UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________

FORM 10-Q

________________________________________________


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

For the quarterly period ended June 30, ~~2017~~2020


☐o	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.)

~~860 Ridge Lake Boulevard,~~150 Peabody Place, Memphis, Tennessee ~~38120~~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 ☒x No ☐o

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 ☒x No ☐o

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 x	Accelerated ~~filer ☐~~Filer o	~~Non-accelerated filer ☐~~Non-Accelerated Filer o	Smaller ~~reporting company ☐~~Reporting Company o
		~~(Do not check if a smaller reporting company)~~	Emerging ~~growth company~~☐Growth Company o

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. ☐o

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


	Yes ☐o No ☒x

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 28, 2017: 133,441,487~~August 3, 2020:131,991,945 shares of common stock, par value $0.01 per ~~share~~ 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

Condensed Consolidated Statements of Stockholders’ Equity	5

Condensed Consolidated Statements of Cash Flows	56

Notes to Condensed Consolidated Financial Statements	67

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1827

Item 3. Quantitative and Qualitative Disclosures About Market Risk	3645

Item 4. Controls and Procedures	3645

Part II. Other Information	3646

Item 1. Legal Proceedings	3646

Item 1A. Risk Factors	3746

Item ~~2. Unregistered Sales of Equity Securities and Use of Proceeds~~6. Exhibits	3947

~~Item 6. Exhibits~~Signature	4048

~~Signature~~	41

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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				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Revenue	$	807	$	747	$	1,450	$	1,355	$	534	$	494	$	990	$	913
Cost of services rendered and products sold		415		379		761		704		297		276		577		512
Selling and administrative expenses		206		187		392		360		143		138		283		261
Amortization expense		7		8		14		16		9		5		18		10
401(k) Plan corrective contribution		—		1		—		1
Fumigation related matters (Note 3)		1		88		2		91
Insurance reserve adjustment		—		23		—		23
Impairment of software and other related costs		—		1		2		1
Restructuring charges		1		4		3		5
Gain on sale of Merry Maids branches		—		—		—		(2)
Acquisition-related costs										—		3		1		4
Fumigation related matters										—		(1)		—		—
Restructuring and other charges										8		2		12		8
Realized (gain) on investment in frontdoor, inc.										—		—		—		(40)
Interest expense		38		38		75		76		22		18		45		45
Interest and net investment income		(1)		(4)		(1)		(4)		(1)		(3)		(1)		(4)
Loss on extinguishment of debt		3		—		3		—		—		—		—		6
Income from Continuing Operations before Income Taxes		137		23		199		85		57		56		56		112
Provision for income taxes		52		7		76		30		18		14		16		17
Equity in earnings of joint venture										1		—		1		—
Income from Continuing Operations		85		16		123		54		40		42		41		95
Income from discontinued operations, net of income taxes		—		—		1		—
Net earnings from discontinued operations										13		17		26		34
Net Income	$	85	$	16	$	124	$	54	$	53	$	59	$	67	$	129
Total Comprehensive Income	$	84	$	15	$	124	$	55	$	54	$	55	$	19	$	123
Weighted-average common shares outstanding - Basic		133.7		135.5		134.1		135.6		131.9		136.0		133.4		135.9
Weighted-average common shares outstanding - Diluted		135.0		137.7		135.5		137.7		132.0		136.5		133.5		136.3
Basic Earnings Per Share:
Income from Continuing Operations	$	0.64	$	0.11	$	0.92	$	0.40	$	0.30	$	0.31	$	0.31	$	0.70
Income from discontinued operations, net of income taxes		—		—		—		—
Net earnings from discontinued operations										0.10		0.13		0.19		0.25
Net Income		0.64		0.12		0.92		0.40		0.40		0.43		0.50		0.95
Diluted Earnings Per Share:
Income from Continuing Operations	$	0.63	$	0.11	$	0.91	$	0.40	$	0.30	$	0.30	$	0.31	$	0.70
Income from discontinued operations, net of income taxes		—		—		—		—
Net earnings from discontinued operations										0.10		0.13		0.19		0.25
Net Income		0.63		0.11		0.91		0.39		0.40		0.43		0.50		0.94

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

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Condensed Consolidated Statements of Financial Position (Unaudited)

(In millions, except share data)



	As of		As of		As of		As of
	June 30,		December 31,		June 30,		December 31,
	2017		2016		2020		2019
Assets:
Current Assets:
Cash and cash equivalents	$	378	$	291	$	302	$	280
Marketable securities		25		25
Receivables, less allowances of $22 and $22, respectively		562		536
Receivables, less allowances of $22 and $21, respectively						205		178
Inventories		45		43		45		46
Prepaid expenses and other assets		92		70		68		81
Deferred customer acquisition costs		37		34
Current assets held for sale						884		45
Total Current Assets		1,140		998		1,505		629
Other Assets:
Property and equipment, net		224		210		189		205
Operating lease right-of-use assets						86		95
Goodwill		2,254		2,247		2,103		2,096
Intangible assets, primarily trade names, service marks and trademarks, net		1,704		1,708		1,146		1,169
Restricted cash		89		95		89		89
Notes receivable		40		37		33		32
Long-term marketable securities		27		19		13		13
Deferred customer acquisition costs						96		94
Other assets		63		71		78		72
Long-term assets held for sale						—		829
Total Assets	$	5,541	$	5,386	$	5,339	$	5,322
Liabilities and Shareholders' Equity:
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable	$	128	$	112	$	115	$	96
Accrued liabilities:
Payroll and related expenses		51		54		75		54
Self-insured claims and related expenses		128		111		84		72
Accrued interest payable		15		16		12		16
Other		97		60		108		82
Deferred revenue		658		629		112		107
Current portion of lease liability						18		19
Current portion of long-term debt		141		59		104		70
Current liabilities held for sale						54		40
Total Current Liabilities		1,219		1,042		683		557
Long-Term Debt		2,678		2,772		1,620		1,667
Other Long-Term Liabilities:
Deferred taxes		714		719		486		499
Other long-term obligations, primarily self-insured claims		189		167		196		158
Long-term lease liability						103		110
Long-term liabilities held for sale						—		9
Total Other Long-Term Liabilities		903		886		786		776
Commitments and Contingencies (Note 3)
Shareholders' Equity:
Common stock $0.01 par value (authorized 2,000,000,000 shares with 144,950,350 shares issued and 133,431,298 outstanding at June 30, 2017 and 144,339,338 shares issued and 135,030,283 outstanding at December 31, 2016)		2		2
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Common stock $0.01 par value (authorized 2,000,000,000 shares with 148,193,311 shares issued and 131,981,085 outstanding at June 30, 2020 and 147,872,959 shares issued and 135,408,054 outstanding at December 31, 2019)						2		2
Additional paid-in capital		2,289		2,274		2,348		2,334
Accumulated deficit		(1,281)		(1,405)
Accumulated other comprehensive loss		(2)		(3)
Less common stock held in treasury, at cost (11,519,052 shares at June 30, 2017 and 9,309,055 shares at December 31, 2016)		(267)		(182)
Total Shareholders' Equity		741		686
Total Liabilities and Shareholders' Equity	$	5,541	$	5,386
Retained Earnings						358		291
Accumulated other comprehensive (loss) income						(40)		9
Less common stock held in treasury, at cost (16,212,226 shares at June 30, 2020 and 12,464,905 shares at December 31, 2019)						(417)		(313)
Total Stockholders' Equity						2,251		2,322
Total Liabilities and Stockholders' Equity					$	5,339	$	5,322

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

‎

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Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity (Unaudited)

(In ~~millions)~~millions)

Six Months Ended

June 30,

2017

2016
Cash and Cash Equivalents and Restricted Cash at Beginning of Period

$
386

$
296
Cash Flows from Operating Activities from Continuing Operations:

Net Income

124

54
Adjustments to reconcile net income to net cash provided from operating activities:

Income from discontinued operations, net of income taxes

(1)

—
Depreciation expense

37

27
Amortization expense

14

16
Amortization of debt issuance costs

3

2
401(k) Plan corrective contribution

—

1
Fumigation related matters

2

91
Payments on fumigation related matters

(1)

(2)
Insurance reserve adjustment

—

23
Impairment of software and other related costs

2

1��
Gain on sale of Merry Maids branches

—

(2)
Loss on extinguishment of debt

3

—
Deferred income tax (benefit) provision

(2)

5
Stock-based compensation expense

9

7
Gain on sale of marketable securities

—

(3)
Other

7

3
Change in working capital, net of acquisitions:

Receivables

(24)

(18)
Inventories and other current assets

(13)

(20)
Accounts payable

18

34
Deferred revenue

28

24
Accrued liabilities

18

10
Accrued interest payable

(1)

—
Accrued restructuring charges

—

3
Current income taxes

37

(13)
Net Cash Provided from Operating Activities from Continuing Operations

260

244
Cash Flows from Investing Activities from Continuing Operations:

Property additions

(34)

(31)
Sale of equipment and other assets

1

7
Business acquisitions, net of cash acquired

(12)

(73)
Purchases of available-for-sale securities

(7)

(2)
Sales and maturities of available-for-sale securities

2

48
Origination of notes receivable

(54)

(53)
Collections on notes receivable

50

48
Other investments

(1)

(3)
Net Cash Used for Investing Activities from Continuing Operations

(56)

(58)
Cash Flows from Financing Activities from Continuing Operations:

Payments of debt

(46)

(33)
Repurchase of common stock

(85)

(17)
Issuance of common stock

7

5
Net Cash Used for Financing Activities from Continuing Operations

(124)

(45)
Cash Flows from Discontinued Operations:

Cash provided from operating activities

1

—
Net Cash Provided from Discontinued Operations

1

—
Effect of Exchange Rate Changes on Cash

—

1
Cash Increase During the Period

81

141
Cash and Cash Equivalents and Restricted Cash at End of Period

$
467

$
437



							Retained		Accumulated
					Additional		Earnings		Other
			Common		Paid-in		(Accumulated		Comprehensive		Treasury				Total
	Shares		Stock		Capital		Deficit)		(Loss) Income		Shares		Amount		Equity
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
Net income		—		—		—		59		—		—		—		59
Other comprehensive income, net of tax		—		—		—		—		(4)		—		—		(4)
Total comprehensive income (loss)		—		—		—		59		(4)		—		—		55
Exercise of stock options		—		—		4		—		—		—		—		4
Stock-based employee compensation		—		—		4		—		��		—		—		4
Repurchase of common stock		—		—		—		—		—		—		(15)		(15)
Balance June 30, 2019		148	$	2	$	2,326	$	285	$	(1)		(12)	$	(283)	$	2,329

Balance December 31, 2019		148	$	2	$	2,334	$	291	$	9		(12)	$	(313)	$	2,322
Net income		—		—		—		14		—		—		—		14
Other comprehensive loss, net of tax		—		—		—		—		(50)		—		—		(50)
Total comprehensive income (loss)		—		—		—		14		(50)		—		—		(36)
Exercise of stock options		—		—		2		—		—		—		—		2
Stock-based employee compensation		—		—		5		—		—		—		—		5
Repurchase of common stock		—		—		—		—		—		(4)		(103)		(103)
Balance March 31, 2020		148	$	2	$	2,341	$	305	$	(41)		(16)	$	(417)	$	2,190
Net income		—		—		—		53		—		—		—		53
Other comprehensive loss, net of tax		—		—		—		—		1		—		—		1
Total comprehensive income		—		—		—		53		1		—		—		54
Stock-based employee compensation		—		—		6		—		—		—		—		6
Balance June 30, 2020		148	$	2	$	2,348	$	358	$	(40)		(16)	$	(417)	$	2,251

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

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Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)



	Six Months Ended
	June 30,
	2020		2019
Cash and Cash Equivalents and Restricted Cash at Beginning of Period	$	368	$	313
Cash Flows from Operating Activities from Continuing Operations:
Net Income		67		129
Adjustments to reconcile net income to net cash provided from operating activities:
Net earnings from discontinued operations		(26)		(34)
Depreciation expense		37		35
Amortization expense		18		10
Amortization of debt issuance costs		2		2
Amortization of lease right-of-use assets		9		9
Payments on fumigation related matters		—		(1)
Realized (gain) on investment in frontdoor, inc.		—		(40)
Loss on extinguishment of debt		—		6
Deferred income tax provision		—		8
Stock-based compensation expense		10		8
Gain on sale of marketable securities		—		(1)
Restructuring and other charges		12		8
Payments for restructuring and other charges		(6)		(9)
Acquisition-related costs		1		4
Payments for acquisition-related costs		(4)		(3)
Other		(10)		(9)
Change in working capital, net of acquisitions:
Receivables		(29)		(12)
Inventories and other current assets		(6)		(12)
Accounts payable		26		27
Deferred revenue		4		6
Accrued liabilities		31		(9)
Accrued interest payable		(4)		1
Current income taxes		40		5
Net Cash Provided from Operating Activities from Continuing Operations		172		124
Cash Flows from Investing Activities from Continuing Operations:
Property additions		(15)		(13)
Business acquisitions, net of cash acquired		(24)		(115)
Origination of notes receivable		(20)		(56)
Collections on notes receivable		22		64
Net Cash Used for Investing Activities from Continuing Operations		(36)		(119)
Cash Flows from Financing Activities from Continuing Operations:
Borrowings of debt		—		600
Payments of debt		(40)		(624)
Repurchase of common stock		(103)		(17)
Issuance of common stock		3		9
Net Cash Used For Financing Activities from Continuing Operations		(140)		(32)
Cash Flows from Discontinued Operations:
Cash provided from operating activities		27		32
Cash provided from investing activities		—		(2)
Cash used for financing activities		—		—
Net Cash Provided from Discontinued Operations		28		30
Effect of Exchange Rate Changes on Cash		(1)		—
Cash Increase During the Period		22		3
Cash and Cash Equivalents and Restricted Cash at End of Period	$	391	$	316

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

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SERVICEMASTER GLOBAL HOLDINGS,INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation

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 markets. Our mission is to create cleaner, healthier, safer environments for our customers wherever they are – at home, ~~warranties, disaster restoration, janitorial, residential cleaning, cabinet~~at work or at play. Our portfolio of well‑recognized brands includes Terminix (residential termite and ~~wood furniture repair~~pest control), Terminix Commercial (commercial termite and ~~home inspection. The Company provides these services through an extensive service network of company-owned, franchised~~pest control), Copesan (commercial national accounts pest management), Assured Environments (commercial pest control), Gregory Pest Solutions (commercial pest control), McCloud Services (commercial pest control) and ~~licensed locations operating primarily under the following leading brands: Terminix, American Home Shield, ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic and AmeriSpec.~~Nomor (European 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, ~~2016,~~2019, as filed with the SEC (the ~~“2016~~“2019 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.

Exploration of Strategic Alternatives for ServiceMaster Brands

On January 21, 2020, we announced we are exploring strategic alternatives related to ServiceMaster Brands, including the potential sale of the business. The divestiture group includes the assets and liabilities of the ServiceMaster Brands businesses, which is comprised of the Amerispec, Furniture Medic, Merry Maids, ServiceMaster Clean and ServiceMaster Restore brands, ServiceMaster Acceptance Corporation, our financing subsidiary that was historically reported as part of European Pest Control and Other, and the ServiceMaster trade name (the “ServiceMaster Brands Divestiture Group”). These operations were reported in our Annual Report on Form 10-K as part of continuing operations. Beginning with the quarterly report on Form 10-Q for the period ended March 31, 2020, the ServiceMaster Brands business is classified as held for sale and reported in discontinued operations for all periods presented.

Recent Events

The effects of COVID-19 and related actions to attempt to control its spread negatively impacted our business beginning in the last few weeks of March 2020. On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic, and governments around the world mandated, orders to slow the transmission of the virus. States in the United States, including Tennessee, where we are headquartered, declared states of emergency, and countries around the world, including the United States, took steps to restrict travel, instituted work from home policies, enacted temporary closures of businesses, issued quarantine orders and took other restrictive measures in response to the COVID-19 pandemic. Uncertainty with respect to the economic effects of the pandemic and the restrictive policies to mitigate its spread have introduced significant volatility in the financial markets. The exact timing and pace of recovery are uncertain. Certain markets have reopened while others remain closed or have closed again in an effort to control the spread of the virus. Although demand for our services improved through the second quarter, it remains marginally below prior year demand, particularly in our Terminix Commercial service line.

Within the United States, our residential and commercial pest control and cleaning and restore businesses have been designated essential businesses by the U.S. Department of Homeland Security, which has allowed us to continue to serve our customers while ensuring the health and safety of our employees and our customers. We have also continued serving our customers in all of the international markets in which we operate.

Note 2. Significant Accounting Policies

~~The Company’s~~Our significant accounting policies are described in Note 2 to the audited consolidated financial statements included in ~~the Company’s 2016~~our 2019 Form 10-K. There have been no material changes to the significant accounting policies for the ~~three and~~ six months ended June 30, ~~2017.~~2020, other than those described below.

~~Newly Issued~~Adoption of New Accounting Standards

In ~~May 2014,~~June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2014-09, “Revenue from Contracts with Customers” to provide a single comprehensive model for~~2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU requires entities to ~~use~~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 also requires enhanced disclosures relating to

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significant estimates and judgments used in estimating credit losses, as well as the credit quality. We adopted this ASU on January 1, 2020, and this adoption did not have a material impact on our financial condition or the results of our operations.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement.” Under ASU 2018-13, entities are required to disclose the amount of total gains or losses for the period recognized in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy. Additionally, the ASU requires the disclosure of the range and weighted average used to develop significant unobservable inputs and how the weighted average was calculated for fair value measurements categorized within Level 3 of the fair value hierarchy. We adopted this ASU on January 1, 2020, and this adoption had no impact to our disclosures. See Note 16 for further discussion of our Level 3 investments.

In March 2020, the FASB issued ASU 2020-03, “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, 2020. We adopted the updates, as applicable, in 2020, and this adoption did not have a material impact on our financial condition or the results of our operations.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional guidance to ease the potential burden in accounting for ~~revenue arising from contracts with customers. This model supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle~~reference rate reform on financial reporting in response to the risk of cessation of the ~~revenue model~~London Interbank Offered Rate (LIBOR). This amendment provides for optional expedients and exceptions for applying generally accepted accounting principles to contracts and hedging relationships that are affected by LIBOR and other reference rates. The ASU generally allows for a hedge accounting to continue if the hedge was highly effective or met other standards prior to reference rate reform. Entities are permitted to apply the amendments to all contracts, cash flow and net investment hedge relationships that exist as of March 12, 2020. The relief provided in this ASU is only available for a limited time, generally through December 31, 2022. Our debt agreement and interest rate swap that ~~“an entity recognizes revenue to depict~~utilize LIBOR have not yet discontinued the ~~transfer~~use of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” Entities have the option of using either a full retrospective or modified approach to adopt the guidance.LIBOR and, therefore, this ASU ~~2014-09~~ is not yet effective for ~~fiscal years,~~us. To the extent our debt and ~~interim periods within those~~interest rate swap arrangements change to another accepted rate, we will utilize the relief in this ASU to continue hedge accounting as we expect the remaining critical terms of our hedging relationship will still match.

Accounting Standards Issued But Not Yet Effective

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions. The ASU is effective for fiscal years beginning after December 15, ~~2017. Early adoption is permitted for fiscal years, and~~2020, including interim periods within those fiscal years, ~~beginning after December 15, 2016. To date,~~and early adoption is permitted. We are currently evaluating the ~~Company has performed~~impact the ~~following: A transition team has been established to implement the required changes; an initial assessment~~adoption of the Company’s revenue streams has been initiated; the Company has substantially completed its inventory of all outstanding contracts; and the Company has begun the process of applying the five-step model to those contracts and revenue streams to evaluate the quantitative and qualitative impacts the new standardthis ASU will have on ~~its business~~our consolidated financial statements.

We have reviewed all other recently issued, but not yet effective, accounting pronouncements and ~~reported revenues. The Company plans to adopt the new revenue standard in the first quarter of 2018 utilizing the full retrospective transition method. The Company does~~do not expect the future adoption of ~~the new revenue standard to~~any such pronouncements will have a material impact on ~~its consolidated~~our financial ~~statements.~~condition or the results of our operations.

~~In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” to change how entities measure certain equity investments, to require~~Note 3. Revenues

The following tables present our reportable segment revenues from continuing operations, disaggregated by revenue source. We disaggregate revenue from contracts with customers into major product lines. We have determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of ~~changes in the fair value of financial liabilities measured under the fair value option that are attributable to a company’s own credit,~~revenue 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. The amendments in ASU 2016-01 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and will be adopted prospectively. Upon adoption, changes in fair value of the Company’s available-for-sale securities, which are currently recognized in other comprehensive income, will be recognized in net income.

~~In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which is the final standard on accounting for leases. While both lessees and lessors~~cash flows are affected by economic factors. As noted in the business segment reporting information in Note 15, our reportable segment is Terminix.

Revenue related to fumigation completion services and the related renewals (the “Fumigation Services”) is shown in Termite and Home Services below and prior period amounts related to the Fumigation Services have been reclassified from Fumigation to Termite and Home Services to conform to the current period presentation. Additionally, prior period revenue for Residential Pest Control and Commercial Pest Control has been reclassified to conform to the current period presentation.


					European Pest Control
	Terminix				and Other				Total
	Three months ended				Three months ended				Three months ended
	June 30,				June 30,				June 30,
(In millions)		2020		2019		2020		2019		2020		2019
Major service line
Residential Pest Control	$	182	$	182	$	—	$	—	$	182	$	182
Commercial Pest Control		107		105		—		—		107		105
Termite and Home Services		196		183		—		—		196		183
Sales of Products and Other		32		25		—		—		32		25
European Pest Control		—		—		17		—		17		—
Total	$	517	$	495	$	17	$	—	$	534	$	494

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					European Pest Control
	Terminix				and Other				Total
	Six months ended				Six months ended				Six months ended
	June 30,				June 30,				June 30,
(In millions)		2020		2019		2020		2019		2020		2019
Major service line
Residential Pest Control	$	341	$	335	$	—	$	—	$	341	$	335
Commercial Pest Control		213		199		—		—		213		199
Termite and Home Services		351		339		—		—		351		339
Sales of Products and Other		50		41		—		—		50		41
European Pest Control		—		—		35		—		35		—
Total	$	955	$	914	$	35	$	—	$	990	$	913

Contract Balances

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. We record a receivable related to revenue recognized on services once 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 represents amounts financed for Terminix customers, are included within Receivables, less allowances, on the condensed consolidated statement of financial position and totaled $31 million and $38 million as of June 30, 2020 and December 31, 2019, 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. Terminix had deferred revenue of $95 million and $92 million as of June 30, 2020 and December 31, 2019, respectively.

Changes in deferred revenue for the six months ended June 30, 2020 and 2019 were as follows:


(In millions)	Deferred revenue
Balance, December 31, 2019	$	92
Deferral of revenue		63
Recognition of deferred revenue		(59)
Balance, June 30, 2020	$	95

Balance, December 31, 2018	$	91
Deferral of revenue		75
Recognition of deferred revenue		(68)
Balance, June 30, 2019	$	97

Approximately $17 million and $15 million of deferred revenue is recognized in the Condensed Consolidated Statements of Financial Position in European Pest Control and Other as of June 30, 2020 and December 31, 2019, primarily related to our acquisition of Nomor. This amount is being evaluated and is subject to change as we finalize our purchase accounting. See Note 13 for further discussion.

There was approximately $16 million and $40 million of revenue recognized in the three and six months ended June 30, 2020, that was included in the deferred revenue balance as of December 31, 2019. There was approximately $19 million and $44 million of revenue recognized in the three and six months ended June 30, 2019, that was included in the deferred revenue balance as of December 31, 2018.

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Note 4. Restructuring and Other Charges

We incurred restructuring charges of $8 million ($6 million, net of tax) and $2 million ($1 million, net of tax) in the three months ended June 30, 2020 and 2019, respectively. We incurred restructuring charges of $12 million ($9 million, net of tax) and $8 million ($6 million, net of tax) in the six months ended June 30, 2020 and 2019, respectively. Restructuring charges were comprised of the following:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2020		2019		2020		2019
Terminix⁽¹⁾	$	4	$	1	$	5	$	3
European Pest Control and Other⁽²⁾		4		1		7		4
Global Service Center relocation⁽³⁾		—		—		—		1
Total restructuring charges	$	8	$	2	$	12	$	8

___________________________________

(1)For the three and six months ended June 30, 2020, these charges included $2 million of severance and other costs and $2 million of impairment charges on our call center right of use assets, which we exited during the second quarter. Severance and other costs of $2 million were unpaid and accrued as of June 30, 2020. For the three and six months ended June 30, 2019, these charges included $1 million and $3 million, respectively, of severance and other costs.

(2)We have historically made changes on an ongoing basis to enhance capabilities and reduce costs in our corporate functions that provide company-wide administrative services to support operations, which represents costs to enhance capabilities and align corporate functions with those required to support our strategic needs as a pure play pest control company after the potential sale of the ServiceMaster Brands business and after the American Home Shield spin-off. Of the restructuring charges incurred by European Pest Control and Other, $3 million was unpaid and accrued as of June 30, 2020. For the three and six months ended June 30, 2020 and 2019, these charges were comprised of the following:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2020		2019		2020		2019
Severance	$	2	$	—	$	3	$	1
Other costs^(a)		2		1		4		4
Total European Pest Control and Other	$	4	$	1	$	7	$	4

___________________________________

(a)Represents costs incurred in connection with our CEO transition, charges associated with the marketing of our corporate aircraft for sale and accelerated depreciation on systems we are replacing with the implementation of our new ~~guidance,~~customer experience platform.

(3)For the ~~effects~~six months ended June 30, 2019, these charges included lease termination and other charges of $1 million related to our headquarter relocation.

The pretax charges discussed above are reported in Restructuring and other charges in the unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.

A reconciliation of the beginning and ending balances of accrued restructuring charges, which are included in Accrued liabilities—Other on ~~lessees~~the unaudited Condensed Consolidated Statements of Financial Position, is presented as follows:



	Accrued
	Restructuring
(In millions)	Charges
Balance as of December 31, 2019	$	1
Costs incurred		12
Costs paid or otherwise settled		(8)
Balance as of June 30, 2020	$	5

Balance as of December 31, 2018	$	7
Costs incurred		8
Costs paid or otherwise settled		(12)
Balance as of June 30, 2019	$	3

We expect substantially all of our accrued restructuring charges to be paid by December 31, 2020.

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Note 5. Discontinued Operations

In January 2020, we announced we are ~~much more significant.~~ exploring strategic alternatives related to ServiceMaster Brands in order to focus on our core pest control and termite business. We intend to complete our review of strategic alternatives and consummate a transaction, which may include the sale of the business, during the current fiscal year.

The ~~most significant change~~ServiceMaster Brands Divestiture Group is classified as held for ~~lessees is~~sale on the ~~requirement under~~Condensed Consolidated Statements of Financial Position and as discontinued operations on the ~~new guidance to recognize right-of-use~~Condensed Consolidated Statements of Operations and Comprehensive Income and Condensed Consolidated Statements of Cash Flows for all periods presented. The net amount of assets and ~~lease~~ liabilities held for ~~all leases not considered short-term leases. Entities~~sale related to discontinued operations are required to ~~use a modified retrospective approach~~be recorded at the lower of carrying value or fair value less costs to ~~adopt~~sell.

The following table summarizes the ~~guidance. The amendments in ASU 2016-02~~comparative financial results of discontinued operations which are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02presented as Net earnings from discontinued operations on the ~~Company’s consolidated financial statements~~Condensed Consolidated Statements of Operations and ~~currently expects that most~~Comprehensive Income:


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2020		2019		2020		2019
Revenue	$	63	$	66	$	128	$	128
Cost of services rendered and products sold		31		27		60		52
Selling and administrative expenses		10		12		22		26
Amortization expense		—		1		1		2
Restructuring and other charges⁽¹⁾		5		1		9		2
Income before income taxes		18		24		35		47
Provision for income taxes		5		7		9		12
Net earnings from discontinued operations	$	13	$	17	$	26	$	34

___________________________________

(1)Includes $5 million and $9 million of professional fees and other costs incurred in connection with the ~~operating lease commitments will be subject to~~strategic evaluation in the ~~new standard~~three and ~~recognized as operating lease liabilities and right-of-use assets upon adoption~~six months ended June 30, 2020, respectively.

Table of ~~ASU 2016-02, which will increase the amount of~~Contents

The total assets and ~~total~~ liabilities ~~that~~held for sale related to discontinued operations are stated separately in the Condensed Consolidated Statements of Financial Position and comprised the following items:


	As of		As of
(In millions)	June 30, 2020		December 31, 2019
Assets:
Current Assets:
Receivables, less allowances of $4 and $3, respectively	$	44	$	40
Inventories		4		2
Prepaid expenses and other assets		3		3
Total Current Assets		51		45
Other Assets:
Property and equipment, net		9		8
Operating lease right-of-use assets		2		2
Goodwill		178		183
Intangible assets, primarily trade names, service marks and trademarks, net		626		622
Notes receivable		11		13
Deferred customer acquisition costs		1		1
Other assets		1		1
Total Assets	$	879	$	875
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable	$	11	$	8
Accrued liabilities:
Payroll and related expenses		2		5
Other		27		23
Deferred revenue		4		4
Current portion of lease liability		1		1
Total Current Liabilities		44		40
Other Long-Term Liabilities:
Deferred taxes		2		1
Other long-term obligations		6		6
Long-term lease liability		1		2
Total Liabilities	$	54	$	50

All assets and liabilities held for sale were classified as Current assets held for sale and Current liabilities held for sale as of June 30, 2020 in the Condensed Consolidated Statements of Financial Position as it is ~~reported relative~~probable the sale will occur within one year.

The following selected financial information of ServiceMaster Brands is included in the Condensed Consolidated Statements of Cash Flows as cash flows from discontinued operations:


	Three Months Ended June 30,
(In millions)	2020		2019
Depreciation	$	—	$	1
Amortization		—		1
Capital expenditures		(1)		(1)

In addition, during the six months ended June 30, 2020, the Company began marketing its corporate aircraft for sale and reclassified its book value of $5 million to ~~such amounts prior to adoption.~~Current assets held for sale on the Condensed Consolidated Statements of Financial Position.

[

‎

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Note 3.6. Commitments and Contingencies

~~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~~Condensed Consolidated Statements of ~~financial position,~~Financial Position, net of insurance recoverables, which are included in Prepaid expenses and other assets and Other assets on the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~financial position,~~Financial Position, is presented as ~~follows:~~follows :



	Accrued
	Self-insured
(In millions)	Claims, Net
Balance as of December 31, ~~2016~~2019	$	~~120~~ 111
Provision for self-insured claims		18 24
Cash payments		~~(17)~~ (16)
Balance as of June 30, ~~2017~~2020	$	~~122~~
		119

Balance as of December 31, ~~2015~~2018	$	~~114~~ 111
Provision for self-insured claims~~(1)~~		44 18
Cash payments		~~(24)~~ (14)
Balance as of June 30, ~~2016~~2019	$	~~133~~

~~(1)~~

Includes a charge of $23 million recorded in the three and six months ended June 30, 2016 for an adjustment to the Company’s accrued self-insured claims related to automobile, general liability and workers’ compensation risks. The adjustment was based on the Company’s detailed annual assessment of this actuarially determined accrual, which the Company completes in the second quarter of each year. This adjustment related to coverage periods of 2015 and prior.115

~~Accruals~~Our Terminix business is subject to a significant number of damage claims related to termite activity in homes for ~~home~~which we provide termite control services, often accompanied by a termite damage warranty. Our termite damage warranty ~~claims~~is a differentiator in the ~~American Home Shield business are made based on the Company’s claims experience and actuarial projections.~~industry that has enabled us to become a market leader of this product line. Termite damage ~~claim accruals in~~claims include circumstances when a customer notifies us that they have experienced damage to their property and we reach an agreement to remediate that damage (a “Non-litigated Claim”); and circumstances when we do not reach an agreement with a customer to remediate the ~~Terminix business are recorded based on both the historical rates of claims incurred within a contract year~~damage and ~~the cost per claim. Current activity could differ causing a change in estimates. The Company has certain liabilities with respect to existing~~that customer initiates litigation or ~~potential claims, lawsuits and other proceedings. The Company accrues~~arbitration proceedings (a “Litigated Claim”). 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,~~Current activity can differ, causing a change in estimates which could be ~~material, are~~material.

During the fourth quarter of the year ended December 31, 2019, we recorded a change in estimate of our reserve for termite damages for Litigated Claims and Non-Litigated Claims in the ~~period the adjustments are identified.~~amount of $53 million.

~~In 2008, the Company amended its~~ ~~Profit Sharing~~A reconciliation of beginning and ~~Retirement Plan, a tax qualified 401(k) defined contribution plan available to substantially all of its employees (the “401(k) Plan”),~~ ~~to implement a~~ ~~qualified automatic contribution arrangement (“QACA”)~~ ~~under the safe harbor provisions of the~~ ~~Internal Revenue Code of 1986, as amended (the “Code”).~~ QACA plans, in general, require automatic enrollment of employees into the retirement plan absent an affirmative election that such employees do not wish to participate. Although the Company implemented processes to auto-enroll new hires after adopting the QACA plan in 2008, it discovered that it did not auto-enroll then existing employees who were not participating in the 401(k) Plan. In response, the Company implemented an auto-enrollment process for affected active employees and submitted to the Internal Revenue Service (the “IRS”) a voluntary correction proposal to remedy the issue for prior years. The Company’s current estimate of the cost of the correction ranges from $25 million to approximately $93 million. The Company has recorded in the condensed consolidated statement of operations and comprehensive income charges of $25 million, of which $1 million was recorded in the three and six months ended June 30, 2016. Charges for 401(k) Plan corrective contributions recorded in the three and six months ended June 30, 2017 were less than $1 million. However, there can be no assurances as to the ultimate cost of the correction.

In addition to the matter discussed above and the fumigation related matters discussed below, in the ordinary course of conducting business activities, the Company and its 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 entered into settlement agreements in certain cases, including with respect to putative collective and class actions,ending accrued Litigated Claims, which are ~~subject to court or other approvals. If one or more~~included in Accrued liabilities—Other and Other long-term obligations, primarily self-insured claims on the Condensed Consolidated Statements of Financial Position, and Non-Litigated Claims, which are included in Accrued liabilities—Self-insured claims and related expenses on the ~~Company’s settlements are not finally approved, the Company could have additional or different exposure, which could be material. Subject to the paragraphs below, the Company does not expect any~~Condensed Consolidated Statements of ~~these proceedings to have a material effect on its reputation, business, financial position, results of operations or cash flows; however, the Company can give no~~

Financial Position, is presented as follows:


	Accrued
	Termite Damage
(In millions)	Claims
Balance as of December 31, 2019	$	80
Provision for termite damage claims		27
Cash payments		(24)
Balance as of June 30, 2020	$	83

Balance as of December 31, 2018	$	28
Provision for termite damage claims		16
Cash payments		(23)
Balance as of June 30, 2019	$	21

713

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~~assurance that the results of any such proceedings will not materially affect its reputation, business, financial position, results of operations and cash flows~~.

~~Fumigation Related Matters~~

On July 21, 2016, Terminix International USVI, LLC (“TMX USVI”) and The Terminix International Company Limited Partnership (“TMX LP”), each an indirect, wholly-owned subsidiary of the Company, entered into a superseding Plea Agreement (the “Superseding Plea Agreement”) in connection with the investigation initiated by the United States Department of Justice Environmental Crimes Section (the “DOJ”) into allegations that a local Terminix branch used methyl bromide as a fumigant at a resort in St. John, U.S. Virgin Islands. The Superseding Plea Agreement was intended to resolve four misdemeanor charges of violations of the Federal Insecticide, Fungicide, and Rodenticide Act related to improper applications of methyl bromide. Those charges were set forth in an Information, dated March 29, 2016, in the matter styled ~~United States of America v. The Terminix International Company Limited Partnership andTerminix International USVI, LLC.~~ At a hearing held on August 25, 2016, the United States District Court of the U.S. Virgin Islands (the “District Court”) rejected the Superseding Plea Agreement. On August 31, 2016, the DOJ requested that the charges be dismissed, reserving its right to re-file the charges, in light of ongoing discussions to resolve the matter. The District Court granted that request, and the March 29, 2016 Information was dismissed.

On January 20, 2017, TMX USVI and TMX LP entered into a new Plea Agreement (the “New Plea Agreement”) with the DOJ, which has been filed with the District Court, and replaces the Superseding Plea Agreement. At a hearing on March 23, 2017, TMX USVI and TMX LP pled guilty to four misdemeanor charges of violations of the Federal Insecticide, Fungicide, and Rodenticide Act related to improper applications of methyl bromide, as set forth in a new Information filed on January 20, 2017 with the District Court that is substantially similar to the March 29, 2016 Information. Under the terms of the New Plea Agreement, the parties agreed and jointly recommended to the District Court that (i) TMX USVI and TMX LP each pay a fine of $4 million (total of $8 million); (ii) TMX USVI pay $1 million to the EPA for costs incurred by the EPA for the response and clean-up of the affected units at the resort in St. John; (iii) TMX USVI make a community service payment of $1 million to the National Fish and Wildlife Foundation for the purpose of engaging a third party to provide training to pesticide applicators in the U.S. Virgin Islands; and (iv) both TMX USVI and TMX LP serve a three-year probation period, subject to the special conditions of probation under the New Plea Agreement. The total financial terms of the recommended sentence under the New Plea Agreement are equivalent in total amount to the financial terms under the Superseding Plea Agreement. Unlike the Superseding Plea Agreement, however, the New Plea Agreement is non-binding on the District Court. The sentencing hearing before the District Court previously scheduled for July 27, 2017, has been rescheduled for September 21, 2017. It is possible that at that hearing the District Court could use its discretion to impose fines or other terms different than those in the New Plea Agreement. If approved by the District Court, and upon compliance with the terms and conditions of the New Plea Agreement, the New Plea Agreement will resolve the federal criminal consequences associated with the DOJ investigation. The New Plea Agreement does not bind any other federal, state or local authority; however, the EPA has indicated that it does not intend to initiate any administrative enforcement action or refer the matter to the DOJ for any civil enforcement action if the New Plea Agreement is approved by the District Court.

The Company has previously recorded within Fumigation related matters in the condensed consolidated statement of operations and comprehensive income total charges of $10 million in connection with the aforementioned criminal matter. 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 ~~the aforementioned~~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 ~~further~~ 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 or estimable, and any such further penalties, fines, sanctions, costs or damages would not be covered under ~~the Company’s~~our general liability insurance policies.

~~Table~~In addition to the matters discussed above, in the ordinary course of ~~Contents~~conducting business activities, we and our subsidiaries become involved in judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. We accrue for these liabilities when it is probable the future costs will be incurred and such costs can be reasonably estimated. Current activity can differ, causing a change in estimates which could be material. 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, shareholder 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, 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.

Note 4.7. Goodwill and Intangible Assets

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 annual assessment date is October 1.~~ There were ~~no goodwill or trade name~~0 impairment charges recorded in the three and six months ended June 30, ~~2017~~2020 and ~~2016.~~2019. There were no0 accumulated impairment losses recorded as of June 30, ~~2017.~~2020. Customer relationships and Other intangible assets, which primarily includes trade names subject to amortization, are amortized over their respective useful lives. The table below summarizes the goodwill balances for continuing operations by reportable ~~segment:~~segment and European Pest Control and Other:


			European Pest
(In millions)	Terminix		Control and Other⁽¹⁾		Total
Balance as of December 31, 2019	$	1,946	$	150	$	2,096
Acquisitions		8		1		9
Impact of foreign exchange rates		(1)		—		(2)
Balance as of June 30, 2020	$	1,953	$	150	$	2,103

___________________________________

(1)European Pest Control and Other includes goodwill related to pest control operations in Europe. See Note 13 for further discussion of these acquisitions and purchase price allocations.

American

Franchise

(In millions)

Terminix

Home Shield

Services Group

Total
Balance as of December 31, 2016

$
1,601

$
471

$
175

$
2,247
Acquisitions

1

4

—

5
Impact of foreign exchange rates

1

—

—

1
Balance as of June 30, 2017

$
1,603

$
476

$
175

$
2,254

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




	As of June 30, 2017						As of December 31, 2016						As of June 30, 2020						As of December 31, 2019
			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	$	888	$	—	$	888	$	888	$	—	$	888
Customer relationships		588		(547)		42		594		(538)		56		654		(437)		217		659		(423)		236
Franchise agreements		88		(68)		20		88		(67)		21
Other		81		(46)		35		65		(42)		23		78		(37)		41		79		(34)		45
Total	$	2,365	$	(661)	$	1,704	$	2,356	$	(647)	$	1,708	$	1,621	$	(474)	$	1,146	$	1,626	$	(457)	$	1,169

___________________________________

~~(1)~~

~~Not subject to amortization.~~

(1)Not subject to amortization.

For the existing intangible assets, ~~the Company anticipates~~we anticipate amortization expense for the remainder of ~~2017~~2020 and each of the next five years as follows:


(In millions)	2020		2021		2022		2023		2024		2025
Amortization expense	$	18	$	37	$	35	$	31	$	23	$	19

Table of ~~$13 million, $21 million, $16 million, $12 million, $9 million and $6 million, respectively.~~Contents

Note 5.8. Stock-Based Compensation

For the three months ended June 30, ~~2017~~2020 and ~~2016, the Company~~2019, we recognized stock-based compensation expense of $4$5 million ($24 million, net of tax) and $4 million ($23 million, net of tax), respectively. For the six months ended June 30, ~~2017~~2020 and ~~2016, the Company~~2019, we recognized stock-based compensation expense of $9$10 million ($57 million, net of tax) and $7$8 million ($46 million, net of tax), respectively. These charges are recorded within Selling and administrative expenses in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations and ~~comprehensive income.~~ Comprehensive Income.

As of June 30, ~~2017~~2020, there ~~was $33~~were $42 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. Stock Incentive Plan (“MSIP”) and~~ the Amended and Restated ServiceMaster Global Holdings, Inc. 2014 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) ~~and discounts associated with the ServiceMaster Global Holdings, Inc. Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”)~~. These remaining costs are expected to be recognized over a weighted-average period of ~~2.41~~2.14 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 1 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. As of June 30, 2020 there were 800,967 shares available for issuance under the Employee Stock Purchase Plan.

Note 9. Comprehensive (Loss) Income

~~Table of Contents~~

~~Note 6.~~ Comprehensive ~~Income~~

~~Comprehensive~~(loss) income, which primarily includes net income, ~~(loss), unrealized gain (loss) on marketable securities,~~ unrealized gain (loss) on derivative instruments and the effect of foreign currency translation, ~~gain (loss),~~ is ~~disclosed~~included in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations and Comprehensive Income.

During the six months ended June 30, 2019, we terminated $479 million of our then-existing $650 million interest rate swap, receiving $12 million from the counterparty. We terminated the remaining $171 million of our then-existing $650 million interest rate swap later in 2019, receiving $1 million from the counterparty. The fair value of the terminated agreement of $12 million as of June 30, 2019, and $12 million as of December 31, 2019, is recorded within accumulated other comprehensive ~~income.~~(loss) income on the Condensed Consolidated Statements of Financial Position and will be amortized into interest expense over the original term of the agreement. The remaining unamortized balance at June 30, 2020 is $8 million.

Table of Contents

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

Unrealized

Gains

Unrealized

on Available

Foreign

Gains (Losses)

-for-Sale

Currency

(In millions)

on Derivatives

Securities

Translation

Total
Balance as of December 31, 2016

$
12

$
1

$
(15)

$
(3)
Other comprehensive (loss) income before reclassifications:

Pre-tax amount

(9)

2

2

(5)
Tax benefit

(3)

—

—

(3)
After-tax amount

(6)

2

2

(2)
Amounts reclassified from accumulated other comprehensive income (loss)(1)

3

—

—

3
Net current period other comprehensive income

(3)

2

2

1
Balance as of June 30, 2017

$
9

$
2

$
(13)

$
(2)

Balance as of December 31, 2015

$
(7)

$
2

$
(15)

$
(21)
Other comprehensive (loss) income before reclassifications:

Pre-tax amount

(4)

(1)

3

(2)
Tax benefit

(1)

—

—

(1)
After-tax amount

(3)

(1)

3

(1)
Amounts reclassified from accumulated other comprehensive income (loss)(1)

3

(2)

—

2
Net current period other comprehensive (loss) income

1

(3)

3

1
Balance as of June 30, 2016

$
(7)

$
(1)

$
(12)

$
(20)




	Unrealized
	Gains		Foreign
	(Losses) on		Currency
(In millions)	Derivatives		Translation		Total
Balance as of December 31, 2019	$	13	$	(5)	$	9
Other comprehensive income before reclassifications:
Pre-tax amount		(55)		(6)		(61)
Tax provision		12		—		12
After-tax amount		(44)		(6)		(50)
Amounts reclassified within accumulated other comprehensive (loss) income⁽¹⁾		10		(10)		—
Amounts reclassified from accumulated other comprehensive (loss) income⁽²⁾		1		—		1
Net current period other comprehensive (loss) income		(33)		(16)		(48)
Balance as of June 30, 2020	$	(19)	$	(20)	$	(40)

Balance as of December 31, 2018	$	20	$	(15)	$	5
Other comprehensive income before reclassifications:
Pre-tax amount		(11)		2		(9)
Tax benefit		6		—		6
After-tax amount		(5)		2		(3)
Amounts reclassified from accumulated other comprehensive (loss) income⁽²⁾		(2)		—		(2)
Net current period other comprehensive (loss) income		(7)		2		(5)
Balance as of June 30, 2019	$	13	$	(13)	$	(1)

___________________________________

~~(1)~~

(1)Represents unrealized gains (losses) on our cross currency swap and net investment hedge related to foreign currency exchange rate fluctuations.

(2)Amounts are net of tax. ~~See reclassifications out of accumulated other comprehensive income (loss) below for further details.~~

Reclassifications out of accumulated other comprehensive (loss) income ~~(loss)~~ included the following components for the periods indicated.

Amounts Reclassified from Accumulated

Other Comprehensive Income (Loss)

Three Months Ended

Six Months Ended

Condensed Consolidated Statements of

June 30,

June 30,

Operations and Comprehensive Income
(In millions)

2017

2016

2017

2016

Location
Losses on derivatives:

Fuel swap contracts

$
—

$
(1)

$
1

$
(2)

Cost of services rendered and products sold
Interest rate swap contracts

(4)

(2)

(5)

(3)

Interest expense
Net losses on derivatives

(3)

(2)

(4)

(5)

Impact of income taxes

1

1

1

2

Provision for income taxes
Total reclassifications related to derivatives

$
(2)

$
(1)

$
(3)

$
(3)

Gains on available-for-sale securities

$
—

$
3

$
—

$
3

Interest and net investment income
Impact of income taxes

—

(1)

—

(1)

Provision for income taxes
Total reclassifications related to securities

$
—

$
2

$
—

$
2

Total reclassifications for the period

$
(2)

$
—

$
(3)

$
(2)


	Amounts Reclassified from Accumulated
	Other Comprehensive (Loss) Income
	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2020		2019		2020		2019
Gains (losses) on derivatives:
Fuel swap contracts	$	(2)	$	—	$	(2)	$	—
Cross currency swap and net investment hedge		(1)		2		—		3
Net gains (losses) on derivatives		(2)		2		(2)		3
Impact of income taxes		1		—		1		—
Total reclassifications for the period	$	(2)	$	2	$	(1)	$	2

~~Table of Contents~~

Note 7.10. Supplemental Cash Flow Information

Supplemental information relating to the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~cash flows~~Cash Flows is presented in the following table:



	Six Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2017		2016		2020		2019
Cash paid for or (received from):
Interest expense(1)	$	67	$	70	$	42	$	42
Interest and dividend income		—		(1)		(1)		(2)
Income taxes, net of refunds		41		37		(15)		17

___________________________________

(1)For the six months ended June 30, 2019, excludes $12 million received in connection with our partial terminations of the then-existing interest rate swap.

As of June 30, ~~2017,~~2020 and December 31, ~~2016 and June 30, 2016,~~2019, Cash and cash equivalents of ~~$378 million, $291~~$302 million and ~~$342~~$280 million, respectively, and Restricted cash of $89 million ~~$95~~and $89 million, respectively, as presented on the condensed consolidated statements of financial

Table of Contents

position represent the amounts comprising Cash and cash equivalents and Restricted cash of $391 million and ~~$95~~$368 million, respectively, on the Condensed Consolidated Statement of Cash Flows.

As of June 30, 2019 and December 31, 2018, Cash and cash equivalents of $228 million and $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 ~~$467 million, $386~~$316 million and ~~$437~~$313 million, respectively, on the ~~condensed consolidated statement~~Condensed Consolidated Statement of ~~cash flows. There was no restricted cash balance as~~Cash Flows.

The non-cash lease transactions are described in Note 12. The proceeds from the frontdoor, inc. (“Frontdoor”) debt issuances described in Note 11 were retained by the lender in satisfaction of ~~December 31, 2015.~~

~~The Company acquired $23 million~~the short-term credit facility and ~~$29 million of property and equipment through capital leases and other non-cash financing transactions in the six months ended June 30, 2017 and 2016, respectively, which~~ have been excluded from the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~cash flows~~Cash Flows as non-cash ~~investing and~~ financing activities.

In the six months ended June 30, 2016, the Company converted certain company-owned Merry Maids branches to franchises for a total purchase price of $8 million. In the six months ended June 30, 2016, the Company received cash of $6 million and provided financing of $2 million. These financed amounts have been excluded from the condensed consolidated statements of cash flows as non-cash investing activities.

Note ~~8. Cash and Marketable Securities~~

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, 2017 and December 31, 2016, the Company’s investments consisted primarily of treasury bills (“Debt securities”) and common equity securities (“Equity securities”). The amortized cost, fair value and gross unrealized gains and losses of the Company’s short- and long-term investments in Debt and Equity securities are as follows:

Gross

Gross

Amortized

Unrealized

Unrealized

Fair
(In millions)

Cost

Gains

Losses

Value
Available-for-sale securities, June 30, 2017:

Debt securities

$
29

$
—

$
—

$
29
Equity securities

21

3

—

24
Total securities

$
50

$
3

$
—

$
53
Available-for-sale securities, December 31, 2016:

Debt securities

$
27

$
—

$
—

$
27
Equity securities

15

1

—

17
Total securities

$
43

$
1

$
—

$
44

~~There were no unrealized losses which had been in a loss position for more than one year as of June 30, 2017 and December 31, 2016.~~

Gains and losses on sales of investments, as determined on a specific identification basis, are included in investment income in the period they are realized. The Company periodically reviews its portfolio of investments to determine whether there has been an other than temporary decline in the value of the investments from factors such as deterioration in the financial condition of the issuer or the market(s) in which the issuer competes. The table below summarizes proceeds, gross realized gains and gross realized losses resulting from sales of available-for-sale securities. There were no impairment charges due to other than temporary declines in the value of certain investments for the three and six months ended June 30, 2017 and 2016.

Three Months Ended

Six Months Ended

June 30,

June 30,
(In millions)

2017

2016

2017

2016
Proceeds from sale of securities

$
—

$
42

$
—

$
42
Gross realized gains, pre-tax

—

4

—

4
Gross realized gains, net of tax

—

2

—

2
Gross realized (losses), pre-tax

—

—

—

—
Gross realized (losses), net of tax

—

—

—

—

~~Table of Contents~~

~~Note 9.~~11. Long-Term Debt

Long-term debt is summarized in the following table:



	As of		As of
	June 30,		December 31,
(In millions)	2020		2019
Senior secured term loan facility maturing in 2026⁽¹⁾	$	591	$	593
Revolving credit facility maturing 2024		—		—
5.125% notes maturing in 2024⁽²⁾		743		742
7.45% notes maturing in 2027⁽³⁾		168		167
7.25% notes maturing in 2038⁽³⁾		40		40
Vehicle finance leases⁽⁴⁾		95		95
Other⁽⁵⁾		87		100
Less current portion⁽⁶⁾		(104)		(70)
Total long-term debt	$	1,620	$	1,667

__________________________________

(1)As of June 30, 2020 and December 31, 2019, presented net of $6 million in unamortized debt issuance costs in each period and $1 million of unamortized original issue discount in each period.

(2)As of June 30, 2020 and December 31, 2019, presented net of $7 million and 8 million, respectively of unamortized debt issuance costs.

(3)As of June 30, 2020 and December 31, 2019, collectively presented net of $27 million and $28 million, respectively, of unamortized fair value adjustments related to purchase accounting, which increases the effective interest rate from the coupon rates shown above.

(4)We have entered into a fleet management services agreement (the “Fleet Agreement”) which, among other things, allows us to obtain fleet vehicles through a leasing program. All leases under the Fleet Agreement are 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.

(5)As of June 30, 2020 and December 31, 2019, includes approximately $86 million and $91 million, respectively, of future payments in connection with acquisitions.

(6)The increase in the current portion of long-term debt consists of deferred purchase price and earnout payments on acquisitions due within 12 months.

Term Loan Facility

On November 5, 2019, we closed on an amended $600 million Term Loan B due 2026, as well as a $400 million revolving credit agreement due 2024 (the “Amended Term Loan Facility”).

The interest rates applicable to the loans under the Amended Term Loan Facility are based on a fluctuating rate of interest measured by reference to either, at the borrower’s option, (i) an adjusted LIBOR plus 1.75% per annum, or (ii) an alternate base rate (“ABR”) plus 0.75% per annum.Voluntary prepayments of borrowings under the Amended Term Loan Facility are permitted at any time, in minimum principal amounts, without premium or penalty.

The Term Loan Facility and the guarantees thereof are secured by substantially all of the tangible and intangible assets of the Company and certain of our domestic subsidiaries, excluding certain subsidiaries subject to regulatory requirements in various states, including pledges of all the capital stock of all direct domestic subsidiaries (other than foreign subsidiary holding companies, which are deemed to be foreign subsidiaries) owned by the Company or any Guarantor and of up to 65% of the capital stock of each direct foreign subsidiary owned by the Company or any Guarantor. The Term Loan Facility security interests are subject to certain exceptions, including, but not limited to, exceptions for (i) equity interests, (ii) indebtedness or other obligations of subsidiaries, (iii) real estate or (iv) any other assets, if the granting of a security interest therein would require that the 7.45% notes maturing in

As of

As of

June 30,

December 31,
(In millions)

2017

2016
Senior secured term loan facility maturing in 2023(1)

$
1,621

$
1,628
Revolving credit facility maturing in 2021

—

—
5.125% notes maturing in 2024(2)

738

737
7.10% notes maturing in 2018(3)

78

77
7.45% notes maturing in 2027(3)

168

167
7.25% notes maturing in 2038(3)

52

65
Vehicle capital leases(4)

94

87
Other

67

71
Less current portion

(141)

(59)
Total long-term debt

$
2,678

$
2,772

Table of Contents

~~(1)~~

~~As of June 30, 2017~~

2027 or 7.25% notes maturing in 2038 be secured. The Term Loan Facility is secured on a pari passu basis with the security interests created in the same collateral securing our $400 million revolving credit facility due 2024 (“the Revolving Credit Facility”).

Extinguishment of Debt and December 31, 2016, presented net of $17 million and $18 million, respectively, in unamortized debt issuance costs and $4 million and $4 million, respectively, in unamortized original issue discount paid.

~~(2)~~

~~As of June 30, 2017 and December 31, 2016, presented net of $12 and $13 million, respectively, in unamortized debt issuance costs.~~

~~(3)~~

As of June 30, 2017 and December 31, 2016, collectively presented net of $42 million and $48 million, respectively, of unamortized fair value adjustments related to purchase accounting, which increases the effective interest rate from the coupon rates shown above.

~~(4)~~

The Company has entered into a fleet management services agreement (the “Fleet Agreement”) which, among other things, allows the Company to obtain fleet vehicles through a leasing program. All leases under the Fleet Agreement are capital 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.

Repurchase of Notes

On ~~May 11, 2017,~~March 12, 2019, in connection with the ~~Company~~spin-off of the American Home Shield segment, we borrowed an aggregate principal amount of $600 million under a short-term credit facility to effectuate a debt-for-equity exchange of our Frontdoor retained shares. The proceeds of this short-term credit facility were used to repay $468 million aggregate principal amount of term loans outstanding under our senior secured term loan facility in March and April of 2019. Such prepayments resulted in a loss on extinguishment of debt of $4 million for the six months ended June 30, 2019.

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 (proceeds of $486 million, net), plus used $114 million of 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 six months ended June 30, 2019.

In March 2019, we purchased ~~$17~~approximately $7 million in aggregate principal amount of ~~its~~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 ~~97% of the principal amount~~99.5% using available cash. The repurchased notes were delivered to the trustee for cancellation. In connection with ~~this~~these partial ~~repurchase, the Company~~repurchases, we recorded a loss on extinguishment of debt of $3$2 million in the ~~three and~~ six months ended June 30, ~~2017.~~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%.

Interest Rate Swaps

~~Interest~~We have historically entered into interest rate swap agreements. Under the terms of these agreements, we pay a fixed rate of interest on the stated notional amount and receive a floating rate of interest (based on one month LIBOR) on the stated notional amount. Therefore, during the term of the swap agreements, the effective interest rate on the portion of the term loans equal to the stated notional amount is fixed at the stated rate in the interest rate swap agreements plus the incremental borrowing margin.

On November 5, 2019, we entered into a seven year interest swap agreement effective November 5, 2019. The notional amount of the agreement is $550 million. Under the terms of the agreement, we will pay a fixed rate of interest of 1.615% on the $550 million notional amount, and we will receive a floating rate of interest (based on one-month LIBOR, subject to a floor of 0 percent) on the notional amount. Therefore, during the term of the agreement, the effective interest rate on $550 million of the new Term Loan B is fixed at a rate of 3.365%.

In connection with the repayments of our previous Term Loan B due 2023 in ~~effect~~2019, we terminated $479 million of our then existing $650 million interest rate swap agreement, receiving $12 million from the counterparty. The remaining $171 million interest rate swap was terminated in November 2019 upon the final repayment of our previous Term Loan B due 2023, with 0 proceeds from the counterparty. The fair value of the terminated agreement of $12 million was recorded within accumulated other comprehensive income on the Condensed Consolidated Statements of Financial Position and is being amortized into interest expense over the original term of the agreement.

The changes in our interest rate swap agreement, as ~~of June 30, 2017~~well as the cumulative interest rate swap outstanding, are as follows:

Trade Date

Effective
Date

Expiration
Date

Notional
Amount

Fixed
Rate(1)

Floating
Rate
November 7, 2016

November 8, 2016

November 30, 2023

$650,000

1.493
%
One month LIBOR



	Notional
(In millions)	Amount		Fixed Rate⁽¹⁾
Interest rate swap agreement in effect as of December 31, 2018	$	650	1.493	%
Terminated		(479)
Entered into effect		—
Interest rate swap agreement in effect as of June 30, 2019	$	171	1.493	%
Terminated		(171)
Entered into effect		550	1.615	%
Interest rate swap agreement in effect as of December 31, 2019	$	550	1.615	%
Terminated		—
Entered into effect		—
Interest rate swap agreement in effect as of June 30, 2020	$	550	1.615	%

___________________________________

(1)Before the application of the applicable borrowing margin.

In accordance with accounting standards for derivative instruments and hedging activities, and as further described in Note 16, our interest rate swap agreement is classified as a cash flow hedge, and, as such, is recorded on the Condensed Consolidated

Table of Contents

Statements of Financial Position as either an asset or liability at fair value, with changes in fair value attributable to the hedged risks recorded in accumulated other comprehensive income.

Note ~~10.~~12. Leases

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.

As of June 30, 2020 and December 31, 2019, assets recorded under finance leases were $231 million and $220 million, respectively, and accumulated depreciation associated with finance leases was $141 million and $127 million, respectively.

The components of lease expense were as follows:


	Three months ended June 30,				Six months ended June 30,
(In millions)	2020		2019		2020		2019
Finance lease cost
Depreciation of finance lease ROU assets	$	10	$	8	$	20	$	16
Interest on finance lease liabilities		1		1		2		2
Operating lease cost		6		6		13		13
Variable lease cost		1		1		1		1
Sublease income		(1)		(1)		(1)		(1)
Total lease cost	$	17	$	16	$	33	$	31

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


	Six months ended June 30,
(In millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	14	$	12
Operating cash flows for finance leases		2		2
Financing cash flows for finance leases		20		16
ROU assets obtained in exchange for lease obligations:
Operating leases		3		5
Finance leases		16		22

As of June 30, 2020, there were $35 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 June 30, 2020 were as follows:


(In millions)	Operating Leases		Finance Leases
Year ended December 31,
2020 (excluding the six months ended June 30, 2020)	$	13	$	17
2021		22		28
2022		19		18
2023		15		12
2024		11		5
Thereafter		85		1
Total future minimum lease payments		165		81

Note 13. Acquisitions

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 six months ended June 30, 2020, our investment in acquisitions was $24 million, using available cash on hand, which included $7 million for 7 tuck-in pest control acquisitions which have been accounted for as business combinations, as well as $18 million for final funding for 2 pest control acquisitions and minority interests completed in 2019 that were included in Accrued liabilities—Other on the Consolidated Statements of Financial Position as of December 31, 2019. Another $2 million of deferred purchase price on the 2020 acquisitions is due to the sellers between one year and three years from the acquisition dates. We recorded a preliminary value of $8 million of goodwill for the 2020 acquisitions. We also made a minority investment in a pest control company for approximately $7 million, which was unfunded and is included in Accrued liabilities—Other in the Condensed

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Consolidated Statements of Financial Position as of June 30, 2020. 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 $12020 we received $3 million ~~and other intangibles, primarily reacquired rights, of $13 million~~from post-closing working capital adjustments related to ~~these acquisitions.~~ acquisitions completed in 2019.

On November 30, 2016, the Company acquired Landmark Home Warranty, LLC (“Landmark”) for a total purchase price of $39 million. The Company recorded goodwill of $37 million and other intangibles, primarily customer relationships, of $13 million related to this acquisition. During the six months ended June 30, ~~2017, the Company finalized its assessment~~2019, our investment in acquisitions was $115 million, using available cash on hand, for 19 pest control acquisitions which have been accounted for as business combinations. We recorded $76 million of ~~the fair value of the~~

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~~assets acquired and liabilities assumed. The Company updated its preliminary allocation and reclassified~~goodwill, $4 million ~~from~~of trade names and $44 million of other intangibles, primarily customer ~~relationships,~~lists, related to ~~goodwill.~~these acquisitions.

~~During~~We continue to finalize the valuations of intangible and tangible assets acquired in the last 12 months and plan to finalize all purchase accounting within 12 months from the date of each acquisition. The following sets forth the adjustments made to purchase price allocations during the six months ended June 30, 2016, the Company completed several pest control and termite acquisitions. The total purchase price for these acquisitions was $23 million. The Company recorded goodwill of $17 million and other intangibles of $3 million related2020:


					Other
(In millions)	Goodwill		Trade Names⁽¹⁾		Intangible Assets⁽²⁾
Balance as of December 31, 2019	$	309	$	31	$	197
Measurement period adjustments		—		—		(4)
Balance as of June 30, 2020	$	310	$	31	$	192

___________________________________

(1)Subject to ~~these~~ acquisitions. On June 27, 2016, the Company acquired OneGuard Home Warranties (“OneGuard”) for a total purchase price of $65 million. The Company recorded goodwill of $57 million and other intangibles of $15 million related to the OneGuard acquisition.amortization.

(2)Primarily customer lists.

Supplemental cash flow information regarding the ~~Company’s~~ acquisitions iswas as follows:


	Six Months Ended
	June 30,
(In millions)	2020		2019
Assets acquired	$	9	$	133
Liabilities assumed		—		(6)
Net assets acquired	$	9	$	127

Net cash paid	$	7	$	115
Seller financed debt		2		9
Contingent earnout		—		3
Purchase price	$	9	$	127

Nomor

On September 6, 2019, we acquired Nomor, a leading provider of pest control services in Sweden and Norway, for approximately 2 billion Swedish krona (approximately $198 million using the September 6, 2019 exchange rate, net of approximately $9 million of cash acquired). This strategic acquisition launched our expansion into the European pest control market. We funded the acquisition using cash on hand and proceeds from a $120 million borrowing under our Revolving Credit Facility.

Nomor is included in the Condensed Consolidated Statements of Financial Position based on an allocation of the purchase price. Given the timing and complexity of this acquisition, the presentation of Nomor in our financial statements, including the allocation of the purchase price, is preliminary and will likely change in future periods, perhaps significantly, as fair value estimates of the assets acquired and liabilities assumed are refined during the measurement period. Specifically, we are still evaluating the intangible and tangible assets acquired, deferred revenue balances, as well as the appropriate useful lives to assign to all assets, including intangibles. The majority of this purchase price is allocated to goodwill and is not expected to be deductible for income tax purposes. We will complete the purchase price allocation no later than the third quarter of 2020.

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A preliminary purchase price allocation was as follows (in millions):

Six Months Ended

June 30,
(In millions)

2017

2016
Assets acquired

$
15

$
88
Liabilities assumed

(1)

—
Net assets acquired

$
14

$
88

Net cash paid

$
12

$
73
Seller financed debt

3

15
Purchase price

$
14

$
88


Current assets⁽¹⁾	$	11
Property and equipment		6
Goodwill		127
Identifiable intangible assets⁽²⁾		94
Current liabilities⁽³⁾		(18)
Long-term liabilities⁽⁴⁾		(22)
Total purchase price	$	198

___________________________________

(1)Primarily trade receivables and net of approximately $9 million of cash acquired.

(2)Primarily customer lists.

(3)Primarily advanced collections from customers.

(4)Includes $20 million of deferred tax liabilities as a result of tax basis differences in intangible assets.

The following pro forma consolidated financial information presents the combined operations of ServiceMaster and Nomor for the three and six months ended June 30, 2019 (in millions, except per share data):


	(Unaudited)
	Three months ended		Six months ended
	June 30, 2019		June 30, 2019
Consolidated revenue	$	509	$	942
Consolidated net income	$	60	$	131
Basic earnings per share	$	0.44	$	0.96
Diluted earnings per share	$	0.44	$	0.96

ASC 805, “Business Combinations,” establishes guidelines regarding the presentation of the unaudited pro forma information. Therefore, this unaudited pro forma information is not intended to represent, nor do we believe it is indicative of, the consolidated results of operations of ServiceMaster that would have been reported had the acquisition been completed at the beginning of 2018. This unaudited pro forma information does not give effect to the anticipated business and tax synergies of the acquisition and is not representative or indicative of the anticipated future consolidated results of operations of ServiceMaster. The most significant adjustment made to the pro forma financial information is the inclusion of estimated quarterly interest expense of approximately $1 million related to financing obtained for the transaction and the estimated tax impact of this adjustment. The unaudited pro forma financial information includes various assumptions, including those related to the preliminary purchase price allocation, that may be impacted by the finalization of the purchase price allocation. The tax impact of these adjustments was calculated based on Nomor’s statutory rate.

Note ~~11.~~14. Income Taxes

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

The effective tax rate on income from continuing operations was 31.0 percent and 25.8 percent for the three months ended June 30, 2020 and 2019, respectively.

The effective tax rate on income from continuing operations was 28.5 percent and 15.5 percent for the six months ended June 30, 2020 and 2019, respectively. The effective tax rate on income from continuing operations for the six months ended June 30, 2019, was primarily affected by the disposition of the Frontdoor retained shares in a non-taxable debt-for-equity exchange that was recorded discretely in the three months ended March 31, 2019.

As of June 30, ~~2017~~2020 and December 31, ~~2016, the Company~~2019, we had $13 million and $14 million, respectively, of tax benefits primarily reflected in U.S. 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. Our policy is to recognize interest income, interest expense and penalties related to our tax positions within the tax provision.

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

The effective tax rate on income from continuing operations was 38.0 percent and 31.0 percent for the three months ended June 30, 2017 and 2016, respectively. The effective tax rate on income from continuing operations for the three months ended June 30, 2016 was primarily affected by excess tax benefits for share-based awards and the release of a valuation allowance recorded discretely during the quarter.

The effective tax rate on income from continuing operations was 38.0 percent and 35.4 percent for the six months ended June 30, 2017 and 2016, respectively. The effective tax rate on income from continuing operations for the six months ended June 30, 2016 was primarily affected by excess tax benefits for share-based awards and the release of a valuation allowance recorded discretely during the second quarter.

Note ~~12.~~15. Business Segment Reporting

~~The~~Through January 2020, when we announced were exploring strategic alternatives related to the ServiceMaster Brands business ~~of the Company is~~that resulted in it being classified as held for sale, we conducted business through ~~three~~2 reportable segments: Terminix ~~American Home Shield~~ and ~~Franchise Services Group.~~ServiceMaster Brands. We now have 1 reportable segment, Terminix.

In accordance with accounting standards for segments, we identified Terminix as our reportable segment primarily based on the ~~Company’s reportable segments~~nature of the services it provides and the operating results that are ~~strategic business units that offer different services.~~regularly reviewed by our chief operating decision maker (the “CODM”) to evaluate performance and allocate resources. The Terminix segment provides termite and pest control services to residential and commercial customers and distributes pest control products. The American Home Shield segment provides home warranties for household systems and appliances. The Franchise Services Group segment provides residential and commercial disaster restoration, janitorial and cleaning services through franchisesproducts, primarily under the ~~ServiceMaster, ServiceMaster Restore~~Terminix, Terminix Commercial, Copesan, Assured Environments, Gregory Pest Solutions and ~~ServiceMaster Clean~~McCloud Services brand ~~names, home cleaning services through franchises~~names.

European Pest Control and Other includes our European pest control operations, primarily under ~~the Merry Maids~~our Nomor brand, ~~name, cabinet~~our captive insurance subsidiary, which provides automobile, workers' compensation and ~~wood furniture repair primarily under the Furniture Medic brand name~~general liability coverage to our reportable segment, and home inspection services primarily under the AmeriSpec brand name. Corporate includes SMAC, the Company’s financing subsidiary exclusively dedicated to providing financing to its franchisees and retail customers of its operating units, and the Company’sour headquarters operations (substantially all of which costs are allocated to ~~the Company’s~~our reportable ~~segments)~~segment), which ~~provide~~provides various technology, ~~marketing,~~ finance, legal and other support services to Terminix. Our European pest control operations meet the definition of an operating segment, but do not meet the quantitative thresholds to require them to be reported as a reportable segments. The composition of the Company’s reportable segments is consistent with that used by the Company’s chief operating decision maker (the “CODM”) to evaluate performance and allocate resources.segment.

Information regarding the accounting policies used by ~~the Company is~~us are described in ~~the Company’s 2016~~our 2019 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~~5 percent

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generated in foreign ~~markets.~~markets as of June 30, 2020. Operating expenses of ~~the business units~~Terminix 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 reportable 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; ~~income from discontinued operations, net of income taxes; provision for income taxes; interest expense;~~costs historically allocated to ServiceMaster Brands; European pest control; depreciation and amortization expense; ~~401(k) Plan corrective contribution;~~acquisition-related costs; fumigation related matters; ~~insurance reserve adjustment;~~ non-cash stock-based compensation expense; restructuring ~~charges; gain on sale of Merry Maids branches; non-cash impairment of software~~ and other ~~related costs; and~~charges; realized (gain) on investment in frontdoor, inc.; net earnings from discontinued operations; provision for income taxes; loss on extinguishment of ~~debt. The Company’s~~debt; and interest expense. 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~~Terminix and ~~Corporate~~European Pest Control and Other is presented below:

Three Months Ended

Six Months Ended

June 30,

June 30,
(In millions)

2017

2016

2017

2016
Revenue:

Terminix

$
428

$
414

$
794

$
778
American Home Shield

326

282

553

477
Franchise Services Group

52

50

102

99
Reportable Segment Revenue

$
806

$
747

$
1,449

$
1,354
Corporate

1

1

1

1
Total Revenue

$
807

$
747

$
1,450

$
1,355
Reportable Segment Adjusted EBITDA:(1)

Terminix

$
105

$
112

$
186

$
207
American Home Shield

82

72

113

90
Franchise Services Group

22

19

43

37
Reportable Segment Adjusted EBITDA

$
209

$
203

$
343

$
334



	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2020		2019		2020		2019
Revenue:
Terminix	$	517	$	495	$	955	$	914
European Pest Control and Other		17		—		35		—
Total Revenue	$	534	$	494	$	990	$	913
Reportable Segment Adjusted EBITDA:⁽¹⁾
Terminix	$	120	$	106	$	184	$	189

~~(1)~~

~~Presented below is a reconciliation of Net Income to Reportable Segment Adjusted EBITDA:~~

___________________________________

(1)

Three Months Ended

Six Months Ended

June 30,

June 30,
(In millions)

2017

2016

2017

2016
Net Income

$
85

$
16

$
124

$
54
Unallocated corporate expenses

—

—

(1)

3
Depreciation and amortization expense

25

22

51

43
401(k) Plan corrective contribution

—

1

—

1
Fumigation related matters

1

88

2

91
Insurance reserve adjustment

—

23

—

23
Non-cash stock-based compensation expense

4

4

9

7
Restructuring charges

1

4

3

5
Gain on sale of Merry Maids branches

—

—

—

(2)
Non-cash impairment of software and other related costs

—

1

2

1
Income from discontinued operations, net of income taxes

—

—

(1)

—
Provision for income taxes

52

7

76

30
Loss on extinguishment of debt

3

—

3

—
Interest expense

38

38

75

76
Reportable Segment Adjusted EBITDA

$
209

$
203

$
343

$
334

~~Note 13. Related Party Transactions~~

~~TruGreen Spin-off~~

In connection with the TruGreen spin-off on January 14, 2014, the Company entered into a transition services agreement with TruGreen Holding Corporation (“TruGreen”) pursuant to which the Company provides TruGreen with specified communications,

1422

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public relations, finance and accounting, tax, treasury, internal audit, human resources operations and benefits, risk management and insurance, supply management, real estate management, marketing, facilities, information technology and other support services. The charges for the transition services are designedPresented below is a reconciliation of Net Income to allow the Company 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 terminated at various specified times on or prior to December 31, 2016, except certain information technology services, which the Company has entered into an amendment to the transition services agreement with TruGreen to extend through June 30, 2018. TruGreen may terminate the extended transition services agreement for convenience upon 90 days written notice.Reportable Segment Adjusted EBITDA:

Under this transition services agreement, the Company recorded $1 million in the three and six months ended June 30, 2017 and $2 million and $4 million in the three and six months ended June 30, 2016, respectively, of fees from TruGreen, which is included as a reduction in Selling and administrative expenses in the condensed consolidated statement of operations and comprehensive income. As of June 30, 2017, all amounts owed by TruGreen under this agreement have been paid.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2020		2019		2020		2019
Net Income	$	53	$	59	$	67	$	129
Unallocated corporate expenses		—		(1)		1		(4)
Costs historically allocated to ServiceMaster Brands		3		3		6		6
European pest control		(2)		—		(3)		—
Depreciation and amortization expense		27		22		55		45
Acquisition-related costs		—		3		1		4
Fumigation related matters		—		(1)		—		—
Non-cash stock-based compensation expense		5		4		10		8
Restructuring and other charges		8		2		12		8
Realized (gain) on investment in frontdoor, inc.		—		—		—		(40)
Net earnings from discontinued operations		(13)		(17)		(26)		(34)
Provision for income taxes		18		14		16		17
Loss on extinguishment of debt		—		—		—		6
Interest expense		22		18		45		45
Reportable Segment Adjusted EBITDA	$	120	$	106	$	184	$	189

Note ~~14.~~16. Fair Value Measurements

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 ~~net of tax as a component of accumulated other comprehensive income (loss) on the condensed consolidated statements of financial position, or, for certain unrealized losses, reported~~ in interest and net investment income in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations and ~~comprehensive income if the decline in value is other than temporary.~~Comprehensive Income. The carrying amount of total debt was ~~$2,819~~$1,723 million and ~~$2,831~~$1,737 million, and the estimated fair value was ~~$2,938~~$1,776 million and ~~$2,930~~$1,841 million as of June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, 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, ~~2017~~2020 and December 31, ~~2016.~~2019.

~~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.

Effective March 3, 2020, we entered into a fixed-to-fixed cross-currency interest rate swap to hedge foreign currency risk associated with the fixed-rate Swedish krona denominated intercompany debt at Nomor. The ~~Company~~five year interest rate swap matures March 31, 2025 and has a notional amount of 725 million Swedish krona, or approximately $74 million, and swaps interest payments of 3.5 percent Swedish krona for interest receipts of 4.147 percent U.S. dollar. This hedge was entered into to mitigate foreign currency risk inherent in Swedish krona denominated debt and is not for speculative trading purposes. This contract has been designated as a cash flow hedge of a fixed rate borrowing and is recorded at fair value.

We also entered into a cross-currency swap agreement to hedge a portion of our net investment in Nomor against future volatility in the exchange rates between the Swedish krona and the U.S. dollar. The five year cross-currency swap has a fixed notional

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amount of 1.275 billion Swedish krona, or approximately $131 million, at an annual rate of 0 percent and a maturity date of March 31, 2025. At inception, the cross-currency swap was designated as a net investment hedge and is recorded at fair value.

Changes in the fair value of these contracts are recorded within Other comprehensive (loss) income on the Condensed Consolidated Statements of Financial Position. Interest accruals and coupon payments are recognized directly in interest expense, thus reflecting a Swedish krona fixed rate. Upon discontinuation of the net investment hedge, the changes in spot value and any amounts excluded from the assessment of hedge effectiveness that have not been recognized in earnings will remain within CTA until the hedged net investment is sold, diluted, or liquidated.

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 month periods ended June 30, ~~2017~~2020 and ~~2016.~~2019.

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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~~were 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, 2017:
As of June 30, 2020:
Financial Assets:
Deferred compensation trust	Long-term marketable securities	$	8	$	8	$	—	$	—	Long-term marketable securities	$	13	$	13	$	—	$	—
Investments in marketable securities	Marketable securities and Long-term marketable securities		45		40		5		—
Fuel swap contracts	Prepaid expenses and other assets		1		—		—		1
Interest rate swap contract	Other assets		21		—		21		—
Total financial assets		$	75	$	48	$	26	$	1		$	13	$	13	$	—	$	—
Financial Liabilities:
Cross-currency interest rate swap										Other long-term obligations	$	3	$	—	$	3	$	—
Net investment hedge										Other long-term obligations		5		—		5		—
Fuel swap contracts	Other accrued liabilities	$	1	$	—	$	—	$	1	Accrued liabilities—Other and Other long-term obligations		2		—		—		2
Interest rate swap contract	Other accrued liabilities		1		—		1		—	Accrued liabilities—Other and Other long-term obligations		38		—		38		—
Total financial liabilities		$	2	$	—	$	1	$	1		$	47	$	—	$	46	$	2
As of December 31, 2016:

As of December 31, 2019:
Financial Assets:
Deferred compensation trust	Long-term marketable securities	$	8	$	8	$	—	$	—
Investments in marketable securities	Marketable securities and Long-term marketable securities		36		33		3		—
Deferred compensation trust assets										Long-term marketable securities	$	13	$	13	$	—	$	—
Fuel swap contracts	Prepaid expenses and other assets and Other assets		5		—		—		5	Prepaid expenses and other assets and Other assets		1		—		—		1
Interest rate swap contract	Other assets		27		—		27		—
Interest rate swap contracts										Other assets		5		—		5		—
Total financial assets		$	75	$	40	$	30	$	5		$	19	$	13	$	5	$	1
Financial Liabilities:
Interest rate swap contract	Other accrued liabilities and Other long-term obligations	$	4	$	—	$	4	$	—
Interest rate swap contracts										Accrued liabilities—Other and Other long-term obligations	$	1	$	—	$	1	$	—
Total financial liabilities		$	4	$	—	$	4	$	—		$	1	$	—	$	1	$	—

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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:



	Fuel Swap
	Contract
	Assets
(In millions)	(Liabilities)		Location of Gain (Loss) included in Earnings
Balance as of December 31, ~~2016~~2019	$	5	1
Total gains (losses) ~~gains~~ (realized and unrealized)
Included in earnings		1	2	Cost of services rendered and products sold
Included in other comprehensive income		~~(5)~~	(4)
Settlements		~~(1)~~	—
Balance as of June 30, ~~2017~~2020	$	—(2)

Balance as of December 31, ~~2015~~2018	$	~~(4)~~	(4)
Total gains (losses) ~~gains~~ (realized and unrealized)
Included in earnings		~~(2)~~	—	Cost of services rendered and products sold
Included in other comprehensive income		4	3
Settlements		2	—
Balance as of June 30, ~~2016~~2019	$	1	—

~~Table of Contents~~

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, 2017:
As of June 30, 2020:
Fuel swap contracts	$	—	Discounted Cash Flows	Forward Unleaded Price per Gallon(1)	$1.83 - $2.90	$	2.36	$	(2)	Discounted Cash Flows	Forward Unleaded Price per Gallon⁽¹⁾	$2.02 - $2.32	$	2.16
As of December 31, 2016:
As of December 31, 2019:
Fuel swap contracts	$	5	Discounted Cash Flows	Forward Unleaded Price per Gallon(1)	$2.31 - $2.85	$	2.55	$	1	Discounted Cash Flows	Forward Unleaded Price per Gallon⁽¹⁾	$2.37 - $2.80	$	2.61

___________________________________

~~(1)~~

(1)Forward prices per gallon were derived from third-party market data providers. A decrease in the forward price would result in a decrease ~~in the fair value of the fuel swap contracts.~~

The Company uses derivative financial instruments to manage risks associated with changes in fuel prices and interest rates. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. In designating its derivative financial instruments as hedging instruments under accounting standards for derivative instruments, the Company formally documents 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 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 designated hedging instruments are classified as cash flow hedges.

The Company has historically hedged a significant portion of its annual fuel consumption. The Company has also historically hedged the interest payments on a portion of its variable rate debt through the use of interest rate swap agreements. All of the Company’s 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 (loss). 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.~~swap contracts.

~~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, 2017.~~ As of June 30, ~~2017, the Company~~2020, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of ~~$33~~$35 million, maturing through ~~2018.~~2021. 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, ~~2017, the Company~~2020, 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 (loss).~~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 69 to the condensed consolidated financial statements for the effective portion of the gain or loss on derivative instruments recorded in accumulated other comprehensive income ~~(loss)~~ and for the amounts reclassified out of accumulated other comprehensive income ~~(loss)~~ 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 ~~(loss)~~ expected to be recognized in earnings is a loss of $4$6 million, net of tax, as of June 30, ~~2017.~~2020. 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.

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, with adjustments to arrive at fair value recognized in our Condensed Consolidated Statements of Operations and Comprehensive Income within Interest and net investment income. The investments are included within Other Assets on the Condensed Consolidated Statements of Financial Position. At June 30, 2020, the carrying amount of these investments was $4 million.

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Note ~~15.~~17. 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, RSUs and performance ~~shares~~share units are reflected in diluted ~~net income~~earnings per share by applying the treasury stock method.

~~Table of Contents~~

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				Six Months Ended				June 30,				June 30,
	June 30,				June 30,
(In millions, except per share data)	2017		2016		2017		2016		2020		2019		2020		2019
Income from continuing operations	$	85	$	16	$	123	$	54	$	40	$	42	$	41	$	95
Weighted-average common shares outstanding		133.7		135.5		134.1		135.6		131.9		136.0		133.4		135.9
Effect of dilutive securities:
RSUs		0.1		0.2		0.1		0.2
Stock options(1)		1.3		1.9		1.3		2.0
RSUs⁽¹⁾										0.1		0.2		0.1		0.2
Stock options⁽²⁾										—		0.3		—		0.2
Weighted-average common shares outstanding—assuming dilution		135.0		137.7		135.5		137.7		132.0		136.5		133.5		136.3
Basic earnings per share from continuing operations	$	0.64	$	0.11	$	0.92	$	0.40	$	0.30	$	0.31	$	0.31	$	0.70
Diluted earnings per share from continuing operations	$	0.63	$	0.11	$	0.91	$	0.40	$	0.30	$	0.30	$	0.31	$	0.70

___________________________________

~~(1)~~

Options to purchase 1.3 million and 0.9 million shares for the three months ended June 30, 2017 and 2016, respectively, and 1.3 million and 0.9 million shares for the six months ended June 30, 2017 and 2016, respectively,

(1)RSUs to purchase 0.1 million shares for the three and six months ended June 30, 2020 were not included ~~in the diluted earnings per share calculation because their effect would have been anti-dilutive.~~

~~Note 16. Subsequent Events~~

On July 26, 2017, the Company issued a press release announcing that the Company intends to separate its American Home Shield business from the Company’s Terminix and Franchise Services Group businesses by means of a spinoff of the American Home Shield business to Company shareholders, resulting in two publicly traded companies. The spin-off would 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 in the ~~third quarter~~diluted earnings per share calculation because their effect would have been anti-dilutive.

(2)Options to purchase 1.6 million shares for the three months ended June 30, 2020, and 1.4 million and 0.4 million shares for the six months ended June 30, 2020, and 2019, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

‎

Table of 2018, subject to satisfaction of customary conditions, including the effectiveness of a Registration Statement on Form 10 to be filed with the SEC, receipt of a favorable ruling from the IRS concerning certain tax matters and final approval by the Company’s board of directors, and it is intended to qualify as a tax-free distribution to the Company’s shareholders for U.S. federal income tax purposes.Contents

The Company also announced the appointment of Nikhil M. Varty as Chief Executive Officer of the Company and as a member of the board of directors of the Company, in each case effective as of July 26, 2017, and that Robert J. Gillette ceased to hold the position of Chief Executive Officer of the Company as of July 25, 2017, and resigned as a member of the board of directors as of July 30, 2017. Mr. Gillette will receive the severance payments and benefits to which he is entitled under his existing employment agreement.

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.”

~~Overview~~On January 21, 2020, we announced we are exploring strategic alternatives relating to ServiceMaster Brands, including the potential sale of the business. As a result of this plan, the ServiceMaster Brands Divestiture Group is classified as held for sale and the financial results of the ServiceMaster Brands Divestiture Group as of and for the period ended June 30, 2020, and for all periods prior to June 30, 2020, have been reflected within the disclosures of this Management’s Discussion and Analysis of Financial Condition and Results of Operations as discontinued operations. See Note 5 to the condensed consolidated financial statements for further information.

Overview

Our ~~core services include~~reportable segment, Terminix, provides residential and commercial termite and pest control ~~home warranties, disaster restoration, janitorial, residential cleaning, cabinet and wood furniture repair and home inspection~~ under the following leading brands: Terminix, ~~American Home Shield,~~Terminix Commercial, Copesan, Assured Environments, Gregory Pest Solutions and McCloud Services. Our European pest control operations, primarily operating under our Nomor and Terminix brands, are reported in European Pest Control and Other, in addition to our captive insurance subsidiary which provides automobile, workers’ compensation and general liability coverage to Terminix and our headquarters operations (substantially all of which costs are allocated to Terminix), which provide various technology, finance, legal and other support services to Terminix.

Our financial statements will include non-recurring costs incurred to evaluate, plan and execute the exploration of strategic alternatives related to ServiceMaster ~~Restore, ServiceMaster Clean, Merry Maids, Furniture Medic~~Brands, including the potential sale of the business. Costs are primarily related to third-party consulting and ~~AmeriSpec. Our~~other incremental costs directly associated with the strategic alternatives exploration process. Net earnings from discontinued operations for the ~~periods presented in this report are organized into~~ three ~~reportable segments: Terminix, American Home Shield~~months and ~~Franchise Services Group.~~

~~Recent Events~~

~~On July 26, 2017, the Company issued a press release announcing that the Company intends to separate its American Home Shield business from the Company’s Terminix~~six months ended June 30, 2020 included charges of $5 million and Franchise Services Group businesses by means of a spinoff of the American Home Shield business to Company shareholders, resulting in two publicly traded companies. The spin-off would 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 in the third quarter of 2018, subject to satisfaction of customary conditions, including the effectiveness of a Registration Statement on Form 10 to be filed with the SEC, receipt of a favorable ruling from the IRS concerning certain tax matters and final approval by the Company’s board of directors, and it is intended to qualify as a tax-free distribution$9 million, respectively, related to the ~~Company’s shareholders for U.S. federal income tax purposes.~~initiative. We expect to incur charges of $15 million to $20 million in 2020 related to the initiative. In addition, we expect incremental capital expenditures will be required to effect the initiative of $8 million to $12 million, principally reflecting costs to replicate information technology systems historically shared by our business units.

New CEO Appointment

~~Table of Contents~~

~~The Company also~~On August 6, 2020, we announced the appointment of ~~Nikhil M. Varty~~Brett T. Ponton as Chief Executive Officer of the Company and as a member of the board of directors of the Company, in each case, effective as of ~~July 26, 2017,~~a date to be agreed upon between the Company and ~~that Robert J. Gillette ceased~~Mr. Ponton, with such date being on or around September 15, 2020 and no later than October 1, 2020.

Recent Events and 2020 Outlook

During the three and six months ended June 30, 2020, the effects of COVID-19 and related actions to ~~hold~~attempt to control its spread negatively impacted our business, beginning in the ~~position~~last few weeks of ~~Chief Executive Officer~~March. On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic, and governments around the world mandated orders to slow the transmission of the ~~Company as~~virus. States in the United States, including Tennessee, where we are headquartered, declared states of ~~July 25, 2017,~~emergency, and ~~resigned as a member~~countries around the world, including the United States, took steps to restrict travel, instituted work from home policies, enacted temporary closures of businesses, issued quarantine orders and took other restrictive measures in response to the COVID-19 pandemic. Uncertainty with respect to the economic effects of the ~~board~~pandemic and the restrictive policies to mitigate its spread have introduced significant volatility in the financial markets. The exact timing and pace of ~~directors~~the recovery are uncertain as certain markets have reopened, while others remain closed or have closed again in an effort to control the spread of ~~July 30, 2017. Mr. Gillette~~the virus. Although demand for our services improved through the second quarter, it remains marginally below prior year, particularly in our Terminix Commercial service line.

Within the United States, our residential and commercial pest control and cleaning and restore businesses have been designated an essential business by the U.S. Department of Homeland Security, has allowed us to continue to serve our customers while ensuring the health and safety of our employees and our customers. As the States have re-opened for business during the second quarter, all of our brands have been fully operational. We have also continued serving our customers in all of the international markets in which we operate.

In response to these developments, beginning in March and continuing through the second quarter of 2020, we implemented contingency planning designed to ensure the safety and productivity of our workforce. We have implemented technology to facilitate remote working, with most back-office and all call center employees working remotely and field support personnel working remotely where possible. We plan to leverage these new remote working capabilities to reduce ongoing operating costs once we emerge from this event. We have global and regional crisis teams in place monitoring the rapidly evolving situation and recommending risk mitigation actions that we have already implemented, including instituting travel restrictions as well as visitor protocols and developing and maintaining social distancing practices. We have assessed and are implementing continuity plans to provide customers

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with continued service, including procuring and providing personal protective equipment to all front-line personnel. There has been no material impact on supply for most of our sourced materials and for those sourced materials that have been impacted to any degree, continuity plans have been activated. Additionally, we are taking additional actions to improve our liquidity, including capital expenditure and operating expense reductions.

In reaction to customer demands, Terminix and ServiceMaster Brands have launched one-time and recurring sanitization and disinfection services, which will ~~receive the severance payments~~help all businesses, including those deemed essential, maintain clean work areas while staying in compliance with federal, state, and ~~benefits to which he is entitled under his existing employment agreement~~.local public health protocols.

Key Business Metrics

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.~~business. These metrics include:

~~revenue,~~

~~operating expenses,~~

~~net income,~~

~~earnings per share,~~

~~Adjusted EBITDA,~~

~~organic revenue growth,~~

~~customer retention rates, and~~

~~customer counts growth.~~

revenue,

operating expenses,

net income,

earnings per share,

Adjusted EBITDA, and

organic revenue growth.

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.~~business. 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~~business as well as the mix of services and products ~~provided across our businesses.~~provided. The volume of our revenue in Terminix ~~and American Home Shield~~ 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 presented in ~~the Franchise Services Group~~European Pest Control and Other are ~~driven principally by royalty fees earned from~~primarily comprised of our ~~franchisees.~~pest control operations in Europe. We serve both residential and commercial customers, principally in the United States. ~~In 2016,~~As of June 30, 2020, approximately 9895 percent of our revenue was generated by sales in the United States. Franchise fees from our Terminix franchisees represented less than one percent of revenue for the three and six months ended June 30, 2020.

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,~~personal protective equipment, 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 ~~net income~~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: ~~income~~net earnings from discontinued ~~operations, net of income taxes;~~operations; provision for income taxes; interest expense; depreciation and amortization expense; ~~401(k) Plan corrective contribution;~~acquisition-related costs; fumigation related matters; ~~insurance reserve adjustment;~~ non-cash stock-based compensation expense; restructuring ~~charges; gain on sale of Merry Maids branches; and non-cash impairment of software~~ and other ~~related costs.~~charges; loss on extinguishment of debt; and 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.

We evaluate performance of the ServiceMaster Brands Divestiture Group based on ServiceMaster Brands Divestiture Group Adjusted EBITDA, which is defined as net earnings from discontinued operations before the following expenses directly attributable to the ServiceMaster Brands Divestiture Group and recorded in discontinued operations: depreciation and amortization expense; non-cash stock based compensation expense; restructuring and other charges; and provision for income taxes.

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

~~Customer Retention Rates and Customer Counts Growth.~~ Where applicable, we report our customer retention rates and growth in customer counts in order to track the performance of the business. Customer counts represent our recurring customer base, which includes customers with active contracts for recurring services. Retention rates are calculated as the ratio of ending customer

1928

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counts to the sum of beginning customer counts, new sales and acquired accounts for the applicable period. These measures are presented on a rolling, 12-month basis in order to avoid seasonal anomalies. See “—Segment Review.”

Seasonality

We have seasonality in our business, which drives fluctuations in revenue and Adjusted EBITDA for interim periods. In ~~2016,~~2019, approximately 2223 percent, 27 percent, 2826 percent and 2324 percent of our revenue and approximately 1926 percent, 3032 percent, 2923 percent and 2219 percent of our Adjusted EBITDA was recognized in the first, second, third and fourth quarters, respectively.

Effect of Weather Conditions

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 household systems. 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.services. 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 household systems claim frequency; and severe storms which can lead to an increase in demand for disaster restoration~~ services.

~~Franchises~~Results of Operations

~~Franchises are important to~~The following table shows the ~~Terminix, ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic and AmeriSpec businesses. Total profits~~results of operations from ~~our franchised~~continuing operations were $22 million and $21 million for the three months ended June 30, 2017 and 2016, respectively, and $44 million and $39 million for the six months ended June 30, 2017 and 2016, respectively. Nearly all of the franchise fees received by our Franchise Services Group 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 three and six months ended June 30, ~~2017. We evaluate~~2020 and 2019, which reflects the ~~performance~~results of ~~our franchise~~acquired businesses ~~based primarily on operating profit before corporate general and administrative expenses, interest expense and amortization of intangible assets. Franchise agreements entered into in~~from 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.

relevant acquisition dates. Results of the ServiceMaster Brands Divestiture Group are presented below in “—Discontinued Operations – ServiceMaster Brands Divestiture Group.”


											Three Months Ended				Increase
	Three Months Ended				Increase						June 30,				(Decrease)		% of Revenue
	June 30,				(Decrease)		% of Revenue
(In millions)	2017		2016		2017 vs. 2016		2017		2016		2020		2019		2020 vs. 2019		2020		2019
Revenue	$	807	$	747	8	%	100	%	100	%	$	534	$	494	8	%	100	%	100	%
Cost of services rendered and products sold		415		379	9		51		51			297		276	8		56		56
Selling and administrative expenses		206		187	10		26		25			143		138	3		27		28
Amortization expense		7		8	(12)		1		1			9		5	77		2		1
401(k) Plan corrective contribution		—		1	*		—		—
Acquisition-related costs												—		3	*		—		1
Fumigation related matters		1		88	*		—		12			—		(1)	*		—		—
Insurance reserve adjustment		—		23	*		—		3
Impairment of software and other related costs		—		1	*		—		—
Restructuring charges		1		4	(77)		—		1
Restructuring and other charges												8		2	*		1		—
Interest expense		38		38	—		5		5			22		18	18		4		4
Interest and net investment income		(1)		(4)	(74)		—		(1)			(1)		(3)	*		—		(1)
Loss on extinguishment of debt		3		—	*		—		—
Income from Continuing Operations before Income Taxes		137		23	505		17		3			57		56	*		11		11
Provision for income taxes		52		7	643		6		1			18		14	*		3		3
Equity in earnings of joint venture												1		—	*		—		—
Income from Continuing Operations		85		16	446		11		2		$	40	$	42	*		7	%	8	%
Income from discontinued operations, net of income taxes		—		—	*		—		—
Net Income	$	85	$	16	442	%	11	%	2	%

________________________________

* not meaningful


	Six Months Ended				Increase
	June 30,				(Decrease)		% of Revenue

(In millions)	2020		2019		2020 vs. 2019		2020		2019
Revenue		990		913	8	%	100	%	100	%
Cost of services rendered and products sold		577		512	13		58		56
Selling and administrative expenses		283		261	8		29		29
Amortization expense		18		10	83		2		1
Acquisition-related costs		1		4	*		—		—
Realized (gain) on investment in frontdoor, inc.		—		(40)	*		—		(4)
Restructuring and other charges		12		8	*		1		1
Interest expense		45		45	(1)		5		5
Interest and net investment income		(1)		(4)	*		—		—
Loss on extinguishment of debt		—		6	*		—		1
Income from Continuing Operations before Income Taxes		56		112	*		6		12
Provision for income taxes		16		17	*		2		2
Equity in earnings of joint venture		1		—	*		—		—
Income from Continuing Operations		41		95	*		4	%	10	%

20________________________________

* not meaningful

‎

Table of Contents

Six Months Ended

Increase

June 30,

(Decrease)

% of Revenue

(In millions)

2017

2016

2017 vs. 2016

2017

2016
Revenue

$
1,450

$
1,355

7
%

100
%

100
%
Cost of services rendered and products sold

761

704

8

52

52

Selling and administrative expenses

392

360

9

27

27

Amortization expense

14

16

(14)

1

1

401(k) Plan corrective contribution

—

1

*

—

—

Fumigation related matters

2

91

(98)

—

7

Insurance reserve adjustment

—

23

*

—

2

Impairment of software and other related costs

2

1

147

—

—

Restructuring charges

3

5

(35)

—

—

Gain on sale of Merry Maids branches

—

(2)

*

—

—

Interest expense

75

76

(2)

5

6

Interest and net investment income

(1)

(4)

(67)

—

—

Loss on extinguishment of debt

3

—

*

—

—

Income from Continuing Operations before Income Taxes

199

85

135

14

6

Provision for income taxes

76

30

153

5

2

Income from Continuing Operations

123

54

126

8

4

Income from discontinued operations, net of income taxes

1

—

*

—

—

Net Income

$
124

$
54

128
%

9
%

4
%

Revenue

* not meaningful

~~Revenue~~

We reported revenue of ~~$807~~$534 million and ~~$747~~$494 million for the three months ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively and revenue of ~~$1,450~~$990 million and ~~$1,355~~$913 million for the six months ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. A summary of changes in revenue ~~for each of our reportable segments and Corporate~~ is included in the ~~table~~tables 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, 2016

$
414

$
282

$
50

$
1

$
747
Pest Control(1)

3

—

—

—

3
Termite and Other Services(2)

9

—

—

—

9
Home Warranties(3)

—

43

—

—

43
Franchise-Related Revenue

—

—

4

—

4
Sale of Merry Maids branches(4)

—

—

(2)

—

(2)
Other

3

—

—

—

3
Three Months Ended June 30, 2017

$
428

$
326

$
52

$
1

$
807


			European Pest
(In millions)	Terminix		Control and Other		Total
Three Months Ended June 30, 2019	$	495	$	—	$	494
Residential Pest Control⁽¹⁾		—		—		—
Commercial Pest Control⁽²⁾		2		—		2
Termite and Home Services⁽³⁾		13		—		13
Sale of Products and Other⁽⁴⁾		7		—		7
European Pest Control		—		17		17
Three Months Ended June 30, 2020	$	517	$	17	$	534

_________________________________

(1)Includes growth from acquisitions of approximately $2 million for the three months ended June 30, 2020.

(2)Includes growth from acquisitions of approximately $11 million for the three months ended June 30, 2020.

(3)Includes growth from acquisitions of approximately $1 million for the three months ended June 30, 2020.

(4)Includes growth from acquisitions of approximately $9 million for the three months ended June 30, 2020.



			European Pest
(In millions)	Terminix		Control and Other		Total
Six Months Ended June 30, 2019	$	914	$	—	$	913
Residential Pest Control ⁽¹⁾		6		—		6
Commercial Pest Control ⁽²⁾		15		—		15
Termite and Home Services⁽³⁾		12		—		12
Sale of Products and Other⁽⁴⁾		9		—		9
European Pest Control		—		35		35
Six Months Ended June 30, 2020	$	955	$	35	$	990

~~Table~~(1)Includes growth from acquisitions of ~~Contents~~approximately $4 million for the six months ended June 30, 2020.

(2)Includes growth from acquisitions of approximately $21 million for the six months ended June 30, 2020.

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Six Months Ended June 30, 2016

$
778

$
477

$
99

$
1

$
1,355
Pest Control (1)

(2)

—

—

—

(2)
Termite and Other Services(2)

15

—

—

—

15
Home Warranties(3)

—

76

—

—

76
Franchise-Related Revenue

—

—

8

—

8
Sale of Merry Maids branches(4)

—

—

(6)

—

(6)
Other

2

—

—

—

2
Six Months Ended June 30, 2017

$
794

$
553

$
102

$
1

$
1,450

(3)Includes growth from acquisitions of approximately $3 million for the six months ended June 30, 2020.

~~(1)~~

~~Includes growth from acquisitions of approximately $2 million and $6 million for the three and six months ended June 30, 2017, respectively.~~

~~(2)~~

Includes wildlife exclusion, crawl space encapsulation and attic insulation products which are managed as a component of our termite line of business. Includes growth from acquisitions of approximately $1 million and $2 million for the three and six months ended June 30, 2017, respectively.

~~(3)~~

~~Includes growth from acquisitions of approximately $21 million and $38 million for the three and six months ended June 30, 2017, respectively, as a result of the acquisitions of OneGuard and Landmark.~~

~~(4)~~

Represents a reduction in revenue from company-owned branches as a result of the conversion of certain company-owned Merry Maids branches to franchises (the “branch conversions”), which were completed in 2016.

(4)Includes growth from acquisitions of approximately $13 million for the six months ended June 30, 2020.

Cost of Services Rendered and Products Sold

We reported cost of services rendered and products sold of ~~$415~~$297 million and ~~$379~~$276 million for the three months ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$761~~$577 million and ~~$704~~$512 million for the six months ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The following ~~table provides~~tables provide a summary of changes in cost of services rendered and products ~~sold~~sold:



			European Pest
(In millions)	Terminix		Control and Other		Total
Three Months Ended June 30, 2019	$	277	$	(1)	$	276
Impact of change in revenue⁽¹⁾		15		12		27
Damage claims		8		—		8
Production labor		(5)		—		(5)
Chemicals and materials		(2)		—		(2)
Vehicle and fuel		(4)		—		(4)
Other		(4)		1		(3)
Three Months Ended June 30, 2020	$	286	$	12	$	297

_________________________________

(1)For Terminix, includes approximately $16 million for ~~each~~the three months ended June 30, 2020 from acquisitions. For European Pest Control and Other, includes approximately $12 million for the three months ended June 30, 2020 from acquisitions.

Table of ~~our reportable segments and Corporate:~~Contents

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Three Months Ended June 30, 2016

$
217

$
142

$
21

$
—

$
379
Impact of change in revenue(1)

6

19

2

—

26
Production labor

3

—

—

—

3
Damage claims

2

—

—

—

2
Insurance program

1

—

—

—

1
Technology costs

1

—

—

—

1
Fuel prices

(1)

—

—

—

(1)
Contract claims

—

2

—

—

2
Sale of Merry Maids branches

—

—

(2)

—

(2)
Other

3

—

(1)

—

2
Three Months Ended June 30, 2017

$
232

$
163

$
20

$
—

$
415

~~(1)~~

For ~~American Home Shield, includes growth from acquisitions of approximately $10 million as a result of the acquisitions of OneGuard and Landmark.~~

At Terminix, the ~~increase in production labor was driven by investments in field operations focused on improving safety, customer service and retention. The~~ increase in damage claims was driven by increased ~~termite warranty claims. The increase in our insurance programs was principally driven by an increase~~Non-Litigated Claims and Litigated Claims, primarily in the ~~number of company-owned sales vehicles. Additionally,~~Mobile Bay Area, as well as the ~~increase in technology~~ costs ~~was driven by investments~~related to ~~improve our customers’ experiences through technology.~~

~~The increase in contract claims costs at American Home Shield is primarily due to normal inflationary pressure on the underlying costs of repairs.~~

~~We realized a reduction in cost of sales of $2 million~~mitigation efforts in the ~~Franchise Services Group as a result of the branch conversions completed in 2016.~~

~~Table of Contents~~

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Six Months Ended June 30, 2016

$
411

247

41

4

$
704
Impact of change in revenue(1)

6

33

3

—

43
Production labor

9

—

—

—

9
Damage claims

6

—

—

—

6
Insurance program

3

—

—

(4)

(1)
Technology costs

2

—

—

—

2
Fuel prices

(2)

—

—

—

(2)
Contract claims

—

4

—

—

4
Sale of Merry Maids branches

—

—

(5)

—

(5)
Depreciation

1

—

—

—

1
Other

1

1

(1)

—

1
Six Months Ended June 30, 2017

$
438

$
285

$
38

$
—

$
761

~~(1)~~

~~For American Home Shield, includes growth from acquisitions of approximately $17 million as a result of the acquisitions of OneGuard and Landmark.~~

~~At Terminix, the increase~~Mobile Bay Area intended to reduce future damage claims. The decrease in production labor was driven by ~~investments~~improved employee retention and labor management. The decrease in ~~field operations focused on improving safety, customer service~~chemicals and ~~retention.~~materials was driven by a favorable shift in the mix of services performed. The decrease in vehicle and fuel was driven by improvements in fleet management and lower fuel prices.



			European Pest
(In millions)	Terminix		Control and Other		Total
Six Months Ended June 30, 2019	$	516	$	(3)	$	512
Impact of change in revenue⁽¹⁾		28		25		53
Damage claims		14		—		14
Production labor		(1)		—		(1)
Chemicals and materials		1		—		1
Vehicle and fuel		(3)		—		(3)
Insurance program		—		5		5
Other		(4)		—		(4)
Six Months Ended June 30, 2020	$	551	$	26	$	577

_________________________________

(1)For Terminix, includes approximately $28 million for the six months ended June 30, 2020 from acquisitions. For European Pest Control and Other, includes approximately $25 million for the six months ended June 30, 2020 from acquisitions.

For Terminix, the increase in damage claims was driven by increased ~~termite warranty claims.~~Non-Litigated Claims and Litigated Claims, primarily in the Mobile Bay Area, as well as the costs related to mitigation efforts in the Mobile Bay Area intended to reduce future damage claims. The decrease in production labor was driven, in part, by improved employee retention and labor management. The increase in ~~our insurance programs was principally driven by an increase in the number of company-owned sales vehicles. Additionally, the increase in technology costs~~chemicals and materials was driven by ~~investments~~increased personal protective equipment and sanitization purchases in response to ~~improve~~COVID-19, offset by a decrease driven by a favorable shift in the mix of services performed. The decrease in vehicle and fuel was driven by improvements in fleet management and lower fuel prices.

For European Pest Control and Other, the six months ended June 30, 2020 were unfavorably impacted by $1 million of adjustments in our ~~customers’ experiences through technology.~~

~~The increase in contract claims costs at American Home Shield is primarily due~~automobile, general liability and workers’ compensation program, as compared to ~~normal inflationary pressure on the underlying costs~~favorable adjustments of ~~repairs.~~

~~We realized a reduction in cost of sales of $5~~$3 million in the ~~Franchise Services Group as a result of the branch conversions completed in 2016.~~six months ended June 30, 2019.

Selling and Administrative Expenses

We reported selling and administrative expenses of ~~$206~~$143 million and ~~$187~~$138 million for the three months ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$392~~$283 million and ~~$360~~$261 million for the six months ended June 30, ~~2017~~2020, and ~~2016,~~2019, respectively. For the three months ended June 30, ~~2017~~2020 and ~~2016,~~2019, selling and administrative expenses comprised general and administrative expenses of ~~$74~~$73 million and ~~$69~~$71 million, respectively, and selling and marketing expenses of ~~$132~~$70 million and ~~$118~~$68 million, respectively. For the six months ended June 30, ~~2017~~2020 and ~~2016,~~2019, selling and administrative expenses comprised general and administrative expenses of ~~$151~~$153 million and ~~$144~~$139 million, respectively, and selling and marketing expenses of ~~$241~~$130 million and ~~$216~~$122 million, respectively. The following ~~table provides~~tables provide a summary of changes in selling and administrative ~~expenses for each of our reportable segments~~expenses:



			European Pest
(In millions)	Terminix		Control and Other		Total
Three Months Ended June 30, 2019	$	124	$	14	$	138
Sales and marketing		(1)		—		(1)
Acquisition selling and administrative expenses		3		5		8
Corporate administrative expenses		(4)		—		(4)
Other		3		(1)		2
Three Months Ended June 30, 2020	$	124	$	19	$	143

Terminix and ~~Corporate:~~

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Three Months Ended June 30, 2016

$
94

$
74

$
11

$
8

$
187
Sales and marketing costs

4

(2)

—

—

3
OneGuard and Landmark selling and administrative expenses

—

7

—

—

7
Customer service costs

—

4

—

—

4
Depreciation

2

—

—

1

3
Other

2

(1)

1

1

2
Three Months Ended June 30, 2017

$
102

$
82

$
11

$
10

$
206

~~The increase in sales~~European Pest Control and ~~marketing costs at Terminix was driven by investments to grow and train our sales force,~~Other reflect higher ~~commissions attributable to the growth in core termite, wildlife exclusion and attic insulation sales and incremental marketing investments.~~

~~At American Home Shield, the decrease in sales and marketing costs is driven by the timing of a marketing campaign. We incurred incremental~~ selling and administrative expenses as a result of ~~the OneGuard and Landmark~~ acquisitions. ~~Additionally, the increase~~The decrease in customer service costs is due to higher labor costs resulting from an acceleration of pre-season hiring and training in preparation for the high-volume summer season and an overall increase in call center staffing levels to improve response times.

~~Table of Contents~~

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Six Months Ended June 30, 2016

$
176

$
147

$
22

$
15

$
360
Sales and marketing costs

9

(2)

—

—

7
OneGuard and Landmark selling and administrative expenses

—

13

—

—

13
Customer service costs

—

4

—

—

4
Depreciation

4

—

—

3

7
Other

1

(2)

—

2

1
Six Months Ended June 30, 2017

$
190

$
160

$
22

$
20

$
392

~~The increase in sales and marketing costs at Terminix~~corporate administrative expenses was driven by ~~investments~~actions taken to ~~grow~~reduce the cost of our corporate headquarters operations.

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			European Pest
(In millions)	Terminix		Control and Other		Total
Six Months Ended June 30, 2019	$	234	$	27	$	261
Sales and marketing costs		1		—		1
Acquisition selling and administrative expenses		7		10		17
Investments in growth		4		—		4
Other		2		(1)		1
Six Months Ended June 30, 2020	$	248	$	36	$	283

Terminix and ~~train our sales force,~~European Pest Control and Other reflect higher ~~commissions attributable to the growth in core termite, wildlife exclusion and attic insulation sales and incremental marketing investments.~~

~~At American Home Shield, the decrease in sales and marketing costs is driven by the timing of a marketing campaign. We incurred incremental~~ selling and administrative expenses as a result of ~~the OneGuard and Landmark~~ acquisitions. ~~Additionally, the~~The increase in investments in growth was primarily related to our investment in a new customer service costs is due to higher labor costs resulting from an acceleration of pre-season hiring and training in preparation for the high-volume summer season and an overall increase in call center staffing levels to improve response times.experience platform.

Amortization Expense

Amortization expense was $7$9 million and $8$5 million in the three months ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$14~~$18 million and ~~$16~~$10 million in the six months ended June 30, ~~2017~~2020 and ~~2016~~2019, respectively. The increase in amortization expense primarily reflects the effect of recent acquisitions.

Acquisition-Related Costs

~~401(k) Plan Corrective Contribution~~

~~We recorded a charge of~~There were no acquisition-related costs in the three months ended June 30, 2020. Acquisition-related costs were $3 million in the three months ended June 30, 2019, and $1 million and $4 million in the six months end June 30, 2020 and 2019, respectively.

Fumigation Related Matters

There were no charges accrued for fumigation related matters in the three and six months ended June 30, ~~2016~~2020. We reversed a previously accrued $1 million charge for fumigation related matters due to favorable activity in the three months ended June 30, 2019, and there was no charge for fumigation related matters in the six months ended June 30, 2019.

Restructuring and Other Charges

We incurred restructuring charges of approximately $8 million and $2 million in the three months ended June 30, 2020 and 2019, respectively, and $12 million and $8 million in the six months ended June 30, 2020 and 2019, respectively. Restructuring charges were comprised of the following:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2020		2019		2020		2019
Terminix⁽¹⁾	$	4	$	1	$	5	$	3
European Pest Control and Other⁽²⁾		4		1		7		4
Global Service Center relocation⁽³⁾		—		—		—		1
Total restructuring charges	$	8	$	2	$	12	$	8

_________________________________

(1)For the three and six months ended June 30, 2020, these charges included $2 million of severance and other costs and $2 million of impairment charges on our call center right of use assets which we exited during the second quarter. For the three and six months ended June 30, 2019, these charges included $1 million and $3 million, respectively, of severance and other costs.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2020		2019		2020		2019
Severance	$	2	$	—	$	3	$	1
Other costs^(a)		2		1		4		4
Total European Pest Control and Other	$	4	$	1	$	7	$	4

___________________________________

(3)For the six months ended June 30, 2019, these charges included lease termination and other charges of $1 million related to our headquarter relocation.

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Realized (Gain) on Investment in frontdoor, inc.

We recorded a gain of $40 million related to the ~~401(k) Plan.~~sale of our retained investment in Frontdoor in the six months ended June 30, 2019, with no similar gain recorded in the other periods presented.

Interest Expense

Interest expense was $22 million and $18 million in the three months ended June 30, 2020 and 2019, respectively, and $45 million and $45 million in the six months ended June 30, 2020 and 2019, respectively. The increase in interest expense was due to an increase in our average long-term debt balance to fund acquisitions completed in the fourth quarter of 2019.

Interest and Net Investment Income

Interest and net investment income was $1 million and $3 million for the three months ended June 30, 2020 and 2019, respectively, and $1 million and $4 million in the six months ended June 30, 2020 and 2019, respectively. Interest and net investment income is comprised of net investment gains and losses from equity investments and other strategic investments and interest income on other cash balances.

Loss on Extinguishment of Debt

A loss on extinguishment of debt of $6 million was recorded in the six months ended June 30, 2019. No similar loss was recognized in the three months ended June 30, 2020 and 2019 or the six months ended June 30, 2020. See Note 311 to the condensed consolidated financial statements for more details. ~~Charges for 401(k) Plan corrective contributions recorded in the three and six months ended June 30, 2017 were less than $1 million.~~

~~Fumigation Related Matters~~Income from Continuing Operations before Income Taxes

~~We recorded charges of $1~~Income from continuing operations before income taxes was $57 million and ~~$88~~$56 million inincome for the three months ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and $2$56 million and $91 million in the six months ended June 30, 2017 and 2016, respectively, for fumigation related matters. There were no charges for fumigation related matters recorded in the three months ended June 30, 2017. See Note 3 to the condensed consolidated financial statements for more details.

~~Insurance Reserve Adjustment~~

We recorded a charge of $23 million in the three and six months ended June 30, 2016 for an adjustment to the Company’s accrued self-insured claims related to automobile, general liability and workers’ compensation risks. The adjustment was based on the Company’s detailed annual assessment of this actuarially determined accrual, which the Company completes in the second quarter of each year. This adjustment related to coverage periods of 2015 and prior. There were no insurance reserve adjustment charges recorded in the three and six months ended June 30, 2017.

~~Impairment of Software and Other Related Costs~~

We recorded impairment charges of $1 million in the three months ended June 30, 2016 and $2 million and $1 million in the six months ended June 30, 2017 and 2016, respectively, relating to our decision to replace certain software. There were no charges for impairment of software and other related costs recorded in the three months ended June 30, 2017.

~~Restructuring Charges~~

We incurred restructuring charges of $1 million and $4 million in the three months ended June 30, 2017 and 2016, respectively, and $3 million and $5 million in the six months ended June 30, 2017 and 2016, respectively. For the three and six months ended June 30, 2017, these charges included $1 million of costs related to the relocation of our headquarters. For the six months ended June 30, 2017, these charges included $2 million of severance. For the three and six months ended June 30, 2016, these charges included $2 million of lease termination costs and $1 million of severance primarily related to the decision to consolidate the stand-alone operations of a previously acquired business with those of the Terminix branch organization.

~~Gain on Sale of Merry Maids Branches~~

We recorded a gain of $2 million in the six months ended June 30, 2016, associated with the branch conversions at Merry Maids. There was no gain recorded in the three and six months ended June 30, 2017 and three months ended June 30, 2016. As of October 10, 2016, the branch conversion process was complete.

~~Table of Contents~~

~~Interest Expense~~

~~Interest expense was $38 million in each of the three month periods ended June 30, 2017 and 2016 and $75 million and $76~~$112 million for the six months ended June 30, ~~2017~~2020 and ~~2016, respectively.~~

~~Interest and Net Investment Income~~

Interest and net investment income was $1 million and $4 million for the three months ended June 30, 2017 and 2016, respectively, and $1 million and $4 million for the six months ended June 30, 2017 and 2016, respectively, and comprised net investment gains and interest and dividend income realized on the American Home Shield investment portfolio and interest income on other cash balances.

~~Income from Continuing Operations before Income Taxes~~

Income from continuing operations before income taxes was $137 million and $23 million for the three months ended June 30, 2017 and 2016, respectively, and $199 million and $85 million for six months ended June 30, 2017 and 2016,2019, 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:

Three Months Ended

Six Months Ended

June 30,

June 30,
(In millions)

2017 vs. 2016

2017 vs. 2016
Reportable segments and Corporate(1)

$
7

$
13
Depreciation expense(2)

(4)

(9)
Fumigation related matters(3)

86

89
Insurance reserve adjustment (4)

23

23
Other(5)

2

(1)
Increase (decrease) in income from continuing operations before income taxes

$
114

$
114



	Three Months Ended		Six Months Ended
	June 30,		June 30,
(In millions)	2020 vs. 2019		2020 vs. 2019
Income from continuing operations before income taxes, June 30, 2019	$	56	$	112
Reportable segment and European Pest Control and Other⁽¹⁾		15		(8)
Depreciation expense⁽²⁾		(1)		(2)
Amortization expense⁽³⁾		(4)		(8)
Acquisition-related costs⁽⁴⁾		3		3
Restructuring and other charges⁽⁵⁾		(6)		(4)
Loss on extinguishment of debt⁽⁶⁾		—		6
Realized (gain) on investment in frontdoor, inc.⁽⁷⁾		—		(40)
Interest expense⁽⁸⁾		(3)		—
Other⁽⁹⁾		(3)		(3)
Income from continuing operations before income taxes, June 30, 2020	$	57	$	56

___________________________________

~~(1)~~

~~Represents the net change in Adjusted EBITDA as described in “—Segment Review.”~~

~~(2)~~

~~Represents the net change in depreciation expense, driven by investments in vehicles and technology.~~

~~(3)~~

Represents the $88 million and $91 million charge for fumigation related matters recorded in the three and six months ended June 30, 2016, respectively. See Note 3 to the condensed consolidated financial statements for more details.

~~(4)~~

~~Represents $23 million insurance reserve adjustment recorded in the three and six months ended June 30, 2016 as described in “—Insurance Reserve Adjustment.”~~

~~(5)~~

Primarily represents the net change in amortization expense, 401(k) Plan corrective contribution, impairment of software and other related costs, restructuring charges, gain on sale of Merry Maids branches, interest expense, loss on extinguishment of debt and stock-based compensation expense.

(1)Represents the net change in Adjusted EBITDA as described in “—Segment Review.”

(2)Represents the net change in depreciation expense, driven by investments in vehicles and technology.

(3)Represents the net change in amortization expense as described in “—Amortization Expense.”

(4)Represents the net change in acquisition-related costs as described in “—Acquisition Related Charges.”

(5)Represents the net change in restructuring and other charges as described in “—Restructuring and Other Charges.”

(6)Represents the net change in the loss on extinguishment of debt as described in “—Loss on Extinguishment of Debt.”

(7)Represents the net change in the investment in frontdoor, inc. as described in “—Realized (Gain) on Investment in frontdoor, inc.”

(8)Primarily represents the net change in interest expense, as described in “—Interest Expense.”

(9)Primarily represents the net change in stock-based compensation and interest and net investment income.

Provision for Income Taxes

The effective tax rate on income from continuing operations was ~~38.0~~31.0 percent and ~~31.0~~25.8 percent for the three months ended June 30, ~~2017~~2020 and ~~2016, respectively. The effective tax rate on income from continuing operations for the three months ended June 30, 2016 was primarily affected by excess tax benefits for share-based awards~~2019, respectively, and ~~the release of a valuation allowance recorded discretely during the quarter.~~

~~The effective tax rate on income from continuing operations was 38.0~~28.5 percent and ~~35.4~~15.5 percent for the six months ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The effective tax ~~rate~~rates on income from continuing operations for the six months ended June 30, ~~2016~~2019 was primarily

Table of Contents

affected by ~~excess tax benefits for share-based awards and~~ the ~~release~~disposition of the Frontdoor retained shares in a ~~valuation allowance~~non-taxable debt-for-equity exchange that was recorded discretely ~~during~~in the ~~second quarter.~~ three months ended March 31, 2019.

Net Earnings from Discontinued Operations

In January 2020, we announced we are exploring strategic alternatives related to ServiceMaster Brands, including a potential sale of the business. Net earnings from discontinued operations were $13 million and $17 million for the three months ended June 30, 2020 and 2019, respectively, and $26 million and $34 million for the six months ended June 30, 2020 and 2019, respectively, and reflect the results of the ServiceMaster Brands Divestiture Group. Net earnings from discontinued operations for the three and six months ended June 30, 2020 include costs related to third-party consulting and other incremental costs directly associated with the strategic alternatives exploration process of $5 million and $9 million, respectively.

Net Income

Net income was ~~$85~~$53 million and ~~$16~~$59 million for the three months ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, ~~and~~which was primarily driven by a ~~$114~~$1 million increase in income from continuing operations before income taxes offset ~~in part,~~ by ~~a $45~~$4 million ~~increase~~lower net earnings from discontinued operations in the ~~provision for income taxes.~~three months ended June 30, 2020. Net income was ~~$124~~$67 million and ~~$54~~$129 million ~~for~~in the six months ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, ~~and~~which was primarily driven by a ~~$114~~$56 million ~~increase~~decrease in income from continuing operations before income taxes ~~offset, in part, by a $46~~and $8 million ~~increase~~lower net earnings from discontinued operations in the ~~provision for income taxes.~~six months ended June 30, 2020.

2534

Table of Contents

Segment Review

The following discussion of our business segment ~~reviews~~results 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~~were as follows:



	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,				Increase		June 30,				Increase		June 30,				Increase		June 30,				Increase
(In millions)	2017		2016		(Decrease)		2017		2016		(Decrease)		2020		2019		(Decrease)		2020		2019		(Decrease)
Revenue:
Terminix	$	428	$	414	3	%	$	794	$	778	2	%	$	517	$	495	5	%	$	955	$	914	5	%
American Home Shield		326		282	15			553		477	16
Franchise Services Group		52		50	5			102		99	3
Corporate		1		1	*			1		1	*
European Pest Control and Other														17		—	*			35		—	*
Total Revenue:	$	807	$	747	8	%	$	1,450	$	1,355	7	%	$	534	$	494	8	%	$	990	$	913	8	%
Adjusted EBITDA:(1)
Terminix	$	105	$	112	(7)	%	$	186	$	207	(10)	%
American Home Shield		82		72	15			113		90	25
Franchise Services Group		22		19	15			43		37	17
Reportable Segment Adjusted EBITDA		209		203	3			343		334	3
Corporate(2)		—		—	*			1		(3)	*
Terminix Reportable Segment Adjusted EBITDA													$	120	$	106	14	%	$	184	$	189	(3)	%
European Pest Control and Other⁽²⁾														2		1	16			1		4	(65)
Costs historically allocated to ServiceMaster Brands⁽³⁾														(3)		(3)	*			(6)		(6)	*
Total Adjusted EBITDA	$	210	$	203	3	%	$	343	$	330	4	%	$	119	$	104	15	%	$	179	$	187	(4)	%

___________________________________

* not meaningful

~~(1)~~

~~See Note 12 for our definition of Adjusted EBITDA and a reconciliation of Net Income to Reportable Segment Adjusted EBITDA.~~

~~(2)~~

~~Represents unallocated corporate expenses.~~

(1)See Note 15 to the condensed consolidated financial statements for our definition of Adjusted EBITDA and a reconciliation of Net Income to Reportable Segment Adjusted EBITDA.

(2)Represents results from our pest control operations in Europe and unallocated corporate gains, net of expenses, primarily related to our automobile, general liability and workers’ compensation insurance program.

(3)Includes amounts historically allocated to the ServiceMaster Brands Divestiture Group not permitted to be classified as discontinued operations under GAAP.

Terminix Segment

Three Months Ended June 30, ~~2017~~2020 Compared to Three Months Ended June 30, ~~2016~~2019

The Terminix segment, which provides termite and pest control services to residential and commercial customers and distributes pest control products, reported a ~~three~~five percent increase in revenue and a ~~seven~~14 percent ~~decrease~~increase in Adjusted EBITDA for the three months ended June 30, ~~2017~~2020 compared to the three months ended June 30, ~~2016.~~2019.

Revenue

Revenue by service line iswas as follows:



	Three Months Ended																Three Months Ended
	June 30,																June 30,

(In millions)	2017		2016		Growth				Acquired				Organic				2020		2019		Growth				Acquired				Organic
Pest Control	$	229	$	226	$	3	1	%	$	2	1	%	$	—	—	%
Termite and Other Services		177		168		9	5	%		1	—	%		8	5	%
Residential Pest Control																	$	182	$	182	$	—	—	%	$	2	1	%	$	(1)	(1)	%
Commercial Pest Control																		107		105		2	2	%		11	11	%		(10)	(9)	%
Termite and Home Services																		196		183		13	7	%		1	1	%		12	7	%
Other		23		20		3	14	%		—	—	%		3	14	%		32		25		7	29	%		9	38	%		(2)	(9)	%
Total revenue	$	428	$	414	$	14	3	%	$	3	1	%	$	11	3	%	$	517	$	495	$	22	5	%	$	23	5	%	$	(1)	—	%

~~Pest control revenue increased one percent. Pest~~Residential pest control revenue was ~~comparable to the prior year period and was significantly impacted by a $5 million~~flat. The organic revenue decline ~~associated~~of one percent was driven by lower summer sales units, bed bug and other one-time sales and service postponements in recurring pest, all driven by COVID-19. Service postponements peaked in April, but moderated throughout the rest of the second quarter as customers became comfortable with ~~Alterra Pest Control (“Alterra”). Excluding Alterra, organic~~the safety protocols we implemented in response to COVID-19, but remain higher than the second quarter of 2019. New one-time sales, such as bed bug services, declined by approximately $3 million in the quarter due to COVID-19. The delayed start and reduction in scope of our summer sales program also resulted in an approximately $3 million revenue decline in the quarter. These declines were offset by improved price realization. Residential pest control revenue in the quarter also increased one percent from acquisitions completed during the last 12 months.

Commercial pest control revenue growth was ~~$5 million,~~two percent, reflecting growth from acquisitions of 11 percent, offset by organic revenue declines of nine percent. The commercial pest control organic revenue decline was driven by lower sales of non-recurring services and service postponements due to business closures from COVID-19. Our new sanitization and disinfection services, which may be one-time or ~~2 percent.~~recurring services, did not have a meaningful impact on the second quarter of 2020. Commercial

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pest control revenue in the quarter also increased 11 percent from acquisitions completed during the last 12 months, including Gregory Pest Solutions and McCloud Services which were completed during the fourth quarter of 2019.

Termite revenue, including ~~the~~ wildlife exclusion, crawl space encapsulation and attic insulation, ~~products,~~ which are managed as a component of our termite line of business, ~~increased five~~growth was seven percent. The growth in this service line reflects an increase in core termite new unit sales driven by the launch of a new monthly pay tiered product offering and a strong termite swarm season in certain markets.

In the three months ended June 30 ~~2017,~~, 2020, termite renewal revenue comprised 4743 percent of total termite revenue, while the remainder consisted of termite new unit revenue. Organic termite revenue increased five percent, reflecting an increase in core termite, wildlife exclusion and attic insulation sales, improved price realization and a favorable change in the timing of termite renewal services. Termite activity is unpredictable in its nature. Factors that can impact termite activity include conducive weather conditions and consumer awareness of termite swarms.

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Adjusted EBITDA

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



~~(In millions)~~
~~Three Months Ended June 30, 2016~~	$	~~112~~
~~Impact of change in revenue~~		8
~~Production labor~~		~~(3)~~
~~Damage claims~~		~~(2)~~
~~Insurance program~~		~~(1)~~
~~Technology costs~~		~~(1)~~
~~Fuel prices~~		1
~~Sales and marketing~~		~~(4)~~
~~Other~~		~~(4)~~
~~Three Months Ended June 30, 2017~~	$	~~105~~



(In millions)
Three Months Ended June 30, 2019	$	106
Impact of organic revenue growth		1
Damage claims		(8)
Production labor		5
Chemicals and materials		2
Vehicle and fuel		4
Sales and marketing		1
Corporate administrative expenses		4
Other		2
Impact of acquisitions		4
Three Months Ended June 30, 2020	$	120

The increase in ~~production labor was driven by investments in field operations focused on improving safety, customer service and retention. The increase in~~termite damage claims was driven by increased ~~termite warranty claims. The increase in our insurance programs was principally driven by an increase~~Non-Litigated Claims and Litigated Claims, primarily in the ~~number~~Mobile Bay Area, as well as the costs of ~~company-owned sales vehicles.~~the termite damage claim mitigation program in the Mobile Bay Area. The ~~increase~~decrease in ~~technology costs~~production labor was driven, in part, by improved employee retention and improved labor management. The decrease in chemicals and materials was driven by ~~investments to improve our customers’ experiences through technology.~~a favorable shift in the mix of services performed. The ~~increase~~decrease in ~~sales~~vehicle and ~~marketing costs~~fuel was driven by ~~investments~~improvements in fleet management and lower fuel prices. The decrease in corporate administrative expenses was driven by actions taken to ~~grow and train~~reduce the cost of our ~~sales force, higher commissions attributable to the growth in core termite, wildlife exclusion and attic insulation sales and incremental marketing investments.~~corporate headquarters operations.

Six Months Ended June 30, ~~2017~~2020 Compared to Six Months Ended June 30, ~~2016~~2019

The Terminix segment reported a ~~two~~five percent increase in revenue and a 10three percent decrease in Adjusted EBITDA for the six months ended June 30, ~~2017~~2020 compared to the six months ended June 30, ~~2016.~~2019.

Revenue

Revenue by service line is as follows:



	Six Months Ended																Six Months Ended
	June 30,																June 30,

(In millions)	2017		2016		Growth				Acquired				Organic				2020		2019		Growth				Acquired				Organic
Pest Control	$	430	$	432	$	(2)	—	%	$	6	1	%	$	(8)	(2)	%
Termite and Other Services		326		311		15	5	%		2	1	%		13	4	%
Residential Pest Control																	$	341	$	335	$	6	2	%	$	4	1	%	$	1	—	%
Commercial Pest Control																		213		199		15	7	%		21	11	%		(6)	(3)	%
Termite and Home Services																		351		339		12	4	%		3	1	%		9	3	%
Other		37		35		2	7	%		—	—	%		2	7	%		50		41		9	23	%		13	31	%		(3)	(8)	%
Total revenue	$	794	$	778	$	16	2	%	$	8	1	%	$	8	1	%	$	955	$	914	$	42	5	%	$	41	4	%	$	1	—	%

~~Pest~~Residential pest control revenue ~~was comparable to the prior year period. Pest~~increased two percent reflecting flat organic growth. Residential pest control revenue ~~decreased two~~also increased one percent from acquisitions completed during the last 12 months. Organic revenue was flat, driven by lower new summer sales units, bed bug and ~~was significantly impacted~~other one-time sales and temporary service postponements in recurring pest, principally driven by ~~an $11 million~~the impact of COVID-19 on second quarter results.

Commercial pest control revenue increased seven percent. The commercial pest control organic revenue decline ~~associated with Alterra. Excluding Alterra, organic~~of three percent was driven by lower sales of non-recurring services and service postponements due to business closures from COVID-19. Commercial pest control revenue ~~growth was $3 million, or 1 percent.~~also increased 11 percent from acquisitions completed during the last 12 months, including Gregory Pest Solutions and McCloud Services which were completed during the fourth quarter of 2019.

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termite new unit sales and improved price realization. In the six months ended June 30, ~~2017,~~2020, termite renewal revenue comprised 5048 percent of total termite revenue, while the remainder consisted of termite new unit revenue. ~~Organic~~Termite activity is unpredictable in its nature. Factors that can impact termite ~~revenue increased four percent, reflecting an increase in core~~activity include conducive weather conditions and consumer awareness of termite ~~wildlife exclusion and attic insulation sales and improved price realization.~~swarms.

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Adjusted EBITDA

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



~~(In millions)~~
~~Six Months Ended June 30, 2016~~	$	~~207~~
~~Impact of change in revenue~~		9
~~Production labor~~		~~(9)~~
~~Damage claims~~		~~(6)~~
~~Insurance program~~		~~(3)~~
~~Technology costs~~		~~(2)~~
~~Fuel prices~~		2
~~Sales and marketing~~		~~(9)~~
~~Other~~		~~(2)~~
~~Six Months Ended June 30, 2017~~	$	~~186~~



(In millions)
Six Months Ended June 30, 2019	$	189
Impact of change in revenue		3
Damage claims		(14)
Production labor		1
Chemicals and materials		(1)
Vehicle and fuel		3
Sales and marketing		(1)
Investments in growth		(4)
Other		3
Impact of acquisitions		5
Six Months Ended June 30, 2020	$	184

The increase in ~~production labor was driven by investments in field operations focused on improving safety, customer service and retention. The increase in~~termite damage claims was driven by increased Non-Litigated Claims and Litigated Claims, primarily in the Mobile Bay Area, as well as the costs of the termite ~~warranty claims.~~damage claim mitigation program in the Mobile Bay Area. The decrease in production labor was driven, in part, by improved employee retention and labor management, partially offset by labor inefficiencies incurred in the first quarter of 2020 due to the impact of COVID-19. The increase in ~~our insurance programs~~chemicals and materials was ~~principally~~driven by increased personal protective equipment and sanitization purchases in response to COVID-19, offset, in part, by a favorable shift in the mix of services performed. The decrease in vehicle and fuel was driven by ~~an increase~~improvements in ~~the number of company-owned sales vehicles.~~fleet management and lower fuel prices. The increase in ~~technology~~investments in growth was primarily related to our investment in a new customer experience platform.

Termite Damage Claims

A summary of Litigated Claims and Non-Litigated Claims for the six months ended June 30, 2020 and 2019 is as follows:


	Litigated Claims						Non-Litigated Claims
	Mobile Bay		All Other				Mobile Bay		All Other
	Area		Regions		Total		Area		Regions		Total
Outstanding claims as of December 31, 2018		31		17		48		264		602		866
New claims filed		12		—		12		135		623		758
Claims resolved		(2)		(1)		(3)		(122)		(497)		(619)
Outstanding claims as of March 31, 2019		41		16		57		277		728		1,005
New claims filed		9		—		9		269		869		1,138
Claims resolved		(2)		(2)		(4)		(180)		(685)		(865)
Outstanding claims as of June 30, 2019		48		14		62		366		912		1,278

Outstanding claims as of December 31, 2019		56		11		67		376		618		994
New claims filed		6		2		8		127		505		632
Claims resolved		(6)		—		(6)		(183)		(546)		(729)
Outstanding claims as of March 31, 2020		56		13		69		320		577		897
New claims filed		8		5		13		147		669		816
Claims resolved		(1)		(2)		(3)		(168)		(501)		(669)
Outstanding claims as of June 30, 2020		63		16		79		299		745		1,044

Litigated Claims exclude a number of claims in which the only material issue in dispute is the actual amount of repair costs, ~~was driven by investments~~which are simpler to ~~improve~~resolve and less volatile (“Non-Complex Litigated Claims”). There were no Non-Complex Litigated Claims filed in the three and six months ended June 30, 2020 in the Mobile Bay Area, and none in the three months ended June 30, 2020 and eight in the six months ended June 30, 2020 in our ~~customers’ experiences through technology.~~branches outside of the Mobile Bay Area (“All Other Regions”) which are excluded from this table. The ~~increase~~financial impacts of these Non-Complex Litigated Claims are included in ~~sales~~the summary of Litigated and ~~marketing~~Non-Litigated Reserve Activity below and are not material to our financial condition or the results of our operations.

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A summary of Litigated Claims and Non-Litigated Claims reserve activity for the six months ended June 30, 2020 and 2019 is as follows:


	Litigated Claims						Non-Litigated Claims
	Mobile Bay		All Other				Mobile Bay		All Other
(In millions)	Area		Regions		Total		Area		Regions		Total
Reserves as of December 31, 2018	$	4	$	4	$	8	$	7	$	13	$	20
Expense		(1)		2		1		2		3		5
Payments		(2)		(2)		(4)		(2)		(4)		(6)
Reserves as of March 31, 2019	$	1	$	4	$	5	$	6	$	12	$	19
Expense		3		—		3		2		4		7
Payments		(1)		(3)		(4)		(3)		(6)		(8)
Reserves as of June 30, 2019	$	3	$	1	$	4	$	6	$	11	$	17

Reserves as of December 31, 2019	$	40	$	12	$	52	$	15	$	13	$	28
Expense		3		3		5		2		4		6
Payments		(3)		(1)		(3)		(3)		(5)		(8)
Reserves as of March 31, 2020	$	40	$	14	$	54	$	15	$	12	$	27
Expense		7		2		9		2		4		6
Payments		(4)		(1)		(5)		(3)		(5)		(8)
Reserves as of June 30, 2020	$	43	$	15	$	58	$	14	$	11	$	25

In addition, our results of operations for the three and six months ended June 30, 2020 include charges for legal fees associated with Litigated Claims of $2 million and $4 million, respectively, and costs ~~was driven by investments~~related to ~~grow~~mitigation efforts in the Mobile Bay Area of $2 million and ~~train~~$3 million, respectively. Our results of operations for the three and six months ended June 30, 2019 include charges for legal fees associated with Litigated Claims of $1 million and $3 million, respectively.

European Pest Control and Other

European Pest Control and Other includes our ~~sales force, higher commissions attributable~~pest control operations in Europe, our captive insurance subsidiary which provides automobile, workers’ compensation and general liability coverage to ~~the growth in core termite, wildlife exclusion~~our reportable segment and ~~attic insulation sales and incremental marketing investments.~~our headquarters functions (whose costs are allocated to Terminix or previously allocated to ServiceMaster Brands which is now classified as discontinued operations).

~~American Home Shield Segment~~

Three Months Ended June 30, ~~2017~~2020 Compared to Three Months Ended June 30, ~~2016~~2019

~~The American Home Shield segment, which provides home warranties for household systems and appliances,~~Revenue

Our European pest control operations reported ~~a 15 percent increase in~~ revenue ~~and a 15 percent increase in Adjusted EBITDA~~of $17 million for the three months ended June 30, ~~2017 compared to~~2020. Revenue from European pest control operations was impacted by COVID-19 related business closures, including severe disruptions in the ~~three months ended June 30, 2016.~~UK.

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

As of June 30,

2017(1)

2016(1)
Growth in Home Warranties

11
%

10
%
Customer Retention Rate

75
%

76
%

~~(1)~~

As of June 30, 2017 and 2016, excluding the impact of acquisitions, the growth in home warranties was six percent and seven percent, respectively, and the customer retention rate for our American Home Shield segment was 75 percent and 75 percent, respectively.

~~Revenue~~

~~The revenue results reflect an increase in new unit sales, improved price realization and the impact of the OneGuard and Landmark acquisitions (an approximate $21 million increase).~~

Adjusted EBITDA

The following table provides a summary of changes in ~~the segment’s~~European Pest Control and Other’s Adjusted EBITDA:



~~(In millions)~~
~~Three Months Ended June 30, 2016~~	$	72
~~Impact of change in revenue~~		24
~~Contract claims~~		~~(2)~~
~~Sales and marketing costs~~		2
~~OneGuard and Landmark selling and administrative expenses~~		~~(7)~~
~~Customer service costs~~		~~(4)~~
~~Interest and net investment income~~		~~(3)~~
~~Other~~		1
~~Three Months Ended June 30, 2017~~	$	82



(In millions)
Three Months Ended June 30, 2019	$	1
European pest control		2
Other		(1)
Three Months Ended June 30, 2020	$	2

The increase in ~~contract claims costs is primarily due to normal inflationary pressure on the underlying costs of repairs. The decrease in sales~~Adjusted EBITDA from European Pest Control and ~~marketing costs is~~Other was driven by the ~~timing~~acquisition of ~~a marketing campaign. We~~Nomor, partially offset by additional optimization expenses incurred ~~incremental selling~~by Terminix UK as part of our efforts to separate it from its former owner’s operations and ~~administrative expenses as a result of the OneGuard and Landmark acquisitions. Additionally, the increase in customer service costs is~~systems.

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due to higher labor costs resulting from an acceleration of pre-season hiring and training in preparation for the high-volume summer season and an overall increase in call center staffing levels to improve response times.

In the three months ended June 30, 2016, the segment’s Adjusted EBITDA included interest and net investment income from the American Home Shield investment portfolio of $3 million. There were no such investment gains in the three months ended June 30, 2017.

~~Extreme temperatures in 2017 could lead to an increase in service requests related to household systems, resulting in higher claim frequency and costs.~~

Six Months Ended June 30, ~~2017~~2020 Compared to Six Months Ended June 30, ~~2016~~2019

~~The American Home Shield segment~~Revenue

Our European pest control operations reported ~~a 16 percent increase in~~ revenue ~~and a 25 percent increase in Adjusted EBITDA~~of $35 million for the six months ended June 30, ~~2017 compared to the six months ended June 30, 2016.~~2020.

~~Revenue~~
‎

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~~The revenue results reflect an increase in new unit sales, improved price realization and the impact of the OneGuard and Landmark acquisitions (an approximate $38 million increase).~~

Adjusted EBITDA

The following table provides a summary of changes in ~~the segment’s~~European Pest Control and Other’s Adjusted EBITDA:


~~(In millions)~~
~~Six Months Ended June 30, 2016~~	$	90
~~Impact of change in revenue~~		43
~~Contract claims~~		~~(4)~~
~~Sales and marketing costs~~		2
~~OneGuard selling and administrative expenses~~		~~(13)~~
~~Customer service costs~~		~~(4)~~
~~Interest and net investment income~~		~~(3)~~
~~Other~~		2
~~Six Months Ended June 30, 2017~~	$	~~113~~



(In millions)
Six Months Ended June 30, 2019	$	4
European pest control		3
Insurance program		(5)
Other		(1)
Six Months Ended June 30, 2020	$	1

The increase in ~~contract claims costs is primarily due to normal inflationary pressure on the underlying costs of repairs, offset in part, by a lower number of work orders. The decrease in sales~~Adjusted EBITDA from European Pest Control and ~~marketing costs is~~Other was driven by the ~~timing~~acquisition of Nomor, partially offset by additional optimization expenses incurred by Terminix UK as part of our efforts to separate it from its former owner’s operations and systems. The six months ended June 30, 2020 were also impacted by an unfavorable adjustment of $1 million in our automobile, general liability and workers’ compensation program, as compared to a ~~marketing campaign. We incurred incremental selling~~favorable $3 million adjustment in our automobile, general liability and ~~administrative expenses as a result of the OneGuard and Landmark acquisitions. Additionally, the increase~~workers’ compensation program in customer service costs is due to higher labor costs resulting from an acceleration of pre-season hiring and training in preparation for the high-volume summer season and an overall increase in call center staffing levels to improve response times.

In the six months ended June 30, ~~2017~~2019.

Costs Historically Allocated to ServiceMaster Brands

We have historically incurred the cost of certain corporate-level activities which we performed on behalf of our businesses, including ServiceMaster Brands, such as executive functions, communications, public relations, finance and ~~2016,~~accounting, tax, treasury, internal audit, human resources operations and benefits, risk management and insurance, supply management, real estate management, legal, facilities, information technology and other general corporate support services. The costs of such activities were historically allocated to our segments, including ServiceMaster Brands. Certain corporate expenses which were historically allocated to the ~~segment’s Adjusted EBITDA included interest and net investment income from the American Home Shield investment portfolio of $1~~ServiceMaster Brands segment are not permitted to be classified as discontinued operations under GAAP (“Historically Allocated Services”). Such Historically Allocated Services amounted to $3 million and $4$6 million ~~respectively.~~in each of the three months and six months ended June 30, 2020 and 2019 respectively, and are included in European Pest Control and Other.

~~Franchise Services~~Discontinued Operations – ServiceMaster Brands Divestiture Group ~~Segment~~

Three Months Ended June 30, ~~2017~~2020 Compared to Three Months Ended June 30, ~~2016~~2019

The ~~Franchise Services~~ServiceMaster Brands Divestiture Group, ~~segment,~~ which consists of the ServiceMaster Restore (disaster restoration), ServiceMaster Clean ~~(janitorial)~~(commercial cleaning), Merry Maids (residential cleaning), Furniture Medic (cabinet and ~~wood~~ furniture repair) and AmeriSpec (home inspection) businesses, as well as our financing subsidiary which provides financing to franchisees that was historically reported ~~a five percent increase in revenue~~within European Pest Control and ~~a 15 percent increase in Adjusted EBITDA~~Other, was classified as held for ~~the three months ended~~sale as of June 30, ~~2017 compared to the three months ended June 30, 2016.~~2020.

Revenue

Revenue by service line isfor the ServiceMaster Brands Divestiture Group was as follows:



	Three Months Ended				% of		Three Months Ended				% of		% of
	June 30,				Revenue		June 30,				Revenue		Revenue
(In millions)	2017		2016		2017		2020		2019		2020		2019
Royalty Fees	$	32	$	30	61	%	$	30	$	35	47	%	53	%
Company-Owned Merry Maids Branches		—		2	—
Janitorial National Accounts		12		11	23
Commercial Cleaning and other National Accounts								21		19	32		29
Sales of Products		4		4	7			3		3	6		5
Other		5		3	9			9		9	15		14
Total revenue	$	52	$	50	100	%	$	63	$	66	100	%	100	%

~~Table~~The ServiceMaster Brands Divestiture Group reported $63 million in revenue, a decrease of ~~Contents~~

~~The increase in royalty fees was primarily driven by higher disaster restoration services. The $2 million~~four percent over the prior year. A mild winter and decline in ~~revenue from company-owned~~area-wide events year-over-year in ServiceMaster Restore, as well as the COVID-19 related shutdown of Merry Maids ~~branches was attributable to~~locations at the ~~branch conversions, which were completed in 2016. The increase in revenue from janitorial national accounts was driven by increased sales activity.~~beginning of the second quarter, drove lower royalty revenue.

Adjusted EBITDA

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



~~(In millions)~~
~~Three Months Ended June 30, 2016~~	$	19
~~Impact of change in revenue~~		2
~~Other~~		1
~~Three Months Ended June 30, 2017~~	$	22



(In millions)
Three Months Ended June 30, 2019	$	27
Impact of change in revenue		(3)
Three Months Ended June 30, 2020	$	24

~~Excluding~~The ServiceMaster Brands Divestiture Group generated Adjusted EBITDA of $24 million reflects a decrease of $3 million year over year. The flow through impact of COVID-19 related royalty revenue reductions at Merry Maids accounted for approximately $2 million of the decline, while the impact of a mild winter and fewer area-wide events at ServiceMaster Restore contributed the branch conversions at Merry Maids, the increase in revenue resulted in a $2 million increase in Adjusted EBITDA. The reduction in revenue from company-owned Merry Maids branches had a negligible impact on Adjusted EBITDA.remaining decline.

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Six Months Ended June 30, ~~2017~~2020 Compared to Six Months Ended June 30, ~~2016~~2019

The Franchise Services Group segment reported a three percent increase in revenue and a 17 percent increase in Adjusted EBITDA for the six months ended June 30, 2017 compared to the six months ended June 30, 2016.Revenue

~~Revenue~~

Revenue by service line isfor the ServiceMaster Brands Divestiture Group was as follows:

					��

	Six Months Ended					% of		Six Months Ended				% of		% of
	June 30,					Revenue		June 30,				Revenue		Revenue
(In millions)	2017		2016			2017		2020		2019		2020		2019
Royalty Fees	$	63	$	58		62	%	$	62	$	69	48	%	54	%
Company-Owned Merry Maids Branches		—		6		—
Janitorial National Accounts		23		21		23
Commercial Cleaning and other National Accounts									40		36	31		28
Sales of Products		7		7		7			6		6	5		5
Other		9		7		9			20		17	16		13
Total revenue	$	102	$	99		100	%	$	128	$	128	100	%	100	%

The ~~increase~~ServiceMaster Brands Divestiture Group reported $128 million in ~~royalty fees~~revenue, which was ~~primarily driven by higher disaster restoration services. The $6 million~~consistent with prior year. A mild winter and decline in ~~revenue from company-owned~~area-wide events year over year in ServiceMaster Restore, as well as the COVID-19 related shutdown of Merry Maids ~~branches was attributable to~~locations through the ~~branch conversions, which were completed in 2016. The increase in revenue from janitorial national accounts was driven by increased sales activity.~~beginning of the second quarter, drove lower royalty revenue.

Adjusted EBITDA

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



~~(In millions)~~
~~Six Months Ended June 30, 2016~~	$	37
~~Impact of change in revenue~~		5
~~Other~~		1
~~Six Months Ended June 30, 2017~~	$	43


(In millions)
Six Months Ended June 30, 2019	$	53
Impact of change in revenue		(3)
Other		(3)
Six Months Ended June 30, 2020	$	47

~~Excluding~~

The ServiceMaster Brands Divestiture Group generated Adjusted EBITDA of $47 million reflects a decrease of $5 million year over year. The flow through impact of COVID-19 related royalty revenue reductions at Merry Maids accounted for approximately half of the decline, while the impact of a mild winter and fewer area-wide events at ServiceMaster Restore contributed the ~~branch conversions at Merry Maids, the increase in revenue resulted in~~remaining decline.

Presented below is a ~~$5 million increase in Adjusted EBITDA. The reduction in revenue~~reconciliation of Net earnings from ~~company-owned Merry Maids branches had a negligible impact on Adjusted EBITDA.~~

~~Corporate~~

~~Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016~~

~~Adjusted EBITDA for Corporate for the three months ended June 30, 2017 was comparable~~discontinued operations to the ~~three months ended June 30, 2016.~~ServiceMaster Brands Divestiture Group’s Adjusted EBITDA:

~~Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016~~


		Three Months Ended				Six Months Ended
		June 30,				June 30,
(In millions)		2020		2019		2020		2019
Net earnings from discontinued operations	$	13	$	17	$	26	$	34
Depreciation and amortization expense		—		2		1		4
Non-cash stock-based compensation expense		1		—		1		1
Restructuring and other charges		5		1		9		2
Provision for income taxes		5		7		9		12
ServiceMaster Brands Divestiture Group Adjusted EBITDA	$	24	$	27	$	47	$	53

Corporate reported a $4 million increase in Adjusted EBITDA for the six months ended June 30, 2017 compared to the six months ended June 30, 2016. The six month ended June 30, 2016 included increased reserves in our automobile, general liability and workers’ compensation insurance program of $4 million driven by unfavorable claims trends, which were impacted by a charge of $3 million in connection with civil claims related to an incident at a family’s residence in Palm Beach County, Florida (an amount equal

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to our insurance deductibles under our general liability insurance program). There were no increased reserves in our automobile, general liability and workers’ compensation insurance program for the six months ended June 30, 2017.

Liquidity and Capital Resources

Liquidity

~~We are highly leveraged, and a substantial~~A portion of our liquidity needs are due to service requirements on our ~~significant~~ indebtedness. The ~~agreements governing the $1,650 million term loan facility maturing November 8, 2023 and the $300 million revolving credit facility maturing November 8, 2021 (together, the “Credit Facilities”)~~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, ~~2017,~~2020, we were in compliance with the covenants under the agreements that were in effect on such date.

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~~As of June 30, 2020, we had $677 million of immediate liquidity, which consisted of available cash ~~provided from operations~~and cash equivalents and available ~~capacity~~borrowings under our Existing Revolving Credit Facility.

As previously described, the impact of COVID-19 is highly uncertain and far reaching. We took actions to improve our liquidity, including capital expenditure and operating expense reductions and enhancements to our working capital management practices. Based on these actions and assumptions regarding the impact of COVID-19, we expect to be able to generate sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants for the next twelve months prior to giving effect to any additional financing that may occur.

We have a covenant-lite debt structure and as such has no maintenance financial covenants in place unless its Revolving Credit Facility is drawn by more than 30 percent, or $120 million. We currently have no cash drawn under the Revolving Credit Facility. In the event more than 30 percent of the Revolving Credit Facility ~~will provide sufficient funds~~is drawn, the applicable maintenance financial covenant is 4.0x net first lien debt to ~~operate~~Consolidated EBITDA, as defined in our ~~business, make expected capital expenditures and meet our liquidity requirements~~credit agreement, for the ~~following 12 months, including payment~~most recently completed four-quarter period. With the inclusion of ~~interest and principal on~~EBITDA from discontinued operations, our ~~debt. Cash and short- and long-term marketable securities totaled $431 million as of~~first lien net debt leverage ratio was approximately 1.0x Adjusted EBITDA at quarter end, with total net debt leverage at approximately 3.6x Adjusted EBITDA.

At June 30, ~~2017, compared with $335 million as of December 31, 2016. As of June 30, 2017,~~2020, there were ~~$33~~$25 million of letters of credit outstanding and ~~$267~~$375 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.

On May 11, 2017, the Company purchased $17 million in aggregate principal amount of its 7.25% notes maturing in 2038 at a price of 97% of the principal amount using available cash. The repurchased notes were delivered to the trustee for cancellation. In connection with this partial repurchase, the Company recorded a loss on extinguishment of debt of $3 million in the three and six months ended June 30, 2017.

~~In 2016, our board of directors authorized a three-year share repurchase program, under which we may repurchase up to $300 million of outstanding shares of our common stock. As of June 30, 2017, we~~We also have ~~repurchased $145 million of outstanding shares under this program, which is included in treasury stock on the condensed consolidated statements of financial position.~~

In 2016, we settled all civil claims of the affected families related to the U.S. Virgin Islands and Florida fumigation matters, and payments in connection with those claims totaled $90 million ($56 million, net of tax). We have also sought to resolve by plea agreement the federal criminal consequences related to the U.S. Virgin Islands matter pursuant to which we expect to pay approximately $10 million. See Note 3 to the condensed consolidated financial statements for more details.

We have submitted to the IRS a voluntary correction proposal to remedy an administrative error related to our Profit Sharing and Retirement Plan. Our current estimate of the cost of the correction ranges from $25 million to approximately $93 million. See Note 3 to the condensed consolidated financial statements for more details.

Cash and short- and long-term marketable securities include balances associated with regulatory requirements at American Home Shield. See “—Limitations on Distributions and Dividends by Subsidiaries.” American Home Shield’s investment portfolio has been invested in a combination of high-quality debt securities and equity securities. We closely monitor the performance of the investments. From time to time, we review 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.

~~As of June 30, 2017, 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. This amount~~program that is ~~not related to~~included as Restricted cash on the ~~payments made in connection with the U.S. Virgin Islands matter.~~Condensed Consolidated Statements of Financial Position as of June 30, 2020. 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 new Revolving Credit Facility and our cash position. Any change in cash or marketable securities used as collateral would result isin a corresponding change in our available borrowing capacity under the new Revolving Credit Facility.

On February 19, 2019, our board of directors approved a three-year extension of a previously authorized share repurchase plan allowing for $150 million of repurchases of our common stock through February 19, 2022. We utilized all remaining authority under this program and repurchased $103 million of shares in the first quarter of 2020, at an average share price of $27.64, using cash from operations.

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, ~~2017,~~2020, the estimated fair value of our fuel swap contracts was ~~a net liability of less than $1~~$2 million, and we had posted $2 million in letters of credit as collateral under our fuel hedging program, which were also issued under the old 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 new 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.

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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.

Long-Term Debt

On November 5, 2019, the Company closed on an amended $600 million Term Loan B due 2026, as well as a $400 million revolving credit agreement due 2024. Concurrently with the refinancing, we entered into a seven year interest rate swap agreement with a notional amount of $550 million. During the term on the agreement, the effective interest rate on $550 million of the new Term Loan B is fixed at a rate of 1.615 percent, plus the incremental borrowing margin of 1.75 percent, or 3.365 percent.

Fleet and Equipment Financing Arrangements

~~We have entered into the~~Our Fleet Agreement ~~which, among other things,~~ allows us to obtain fleet vehicles through a leasing ~~program.~~program, among other things. We expect to fulfill substantially all of our vehicle fleet needs through the leasing program under the Fleet Agreement. For the six months ended June 30, ~~2017,~~2020, we acquired ~~$22~~$16 million of vehicles through the leasing program under the Fleet Agreement. All leases under the Fleet

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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 months ended June 30, ~~2017,~~ ~~we acquired $1 million~~2020, an immaterial amount of property and equipment was acquired through these incremental leasing ~~programs, which are treated as capital leases for accounting purposes.~~ programs. We anticipate new lease financings, including the Fleet Agreement and incremental leasing programs, for the full year ~~2017~~2020 will range from ~~approximately $30~~$40 million to ~~$40~~$50 million.

Limitations on Distributions and Dividends by Subsidiaries

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~~We previously considered the ~~ability of certain of~~earnings in our non-U.S. 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 warranty 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. As of June 30, 2017, the total net assets subject to these third-party restrictions was $194 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 consider undistributed earnings of our foreign subsidiaries as of June 30, 2017~~ to be indefinitely reinvested and, accordingly, recorded no ~~U.S.~~deferred income ~~taxes have been provided thereon~~. ~~The amount of cash associated with indefinitely reinvested~~taxes. The Tax Cuts and Jobs Act (the “Act” or “U.S. Tax Reform”) imposes a one-time tax (“Transition Tax”) on undistributed and previously untaxed post-1986 foreign earnings ~~was approximately $25 million~~ and ~~$23 million~~profits, as determined in accordance with U.S. tax principles, of ~~June 30, 2017~~certain foreign owned corporations owned by U.S. stockholders. While the Transition Tax resulted in all 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 December 31, 2016, respectively. We have not repatriated, nor do we anticipate the need to repatriate, funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.U.S. state taxes.

Cash Flows

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



	Six Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2017		2016		2020		2019
Net cash provided from (used for):
Operating activities	$	260	$	244	$	172	$	124
Investing activities		(56)		(58)		(36)		(119)
Financing activities		(124)		(45)		(140)		(32)
Discontinued operations		1		—		28		30
Effect of exchange rate changes on cash		—		1		(1)		—
Cash increase during the period	$	81	$	141	$	22	$	3

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Operating Activities

Net cash provided from operating activities from continuing operations increased ~~$16~~$48 million to ~~$260~~$172 million for the six months ended June 30 ~~2017~~, 2020 compared to ~~$244~~$124 million for ~~the~~ six months ended June 30 ~~2016.~~, 2019.

Net cash provided from operating activities for the six months ended June 30 ~~2017~~, 2020 comprised ~~$198~~$115 million in earnings adjusted for non-cash charges and ~~a $63~~$62 million decrease in cash required for working capital (a ~~$28~~$26 million decrease excluding the working capital impact of accrued interest ~~restructuring~~ and taxes), offset, in part, by $1$6 million in payments related to restructuring. For the six months ended June 30, 2020, working capital requirements were favorably impacted by the deferral of payroll and income tax payments under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and the collection of a federal income tax refund.

Net cash provided from operating activities for the six months ended June 30, 2019 comprised $129 million in earnings adjusted for non-cash charges and a $5 million decrease in cash required for working capital (a $1 million increase excluding the working capital impact of accrued interest and taxes), offset, in part, by $11 million in payments related to restructuring and other and fumigation matters. For the six months ended June 30 ~~2017,~~, 2019, 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 performance.~~

~~Net cash provided from operating activities for the six months ended June 30, 2016 comprised $227 million in earnings adjusted for non-cash charges~~interest and a $19 million decrease in cash required for working capital (a $29 million decrease excluding the working capital impact of accrued interest, restructuring and taxes), offset, in part, by $2 million in payments related to fumigation matters. For the six months ended June 30, 2016, working capital requirements were favorably impacted by seasonal activity, offset, in part by incentive compensation payments related to 2015 performance and timing of income tax payments.

Investing Activities

Net cash used for investing activities from continuing operations was ~~$56~~$36 million for the six months ended June 30 ~~2017,~~, 2020, compared to ~~$58~~$119 million for the six months ended June 30 ~~2016.~~, 2019.

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~~Capital expenditures increased to $34~~

Cash paid for business acquisitions was $24 million for the six months ended June 30 ~~2017 from $31~~, 2020, compared to $115 million infor the six months ended June 30 ~~2016~~ , 2019. We expect to continue our tuck-in acquisition program at Terminix and to periodically evaluate other strategic acquisitions.

Capital expenditures were $15 million and $13 million for the six months ended June 30, 2020 and 2019, respectively, and included recurring capital needs and information technology projects. We anticipate capital expenditures for the full year ~~2017 for recurring capital needs and the continuation of investments in information systems and productivity enhancing technology~~2020 will range from ~~approximately~~$40 million to $50 million, ~~to $60 million. Additionally, we expect~~reflecting recurring capital needs for the full year 2017 associated with the relocation of our headquarters to be approximately $35 million for which we expect to be reimbursed through a tenant improvement allowance and grants totaling approximately $25 million for a net cash outflow of approximately $10 million.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.

Proceeds from the sale of equipment and other assets was $7 million for the six months ended June 30, 2016, primarily driven by the branch conversions at Merry Maids. In the six months ended June 30, 2016, the branches were sold for a total purchase price of $8 million for which we received cash of $6 million and provided financing of $2 million. As of October 10, 2016, the branch conversion process was complete.

Cash payments for acquisitions for the six months ended June 30, 2017 totaled $12 million, compared with $73 million for the six months ended June 30, 2016. Consideration given for the purchase of a master distributor and for tuck-in acquisitions consisted of cash payments and debt payable to sellers. In 2016, we acquired OneGuard Home Warranties for $65 million consisting of cash consideration of $55 million and deferred payments of $10 million. We expect to continue our tuck-in acquisition program at Terminix and to periodically evaluate other strategic acquisitions.

Cash flows used for purchases, sales and maturities of securities, net, for the six months ended June 30, 2017 totaled $6 million and were driven by the purchase and maturity of marketable securities at American Home Shield. Cash flows from purchases, sales and maturities of securities, net, for the six months ended June 30, 2016 totaled $47 million and were driven by the maturity and sale of marketable securities at American Home Shield.

~~Cash flows used~~received for notes receivable, net, for the six months ended June 30 ~~2017 and 2016~~, 2020 totaled ~~$4 million and $5 million, respectively, and~~$3 million. Cash flows received for notes receivable, net, for the six months ended June 30, 2019 totaled $8 million. Reductions in the volume of notes receivable originated in the 2020 period were ~~a result~~driven by the launch of a ~~net increase~~new monthly pay tiered product offering in ~~financing provided by SMAC to~~ our ~~franchisees~~termite line of business and ~~retail customers~~declines in new one-time sales, such as bed bug and bird services, in our pest control line of ~~our operating units.~~business.

Financing Activities

Net cash used for financing activities from continuing operations was ~~$124~~$140 million for the six months ended June 30 ~~2017~~, 2020 compared to ~~$45~~$32 million for the six months ended June 30 ~~2016.~~, 2019.

During the six months ended June 30 ~~2017,~~, 2020, 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~~$103 million of common stock and received $7$3 million from the issuance of common stock ~~upon~~through the exercise of stock ~~options and shares issued under the Employee Stock Purchase Plan.~~

options. In addition, we repaid $40 million of debt. During the six months ended June 30 ~~2016,~~, 2019, we ~~made scheduled principal payments on long-term debt of $33 million,~~ repurchased $17 million of common stock and received $5$9 million from the issuance of common ~~stock.~~stock through the exercise of stock options. During the first quarter of 2019, we also completed a debt-for-equity exchange which resulted in $600 million of borrowings of debt under a short-term credit facility, $472 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 $38 million of other debt.

Contractual Obligations

Our ~~2016~~2019 Form 10-K includes disclosures of our contractual obligations and commitments as of December 31, ~~2016.~~ 2019. We continue to make the contractually required payments, and, therefore, the ~~2017~~2019 obligations and commitments as listed in our ~~2016~~2019 Form 10-K have been reduced by the required payments.

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Off-Balance Sheet Arrangements

As of June 30, ~~2017,~~2020, 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~~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.

Regulatory Matters

On July 21, 2016, TMX USVI and TMX LP, each an indirect, wholly-owned subsidiary of the Company, entered into the Superseding Plea Agreement in connection with the investigation initiated by the DOJ into allegations that a local Terminix branch used methyl bromide as a fumigant at a resort in St. John, U.S. Virgin Islands. The Superseding Plea Agreement was intended to resolve four misdemeanor charges of violations of the Federal Insecticide, Fungicide, and Rodenticide Act related to improper applications of methyl bromide. Those charges were set forth in an Information, dated March 29, 2016, in the matter styled ~~United States of America v. The Terminix International Company Limited Partnership andTerminix International USVI, LLC.~~ At a hearing held on August 25, 2016, the District Court rejected the Superseding Plea Agreement. On August 31, 2016, the DOJ requested that the charges be dismissed, reserving its right to re-file the charges, in light of ongoing discussions to resolve the matter. The District Court granted that request, and the March 29, 2016 Information was dismissed.

On January 20, 2017, TMX USVI and TMX LP entered into the New Plea Agreement with the DOJ, which has been filed with the District Court, and replaces the Superseding Plea Agreement. At a hearing on March 23, 2017, TMX USVI and TMX LP pled guilty to four misdemeanor charges of violations of the Federal Insecticide, Fungicide, and Rodenticide Act related to improper applications of methyl bromide, as set forth in a new Information filed on January 20, 2017 with the District Court that is substantially similar to the March 29, 2016 Information. Under the terms of the New Plea Agreement, the parties agreed and jointly recommended to the District Court that (i) TMX USVI and TMX LP each pay a fine of $4 million (total of $8 million); (ii) TMX USVI pay $1 million to the EPA for costs incurred by the EPA for the response and clean-up of the affected units at the resort in St. John; (iii) TMX USVI make a community service payment of $1 million to the National Fish and Wildlife Foundation for the purpose of engaging a third party to provide training to pesticide applicators in the U.S. Virgin Islands; and (iv) both TMX USVI and TMX LP serve a three-year probation period, subject to the special conditions of probation under the New Plea Agreement. The total financial terms of the recommended sentence under the New Plea Agreement are equivalent in total amount to the financial terms under the Superseding Plea Agreement. Unlike the Superseding Plea Agreement, however, the New Plea Agreement is non-binding on the District Court. The sentencing hearing before the District Court previously scheduled for July 27, 2017, has been rescheduled for September 21, 2017. It is possible that at that hearing the District Court could use its discretion to impose fines or other terms different than those in the New Plea Agreement. If approved by the District Court, and upon compliance with the terms and conditions of the New Plea Agreement, the New Plea Agreement will resolve the federal criminal consequences associated with the DOJ investigation. The New Plea Agreement does not bind any other federal, state or local authority; however, the EPA has indicated that it does not intend to initiate any administrative enforcement action or refer the matter to the DOJ for any civil enforcement action if the New Plea Agreement is approved by the District Court.

The Company has previously recorded within Fumigation related matters in the condensed consolidated statement of operations and comprehensive income total charges of $10 million in connection with the aforementioned criminal matter. 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 ~~the aforementioned~~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 ~~further~~ 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 ~~insurance~~ policies.

Information Regarding Forward-Looking Statements

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 shareholders, and approval of the U.S. Virgin Islands plea agreement.~~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 expected tax treatment of the spin-off, 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; impact from COVID-19; growth strategies or expectations; ~~customer retention;~~ the continuation

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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 warranty claims;~~expected termite damage claims costs; 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.

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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~~2019 Form 10-K, in our quarterly report on Form ~~10-K~~10-Q for the ~~year~~quarter ended ~~December~~March 31, ~~2016,~~2020 (the “2020 Q1 10-Q”) and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above ~~and in “Risk Factors” below,~~ 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:

~~our ability to successfully complete the spin-off of~~ ~~American Home Shield~~ ~~and the benefits therefrom;~~

resolution of fumigation related matters, including approval of the terms of the New Plea Agreement by the District Court related to the criminal aspects of the U.S. Virgin Islands fumigation incident;

~~lawsuits, enforcement actions and other claims by third parties or governmental authorities;~~

~~the 401(k) Plan corrective contribution and other employee benefit plan compliance issues;~~

~~compliance with, or violation of, environmental, health and safety laws and regulations;~~

~~weakening general economic conditions, especially as they may affect home sales, unemployment and consumer confidence or spending levels;~~

~~our ability to generate the significant amount of cash needed to fund our operations and service our debt obligations;~~

~~our ability to successfully implement our business strategies;~~

~~adverse credit and financial markets impeding access, increasing financing costs or causing our customers to incur liquidity issues leading to some of our services not being purchased or cancelled;~~

~~cyber security breaches, disruptions or failures in our information technology systems and our failure to protect the security of personal information about our customers;~~

~~our ability to attract and retain key personnel, including our ability to attract, retain and maintain positive relations with trained workers and third-party contractors;~~

~~increase in prices for fuel and raw materials, and in minimum wage levels;~~

~~changes in the source and intensity of competition in our market segments;~~

~~adverse weather conditions;~~

~~our franchisees, subcontractors, third-party distributors and vendors taking actions that harm our business;~~

~~changes in our services or products;~~

~~our ability to protect our intellectual property and other material proprietary rights;~~

~~negative reputational and financial impacts resulting from future acquisitions or strategic transactions;~~

~~laws and governmental regulations increasing our legal and regulatory expenses;~~

~~increases in interest rates increasing the cost of servicing our substantial indebtedness;~~

~~increased borrowing costs due to lowering or withdrawal of the ratings, outlook or watch assigned to our debt securities;~~

~~restrictions contained in our debt agreements;~~

~~the effects of our substantial indebtedness and the limitations contained in the agreements governing such indebtedness; and~~

~~other factors described in this report and from time to time in documents that we file with the SEC.~~

~~Table~~Any financial impact from the COVID-19 pandemic, including a global recession or a recession in the U.S., credit and capital markets volatility and an economic or financial crisis, or otherwise, which could affect our financial performance or operations, the health of ~~Contents~~our employees or the health and operations and our customers;

Weakening general economic conditions, especially as they may affect unemployment and consumer confidence or discretionary spending levels, all of which could impact the demand for our services;

the possibility that the review of strategic alternatives for our ServiceMaster Brands businesses will not result in a transaction or that the anticipated benefits will not be realized;

the diversion of management time and other business disruption during the review of strategic alternatives for our ServiceMaster Brands businesses;

the impact of reserves attributable to pending Litigated Claims and Non-Litigated Claims for termite damages;

lawsuits, enforcement actions and other claims by third parties or governmental authorities;

compliance with, or violation of, environmental, health and safety laws and regulations;

cyber security breaches, disruptions or failures in our information technology systems and our failure to protect the security of personal information about our customers;

our ability to attract and retain key personnel, including our ability to attract, retain and maintain positive relations with trained workers and third-party contractors;

adverse weather conditions;

our ability to generate the significant amount of cash needed to fund our operations and service our debt obligations;

our ability to successfully implement our business strategies;

increase in prices for fuel and raw materials, and in minimum wage levels;

changes in the source and intensity of competition in our segments;

our franchisees, subcontractors, third-party distributors and vendors taking actions that harm our business;

changes in our services or products;

our ability to protect our intellectual property and other material proprietary rights;

negative reputational and financial impacts resulting from future acquisitions or strategic transactions;

laws and governmental regulations increasing our legal and regulatory expenses;

increases in interest rates increasing the cost of servicing our substantial indebtedness;

increased borrowing costs due to lowering or withdrawal of the ratings, outlook or watch assigned to our debt securities;

restrictions contained in our debt agreements;

the effects of our indebtedness and the limitations contained in the agreements governing such indebtedness; and

other factors described in this report and from time to time in documents that we file with the SEC.

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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

Interest Rate Risk

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.

On November 5, 2019, we repaid approximately $171 million of debt outstanding under the existing Term Loan B due 2023, $120 million outstanding under the existing Revolving Credit Agreement due 2021, and $150 million from a recent short-term borrowing entered on October 4, 2019. We repaid the approximately $441 million in debt with the proceeds from a new $600 million Term Loan B due 2026, and also entered into a $400 million revolving credit facility due 2024. In conjunction with the debt refinancing, we entered into a seven year interest rate swap agreement with a notional amount of $550 million. During the term of the agreement, the effective interest rate on $550 million of the new Term Loan B is fixed at a rate of 3.365%.

We have hedged substantially all of our ~~opinion, the market risk associated with~~variable rate debt ~~obligations~~under our interest rate swap and, ~~other significant instruments~~therefore, we believe our exposure to interest rate fluctuations, when viewed on a net basis, is not material to our overall results of operations. Assuming all revolving loans were fully drawn as of June 30, ~~2017 has not materially changed from December 31, 2016 (see Item 7A of the 2016 Form 10-K).~~2020, each one percentage point change in interest rates would result in an approximate $4 million change in annual interest expense on our Revolving Credit Facility.

Fuel Price Risk

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 1213 million gallons of fuel in ~~2017.~~2020. As of June 30, ~~2017,~~2020, a ~~ten~~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, ~~2017,~~2020, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of ~~$33~~$35 million, maturing through ~~2018.~~2021. The estimated fair value of these contracts as of June 30, ~~2017~~2020 was a net liability of ~~less than $1~~$2 million. These fuel swap contracts provide a fixed price for approximately 9775 percent and 6884 percent of our estimated fuel usage for the remainder of ~~2017~~2020 and ~~2018,~~2021 respectively.

Foreign Currency Risk

We are principally exposed to foreign currency exchange risk in Swedish krona and Norwegian krone, but also have foreign currency exchange risk related to the euro, British pound, Canadian dollar, Mexican peso and Chinese yuan. A strengthening of the U.S. dollar relative to the currencies of the foreign countries in which we operate can have an impact on our operating results.

Effective March 3, 2020, we entered into a cross currency interest rate swap and a net investment hedge to mitigate the financial impact of fluctuations in foreign currency exchange rates between the U.S. dollar and Swedish Krone, our largest foreign currency exposure. The estimated fair value of these contracts as of June 30, 2020 was a net liability of $8 million. These instruments provide a fixed translation rate on our approximately $200 million investment in Nomor. As of June 30, 2020, a 10 percent change in average exchange rates would not have a material impact on our results of operations.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Our Interim Chief Executive Officer, ~~Nikhil M. Varty,~~Naren K. Gursahaney, 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~~Gursahaney and DiLucente have concluded that both the design and operation of our disclosure controls and procedures were effective as of June 30, ~~2017.~~2020.

Changes in internal control over financial reporting

No 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 three and six months ended June 30, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~On July 21, 2016, TMX USVI~~Our Terminix business is subject to a significant number of damage claims related to termite activity in homes for which we provide termite control services, often accompanied by a termite damage warranty. Our termite damage warranty is a differentiator in the industry that has enabled us to become the market leader of this product line. Damage claims include Non-litigated Claims and ~~TMX LP, each an indirect, wholly-owned subsidiary~~Litigated Claims. Recently we have experienced higher Non-Litigated Claims activity concentrated in the Mobile Bay Area of the ~~Company, entered into~~United States related to Formosan termites, an invasive species, which has driven higher Non-Litigated Claims expense. In addition, since the ~~Superseding Plea Agreement~~beginning of 2017, we have been served with an increasing number of Litigated Claims, again primarily concentrated in the Mobile Bay Area and related to Formosan termite activity, which has driven higher Litigated Claim expense. Some plaintiffs have sought to demonstrate a pattern and practice of fraud in connection with ~~the investigation initiated by the DOJ into allegations~~Litigated Claims and have sought awards, in addition to repair costs, which included punitive damages and damages for mental anguish. We defend these Litigated Claims vigorously, and we are taking decisive actions to mitigate increasing claims costs, however, we cannot give assurance that ~~a local Terminix branch used methyl bromide as a fumigant at a resort~~these mitigation actions will be effective in ~~St. John, U.S. Virgin Islands. The Superseding Plea Agreement was intended to resolve four misdemeanor charges of violations of the Federal Insecticide, Fungicide, and Rodenticide Act~~reducing claims or costs related thereto, nor can we give assurance that lawsuits or other proceedings related to ~~improper applications of methyl bromide. Those charges were set forth in an Information, dated March 29, 2016, in the matter styled~~ ~~United States of America v. The Terminix International Company Limited Partnership andTerminix International USVI, LLC.~~ At a hearing held on August 25, 2016, the District Court rejected the Superseding Plea Agreement. On August 31, 2016, the DOJ requested that the charges be dismissed, reserving its right to re-file the charges, in light of ongoing discussions to resolve the matter. The District Court granted that request, and the March 29, 2016 Information was dismissed.

~~Table of Contents~~

guilty to four misdemeanor charges of violations of the Federal Insecticide, Fungicide, and Rodenticide Act related to improper applications of methyl bromide, as set forth in a new Information filed on January 20, 2017 with the District Court that is substantially similar to the March 29, 2016 Information. Under the terms of the New Plea Agreement, the parties agreed and jointly recommended to the District Court that (i) TMX USVI and TMX LP each pay a fine of $4 million (total of $8 million); (ii) TMX USVI pay $1 million to the EPA for costs incurred by the EPA for the response and clean-up of the affected units at the resort in St. John; (iii) TMX USVI make a community service payment of $1 million to the National Fish and Wildlife Foundation for the purpose of engaging a third party to provide training to pesticide applicators in the U.S. Virgin Islands; and (iv) both TMX USVI and TMX LP serve a three-year probation period, subject to the special conditions of probation under the New Plea Agreement. The totaltermite damage claims will not materially affect our reputation, business, financial terms of the recommended sentence under the New Plea Agreement are equivalent in total amount to the financial terms under the Superseding Plea Agreement. Unlike the Superseding Plea Agreement, however, the New Plea Agreement is non-binding on the District Court. The sentencing hearing before the District Court previously scheduled for July 27, 2017, has been rescheduled for September 21, 2017. It is possible that at that hearing the District Court could use its discretion to impose fines or other terms different than those in the New Plea Agreement. If approved by the District Court, and upon compliance with the terms and conditions of the New Plea Agreement, the New Plea Agreement will resolve the federal criminal consequences associated with the DOJ investigation. The New Plea Agreement does not bind any other federal, state or local authority; however, the EPA has indicated that it does not intend to initiate any administrative enforcement action or refer the matter to the DOJ for any civil enforcement action if the New Plea Agreement is approved by the District Court.

~~The Company has previously recorded within Fumigation related matters in the condensed consolidated statement~~position, results of operations and ~~comprehensive income total charges of $10 million in connection with the aforementioned criminal matter.~~ cash flows.

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 ~~the aforementioned~~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 ~~further~~ 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 insurance policies.

In addition to the ~~matter~~matters 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, shareholder 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 36 to the condensed consolidated financial statement for more details.

ITEM 1A. RISK FACTORS

We discuss in our ~~2016~~2019 Form 10-K and our 2020 Q1 10-Q 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~~disclosed in the 2019 Form 10-K and thethe 2020 Q1 10-Q. The materialization of any risks and uncertainties identified in Forward-Looking Statements contained in this report, together with those previously disclosed in the ~~2016~~2019 Form 10-K and the 2020 Q1 10-Q 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.

~~The proposed American Home Shield separation is subject to various risks and uncertainties, and may not be completed on the terms or timeline currently contemplated, if at all.~~

On July 26, 2017, we announced our plan to spin off our American Home Shield business. The separation, which is expected to be completed in the third quarter of 2018, is subject to customary conditions, including the effectiveness of a Registration Statement on Form 10 to be filed with the SEC, receipt of a favorable ruling from the IRS concerning certain tax matters and final approval by the Company’s board of directors. There can be no assurance that the separation of American Home Shield will be completed. Unanticipated developments in the proposed separation, including with respect to covenant waivers, regulatory approvals or clearances, receipt of a favorable ruling from the IRS, uncertainty of the financial markets and challenges in establishing infrastructure or processes, could delay or prevent the completion of the proposed separation or cause the proposed separation to occur on terms or conditions that are different from those currently expected.

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~~The proposed American Home Shield separation may be more expensive than anticipated and may not achieve some or all of the anticipated benefits.~~

Executing the proposed separation will require us to incur costs, and could distract the attention of our senior management and key employees, which could disrupt operations and result in the loss of business opportunities, which could adversely affect our business, financial condition, and results of operations. We may also experience increased difficulties in attracting, retaining and motivating key employees during the pendency of the separation and following its completion, which could harm our business, financial condition and results of operations.

Even if the proposed separation is completed, we may not realize some or all of the anticipated benefits from the separation and the separation may in fact adversely affect our business. Separating the businesses may result in dis-synergies that could negatively impact the balance sheet, income statement and cash flows of each business. Moreover, we may not realize some or all of the anticipated strategic, operational, marketing or other benefits from the separation.

If the proposed separation is completed, both companies will be smaller, less diversified companies with a narrower business focus and may be more vulnerable to changing market conditions and competitive pressures, which could materially and adversely affect their respective businesses, financial conditions and results of operations. There can be no assurance that the combined value of the common stock of the two publicly traded companies following the completion of the proposed separation will be equal to or greater than what the value of our common stock would have been had the proposed separation not occurred.

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

~~Share Repurchase Program~~

In 2016, our board of directors authorized a three-year share repurchase program, under which we may repurchase up to $300 million of outstanding shares of our common stock. We expect to fund the share repurchases from net cash provided from operating activities. The share repurchase program is part of our capital allocation strategy that focuses on sustainable growth and maximizing shareholder value.

~~Issuer Purchases of Equity Securities~~

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(1)

paid per share

programs

(in millions)
April 1, 2017 through April 30, 2017

213,309

$
40.86

213,309

$
180
May 1, 2017 through May 31, 2017

658,262

37.96

658,262

155
June 1, 2017 through June 30, 2017

—

—

—

155
Total

871,571

$
38.67

871,571

$
155

~~(1)~~ ~~All shares were acquired as part of our share repurchase program.~~

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ITEM 6. EXHIBITS


~~Exhibit~~ ~~Number~~		~~Description~~
~~10.1#~~Exhibit ‎Number		Description
10.1#*		~~Employment~~Separation Agreement and General Release entered into with Pratip Dastidar, dated ~~as of July 26, 2017, by and between Nikhil M. Varty and ServiceMaster Global Holdings, Inc.~~June 30, 2020.
31.1*
~~10.2#~~		~~Performance Restricted Stock Unit Agreement, dated as of July 26, 2017, by and between Nikhil M. Varty and ServiceMaster Global Holdings, Inc.~~

~~10.3#~~		~~Employee Restricted Stock Agreement, dated as of July 26, 2017, by and between Nikhil M. Varty and ServiceMaster Global Holdings, Inc.~~

~~10.4#~~		~~Employee Stock Option Agreement, dated as of July 26, 2017, by and between Nikhil M. Varty and ServiceMaster Global Holdings, Inc.~~

~~10.5#~~		~~Schedule of Signatories to a Director Indemnification Agreement.~~

~~10.6#~~		Form of Performance Restricted Stock Unit Agreement under the Amended and Restated ServiceMaster Global Holdings, Inc. 2014 Omnibus Incentive Plan (“Omnibus Plan”) for awards granted as of July 26, 2017, which awards will 100% vest on the spin-off of American Home Shield from ServiceMaster.

~~10.7#~~		Form of Performance Restricted Stock Unit Agreement under the Omnibus Plan for awards granted as of July 26, 2017, which will 50% vest on the spin-off of American Home Shield, and the other 50% vest on the first anniversary of the spin-off from ServiceMaster.

~~10.8#~~		~~Separation and Consulting Agreement, dated July 30, 2017, by and between Robert J. Gillette and ServiceMaster Global Holdings, Inc.~~

~~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*		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
~~101.INS#~~101.SCH*		~~XBRL Instance Document~~

~~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
104*		Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

___________________________________

# Denotes management compensatory plans, contracts or arrangements.

* Filed herewith.

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~~SIGNATURE~~

SIGNATURE

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.

Date: August ~~1, 2017~~7, 2020


	SERVICEMASTER GLOBAL HOLDINGS, INC.
	(Registrant)

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

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			American		Franchise
(In millions)	Terminix		Home Shield		Services Group		Total
Balance as of December 31, 2016	$	1,601	$	471	$	175	$	2,247
Acquisitions		1		4		—		5
Impact of foreign exchange rates		1		—		—		1
Balance as of June 30, 2017	$	1,603	$	476	$	175	$	2,254


	Amounts Reclassified from Accumulated
	Other Comprehensive Income (Loss)
	Three Months Ended				Six Months Ended				Condensed Consolidated Statements of
	June 30,				June 30,				Operations and Comprehensive Income
(In millions)	2017		2016		2017		2016		Location
Losses on derivatives:
Fuel swap contracts	$	—	$	(1)	$	1	$	(2)	Cost of services rendered and products sold
Interest rate swap contracts		(4)		(2)		(5)		(3)	Interest expense
Net losses on derivatives		(3)		(2)		(4)		(5)
Impact of income taxes		1		1		1		2	Provision for income taxes
Total reclassifications related to derivatives	$	(2)	$	(1)	$	(3)	$	(3)
Gains on available-for-sale securities	$	—	$	3	$	—	$	3	Interest and net investment income
Impact of income taxes		—		(1)		—		(1)	Provision for income taxes
Total reclassifications related to securities	$	—	$	2	$	—	$	2
Total reclassifications for the period	$	(2)	$	—	$	(3)	$	(2)



			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In millions)	Cost		Gains		Losses		Value
Available-for-sale securities, June 30, 2017:
Debt securities	$	29	$	—	$	—	$	29
Equity securities		21		3		—		24
Total securities	$	50	$	3	$	—	$	53
Available-for-sale securities, December 31, 2016:
Debt securities	$	27	$	—	$	—	$	27
Equity securities		15		1		—		17
Total securities	$	43	$	1	$	—	$	44


Trade Date	Effective Date	Expiration Date	Notional Amount	Fixed Rate(1)		Floating Rate
November 7, 2016	November 8, 2016	November 30, 2023	$650,000	1.493	%	One month LIBOR



			American		Franchise
			Home		Services
(In millions)	Terminix		Shield		Group		Corporate		Total
Three Months Ended June 30, 2016	$	414	$	282	$	50	$	1	$	747
Pest Control(1)		3		—		—		—		3
Termite and Other Services(2)		9		—		—		—		9
Home Warranties(3)		—		43		—		—		43
Franchise-Related Revenue		—		—		4		—		4
Sale of Merry Maids branches(4)		—		—		(2)		—		(2)
Other		3		—		—		—		3
Three Months Ended June 30, 2017	$	428	$	326	$	52	$	1	$	807



				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(1)	paid per share		programs	(in millions)
April 1, 2017 through April 30, 2017	213,309	$	40.86	213,309	$	180
May 1, 2017 through May 31, 2017	658,262		37.96	658,262		155
June 1, 2017 through June 30, 2017	—		—	—		155
Total	871,571	$	38.67	871,571	$	155

As of June 30,

Growth in Home Warranties

Customer Retention Rate