by the Company’s business units.

~~The Company carries~~We carry insurance policies on insurable risks at levels that ~~it believes~~we believe to be appropriate, including workers’ compensation, automobile and general liability risks. ~~The Company purchases~~We purchase insurance policies from third-party insurance carriers, which typically incorporate significant deductibles or self-insured retentions. ~~The Company is~~We are responsible for all claims that fall below the retention limits, exceed our coverage limits or are otherwise not covered by our insurance policies. In determining ~~the Company’s~~our accrual for self-insured claims, ~~the Company uses~~we use historical claims experience to establish both the current year accrual and the underlying provision for future losses. This actuarially determined provision and related accrual include known claims, as well as incurred but not reported claims. ~~The Company adjusts its~~We adjust our estimate of accrued self-insured claims when required to reflect changes based on factors such as changes in health care costs, accident frequency and claim severity.

In the normal course of business, we periodically enter into agreements that incorporate indemnification provisions. While the maximum amount to which we may be exposed under such agreements cannot be estimated, we do not expect these guarantees and indemnifications to have a material effect on our business, financial condition, results of operations or cash flows.

A reconciliation of beginning and ending accrued self-insured claims, which are included in Accrued liabilities—Self-insured claims and related expenses and Other long-term obligations, primarily self-insured claims on the condensed consolidated statements of financial position, net of insurance recoverables, which are included in Prepaid expenses and other assets and Other assets on the condensed consolidated statements of financial position, is presented as follows:

The Company also accrues for home service plan claims and termite damage claims in Accrued liabilities-Self-insured claims and related expenses. Accruals for home service plan claims in the American Home Shield business are made based on the Company’s claims experience and actuarial projections. The Company’s actuary performs a reserve analysis utilizing generally accepted actuarial methods that incorporates cumulative historical claims experience and information provided by the Company. The Company regularly reviews its estimates of claims costs and adjust the estimates when appropriate. Reserves are established based on the ultimate cost to settle claims. Home service plan claims take about three months to settle, on average, and substantially all claims are settled within six months. The amount of time required to settle a claim can vary based on a number of factors, including whether a replacement is ultimately required. During the quarter ended June 30, 2018, the Company revised its previous estimate of contract claims and increased contract claims accruals by $12 million. Termite damage claim accruals in the Terminix business are recorded based on both the historical rates of claims incurred within a contract year and the cost per claim. Current activity could differ causing a change in estimates.

We have certain liabilities with respect to existing or potential claims, lawsuits and other proceedings. ~~The Company accrues~~We accrue for these liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified.

administrative or regulatory proceedings resulting from or related to the U.S. Virgin Islands fumigation matter, which could be material, is not currently known, and any such further penalties, fines, sanctions, costs or damages would not be covered under ~~the Company’s~~our general liability insurance policies.

In addition to the matter discussed above, in the ordinary course of conducting business activities, ~~the Company~~we and ~~its~~our subsidiaries become involved in judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. These proceedings include insured and uninsured matters that are brought on an individual, collective, representative and class action basis, or other proceedings involving regulatory, employment, general and commercial liability, automobile liability, wage and hour, environmental and other matters. ~~The Company has~~We have entered into settlement agreements in certain cases, including with respect to putative collective and class actions, which are subject to court or other ~~approvals.~~approvals, and which require compliance with the terms of the agreements. If one or more of ~~the Company’s~~our settlements are not finally approved ~~the Company~~and implemented, we could have additional or different exposure, which could be material. Subject to the paragraphs above, ~~the Company does~~we do not expect any of these proceedings to have a material effect on ~~its~~our reputation, business, financial position, results of operations or cash flows; however, ~~the Company~~we can give no assurance that the results of any such proceedings will not materially affect our reputation, business, financial position, results of operations and cash flows.

Goodwill and indefinite-lived intangible assets, primarily trade names, are not amortized and are subject to assessment for impairment by applying a fair-value based test on an annual basis or more frequently if circumstances indicate a potential impairment. ~~The Company’s~~Our annual assessment date is October 1. There were no ~~goodwill or trade name~~ impairment charges recorded in the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018. There were no accumulated impairment losses recorded as of ~~June 30, 2018.~~March 31, 2019. The table below summarizes the goodwill balances for continuing operations by reportable segment:

American

Franchise

(In millions)

Terminix

Home Shield

Services Group

Total
Balance as of December 31, 2017

$
1,605

$
476

$
176

$
2,256
Acquisitions

142

—

—

142
Impact of foreign exchange rates

(1)

—

—

(1)
Balance as of June 30, 2018

$
1,745

$
476

$
175

$
2,396



			ServiceMaster
(In millions)	Terminix		Brands		Total
Balance as of December 31, 2018	$	1,781	$	175	$	1,956
Acquisitions		80		—		80
Balance as of March 31, 2019	$	1,861	$	175	$	2,037

The table below summarizes the other intangible asset balances for continuing operations:




	As of June 30, 2018						As of December 31, 2017						As of March 31, 2019						As of December 31, 2018
			Accumulated						Accumulated						Accumulated						Accumulated
(In millions)	Gross		Amortization		Net		Gross		Amortization		Net		Gross		Amortization		Net		Gross		Amortization		Net
Trade names(1)	$	1,608	$	—	$	1,608	$	1,608	$	—	$	1,608	$	1,482	$	—	$	1,482	$	1,482	$	—	$	1,482
Customer relationships		634		(562)		72		589		(555)		34		486		(409)		76		469		(406)		64
Franchise agreements		88		(71)		17		88		(70)		18		88		(73)		15		88		(73)		15
Other		100		(53)		47		81		(49)		32		66		(36)		30		62		(35)		27
Total	$	2,430	$	(686)	$	1,743	$	2,366	$	(674)	$	1,692	$	2,122	$	(519)	$	1,603	$	2,101	$	(513)	$	1,588

For the existing intangible assets, ~~the Company anticipates~~we anticipate amortization expense for the remainder of ~~2018~~2019 and each of the next five years of ~~$15 million, $24~~$17 million, $21 million, ~~$17~~$20 million, ~~$14~~$18 million, $15 million and ~~$12~~$9 million, respectively.

For the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, the Company~~we recognized stock-based compensation expense of $4 million ($3 million, net of tax) and $4 million ($2 million, net of tax), respectively. For the six months ended June 30, 2018 and 2017, the Company recognized stock-based compensation expense of $8 million ($6 million, net of tax) and $9 million ($53 million, net of tax), respectively. These charges are recorded within Selling and administrative expenses in the condensed consolidated statements of operations and comprehensive income.

As of ~~June 30, 2018~~March 31, 2019, there was ~~$32~~$38 million of total unrecognized compensation costs related to non-vested stock options, restricted stock units (“RSUs”) and performance ~~shares~~share units granted under the Amended and Restated ServiceMaster Global Holdings, Inc. 2014 Omnibus Incentive Plan (the “Omnibus Incentive Plan”). These remaining costs are expected to be recognized over a weighted-average period of ~~2.41~~2.51 years.

On February 24, 2015, our board of directors approved and recommended for approval by our stockholders the ServiceMaster Global Holdings, Inc. Employee Stock Purchase Plan (“Employee Stock Purchase Plan”), which became effective for offering periods commencing July 1, 2015. The Employee Stock Purchase Plan was intended to qualify for the favorable tax treatment under Section 423 of the Code. Under the plan, eligible employees of the Company may purchase common stock, subject to IRS limits, during pre-specified offering periods at a discount established by the Company not to exceed 10 percent of the then current fair market value. On April 27, 2015, our stockholders approved the Employee Stock Purchase Plan with a maximum of one million shares of common stock authorized for sale under the plan. On November 3, 2015, we filed a registration statement on Form S-8 under the Securities Act to register the one million shares of common stock that may be issued under the Employee Stock Purchase Plan and, as a result, all shares of common stock acquired under the Employee Stock Purchase Plan will be freely tradable under the Securities Act, unless purchased by our affiliates. Our Compensation Committee amended the Employee Stock Purchase Plan in February 2019 to allow for more frequent purchase periods and to change the allowed 10 percent discount to a company match of 10 percent of employee contributions. The authorized number of shares remaining in the Employee Stock Purchase Plan was not changed from 843,584 and the expiration date of the Employee Stock Purchase Plan was not changed from April 27, 2025.

Comprehensive income, which primarily includes net income, ~~(loss),~~ unrealized gain (loss) on derivative instruments and the effect of foreign currency translation gain, is disclosed in the condensed consolidated statements of operations and comprehensive income. Unrealized gains on marketable securities of $3 million ($2 million, net of tax) were included in other comprehensive income prior to ~~the Company’s~~our adoption of ASU 2016-01 on January 1, 2018. Subsequent to the adoption, these unrealized gains have been reclassified to retained earnings. Additionally, stranded tax effects of approximately $4 million resulting from the corporate income tax rate change in U.S. Tax Reform were reclassified upon ~~the Company’s~~our adoption of ASU 2018-02 on January 1, 2018. The income tax effects remaining in ~~AOCI~~Accumulated other comprehensive income will be released into earnings as the related pre-tax amounts are reclassified to earnings.

The following tables summarize the activity in accumulated other comprehensive income, net of the related tax effects.



			Unrealized								Unrealized
			Gains (Losses)						Unrealized		Gains (Losses)
	Unrealized		on Available		Foreign				Gains		on Available		Foreign
	Gains (Losses)		-for-Sale		Currency				(Losses) on		-for-Sale		Currency
(In millions)	on Derivatives		Securities		Translation		Total		Derivatives		Securities		Translation		Total
Balance as of December 31, 2018									$	20	$	—	$	(15)	$	5
Other comprehensive income before reclassifications:
Pre-tax amount										(7)		—		1		(7)
Tax provision										5		—		—		5
After-tax amount										(2)		—		1		(1)
Amounts reclassified from accumulated other comprehensive income(1)										—		—		—		—
Net current period other comprehensive income										(3)		—		1		(2)
Balance as of March 31, 2019									$	17	$	—	$	(14)	$	3

Balance as of December 31, 2017	$	16	$	2	$	(12)	$	5	$	16	$	2	$	(12)	$	5
Reclassification of unrealized gain/loss on equity securities		—		(2)		—		(2)		—		(2)		—		(2)
Reclassification of tax rate change		3		1		—		4		3		1		—		4
As revised, January 1, 2018		19		—		(12)		7		19		—		(12)		7
Other comprehensive income before reclassifications:
Pre-tax amount		20		—		(2)		18		13		—		—		13
Tax provision		(5)		—		—		(5)
After-tax amount		14		—		(2)		13
Amounts reclassified from accumulated other comprehensive income(1)		—		—		—		—
Net current period other comprehensive income		15		—		(2)		13
Balance as of June 30, 2018	$	34	$	—	$	(13)	$	20

Balance as of December 31, 2016	$	12	$	1	$	(15)	$	(3)
Other comprehensive income before reclassifications:
Pre-tax amount		(9)		2		2		(5)
Tax benefit		(3)		—		—		(3)		3		—		—		3
After-tax amount		(6)		2		2		(2)		9		—		—		9
Amounts reclassified from accumulated other comprehensive income(1)		3		—		—		3		1		—		—		1
Net current period other comprehensive income		(3)		2		2		1		10		—		—		10
Balance as of June 30, 2017	$	9	$	2	$	(13)	$	(2)
Balance as of March 31, 2018									$	29	$	—	$	(12)	$	17


	Amounts Reclassified from Accumulated								Amounts Reclassified from Accumulated
	Other Comprehensive Income								Other Comprehensive Income
	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions)	2018		2017		2018		2017		2019		2018
Gains (losses) on derivatives:
Fuel swap contracts	$	1	$	—	$	1	$	1	$	(1)	$	—
Interest rate swap contracts		—		(4)		(2)		(5)		1		(1)
Net gains (losses) on derivatives		—		(3)		—		(4)
Net losses on derivatives										—		(1)
Impact of income taxes		—		1		—		1		—		—
Total reclassifications related to derivatives	$	—	$	(2)	$	—	$	(3)	$	—	$	(1)
Gains on available-for-sale securities	$	—	$	—	$	—	$	—
Impact of income taxes		—		—		—		—
Total reclassifications related to securities	$	—	$	—	$	—	$	—
Total reclassifications for the period	$	—	$	(2)	$	—	$	(3)	$	—	$	(1)

Supplemental information relating to the condensed consolidated statements of cash flows is presented in the following table:



	Six Months Ended				Three Months Ended
	June 30,				March 31,
(In millions)	2018		2017		2019		2018
Cash paid for or (received from):
Interest expense(1)	$	70	$	67	$	19	$	30
Interest and dividend income						(1)		—
Income taxes, net of refunds		16		41		1		—

As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, Cash and cash equivalents of ~~$449~~$255 million and ~~$475~~$224 million, respectively, and Restricted cash of $89 million and $89 million, respectively, as presented on the condensed consolidated statements of financial position represent the amounts comprising Cash and cash equivalents and restricted cash of ~~$538~~$344 million and $313 million, respectively, on the condensed consolidated statement of cash flows.

As of March 31, 2018 and December 31, 2017, Cash and cash equivalents of $121 million and $192 million, respectively, and Restricted cash of $89 million and $89 million, respectively, as presented on the condensed consolidated statements of financial position, and cash related to discontinued operations of $290 million and $282 million, respectively, represent the amounts comprising Cash and cash equivalents and restricted cash of $500 million and $563 million, respectively, on the condensed consolidated statement of cash flows.

As of June 30, 2017, Cash and cash equivalents of $378 million and Restricted cash of $89 million as presented on the condensed consolidated statements of financial position represent the amounts comprising Cash and cash equivalents and restricted cash of $467 million on the condensed consolidated statement of cash flows.

~~The Company~~We acquired $10 million and ~~$23~~$3 million of property and equipment through ~~capital~~finance leases and other non-cash financing transactions in each of the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, which have been excluded from the condensed consolidated statements of cash flows as non-cash investing and financing activities.

The proceeds from the Frontdoor debt issuances described in Note 12 were retained by the lender in satisfaction of the short-term credit facility and have been excluded from the condensed consolidated statements of cash flows as non-cash financing activities.

The non-cash lease transactions resulting from our adoption of ASC 842 are described in Note 13.

Cash, money market funds and certificates of deposits with maturities of three months or less when purchased are included in Cash and cash equivalents on the condensed consolidated statements of financial position. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017, the Company’s investments~~2018, our marketable securities consisted primarily of ~~treasury bills~~a deferred compensation trust (“Debt securities”) and common equity securities (“Equity securities”). The amortized cost, fair value and gross realized and unrealized gains and losses of ~~the Company’s~~our short- and long-term investments in Debt and Equity securities are as follows:



			Gross Realized		Gross Realized						Gross Realized		Gross Realized
	Amortized		and Unrealized		and Unrealized		Fair		Amortized		and Unrealized		and Unrealized		Fair
(In millions)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
June 30, 2018:
March 31, 2019:
Debt securities	$	29	$	—	$	—	$	29	$	4	$	—	$	—	$	4
Equity securities		15		2		—		17		12		1		—		13
Total securities	$	44��	$	2	$	—	$	46	$	16	$	1	$	—	$	17
December 31, 2017:
December 31, 2018:
Debt securities	$	29	$	—	$	—	$	29	$	4	$	—	$	—	$	4
Equity securities		15		3		—		18		15		1		—		16
Total securities	$	44	$	3	$	—	$	47	$	19	$	1	$	—	$	21

Following the adoption of ~~ASC~~ASU 2016-01, ~~the Company accounts~~we account for ~~equity~~Equity securities at fair value with adjustments to fair value recognized in Interest and net investment income in the condensed consolidated statements of operations and comprehensive income. ~~Upon adoption, approximately $3 million ($2 million, net of tax) of~~There were no unrealized gains ~~were reclassified from Accumulated other comprehensive income to Accumulated deficit.~~or losses recognized for the three months ended March 31, 2019. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2018, ~~less than~~approximately $1 million of unrealized ~~gains and less than $1 million of unrealized~~ losses ~~respectively,~~ were recorded within Interest and net investment income in the condensed consolidated statements of operations and comprehensive income.

~~The Company~~We periodically ~~reviews its debt~~review our Debt securities to determine whether there has been an other than temporary decline in value. There were no impairment charges due to declines in the value of these investments for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019.

Additionally, we hold minority interests in several strategic investments that do not have readily determinable fair values and are recorded at cost and are remeasured upon the occurrence of observable price changes or impairments. We account for these investments at fair value with adjustments to fair value recognized in unrealized gain (loss) on investments in our condensed consolidated statements of operations within Interest and net investment income. The investments are included within Other Assets on the condensed consolidated statements of financial position. At March 31, 2019, the carrying amount of these investments is $4 million.



	As of		As of		As of		As of
	June 30,		December 31,		March 31,		December 31,
(In millions)	2018		2017		2019		2018
Senior secured term loan facility maturing in 2023(1)	$	1,608	$	1,615	$	207		637
Revolving credit facility maturing in 2021		—		—		—		—
5.125% notes maturing in 2024(2)		740		739		741		740
7.10% notes maturing in 2018(3)		—		79
7.45% notes maturing in 2027(4)		171		169
7.25% notes maturing in 2038(4)		42		42
Vehicle capital leases(5)		85		90
Other(6)		92		54
7.45% notes maturing in 2027(3)						166		172
7.25% notes maturing in 2038(3)						40		42
Vehicle finance leases(4)						92		90
Other(5)						95		94
Less current portion		(61)		(144)		(52)		(49)
Total long-term debt	$	2,675	$	2,643	$	1,289	$	1,727

On March 12, 2019, we borrowed an aggregate principal amount of $600 million under a short-term credit facility, the proceeds of which were used to repay $434 million aggregate principal amount of term loans outstanding under our senior secured term loan facility. Such prepayment resulted in a loss on extinguishment of debt of $4 million for the three months ended March 31, 2019.

On March 27, 2019, we completed a non-cash debt-for-equity exchange in which we exchanged the 16.7 million shares or 19.8% of the outstanding shares of Frontdoor common stock, plus used proceeds from the short-term credit facility, to extinguish $600 million of our indebtedness under the short-term credit facility. The sale of the Frontdoor common stock resulted in a realized gain of $40 million, which was recorded within Realized (gain) on investment in frontdoor, inc. on the condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2019.

The proceeds from and the use of proceeds in connection with the debt-for-equity exchange are as follows:

Also, on March 27, 2019, we terminated $441 million of our interest rate swap agreement, receiving $11 million in connection with the termination. The fair value of the terminated portion of the agreement of $11 million is recorded within accumulated other comprehensive income on the condensed consolidated statements of financial position and will be amortized into interest expense over the original term of the agreement.

In March 2019, we purchased approximately $7 million in aggregate principal amount of our 7.45% notes maturing in 2027 at a price of 105.5% and $3 million in aggregate principal amount of our 7.25% notes maturing in 2038 at a price of 99.5% using available cash. The repurchased notes were delivered to the trustee for cancellation. In connection with these partial repurchases, we recorded a loss on extinguishment of debt of $2 million in the three months ended March 31, 2019.

In April 2019, we purchased $1 million in aggregate principal amount of our 7.45% notes maturing in 2027 at a price of 105.5% and prepaid $38 million of our senior secured term loan facility. In connection with the prepayment on our senior secured term loan facility, we terminated $38 million of our interest rate swap.

On March 1, 2018, we paid $79 million upon the maturity of our 2018 7.10% notes.

Interest rate swap agreements in effect as of ~~June 30, 2018~~March 31, 2019 are as follows:

Trade Date

Effective
Date

Expiration
Date

Notional
Amount

Fixed
Rate(1)

Floating
Rate

Effective
Date

Expiration
Date

Notional
Amount(1)

Fixed
Rate(2)

Floating
Rate

November 7, 2016

November 8, 2016

November 30, 2023

$650,000

1.493

One month LIBOR

November 8, 2016

November 30, 2023

$209,250

1.493

One month LIBOR

(1)During the first quarter of 2019, concurrent with the debt-for-equity exchange which reduced our term loan facility by $434 million, we terminated $441 million of our interest rate swap, resulting in a notional amount remaining of $209 million on March 31, 2019.

We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets, Current portion of lease liability and Long-term lease liability on the condensed consolidated statements of financial position. Finance leases are included in Property and equipment, net; Current portion of long-term debt and Long-term debt on the condensed consolidated statements of financial position.

We lease a variety of facilities, principally in the United States, for branch and service center operations and for office, storage, customer care centers and data processing space. These leases are classified as operating leases. Our facilities leases have remaining lease terms of less than one year to 23 years, some of which may include options to extend the leases for up to 15 years, and some of which may include options to terminate the leases within one year. These lease agreements contain lease and non-lease components. Non-lease components include items such as common area maintenance. For facility leases, we account for the lease and non-lease components as a single lease component.

Additionally, our Fleet Agreement allows us to obtain fleet vehicles through a leasing program. These leases are classified as finance leases. Our vehicle leases have remaining lease terms of less than one year to eight years. For vehicle leases, we account for the lease and non-lease components separately.

Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments, including fixed non-lease components, over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments and fixed non-lease components is recognized on a straight-line basis over the lease term.

As of March 31, 2019, assets recorded under finance leases were $198 million and accumulated depreciation associated with finance leases was $109 million.

Supplemental cash flow information and other information for leases was as follows:

As of March 31, 2019, there was $32 million and $60 million of finance leases included within Current portion of long-term debt and Long-term debt, respectively, on the condensed consolidated statements of financial position. Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:

Following is a summary of the future minimum lease payments due under capital and operating leases with terms of more than one year at December 31, 2018:

As of March 31, 2019, we have additional vehicle finance leases that have not yet commenced of $26 million. These leases are scheduled to commence in 2019 with lease terms generally of five years.

We adopted the new standard using the modified retrospective approach and applied the transition approach as of the beginning of the period of adoption. We adopted the package of practical expedients and therefore did not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases. We elected to make the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term. We elected to not separate lease and non-lease components for real estate operating leases. We did not elect the hindsight practical expedient.

Changes to the condensed consolidated statements of financial position include the recognition of an operating lease right-of-use asset, a current portion of lease liability and long-term lease liability. Changes to the condensed consolidated statements of cash flows include the presentation of ROU asset amortization. The adoption of ASC 842 did not have a significant impact on the Company’s condensed consolidated statements of operations and comprehensive income.

Acquisitions have been accounted for as business combinations using the acquisition method and, accordingly, the results of operations of the acquired businesses have been included in the condensed consolidated financial statements since their dates of acquisition. Asset acquisitions have been accounted for under ASU 2017-01. The assets and liabilities of these businesses were recorded in the financial statements at their estimated fair values as of the acquisition dates.

During the three months ended March 31, 2019, we completed 11 pest control acquisitions which have been accounted for as business combinations and purchased two pest control companies which have been accounted for as asset acquisitions. We funded $100 million at closing for these acquisitions using available cash on hand. Another $6 million of deferred purchase price is due to the sellers between one and five years from the acquisition dates. As a result of these acquisitions, we recorded a preliminary value of $82 million of goodwill, $4 million of tradenames and $16 million of other intangibles, primarily customer lists. As of March 31, 2019, the purchase price allocations for these acquisitions have not been finalized as we are still evaluating working capital balances and the fair value and useful lives of the acquired intangible assets. We expect to complete the purchase price allocations no later than the first quarter of 2020.

On March 30, 2018, ~~the Company~~we acquired all of the outstanding stock of Copesan Services, Inc. (“Copesan”) for an aggregate purchase price of $148 million, subject to certain post-closing net working capital adjustments. The acquisition ~~is expected to improve~~has improved Terminix’s capabilities in commercial pest control as Copesan ~~is expected to provide the Company~~has provided us with significant expertise, system capabilities and processes for delivering pest management solutions to sophisticated commercial customers. ~~The Company~~We funded $104 million at closing using available cash on hand. An additional $35 million of deferred purchase price and up to $10 million earnout contingent on the successful achievement of projected revenue targets are both due to the sellers three years from the acquisition date. Changes in projected revenue would result in a change in the fair value of the recorded earnout obligation. Subsequent changes to the estimated earnout obligation will be recognized in the condensed consolidated statements of operations and comprehensive income when incurred.

~~As a result of this acquisition, the Company~~March 31, 2019, and we recognized ~~a preliminary value of $104~~$97 million of goodwill, a decrease of $1 million from our initial purchase price allocation as of March 31, 2018, which is primarily attributable to the expected benefits from synergies of the combination with existing businesses and growth opportunities and Copesan’s workforce and is not deductible for tax purposes. ~~Goodwill increased from the preliminary value~~In connection with this acquisition, we also recognized ~~at March 31, 2018 of $98 million, reflecting the valuation work completed to date and the receipt of additional information.~~

As of June 30, 2018, the presentation of Copesan in the condensed consolidated financial statements is preliminary and may change in future periods as fair value estimates of the assets acquired are refined during the measurement period. As of June 30, 2018, the Company is still evaluating working capital balances and the fair value and useful lives of the acquired intangible assets. The Company expects to complete the purchase price allocation no later than the fourth quarter of 2018.

During the six months ended June 30, 2018, the Company completed four additional pest control acquisitions which have been accounted for as business combinations and purchased a ServiceMaster Restore master distributor within the Franchise Services Group which has been accounted for as an asset acquisition in accordance with ASU 2017-01. The Company funded $46 million at closing for these acquisitions using available cash on hand. An additional $4$16 million of ~~deferred purchase price~~tradenames and up to $4 million of earnouts contingent on the successful achievement of projected revenue and earnings targets are due to the sellers between one and five years from the acquisition dates. As a result of these acquisitions, the Company recorded a preliminary value of $38 million of goodwill, and $15$39 million of other intangibles, primarily customer lists and reacquired rights. As of June 30, 2018, the purchase price allocations for these acquisitions has not been finalized as the Company is still evaluating working capital balances and the fair value and useful lives of the acquired intangible assets. The Company expects to complete the purchase price allocations no later than the fourth quarter of 2018.

During the six months ended June 30, 2017, the Company completed two pest control acquisitions and purchased a ServiceMaster Clean master distributor within the Franchise Services Group. The total purchase price for these acquisitions was $14 million. The Company recorded goodwill of $1 million and other intangibles, primarily reacquired rights, of $13 million related to these acquisitions. lists.


	Six Months Ended				Three Months Ended
	June 30,				March 31,
(In millions)	2018		2017		2019		2018
Assets acquired	$	228	$	15	$	110	$	173
Liabilities assumed(1)		(27)		(1)		(4)		(25)
Net assets acquired	$	201	$	14	$	106	$	148

Net cash paid	$	149	$	12	$	100	$	104
Seller financed debt		39		3		6		35
Contingent earnout		12		—		—		9
Purchase price	$	201	$	14	$	106	$	148

~~Acquisition related costs were $1 million and less than $1 million for the six months ended June 30, 2018 and 2017.~~

As required by ASC 740, “Income Taxes,” ~~the Company computes~~we compute interim period income taxes by applying an anticipated annual effective tax rate to ~~the Company’s~~our year-to-date income or loss from continuing operations before income taxes, except for significant unusual or infrequently occurring items. ~~The Company’s~~Our estimated tax rate is adjusted each quarter in accordance with ASC 740.

The effective tax rate on income from continuing operations was ~~26.1~~11.3 percent and ~~38.0~~27.6 percent for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. The ~~year over year decrease in the~~ effective tax rate on income from continuing operations for the three months ended ~~June 30, 2018~~March 31, 2019, was primarily ~~driven~~affected by the ~~reduction~~disposition of the Frontdoor retained shares in a non-taxable debt-for-equity exchange that was recorded discretely in the ~~U.S. federal corporate income tax rate from 35 percent to 21 percent.~~

~~The effective tax rate on income from continuing operations was 26.1 percent and 38.0 percent for the six~~three months ended June 30, 2018 and 2017, respectively. The year over year decrease in the effective tax rate on income from continuing operations for the six months ended June 30, 2018 was primarily driven by the reduction in the U.S. federal corporate income tax rate from 35 percent to 21 percent.March 31, 2019.

As of ~~June 30, 2018~~both March 31, 2019 and December 31, ~~2017, the Company~~2018, we had $15 million ~~and $14 million, respectively,~~ of tax benefits primarily reflected in US Federal and state tax returns that have not been recognized for financial reporting purposes (“unrecognized tax benefits”). Based on information currently available, it is reasonably possible that over the next 12 month period unrecognized tax benefits may decrease by $2 million as the result of settlements of ongoing audits, statute of limitation expirations or final settlements of uncertain

tax positions in multiple jurisdictions. ~~The Company’s~~Our policy is to recognize interest income, interest expense and penalties related to ~~its~~our tax positions within the tax provision.

On December 22, 2017, U.S. Tax Reform was signed into law. The Act includes numerous changes in existing tax law, including a permanent reduction in the federal corporate income tax rate from 35 percent to 21 percent, effective January 1, 2018. The adjustments to deferred tax assets and liabilities and the liability related to the transition tax recorded in the period ending December 31, 2017 are provisional amounts. As described below, the Company has made reasonable estimates. At June 30, 2018, the Company has considered all available information and no adjustments to our original provisional amounts were identified. These amounts are subject to change as the Company obtains information necessary to complete the calculations. The Company will recognize any changes to the provisional amounts within (Benefit) Provision for Income Taxes on the Consolidated Statements of Operations and Comprehensive Income as estimates of deferred tax assets and liabilities and interpretations of the application of the Act are refined. The Company expects to complete its analysis of the provisional items described further below during the second half of 2018. The effects of other provisions of the Act are not expected to have a material impact on the Company’s condensed consolidated financial statements.

The Company is subject to the provisions of the FASB ASC 740-10, Income Taxes, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. The Company remeasured deferred tax assets and liabilities based on the new U.S. tax rates at which they are expected to reverse in the future, which is generally 21 percent. The provisional amount recorded at December 31, 2017 relating to the remeasurement of these deferred tax balances was a net reduction of total deferred tax liabilities of $271 million. We are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect these deferred tax balances or potentially give rise to changes in existing deferred tax amounts.

The Act changes the treatment of certain income and expense items for which the Company records deferred tax assets and liabilities. The Company has assessed its valuation of deferred tax assets and liabilities at June 30, 2018, as well as valuation allowance analyses affected by various aspects of the Act. The Company has recorded no provisional amounts related to valuation allowances and revaluation of deferred tax assets affected by various aspects of the Act. However, the Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the valuation of these balances.

The Act imposes a Transition Tax on undistributed and previously untaxed post-1986 foreign earnings and profits, as determined in accordance with U.S. tax principles, of certain foreign owned corporations of U.S. stockholders. The Company recorded a provisional amount at December 31, 2017 for the one-time transition tax liability for the deemed distribution of earnings from our foreign subsidiaries resulting in an increase in income tax expense of less than $1 million. The Company recorded a provisional transition tax amount because certain information related to the computations required to compute the transition tax, including the computation of previously undistributed earnings, is not readily available, and there is limited information from federal and state taxing authorities regarding the application and interpretation of the recently enacted legislation. Accordingly, the Company is still analyzing certain aspects of the transition tax calculations which could potentially affect the amount recorded.

Because of the complexity of the new global intangible low-taxed income (“GILTI”) tax rules, we are continuing to evaluate this provision of the Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice. Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. The Company is not yet able to reasonably estimate the effect of this provision of the Act. Therefore, the Company has not made any adjustments related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI.

~~The~~Our business ~~of the Company~~ is conducted through ~~three~~two reportable segments: Terminix ~~American Home Shield~~ and ~~Franchise Services Group.~~ServiceMaster Brands.

In accordance with accounting standards for segments, ~~the Company’s~~our reportable segments are strategic business units that offer different services. The Terminix segment provides termite and pest control services to residential and commercial customers and distributes pest control ~~products.~~products primarily under the Terminix, Terminix Commercial and Copesan brand names. The ~~American Home Shield segment provides home service plans for home systems and appliances. The Franchise Services Group~~ServiceMaster Brands segment provides residential and commercial disaster restoration ~~janitorial~~ and commercial cleaning services through franchises primarily under the ServiceMaster, ServiceMaster Restore and ServiceMaster Clean brand names, home cleaning services through franchises primarily under the Merry Maids brand name, cabinet and ~~wood~~ furniture repair primarily under the Furniture Medic brand name and home inspection services primarily under the AmeriSpec brand name. Corporate includes ~~SMAC, the Company’s~~our financing subsidiary exclusively dedicated to providing financing to ~~its~~our franchisees and retail customers of ~~its~~

our operating units, and ~~the Company’s~~our headquarters operations (substantially all of which costs are allocated to ~~the Company’s~~our reportable segments), which provide various technology, marketing, finance, legal and other support services to the reportable segments. The composition of ~~the Company’s~~our reportable segments is consistent with that used by ~~the Company’s~~our chief operating decision maker (the “CODM”) to evaluate performance and allocate resources.

Information regarding the accounting policies used by ~~the Company is~~us are described in ~~the Company’s 2017~~our 2018 Form 10-K. ~~The Company derives~~We derive substantially all of ~~its~~our revenue from customers and franchisees in the United States with approximately ~~two~~three percent generated in foreign markets. Operating expenses of the business units consist primarily of direct costs and indirect costs allocated from Corporate.

~~The Company uses~~We use Reportable Segment Adjusted EBITDA as ~~its~~our measure of segment profitability. Accordingly, the CODM evaluates performance and allocates resources based primarily on Reportable Segment Adjusted EBITDA. Reportable Segment Adjusted EBITDA is defined as net income before: unallocated corporate expenses; gain from discontinued operations, net of income taxes; ~~(benefit)~~ provision for income taxes; interest expense; depreciation and amortization expense; acquisition-related costs; fumigation related matters; ~~insurance reserve adjustment;~~ non-cash stock-based compensation expense; restructuring ~~charges; American Home Shield spin-off~~ charges; loss on extinguishment of debt; and ~~non-cash impairment of software and other related costs. The Company’s~~realized (gain) on investment in frontdoor, inc. Our definition of Reportable Segment Adjusted EBITDA may not be calculated or comparable to similarly titled measures of other companies. ~~The Company believes~~We believe Reportable Segment Adjusted EBITDA is useful for investors, analysts and other interested parties as it facilitates company-to-company operating performance comparisons by excluding potential differences caused by variations in capital structures, taxation, the age and book depreciation of facilities and equipment, restructuring initiatives and equity-based, long-term incentive plans.

Information for continuing operations for each reportable segment and Corporate is presented below:



	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions)	2018		2017		2018		2017		2019		2018
Revenue:
Terminix	$	456	$	428	$	823	$	794	$	419	$	368
American Home Shield		355		326		602		553
Franchise Services Group		64		52		123		102
ServiceMaster Brands										62		60
Reportable Segment Revenue	$	874	$	806	$	1,548	$	1,449	$	481	$	427
Corporate		—		1		1		1		—		—
Total Revenue	$	874	$	807	$	1,549	$	1,450	$	482	$	428
Reportable Segment Adjusted EBITDA:(1)
Terminix	$	109	$	105	$	195	$	186	$	83	$	86
American Home Shield		73		82		105		113
Franchise Services Group		24		22		46		43
ServiceMaster Brands										23		23
Reportable Segment Adjusted EBITDA	$	206	$	209	$	347	$	343	$	106	$	109



	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions)	2018		2017		2018		2017		2019		2018
Net Income	$	96	$	85	$	136	$	124	$	70	$	40
Unallocated corporate expenses		(2)		—		(1)		(1)		(3)		—
Costs historically allocated to American Home Shield										—		11
Depreciation and amortization expense		28		25		53		51		24		21
Acquisition-related costs										1		—
Fumigation related matters		—		1		—		2		1		—
Non-cash stock-based compensation expense		4		4		8		9		4		4
Restructuring charges		—		1		12		3		7		12
American Home Shield spin-off charges		8		—		15		—
Non-cash impairment of software and other related costs		—		—		—		2
Realized (gain) on investment in frontdoor, inc.										(40)		—
Gain from discontinued operations, net of income taxes		—		—		—		(1)		—		(23)
Provision for income taxes		34		52		48		76		9		6
Loss on extinguishment of debt		—		3		—		3		6		—
Interest expense		37		38		75		75		27		37
Reportable Segment Adjusted EBITDA	$	206	$	209	$	347	$	343	$	106	$	109

The period-end carrying amounts of cash and cash equivalents, receivables, restricted cash, accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. The period-end carrying amounts of long-term notes receivable approximate fair value as the effective interest rates for these instruments are comparable to period-end market rates. The period-end carrying amounts of short- and long-term marketable securities also approximate fair value, with unrealized gains and losses reported in interest and net investment income in the condensed consolidated statements of operations and comprehensive income. The carrying amount of total debt was ~~$2,737~~$1,341 million and ~~$2,787~~$1,776 million, and the estimated fair value was ~~$2,795~~$1,400 million and ~~$2,888~~$1,791 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The fair value of ~~the Company’s~~our debt is estimated based on available market prices for the same or similar instruments which are considered significant other observable inputs (Level 2) within the fair value hierarchy. The fair values presented reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value estimates presented in this report are based on information available to ~~the Company~~us as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

~~The Company has~~We have estimated the fair value of ~~its~~our financial instruments measured at fair value on a recurring basis using the market and income approaches. For investments in marketable securities, deferred compensation trust assets and derivative contracts, which are carried at their fair values, ~~the Company’s~~our fair value estimates incorporate quoted market prices, other observable inputs (for example, forward interest rates) and unobservable inputs (for example, forward commodity prices) at the balance sheet date.

Interest rate swap contracts are valued using forward interest rate curves obtained from third-party market data providers. The fair value of each contract is the sum of the expected future settlements between the contract counterparties, discounted to present value. The expected future settlements are determined by comparing the contract interest rate to the expected forward interest rate as of each settlement date and applying the difference between the two rates to the notional amount of debt in the interest rate swap contracts.

Fuel swap contracts are valued using forward fuel price curves obtained from third-party market data providers. The fair value of each contract is the sum of the expected future settlements between the contract counterparties, discounted to present value. The expected future settlements are determined by comparing the contract fuel price to the expected forward fuel price as of each settlement date and applying the difference between the contract and expected prices to the notional gallons in the fuel swap contracts. ~~The Company~~We regularly ~~reviews~~review the forward price curves obtained from third-party market data providers and related changes in fair value for reasonableness utilizing information available to ~~the Company~~us from other published sources.

~~The Company has~~We have not changed ~~its~~our valuation techniques for measuring the fair value of any financial assets and liabilities during the year. Transfers between levels, if any, are recognized at the end of the reporting period. There were no significant transfers between levels during each of the ~~six~~three month periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

We account for these investments at fair value with adjustments to fair value recognized in unrealized gain/(loss) on investments in our condensed consolidated statements of operations and comprehensive income as a non-operating expense.

The carrying amount and estimated fair value of ~~the Company’s~~our financial instruments that are recorded at fair value on a recurring basis for the periods presented are as follows:



				Estimated Fair Value Measurements									Estimated Fair Value Measurements
				Quoted		Significant							Quoted		Significant
				Prices In		Other		Significant					Prices In		Other		Significant
				Active		Observable		Unobservable					Active		Observable		Unobservable
	Statement of Financial	Carrying		Markets		Inputs		Inputs		Statement of Financial	Carrying		Markets		Inputs		Inputs
(In millions)	Position Location	Value		(Level 1)		(Level 2)		(Level 3)		Position Location	Value		(Level 1)		(Level 2)		(Level 3)
As of June 30, 2018:
As of March 31, 2019:
Financial Assets:
Deferred compensation trust	Long-term marketable securities	$	13	$	13	$	—	$	—	Long-term marketable securities	$	12	$	12	$	—	$	—
Investments in marketable securities	Marketable securities and Long-term marketable securities		34		34		—		—	Long-term marketable securities		5		5		—		—
Fuel swap contracts	Prepaid expenses and other assets and Other assets		4		—		—		4
Interest rate swap contract	Prepaid expenses and other assets and Other assets		42		—		42		—	Prepaid expenses and other assets and Other assets		6		—		6		—
Total financial assets		$	92	$	47	$	42	$	4		$	24	$	17	$	6	$	—

As of December 31, 2017:
As of December 31, 2018:
Financial Assets:
Deferred compensation trust	Long-term marketable securities	$	12	$	12	$	—	$	—	Long-term marketable securities	$	13	$	13	$	—	$	—
Investment in Frontdoor										Investment in frontdoor, inc.		445		—		445		—
Investments in marketable securities	Marketable securities and Long-term marketable securities		35		34		1		—	Long-term marketable securities		8		8		—		—
Fuel swap contracts	Prepaid expenses and other assets and Other assets		3		—		—		3
Interest rate swap contract	Prepaid expenses and other assets and Other assets		25		—		25		—	Other assets		30		—		30		—
Total financial assets		$	75	$	46	$	26	$	3		$	496	$	21	$	475	$	—
Financial Liabilities:
Fuel swap contracts										Other accrued liabilities	$	4	$	—	$	—	$	4
Total financial liabilities											$	4	$	—	$	—	$	4

A reconciliation of the beginning and ending fair values of financial instruments valued using significant unobservable inputs (Level 3) on a recurring basis is presented as follows:

The following tables present information relating to the significant unobservable inputs of ~~the Company’s~~our Level 3 financial instruments:



	Fair Value		Valuation			Weighted		Fair Value		Valuation			Weighted
	(in millions)		Technique	Unobservable Input	Range	Average		(in millions)		Technique	Unobservable Input	Range	Average
As of June 30, 2018:
As of March 31, 2019:
Fuel swap contracts	$	4	Discounted Cash Flows	Forward Unleaded Price per Gallon(1)	$2.59 - $3.00	$	2.86	$	—	Discounted Cash Flows	Forward Unleaded Price per Gallon(1)	$2.39 - $2.74	$	2.58
As of December 31, 2017:
As of December 31, 2018:
Fuel swap contracts	$	3	Discounted Cash Flows	Forward Unleaded Price per Gallon(1)	$2.43 - $2.90	$	2.66	$	(4)	Discounted Cash Flows	Forward Unleaded Price per Gallon(1)	$2.09 - $2.43	$	2.26

~~The Company uses~~We use derivative financial instruments to manage risks associated with changes in fuel prices and interest rates. ~~The Company does~~We do not hold or issue derivative financial instruments for trading or speculative purposes. In designating ~~its~~our derivative financial instruments as hedging instruments under accounting standards for derivative instruments, ~~the Company~~we formally ~~documents~~document the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for the use of the hedging instrument. This documentation includes linking the derivatives to forecasted transactions. ~~The Company assesses~~We assess at the time a derivative contract is entered into, and at least quarterly thereafter, whether the derivative item is effective in offsetting the projected changes in cash flows of the associated forecasted transactions. All of ~~the Company’s~~our designated hedging instruments are classified as cash flow hedges.

~~The Company has~~We have historically hedged a significant portion of ~~its~~our annual fuel consumption. ~~The Company has~~We have also historically hedged the interest payments on a portion of ~~its~~our variable rate debt through the use of interest rate swap agreements. All of ~~the Company’s~~our fuel swap contracts and interest rate swap contracts are classified as cash flow hedges, and, as such, the hedging instruments are recorded on the condensed consolidated statements of financial position as either an asset or liability at fair value, with the effective portion of changes in the fair value attributable to the hedged risks recorded in accumulated other comprehensive income. ~~Any change in the fair value of the hedging instrument resulting from ineffectiveness, as defined by accounting standards, is recognized in current period earnings.~~ Cash flows related to fuel and interest rate derivatives are classified as operating activities in the condensed consolidated statements of cash flows.

~~Ineffective portions of derivative instruments designated in accordance with accounting standards as cash flow hedge relationships were insignificant during the six months ended June 30, 2018.~~ As of ~~June 30, 2018, the Company~~March 31, 2019, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of ~~$29~~$32 million, maturing through ~~2019.~~2020. Under the terms of ~~its~~our fuel swap contracts, ~~the Company is~~we are required to post collateral in the event that the fair value of the contracts exceeds a certain agreed upon liability level and in other circumstances required by the counterparty. As of ~~June 30, 2018, the Company~~March 31, 2019, we had posted $2 million in letters of credit as collateral under ~~its~~our fuel hedging program, which were issued under the Revolving Credit Facility.

The effective portion of the gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments is recorded in accumulated other comprehensive income. These amounts are reclassified into earnings in the same period or periods during which the hedged forecasted debt interest settlement or the fuel settlement affects earnings. See Note 9 to the condensed consolidated financial statements for the effective portion of the gain or loss on derivative instruments recorded in accumulated other comprehensive income and for the amounts reclassified out of accumulated other comprehensive income and into earnings. The amount expected to be reclassified into earnings during the next 12 months includes unrealized gains and losses related to open fuel hedges and interest rate swaps. Specifically, as the underlying forecasted transactions occur during the next 12 months, the hedging gains and losses in accumulated other comprehensive income expected to be recognized in earnings is a gain of $6$1 million, net of tax, as of ~~June 30, 2018.~~March 31, 2019. The amounts that are ultimately reclassified into earnings will be based on actual fuel prices and interest rates at the time the positions are settled and may differ materially from the amount noted above.

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, increased to include the number of shares of common stock that would have been outstanding had potential dilutive shares of common stock been issued. The dilutive effect of stock options, RSUs and performance ~~shares~~share units are reflected in diluted earnings per share by applying the treasury stock method.

A reconciliation of the amounts included in the computation of basic earnings per share from continuing operations and diluted earnings per share from continuing operations is as follows:



	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions, except per share data)	2018		2017		2018		2017		2019		2018
Income from continuing operations	$	96	$	85	$	137	$	123	$	70	$	17
Weighted-average common shares outstanding		135.5		133.7		135.4		134.1		135.8		135.2
Effect of dilutive securities:						��
RSUs(1)		0.1		0.1		0.1		0.1		0.2		0.2
Stock options~~(1)~~(2)		0.2		1.3		0.2		1.3		0.3		0.2
Weighted-average common shares outstanding—assuming dilution		135.8		135.0		135.7		135.5		136.4		135.6
Basic earnings per share from continuing operations	$	0.71	$	0.64	$	1.01	$	0.92	$	0.51	$	0.12
Diluted earnings per share from continuing operations	$	0.71	$	0.63	$	1.01	$	0.91	$	0.51	$	0.12

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this report, particularly in “—Information Regarding Forward-Looking Statements.”

Our core services include residential and commercial termite and pest control, ~~home service plans, disaster~~ restoration, ~~janitorial,~~commercial and residential cleaning, cabinet and ~~wood~~ furniture repair and home inspection under the following leading brands: ~~Terminix, American Home Shield,~~AmeriSpec, Copesan, Furniture Medic, Merry Maids, ServiceMaster Clean, ServiceMaster Restore, ~~ServiceMaster Clean, Merry Maids, Furniture Medic~~Terminix and ~~AmeriSpec.~~Terminix Commercial. Our operations for the periods presented in this report are organized into ~~three~~two reportable segments: Terminix ~~American Home Shield~~ and ~~Franchise Services Group.~~

On July 26, 2017, we announced that we intend to separate our American Home Shield business from our Terminix and Franchise Services Group businesses by means of a spin-off of the American Home Shield business to Company stockholders, resulting in two publicly traded companies. The spin-off is designed to create two independent companies, each with an enhanced strategic focus, simplified operating structure, distinct investment identity and strong financial profile. The transaction is expected to be completed late in the third quarter of 2018, subject to satisfaction of customary conditions, including the effectiveness of a Registration Statement on Form 10 and final approval by our board of directors. We have received a favorable private letter ruling from the IRS regarding the tax-free treatment of the distribution to our stockholders.

Our financial statements include nonrecurring costs incurred to evaluate, plan and execute the spin-off. These costs are primarily related to third-party consulting and other incremental costs directly associated with the spin-off process. Our results for the six months ended June 30, 2018 include charges of $15 million related to the spin-off. We expect to incur charges of $35 million to $45 million in 2018 related to the spin-off. In addition, we expect incremental capital expenditures will be required to effect the spin-off in 2018 and will range from $20 million to $30 million, principally reflecting costs to replicate information technology systems historically shared by our business units.

The separation into two independent public companies is expected to result in increased operating costs which could be material to our results of operations. These increased operating costs are primarily associated with corporate functions such as finance, legal, IT and human resources. We are currently evaluating the optimal structure of corporate functions to support the strategic objectives of these two separate publicly traded companies subsequent to the spin-off and estimate the increased operating costs will be approximately $5 million for SpinCo (American Home Shield) and approximately $4 million for RemainCo (post-spin Terminix and Franchise Services Group) in 2018. Dis-synergies for the three and six months ended June 30, 2018 were $1 million. For full-year 2019, we currently project dis-synergies of approximately $6 million for SpinCo and approximately $14 million for RemainCo.

On May 3, 2018, the Company announced the appointment of Rex Tibbens as President and Chief Executive Officer of American Home Shield effective May 15, 2018. Upon completion of the spin-off, Mr. Tibbens will continue to lead American Home Shield. On July 25, 2018, the Company also announced the appointment of Brian K. Turcotte as Senior Vice President and Chief Financial Officer of American Home Shield. Mr. Turcotte had previously been serving as ServiceMaster’s Treasurer and Vice President, Investor Relations.ServiceMaster Brands.

We focus on a variety of indicators and key operating and financial metrics to monitor the financial condition and performance of the continuing operations of our businesses. These metrics include:

To the extent applicable, these measures are evaluated with and without impairment, restructuring and other charges that management believes are not indicative of the earnings capabilities of our businesses. We also focus on measures designed to monitor cash flow, including net cash provided from operating activities from continuing operations and free cash flow.

Revenue. Our revenue results are primarily a function of the volume and pricing of the services and products provided to our customers by our businesses as well as the mix of services and products provided across our businesses. The volume of our revenue in Terminix, Terminix Commercial and ~~American Home Shield~~Copesan is impacted by new unit sales, the retention of our existing customers and acquisitions. ~~We expect to continue our tuck-in acquisition program at Terminix and to periodically evaluate other strategic acquisitions.~~ Revenue results in the ~~Franchise Services Group~~ServiceMaster Brands are driven principally by royalty fees earned from our franchisees. We serve both residential and commercial customers, principally in the United States. In ~~2017,~~2018, approximately 9897 percent of our revenue was generated by sales in the United States.

Operating Expenses. In addition to the impact of changes in our revenue results, our operating results are affected by, among other things, the level of our operating expenses. A number of our operating expenses are subject to inflationary pressures, such as fuel, chemicals, ~~raw materials,~~ wages and salaries, employee benefits and health care, vehicles, ~~contractor costs, home systems, appliances and repair parts,~~ self-insurance costs and other insurance premiums, as well as various regulatory compliance costs.

Net Income and Earnings Per Share. Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, increased to include the number of shares of common stock that would have been outstanding had potential dilutive shares of common stock been issued. The dilutive effect of stock options and RSUs are reflected in diluted net income per share by applying the treasury stock method. The presentation of basic and diluted earnings per share provides GAAP measures of performance which are useful for investors, analysts and other interested parties in company-to-company operating performance comparisons.

Adjusted EBITDA. We evaluate performance and allocate resources based primarily on Adjusted EBITDA. We define Adjusted EBITDA as net income before: depreciation and amortization expense; 401(k) Plan corrective contribution; fumigation related matters; insurance reserve adjustment; non-cash stock-based compensation expense; restructuring charges; American Home Shield spin-off charges; non-cash impairment of software and other related costs; (gain) lossgain from discontinued operations, net of income taxes; provision for income taxes; interest expense; depreciation and amortization expense; acquisition-related costs; fumigation related matters; non-cash stock-based compensation expense; restructuring charges; loss on extinguishment of ~~debt~~debt; and ~~interest expense~~.realized (gain) on investment in frontdoor, inc. We believe Adjusted EBITDA is useful for investors, analysts and other interested parties as it facilitates company-to-company operating performance comparisons by excluding potential differences caused by variations in capital structures, taxation, the age and book depreciation of facilities and equipment, restructuring initiatives and equity-based, long-term incentive plans.

Organic Revenue Growth. We evaluate organic revenue growth to track performance of the business, including the impacts of sales, pricing, new service offerings and other growth initiatives. Organic revenue growth excludes revenue from acquired customers for 12 months following the acquisition date.

We have seasonality in our business, which drives fluctuations in revenue and Adjusted EBITDA for interim periods. In ~~2017,~~2018, approximately ~~22 percent, 28~~23 percent, 27 percent, 26 percent and 2324 percent of our revenue and approximately 2025 percent, 31 percent, 2924 percent and 20 percent of our Adjusted EBITDA was recognized in the first, second, third and fourth quarters, respectively.

The demand for our services and our results of operations are also affected by weather conditions, including the seasonal nature of our termite and pest control services, home inspection services and disaster restoration services. Weather conditions which have a potentially unfavorable impact to our business include cooler temperatures or droughts which can impede the development of termite swarms and lead to lower demand for our termite control ~~services; and extreme temperatures which can lead to an increase in service requests related to home systems.~~services. For example, ~~in the third quarter of 2016, we experienced an increase in contract claims cost at American Home Shield driven by a higher number of HVAC work orders driven by high temperatures, and~~ in the third quarter of 2017, our Terminix business was negatively impacted by hurricanes Harvey and Irma, which resulted in 53 branches, primarily in Texas and Florida, being temporarily closed for a period of time during August and September. Weather conditions which have a potentially favorable impact to our business include mild winters which can lead to higher demand for termite and pest control services; ~~mild winters or summers which can lead to lower home systems claim frequency;~~ and severe storms which can lead to an increase in demand for ~~disaster~~ restoration services. For example, in the third and fourth quarters of 2018 and 2017, our ServiceMaster Restore business saw a significant increase in royalty fees related to hurricanes Florence and Michael in 2018 and hurricanes Harvey and Irma ~~and~~in 2017 as well as wildfires.

Franchises are important to the Terminix, ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic and AmeriSpec businesses. Total profits from our franchised operations were ~~$24 million and~~ $22 million for both of the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017, respectively and $45 million and $44 million for the six months ended June 30, 2018 and 2017, respectively.~~2018. Nearly all of the franchise fees received by our ~~Franchise Services Group~~ServiceMaster Brands segment are derived from the ServiceMaster Restore,

ServiceMaster Clean and Merry Maids businesses. Franchise fees from our Terminix franchisees represented less than one percent of Terminix revenue for the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019. We evaluate the performance of our franchise businesses based primarily on operating profit before corporate general and administrative expenses, interest expense and amortization of intangible assets. Franchise agreements entered into in the course of these businesses are generally for a term of five years. The majority of these franchise agreements are renewed prior to expiration. Internationally, we have license agreements, whereby licensees provide services under our brand names that would ordinarily be provided by franchisees in the United States. The majority of international licenses are for 10‑year terms.

For the three months ended March 31, 2019, approximately 55% of our revenue in the ServiceMaster Brands segment consisted of ongoing monthly royalty fees. Royalty fees are the amounts paid to us by our franchisees and are based on a percentage of our franchisees’ customer-level revenue. Franchise fees from Terminix franchisees represented less than one percent of Terminix revenue in the three months ended March 31, 2019. We estimate that customer-level revenue for the ServiceMaster Brands segment and Terminix segment were $649 million and $499 million, respectively, for the three months ended March 31, 2019.

Three Months Ended

Increase

June 30,

(Decrease)

% of Revenue
(In millions)

2018

2017

2018 vs. 2017

2018

2017
Revenue

$
874

$
807

8
%

100
%

100
%
Cost of services rendered and products sold

467

415

13

53

51

Selling and administrative expenses

225

206

9

26

26

Amortization expense

7

7

4

1

1

Fumigation related matters

—

1

*

—

—

Restructuring charges

—

1

*

—

—

American Home Shield spin-off charges

8

—

*

1

—

Interest expense

37

38

—

4

5

Interest and net investment income

(1)

(1)

32

—

—

Loss on extinguishment of debt

—

3

*

—

—

Income from Continuing Operations before Income Taxes

130

137

(5)

15

17

Provision for income taxes

34

52

(35)

4

6

Income from Continuing Operations

96

85

13

11

11

Gain from discontinued operations, net of income taxes

—

—

*

—

—

Net Income

$
96

$
85

13
%

11
%

11
%



	Six Months Ended				Increase
	June 30,				(Decrease)		% of Revenue				Three Months Ended				Increase
											March 31,				(Decrease)		% of Revenue
(In millions)	2018		2017		2018 vs. 2017		2018		2017		2019		2018		2019 vs. 2018		2019		2018
Revenue	$	1,549	$	1,450	7	%	100	%	100	%	$	482	$	428	13	%	100	%	100	%
Cost of services rendered and products sold		829		761	9		54		52			261		226	15		54		53
Selling and administrative expenses		422		392	8		27		27			136		125	8		28		29
Amortization expense		12		14	(10)		1		1			6		3	72		1		1
Acquisition-related costs												1		—	*		—		—
Fumigation related matters		—		2	(89)		—		—			1		—	*		—		—
Impairment of software and other related costs		—		2	(94)		—		—
Restructuring charges		12		3	269		1		—			7		12	*		1		3
American Home Shield spin-off charges		15		—	*		1		—
Realized (gain) on investment in frontdoor, inc.												(40)		—	*		(8)		—
Interest expense		75		75	1		5		5			27		37	(29)		6		9
Interest and net investment income		(2)		(1)	26		—		—			(1)		—	*		—		—
Loss on extinguishment of debt		—		3	*		—		—			6		—	*		1		—
Income from Continuing Operations before Income Taxes		185		199	(7)		12		14			79		23	*		16		5
Provision for income taxes		48		76	(36)		3		5			9		6	*		2		1
Income from Continuing Operations		137		123	11		9		8		$	70	$	17	319	%	15	%	4	%
Gain from discontinued operations, net of income taxes		—		1	*		—		—
Net Income	$	136	$	124	10	%	9	%	9	%

We reported revenue of ~~$874~~$482 million and ~~$807~~$428 million for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and revenue of $1,549 million and $1,450 million for the six months ended June 30, 2018 and 2017,~~ respectively. A summary of changes in revenue for each of our reportable segments and Corporate is included in the table below. See “—Segment Review” for a discussion of the drivers of the year-over-year changes.

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Three Months Ended June 30, 2017

$
428

$
326

$
52

$
1

$
807
Pest Control (1)

25

—

—

—

25
Termite and Other Services

1

—

—

—

1
Home Service Plans

—

29

—

—

29
Franchise-Related Revenue

—

—

11

—

11
Other

1

—

—

—

1
Three Months Ended June 30, 2018

$
456

$
355

$
64

$
—

$
874

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Six Months Ended June 30, 2017

$
794

$
553

$
102

$
1

$
1,450
Pest Control (1)

26

—

—

—

26
Termite and Other Services

2

—

—

—

2
Home Service Plans

—

49

—

—

49
Franchise-Related Revenue

—

—

21

—

21
Other

2

—

—

—

1
Six Months Ended June 30, 2018

$
823

$
602

$
123

$
1

$
1,549



			ServiceMaster
(In millions)	Terminix		Brands		Corporate		Total
Three Months Ended March 31, 2018	$	368	$	60	$	—	$	428
Residential Pest Control(1)		18		—		—		18
Commercial Pest Control(2)		27		—		—		27
Termite and Home Services(3)		5		—		—		5
Royalty Fees		—		1		—		1
Commercial Cleaning National Accounts		—		2		—		2
Sale of Products and Other		1		(1)		—		—
Three Months Ended March 31, 2019	$	419	$	62	$	—	$	482

We reported cost of services rendered and products sold of ~~$467~~$261 million and ~~$415~~$226 million for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $829 million and $761 million for the six months ended June 30, 2018 and 2017,~~ respectively. The following ~~table provides~~tables provide a summary of changes in cost of services rendered and products sold for each of our reportable segments and Corporate:

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Three Months Ended June 30, 2017

$
232

$
163

$
20

$
—

$
415
Impact of change in revenue

20

10

4

—

34
Bad debt expense

(2)

—

—

—

(2)
Chemicals and materials

(3)

—

—

—

(3)
Fuel prices

1

—

—

—

1
Insurance program

—

—

—

(2)

(2)
Contract claims

—

22

—

—

22
Other

1

1

—

—

2
Three Months Ended June 30, 2018

$
249

$
196

$
24

$
(2)

$
467



			ServiceMaster
(In millions)	Terminix		Brands		Corporate		Total
Three Months Ended March 31, 2018	$	204	$	23	$	—	$	226
Impact of change in revenue(1)		36		2		—		38
Production labor		1		—		—		1
Insurance program		—		—		(2)		(2)
Other		(2)		—		1		(1)
Three Months Ended March 31, 2019	$	239	$	25	$	(2)	$	261

AtFor Terminix, the impact of the change in revenue reflects the ~~impact~~increase in relatively low margin revenue from our acquisition of ~~the Copesan acquisition and other acquisitions completed during the year. The decrease in bad debt expense was driven by enhanced credit policies and collection rates.~~Copesan. The decrease in chemicals and materials was driven by sourcing savings. The increase in production labor was driven by an investment in our workforce to improve service levels.

For Corporate, the decrease in insurance program expense was primarily attributable to favorable claims results in our automobile, general liability and workers’ compensation program.

At American Home Shield, the increase in contract claims costs includes an adjustment of $12 million related to adverse development of contract claims costs originally estimated and recorded in the first quarter of 2018 and the second half of 2017. Accruals for home service plan claims are made based on our historical claims experience and actuarial projections. Our actuary performs a reserve analysis utilizing generally accepted actuarial methods that incorporates cumulative historical claims experience and information provided by us. We regularly review our estimates of claims costs and adjust the estimates when appropriate. The increase in contract claims costs in the second quarter, and the change in our previous contract claims costs reserve estimates, were principally driven by a higher mix of appliance replacements versus repairs driven by parts availability. In addition to the $12 million of higher claims costs from periods prior to the second quarter of 2018, the impact of higher appliance replacements in the second quarter increased claims costs by $4 million. The increase in contract claims costs in the second quarter also includes normal inflationary pressure on the underlying costs of repairs totaling $3 million and a higher number of work orders driven by significantly warmer summer temperatures in 2018, which increased claims costs by $3 million.

The decrease in the Corporate insurance program expense was primarily attributable to favorable claims trends in our automobile, general liability and workers’ compensation program, which may or may not continue.

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Six Months Ended June 30, 2017

$
438

$
285

$
38

$
—

$
761
Impact of change in revenue

21

17

9

—

46
Production labor

(1)

—

—

—

(1)
Bad debt

(5)

—

—

—

(5)
Chemicals and materials

(6)

—

—

—

(6)
Fuel prices

2

—

2
Insurance program

—

—

—

(2)

(2)
Contract claims

—

28

—

—

28
Other

3

1

1

—

5
Six Months Ended June 30, 2018

$
453

$
331

$
47

$
(2)

$
829

At Terminix, the impact of change in revenue reflects the impact of the Copesan acquisition and other acquisitions completed during the year. The decrease in production labor was driven by the realization of past investments in field operations. The decrease in bad debt expense was driven by enhanced ~~credit policies and collection rates. The decrease in chemicals and materials was driven by sourcing savings.~~

At American Home Shield, the increase in contract claims costs includes an adjustment of $6 million related to the adverse development of contract claim costs originally estimated and recorded in the second half of 2017, principally driven by a higher mix of appliance replacements versus repairs driven by parts availability. We estimate the impact of higher appliance replacements increased claims costs by $7 million. The increase in contract claims costs also includes normal inflationary pressure on the underlying costs of repairs totaling $7 million and a higher number of work orders driven by colder winter temperatures in the first quarter and significantly warmer summer temperatures in the second quarter of 2018, which increased claims costs by $8 million.

We reported selling and administrative expenses of ~~$225~~$136 million and ~~$206~~$125 million for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $422 million and $392 million for the six months ended June 30, 2018 and 2017,~~ respectively. For the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ selling and administrative expenses comprised general and administrative expenses of ~~$82~~$76 million and ~~$74~~$70 million, respectively, and selling and marketing expenses of ~~$143~~$60 million and $132 million, respectively. For the six months ended June 30, 2018 and 2017, selling and administrative expenses comprised general and administrative expenses of $159 million and $151 million, respectively, and selling and marketing expenses of $263 million and $241$56 million, respectively. The following ~~table provides~~tables provide a summary of changes in selling and administrative expenses for each of our reportable segments and Corporate:

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Three Months Ended June 30, 2017

$
102

$
82

$
11

$
10

$
206
Sales and marketing costs

(1)

3

4

—

6
Acquisition selling and administrative expenses

5

—

—

—

5
Incentive compensation

2

—

—

—

2
Customer service costs

—

2

—

—

2
Spin-off dis-synergies

—

1

—

—

1
Depreciation

—

—

—

1

2
Other

1

1

1

—

3
Three Months Ended June 30, 2018

$
108

$
89

$
17

$
12

$
225



			ServiceMaster
(In millions)	Terminix		Brands		Corporate		Total
Three Months Ended March 31, 2018	$	89	$	15	$	22	$	125
Sales and marketing costs		2		(1)		—		1
Impact of acquisitions on selling and administrative expenses		7		—		—		7
Investments in growth		4		—		—		4
Spin-off dis-synergies		4		—		—		4
Costs historically allocated to American Home Shield		—		—		(11)		(11)
Other		5		1		—		6
Three Months Ended March 31, 2019	$	110	$	16	$	11	$	136

The ~~decrease~~increase in sales and marketing costs at Terminix was ~~driven by~~ ~~a change in the timing of our recognition of sales costs upon our adoption~~ ~~of ASC 606 on January 1, 2018 of $6 million, partially offset by an increase in sales and marketing costs~~ driven by targeted investments to drive sales growth. Terminix incurred incremental selling and administrative expenses as a result of the Copesan acquisition and other ~~acquisitions, including deal-related costs of approximately $1 million.~~

~~At American Home Shield, the increase in sales and marketing costs was driven by~~ ~~targeted spending to drive sales growth~~.acquisitions. The increase in ~~customer service costs was an incremental investment~~investments in ~~customer care center costs~~growth includes our partnership with Salesforce to ~~deliver a new level of customer service. Incremental ongoing costs related to the spin-off of American Home Shield of $1 million were incurred, which primarily related to the separation of~~ ~~information technology systems historically shared by our business units.~~

At Franchise Services Group, the increase in sales and marketing costs was driven by the recognition of national advertising fund contributions from franchisees as revenue upon our adoption of ASC 606 on January 1, 2018. ~~Prior to 2018, contributions to the national advertising fund made by our franchisees were treated as an offset to advertising expense.~~replace legacy operating systems.

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Six Months Ended June 30, 2017

$
190

$
160

$
22

$
20

$
392
Sales and marketing costs

1

6

7

—

14
Acquisition selling and administrative expenses

5

—

—

—

5
Incentive compensation

2

—

—

—

2
Customer service costs

—

4

—

—

4
Spin-off dis-synergies

—

1

—

—

1
Depreciation

—

—

—

2

3
Other

(2)

1

2

1

1
Six Months Ended June 30, 2018

$
197

$
171

$
32

$
23

$
422

The increase in sales and marketing costs at Terminix was driven by targeted investments to drive sales growth, partially offset by a change in the timing of our recognition of sales costs upon our adoption of ASC 606 on January 1, 2018 of $4 million. ~~Terminix incurred incremental selling and administrative expenses as a result of the Copesan acquisition and other acquisitions, including deal-related costs of approximately $1 million.~~

~~At American Home Shield, the increase in sales and marketing costs was driven by~~ ~~targeted spending to drive sales growth. The increase in customer service costs was an incremental investment in customer care center costs to deliver a new level of customer service.Incremental ongoing costs related to the spin-off of American Home Shield of $1 million were incurred, which primarily related to the separation of~~ ~~information technology systems historically shared by our business units.~~

Amortization expense was $7$6 million and $7$3 million in the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $12 million and $14~~respectively.

Acquisition-related costs were $1 million in the ~~six~~three months ended ~~June 30, 2018 and 2017, respectively.~~March 31, 2019. There were no charges for acquisition-related costs recorded in the three months ended March 31, 2018.

We recorded a charge of approximately $1 million in the three months ended ~~June 30, 2017 and $2 million in the six months ended June 30, 2017~~March 31, 2019. There were no charges for fumigation related ~~matters. We~~matters recorded ~~charges of less than $1 million for remaining fumigation related matters in the three and six months ended June 30, 2018.~~

We recorded an impairment charge of $2 million in the six months ended June 30, 2017 relating to our decision to replace certain software. There were no impairments of software and other related costs recorded in the three and six months ended June 30, 2018, or in the three months ended ~~June 30, 2017.~~March 31, 2018.

We incurred restructuring charges of ~~less than $1~~approximately $7 million and $1$12 million in the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $12 million and $3 million in the six months ended June 30, 2018 and 2017,~~ respectively. Restructuring charges were comprised of the following:



	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions)	2018		2017		2018		2017		2019		2018
Terminix(1)	$	(1)	$	—	$	2	$	1	$	2	$	2
Corporate(2)		—		—		3		—
Leadership transition(3)		—		—		—		1
ServiceMaster Brands(2)										1		—
Corporate(3)										4		3
Global Service Center relocation(4)		1		1		7		1		—		7
Total restructuring charges	$	—	$	1	$	12	$	3	$	7	$	12

Our financial statements include nonrecurring costs incurred to evaluate, plan and execute the spin-off of American Home Shield to company stockholders. These costs are primarily related to third-party consulting and other incremental costs directly associated with the spin-off process. At December 31, 2017, we had $1 million of American Home Shield spin-off charges accrued, and $2 million of prepaid spin-off charges which were recognized during the six months ended June 30, 2018. Our results for the three and six months ended June 30, 2018 include American Home Shield spin-off charges of $8 million and $15 million, respectively.

We expect to incur aggregate charges related to the spin-off of $35 million to $45 million in 2018. In addition, incremental capital expenditures will be required to effect the spin-off in 2018 and will range from $20 million to $30 million, principally reflecting costs to replicate information technology systems historically shared by our business units.

~~Interest expense was $37 million and $38 million in the three months ended June 30, 2018 and 2017, respectively, and $75 million in both the six month months ended June 30, 2018 and 2017.~~

We recorded a gain of approximately $40 million related to the sale of our retained investment in Frontdoor in the three months ended March 31, 2019. There was no gain recorded in the three months ended March 31, 2018.

Interest expense was $27 million and $37 million in the three months ended March 31, 2019 and 2018, respectively. The decrease in interest expense was driven by the repayment of approximately $1 billion of our senior secured term loan facility in connection with the spin-off of the American Home Shield segment.

Interest and net investment income was $1 million ~~and $1 million~~ for the three months ended ~~June 30, 2018~~March 31, 2019. There was no interest and ~~2017, respectively, and $2 million and $1 million for~~net investment income in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2018. Interest and ~~2017, respectively, and~~net investment income is comprised of net investment gains and losses ~~interest income~~from equity investments and ~~dividend income realized on the American Home Shield investment portfolio~~other strategic investments and interest income on other cash balances.

A loss on extinguishment of debt of $6 million was recorded in the three months ended March 31, 2019. There was no loss on the extinguishment of debt recorded in the three months ended March 31, 2018. See Note 12 to the condensed consolidated financial statements for more details.

Income from continuing operations before income taxes was ~~$130~~$79 million and ~~$137~~$23 million for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $185 million and $199 million for the six months ended June 30, 2018 and 2017,~~ respectively. The change in income from continuing operations before income taxes primarily reflects the net effect of year-over-year changes in the following items:

The effective tax rate on income from continuing operations was ~~26.1~~11.3 percent and ~~38.0~~27.6 percent for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. The effective tax rate on income from continuing operations for the three months ended ~~June 30, 2018~~March 31, 2019, was primarily affected by the ~~implementation~~disposition of ~~U.S. Tax Reform.~~ the Frontdoor retained shares in a non-taxable debt-for-equity exchange pursuant to the private letter ruling from the IRS that was recorded discretely in the three months ended March 31, 2019.

~~The effective tax rate on~~Gain from Discontinued Operations, Net of Income Taxes

Gain from discontinued operations, net of income ~~from continuing operations~~taxes, was ~~26.1 percent and 38.0 percent~~$23 million for the ~~six~~three months ended ~~June 30,~~March 31, 2018, ~~and 2017, respectively. The effective tax rate on income from continuing operations for the six months ended June 30, 2018 was primarily affected by the implementation~~related to operating results of ~~U.S. Tax Reform.~~ Frontdoor.

Net income was ~~$96~~$70 million and ~~$85~~$40 million for the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017, respectively, and $136 million and $124 million for the six months ended June 30, 2018 and 2017, respectively~~

The following business segment reviews should be read in conjunction with the required footnote disclosures presented in the notes to the condensed consolidated financial statements included in this report.

Revenue and Adjusted EBITDA by reportable segment and for Corporate are as follows:



	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,				Increase		June 30,				Increase		March 31,				Increase
(In millions)	2018		2017		(Decrease)		2018		2017		(Decrease)		2019		2018		(Decrease)
Revenue:
Terminix	$	456	$	428	6	%	$	823	$	794	4	%	$	419	$	368	14	%
American Home Shield		355		326	9			602		553	9
Franchise Services Group		64		52	21			123		102	21
ServiceMaster Brands														62		60	5
Corporate		—		1	*			1		1	*			—		—	*
Total Revenue:	$	874	$	807	8	%	$	1,549	$	1,450	7	%	$	482	$	428	13	%
Adjusted EBITDA:(1)
Terminix	$	109	$	105	4	%	$	195	$	186	5	%	$	83	$	86	(4)	%
American Home Shield		73		82	(12)			105		113	(7)
Franchise Services Group		24		22	9			46		43	7
ServiceMaster Brands														23		23	2
Reportable Segment Adjusted EBITDA		206		209	(2)			347		343	1			106		109	(3)
Corporate(2)		2		—	*			1		1	*			3		—	*
Costs historically allocated to American Home Shield(3)														—		(11)	*
Total Adjusted EBITDA	$	208	$	210	(1)	%	$	349	$	343	2	%	$	109	$	97	12	%

Three Months Ended ~~June 30, 2018~~March 31, 2019 Compared to Three Months Ended ~~June 30, 2017~~March 31, 2018

The Terminix segment, which provides termite and pest control services to residential and commercial customers and distributes pest control products, reported a ~~six~~14 percent increase in revenue and a four percent ~~increase~~decrease in Adjusted EBITDA for the three months ended ~~June 30, 2018~~March 31, 2019 compared to the three months ended ~~June 30, 2017.~~March 31, 2018.



	Three Months Ended																Three Months Ended
	June 30,																March 31,

(In millions)	2018		2017		Growth				Acquired				Organic				2019		2018		Growth				Acquired				Organic
Pest Control	$	254	$	229	$	25	11	%	$	25	11	%	$	—	—	%
Termite and Other Services		178		177		1	—	%		—	—	%		—	—	%
Residential Pest Control																	$	158	$	140	$	18	13	%	$	12	9	%	$	6	4	%
Commercial Pest Control																		89		62		27	43	%		27	43	%		—	—	%
Termite and Home Services																		156		151		5	4	%		2	1	%		4	2	%
Other		24		23		1	6	%		—	—	%		1	6	%		16		15		1	9	%		—	—	%		1	9	%
Total revenue	$	456	$	428	$	27	6	%	$	25	6	%	$	2	—	%	$	419	$	368	$	51	14	%	$	41	11	%	$	11	3	%

~~Pest~~Residential pest control revenue ~~for~~increased 13 percent. Organic residential pest control revenue increased four percent, primarily reflecting the ~~three months ended June 30, 2018~~impact of new unit sales and operational improvements in start rates and completion rates, as well as improved price realization. Residential pest control revenue also increased 11nine percent ~~compared to prior year, primarily due to~~from acquisitions completed during the last 12 months.

Commercial pest control revenue increased 43 percent driven by the impact of the Copesan ~~acquisition.~~

Termite revenue, including wildlife exclusion, crawl space encapsulation and attic insulation, which are managed as a component of our termite line of business, remained consistent with prior year, reflecting an increase in core termite completions, wildlife exclusion and attic insulation, offset by a decline in termite renewals. In the three months ended June 30, 2018, termite renewal revenue comprised 46 percent of total termite revenue, while the remainder consisted of termite new unit revenue. Termite activity is unpredictable in its nature. Factors that can impact termite activity include conducive weather conditions and consumer awareness of termite swarms.

~~The following table provides a summary of changes in the segment’s Adjusted EBITDA:~~

~~The impact of the change in revenue on Adjusted EBITDA was driven by the increase in relatively low margin revenue from our acquisition of Copesan.~~ ~~As we continue to drive synergies from Copesan~~ and other acquisitions, leveraging world-class service capabilities from Copesan and our service partners, and working towards systematically incorporating those service capabilities into our owned branch locations, we expect the Adjusted EBITDA contribution from Copesan and other acquisition revenues to increase in the future. Additionally, we incurred incremental selling and administrative expenses as a result of the acquisitions completed during the year. The decrease in bad debt expense was driven by enhanced credit policies and collection rates. The decrease in chemicals and materials was driven by sourcing savings. The decrease in sales and marketing costs at Terminix was driven by ~~a change in the timing of our recognition of sales costs upon our adoption~~ ~~of ASC 606 on January 1, 2018 of $6 million, partially offset by an increase in sales and marketing costs driven by targeted investments to drive sales growth~~.acquisitions.

~~The Terminix segment reported a four percent increase in revenue and a five percent increase in Adjusted EBITDA for the six months ended June 30, 2018 compared to the six months ended June 30, 2017.~~

Six Months Ended

June 30,

(In millions)

2018

2017

Growth

Acquired

Organic
Pest Control

$
456

$
430

$
26

6
%

$
25

6
%

$
—

—
%
Termite and Other Services

328

326

2

1
%

—

—
%

2

1
%
Other

39

37

2

4
%

—

—
%

2

4
%
Total revenue

$
823

$
794

$
30

4
%

$
26

3
%

$
4

—
%

~~Pest control revenue for the six months ended June 30, 2018 increased six percent compared to prior year, primarily reflecting the impact of the Copesan acquisition.~~

Termite revenue, including wildlife exclusion, crawl space encapsulation and attic insulation, which are managed as a component of our termite line of business, increased ~~one~~four percent compared to prior ~~year.~~ year, primarily reflecting an increase in home services new unit sales and improved price realization. In the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, termite renewal revenue comprised 5054 percent of total termite revenue, while the remainder consisted of termite new unit revenue. Termite revenue organic growth was one percent, reflecting an increase in termite renewals, wildlife exclusion and attic insulation revenue, offset by a decline in termite completion and other services revenue in the first quarter of 2018, driven primarily by unfavorable weather conditions. We estimate that the organic revenue growth would have been approximately $3 million higher if not for the unfavorable weather conditions. Termite activity is unpredictable in its nature. Factors that can impact termite activity include conducive weather conditions and consumer awareness of termite swarms.

~~The following table provides a summary of changes in the segment’s Adjusted EBITDA:~~

~~The impact of the change in revenue on Adjusted EBITDA was driven by the increase in relatively low margin revenue from our acquisition of Copesan.~~ As we continue to drive synergies from Copesan and other acquisitions, leveraging world-class service capabilities from Copesan and our service partners, and working towards systematically incorporating those service capabilities into our owned branch locations, we expect the Adjusted EBITDA contribution from Copesan and other acquisition revenues to increase in the future. Additionally, we incurred incremental selling and administrative expenses as a result of the acquisitions completed during the year. The decrease in production labor was driven by the realization of past investments in field operations. The decrease in bad debt expense was driven by enhanced credit policies and collection rates. The decrease in chemicals and materials was driven by sourcing savings. The increase in sales and marketing costs at Terminix was driven by targeted investments to drive sales growth, partially offset by a change in the timing of our recognition of sales costs upon our adoption of ASC 606 on January 1, 2018 of $4 million.

~~Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017~~

~~The American Home Shield segment, which provides home service plans for home systems and appliances, reported a nine percent increase in revenue and a 12 percent decrease in Adjusted EBITDA~~Revenue growth for the three months ended ~~June 30, 2018 compared to the three months ended June 30, 2017.~~

~~The growth in renewable customer counts and customer retention are presented below.~~

~~The revenue results reflect an increase in new and renewal unit sales and improved price realization.~~

~~The following table provides a summary of changes in the segment’s Adjusted EBITDA:~~

The $22 million increase in contract claims costs includes an adjustment of $12 million related to the adverse development of contract claim costs originally estimated and recorded in the first quarter of 2018 and the second half of 2017. Accruals for home service plan claims are made based on our historical claims experience and actuarial projections. Our actuary performs a reserve analysis utilizing generally accepted actuarial methods that incorporates cumulative historical claims experience and information providedMarch 31, 2019 was negatively impacted by us. We regularly review our estimates of claims costs and adjust the estimates when appropriate. The increase in contract claims costs in the second quarter, and the change in our previous contract claims costs reserve estimates, were principally driven by a higher mix of appliance replacements versus repairs driven by parts availability. In addition to the $12 million of higher claims costs from periods prior to the second quarter of 2018, the impact of higher appliance replacements in the second quarter increased claims costs by $4 million. The increase in contract claims costs in the second quarter also includes normal inflationary pressure on the underlying costs of repairs totalingapproximately $3 million due to unseasonably cold weather conditions and ~~a higher number of work orders driven by significantly warmer summer temperatures in 2018, which increased claims costs by $3 million. Extreme temperatures in the future could~~flooding that affected branch operations and lead ~~to an increase in service requests related to home systems, resulting in higher claim frequency and costs.~~

The increase in sales and marketing costs was driven by targeted spending to drive sales growth. The increase in customer service costs was an incremental investment in customer care center costs to deliver a new level of customer service. Incremental ongoing costs related to the spin-off of American Home Shield of $1 million were incurred, which primarily related to the separation of ~~information technology systems historically shared by our business units.~~

The American Home Shield segment reported a nine percent increase in revenue and a seven percent decrease in Adjusted EBITDA for the six months ended June 30, 2018 compared to the six months ended June 30, 2017.

~~The revenue results reflect an increase in new and renewal unit sales and improved price realization.~~

~~The following table provides a summary of changes in the segment’s Adjusted EBITDA:~~

The increase in contract claims costs includes an adjustment of $6 million related to the adverse development of contract claim costs originally estimated and recorded in the second half of 2017, principally driven by a higher mix of appliance replacements versus repairs driven by parts availability. We estimate the impact of higher appliance replacements increased claims costs by $7 million. The increase in contract claims costs also includes normal inflationary pressure on the underlying costs of repairs totaling $7 million and a higher number of work orders driven by colder winter temperatures in the first quarter and significantly warmer summer temperatures in the second quarter of 2018, which increased claims costs by $8 million. Extreme temperatures in the future could lead to an increase in service requests related to home systems, resulting in higher claim frequency and costs.

~~ongoing costs related to the spin-off of American Home Shield of $1 million were incurred, which primarily related to the separation of~~ ~~information technology systems historically shared by our business units.~~

~~Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017~~

The Franchise Services Group segment, which consists of the ServiceMaster Restore (disaster restoration), ServiceMaster Clean (janitorial), Merry Maids (residential cleaning), Furniture Medic (cabinet and wood furniture repair) and AmeriSpec (home inspection) businesses, reported a 21 percent increase in revenue and a nine percent increase in Adjusted EBITDA for the three months ended ~~June 30,~~March 31, 2018 ~~compared~~was also negatively impacted by approximately $3 million due to ~~the three months ended June 30, 2017.~~

The increase in royalty fees was driven by higher disaster restoration services including fire and commercial disaster restoration services. The increase in revenue from janitorial national accounts was driven by increased sales activity. The increase in other was primarily driven by the recognition of approximately $4 million of national advertising fund franchisee contributions as revenue ~~pursuant to our adoption~~ ~~of ASC 606~~ ~~that took effect on January 1, 2018~~. ~~Prior to 2018, contributions to the national advertising fund by our franchisees were treated as an offset to advertising expense. The adoption had no impact on Adjusted EBITDA.~~unfavorable weather conditions.

The following table provides a summary of changes in the segment’s Adjusted EBITDA:

The increase in sales and marketing costs was driven by targeted investments to drive sales growth. The increase in production labor was driven by an investment in our workforce to improve service levels. The increase in spin-off dis-synergies represent increased corporate allocations to Terminix as a result of the American Home Shield spin-off. The increase in investments in growth primarily includes our partnership with Salesforce and other transformational activity to replace legacy operating systems and transform our operations. The impact of acquisitions represents the increase in ~~revenue was driven by the increase in royalty fees and~~ relatively low margin revenue from ~~janitorial national accounts.~~our acquisition of Copesan. We expect the Adjusted EBITDA contribution from Copesan and other acquisition revenues to increase in the future as we continue to drive synergies from Copesan and other acquisitions, leveraging world-class service capabilities from Copesan and our service partners, and working towards systematically incorporating those service capabilities into our owned branch locations.

Three Months Ended ~~June 30, 2018~~March 31, 2019 Compared to ~~Six~~Three Months Ended ~~June 30, 2017~~March 31, 2018

The ~~Franchise Services Group~~ServiceMaster Brands segment, which consists of the ServiceMaster Restore (disaster restoration), ServiceMaster Clean (commercial cleaning), Merry Maids (residential cleaning), Furniture Medic (cabinet and furniture repair) and AmeriSpec (home inspection) businesses, reported a 21five percent increase in revenue and a ~~seven~~two percent increase in Adjusted EBITDA for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 compared to the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018.



	Six Months Ended				% of		Three Months Ended				% of		% of
	June 30,				Revenue		March 31,				Revenue		Revenue
(In millions)	2018		2017		2018		2019		2018		2019		2018
Royalty Fees	$	68	$	63	55	%	$	34	$	33	55	%	55	%
Janitorial National Accounts		31		23	25
Commercial Cleaning National Accounts								17		15	28		25
Sales of Products		7		7	6			3		3	6		6
Other		17		9	14			7		9	12		14
Total revenue	$	123	$	102	100	%	$	62	$	60	100	%	100	%

The increase in royalty fees was driven by higher disaster restoration services ~~including fire and~~due to focused sales efforts to commercial ~~disaster restoration services.~~segment customers. The increase in revenue from ~~janitorial~~commercial cleaning national accounts was driven by increased sales activity. ~~The increase in other was primarily driven by the recognition of approximately $7 million of national advertising fund franchisee contributions as revenue~~ ~~pursuant to our adoption~~ ~~of ASC 606~~ ~~that took effect on January 1, 2018~~. ~~Prior to 2018, contributions to the national~~

~~advertising fund by our franchisees were treated as an offset to advertising expense. The adoption had no impact on Adjusted EBITDA.~~

The following table provides a summary of changes in the segment’s Adjusted EBITDA:

~~The impact of the increase in revenue was driven by the increase in royalty fees and relatively low margin revenue from janitorial national accounts.~~

Three Months Ended ~~June 30, 2018~~March 31, 2019 Compared to Three Months Ended ~~June 30, 2017~~March 31, 2018

Adjusted EBITDA for Corporate for the three months ended ~~June 30, 2018~~March 31, 2019 increased ~~two~~$3 million when compared to the three months ended ~~June 30, 2017,~~March 31, 2018, primarily attributable to favorable claims ~~trends~~results in our automobile, general liability and workers’ compensation ~~program,~~program.

We have historically incurred the cost of certain corporate-level activities which ~~may or may~~we performed on behalf of our businesses, including American Home Shield, such as executive functions, communications, public relations, finance and accounting, tax treasury, internal audit, human resources operations and benefits, risk management and insurance, supply management, real estate management, legal, marketing, facilities, information technology and other general corporate support services. The cost of such activities were historically allocated to our segments, including American Home Shield. Certain corporate expenses which were historically allocated to the American Home Shield business are not ~~continue.~~

~~Six Months Ended June 30, 2018 Compared~~permitted to ~~Six Months Ended June 30, 2017~~

~~Adjusted EBITDA for Corporate~~be classified as discontinued operations under GAAP (“Historically Allocated Services”). Such Historically Allocated Services amounted to $11 million for the ~~six~~three months ended ~~June 30,~~March 31, 2018 and are included in Corporate through the date of the Separation.

On the date of the spin-off, where it was ~~comparable~~practicable, employees who provided Historically Allocated Services to the ~~six months ended June 30, 2017.~~American Home Shield business were separated from us and transferred to Frontdoor.

The costs of Historically Allocated Services which were not transferred to Frontdoor will be borne by our remaining businesses in the future as dis-synergies. We continue to estimate these dis-synergies to be approximately $18 million in 2019.

~~We are highly leveraged, and a~~A substantial portion of our liquidity needs are due to service requirements on our significant indebtedness. The agreements governing ~~the $1,650 million~~our term loan facility maturing November 8, 2023 and ~~the $300 million~~ revolving credit facility (the “Revolving Credit Facility”) maturing November 8, 2021 (together, the “Credit Facilities”) contain covenants that limit or restrict our ability, including the ability of certain of our subsidiaries, to incur additional indebtedness, repurchase debt, incur liens, sell assets, make certain payments (including dividends) and enter into transactions with affiliates. As of ~~June 30, 2018,~~March 31, 2019, we were in compliance with the covenants under the agreements that were in effect on such date.

On October 1, 2018, we completed the spin-off of our American Home Shield business. The separation was effectuated through the Distribution to our stockholders of approximately 80.2% of the outstanding shares of common stock of Frontdoor, which was formed as a wholly owned subsidiary to hold our American Home Shield business. The Distribution was made to our stockholders of record as of the close of business on September 14, 2018, and such stockholders received one share of Frontdoor common stock for every two shares of ServiceMaster common stock held as of the close of business on the Record Date. Subsequent to the Distribution, we retained 16,734,092 shares, or approximately 19.8%, of the common stock of Frontdoor immediately following the Distribution.

On March 27, 2019, we completed a non-cash debt-for-equity exchange in which we exchanged the 16.7 million retained shares of Frontdoor common stock, plus used proceeds from the short-term credit facility, to extinguish $600 million of our indebtedness under the short-term credit facility. The sale of the Frontdoor common stock resulted in a realized gain of $40 million, which was recorded within Realized (gain) on investment in frontdoor, inc. on the condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2019. The proceeds from and the use of proceeds in connection with the debt-for-equity exchange are as follows:

Also, on March 27, 2019, we terminated $441 million of our interest rate swap agreement, receiving $11 million in connection with the termination. The fair value of the terminated agreement of $11 million is recorded within accumulated other comprehensive income on the condensed consolidated statements of financial position and will be amortized into interest expense over the original term of the agreement.

Our ongoing liquidity needs are expected to be funded by cash on hand, net cash provided by operating activities and, as required, borrowings under the Credit Facilities. We expect that cash provided from operations and available capacity under the Revolving Credit Facility will provide sufficient funds to operate our business, make expected capital expenditures and meet our liquidity requirements for the following 12 months, including payment of interest and principal on our debt. Cash and short- and long-term marketable securities totaled ~~$496~~$273 million as of ~~June 30, 2018,~~March 31, 2019, compared with ~~$522~~$690 million as of December 31, ~~2017.~~2018, which included our investment in Frontdoor. As of ~~June 30, 2018,~~March 31, 2019, there were $33 million of letters of credit outstanding and $267 million of available borrowing capacity under the Revolving Credit Facility. The letters of credit are posted to satisfy collateral requirements under our automobile, general liability and workers’ compensation insurance program and fuel swap contracts.

In 2016, our board of directors authorized a three-year share repurchase program (that expired in February 2019), under which we may repurchase up to $300 million of outstanding shares of our common stock. On February 19, 2019, our board of

directors approved a three-year extension of the share repurchase plan allowing for an aggregate of $150 million of repurchases though February 19, 2022. As of ~~June 30, 2018,~~March 31, 2019, we have repurchased ~~$145~~$2 million of outstanding shares under this program, which isare included in treasury stock on the condensed consolidated statements of financial position.

Cash and short- and long-term marketable securities include balances associated with ~~regulatory requirements~~a subsidiary borrowing arrangement at ~~American Home Shield.~~our financing subsidiary. See “—Limitations on Distributions and Dividends by Subsidiaries.” ~~American Home Shield’s investment portfolio has been invested~~As of March 31, 2019, the total net assets subject to these third-party restrictions was $23 million. We expect that such limitations will be in ~~high-quality debt securities. From time to time, we review~~effect for the statutory reserve requirements to which our regulated entities are subject and any changes to such requirements. These reviews may result in identifying current reserve levels above or below minimum statutory reserve requirements, in which case we may adjust our reserves. The reviews may also identify opportunities to satisfy certain regulatory reserve requirements through alternate financial vehicles.foreseeable future.

As of ~~June 30, 2018,~~March 31, 2019, we had posted $31 million in letters of credit, which were issued under the Revolving Credit Facility, and $89 million of cash, which is included in Restricted cash on the condensed consolidated statements of financial position, as collateral under our automobile, general liability and workers’ compensation insurance program. We may from time to time change the amount of cash or marketable securities used to satisfy collateral requirements under our automobile, general liability and workers’ compensation insurance program. The amount of cash or marketable securities utilized to satisfy these collateral requirements will depend on the relative cost of the issuance of letters of credit under the Revolving Credit Facility and our cash position. Any change in

cash or marketable securities used as collateral would result in a corresponding change in our available borrowing capacity under the Revolving Credit Facility.

Additionally, under the terms of our fuel swap contracts, we are required to post collateral in the event the fair value of the contracts exceeds a certain agreed upon liability level and in other circumstances required by the agreement with the counterparty. As of ~~June 30, 2018,~~March 31, 2019, the estimated fair value of our fuel swap contracts was ~~a net gain of $4 million,~~immaterial, and we had posted $2 million in letters of credit as collateral under our fuel hedging program, which were also issued under the Revolving Credit Facility. The continued use of letters of credit for this purpose in the future could limit our ability to post letters of credit for other purposes and could limit our borrowing availability under the Revolving Credit Facility. However, we do not expect the fair value of the outstanding fuel swap contracts to materially impact our financial position or liquidity.

We may from time to time repurchase or otherwise retire or extend our debt and/or take other steps to reduce our debt or otherwise improve our financial position, results of operations or cash flows. These actions may include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and/or opportunistic refinancing of debt. The amount of debt that may be repurchased or otherwise retired or refinanced, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations.

We have entered into ~~the Fleet Agreement~~a fleet management services agreement (the “Fleet Agreement”) which, among other things, allows us to obtain fleet vehicles through a leasing program. We expect to fulfill substantially all of our vehicle fleet needs through the leasing program under the Fleet Agreement. For the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, we acquired $10 million of vehicles through the leasing program under the Fleet Agreement. All leases under the Fleet Agreement are ~~capital~~finance leases for accounting purposes. The lease rental payments include an interest component calculated using a variable rate based on one-month LIBOR plus other contractual adjustments and a borrowing margin totaling 2.45 percent. We have no minimum commitment for the number of vehicles to be obtained under the Fleet Agreement.

Additionally, a portion of our property and equipment is leased through programs outside the scope of the Fleet Agreement. For the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, noan immaterial amount of property and equipment was acquired through these incremental leasing programs. We anticipate new lease financings, including the Fleet Agreement and incremental leasing programs, for the full year ~~2018~~2019 will range from ~~$25~~$35 million to ~~$35~~$45 million.

We are a holding company, and as such have no independent operations or material assets other than ownership of equity interests in our subsidiaries. We depend on our subsidiaries to distribute funds to us so that we may pay obligations and expenses, including satisfying obligations with respect to indebtedness. The ability of our subsidiaries to make distributions and dividends to us depends on their operating results, cash requirements and financial condition and general business conditions, as well as restrictions under the laws of our subsidiaries’ jurisdictions.

The agreements governing the Credit Facilities may restrict the ability of our subsidiaries to pay dividends, make loans or otherwise transfer assets to us. Further, our subsidiaries are permitted under the terms of the Credit Facilities and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans by such subsidiaries to us.

Furthermore, there are third-party restrictions on the ability of certain of our subsidiaries to transfer funds to us. These restrictions are related to ~~regulatory requirements at American Home Shield and to~~ a subsidiary borrowing arrangement at ~~SMAC. The payments of ordinary and extraordinary dividends by~~ our home service plan and similar subsidiaries (through which we conduct our American Home Shield business) are subject to significant regulatory restrictions under the laws and regulations of the states in which they operate. Among other things, such laws and regulations require certain subsidiaries to maintain minimum capital and net worth requirements and may limit the amount of ordinary and extraordinary dividends and other payments that these subsidiaries can pay to us.financing subsidiary. As of ~~June 30, 2018,~~March 31, 2019, the total net assets subject to these third-party restrictions was ~~$182~~$23 million. We expect that such limitations will be in effect for the foreseeable future. None of our subsidiaries are obligated to make funds available to us through the payment of dividends.

We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. The Act imposes a one-time tax (“Transition Tax”) on undistributed and previously untaxed post-1986

foreign earnings and profits, as determined in accordance with U.S. tax principles, of certain foreign owned corporations owned by U.S. stockholders. Prior to the Transition Tax included in the Act discussed herein, we had an excess amount for financial reporting over the tax basis in our foreign subsidiaries, including cumulative undistributed earnings of the Company’s foreign subsidiaries of $60 million as of December 31, 2016. While the Transition Tax resulted in all ~~remaining~~pre-2018 undistributed foreign earnings being subject to U.S. tax, an actual repatriation from our non-U.S. subsidiaries could still be subject to additional foreign withholding taxes and U.S. state taxes. ~~Included in our December 31, 2017 U.S. income tax provision is less than $1 million in Transition Tax.~~

Cash flows from operating, investing and financing activities, as reflected in the accompanying condensed consolidated statements of cash flows, are summarized in the following table.



	Six Months Ended				Three Months Ended
	June 30,				March 31,
(In millions)	2018		2017		2019		2018
Net cash provided from (used for):
Operating activities	$	279	$	260	$	90	$	84
Investing activities		(194)		(56)		(89)		(110)
Financing activities		(110)		(124)		31		(93)
Discontinued operations		—		1		(1)		55
Cash (decrease) increase during the period	$	(25)	$	81	$	31	$	(64)

Net cash provided from operating activities from continuing operations increased ~~$20~~$7 million to ~~$279~~$90 million for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~$260~~$84 million for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018.

Net cash provided from operating activities for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 comprised ~~$234~~$93 million in earnings adjusted for non-cash charges, offset, in part, by $8$6 million in payments related to restructuring and ~~$7 million in payments related to the American Home Shield spin-off~~fumigation matters and a ~~$61~~$3 million decrease in cash required for working capital (a ~~$41~~$7 million increase excluding the working capital impact of accrued interest and taxes). For the three months ended March 31, 2019, working capital requirements were favorably impacted by seasonal activity and the timing of interest and income tax payments.

Net cash provided from operating activities for the three months ended March 31, 2018 comprised $66 million in earnings adjusted for non-cash charges, offset, in part, by $4 million in payments related to restructuring, and a $22 million decrease in cash required for working capital (a $6 million decrease excluding the working capital impact of accrued interest and taxes). For the ~~six~~three months ended ~~June 30,~~March 31, 2018, ~~working capital requirements were favorably impacted by seasonal activity, the timing of income tax payments and favorable changes in the timing of payments to certain of our vendors.~~

Net cash provided from operating activities for the six months ended June 30, 2017 comprised $198 million in earnings adjusted for non-cash charges and a $63 million decrease in cash required for working capital (a $28 million decrease excluding the working capital impact of accrued interest, restructuring and taxes), offset, in part, by $1 million in payments related to fumigation matters. For the six months ended June 30, 2017, working capital requirements were favorably impacted by seasonal activity and the timing of income tax payments, offset, in part, by incentive compensation payments related to ~~2016~~2017 performance.

Net cash used for investing activities from continuing operations was ~~$194~~$89 million for the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, compared to ~~$56~~$110 million for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018.

~~This increase was driven by cash~~Cash paid for business acquisitions, which increased to ~~$149~~$100 million ~~and is~~for the three months ended March 31, 2019, from $92 million, net of $1 million of cash acquired, for the ~~six~~three months ended June 30, 2018, from $12 million for the six months ended June 30, 2017. Consideration paid in 2018 for the purchase of Copesan, other pest control companies and a master distributor was from cash on hand, deferred purchase price of $39 million and future potential earnouts totaling $12 million payable to sellers. Consideration paid in 2017 for the purchase of a master distributor and for a tuck-in acquisition consisted of cash payments and debt payable to sellers.March 31, 2018. We expect to continue our tuck-in acquisition program at Terminix and to periodically evaluate other strategic acquisitions.

Capital expenditures ~~increased~~decreased to ~~$49~~$9 million for the three months ended March 31, 2019 from $20 million ($4219 million net of government grants) ~~for~~in the ~~six~~three months ended ~~June 30,~~March 31, 2018 ~~from $34 million in the six months ended June 30, 2017~~ and included recurring capital needs, Global Service Center relocation costs and information technology projects. We anticipate capital expenditures for the full year ~~2018~~2019 will range from ~~$70~~$35 million to ~~$80~~$45 million, reflecting our partnership with Salesforce to upgrade our technology platforms and additional ~~Global Service Center relocation costs,~~ recurring capital needs and the continuation of investments in information systems and productivity enhancing technology. In addition, we expect incremental capital expenditures will be required to effect the proposed spin-off of American Home Shield in 2018 and will range from $20 million to $30 million, principally reflecting costs to replicate information technology systems historically shared by our business units.needs. We expect to fulfill our ongoing vehicle fleet needs through vehicle ~~capital~~finance leases. We have no additional material capital commitments at this time.

Cash flows ~~used for purchases~~received from the sale and maturity of securities for the ~~six~~three months ended ~~June 30, 2018 and 2017~~March 31, 2019 totaled $9 million and $7 million, respectively, and were driven by the purchase of marketable securities at American Home Shield. Cash flows from sales and maturities of securities for six months ended June 30, 2018 and 2017 totaled $10 million and $2$3 million and was driven by ~~normal maturities~~the sale of ~~debt~~equity securities. There was no cash received from the sale and maturity of securities for the three months ended March 31, 2018.

Cash flows used for notes receivable, net, for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and March 31, 2018, ~~and 2017~~ totaled $5$17 million and $4$1 million, respectively, and were a result of a net increase in financing provided by ~~SMAC~~our financing subsidiary to our franchisees and retail customers of our operating ~~units.~~units and collections from other long-term financing arrangements.

Net cash provided from financing activities from continuing operations was $31 million for the three months ended March 31, 2019 compared to net cash used for financing activities from continuing operations ~~was $110~~of $93 million for the ~~six~~three months ended ~~June 30, 2018 compared to $124 million for the six months ended June 30, 2017.~~

During the ~~six~~first quarter of 2019, we completed a debt-for-equity exchange which resulted in $600 million of borrowings of debt under a short-term credit facility, $434 million of repayments of our senior secured term loan facility and $114 million of repayments under a short-term credit facility. In addition, we repaid $23 million of other debt.

During the three months ended ~~June 30, 2018,~~March 31, 2019, we ~~made scheduled principal payments on long-term debt~~repurchased $2 million of ~~$116 million, which included a $79 million payment upon maturity of the 2018 Notes using cash on hand from operations~~common stock and received $6$5 million from the issuance of common stock ~~upon~~through the exercise of stock options.

During the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, we made scheduled principal payments on long-term debt of $29 million, purchased $17 million in aggregate principal amount of our 7.25% notes maturing in 2038 at a price of 97% of the principal amount, repurchased $85 million of common stock and received $7$2 million from the issuance of common stock ~~upon~~through the exercise of stock options.

Our ~~2017~~Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”) includes disclosures of our contractual obligations and commitments as of December 31, ~~2017. We~~2018. As indicated above, in connection with the debt-for-equity exchange transaction, we repaid $434 million of our outstanding term loan debt. In addition, we continue to make the contractually required payments, and, therefore, the ~~2018~~2019 obligations and commitments as listed in our ~~2017~~2018 Form 10-K have been reduced by the required ~~payments.~~payments and the debt-for-equity exchange.

As of ~~June 30, 2018~~March 31, 2019 we did not have any significant off-balance sheet arrangements.

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Accordingly, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

On December 16, 2016, the U.S. Virgin Islands Department of Justice filed a civil complaint in the Superior Court of the Virgin Islands related to a fumigation incident in a matter styled Government of the United States Virgin Islands v. The ServiceMaster Company, LLC, The Terminix International Company Limited Partnership, and Terminix International USVI, LLC. The amount and extent of any potential penalties, fines sanctions, costs and damages that the federal or other governmental authorities may yet impose, investigation or other costs and reputational harm, as well as the impact of any additional civil, criminal or other claims or judicial, administrative or regulatory proceedings resulting from or related to the U.S. Virgin Islands fumigation matter, which could be material, is not currently known, and any such further penalties, fines, sanctions, costs or damages would not be covered under ~~the Company’s~~our general liability policies.

This report contains forward-looking statements and cautionary ~~statements, including statements with respect to the potential separation of~~ ~~American Home Shield~~ ~~from ServiceMaster and the distribution of~~ ~~American Home Shield~~ ~~shares to ServiceMaster stockholders.~~statements. Forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “projects,” “is optimistic,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. Forward-looking statements are subject to known and unknown risks and uncertainties including, but not limited to: uncertainties as to the timing of the spin-off or whether it will be completed at all, the results and impact of the announcement of the proposed spin-off, the failure to satisfy any conditions to complete the spin-off, the increased demands on management to prepare for and accomplish the spin-off, the incurrence of significant transaction costs, the impact of the spin-off on the businesses of ServiceMaster and ~~American Home Shield, and the failure to achieve anticipated benefits of the spin-off.~~uncertainties. These forward-looking statements also include, but are not limited to statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, financial position; results of operations; cash flows; prospects; growth strategies or expectations; customer retention; the continuation of acquisitions, including the integration of any acquired company and risks relating to any such acquired company; fuel prices; attraction and retention of key personnel; the impact of fuel swaps; the valuation of marketable securities; estimates of accruals for self-insured claims related to workers’ compensation, auto and general liability risks; estimates of ~~accruals for home service plan claims; estimates of~~ future payments under operating and ~~capital~~finance leases; estimates on current and deferred tax provisions; the outcome (by judgment or settlement) and costs of legal or administrative proceedings, including, without limitation, collective, representative or class action litigation; and the impact of prevailing economic conditions.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market segments in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and cash flows, and the development of the market segments in which we operate, are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors, including, without limitation, the risks and uncertainties discussed in “Risk Factors” in our ~~Annual Report on~~2018 Form 10-K ~~for the year ended December 31, 2017~~ and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above

could cause actual results and outcomes to differ from those reflected in the forward-looking statements. Additional factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:

You should read this report completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this report are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this report, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.

Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

The economy and its impact on discretionary consumer spending, labor wages, fuel prices and other material costs, home resales, unemployment rates, insurance costs and medical costs could have a material adverse impact on future results of operations.

We do not hold or issue derivative financial instruments for trading or speculative purposes. We have entered into specific financial arrangements, primarily fuel swap agreements and interest rate swap agreements, in the normal course of business to manage certain market risks, with a policy of matching positions and limiting the terms of contracts to relatively short durations. The effect of derivative financial instrument transactions could have a material impact on our financial statements.

We are exposed to the impact of interest rate changes and manage this exposure through the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps. In our opinion, other than the impact of our repayment of $434 million of our term loan facility and the termination of $441 million of our interest rate swap, the market risk associated with our remaining debt obligations and other significant instruments as of ~~June 30, 2018~~March 31, 2019 has not materially changed from December 31, ~~2017~~2018 (see Item 7A of the ~~2017~~2018 Form 10-K).

We are exposed to market risk for changes in fuel prices through the consumption of fuel by our vehicle fleet in the delivery of services to our customers. We expect to use approximately 12 million gallons of fuel in ~~2018.~~2019. As of ~~June 30, 2018,~~March 31, 2019, a 10 percent

change in fuel prices would result in a change of approximately $3$2 million in our annual fuel cost before considering the impact of fuel swap contracts.

We use fuel swap contracts to mitigate the financial impact of fluctuations in fuel prices. As of ~~June 30, 2018,~~March 31, 2019, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of ~~$29~~$32 million, maturing through ~~2019.~~2020. The estimated fair value of these contracts as of ~~June 30, 2018~~March 31, 2019 was ~~a net asset of $4 million.~~an immaterial amount. These fuel swap contracts provide a fixed price for approximately 8179 percent and 5540 percent of our estimated fuel usage for the remainder of ~~2018~~2019 and ~~2019,~~2020 respectively.

Our Chief Executive Officer, Nikhil M. Varty, and Senior Vice President and Chief Financial Officer, Anthony D. DiLucente, have evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q as required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act. Messrs. Varty and DiLucente have concluded that both the design and operation of our disclosure controls and procedures were effective as of ~~June 30, 2018.~~March 31, 2019.

On January 1, 2019, we adopted ASC 842 and implemented a new lease accounting system and processes. This implementation resulted in a material change to a component of our internal control over financial reporting as of that date. The operating effectiveness of these changes will be evaluated as part of our annual assessment of the effectiveness of internal control over financial reporting for the year ended December 31, 2019.

No other changes in our internal control over financial reporting, as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act, occurred during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the matter discussed above, in the ordinary course of conducting business activities, we and our subsidiaries become involved in judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. These proceedings include insured and uninsured matters that are brought on an individual, collective, representative and class action basis, or other proceedings involving regulatory, employment, general and commercial liability, automobile liability, wage and hour, environmental and other matters. We have entered into settlement agreements in certain cases, including with respect to putative collective and class actions, which are subject to court or other ~~approvals.~~approvals, and which require compliance with the terms of the agreements. If one or more of our settlements are not finally approved and implemented, we could have additional or different exposure, which could be material. Subject to the paragraphs above, we do not expect any of these proceedings to have a material effect on our reputation, business, financial position, results of operations or cash flows; however, we can give no assurance that the results of any such proceedings will not materially affect our reputation, business, financial position, results of operations and cash flows. See Note 6 to the condensed consolidated financial statement for more details.

We discuss in our ~~2017~~2018 Form 10-K and our other filings with the SEC various risks that may materially affect our business. ~~In addition, you should carefully consider~~There have been no material changes to the risk factors ~~described below and~~disclosed in the 2018 Form 10-K. The materialization of any risks and uncertainties identified in Forward-Looking Statements contained in this report, together with those previously disclosed in the ~~2017~~2018 Form 10-K and our other filings with the SEC or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Information Regarding Forward-Looking Statements” above.

~~Changes to United States tariff and import/export regulations may increase the costs of home systems appliances and repair parts and, in turn, adversely impact our business.~~

Tariff policies are under continuous review and subject to change. The current U.S. administration has voiced strong concerns about imports from countries that it perceives as engaging in unfair trade practices, and could impose import duties or restrictions on components and raw materials that are applicable to our business from countries it perceives as engaging in unfair trade practices. Such duties or restrictions, or the perception that they could occur, may materially and adversely affect our business by increasing our costs or reducing global trade. For example, rising steel costs due to blanket tariffs on imported steel and aluminum could increase the costs of our home systems, appliances and repair parts, which could have a material adverse effect on our business, financial position, results of operations and cash flows.

Moreover, new tariffs and changes to U.S. trade policy could prompt retaliation from affected countries, potentially triggering the imposition of tariffs on U.S. goods. Such a “trade war” could lead to general economic downturn or could materially and adversely affect the demand for our services, thus negatively impacting our business, financial position, results of operations and cash flows.

~~Increases in appliances, parts and system prices, fuel prices and other operating costs could adversely impact our reputation, businesses, financial position, results of operations and cash flows.~~

Our financial performance may be adversely affected by increases in the level of our operating expenses, such as fuel, chemicals, refrigerants, appliances and equipment, parts, raw materials, wages and salaries, employee benefits, health care, vehicle maintenance, contractor costs, self-insurance costs and other insurance premiums, as well as various regulatory compliance costs, all of which may be subject to inflationary pressures.

Raw materials, such as steel and fuel prices are subject to market volatility. We cannot predict the extent to which we may experience future increases in costs of fuel, chemicals, refrigerants, appliances and equipment, parts, raw materials, wages and salaries, employee benefits, health care, vehicle maintenance, contractor costs, self-insurance costs and other insurance premiums, as well as various regulatory compliance costs and other operating costs. To the extent such costs increase, we may be prevented, in whole or in part, from passing these cost increases through to our existing and prospective customers, which could have a material adverse impact on our reputation, businesses, financial position, results of operations and cash flows.

We depend on a limited number of third-party components suppliers. Our reputation, business, financial position, results of operations and cash flows may be harmed if these parties do not perform their obligations or if they suffer interruptions to their own operations, or if alternative component sources are unavailable or if there is an increase in the costs of these components.

We are dependent on a limited number of suppliers for various key components used in the services and products we offer to customers, and the cost, quality and availability of these components are essential to our services. We are subject to the risk of shortages, increased costs and long lead times in the supply of these components and other materials, and the risk that our suppliers discontinue or modify, or increase the price of, the components used. If the supply of these components were to be delayed or constrained, or if one or more of our main suppliers were to go out of business, alternative sources or suppliers may not be available on acceptable terms or at all. Further, if there were a shortage of supply, the cost of these components may increase and harm our ability to provide our services on a cost-effective basis. In connection with any supply shortages in the future, reliable and cost-effective replacement sources may not be available on short notice or at all, and this may force us to increase prices and face a corresponding decrease in demand for our services. In the event that any of our suppliers were to discontinue production of our key product components, developing alternate sources of supply for these components would be time consuming, difficult and costly. This would harm our ability to market our services in order to meet market demand and could materially and adversely affect our reputation, business, financial position, results of operations and cash flows.

We have limited control over these parties on which our business depends. If any of these parties fails to perform its obligations on schedule, or breaches or ends its relationship with us, we may be unable to satisfy demand for our services. Delays, product shortages and other problems could impair our retail distribution and brand image and make it difficult for us to attract new customers. If we experience significantly increased demand, or if we need to replace an existing supplier, we may be unable to supplement or replace such supply capacity on terms that are acceptable to us, which may undermine our ability to deliver our services to customers in a timely and cost-efficient manner. Accordingly, a loss or interruption in the service of any key party could adversely impact our reputation, business, financial position, results of operations and cash flows.

ITEM 5. ~~OTHER INFORMATION~~2. UNREGISTERED SALES OF REGISTERED SECURITIES AND USE OF PROCEEDS

~~Effective July 31, 2018, Performance Share Units previously granted to certain executive officers~~Issuer Purchases of the Company on February 22, 2016 and February 20, 2017 were cancelled by the Compensation Committee of the Board of Directors due to the complexities of adjusting such awards as a consequence of the planned spin-off of the American Home Shield business and because the awards were tracking below payout threshold at the time of cancellation. The executive officers voluntarily agreed to the cancellation of these awards. The awards were cancelled for Anthony D. DiLucente, Mary Kay Wegner and Susan K. Hunsberger.Equity Securities

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


(In millions)	Deferred revenue
Balance, ~~January 1,~~December 31, 2018	$	~~284~~101
Deferral of revenue		~~303~~39
Recognition of deferred revenue		~~(299)~~(34)
~~Contract liability(1)~~Balance, March 31, 2019	$	107
		8
Balance, ~~June 30,~~January 1, 2018	$	~~297~~101
Deferral of revenue		42
Recognition of deferred revenue		(36)
Balance, March 31, 2018	$	107


~~Balance as of December~~	Three Months Ended
(In millions)	March 31, ~~2016~~2018
Revenue	$	3247
~~Costs incurred~~Cost of services rendered and products sold		3135
~~Costs paid or otherwise settled~~Operating expenses(1)		~~(4)~~81
~~Balance as~~Interest and net investment income		(1)
Income before income taxes		31
Provision for income taxes		8
Gain from discontinued operations, net of ~~June 30, 2017~~income taxes	$	23



	Accrued
	Self-insured
(In millions)	Claims, Net
Balance as of December 31, 2018	$	111
Provision for self-insured claims		8
Cash payments		(6)
Balance as of March 31, 2019	$	113

Balance as of December 31, 2017	$	115
Provision for self-insured claims		1710
Cash payments		~~(18)~~(10)
Balance as of ~~June 30,~~March 31, 2018	$	114

~~Balance as of December 31, 2016~~	$	~~120~~
~~Provision for self-insured claims~~		18
~~Cash payments~~		~~(17)~~
~~Balance as of June 30, 2017~~	$	~~122~~


(in millions)
Proceeds from the short-term credit facility	$	600
Proceeds from the Frontdoor common shares retained, net of $16 million of fees paid		486
Total proceeds		1,086
Repayment of the term loan facility		(434)
Debt-for-equity exchange using net proceeds from the Frontdoor common shares retained		(486)
Use of cash to retire short-term credit facility		(114)
Total uses		(1,034)
Excess cash	$	52


	As of
(In millions)	March 31, 2019
Finance lease cost
Depreciation of finance lease ROU assets	$	8
Interest on finance lease liabilities		1
Operating lease cost		7
Variable lease cost		—
Sublease income		(1)
Total lease cost	$	16


	As of June 30, 2018
Condensed Consolidated Statement of Financial Position		As reported		Under Prior Revenue Recognition Guidance
Current Assets:
Receivables	$	202	$	612
Prepaid expenses and other assets		92		104
Deferred customer acquisition costs		—		41
Other Assets:
Deferred customer acquisition costs		94		—
Total Assets	$	5,530	$	5,901

Current Liabilities:
Deferred revenue	$	290	$	696
Other Long-Term Liabilities:
Deferred taxes		529		521
Other long-term obligations, primarily self-insured claims		188		181
Total Liabilities		4,184		4,575

Accumulated deficit		(745)		(761)
Accumulated other comprehensive income		20		20
Net Income		136		132
Liabilities and Equity	$	5,530	$	5,901


	Three months ended June 30, 2018
Condensed Consolidated Statement of Operations and Comprehensive Income		As reported		Under Prior Revenue Recognition Guidance
Revenue	$	874	$	870
Cost of services rendered and products sold		467		467
Selling and administrative expenses		225		227
Provision for income taxes		34		32
Net Income	$	96	$	89


	Six months ended June 30, 2018
Condensed Consolidated Statement of Operations and Comprehensive Income		As reported		Under Prior Revenue Recognition Guidance
Revenue	$	1,549	$	1,542
Cost of services rendered and products sold		829		829
Selling and administrative expenses		422		419
Provision for income taxes		48		47
Net Income	$	136	$	132



	Accrued
	Restructuring
(In millions)	Charges
Balance as of December 31, 2018	$	7
Costs incurred		7
Costs paid or otherwise settled		(7)
Balance as of March 31, 2019	$	7

Balance as of December 31, 2017	$	6
Costs incurred		12
Costs paid or otherwise settled		~~(9)~~(4)
Balance as of ~~June 30,~~March 31, 2018	$	1014


	Three Months Ended
(In millions)	March 31, 2018
Depreciation	$	2
Amortization		2
Capital expenditures		(4)



			American		Franchise
(In millions)	Terminix		Home Shield		Services Group		Total
Balance as of December 31, 2017	$	1,605	$	476	$	176	$	2,256
Acquisitions		142		—		—		142
Impact of foreign exchange rates		(1)		—		—		(1)
Balance as of June 30, 2018	$	1,745	$	476	$	175	$	2,396


(In millions)	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	6
Operating cash flows for finance leases		1
Financing cash flows for finance leases		8
ROU assets obtained in exchange for lease obligations:
Operating leases		3
Finance leases		10
Weighted Average Remaining Lease Term (in years):
Operating leases		10.79
Finance leases		3.56
Weighted Average Discount Rate:
Operating leases		5.54	%
Finance leases		4.23	%


(In millions)	Operating Leases		Capital Leases
Year ended December 31,
Less than 1 Yr	$	17	$	31
1 - 3 Yrs		36		46
3 - 5 Yrs		25		14
More than 5 Yrs		67		1
Total future minimum lease payments	$	146	$	92



	Fuel Swap
	Contract
	Assets
(In millions)	(Liabilities)		Location of Gain (Loss) included in Earnings
Balance as of December 31, ~~2017~~2018	$	3 (4)
Total (losses) gains (realized and unrealized)
Included in earnings		1	Cost of services rendered and products sold
Included in other comprehensive income		14
Settlements		(1)
Balance as of ~~June 30, 2018~~March 31, 2019	$	4 —

Balance as of December 31, ~~2016~~2017	$	53
Total (losses) gains (realized and unrealized)
Included in earnings		1 —	Cost of services rendered and products sold
Included in other comprehensive income		~~(5)~~ —
Settlements		~~(1)~~ —
Balance as of ~~June 30, 2017~~March 31, 2018	$	— 3



			American		Franchise
			Home		Services
(In millions)	Terminix		Shield		Group		Corporate		Total
Three Months Ended June 30, 2017	$	428	$	326	$	52	$	1	$	807
Pest Control (1)		25		—		—		—		25
Termite and Other Services		1		—		—		—		1
Home Service Plans		—		29		—		—		29
Franchise-Related Revenue		—		—		11		—		11
Other		1		—		—		—		1
Three Months Ended June 30, 2018	$	456	$	355	$	64	$	—	$	874



~~(In millions)~~
~~Three Months Ended June 30, 2017~~	$	~~105~~
~~Impact of change in revenue~~		7
~~Acquisition selling and administrative expenses~~		~~(5)~~
~~Bad debt~~		2
~~Chemicals and materials~~		3
~~Fuel prices~~		~~(1)~~
~~Sales and marketing~~		1
~~Incentive compensation~~		~~(2)~~
~~Other~~		~~(2)~~
~~Three Months Ended June 30, 2018~~	$	~~109~~



~~(In millions)~~
~~Six Months Ended June 30, 2017~~	$	~~186~~
~~Impact of change in revenue~~		8
~~Acquisition selling and administrative expenses~~		~~(5)~~
~~Bad debt~~		5
~~Chemicals and materials~~		6
~~Fuel prices~~		~~(2)~~
~~Sales and marketing~~		~~(1)~~
~~Incentive compensation~~		~~(2)~~
~~Production labor~~		1
~~Other~~		~~(1)~~
~~Six Months Ended June 30, 2018~~	$	~~195~~


~~(In millions)~~
~~Six Months Ended June 30, 2017~~	$	~~113~~
~~Impact of change in revenue~~		31
~~Contract claims~~		~~(28)~~
~~Sales and marketing costs~~		~~(6)~~
~~Customer service costs~~		~~(4)~~
~~Spin-off dis-synergies~~		~~(1)~~
~~Other~~		~~(1)~~
~~Six Months Ended June 30, 2018~~	$	~~105~~



(In millions)
Three Months Ended ~~June 30, 2017~~March 31, 2018	$	2286
Impact of change in revenue		3 6
Sales and marketing		(2)
Production labor		(1)
Spin-off dis-synergies		(4)
Investments in growth		(4)
Other		~~(1)~~(3)
Impact of acquisitions		4
Three Months Ended ~~June 30, 2018~~March 31, 2019	$	2483



(In millions)
~~Six~~Three Months Ended ~~June 30, 2017~~March 31, 2018	$	4323
Impact of change in revenue		61
Other		~~(2)~~(1)
~~Six~~Three Months Ended ~~June 30, 2018~~March 31, 2019	$	4623



				Total number of	Maximum dollar value
				shares purchased as	of shares that may yet
				part of publicly	be purchased under
	Total number of	Average price		announced plans or	the plans or programs
Period	shares purchased	paid per share		programs	(in millions)(1)
Jan. 1, 2019 through Jan. 31, 2019	—	$	—	—	$	150
Feb. 1, 2019 through Feb. 28, 2019	—		—	—		150
Mar. 1, 2019 through Mar. 31, 2019	36,360		47.02	36,360		148
Total	36,360	$	47.02	36,360	$	148



Exhibit Number		Description
~~10.1#~~10.1		~~Employment~~Credit Agreement, dated as of ~~May 15, 2018, between Rex Tibbens~~March 12, 2019, among The ServiceMaster Company, LLC, JPMorgan Chase Bank, N.A., as administrative agent, and ~~American Home Shield.~~the several banks and other financial institutions from time to time party thereto is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of ServiceMaster Global Holdings, Inc. filed on March 18, 2019.
~~10.2#~~		~~Sign-on Restricted Stock Unit Agreement, dated as of May 15, 2018, with Rex Tibbens.~~
~~10.3#~~		~~Sign-on Stock Option Agreement, dated as of May 15, 2018, with Rex Tibbens.~~
~~10.4#~~		~~Restricted Stock Unit Agreement, dated as of May 15, 2018, with Rex Tibbens.~~
~~10.5#~~		~~Stock Option Agreement, dated as of May 15, 2018, with Rex Tibbens.~~
~~10.6#~~		~~Indemnification Agreement, dated as of May 15, 2018, between Rex Tibbens and ServiceMaster Global Holdings, Inc.~~
~~10.7#~~		~~Schedule of Signatories to a Director Indemnification Agreement.~~
~~10.8#~~10.2#*		Form of Employee ~~Stock Option Agreement under the ServiceMaster Global Holdings, Inc. 2014 Omnibus Incentive Plan for awards granted on or after July 23, 2018.~~
~~10.9#~~		~~Form of Employee Restricted~~Performance Stock Unit Agreement under the ServiceMaster Global Holdings, Inc. 2014 Omnibus Incentive Plan for awards granted on or after ~~July 23, 2018.~~February 18, 2019.
~~10.10#~~10.3#		Form Employee Stock Option Agreement under the Omnibus Plan for awards granted on or after February 18, 2019 is incorporated by reference to Exhibit 10.54 to the Annual Report on Form 10-K of ~~Performance Share Termination Agreement.~~ServiceMaster Global Holdings, Inc., filed on February 28, 2019.
~~31.1#~~10.4#		ServiceMaster Global Holdings, Inc. Employee Stock Purchase Plan as amended and restated as of February 19, 2019, is incorporated by reference to Exhibit 10.55 to the Annual Report on Form 10-K of ServiceMaster Global Holdings, Inc., filed on February 28, 2019.
31.1*		Certification of Chief Executive Officer pursuant to Rule 13a — 14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~31.2#~~31.2*		Certification of Chief Financial Officer pursuant to Rule 13a — 14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~32.1#~~32.1*		Certification of Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~32.2#~~32.2*		Certification of Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101.INS#~~101.INS*		XBRL Instance Document
~~101.SCH#~~101.SCH*		XBRL Taxonomy Extension Schema
~~101.CAL#~~101.CAL*		XBRL Taxonomy Extension Calculation Linkbase
~~101.DEF#~~101.DEF*		XBRL Taxonomy Extension Definition Linkbase
~~101.LAB#~~101.LAB*		XBRL Taxonomy Extension Label Linkbase
~~101.PRE#~~101.PRE*		XBRL Extension Presentation Linkbase


	SERVICEMASTER GLOBAL HOLDINGS, INC.
	(Registrant)

	By:	/s/ Anthony D. DiLucente
		Anthony D. DiLucente
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

As of June 30,

Growth in Home Service Plans

Customer Retention Rate