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~~September 30, ~~2017~~2021


☐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~~Terminix 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)

________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

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	TMX	NYSE

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

The number of shares of the registrant’s common stock outstanding as of ~~July~~October 28, ~~2017: 133,441,487~~2021: 121,148,869 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	1822

Item 3. Quantitative and Qualitative Disclosures About Market Risk	36

Item 4. Controls and Procedures	36

Part II. Other Information	3637

Item 1. Legal Proceedings	3637

Item 1A. Risk Factors	37

Item 2. Unregistered Sales of ~~Equity~~Registered Securities and Use of Proceeds	3937

Item 6. Exhibits	4038

Signature	4139

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(In millions, except per share data)

Three Months Ended

Six Months Ended

June 30,

June 30,

2017

2016

2017

2016
Revenue

$
807

$
747

$
1,450

$
1,355
Cost of services rendered and products sold

415

379

761

704
Selling and administrative expenses

206

187

392

360
Amortization expense

7

8

14

16
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)
Interest expense

38

38

75

76
Interest and net investment income

(1)

(4)

(1)

(4)
Loss on extinguishment of debt

3

—

3

—
Income from Continuing Operations before Income Taxes

137

23

199

85
Provision for income taxes

52

7

76

30
Income from Continuing Operations

85

16

123

54
Income from discontinued operations, net of income taxes

—

—

1

—
Net Income

$
85

$
16

$
124

$
54
Total Comprehensive Income

$
84

$
15

$
124

$
55
Weighted-average common shares outstanding - Basic

133.7

135.5

134.1

135.6
Weighted-average common shares outstanding - Diluted

135.0

137.7

135.5

137.7
Basic Earnings Per Share:

Income from Continuing Operations

$
0.64

$
0.11

$
0.92

$
0.40
Income from discontinued operations, net of income taxes

—

—

—

—
Net Income

0.64

0.12

0.92

0.40
Diluted Earnings Per Share:

Income from Continuing Operations

$
0.63

$
0.11

$
0.91

$
0.40
Income from discontinued operations, net of income taxes

—

—

—

—
Net Income

0.63

0.11

0.91

0.39



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenue	$	530	$	512	$	1,562	$	1,502
Cost of services rendered and products sold		309		299		897		876
Selling and administrative expenses		142		140		422		423
Amortization expense		10		9		29		26
Acquisition-related costs		1		(1)		0		0
Mobile Bay Formosan termite settlement		0		49		4		49
Fumigation related matters		0		0		1		0
Restructuring and other charges		2		2		10		14
Goodwill impairment		3		0		3		0
Interest expense		11		22		34		67
Interest and net investment income		0		(1)		(2)		(2)
Loss on extinguishment of debt		0		1		0		1
Income (Loss) from Continuing Operations before Income Taxes		52		(7)		162		50
Provision for income taxes		14		15		45		31
Equity in earnings of joint ventures		1		1		2		2
Income (Loss) from Continuing Operations		38		(21)		119		20
Net earnings from discontinued operations		0		14		0		40
Net Income (Loss)	$	38	$	(7)	$	119	$	61
Total Comprehensive Income (Loss)	$	35	$	(16)	$	133	$	3
Weighted-average common shares outstanding - Basic		124.3		132.0		127.6		132.9
Weighted-average common shares outstanding - Diluted		124.7		132.0		128.1		133.1
Basic Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	0.31	$	(0.17)	$	0.93	$	0.14
Net earnings from discontinued operations		0		0.11		0		0.30
Net Income (Loss)		0.31		(0.06)		0.93		0.44
Diluted Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	0.31	$	(0.17)	$	0.93	$	0.14
Net earnings from discontinued operations		0		0.11		0		0.30
Net Income (Loss)		0.30		(0.06)		0.93		0.44

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

Table of Contents

Condensed Consolidated Statements of Financial Position (Unaudited)

(In millions, except share data)



	As of		As of		As of		As of
	June 30,		December 31,		September 30,		December 31,
	2017		2016		2021		2020
Assets:
Current Assets:
Cash and cash equivalents	$	378	$	291	$	156	$	615
Marketable securities		25		25
Receivables, less allowances of $22 and $22, respectively		562		536
Receivables, less allowances of $31 and $25, respectively						219		206
Inventories		45		43		41		44
Prepaid expenses and other assets		92		70		149		145
Deferred customer acquisition costs		37		34
Total Current Assets		1,140		998		564		1,010
Other Assets:
Property and equipment, net		224		210		193		182
Operating lease right-of-use assets						79		80
Goodwill		2,254		2,247		2,192		2,146
Intangible assets, primarily trade names, service marks and trademarks, net		1,704		1,708		1,101		1,111
Restricted cash		89		95		89		89
Notes receivable		40		37		32		31
Long-term marketable securities		27		19		15		14
Deferred customer acquisition costs						101		98
Other assets		63		71		78		75
Total Assets	$	5,541	$	5,386	$	4,445	$	4,837
Liabilities and Shareholders' Equity:
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable	$	128	$	112	$	108	$	91
Accrued liabilities:
Payroll and related expenses		51		54		96		102
Self-insured claims and related expenses		128		111		72		76
Accrued interest payable		15		16		3		7
Other		97		60		94		99
Deferred revenue		658		629		105		102
Current portion of lease liability						17		17
Current portion of long-term debt		141		59		52		94
Total Current Liabilities		1,219		1,042		547		588
Long-Term Debt		2,678		2,772		845		826
Other Long-Term Liabilities:
Deferred taxes		714		719		370		346
Other long-term obligations, primarily self-insured claims		189		167		211		239
Long-term lease liability						93		96
Total Other Long-Term Liabilities		903		886		674		681
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 148,948,815 shares issued and 121,568,176 outstanding at September 30, 2021 and 148,400,384 shares issued and 132,080,845 shares outstanding at December 31, 2020)						2		2
Additional paid-in capital		2,289		2,274		2,386		2,359
Accumulated deficit		(1,281)		(1,405)
Retained Earnings						960		841
Accumulated other comprehensive loss		(2)		(3)		(25)		(39)
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
Less common stock held in treasury, at cost (27,380,639 shares at September 30, 2021 and 16,319,539 shares at December 31, 2020)						(945)		(423)
Total Stockholders' Equity						2,378		2,741
Total Liabilities and Stockholders' Equity					$	4,445	$	4,837

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

‎

Table of Contents

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, 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 income, net of tax		—		—		—		—		1		—		—		1
Total comprehensive income (loss)		—		—		—		53		1		—		—		54
Stock-based employee compensation		—		—		6		—		—		—		—		6
Balance June 30, 2020		148	$	2	$	2,348	$	358	$	(40)		(16)	$	(417)	$	2,251
Net loss		—		—		—		(7)		—		—		—		(7)
Other comprehensive loss, net of tax		—		—		—		—		(10)		—		—		(10)
Total comprehensive income (loss)		—		—		—		(7)		(10)		—		—		(16)
Stock-based employee compensation		—		—		4		—		—		—		—		4
Balance September 30, 2020		148	$	2	$	2,352	$	351	$	(49)		(16)	$	(417)	$	2,239

Balance December 31, 2020		148	$	2	$	2,359	$	841	$	(39)		(16)	$	(423)	$	2,741
Net income		—		—		—		27		—		—		—		27
Other comprehensive loss, net of tax		—		—		—		—		22		—		—		22
Total comprehensive income (loss)		—		—		—		27		22		—		—		49
Issuance of common stock		—		—		1		—		—		—		—		1
Exercise of stock options		—		—		4		—		—		—		—		4
Stock-based employee compensation		—		—		6		—		—		—		—		6
Repurchase of common stock		—		—		—		—		—		(4)		(169)		(169)
Balance March 31, 2021		149	$	2	$	2,370	$	868	$	(17)		(20)	$	(592)	$	2,631
Net income		—		—		—		54		—		—		—		54
Other comprehensive loss, net of tax		—		—		—		—		(5)		—		—		(5)
Total comprehensive income		—		—		—		54		(5)		—		—		48
Issuance of common stock		—		—		1		—		—		—		—		1
Exercise of stock options		—		—		3		—		—		—		—		3
Stock-based employee compensation		—		—		5		—		—		—		—		5
Repurchase of common stock		—		—		—		—		—		(4)		(181)		(181)
Balance June 30, 2021		149	$	2	$	2,379	$	922	$	(22)		(24)	$	(773)	$	2,508
Net income		—		—		—		38		—		—		—		38
Other comprehensive loss, net of tax		—		—		—		—		(3)		—		—		(3)
Total comprehensive income (loss)		—		—		—		38		(3)		—		—		35
Exercise of stock options		—		—		2		—		—		—		—		2
Stock-based employee compensation		—		—		4		—		—		—		—		4
Repurchase of common stock		—		—		—		—		—		(4)		(171)		(171)
Balance September 30, 2021		149	$	2	$	2,386	$	960	$	(25)		(27)	$	(945)	$	2,378

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

Table of Contents

~~SERVICEMASTER~~

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)



	Nine Months Ended
	September 30,
	2021		2020
Cash and Cash Equivalents and Restricted Cash at Beginning of Period	$	704	$	368
Cash Flows from Operating Activities from Continuing Operations:
Net Income		119		61
Adjustments to reconcile net income to net cash provided from operating activities:
Net earnings from discontinued operations		0		(40)
Equity in earnings of joint venture		(2)		(2)
Depreciation expense		52		55
Amortization expense		29		26
Amortization of debt issuance costs		2		3
Amortization of lease right-of-use assets		11		14
Goodwill impairment		3		0
Fumigation related matters		1		0
Mobile Bay Formosan termite settlement		4		49
Deferred income tax provision		21		0
Stock-based compensation expense		15		13
Restructuring and other charges		10		14
Payments for restructuring and other charges		(8)		(9)
Payments for acquisition-related costs		(2)		(4)
Other		(23)		(23)
Change in working capital, net of acquisitions:
Receivables		(19)		(44)
Inventories and other current assets		(17)		(4)
Accounts payable		18		12
Deferred revenue		4		(1)
Accrued liabilities		(2)		52
Accrued interest payable		(4)		1
Current income taxes		3		39
Net Cash Provided from Operating Activities from Continuing Operations		216		211
Cash Flows from Investing Activities from Continuing Operations:
Property additions		(17)		(20)
Sale of equipment and other assets		4		6
Business acquisitions, net of cash acquired		(86)		(29)
Origination of notes receivable		(51)		(26)
Collections on notes receivable		51		32
Net Cash Used for Investing Activities from Continuing Operations		(98)		(37)
Cash Flows from Financing Activities from Continuing Operations:
Payments of debt		(79)		(103)
Debt issuance costs paid		0		(2)
Repurchase of common stock		(522)		(103)
Issuance of common stock		11		4
Net Cash Used For Financing Activities from Continuing Operations		(590)		(205)
Cash Flows from Discontinued Operations:
Cash provided from operating activities		14		43
Cash used for investing activities		0		(1)
Cash used for financing activities		0		(1)
Net Cash Provided from Discontinued Operations		14		41
Effect of Exchange Rate Changes on Cash		(1)		(1)
Cash (Decrease) Increase During the Period		(459)		9
Cash and Cash Equivalents and Restricted Cash at End of Period	$	245	$	377

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

Table of Contents

TERMINIX GLOBAL HOLDINGS,INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation

~~ServiceMaster~~Terminix Global Holdings, Inc. and its majority-owned subsidiary partnerships, limited liability companies and corporations (collectively, ~~“ServiceMaster,~~“Terminix,” the “Company,” “we,” ~~“us,~~“us” and “our”) is a leading provider of essential services to residential and commercial ~~services. The Company’s services include~~customers in the termite and pest ~~control, home warranties, disaster restoration, janitorial, residential cleaning, cabinet~~management markets. Our portfolio of well‑recognized brands includes Terminix, Copesan, Assured Environments, Gregory Pest Solutions, McCloud Services, Nomor and wood furniture repair and home inspection. The Company provides these services through an extensive service network of company-owned, franchised and licensed locations operating primarily under the following leading brands: Terminix, American Home Shield, ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic and AmeriSpec.Pelias. All consolidated Company subsidiaries are wholly-owned. Intercompany transactions and balances have been eliminated. Our operations are organized into 1 reportable segment, our pest management and termite business.

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,~~2020, as filed with the SEC (the ~~“2016~~“2020 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 any other interim period or for the full year due to the seasonality of our business, the impact of the COVID-19 pandemic (“COVID-19”) and the possibility of changes in general economic conditions. Prior period amounts have been reclassified to conform to the current period presentation within the Condensed Consolidated Statements of Cash Flows.

Sale of ServiceMaster Brands

On October 1, 2020, we completed the sale of the assets and liabilities of the ServiceMaster Brands businesses, which was comprised of the Amerispec, Furniture Medic, Merry Maids, ServiceMaster Clean and ServiceMaster Restore brands, certain assets and liabilities of ServiceMaster Acceptance Corporation, our former financing subsidiary, and the ServiceMaster trade name (the “ServiceMaster Brands Divestiture Group”). The sale of the ServiceMaster Brands Divestiture Group was to RW Purchaser LLC, an affiliate of investment funds managed by Roark Capital Management LLC (“Roark”). The ServiceMaster Brands Divestiture Group is reported in this Quarterly Report on Form 10-Q in discontinued operations.

COVID-19

Since March 11, 2020 when the World Health Organization designated COVID-19 as a ~~full year.~~global pandemic, we have experienced increased demand in our residential pest management and termite and home services service lines as customers are spending more time at home. We have also experienced disruptions in our business, primarily in the commercial pest management service line, driven by temporary business closures and service postponements, and in our product sales and other service line. We continue to focus on initiatives to ensure the safety and productivity of our teammates, including personal protective equipment and safety policies and measures for field teammates, and technology to facilitate remote working, with most back-office and all call center teammates working remotely and field support teammates working remotely where possible.

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 2020 Form 10-K. There have been no material changes to the significant accounting policies for the ~~three and six~~nine months ended ~~June~~September 30, ~~2017.~~2021, other than those described below.

~~Newly Issued~~Adoption of New Accounting Standards

In ~~May 2014,~~December 2019, the ~~Financial~~FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting ~~Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” to provide a single comprehensive model~~ for ~~entities to use in~~Income Taxes,” which simplifies the accounting for ~~revenue arising from contracts with customers. This model supersedes most current revenue recognition guidance,~~income taxes by removing certain exceptions. We adopted this ASU on January 1, 2021, including ~~industry-specific guidance.~~the applicable retrospective and prospective provisions therein. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer 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. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2016. To date, the Company has performed the following: A transition team has been established to implement the required changes; an initial assessment 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 standard will have on its business 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 not expect adoption of ~~the new revenue standard to~~this ASU did not have a material impact on our consolidated condensed financial statements as of September 30, 2021.

In November 2020, the SEC issued Rule 33-10890, “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information.” This rule could be early adopted in its ~~consolidated~~entirety as of February 10, 2021. The rule modernized, simplified and enhanced financial ~~statements.~~statement disclosures required by Regulation S-K. We early adopted all the provisions in the rule as of February 10, 2021, which primarily resulted in the elimination of duplicative disclosure of legal matters and improved discussions within management’s discussion and analysis.

~~In January 2016,~~We have reviewed all other recently issued, but not yet effective, accounting pronouncements and do not expect the ~~FASB issued ASU 2016-01, “Recognition~~future adoption of any such pronouncements will have a material impact on our financial condition or the results of our operations.

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Note 3. Revenues

The following tables present our reportable segment revenues from continuing operations, disaggregated by revenue source and ~~Measurement of Financial Assets and Financial Liabilities” to change how entities measure certain equity investments, to require~~geographic area. We disaggregate revenue from contracts with customers into major product lines. We 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. European pest management revenue is now presented within Commercial Pest Management below, and prior periods have been reclassified to conform to the ~~new guidance,~~current period presentation.

Revenue by major service line was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2021		2020		2021		2020
Major service line
Residential Pest Management	$	199	$	193	$	557	$	534
Commercial Pest Management		144		140		414		388
Termite and Home Services		156		151		510		502
Sales of Products and Other		31		28		81		78
Total	$	530	$	512	$	1,562	$	1,502

Revenue by geographic area was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2021		2020		2021		2020
United States	$	495	$	482	$	1,463	$	1,423
International		35		30		99		79
Total	$	530	$	512	$	1,562	$	1,502

Contract Balances

Timing of revenue recognition may differ from the ~~effects~~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 ~~lessees~~services once we have an unconditional right to invoice and receive payment in the future related to the services provided. All accounts receivables are ~~much more significant.~~recorded within Receivables, less allowances, on the Condensed Consolidated Statements of Financial Position. The ~~most significant change~~current portion of Notes receivable, which represents amounts financed for ~~lessees~~customers, are included within Receivables, less allowances, on the Condensed Consolidated Statement of Financial Position and totaled $26 million and $27 million as of September 30, 2021 and December 31, 2020, respectively.

Deferred revenue represents a contract liability and is recognized when cash payments are received in advance of the ~~requirement under~~performance of services, including when the ~~new guidance~~amounts are refundable. Amounts are recognized as revenue upon completion of services.

Changes in deferred revenue for the nine months ended September 30, 2021 and 2020 were as follows:


(In millions)	Deferred revenue
Balance as of December 31, 2020	$	102
Deferral of revenue		118
Recognition of deferred revenue		(115)
Balance as of September 30, 2021	$	105

Balance as of December 31, 2019	$	92
Deferral of revenue		89
Recognition of deferred revenue		(89)
Balance as of September 30, 2020	$	92

Additionally, approximately $12 million and $15 million of deferred revenue was recognized in the Condensed Consolidated Statements of Financial Position as of September 30, 2020 and December 31, 2019, respectively, primarily related to ~~recognize~~our acquisition of Nomor.

There was approximately $14 million and $63 million of revenue recognized in the three and nine months ended September 30, 2021, respectively, that was included in the deferred revenue balance as of December 31, 2020. There was approximately $11 million and $51 million of revenue recognized in the three and nine months ended September 30, 2020, respectively, that was included in the deferred revenue balance as of December 31, 2019.

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Note 4. Restructuring and Other Charges

We incurred restructuring and other charges of $2 million ($1 million, net of tax) and $2 million ($2 million, net of tax) in the three months ended September 30, 2021 and 2020, respectively. We incurred restructuring and other charges of $10 million ($8 million, net of tax) and $14 million ($10 million, net of tax) in the nine months ended September 30, 2021 and 2020, respectively. Restructuring charges included costs to simplify our back-office and align administrative functions as a singularly focused pest management company following the sale of the ServiceMaster Brands Divestiture Group. We expect substantially all of our accrued restructuring and other charges to be paid within the next 12 months.

Restructuring and other charges were comprised of the following:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2021		2020		2021		2020
Severance	$	1	$	1	$	6	$	6
Other⁽¹⁾		1		2		4		8
Total restructuring charges	$	2	$	2	$	10	$	14

___________________________________

(1)Primarily owned building and operating lease right-of-use ~~assets~~asset impairment charges, costs to simplify our back-office and ~~lease liabilities~~align as a singularly focused pest management company and other exit costs.

A reconciliation of the beginning and ending balances of accrued restructuring charges by major cost type, which are included in Accrued liabilities—Payroll and related expenses and Other on the Condensed Consolidated Statements of Financial Position, is presented as follows:



	Accrued		Accrued		Total Accrued
	Severance		Other		Restructuring
(In millions)	Charges		Charges		Charges
Balance as of December 31, 2020	$	2	$	—	$	2
Costs incurred		6		4		10
Costs paid or otherwise settled		(5)		(4)		(9)
Balance as of September 30, 2021	$	3	$	—	$	3

Balance as of December 31, 2019	$	1	$	1	$	1
Costs incurred		6		8		14
Costs paid or otherwise settled		(5)		(7)		(12)
Balance as of September 30, 2020	$	2	$	2	$	4

Note 5. Discontinued Operations

On October 1, 2020, we completed the sale of the ServiceMaster Brands Divestiture Group for $1,541 million, resulting in a gain of approximately $494 million, net of taxes. The historical results of the ServiceMaster Brands Divestiture Group are reported as discontinued operations for all ~~leases not considered short-term leases. Entities~~periods presented herein. For all periods after the sale, discontinued operations includes the gain on sale and incidental costs to complete the sale.

In connection with the sale of the ServiceMaster Brands Divestiture Group, the Company and Roark entered into a transition services agreement (“TSA”) pursuant to which the Company provides certain post-closing services to Roark and ServiceMaster Brands related to the business of ServiceMaster Brands. The charges for the transition services are ~~required~~designed to ~~use a modified retrospective approach~~allow us to ~~adopt~~fully recover the ~~guidance. The amendments in ASU 2016-02 are effective for fiscal years,~~direct costs of providing the services, plus specified margins and ~~interim periods within those years, beginning after December 15, 2018. Early adoption is permitted.~~any out-of-pocket costs and expenses. The Company ~~is currently evaluating~~and Roark also entered into a sublease agreement pursuant to which ServiceMaster Brands subleases a portion of our corporate headquarters in Memphis, Tennessee. We recognized $1 million and $4 million of TSA fees, rental income and other cost reimbursements in Selling and administrative expenses on the ~~impact~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) in the three and nine months ended September 30, 2021, respectively. Payments received for TSA fees, for other cost reimbursements and pursuant to the sublease agreement were $2 million and $8 million in the three and nine months ended September 30, 2021, respectively. The TSA terminated on October 1, 2021, and we are no longer obligated to provide any services to the ServiceMaster Brands Divestiture Group. However, we continue to collect fees for services rendered prior to October 1, 2021.

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The following table summarizes the comparative financial results of discontinued operations, which are presented as Net earnings from discontinued operations on the Condensed Consolidated Statements of Operations and Comprehensive Income:


	Three Months Ended		Nine Months Ended
(In millions)	September 30, 2020		September 30, 2020
Revenue	$	71	$	198
Cost of services rendered and products sold		32		93
Operating expenses⁽¹⁾		20		53
Income before income taxes		18		53
Provision for income taxes		4		13
Net earnings from discontinued operations	$	14	$	40

___________________________________

(1)Includes $9 million and $18 million of professional fees and other costs incurred in connection with the strategic evaluation and ultimate sale in the three and nine months ended September 30, 2020.

The following selected financial information of the ~~adoption~~ServiceMaster Brands Divestiture Group is included in the Condensed Consolidated Statements of ~~ASU 2016-02 on the Company’s consolidated financial statements and currently expects that most of the operating lease commitments will be subject to the new standard and recognized~~Cash Flows as operating lease liabilities and right-of-use assets upon adoption of ASU 2016-02, which will increase the amount of total assets and total liabilities that is reported relative to such amounts prior to adoption.cash flows from discontinued operations:

[


	Nine Months Ended
(In millions)	September 30, 2020
Depreciation	$	—
Amortization		—
Capital expenditures		(1)

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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:



	Accrued
	Self-insured
(In millions)	Claims, Net
Balance as of December 31, ~~2016~~2020	$	~~120~~ 126
Provision for self-insured claims		18 29
Cash payments		~~(17)~~ (21)
Balance as of ~~June~~September 30, ~~2017~~2021	$	~~122~~
		134

Balance as of December 31, ~~2015~~2019	$	~~114~~ 111
Provision for self-insured claims~~(1)~~		44 35
Cash payments		~~(24)~~ (21)
Balance as of ~~June~~September 30, ~~2016~~2020	$	~~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.125

~~Accruals~~Our 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

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“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,~~material.

A reconciliation of beginning and ending accrued Litigated Claims, which are ~~recorded~~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 Condensed Consolidated Statements of Financial Position, is presented as follows:


	Accrued
	Termite Damage
(In millions)	Claims
Balance as of December 31, 2020	$	72
Provision for termite damage claims		47
Cash payments		(49)
Balance as of September 30, 2021	$	69

Balance as of December 31, 2019	$	80
Provision for termite damage claims		41
Cash payments		(42)
Balance as of September 30, 2020	$	79

Mobile Bay Formosan Termite Settlement

In November 2020, the Company entered into the Consent Judgment and Settlement Agreement (the “Settlement”) with the Office of the Attorney General of the State of Alabama (the “AL AG”) and other Alabama state regulators, primarily related to termite renewal pricing changes we made in our branches in Mobile, Alabama and Gulf Shores, Alabama, which comprise all of our customers in the ~~period~~area, (collectively, the ~~adjustments are identified.~~

~~In 2008,~~“Mobile Bay Area”) in 2019 and certain other termite inspection and treatment practices regarding the ~~Company amended its~~ ~~Profit Sharing~~control of Formosan termites in that area that allegedly violated the Alabama Deceptive Trade Practices Act (the “ADTPA”). The Settlement provides for: immediate remediation measures to be provided directly to current 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 participatingformer customers in the ~~401(k) Plan. In response,~~Mobile Bay Area, including refunds of certain price increases, rebates to certain former customers, the ~~Company implemented an auto-enrollment process for affected active employees and submitted to the Internal Revenue Service (the “IRS”)~~establishment of 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 consumer fund and a related receiver to ~~approximately $93 million.~~oversee our compliance with these commitments and to act as an arbitrator for certain Non-litigated Claims; the reimbursement of certain investigative and monitoring costs incurred by the AL AG’s office and the Department of Agriculture and Industries; and a university endowment intended to support termite and pest management research with an emphasis on Formosan termite research. The Company has ~~recorded~~also agreed to pay the state of Alabama $19 million.

Pursuant to the Settlement, we have also agreed to provide the opportunity to reinstate service for certain customers who canceled their services during specified timeframes as well as the retreatment of certain customer premises and a commitment to certain specified response and remediation timeframes for future termite damage claims. We do not expect the financial impact of these additional remedies to have a material impact on our prospective results of operations or cash flows.

In the fourth quarter of 2020, the Company funded the $25 million consumer fund, from which certain monetary liabilities from settlements of, or judgments in, the ~~condensed consolidated statement of operations and comprehensive income charges of $25 million, of which $1 million was recorded~~covered Settlement are paid by the fund’s receiver. The amount in the ~~three~~consumer fund is held in escrow by the receiver and ~~six months ended June 30, 2016. Charges for 401(k) Plan corrective contributions~~is classified as a deposit within Prepaid expenses and other assets and with an offsetting liability recorded within Accrued liabilities – Other on the Condensed Consolidated Statements of Financial Position. The fund’s receiver has paid a total of $8 million from the fund through the third quarter of 2021. In the second quarter of 2021, the Company recorded an increase in expense related to the settlement of $4 million due to a higher than anticipated customer participation rate. NaN adjustments were made in the ~~three~~third quarter of 2021.

State of Mississippi Formosan Termite Litigation

On April 22, 2021, the State of Mississippi brought litigation against us related to our termite inspection and ~~six months ended June 30, 2017 were less than $1 million.~~treatment practices. The Company disputes the claims made in the litigation and intends to defend the matter vigorously. However, ~~there can be no assurances as to~~given the ~~ultimate cost~~uncertainty of litigation, the preliminary stage of the ~~correction.~~case, and the legal standards that must be met for success on the merits, the Company cannot predict with certainty the outcome of the Mississippi litigation.

Other Litigation

In addition to the ~~matter~~matters discussed above, ~~and the fumigation related matters discussed below,~~ in the ordinary course of conducting business activities, ~~the Company~~we and ~~its~~our subsidiaries become involved in judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. 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. ~~The Company has~~We

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have entered into settlement agreements in certain cases, including with respect to putative collective and class actions, which are subject to court or other ~~approvals.~~approvals, and which require compliance with the terms of the agreements. If one or more of ~~the Company’s~~our settlements are not finally approved ~~the Company~~and implemented, we could have additional or different exposure, which could be material. Subject to the paragraphs ~~below, the Company does~~above, we do not expect any of these proceedings to have a material effect on ~~its~~our reputation, business, financial position, results of operations or cash flows; however, ~~the Company~~we can give no

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

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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.~~During the third quarter of 2021, based on a change in business direction and outlook, we performed an interim goodwill impairment test for a small reporting unit. As a result of this test, we recorded a non-cash goodwill impairment charge of approximately $3 million, representing the full amount of goodwill associated with this reporting unit. There were ~~no goodwill or trade name~~0 impairment charges recorded in the three and ~~six~~nine months ended ~~June~~September 30, ~~2017~~2020.

Customer relationships and ~~2016. There were no accumulated impairment losses recorded as of June 30, 2017.~~ 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:~~balances:



(In millions)
Balance as of December 31, 2020	$	2,146
Acquisitions		57
Goodwill impairment		(3)
Impact of foreign exchange rates		(9)
Balance as of September 30, 2021	$	2,192

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:~~balances:



	As of September 30, 2021						As of December 31, 2020
			Accumulated						Accumulated
(In millions)	Gross		Amortization		Net		Gross		Amortization		Net
Trade names⁽¹⁾	$	888	$	—	$	888	$	888	$	—	$	888
Customer relationships		665		(475)		190		650		(454)		196
Other		71		(48)		23		70		(43)		27
Total	$	1,625	$	(523)	$	1,101	$	1,608	$	(497)	$	1,111

___________________________________

(1)Not subject to amortization.

As of June 30, 2017

As of December 31, 2016

Accumulated

Accumulated

(In millions)

Gross

Amortization

Net

Gross

Amortization

Net
Trade names(1)

$
1,608

$
—

$
1,608

$
1,608

$
—

$
1,608
Customer relationships

588

(547)

42

594

(538)

56
Franchise agreements

88

(68)

20

88

(67)

21
Other

81

(46)

35

65

(42)

23
Total

$
2,365

$
(661)

$
1,704

$
2,356

$
(647)

$
1,708

~~(1)~~

~~Not subject to amortization.~~

For the existing intangible assets, ~~the Company anticipates~~we anticipate amortization expense for the remainder of ~~2017~~2021 and each of the next five years ~~of $13 million, $21 million, $16 million, $12 million, $9 million and $6 million, respectively.~~as follows:


(In millions)	2021		2022		2023		2024		2025		2026
Amortization expense	$	10	$	40	$	35	$	27	$	22	$	16

Note 5.8. Stock-Based Compensation

For each of the three months ended ~~June~~September 30, ~~2017~~2021 and ~~2016, the Company~~2020, we recognized stock-based compensation expense of $4 million ($23 million, net of tax) and $4$3 million ($23 million, net of tax), respectively. For the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 and ~~2016, the Company~~2020, we recognized stock-based compensation expense of $9$15 million ($511 million, net of tax) and $7$13 million ($49 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~~September 30, ~~2017~~2021, there ~~was $33~~were $35 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~~Terminix 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~~1.83 years.

On February 24, 2015, our board of directors approved and recommended for approval by our stockholders the Terminix Global Holdings, Inc. Employee Stock Purchase Plan (“Employee Stock Purchase Plan”), which became effective for offering periods commencing July 1, 2015. 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 1 million shares of common stock that may be issued under the Employee Stock

912

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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 September 30, 2021, there were 751,956 shares available for issuance under the Employee Stock Purchase Plan.

Note 6.9. Comprehensive (Loss) Income

Comprehensive (loss) income, which primarily includes net income, ~~(loss),~~ unrealized ~~gain (loss) on marketable securities, unrealized gain (loss)~~gains and losses 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 2019, we terminated our then-existing $650 million interest rate swap, receiving $12 million from the counterparty. The fair value of the terminated agreement 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 September 30, 2021 was $5 million.

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, 2020	$	(16)	$	(23)	$	(39)
Other comprehensive (loss) income before reclassifications:
Pre-tax amount		33		(7)		26
Tax provision		(5)		—		(5)
After-tax amount		28		(7)		21
Amounts reclassified from accumulated other comprehensive (loss) income⁽¹⁾		(7)		—		(7)
Amounts reclassified within accumulated other comprehensive (loss) income⁽²⁾		(10)		10		—
Net current period other comprehensive income		11		3		14
Balance as of September 30, 2021	$	(5)	$	(20)	$	(25)

Balance as of December 31, 2019	$	13	$	(5)	$	9
Other comprehensive (loss) income before reclassifications:
Pre-tax amount		(66)		(7)		(73)
Tax provision		12		—		12
After-tax amount		(54)		(7)		(61)
Amounts reclassified from accumulated other comprehensive (loss) income⁽¹⁾		3		—		3
Amounts reclassified within accumulated other comprehensive (loss) income⁽²⁾		17		(17)		—
Net current period other comprehensive loss		(34)		(24)		(58)
Balance as of September 30, 2020	$	(21)	$	(29)	$	(49)

___________________________________

(1)Amounts are net of tax. See reclassification out of accumulated other comprehensive income below for further details.

(2)Represents reclassifications from our net investment hedge related to foreign currency exchange rate fluctuations.

~~(1)~~

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

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


	Amounts Reclassified from Accumulated									Amounts Reclassified from Accumulated
	Other Comprehensive Income (Loss)									Other Comprehensive (Loss) Income
	Three Months Ended				Six Months Ended				Condensed Consolidated Statements of	Three Months Ended				Nine Months Ended
	June 30,				June 30,				Operations and Comprehensive Income	September 30,				September 30,
(In millions)	2017		2016		2017		2016		Location	2021		2020		2021		2020
Losses on derivatives:
Gains (losses) on derivatives:
Fuel swap contracts	$	—	$	(1)	$	1	$	(2)	Cost of services rendered and products sold	$	3	$	(1)	$	7	$	(3)
Interest rate swap contracts		(4)		(2)		(5)		(3)	Interest expense		(2)		(1)		(5)		(2)
Net losses on derivatives		(3)		(2)		(4)		(5)
Cross-currency interest rate swap											2		—		6		—
Net gains (losses) on derivatives											4		(2)		8		(4)
Impact of income taxes		1		1		1		2	Provision for income taxes		—		1		—		2
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)		$	3	$	(2)	$	7	$	(3)

~~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:~~table. The non-cash lease transactions are described in Note 12.



	Six Months Ended				Nine Months Ended
	June 30,				September 30,
(In millions)	2017		2016		2021		2020
Cash paid for or (received from):
Interest expense	$	67	$	70	$	41	$	57
Interest and dividend income		—		(1)		—		(1)
Income taxes, net of refunds		41		37		7		4

AsFor the nine months ended September 30, 2021, cash paid for income taxes, net of ~~June 30, 2017, December 31, 2016 and June 30, 2016,~~ refunds, of $7 million includes the utilization of $14 million of tax overpayments made related to the sale of the ServiceMaster Brands Divestiture Group, which is reported in Cash flows from discontinued operations on the Condensed Consolidated Statements of Cash Flows.

Cash and ~~cash equivalents of $378 million, $291 million, and $342 million, respectively,~~Cash Equivalents and Restricted ~~cash~~Cash at End of ~~$89 million, $95 million, and $95 million, respectively, as presented~~Period on the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~financial position represent the amounts comprising~~ Cash and cash equivalents and restricted cash of $467 million, $386 million, and $437 million, respectively, on the condensed consolidated statement of cash flows. There was no restricted cash balance as of December 31, 2015.

The Company acquired $23 million 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 of 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 lossesFlows consists of the ~~Company’s short- and long-term investments in Debt and Equity securities are as follows:~~following:

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


	As of September 30,
(In millions)	2021		2020
Cash and cash equivalents	$	156	$	288
Restricted cash		89		89
Total Cash and cash equivalents and Restricted cash	$	245	$	377

~~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

—

—

—

—

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Note 9.11. Long-Term Debt

Long-term debt is summarized in the following table:



	As of		As of
	September 30,		December 31,
(In millions)	2021		2020
Senior secured term loan facility maturing in 2026⁽¹⁾	$	540	$	539
Revolving credit facility maturing 2024		—		—
7.45% notes maturing in 2027⁽²⁾		171		169
7.25% notes maturing in 2038⁽³⁾		41		41
Vehicle finance leases⁽⁴⁾		114		95
Other⁽⁵⁾		30		77
Less current portion⁽⁶⁾		(52)		(94)
Total long-term debt	$	845	$	826

__________________________________

(1)As of September 30, 2021 and December 31, 2020, presented net of $6 million and $7 million in unamortized debt issuance costs, respectively, and $1 million of unamortized original issue discount in each period.

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

~~(1)~~

~~As of June 30, 2017 and December 31, 2016, presented net of $17~~(2)As of September 30, 2021 and December 31, 2020, presented net of $15 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, the Company purchased~~ $17 million, respectively of unamortized fair value adjustments related to purchase accounting, which increases the effective interest rate from the coupon rates above.

(3)As of both September 30, 2021 and December 31, 2020, presented net of $8 million 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 ranging from 1.54% to 2.45%.

(5)Primarily represents future payments in ~~aggregate principal amount~~connection with acquisitions.

(6)We paid approximately $50 million of ~~its 7.25% notes maturing in 2038 at a~~deferred purchase price ~~of 97% of the principal amount using available cash. The repurchased notes were delivered~~and an earnout related to the ~~trustee for cancellation. In connection with this partial repurchase, the Company recorded a loss on extinguishment~~2018 purchase of ~~debt of $3 million~~Copesan in the ~~three and six months ended June 30, 2017.~~second quarter of 2021.

Interest Rate ~~Swaps~~Swap

~~Interest~~The interest rate swap ~~agreements~~agreement in effect as of ~~June~~September 30, ~~2017 are~~2021 is as follows:

Trade Date

Effective
Date

Expiration
Date

Notional
Amount

Fixed
Rate(1)

Floating
Rate

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

November 5, 2019

November 5, 2026

$546 million

1.615%

1.808%

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

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 September 30, 2021 and December 31, 2020, assets recorded under finance leases were $278 million and $249 million, respectively, and accumulated depreciation was $165 million and $155 million, respectively.

The components of lease expense were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2021		2020		2021		2020
Finance lease cost
Depreciation of finance lease ROU assets	$	10	$	10	$	31	$	29
Interest on finance lease liabilities		1		1		2		2
Operating lease cost		5		6		16		19
Variable lease cost		—		—		1		1
Sublease income		(1)		(1)		(3)		(2)
Total lease cost	$	15	$	16	$	47	$	49

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


	As of September 30,
(In millions)	2021			2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	18		$	21
Operating cash flows for finance leases		2			2
Financing cash flows for finance leases		29			28
ROU assets obtained in exchange for lease obligations:
Operating leases		10			3
Finance leases		49			23
Weighted Average Remaining Lease Term (in years):
Operating leases		9.96			10.61
Finance leases		3.75			3.32
Weighted Average Discount Rate:
Operating leases		5.24	%		5.64	%
Finance leases		4.78	%		5.28	%

As of September 30, 2021 and December 31, 2020, there were $36 million and $35 million, respectively, of finance leases included within Current portion of long-term debt and $79 million and $60 million, respectively, of finance leases included within Long-term debt, respectively, on the Condensed Consolidated Statements of Financial Position. Future minimum lease payments under non-cancellable leases as of September 30, 2021 were as follows:


(In millions)	Operating Leases⁽¹⁾		Finance Leases
Year ended December 31,
2021 (excluding the nine months ended September 30, 2021)	$	6	$	14
2022		22		35
2023		18		28
2024		14		19
2025		12		14
Thereafter		74		10
Total future minimum lease payments		145		120
Less imputed interest		(35)		(6)
Total	$	110	$	114

___________________________________

(1)Each year is presented net of approximately $3 million of projected annual sublease income from formerly owned frontdoor, inc. and ServiceMaster Brands for their subleases of our headquarters.

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. 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~~nine months ended ~~June~~September 30, ~~2017, the Company completed two pest control~~2021, we used available cash on hand to fund an $86 million investment in acquisitions, ~~and purchased a ServiceMaster Clean master distributor within the Franchise Services Group. The total~~which included $77 million for 13 tuck-in acquisitions. Another $8 million of deferred purchase price is due to the sellers between one year and three years from the acquisition dates. We also completed approximately $9 million of funding for ~~these acquisitions~~a minority interest investment, approximately $8 million of which was ~~$14 million. The Company~~included in Accrued liabilities‒Other on the Consolidated Statements of Financial Position as of December 31, 2020. We recorded preliminary goodwill of ~~$1 million and other intangibles, primarily reacquired rights, of $13 million related to these acquisitions.~~

~~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~~$57 million and other intangibles, primarily customer relationships, of ~~$13 million related to this acquisition. During~~$24 million. The purchase price allocations for these acquisitions will be finalized no later than one year from the ~~six months ended June 30, 2017,~~respective acquisition dates. For incomplete purchase price allocations, we are evaluating working capital balances, the ~~Company finalized its assessment of the fair value of the~~

~~Table of Contents~~

intangible and tangible assets acquired and ~~liabilities assumed. The Company updated its~~appropriate useful lives to assign to all assets, including intangibles.

During the nine months ended September 30, 2020, we used available cash on hand to fund a $29 million investment in acquisitions, which included $12 million for nine tuck-in acquisitions, as well as $18 million for final funding for 2 pest management 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 $3 million of deferred purchase price on the 2020 acquisitions is due to the sellers between one year and three years from the acquisition dates. As of September 30, 2020, we had recorded a preliminary ~~allocation and reclassified $4~~value $10 million of goodwill for the 2020 acquisitions. As of September 30, 2021, upon completion of the purchase price allocations, we had recorded $7 million of goodwill for the 2020 acquisitions.

Table of Contents

During the nine months ended September 30, 2020, we also received $3 million from ~~other intangibles, primarily customer relationships,~~post-closing working capital adjustments related to ~~goodwill.~~

~~During~~acquisitions completed in 2019, and in the ~~six~~three months ended ~~June~~September 30, ~~2016,~~2020, reversed $1 million of contingent consideration as the ~~Company completed several pest control~~contingency was not met, which was recorded within Acquisition-related costs in the Condensed Consolidated Statements of Operations 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 related 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.Comprehensive Income.

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


	Nine Months Ended
	September 30,
(In millions)	2021		2020
Assets acquired	$	87	$	16
Liabilities assumed		(1)		—
Net assets acquired	$	85	$	16

Net cash paid	$	77	$	11
Seller financed debt		8		5
Purchase price	$	85	$	16

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

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 27.3 percent and (231.3) percent for the three months ended September 30, 2021 and 2020, respectively. The effective tax rate on income from continuing operations was 27.9 percent and 61.8 percent for the nine months ended September 30, 2021 and 2020, respectively.

The negative effective rate for the three months ended September 30, 2020 and the unusual high effective rate for the nine months ended September 30, 2020 was due to the Mobile Bay Formosan termite settlement. A significant portion of the settlement was considered non-deductible for income tax purposes.

As of ~~June~~both September 30, ~~2017~~2021 and December 31, ~~2016, the Company~~2020, we had ~~$13~~$14 million 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.

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. Business Segment Reporting~~

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

In accordance with accounting standards for segments, the Company’s reportable segments are strategic business units that offer different services. The Terminix segment provides termite and pest control services to residential and commercial customers and distributes pest control products. 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 franchises primarily under the ServiceMaster, ServiceMaster Restore and ServiceMaster Clean brand names, home cleaning services through franchises primarily under the Merry Maids brand name, cabinet and wood furniture repair primarily under the Furniture Medic brand name and home inspection services primarily under the AmeriSpec brand name. Corporate includes SMAC, the Company’s financing subsidiary exclusively dedicated to providing financing to its franchisees and retail customers of its operating units, and the Company’s headquarters operations (substantially all of which costs are allocated to the Company’s reportable segments), which provide various technology, marketing, finance, legal and other support services to the 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.

Information regarding the accounting policies used by the Company is described in the Company’s 2016 Form 10-K. The Company derives substantially all of its revenue from customers and franchisees in the United States with approximately two percent

~~Table of Contents~~

~~generated in foreign markets. Operating expenses of the business units consist primarily of direct costs and indirect costs allocated from Corporate.~~

The Company uses Reportable Segment Adjusted EBITDA as its measure of segment profitability. Accordingly, the CODM evaluates performance and allocates resources based primarily on Reportable Segment Adjusted EBITDA. Reportable Segment Adjusted EBITDA is defined as net income before: unallocated corporate expenses; income from discontinued operations, net of income taxes; provision for income taxes; interest expense; depreciation and amortization expense; 401(k) Plan corrective contribution; 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 loss on extinguishment of debt. The Company’s definition of Reportable Segment Adjusted EBITDA may not be calculated or comparable to similarly titled measures of other companies. The Company believes Reportable Segment Adjusted EBITDA is useful for investors, analysts and other interested parties as it facilitates company-to-company operating performance comparisons by excluding potential differences caused by variations in capital structures, taxation, the age and book depreciation of facilities and equipment, restructuring initiatives and equity-based, long-term incentive plans.

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

Three Months Ended

Six Months Ended

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

~~(1)~~

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

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,

~~Table of Contents~~

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 designed 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.

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.

~~Note 14.~~15. 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~~$897 million and ~~$2,831~~$920 million, and the estimated fair value was ~~$2,938~~$975 million and ~~$2,930~~$989 million as of ~~June~~September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, 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~~September 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

~~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.

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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.

Cross-currency interest rate swaps are valued using forward foreign currency exchange rates obtained from third-party market data providers. The ~~Company has~~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 foreign exchange rate between the U.S. dollar and Swedish krona as of each settlement date and applying the difference between the two rates to the notional amount of the investment in the cross-currency interest rate swap contracts.

Changes in the fair value of the interest rate swap contracts, fuel swap contracts and cross-currency interest rate swap designated as a net investment hedge are recorded within Accumulated other comprehensive (loss) income on the Condensed Consolidated Statements of Financial Position. Changes in the fair value of the cross-currency interest rate swap designated as a cash flow hedge are recorded within Selling and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income, offsetting foreign currency fluctuations on the hedged instrument. 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~~three month periods ended ~~June~~September 30, ~~2017~~2021 and ~~2016.~~2020.

1518

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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 September 30, 2021:
Financial Assets:
Deferred compensation trust	Long-term marketable securities	$	8	$	8	$	—	$	—	Long-term marketable securities	$	15	$	15	$	—	$	—
Investments in marketable securities	Marketable securities and Long-term marketable securities		45		40		5		—
Fuel swap contracts	Prepaid expenses and other assets		1		—		—		1	Prepaid expenses and other assets and Other assets		4		—		—		4
Interest rate swap contract	Other assets		21		—		21		—
Total financial assets		$	75	$	48	$	26	$	1		$	19	$	15	$	—	$	4
Financial Liabilities:
Fuel swap contracts	Other accrued liabilities	$	1	$	—	$	—	$	1
Cross-currency interest rate swap										Other long-term obligations, primarily self-insured claims	$	9	$	—	$	9	$	—
Net investment hedge										Other long-term obligations, primarily self-insured claims		15		—		15		—
Interest rate swap contract	Other accrued liabilities		1		—		1		—	Accrued liabilities—Other and Other long-term obligations, primarily self-insured claims		16		—		16		—
Total financial liabilities		$	2	$	—	$	1	$	1		$	39	$	—	$	39	$	—
As of December 31, 2016:

As of December 31, 2020:
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	$	14	$	14	$	—	$	—
Fuel swap contracts	Prepaid expenses and other assets and Other assets		5		—		—		5	Prepaid expenses and other assets and Other assets		3		—		—		3
Interest rate swap contract	Other assets		27		—		27		—
Total financial assets		$	75	$	40	$	30	$	5		$	18	$	14	$	—	$	3
Financial Liabilities:
Cross-currency interest rate swap										Other long-term obligations, primarily self-insured claims	$	15	$	—	$	15	$	—
Net investment hedge										Other long-term obligations, primarily self-insured claims		23		—		23		—
Interest rate swap contract	Other accrued liabilities and Other long-term obligations	$	4	$	—	$	4	$	—	Accrued liabilities—Other and Other long-term obligations, primarily self-insured claims		34		—		34		—
Total financial liabilities		$	4	$	—	$	4	$	—		$	72	$	—	$	72	$	—

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~~2020	$	5	3
Total gains (losses) ~~gains~~ (realized and unrealized)
Included in earnings		1	7	Cost of services rendered and products sold
Included in other comprehensive income		~~(5)~~	—
Settlements		~~(1)~~	(7)
Balance as of ~~June~~September 30, ~~2017~~2021	$	—4

Balance as of December 31, ~~2015~~2019	$	~~(4)~~	1
Total gains (losses) ~~gains~~ (realized and unrealized)
Included in earnings		~~(2)~~	2	Cost of services rendered and products sold
Included in other comprehensive income		4	(2)
Settlements		2	—
Balance as of ~~June~~September 30, ~~2016~~2020	$	1	—

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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 September 30, 2021:
Fuel swap contracts	$	—	Discounted Cash Flows	Forward Unleaded Price per Gallon(1)	$1.83 - $2.90	$	2.36	$	4	Discounted Cash Flows	Forward Unleaded Price per Gallon⁽¹⁾	$2.96 - $3.31	$	3.16
As of December 31, 2016:
As of December 31, 2020:
Fuel swap contracts	$	5	Discounted Cash Flows	Forward Unleaded Price per Gallon(1)	$2.31 - $2.85	$	2.55	$	3	Discounted Cash Flows	Forward Unleaded Price per Gallon⁽¹⁾	$2.20 - $2.58	$	2.44

___________________________________

~~(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~~September 30, ~~2017, the Company~~2021, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of ~~$33~~$28 million, maturing through ~~2018.~~2022. 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~~September 30, ~~2017, the Company~~2021, 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$2 million, net of tax, as of ~~June~~September 30, ~~2017.~~2021. 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.

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Note ~~15.~~16. 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

June 30,

June 30,
(In millions, except per share data)

2017

2016

2017

2016
Income from continuing operations

$
85

$
16

$
123

$
54
Weighted-average common shares outstanding

133.7

135.5

134.1

135.6
Effect of dilutive securities:

RSUs

0.1

0.2

0.1

0.2
Stock options(1)

1.3

1.9

1.3

2.0
Weighted-average common shares outstanding—assuming dilution

135.0

137.7

135.5

137.7
Basic earnings per share from continuing operations

$
0.64

$
0.11

$
0.92

$
0.40
Diluted earnings per share from continuing operations

$
0.63

$
0.11

$
0.91

$
0.40



	Three Months Ended				Nine Months Ended
	September 30,				September 30,

(In millions, except per share data)	2021		2020		2021		2020
Income (loss) from continuing operations	$	38	$	(21)	$	119	$	20
Weighted-average common shares outstanding		124.3		132.0		127.6		132.9
Effect of dilutive securities:
RSUs⁽¹⁾		0.3		—		0.3		0.1
Stock options⁽¹⁾⁽²⁾		0.1		—		0.2		—
Weighted-average common shares outstanding—assuming dilution		124.7		132.0		128.1		133.1
Basic earnings (loss) per share from continuing operations	$	0.31	$	(0.17)	$	0.93	$	0.14
Diluted earnings (loss) per share from continuing operations	$	0.31	$	(0.17)	$	0.93	$	0.14

~~(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, 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,~~(1)Securities are not included in the ~~Company issued a press release announcing that~~table in periods when antidilutive due to losses incurred in the ~~Company intends to separate its American Home Shield business~~period. For the three months ended September 30, 2020, weighted average potentially dilutive shares from RSUs of 0.2 million and from stock options of 0.1 million were excluded from the ~~Company’s Terminix~~dilutive loss per share calculation due to the antidilutive effect such shares would have had on net loss per share.

(2)Options to purchase 0.1 million and ~~Franchise Services Group businesses by means~~1.4 million of ~~a spinoff of~~shares for 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 identitythree months ended September 30, 2021, and ~~strong financial profile. The transaction is expected to be completed~~2020, respectively, and 0.1 million and 1.4 million shares for the nine months ended September 30, 2021, and 2020, respectively, were not included in the ~~third quarter~~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

Our core services include residential and commercial termite and pest ~~control, home warranties, disaster restoration, janitorial, residential cleaning, cabinet and wood furniture repair and home inspection~~management under the following ~~leading~~ brands: Terminix, ~~American Home Shield, ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic~~Copesan, Assured Environments, Gregory, McCloud, Nomor and ~~AmeriSpec.~~Pelias. Our operations for the periods presented in this report are organized into ~~three~~one reportable ~~segments: Terminix, American Home Shield~~segment, our pest management and ~~Franchise Services Group.~~termite business.

~~Recent Events~~COVID-19

~~On July 26, 2017,~~Since March 11, 2020, when the ~~Company issued~~World Health Organization designated COVID-19 as a ~~press release announcing that~~global pandemic, we have experienced increased demand in our residential pest management and termite and home services service lines as customers are spending more time at home. We have also experienced disruptions in our business, primarily in the ~~Company intends~~commercial pest management service line, driven by temporary business closures and service postponements, and in our product sales and other service line. We expect the commercial pest market to ~~separate its American Home Shield business from~~continue to stabilize to more normalized growth levels throughout the ~~Company’s Terminix~~last quarter of 2021 and ~~Franchise Services Group businesses by means~~into 2022.

Over the course of 2021, we experienced an increase in medical expenses and short-term disability claims related to COVID-19 infections in our workforce, which we expect to continue in the short-term, and we have experienced increased turnover and labor shortages as a ~~spinoff~~result of the ~~American Home Shield business~~pandemic. We continue to ~~Company shareholders, resulting in two publicly traded companies. The spin-off would create two independent companies each~~focus on initiatives to ensure the safety and productivity of our teammates, including personal protective equipment and safety policies and measures for field teammates, and technology to facilitate remote working, with ~~an enhanced strategic focus, simplified~~most back-office and all call center teammates continuing to work remotely and field support teammates working remotely where possible. We continue to evaluate the benefits, opportunities and risks identified from our remote working experiences to sustain and identify ways to reduce ongoing operating ~~structure, distinct investment identity and strong financial profile. The transaction~~costs while balancing operational performance. It is ~~expected~~reasonably possible that we could recognize additional lease impairment charges within the next 12 months, which could be material, if, for example, any subleases entered into are for less than our fixed rent.

Refer to ~~be completed in the third quarter~~Results 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 shareholdersOperations below for ~~U.S. federal income tax purposes.~~

~~Table of Contents~~

~~The Company also announced the appointment of Nikhil M. Varty as Chief Executive Officer~~further discussion of the ~~Company and as a member~~impact 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.COVID-19 on our business.

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 and earnings per share,

Adjusted EBITDA,

organic revenue growth, and

customer retention.

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.~~business. 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 in the Franchise Services Group are driven principally by royalty fees earned from our franchisees. We serve both residential and commercial customers, principally in the ~~United States. In 2016,~~U.S. We expect to continue our tuck-in acquisition program and to periodically evaluate other strategic acquisitions. As of September 30, 2021, approximately 9894 percent of our revenue was generated by sales in the United States.

Operating Expenses. In addition to the impact of changes in our revenue results, our operating results are affected by, among other things, the level of our operating expenses. A number of our operating expenses are subject to inflationary pressures, such as fuel, chemicals, ~~raw materials,~~ wages and salaries, ~~employee~~teammate 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

Table of Contents

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. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income (loss) or any other performance measures derived in accordance with GAAP. We define Adjusted EBITDA as net income (loss) before: ~~income from discontinued operations, net of income taxes; provision for income taxes; interest expense;~~ depreciation and amortization expense; ~~401(k) Plan corrective contribution;~~acquisition-related costs; fumigation related matters; ~~insurance reserve adjustment;~~Mobile Bay Formosan termite settlement; 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; goodwill impairment charges; amortization of cloud based software; net earnings from discontinued operations; provision for income taxes; loss on extinguishment of debt; and interest expense. 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, acquisition activity, taxation, the age and book depreciation of facilities and equipment, restructuring initiatives and equity-based, long-term incentive plans. Our definition of Adjusted EBITDA may not be calculated or comparable to similarly titled measures of other companies.

A reconciliation of Net income (loss) to Adjusted EBITDA for the three and nine months ended September 30, 2021 and 2020 was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2021		2020		2021		2020
Net Income (Loss)	$	38	$	(7)	$	119	$	61
Depreciation and amortization expense		28		27		81		81
Acquisition-related costs		1		(1)		—		—
Fumigation related matters		—		—		1		—
Mobile Bay Formosan termite settlement		—		51		4		51
Non-cash stock-based compensation expense		4		3		15		13
Restructuring and other charges		2		2		10		14
Goodwill impairment		3		—		3		—
Amortization of cloud based software		—		—		1		—
Net earnings from discontinued operations		—		(14)		—		(40)
Provision for income taxes		14		15		45		31
Loss on extinguishment of debt		—		1		—		1
Interest expense		11		22		34		67
Adjusted EBITDA	$	102	$	98	$	315	$	277

Organic Revenue Growth. We ~~evaluate~~use organic revenue growth to track performance, ~~of the business,~~ 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. We believe organic revenue growth is useful for investors, analysts and other invested parties as it facilitates company-to-company performance comparisons by excluding the impact of acquisitions on revenue growth. See Revenue below for a reconciliation of revenue growth to organic revenue growth.

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

~~Table of Contents~~

~~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, approximately 22 percent, 27 percent, 28 percent and 23 percent of our~~2020, revenue and ~~approximately 19 percent, 30 percent, 29 percent and 22 percent of our~~ Adjusted EBITDA by quarter was recognized ~~in the first, second, third and fourth quarters, respectively.~~as follows:


	Q1		Q2		Q3		Q4
Revenue	23	%	27	%	26	%	23	%
Adjusted EBITDA	17	%	34	%	28	%	20	%

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~~management 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~~management services.

Table of Contents

Results of Operations

The following tables shows the results of operations from continuing operations for the three and nine months ended September 30, 2021 and 2020, which ~~can lead~~reflects the results of acquired businesses from the relevant acquisition dates.


	Three Months Ended				Increase
	September 30,				(Decrease)		% of Revenue
(In millions)	2021		2020		2021 vs. 2020		2021		2020
Revenue	$	530	$	512	4	%	100	%	100	%
Cost of services rendered and products sold		309		299	3		58		58
Selling and administrative expenses		142		140	2		27		27
Amortization expense		10		9	17		2		2
Acquisition-related costs		1		(1)	*		—		—
Mobile Bay Formosan termite settlement		—		49	*		—		10
Restructuring and other charges		2		2	*		—		—
Goodwill impairment		3		—	*		1		—
Interest expense		11		22	(49)		2		4
Interest and net investment income		—		(1)	*		—		—
Loss on extinguishment of debt		—		1	*		—		—
Income (Loss) from Continuing Operations before Income Taxes		52		(7)	*		10		(1)
Provision for income taxes		14		15	*		3		3
Equity in earnings of joint venture		1		1	*		—		—
Income (Loss) from Continuing Operations	$	38	$	(21)	*		7	%	(4)	%

________________________________

* not meaningful


	Nine Months Ended				Increase
	September 30,				(Decrease)		% of Revenue
(In millions)	2021		2020		2021 vs. 2020		2021		2020
Revenue	$	1,562	$	1,502	4	%	100	%	100	%
Cost of services rendered and products sold		897		876	2		57		58
Selling and administrative expenses		422		423	(0)		27		28
Amortization expense		29		26	11		2		2
Mobile Bay Formosan termite settlement		4		49	*		—		3
Fumigation related matters		1		—	*		—		—
Restructuring and other charges		10		14	*		1		1
Goodwill impairment		3		—	*		—		—
Interest expense		34		67	(49)		2		4
Interest and net investment income		(2)		(2)	*		—		—
Loss on extinguishment of debt		—		1	*		—		—
Income from Continuing Operations before Income Taxes		162		50	*		10		3
Provision for income taxes		45		31	*		3		2
Equity in earnings of joint venture		2		2	*		—		—
Income from Continuing Operations	$	119	$	20	*		8	%	1	%

________________________________

* not meaningful

‎

Table of Contents

Revenue

Three months ended September 30, 2021 Compared to ~~lower household systems claim frequency; and severe storms which can lead to an increase in demand for disaster restoration services.~~Three months ended September 30, 2020

~~Franchises~~

~~Franchises are important to the Terminix, ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic and AmeriSpec businesses. Total profits from our franchised operations were $22~~We reported revenue of $530 million and ~~$21~~$512 million for the three months ended ~~June~~September 30, ~~2017~~2021 and ~~2016, respectively, and $44~~2020, respectively. Revenue by service line was as follows:



	Three Months Ended
	September 30,
(In millions)	2021		2020		Growth				Organic				Acquired
Residential Pest Management	$	199	$	193	$	6	3	%	$	3	1	%	$	4	2	%
Commercial Pest Management		144		140		4	3	%		(1)	(1)	%		5	4	%
Termite and Home Services		156		151		5	3	%		4	3	%		—	—	%
Sales of Products and Other		31		28		3	11	%		3	11	%		—	—	%
Total revenue	$	530	$	512	$	18	4	%	$	9	2	%	$	10	2	%

Revenue growth was $18 million ~~and $39 million for the six months ended June 30, 2017 and 2016, respectively. Nearly all~~year over year, or four percent, including two percent from acquisitions.

Residential pest management revenue growth was three percent, reflecting organic revenue growth 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~~percent. Organic revenue for the three and six months ended June 30, 2017. We evaluate the performance of our franchise businesses based primarily on operating profit before corporate general and administrative expenses, interest expense and amortization of intangible assets. Franchise agreements entered into in the course of these businesses are generally for a term of five years. The majority of these franchise agreements are renewed prior to expiration. Internationally, we have license agreements, whereby licensees provide services under our brand names that would ordinarily be provided by franchisees in the United States. The majority of international licenses are for 10‑year terms.

~~Results of Operations~~

Three Months Ended

Increase

June 30,

(Decrease)

% of Revenue
(In millions)

2017

2016

2017 vs. 2016

2017

2016
Revenue

$
807

$
747

8
%

100
%

100
%
Cost of services rendered and products sold

415

379

9

51

51

Selling and administrative expenses

206

187

10

26

25

Amortization expense

7

8

(12)

1

1

401(k) Plan corrective contribution

—

1

*

—

—

Fumigation related matters

1

88

*

—

12

Insurance reserve adjustment

—

23

*

—

3

Impairment of software and other related costs

—

1

*

—

—

Restructuring charges

1

4

(77)

—

1

Interest expense

38

38

—

5

5

Interest and net investment income

(1)

(4)

(74)

—

(1)

Loss on extinguishment of debt

3

—

*

—

—

Income from Continuing Operations before Income Taxes

137

23

505

17

3

Provision for income taxes

52

7

643

6

1

Income from Continuing Operations

85

16

446

11

2

Income from discontinued operations, net of income taxes

—

—

*

—

—

Net Income

$
85

$
16

442
%

11
%

2
%

~~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
%

* not meaningful

~~Revenue~~

We reported revenue of $807 million and $747 million for the three months ended June 30, 2017 and 2016, respectively, and revenue of $1,450 million and $1,355 million for the six months ended June 30, 2017 and 2016, respectively. A summary of changes in revenue for each of our reportable segments and Corporate is included in the table below. See “—Segment Review” for a discussion of the drivers of the year-over-year changes.

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Three Months Ended June 30, 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

~~Table of Contents~~

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

~~(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.

~~Cost of Services Rendered and Products Sold~~

We reported cost of services rendered and products sold of $415 million and $379 million for the three months ended June 30, 2017 and 2016, respectively, and $761 million and $704 million for the six months ended June 30, 2017 and 2016, respectively. The following table provides a summary of changes in cost of services rendered and products sold for each of our reportable segments and Corporate:

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Three Months Ended June 30, 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~~improved price realization and improved trailing 12-month customer retention rates. Residential pest management revenue also increased two percent from acquisitions completed in ~~field operations focused on improving safety, customer service and retention.~~the last 12 months.

Commercial pest management revenue growth was three percent. The ~~increase in damage claims~~organic revenue decline of one percent was driven by increased termite warranty claims. 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 was driven by investments 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 in the Franchise Services Group~~completed recurring and one-time services as a result of staffing shortages during the ~~branch conversions~~insourcing of certain national accounts customers. These declines more than offset continued growth internationally, including favorable foreign currency fluctuations of approximately $1 million, or one percent. Commercial pest management revenue also increased four percent from acquisitions completed in ~~2016.~~the last 12 months.

~~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 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 in the number of company-owned sales vehicles. Additionally, the increase in technology costs was driven by investments 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 $5 million in the Franchise Services Group as a result of the branch conversions completed in 2016.~~

~~Selling and Administrative Expenses~~

We reported selling and administrative expenses of $206 million and $187 million for the three months ended June 30, 2017 and 2016, respectively, and $392 million and $360 million for the six months ended June 30, 2017 and 2016, respectively. For the three months ended June 30, 2017 and 2016, selling and administrative expenses comprised general and administrative expenses of $74 million and $69 million, respectively, and selling and marketing expenses of $132 million and $118 million, respectively. For the six months ended June 30, 2017 and 2016, selling and administrative expenses comprised general and administrative expenses of $151 million and $144 million, respectively, and selling and marketing expenses of $241 million and $216 million, respectively. The following table provides a summary of changes in selling and administrative expenses for each of our reportable segments and Corporate:

American

Franchise

Home

Services

(In millions)

Terminix

Shield

Group

Corporate

Total
Three Months Ended June 30, 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 and marketing costs at Terminix was driven by investments to grow and train our sales force, 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 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

~~Amortization Expense~~

Amortization expense was $7 million and $8 million in the three months ended June 30, 2017 and 2016, respectively, and $14 million and $16 million in the six months ended June 30, 2017 and 2016 respectively.

~~401(k) Plan Corrective Contribution~~

We recorded a charge of $1 million in the three and six months ended June 30, 2016 related to the 401(k) Plan. See Note 3 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~~

We recorded charges of $1 million and $88 million in the three months ended June 30, 2017 and 2016, respectively, and $2 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 million for the six months ended June 30, 2017 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, 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

~~(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.

~~Provision for Income Taxes~~

~~Net Income~~

Net income was $85 million and $16 million for the three months ended June 30, 2017 and 2016, respectively, and was driven by a $114 million increase in income from continuing operations before income taxes, offset, in part, by a $45 million increase in the provision for income taxes. Net income was $124 million and $54 million for the six months ended June 30, 2017 and 2016, respectively, and was primarily driven by a $114 million increase in income from continuing operations before income taxes, offset, in part, by a $46 million increase in the provision for income taxes.

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~~Segment Review~~

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

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

Three Months Ended

Six Months Ended

June 30,

Increase

June 30,

Increase
(In millions)

2017

2016

(Decrease)

2017

2016

(Decrease)
Revenue:

Terminix

$
428

$
414

3
%

$
794

$
778

2
%
American Home Shield

326

282

15

553

477

16

Franchise Services Group

52

50

5

102

99

3

Corporate

1

1

*

1

1

*

Total Revenue:

$
807

$
747

8
%

$
1,450

$
1,355

7
%
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)

*

Total Adjusted EBITDA

$
210

$
203

3
%

$
343

$
330

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.~~

~~Terminix Segment~~

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

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

~~Revenue~~

~~Revenue by service line is as follows:~~

Three Months Ended

June 30,

(In millions)

2017

2016

Growth

Acquired

Organic
Pest Control

$
229

$
226

$
3

1
%

$
2

1
%

$
—

—
%
Termite and Other Services

177

168

9

5
%

1

—
%

8

5
%
Other

23

20

3

14
%

—

—
%

3

14
%
Total revenue

$
428

$
414

$
14

3
%

$
3

1
%

$
11

3
%

Pest control revenue increased one percent. Pest control revenue was comparable to the prior year period and was significantly impacted by a $5 million organic revenue decline associated with Alterra Pest Control (“Alterra”). Excluding Alterra, organic pest controlTermite revenue growth was ~~$5 million, or 2~~three percent.

Termite ~~revenue, including the wildlife exclusion, crawl space encapsulation and attic insulation products,~~completions increased one percent, driven by sales of our new monthly pay tiered termite product. Home services, which are managed as a component of our termite line of business and include wildlife exclusion, crawl space encapsulation and attic insulation, revenue growth was five percent, primarily as a result of improved cross selling to existing customers. Termite renewals increased ~~five~~three percent, due to increased volume and improved price realization, offset by a more than $1 million impact from the change in the timing of revenue recognition in our new monthly subscription-based termite offering. Excluding the impact of the monthly subscription-based termite offering, termite renewal growth would have been six percent and total termite growth would have been four percent.

In the three months ended ~~June~~September 30, ~~2017,~~2021, termite renewal revenue comprised 4742 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.

Sales of products and other revenue growth was 11 percent due to increased chemical demand as we lap the impacts of COVID-19 on three months ended September 30, 2020 revenue.

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~~Adjusted EBITDA~~

~~The following table provides a summary of changes in the segment’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~~

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 in the number of company-owned sales vehicles. The increase in technology costs was driven by investments to improve our customers’ experiences through technology. The increase in sales and marketing costs was driven by investments to grow and train our sales force, higher commissions attributable to the growth in core termite, wildlife exclusion and attic insulation sales and incremental marketing investments.

~~Six Months Ended June~~Nine months ended September 30, ~~2017~~2021 Compared to ~~Six Months Ended June~~Nine months ended September 30, ~~2016~~2020

~~The Terminix segment~~We reported ~~a two percent increase in~~ revenue of $1,562 million and ~~a 10 percent decrease in Adjusted EBITDA~~$1,502 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017 compared to the six months ended June 30, 2016.~~

~~Revenue~~

2021 and 2020, respectively. Revenue by service line iswas as follows:

Six Months Ended

June 30,

(In millions)

2017

2016

Growth

Acquired

Organic
Pest Control

$
430

$
432

$
(2)

—
%

$
6

1
%

$
(8)

(2)
%
Termite and Other Services

326

311

15

5
%

2

1
%

13

4
%
Other

37

35

2

7
%

—

—
%

2

7
%
Total revenue

$
794

$
778

$
16

2
%

$
8

1
%

$
8

1
%



	Nine Months Ended
	September 30,

(In millions)	2021		2020		Growth				Organic				Acquired
Residential Pest Management	$	557	$	534	$	24	4	%	$	16	3	%	$	7	1	%
Commercial Pest Management		414		388		25	7	%		15	4	%		11	3	%
Termite and Home Services		510		502		8	2	%		7	1	%		1	—	%
Sales of Products and Other		81		78		3	4	%		3	4	%		—	—	%
Total revenue	$	1,562	$	1,502	$	60	4	%	$	41	3	%	$	18	1	%

~~Pest control revenue~~Revenue growth was ~~comparable to the prior~~$60 million year ~~period. Pest control revenue decreased two~~over year, or four percent. Foreign currency fluctuations contributed $8 million, or less than one percent, ~~and was significantly impacted by an $11 million~~of total organic revenue ~~decline associated with Alterra. Excluding Alterra, organic~~growth.

Residential pest ~~control~~management revenue growth was $3four percent, reflecting organic revenue growth of three percent. Organic revenue growth was driven by improved price realization and improved trailing 12-month retention rates, offset, in part, by lower one-time sales. Residential pest management revenue also increased one percent from acquisitions completed in the last 12 months.

Commercial pest management revenue growth was seven percent. Organic revenue growth of four percent was primarily driven by double-digit international growth, offset partially by a reduction in completed recurring and one-time services as a result of staffing shortages during the insourcing of certain national accounts customers. Foreign currency fluctuations contributed $8 million,

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or ~~1 percent.~~two percent, of the commercial pest management organic revenue growth. Commercial pest management revenue also increased one percent from acquisitions completed in the last 12 months.

Termite revenue ~~including the wildlife exclusion, crawl space encapsulation and attic insulation products,~~growth was two percent. Termite completions increased two percent, driven by sales of our new monthly pay tiered termite product. Home services, which are managed as a component of our termite line of business and include wildlife exclusion, crawl space encapsulation and attic insulation, growth was seven percent, primarily as a result of improved cross selling to existing customers. Termite renewals decreased two percent, primarily due to an approximately $11 million impact from the change in the timing of revenue recognition in our new monthly subscription-based termite offering. Excluding the impact of the monthly subscription-based termite offering, termite renewal growth would have been three percent and total termite and home services revenue growth would have been four percent.

Sales of Product and Other revenue growth was four percent due to the COVID-19 impacts on three months ended September 30, 2020 revenue, offset by the impact of tighter inventory management by larger distributors and increased ~~five percent.~~ transit times on shipments of products to customers in response to COVID-19 in the first quarter of 2021.

Cost of Services Rendered and Products Sold

We reported cost of services rendered and products sold of $309 million and $299 million for the three months ended September 30, 2021 and 2020, respectively, and $897 and $876 million for the nine months ended September 30, 2021 and 2020, respectively.

For the three months ended September 30, 2021 compared to September 30, 2020, cost of services rendered and products sold increased three percent, or was flat as a percent of revenue, primarily attributable to the flowthrough from higher revenue. Production labor increased $3 million, primarily due to labor market driven increased turnover year-over-year. Direct cost productivity reduced costs $4 million year over year, including lower chemical costs, improvements in fleet management, lower fuel prices and productivity from the insourcing of certain national accounts customers. Termite damage claims expenses decreased $5 million due to lower claims counts in the third quarter of 2021, offset by higher cost per Non-Litigated Claim due, in part, to inflationary pressure on building materials and contractor costs, primarily in the Mobile Bay Area. Medical costs increased $5 million due to increased medical claims and short-term disability costs as a result of the COVID-19 pandemic.

For the nine months ended September 30, 2021 compared to September 30, 2020, costs of services rendered and products sold increased two percent, or decreased one percent as a percentage of revenue, primarily attributable to the flowthrough from higher revenue. Production labor increased $3 million representing increased labor costs as we insource previously outsourced services to certain national accounts, offset by $2 million of cost savings associated with subcontract labor on previously outsourced services to certain national customers. Direct cost productivity reduced costs $12 million, primarily driven by lower chemical costs, improvements in fleet management and lower fuel prices, primarily related to favorable fuel hedge prices. Termite damage claims expenses decreased $2 million, driven by lower termite damage claims counts in the third quarter of 2021, offset by higher cost per Non-Litigated Claim due, in part, to inflationary pressure on building materials and contractor costs, primarily in the Mobile Bay Area. Medical claims due to COVID-19 represents $5 million of increased medical claims and short-term disability costs as a result of the COVID-19 pandemic. We expect medical claims and short-term disability costs to remain elevated in the fourth quarter of 2021 as a result of the Delta variant.

Selling and Administrative Expenses

The following table provides a summary of selling and administrative expenses for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2021		2020		2021		2020
Selling and marketing expenses	$	71	$	70	$	202	$	200
General and administrative expenses		71		70		220		223
Total Selling and administrative expenses	$	142	$	140	$	422	$	423

Selling and marketing expenses increased in both the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 primarily due to higher marketing spend.

General and administrative costs were flat in the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to increased travel costs due to the easing of COVID-19 travel restrictions, offset by back-office reductions as we align as a singularly focused pest management company.

General and administrative costs decreased in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to insurance favorability, travel savings and back-office reductions as we align as a singularly focused pest management business. This decrease was offset, in part, by investments in the Customer Experience Platform (“CxP”) which increased as we began to roll out CxP into our branches. We believe CxP will improve our marketing capabilities and service delivery through an easy-to-use, best-in-class operating system. We expect these costs to increase throughout the remainder of 2021

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and 2022 as we roll out CxP. License fees for CxP will move from General and administrative expenses to Cost of services rendered and products sold once CxP is deployed.

Amortization Expense

Amortization expense was $10 million and $9 million in the three months ended September 30, 2021 and 2020, respectively, and $29 million and $26 million in the nine months ended September 30, 2021 and 2020. The increase in amortization expense primarily reflects the effect of recent acquisitions.

Acquisition-Related Costs

In the ~~six~~nine months ended ~~June~~September 30, ~~2017,~~2021, we reversed a previously accrued contingent consideration related to an acquisition for approximately $2 million as the contingency was not met. This offset approximately $1 million of acquisition-related costs incurred in the nine months ended September 30, 2021. Acquisition-related costs in the three months ended September 30, 2021 was $1 million. In the three months ended September 30, 2020, we reversed a previously accrued contingent consideration related to an acquisition for $1 million as the contingency was not met. This offset $1 million of acquisition related costs in the nine months ended September 30, 2020.

Mobile Bay Formosan Termite Settlement

We recorded a charge of $49 million in the three and nine months ended September 30, 2020 for the Mobile Bay Formosan termite ~~renewal revenue comprised 50 percent~~settlement. We incurred $4 million of ~~total~~additional costs related to the Mobile Bay Formosan termite ~~revenue, while~~settlement (as defined below) in the ~~remainder consisted of termite new unit revenue. Organic termite revenue increased four percent, reflecting~~nine months ended September 30, 2021, related to an increase in ~~core~~the projected customer response regarding certain remedies mandated by the Settlement, as described in Note 6 to the unaudited condensed consolidated financial statements. There were no costs related to the Mobile Bay Formosan termite ~~wildlife exclusion~~settlement in the three months ended September 30, 2021.

Fumigation Related Maters

We recorded charges of $1 million for fumigation related matters in the nine months ended September 30, 2021.

Restructuring and ~~attic insulation sales~~Other Charges

We incurred restructuring and ~~improved price realization.~~other charges of approximately $2 million in each of the three months ended September 30, 2021 and 2020, and $10 million and $14 million in the nine months ended September 30, 2021 and 2020, respectively. Restructuring Charges primarily included severance and costs to simplify our back-office and align administrative functions as a singularly focused pest management company following the sale of the ServiceMaster Brands Divestiture Group.

Goodwill Impairment

During the third quarter of 2021, based on a change in business direction and outlook, we performed an interim goodwill impairment test for a small reporting unit. As a result of this test, we recorded a non-cash goodwill impairment charge of approximately $3 million, representing the full amount of goodwill associated with this reporting unit.

Interest Expense

Interest expense was $11 million and $22 million in the three months ended September 30, 2021 and 2020, respectively, and $34 million and $67 million in the nine months ended September 30, 2021 and 2020, respectively. The decrease in interest expense was principally driven by the retirement of all $750 million of our 5.125% Notes on November 15, 2020, using proceeds from the sale of the ServiceMaster Brands Divestiture Group.

Interest and Net Investment Income

Interest and net investment income is comprised primarily of net investment gains from equity investments and interest income on other cash balances. Interest and net investment income was $2 million for the nine months ended September 30, 2021, and $1 million and $2 million for the three and nine months ended September 30, 2020. There was no interest and net investment income in the three months ended September 30, 2021.

Income (Loss) from Continuing Operations before Income Taxes

Income from continuing operations before income taxes was $52 million for the three months ended September 30, 2021 compared to a Loss from continuing operations before income taxes of $7 million for the three months ended September 30, 2020. Income from continuing operations before income taxes was $162 million for the nine months ended September 30, 2021 compared to $50 million for the nine months ended September 30, 2020. The change in income from continuing operations before income taxes in both periods primarily reflects the realization of cost savings and efficiency initiatives, reduced interest driven by less long-term debt outstanding and the $49 million Mobile Bay Formosan termite settlement in the three and nine months ended September 30, 2020.

Provision for Income Taxes

The effective tax rate on income (loss) from continuing operations was 27.3 percent and (231.3) percent for the three months ended September 30, 2021 and 2020, respectively, and 27.9 percent and 61.8 percent for the nine months ended September 30, 2021

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and 2020, respectively. The negative effective rate for the three months ended September 30, 2020 and the unusual high effective rate for the nine months ended September 30, 2020 was due to the Mobile Bay Formosan termite settlement. A significant portion of the settlement was considered non-deductible for income tax purposes.

Net Earnings from Discontinued Operations

Net earnings from discontinued operations were $14 million and $40 million for the three and nine months ended September 30, 2020, reflecting the results of the ServiceMaster Brands Divestiture Group for the period.

Net Income (Loss)

Net income was $38 million for the three months ended September 30, 2021, compared to a net loss of $(7) million for the three months ended September 30, 2020, which was primarily driven by a $59 million increase in income (loss) from continuing operations and $15 million lower net earnings from discontinued operations in the three months ended September 30, 2021. Net income was $119 million and $61 million for the nine months ended September 30, 2021 and 2020, respectively, which was primarily driven by a $99 million increase in income from continuing operations and $40 million lower net earnings from discontinued operations in the three months ended September 30, 2021.

Adjusted EBITDA

Three months ended September 30, 2021 Compared to Three months ended September 30, 2020

The following table provides a summary of changes in ~~the segment’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~~

~~American Home Shield Segment~~

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

~~The American Home Shield segment, which provides home warranties for household systems and appliances, reported a 15 percent increase in revenue and a 15 percent increase in~~ Adjusted EBITDA for the three months ended ~~June~~September 30, ~~2017~~2021 compared to the three months ended ~~June~~September 30, ~~2016.~~2020:

~~The growth~~




(In millions)
Three Months Ended September 30, 2020	$	98
Impact of change in revenue		8
Production labor		(3)
Direct productivity		4
Termite damage claims		5
Medical claims due to COVID-19		(5)
Investments in CxP and Terminix Way		(1)
Sales and marketing		(1)
Travel		(1)
Other		(3)
Three Months Ended September 30, 2021	$	102

Production labor increased $3 million, primarily due to labor market driven increased turnover year-over-year. Direct productivity reduced costs $4 million year over year, including lower chemical costs, improvements in ~~renewable customer~~fleet management, lower fuel prices primarily related to favorable fuel hedge rates and subcontractor productivity from the insourcing of certain national accounts customers. Termite damage claims expenses decreased $5 million due to lower claims counts in the third quarter of 2021, offset, in part, by higher cost per Non-Litigated Claim due, in part, to inflationary pressure on building materials 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~~contractor costs, primarily in ~~new unit sales, improved price realization~~the Mobile Bay Area. Medical costs increased $5 million due to increased medical claims and ~~the impact~~short-term disability costs as a result of the ~~OneGuard~~COVID-19 pandemic. Investments in CxP and ~~Landmark acquisitions (an approximate $21~~Terminix Way increased $1 million ~~increase).~~as we launch the Terminix Way initiative and begin to roll out CxP. Sales and marketing increased $1 million. Travel costs increased $1 million due to the easing of COVID-19 related travel restrictions. Other includes licensing charges related to CxP.

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~~Adjusted EBITDA~~

Nine months ended September 30, 2021 Compared to Nine months ended September 30, 2020

The following table provides a summary of changes in Adjusted EBITDA for the ~~segment’s Adjusted EBITDA:~~ nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:



~~(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)
Nine Months Ended September 30, 2020	$	277
Impact of change in revenue		28
Production labor		(3)
Direct productivity		14
Termite damage claims		2
Medical claims due to COVID-19		(5)
Investments in CxP and Terminix Way		(3)
General and administrative, including back-office simplification		3
Sales and marketing		(2)
Travel		3
Insurance program		5
Other		(5)
Nine Months Ended September 30, 2021	$	315

~~The increase in contract claims costs is~~Production labor increased $3 million, primarily due to ~~normal~~labor market driven increased turnover year-over-year. Direct productivity reduced costs $14 million, primarily driven by lower chemical costs, improvements in fleet management and lower fuel prices primarily related to favorable fuel hedge prices and subcontractor productivity from the insourcing of certain national account customers. Termite damage claims expenses decreased $2 million, driven by lower termite damage claims counts in the third quarter of 2021, offset, in part, by higher cost per Non-Litigated Claim due, in part, to inflationary pressure on building materials and contractor costs, primarily in the ~~underlying~~Mobile Bay Area. Medical costs ~~of repairs. The decrease in sales~~increased $5 million due to increased medical claims and ~~marketing~~short-term disability costs ~~is driven by the timing of a marketing campaign. We incurred incremental selling and administrative expenses~~ as a result of the ~~OneGuard~~COVID-19 pandemic. Investments in CxP and ~~Landmark acquisitions. Additionally,~~Terminix Way increased $3 million as we launch the ~~increase in customer service~~Terminix Way initiative and begin to roll out CxP. General and administrative costs is

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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 Compared to Six Months Ended June 30, 2016~~

The American Home Shield segment reported a 16 percent increase in revenue and a 25 percent increase in Adjusted EBITDA for the six months ended June 30, 2017 compared to the six months ended June 30, 2016.

~~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 $38 million increase).~~

~~Adjusted EBITDA~~

~~The following table provides a summary of changes in the segment’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~~

~~The increase in contract claims costs is~~decreased primarily due to ~~normal inflationary pressure on~~back-office reductions as the ~~underlying costs of repairs,~~company aligns itself as a singularly focused pest management company, offset, in part, by ~~a lower number of work orders. The decrease in sales~~indirect costs to serve our customers, primarily at our contact centers. Sales and marketing increased $2 million due to increased marketing costs, ~~is driven by the timing~~which remain relatively flat as a percent of ~~a marketing campaign. We incurred incremental selling and administrative expenses~~revenue. Travel costs decreased as a result of COVID-19 restrictions in the ~~OneGuard and Landmark acquisitions. Additionally, the increase in customer service~~first half of 2021. Insurance program 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 and 2016, the segment’s Adjusted EBITDA included interest and net investment income from the American Home Shield investment portfolio of $1~~decreased $5 million ~~and~~year over year, driven by $4 million ~~respectively.~~

~~Franchise Services Group Segment~~

~~Three Months Ended June 30, 2017 Compared~~of favorable adjustments year to ~~Three Months Ended June 30, 2016~~

The Franchise Services Group segment, which consists of the ServiceMaster Restore (disaster restoration), ServiceMaster Clean (janitorial), Merry Maids (residential cleaning), Furniture Medic (cabinet and wood furniture repair) and AmeriSpec (home inspection) businesses, reported a five percent increase in revenue and a 15 percent increase in Adjusted EBITDA for the three months ended June 30, 2017 compared to the three months ended June 30, 2016.

~~Revenue~~

~~Revenue by service line is as follows:~~

Three Months Ended

% of

June 30,

Revenue
(In millions)

2017

2016

2017
Royalty Fees

$
32

$
30

61
%
Company-Owned Merry Maids Branches

—

2

—

Janitorial National Accounts

12

11

23

Sales of Products

4

4

7

Other

5

3

9

Total revenue

$
52

$
50

100
%

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The increase in royalty fees was primarily driven by higher disaster restoration services. The $2 million decline in revenue from company-owned Merry Maids branches was attributable to the branch conversions, which were completed in 2016. The increase in revenue from janitorial national accounts was driven by increased sales activity.

~~Adjusted EBITDA~~

~~The following table provides a summary of changes in the segment’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

Excluding the impact of 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.

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

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 by service line is as follows:~~

��

Six Months Ended

% of

June 30,

Revenue
(In millions)

2017

2016

2017
Royalty Fees

$
63

$
58

62
%
Company-Owned Merry Maids Branches

—

6

—

Janitorial National Accounts

23

21

23

Sales of Products

7

7

7

Other

9

7

9

Total revenue

$
102

$
99

100
%

The increase in royalty fees was primarily driven by higher disaster restoration services. The $6 million decline in revenue from company-owned Merry Maids branches was attributable to the branch conversions, which were completed in 2016. The increase in revenue from janitorial national accounts was driven by increased sales activity.

~~Adjusted EBITDA~~

~~The following table provides a summary of changes in the segment’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

Excluding the impact of the branch conversions at Merry Maids, the increase in revenue resulted in a $5 million increase in Adjusted EBITDA. The reduction in revenue 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 to the three months ended June 30, 2016.~~

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

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 date in our automobile, general liability and workers’ compensation ~~insurance~~ program in 2021 compared to a $1 million unfavorable adjustment year to date in 2020. Other primarily includes licensing charges related to CxP.

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Termite Damage Claims

A summary of Litigated Claims and Non-Litigated Claims for the three and nine months ended September 30, 2021 and 2020 was 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, 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
New claims filed		4		4		8		107		610		717
Claims resolved		(14)		(3)		(17)		(127)		(584)		(711)
Outstanding claims as of September 30, 2020		53		17		70		279		771		1,050

Outstanding claims as of December 31, 2020		49		16		65		258		846		1,104
New claims filed		7		5		12		89		529		618
Claims resolved		(9)		(2)		(11)		(144)		(630)		(774)
Outstanding claims as of March 31, 2021		47		19		66		203		745		948
New claims filed		12		7		19		112		687		799
Claims resolved		(11)		—		(11)		(131)		(560)		(691)
Outstanding claims as of June 30, 2021		48		26		74		184		872		1,056
New claims filed		6		2		8		105		567		672
Claims resolved		(4)		(3)		(7)		(113)		(530)		(643)
Outstanding claims as of September 30, 2021		50		25		75		176		909		1,085

Litigated Claims exclude a number of claims in which the only material issue in dispute is the actual amount of repair costs, which are simpler to resolve and less volatile (“Non-Complex Litigated Claims”). The financial impacts of these Non-Complex Litigated Claims are included in the summary of Litigated and 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 three and nine months ended September 30, 2021 and 2020 is as follows:


	Litigated Claims						Non-Litigated Claims
	Mobile Bay		All Other				Mobile Bay		All Other
(In millions)	Area		Regions		Total		Area		Regions		Total
Reserve 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
Expense		5		1		6		4		4		8
Payments		(7)		(2)		(9)		(4)		(5)		(9)
Reserve as of September 30, 2020	$	41	$	14	$	55	$	14	$	11	$	24

Reserve as of December 31, 2020	$	35	$	13	$	47	$	14	$	11	$	25
Expense		3		2		5		3		6		10
Payments		(6)		(1)		(7)		(5)		(6)		(11)
Reserves as of March 31, 2021		32		13		45		12		11		24
Expense		4		4		8		4		8		12
Payments		(6)		—		(6)		(5)		(6)		(11)
Reserves as of June 30, 2021		30		17		47		11		13		24
Expense		4		—		4		2		8		9
Payments		(4)		(1)		(5)		(3)		(7)		(10)
Reserve as of September 30, 2021	$	30	$	16	$	46	$	9	$	14	$	23

In addition, our results of operations for the three and nine months ended September 30, 2021 include charges for legal fees associated with Litigated Claims of $1 million and $4 million, ~~driven by unfavorable claims trends, which were impacted by a charge~~respectively. Our results of operations for the three and nine months ended September 30, 2020 include charges for legal fees associated with Litigated Claims of $2 million and $6 million, respectively, and costs related to mitigation efforts in the Mobile Bay Area 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~~and $5 million, respectively.

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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~~September 30, ~~2017,~~2021, 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 September 30, 2021, we had $534 million of immediate liquidity, which consisted of available cash ~~provided from operations~~and cash equivalents and available ~~capacity~~borrowings under ~~the~~our Existing Revolving Credit Facility will provide sufficient funds to operate our business, make expected capital expenditures and meet our liquidity requirements for the following 12 months, including payment of interest and principal on our debt. Cash and short- and long-term marketable securities totaled $431 million as of JuneFacility.

At September 30, ~~2017, compared with $335 million as of December 31, 2016. As of June 30, 2017,~~2021, there were ~~$33~~$22 million of letters of credit outstanding and ~~$267~~$378 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 September 30, 2021. 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.

~~Additionally,~~On September 25, 2020, our board of directors approved a three-year $400 million share repurchase program, which funds were exhausted in the third quarter of 2021. On September 21, 2021, our board of directors approved a new three-year $400 million share repurchase program. Under the share repurchase program, the Company may repurchase shares in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. As of September 30, 2021, we had $272 million of authority remaining under this program.

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~~September 30, ~~2017,~~2021, the estimated fair value of our fuel swap contracts was a net ~~liability~~asset of ~~less than $1~~$4 million, and we had posted $2 million in letters of credit as collateral under our fuel hedging ~~program, which were also issued under the Revolving Credit Facility.~~program. The continued use of letters of credit for this purpose in the future could limit our ability to post letters of credit for other purposes and could limit our borrowing availability under the Revolving Credit Facility. However, we do not expect the fair value of the outstanding fuel swap contracts to materially impact our financial position or liquidity.

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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.

Capital Resources

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~~nine months ended ~~June~~September 30, ~~2017,~~2021, we acquired ~~$22~~$28 million of vehicles through the leasing program under the Fleet Agreement. All leases under the Fleet Agreement are ~~capital~~finance leases for accounting purposes. The lease rental payments include an interest component calculated using a variable rate based on one-month LIBOR plus other contractual adjustments and a borrowing margin ~~totaling~~ranging from 1.54 percent to 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 of property and equipment through these incremental leasing programs, which are treated as capital leases for accounting purposes.~~ We anticipate new lease financings, including the Fleet Agreement and incremental leasing programs, for the full year ~~2017~~2021 will range from ~~approximately~~$60 million to $70 million. We expect to fulfill all our ongoing vehicle fleet needs through vehicle finance leases.

Other Capital Requirements

We anticipate capital expenditures for the full year 2021 will range from $30 million to $40 ~~million.~~million, reflecting ongoing technology projects and recurring capital needs. We incurred $17 million of such costs in the nine months ended September 30, 2021.

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

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depends on their operating results, cash requirements and financial condition and general business conditions, as well as restrictions under the laws of our subsidiaries’ jurisdictions.

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

Furthermore, there are third-party restrictions on the ability of certain of our subsidiaries to transfer funds to us. These restrictions are related to regulatory requirements at American Home Shield and to a subsidiary borrowing arrangement at SMAC. The payments of ordinary and extraordinary dividends by our home 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~~the earnings ofin our ~~foreign~~non-U.S. 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. While undistributed foreign earnings ~~was approximately $25 million~~are no longer taxable under U.S. tax principles, actual repatriation from our non-U.S. subsidiaries could still be subject to additional foreign withholding taxes and $23 million as of June 30, 2017 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				Nine Months Ended
	June 30,				September 30,
(In millions)	2017		2016		2021		2020
Net cash provided from (used for):
Net cash (used for) provided from:
Operating activities	$	260	$	244	$	216	$	211
Investing activities		(56)		(58)		(98)		(37)
Financing activities		(124)		(45)		(590)		(205)
Discontinued operations		1		—		14		41
Effect of exchange rate changes on cash		—		1		(1)		(1)
Cash increase during the period	$	81	$	141
Cash (decrease) increase during the period					$	(459)	$	9

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Operating Activities

Net cash provided from operating activities from continuing operations increased ~~$16~~$5 million to ~~$260~~$216 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 compared to ~~$244~~$211 million for ~~the six~~nine months ended ~~June~~September 30, ~~2016.~~2020.

Net cash provided from operating activities for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 comprised ~~$198~~$244 million in earnings adjusted for non-cash charges and ~~a $63~~$17 million ~~decrease~~increase in cash required for working capital (a ~~$28~~$16 million ~~decrease~~increase excluding the working capital impact of accrued interest ~~restructuring~~ and taxes), offset, in part, by $1$10 million in payments related to ~~fumigation matters.~~restructuring and other charges and acquisition-related costs. For the ~~six~~nine months ended ~~June~~September 30, ~~2017,~~2021, working capital requirements were favorably impacted by seasonal activity and the timing of interest and income tax ~~payments, offset,~~payments. We deferred approximately $30 million of payroll taxes under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in ~~part by incentive compensation payments related~~2020. We expect to ~~2016 performance.~~pay 50 percent of the payroll deferral in 2021 and the remainder in 2022.

Additionally, we incurred $14 million of costs to implement our new customer experience platform in the nine months ended September 30, 2021, which are included within Prepaid expenses and other assets on the Condensed Consolidated Statements of Financial Position and Inventories and other current assets on the Condensed Consolidated Statements of Cash Flows.

Net cash provided from operating activities for the ~~six~~nine months ended ~~June~~September 30, ~~2016~~2020 comprised ~~$227~~$170 million in earnings adjusted for non-cash charges and a ~~$19~~$54 million decrease in cash required for working capital (a ~~$29~~$14 million decrease excluding the working capital impact of accrued interest ~~restructuring~~ and taxes), offset, in part, by $2$14 million in payments related to ~~fumigation matters.~~restructuring and other charges and acquisition related cost. For the ~~six~~nine months ended ~~June~~September 30, ~~2016,~~2020, working capital requirements were favorably impacted by ~~seasonal activity, offset, in part by incentive compensation payments related to 2015 performance~~the deferral of payroll and ~~timing of~~ income tax ~~payments.~~payments under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and the collection of a federal income tax refund.

Investing Activities

Net cash used for investing activities from continuing operations was ~~$56~~$98 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017,~~2021, compared to ~~$58~~$37 million for the ~~six~~nine months ended ~~June~~September 30, ~~2016.~~2020.

~~Capital expenditures increased to $34~~Cash paid for business acquisitions was $86 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017 from $31~~2021, compared to $29 million infor the ~~six~~nine months ended ~~June~~September 30, ~~2016~~ 2020. We expect to continue our tuck-in acquisition program and to periodically evaluate other strategic acquisitions.

Capital expenditures were $17 million and $20 million for the nine months ended September 30, 2021 and 2020, 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 will range from approximately $50 million to $60 million. Additionally, we expect 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. We expect to fulfill our ongoing vehicle fleet needs through vehicle capital 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~~nine months ended ~~June~~September 30, ~~2017 and 2016~~2021 were negligible. Cash flows received for notes receivable, net, for the nine months ended September 30, 2020 totaled ~~$4 million and $5 million, respectively, and were a result~~$6 million.

Table of ~~a net increase in financing provided by SMAC to our franchisees and retail customers of our operating units.~~Contents

Financing Activities

Net cash used for financing activities from continuing operations was ~~$124~~$590 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 compared to ~~$45~~$205 million for the ~~six~~nine months ended ~~June~~September 30, ~~2016.~~2020.

During the ~~six~~nine months ended ~~June~~September 30, ~~2017,~~2021, 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~~$522 million of common stock and received $7$11 million from the issuance of common stock ~~upon~~through the exercise of stock ~~options~~options. In addition, we repaid $79 million of debt, which included approximately $40 million, net of accreted interest, primarily related to deferred purchase price and ~~shares issued under~~an earnout the ~~Employee Stock Purchase Plan.~~

2018 purchase of Copesan. During the ~~six~~nine months ended ~~June~~September 30, ~~2016,~~ 2020, we ~~made scheduled principal payments on long-term debt of $33 million,~~ repurchased ~~$17~~$103 million of common stock and received $5$4 million from the issuance of common ~~stock.~~stock through the exercise of stock options. In addition, we repaid $103 million of debt.

~~Contractual Obligations~~

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

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~~Off-Balance Sheet Arrangements~~

~~As of June 30, 2017, we did not have any significant off-balance sheet arrangements.~~

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

~~Regulatory Matters~~

~~On July 21, 2016, TMX USVI and TMX LP, each an indirect, wholly-owned subsidiary of~~In November 2020, the Company entered into the ~~Superseding Plea Agreement in connection~~Settlement 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 violationsOffice of the ~~Federal Insecticide, Fungicide,~~AL AG and ~~Rodenticide Act~~other Alabama state regulators, primarily related to ~~improper applications of methyl bromide. Those charges were set forth~~our termite renewal pricing changes we made in ~~an Information, dated March 29, 2016,~~our branches in the ~~matter styled~~ ~~United States~~Mobile Bay Area in 2019 and certain other termite inspection and treatment practices regarding the control of ~~America v.~~Formosan termites in that area that allegedly violated the ADTPA. The ~~Terminix International Company Limited Partnership~~Settlement provides for: immediate remediation measures to be provided directly to current and~~Terminix International USVI, LLC.~~ At former customers in the Mobile Bay Area, including refunds of certain price increases, rebates to certain former customers, the establishment of a ~~hearing held on August 25, 2016,~~$25 million consumer fund and a related receiver to oversee our compliance with these commitments and to act as an arbitrator for certain Non-litigated Claims; 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~~reimbursement of ~~ongoing discussions to resolve the matter. The District Court granted that request,~~certain investigative 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 formonitoring costs incurred by the ~~EPA for~~AL AG’s office and the ~~response~~Department of Agriculture and ~~clean-up of the affected units at the resort in St. John; (iii) TMX USVI make~~Industries; and a ~~community service payment of $1 million~~university endowment intended to ~~the National Fish~~support termite 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-bindingpest management research with an emphasis 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.

Formosan termite research. The Company has ~~previously recorded within Fumigation related matters in~~also agreed to pay the ~~condensed consolidated statement~~state 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 relatedAlabama $19 million.

Pursuant to the ~~aforementioned fumigation incident in a matter styled Government of~~Settlement, we have also agreed to provide 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,opportunity to reinstate service for certain customers who canceled their services during specified timeframes as well as the retreatment of certain customer premises and a commitment to certain specified response and remediation timeframes for future termite damage claims. We do not expect the financial impact of ~~any additional civil, criminal~~these remedies to have a material impact on our prospective results of operations or cash flows.

In the fourth quarter of 2020, the Company funded the $25 million consumer fund, from which certain monetary liabilities from settlements of, or judgments in, the covered Settlement are paid by the fund’s receiver. The amount in the consumer fund is held in escrow by the receiver and is classified as a deposit within Prepaid expenses and other ~~claims or judicial, administrative or regulatory proceedings resulting~~assets and with an offsetting liability recorded within Accrued liabilities – Other on the Consolidated Statements of Financial Position. The fund’s receiver paid a total of $8 million from orescrow through the third quarter of 2021. In the second quarter of 2021, the Company recorded an increase in expense related to the ~~U.S. Virgin Islands matter, which could be material, is not currently known, and any such further penalties, fines, sanctions, costs or damages would not be covered under~~settlement of $4 million due to a higher than anticipated customer participation rate. No adjustments were made in the ~~Company’s general liability insurance policies.~~ third quarter of 2021.

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;~~teammates; 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 on~~2020 Form 10-K ~~for the year ended December 31, 2016,~~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~~implementation of ~~Contents~~Mobile Bay termite Settlement remediation measures to current and former customers, including refunds of certain price increases and the establishment of the consumer fund intended to settle future Non-Litigated Claims for termite damage;

the validity of the Mobile Bay termite Settlement’s preclusivity provision related to future litigated termite damage claims of fraud, misrepresentation, deceit, suppression of material facts or fraudulent concealment arising out of any act, occurrence or transaction related to our Formosan termite business practices in the Mobile Bay Area;

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 our teammates or the health and operations of 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 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, including the lawsuit brought by the State of Mississippi related to our termite inspection and treatment practices;

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 and teammates;

our ability to attract and retain key teammates, 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. In

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~~September 30, ~~2017 has not materially changed from December 31, 2016 (see Item 7A of the 2016 Form 10-K).~~2021, 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 1211 million gallons of fuel in ~~2017.~~2021. As of ~~June~~September 30, ~~2017,~~2021, a ~~ten~~10 percent change in fuel prices would result in a change of approximately $3$4 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~~September 30, ~~2017,~~2021, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of ~~$33~~$28 million, maturing through ~~2018.~~2022. The estimated fair value of these contracts as of ~~June~~September 30, ~~2017~~2021 was a net ~~liability~~asset of ~~less than $1~~$4 million. These fuel swap contracts provide a fixed price for approximately ~~97 percent and 68~~95 percent of our estimated fuel usage for the remainder of ~~2017~~2021.

Foreign Currency Risk

We are exposed to foreign currency exchange risk in Swedish krona, Norwegian krone, the euro, British pound, Canadian dollar, Mexican peso and ~~2018, respectively.~~ 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.

We have 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 krona, our largest foreign currency exposure. These instruments provide a fixed translation rate on our approximately $200 million investment in Nomor. A hypothetical 10 percent adverse movement in foreign currency exchange rates compared to the U.S. dollar relative to exchange rates on September 30, 2021, would have resulted in a change in the fair value of this investment of approximately $20 million. The impact on income and other comprehensive income from these hypothetical changes in foreign currency exchange rates would be substantially offset by the impact such changes would have on the related cross currency swap and net investment hedge contracts, respectively, which are in place for the related foreign currency denominated investment.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Our Chief Executive Officer, ~~Nikhil M. Varty,~~Brett T. Ponton, and ~~Senior~~Executive Vice President and Chief Financial Officer, ~~Anthony D. DiLucente,~~Robert J. Riesbeck, 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~~Ponton and ~~DiLucente~~Riesbeck have concluded that both the design and operation of our disclosure controls and procedures were effective as of ~~June~~September 30, ~~2017.~~2021.

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 months ended ~~June~~September 30, ~~2017~~2021 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 and TMX LP, each an indirect, wholly-owned subsidiary of the Company, entered into the Superseding Plea Agreement in connection~~Information 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 intendedrespect 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~~certain legal proceedings is 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.

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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.

In addition to the matter discussed above, in the ordinary course of conducting business activities, we and our subsidiaries become involved in judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. These proceedings include insured and uninsured matters that are brought on an individual, collective, representative and class action basis, or other proceedings involving regulatory, employment, general and commercial liability, automobile liability, wage and hour, environmental and other matters. We have entered into settlement agreements in certain cases, including with respect to putative collective and class actions, which are subject to court or other approvals. If one or more of our settlements are not finally approved, 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.~~statements (included in Part I of this Quarterly Report on Form 10-Q) and is incorporated herein by reference.

ITEM 1A. RISK FACTORS

We discuss in our ~~2016~~2020 Form 10-K and our other filings with the SEC various risks that may materially affect our business. ~~In addition, you should carefully consider~~There have been no material changes to the risk factors ~~described below and t~~hedisclosed in the 2020 Form 10-K. The materialization of any risks and uncertainties identified in Forward-Looking Statements contained in this report, together with those previously disclosed in the ~~2016~~2020 Form 10-K and our other filings with the SEC or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Information Regarding Forward-Looking Statements” above.

~~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.

~~Table of Contents~~

~~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~~Issuer Purchases of Equity Securities

~~In 2016,~~



				Total number of	Maximum dollar value
				shares purchased as	of shares that may yet
				part of publicly	be purchased under
	Total number of	Average price		announced plans or	the plans or programs
Period	shares purchased	paid per share		programs	(in millions)⁽¹⁾
January 1, 2021 through March 31, 2021	3,514,693	$	48.12	3,514,693	$	225
April 1, 2021 through June 30, 2021	7,233,604		48.48	7,233,604		43
Q3 2021:
July 1, 2021 through July 31, 2021	644,264		48.98	644,264		12
August 1, 2021 through August 31, 2021	255,355		46.57	255,355		—
September 1, 2021 through September 30, 2021	2,914,800		43.88	2,914,800		272
July 1, 2021 through September 30, 2021	3,814,419	$	44.92	3,814,419	$	272
Total	11,048,023	$	47.24	11,048,023	$	272

__________________________________

(1) On September 25, 2020, our board of directors ~~authorized~~approved a three-year $400 million share repurchase program, ~~under~~ which ~~we may repurchase up to $300~~funds were exhausted in the second quarter of 2021. On September 21, 2021, our board of directors approved a new three-year $400 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.~~program.

~~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
~~Exhibit~~ ~~Number~~10.1		~~Description~~
~~10.1#~~		~~Employment Agreement, dated as of July 26, 2017, by and between Nikhil M. Varty and ServiceMaster Global Holdings, Inc.~~

~~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.~~Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, filed August 6, 2021.
10.2*#
~~10.6#~~		~~Form~~Summary of ~~Performance Restricted Stock Unit Agreement under the Amended and Restated ServiceMaster Global Holdings, Inc. 2014 Omnibus Incentive Plan (“Omnibus Plan”)~~Changes to Compensation Package for ~~awards granted as of July 26, 2017, which awards will 100% vest on the spin-off of American Home Shield from ServiceMaster.~~Dion Persson.
31.1*
~~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)

___________________________________

#* Filed herewith.

# Denotes management compensatory plans, contracts or arrangements.

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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~~November 3, 2021


	~~SERVICEMASTER~~TERMINIX GLOBAL HOLDINGS, INC.
	(Registrant)

	By:	/s/ ~~Anthony D. DiLucente~~Robert J. Riesbeck
		~~Anthony D. DiLucente~~Robert J. Riesbeck
		~~Senior~~Executive Vice President and Chief Financial Officer (Principal Financial Officer)

4139



			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




	As of June 30, 2017						As of December 31, 2016
			Accumulated						Accumulated
(In millions)	Gross		Amortization		Net		Gross		Amortization		Net
Trade names(1)	$	1,608	$	—	$	1,608	$	1,608	$	—	$	1,608
Customer relationships		588		(547)		42		594		(538)		56
Franchise agreements		88		(68)		20		88		(67)		21
Other		81		(46)		35		65		(42)		23
Total	$	2,365	$	(661)	$	1,704	$	2,356	$	(647)	$	1,708



			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



			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



	Three Months Ended				% of
	June 30,				Revenue
(In millions)	2017		2016		2017
Royalty Fees	$	32	$	30	61	%
Company-Owned Merry Maids Branches		—		2	—
Janitorial National Accounts		12		11	23
Sales of Products		4		4	7
Other		5		3	9
Total revenue	$	52	$	50	100	%

					��

	Six Months Ended					% of
	June 30,					Revenue
(In millions)	2017		2016			2017
Royalty Fees	$	63	$	58		62	%
Company-Owned Merry Maids Branches		—		6		—
Janitorial National Accounts		23		21		23
Sales of Products		7		7		7
Other		9		7		9
Total revenue	$	102	$	99		100	%

As of June 30,

Growth in Home Warranties

Customer Retention Rate