Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

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

 

For the quarterly period ended June 30, 2010

 

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 1-14762

 


 

THE SERVICEMASTER COMPANY

(Exact name of registrant as specified in its charter)

 

Delaware

 

36-3858106

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer Identification No.)

 

860 Ridge Lake Boulevard, Memphis, Tennessee 38120

(Address of principal executive offices) (Zip Code)

 

901-597-1400

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes o No x

 

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 o No o

 

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

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes o No x

 

The registrant is a privately held corporation and its equity shares are not publicly traded. At August 16, 2010, 1,000 shares of the registrant’s common stock were outstanding, all of which were owned by CDRSVM Holding, Inc.

 

The ServiceMaster Company is not required to file this Quarterly Report on Form 10-Q with the Securities and Exchange Commission and is doing so on a voluntary basis.

 

 

 


 


Table of Contents

 

TABLE OF CONTENTS

 

 

Page
No.

Part I. Financial Information

3

 

 

Item 1. Financial Statements

3

 

 

Condensed Consolidated Statements of Operations for the three months ended June 30, 2010 and June 30, 2009 (Unaudited)

3

 

 

Condensed Consolidated Statements of Operations for the six months ended June 30, 2010 and June 30, 2009 (Unaudited)

4

 

 

Condensed Consolidated Statements of Financial Position as of June 30, 2010 (Unaudited) and December 31, 2009 (Audited)

5

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and June 30, 2009 (Unaudited)

6

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

 

 

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

29

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

51

 

 

Item 4. Controls and Procedures

51

 

 

Part II. Other Information

52

 

 

Item 1. Legal Proceedings

52

 

 

Item 5. Other Information

52

 

 

Item 6. Exhibits

52

 

 

Signature

53

 

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE SERVICEMASTER COMPANY

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands)

 

 

 

Three months ended
June 30,

 

 

 

2010

 

2009

 

Operating Revenue

 

$

1,003,062

 

$

957,292

 

 

 

 

 

 

 

Operating Costs and Expenses:

 

 

 

 

 

Cost of services rendered and products sold

 

573,581

 

553,373

 

Selling and administrative expenses

 

263,463

 

239,929

 

Amortization expense

 

40,451

 

40,401

 

Goodwill and trade name impairment

 

46,884

 

 

Restructuring and Merger related charges

 

4,167

 

5,584

 

Total operating costs and expenses

 

928,546

 

839,287

 

 

 

 

 

 

 

Operating Income

 

74,516

 

118,005

 

 

 

 

 

 

 

Non-operating Expense (Income):

 

 

 

 

 

Interest expense

 

73,169

 

74,656

 

Interest and net investment income

 

(996

)

(3,395

)

Other expense

 

176

 

179

 

 

 

 

 

 

 

Income from Continuing Operations before Income Taxes

 

2,167

 

46,565

 

(Benefit) Provision for income taxes

 

(10,482

)

24,173

 

 

 

 

 

 

 

Income from Continuing Operations

 

12,649

 

22,392

 

 

 

 

 

 

 

Loss from discontinued operations, net of income taxes

 

(205

)

(107

)

Net Income

 

$

12,444

 

$

22,285

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

 

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THE SERVICEMASTER COMPANY

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands)

 

 

 

Six months ended
June 30,

 

 

 

2010

 

2009

 

Operating Revenue

 

$

1,642,470

 

$

1,603,219

 

 

 

 

 

 

 

Operating Costs and Expenses:

 

 

 

 

 

Cost of services rendered and products sold

 

976,101

 

947,773

 

Selling and administrative expenses

 

447,338

 

413,692

 

Amortization expense

 

80,893

 

80,710

 

Goodwill and trade name impairment

 

46,884

 

 

Restructuring and Merger related charges

 

8,091

 

14,361

 

Total operating costs and expenses

 

1,559,307

 

1,456,536

 

 

 

 

 

 

 

Operating Income

 

83,163

 

146,683

 

 

 

 

 

 

 

Non-operating Expense (Income):

 

 

 

 

 

Interest expense

 

145,850

 

151,322

 

Interest and net investment (income) loss

 

(3,498

)

1,366

 

Gain on extinguishment of debt

 

 

(46,106

)

Other expense

 

347

 

379

 

 

 

 

 

 

 

(Loss) Income from Continuing Operations before Income Taxes

 

(59,536

)

39,722

 

(Benefit) Provision for income taxes

 

(39,902

)

16,618

 

 

 

 

 

 

 

(Loss) Income from Continuing Operations

 

(19,634

)

23,104

 

 

 

 

 

 

 

Loss from discontinued operations, net of income taxes

 

(582

)

(270

)

Net (Loss) Income

 

$

(20,216

)

$

22,834

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

 

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THE SERVICEMASTER COMPANY

Condensed Consolidated Statements of Financial Position

(In thousands, except share data)

 

 

 

As of
June 30, 2010

 

As of
December 31,
2009

 

 

 

(Unaudited)

 

(Audited)

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

289,135

 

$

253,463

 

Marketable securities

 

21,197

 

21,120

 

Receivables, less allowance of $22,534 and $20,314, respectively

 

435,093

 

348,655

 

Inventories

 

83,412

 

76,592

 

Prepaid expenses and other assets

 

106,184

 

36,564

 

Deferred customer acquisition costs

 

61,739

 

36,070

 

Deferred taxes

 

24,370

 

21,595

 

Assets of discontinued operations

 

16

 

42

 

Total Current Assets

 

1,021,146

 

794,101

 

Property and Equipment:

 

 

 

 

 

At cost

 

388,424

 

345,100

 

Less: accumulated depreciation

 

(164,665

)

(132,965

)

Net property and equipment

 

223,759

 

212,135

 

 

 

 

 

 

 

Other Assets:

 

 

 

 

 

Goodwill

 

3,088,340

 

3,119,754

 

Intangible assets, primarily trade names, service marks and trademarks, net

 

2,707,761

 

2,787,237

 

Notes receivable

 

24,839

 

23,490

 

Long-term marketable securities

 

112,017

 

111,066

 

Other assets

 

29,136

 

31,799

 

Debt issuance costs

 

59,504

 

66,807

 

Total Assets

 

$

7,266,502

 

$

7,146,389

 

 

 

 

 

 

 

Liabilities and Shareholder’s Equity

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

 

$

126,541

 

$

73,471

 

Accrued liabilities:

 

 

 

 

 

Payroll and related expenses

 

89,843

 

74,385

 

Self-insured claims and related expenses

 

93,922

 

87,332

 

Other

 

186,077

 

156,649

 

Deferred revenue

 

520,547

 

449,746

 

Liabilities of discontinued operations

 

2,736

 

2,806

 

Current portion of long-term debt

 

62,137

 

64,395

 

Total Current Liabilities

 

1,081,803

 

908,784

 

 

 

 

 

 

 

Long-Term Debt

 

3,907,466

 

3,910,549

 

 

 

 

 

 

 

Other Long-Term Liabilities:

 

 

 

 

 

Deferred taxes

 

933,226

 

957,077

 

Liabilities of discontinued operations

 

4,080

 

4,145

 

Other long-term obligations

 

175,620

 

179,503

 

Total Other Long-Term Liabilities

 

1,112,926

 

1,140,725

 

 

 

 

 

 

 

Commitments and Contingencies (See Note 4)

 

 

 

 

 

 

 

 

 

 

 

Shareholder’s Equity:

 

 

 

 

 

Common stock $0.01 par value, authorized 1,000 shares; issued 1,000 shares

 

 

 

Additional paid-in capital

 

1,450,868

 

1,446,529

 

Retained deficit

 

(256,640

)

(236,424

)

Accumulated other comprehensive loss

 

(29,921

)

(23,774

)

Total Shareholder’s Equity

 

1,164,307

 

1,186,331

 

Total Liabilities and Shareholder’s Equity

 

$

7,266,502

 

$

7,146,389

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

 

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THE SERVICEMASTER COMPANY

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

Six months ended
June 30,

 

 

 

2010

 

2009

 

Cash and Cash Equivalents at Beginning of Period

 

$

253,463

 

$

405,587

 

 

 

 

 

 

 

Cash Flows from Operating Activities from Continuing Operations:

 

 

 

 

 

Net (Loss) Income

 

(20,216

)

22,834

 

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

 

 

 

 

 

Loss from discontinued operations

 

582

 

270

 

Depreciation expense

 

33,300

 

32,550

 

Amortization expense

 

80,893

 

80,710

 

Amortization of debt issuance costs

 

7,333

 

9,263

 

Gain on extinguishment of debt

 

 

(46,106

)

Deferred income tax provision

 

(21,193

)

11,480

 

Stock-based compensation expense

 

4,339

 

3,901

 

Goodwill and trade name impairment

 

46,884

 

 

Restructuring and Merger related charges

 

8,091

 

14,361

 

Cash payments related to restructuring charges

 

(7,939

)

(9,955

)

Change in working capital, net of acquisitions:

 

 

 

 

 

Current income taxes

 

(30,064

)

5,202

 

Receivables

 

(88,673

)

(52,050

)

Inventories and other current assets

 

(76,831

)

(59,565

)

Accounts payable

 

50,115

 

22,425

 

Deferred revenue

 

69,462

 

46,003

 

Accrued liabilities

 

44,882

 

(17,757

)

Other, net

 

4,959

 

7,663

 

Net Cash Provided from Operating Activities from Continuing Operations

 

105,924

 

71,229

 

 

 

 

 

 

 

Cash Flows from Investing Activities from Continuing Operations:

 

 

 

 

 

Property additions

 

(40,385

)

(38,893

)

Sale of equipment and other assets

 

1,088

 

1,955

 

Acquisition of The ServiceMaster Company

 

(2,164

)

(1,119

)

Other business acquisitions, net of cash acquired

 

(14,753

)

(7,268

)

Notes receivable, financial investments and securities, net

 

(898

)

3,968

 

Net Cash Used for Investing Activities from Continuing Operations

 

(57,112

)

(41,357

)

 

 

 

 

 

 

Cash Flows from Financing Activities from Continuing Operations:

 

 

 

 

 

Borrowings of debt

 

10,000

 

 

Payments of debt

 

(22,062

)

(64,807

)

Debt issuance costs paid

 

(30

)

(369

)

Net Cash Used for Financing Activities from Continuing Operations

 

(12,092

)

(65,176

)

 

 

 

 

 

 

Cash Flows from Discontinued Operations:

 

 

 

 

 

Cash used for operating activities

 

(1,048

)

(1,209

)

Cash used for investing activities

 

 

(914

)

Net Cash Used for Discontinued Operations

 

(1,048

)

(2,123

)

 

 

 

 

 

 

Cash Increase (Decrease) During the Period

 

35,672

 

(37,427

)

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

$

289,135

 

$

368,160

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

 

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THE SERVICEMASTER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1. Basis of Presentation

 

The ServiceMaster Company is a national company serving both residential and commercial customers. Its products and services include lawn care, landscape maintenance, termite and pest control, home service contracts, cleaning and disaster restoration, house cleaning, furniture repair and home inspection. ServiceMaster provides these services through a network of company-owned locations and franchise licenses operating under the following leading brands: TruGreen, TruGreen LandCare, Terminix, American Home Shield, ServiceMaster Clean, Merry Maids, Furniture Medic and AmeriSpec. ServiceMaster is organized into six principal reportable segments: TruGreen LawnCare, TruGreen LandCare, Terminix, American Home Shield, ServiceMaster Clean and Other Operations and Headquarters.

 

The condensed consolidated financial statements include the accounts of The ServiceMaster Company and its majority owned subsidiary partnerships, limited liability companies and corporations, collectively referred to as “ServiceMaster”, the “Company”, “we”, “us” or “our”.

 

The condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Company recommends that the quarterly condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2009. The condensed consolidated financial statements reflect all adjustments which 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. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of the results which might be achieved for a full year.

 

On March 18, 2007, ServiceMaster entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ServiceMaster Global Holdings, Inc. (formerly CDRSVM Topco, Inc.) (“Holdings”) and CDRSVM Acquisition Co., Inc., an indirect wholly owned subsidiary of Holdings (“Acquisition Co.”). The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, Acquisition Co. would merge with and into ServiceMaster, with ServiceMaster as the surviving corporation (the “Merger”).

 

On July 24, 2007 (the “Closing Date”), the Merger was completed, and, immediately following the completion of the Merger, all of the outstanding capital stock of Holdings, the ultimate parent company of ServiceMaster, was owned by investment funds sponsored by, or affiliated with, Clayton, Dubilier & Rice, Inc. (now operated as Clayton, Dublier & Rice, LLC, “CD&R”), Citigroup Private Equity LP (together with its affiliate, Citigroup Alternative Investments LLC, “Citigroup”), BAS Capital Funding Corporation (“BAS”) and J.P. Morgan Ventures Corporation (“JP Morgan”) (collectively, the “Equity Sponsors”).

 

Equity contributions totaling $1,431.1 million from the Equity Sponsors, together with (i) borrowings under a new $1,150.0 million senior unsecured interim loan facility (“Interim Loan Facility”), (ii) borrowings under a new $2,650.0 million senior secured term loan facility and (iii) cash on hand at ServiceMaster, were used, among other things, to finance the aggregate merger consideration, to make payments in satisfaction of other equity-based interests in ServiceMaster under the Merger Agreement, to settle existing interest rate swaps, to redeem or provide for the repayment of certain of the Company’s existing indebtedness and to pay related transaction fees and expenses. In addition, letters of credit issued under a new $150.0 million pre-funded letter of credit facility (together with the senior secured term loan facility, the “Term Facilities”) were used to replace and/or secure letters of credit previously issued under a ServiceMaster credit facility that was terminated as of the Closing Date. On the Closing Date, the Company also entered into, but did not then draw under, a new $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”).

 

The Interim Loan Facility matured on July 24, 2008. On the maturity date, outstanding amounts under the Interim Loan Facility were converted on a one to one basis into 10.75%/11.50% senior toggle notes maturing in 2015 (the “Permanent Notes”). The Permanent Notes were issued pursuant to a refinancing indenture. In connection with the issuance of the Permanent Notes, ServiceMaster entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which ServiceMaster filed with the Securities and Exchange Commission (“SEC”) a registration statement with respect to the resale of the Permanent Notes, which was declared effective on January 16, 2009. ServiceMaster deregistered the Permanent Notes in accordance with the terms of the Registration Rights Agreement, and the effectiveness of the registration statement was terminated, on November 19, 2009.

 

Note 2. Significant Accounting Policies

 

The Company’s significant accounting policies are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The following selected accounting policies should be read in conjunction with that Annual Report on

 

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Form 10-K.

 

Revenues from lawn care and pest control services, as well as liquid and fumigation termite applications, are recognized as the services are provided. Revenues from landscaping services are recognized as they are earned based upon contractual arrangements or when services are performed for non-contractual arrangements. The Company eradicates termites through the use of baiting systems, as well as through non-baiting methods (e.g., fumigation or liquid treatments). Termite services using baiting systems, termite inspection and protection contracts, as well as home service contracts, are frequently sold through annual contracts for a one-time, upfront payment. Direct costs of these contracts (service costs for termite contracts and claim costs for home service contracts) are expensed as incurred. The Company recognizes revenue over the life of these contracts in proportion to the expected direct costs. Those costs bear a direct relationship to the fulfillment of the Company’s obligations under the contracts and are representative of the relative value provided to the customer (proportional performance method). The Company regularly reviews its estimates of direct costs for its termite bait and home service contracts and adjusts the estimates when appropriate. Revenue from trade name licensing arrangements is recognized when earned.

 

The Company has franchise agreements in its TruGreen LawnCare, Terminix, ServiceMaster Clean, AmeriSpec, Furniture Medic and Merry Maids businesses. Franchise revenue (which in the aggregate represents approximately four percent of consolidated revenue from continuing operations) consists principally of continuing monthly fees based upon the franchisee’s customer level revenue. Monthly fee revenue is recognized when the related customer level revenue is reported by the franchisee and collectability is reasonably assured. Franchise revenue also includes initial fees resulting from the sale of a franchise. These fees are fixed and are recognized as revenue when collectability is reasonably assured and all material services or conditions relating to the sale have been substantially performed. Total profits from the franchised operations (excluding trade name licensing) were $16.3 million and $31.6 million for the three and six months ended June 30, 2010, respectively, and $13.8 million and $29.6 million for the three and six months ended June 30, 2009, respectively. Consolidated operating income from continuing operations was $74.5 million and $83.2 million for the three and six months ended June 30, 2010, respectively, and $118.0 million and $146.7 million for the three and six months ended June 30, 2009, respectively. The Company evaluates the performance of its franchise businesses based primarily on operating profit before corporate general and administrative expenses, interest expense and amortization of intangible assets. The portion of total franchise fee income related to initial fees received from the sale of franchises was immaterial to the Company’s condensed consolidated financial statements for all periods.

 

The Company had $520.5 million and $449.7 million of deferred revenue at June 30, 2010 and December 31, 2009, respectively. Deferred revenue consists primarily of payments received for annual contracts relating to home service contracts, termite baiting, termite inspection, pest control and lawn care services.

 

Customer acquisition costs, which are incremental and direct costs of obtaining a customer, are deferred and amortized over the life of the related contract in proportion to revenue recognized. These costs include sales commissions and direct selling costs which can be shown to have resulted in a successful sale.

 

TruGreen LawnCare has significant seasonality in its business. In the winter and spring, this business sells a series of lawn applications to customers which are rendered primarily in March through October (the production season). This business incurs incremental selling expenses at the beginning of the year that directly relate to successful sales for which the revenues are recognized in later quarters. On an interim basis, TruGreen LawnCare defers these incremental selling expenses, pre-season advertising costs and annual repairs and maintenance procedures that are performed primarily in the first quarter. These costs are deferred and recognized in proportion to the contract revenue over the production season and are not deferred beyond the calendar year-end. Other business segments of the Company also defer, on an interim basis, advertising costs incurred early in the year. These pre-season costs are deferred and recognized approximately in proportion to revenue over the balance of the year and are not deferred beyond the fiscal year-end.

 

The cost of direct-response advertising at Terminix and TruGreen LawnCare, consisting primarily of direct-mail promotions, is capitalized and amortized over its expected period of future benefits.

 

The preparation of the condensed consolidated financial statements requires management to make certain estimates and assumptions required under GAAP which may differ from actual results. Disclosures in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 presented the significant areas that require the use of management’s estimates and discussed how management formed its judgments. The areas discussed included revenue recognition; the allowance for uncollectible receivables; accruals for self-insured retention limits related to medical, workers’ compensation, auto and general liability insurance claims; accruals for home service contracts and termite damage claims; the possible outcome of outstanding litigation; accruals for income tax liabilities, as well as deferred tax accounts; the deferral and amortization of customer acquisition costs; useful lives for depreciation and amortization expense; the valuation of marketable securities; and the valuation of tangible and intangible assets.

 

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Note 3. Restructuring and Merger Related Charges

 

The Company incurred restructuring and Merger related charges of $4.2 million ($2.6 million, net of tax) and $8.1 million ($5.0 million, net of tax) for the three and six months ended June 30, 2010, respectively, and $5.6 million ($3.4 million, net of tax) and $14.4 million ($8.8 million, net of tax) for the three and six months ended June 30, 2009, respectively. Restructuring and Merger related charges were comprised of the following:

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

(In thousands)

 

2010

 

2009

 

2010

 

2009

 

TruGreen LawnCare reorganization and restructuring(1)

 

$

2,939

 

$

 

$

5,962

 

$

 

Information technology outsourcing(2)

 

 

4,187

 

 

9,461

 

Terminix branch optimization(3)

 

 

 

 

3,219

 

Merger related charges(4)

 

1,005

 

1,154

 

1,136

 

1,448

 

Other

 

223

 

243

 

993

 

233

 

Total restructuring and Merger related charges

 

$

4,167

 

$

5,584

 

$

8,091

 

$

14,361

 

 


(1)                                  Represents restructuring charges related to a reorganization of field leadership and a restructuring of branch operations. For the three months ended June 30, 2010, these costs included consulting fees of $1.9 million and severance, lease termination and other costs of $1.0 million. For the six months ended June 30, 2010, these costs included consulting fees of $3.8 million and severance, lease termination and other costs of $2.2 million.

 

(2)                                  On December 11, 2008, the Company entered into an agreement with International Business Machines Corporation (“IBM”) pursuant to which IBM provides information technology operations and applications development services to the Company. These services were phased in during the first half of 2009. For the three months ended June 30, 2009, these costs included transition fees paid to IBM of $3.4 million, employee retention and severance costs of $0.4 million and consulting and other costs of $0.4 million. For the six months ended June 30, 2009, these costs included transition fees paid to IBM of $7.2 million, employee retention and severance costs of $1.3 million and consulting and other costs of $1.0 million.

 

(3)                                  Represents restructuring charges (credits) related to a branch optimization project. For the six months ended June 30, 2009, these costs included lease termination costs of $2.8 million and severance costs of $0.4 million.

 

(4)                                  Includes severance, retention, legal fees and other costs associated with the Merger.

 

The pretax charges discussed above are reported in the “Restructuring and Merger related charges” line in the condensed consolidated statement of operations.

 

A reconciliation of the beginning and ending balances of accrued restructuring and Merger related charges is presented as follows:

 

(In thousands)

 

Accrued Restructuring
and Merger Related
Charges

 

Balance at December 31, 2009

 

$

12,083

 

Costs incurred

 

8,091

 

Costs paid or otherwise settled

 

(14,700

)

Balance at June 30, 2010

 

$

5,474

 

 

Note 4. Commitments and Contingencies

 

A portion of the Company’s vehicle fleet and some equipment are leased through operating leases. The lease terms are non-cancelable for the first twelve-month term, and then are month-to-month, cancelable at the Company’s option. There are residual value guarantees by the Company (ranging from 70 percent to 84 percent of the estimated terminal value at the inception of the lease depending on the agreement) relative to these vehicles and equipment, which historically have not resulted in significant net payments to the lessors. The fair value of the assets under all of the fleet and equipment leases is expected to substantially mitigate the Company’s guarantee obligations under the agreements. At June 30, 2010, the Company’s residual value guarantees related to the leased assets totaled $65.1 million for which the Company has recorded a liability for the estimated fair value of these guarantees of approximately $1.4 million in the condensed consolidated statement of financial position.

 

The Company maintained lease facilities with banks totaling $65.2 million, which provided for the financing of branch properties to be leased by the Company. At June 30, 2010, approximately $65.2 million was funded under these facilities, including $12.5 million of leases that were accounted for as capital leases and were included on the condensed consolidated statement of financial position as assets with related debt. The balance of the funded amount was accounted for as operating leases. In connection

 

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with the closing of the Merger, the Company amended these leases effective July 24, 2007. Among the modifications, the Company extended the lease terms through July 24, 2010 and made a $22.0 million investment in the lease facilities. This $22.0 million investment was included in other assets in the condensed consolidated statement of financial position. The operating lease and capital lease classifications of these leases did not change as a result of the modifications. In July 2010, the Company purchased the properties for $65.2 million. The Company’s $22.0 million investment in the lease facilities was returned to the Company upon purchase, resulting in a net cash payment of $43.2 million.

 

In the third quarter of 2009, the Company determined that it was probable that the fair value of the real properties under operating leases would be below the total amount funded under the lease facilities at the end of the lease term. The Company’s estimate of this shortfall was $15.9 million, which was expensed over the remainder of the lease term. The Company recorded charges of $5.5 million in 2009 and $3.9 million and $9.1 million in the three and six months ended June 30, 2010, respectively, related to this shortfall. The remaining $1.3 million was recorded in July 2010.

 

The Company carries insurance policies on insurable risks at levels that it believes to be appropriate, including workers’ compensation, auto and general liability risks. The Company purchases insurance policies from third party insurance carriers, which typically incorporate significant deductibles or self-insured retentions. The Company is responsible for all claims that fall below the retention limits. As of June 30, 2010 and December 31, 2009, the Company had accrued self-insured claims of $129.3 million and $131.3 million, respectively, which are included in Accrued Liabilities — self-insured claims and related expenses and other long-term obligations on the condensed consolidated statements of financial position. During the six months ended June 30, 2010 and 2009, the Company recorded provisions for uninsured claims totaling $18.7 million and $18.3 million, respectively, and the Company paid claims totaling $20.7 million and $21.7 million, respectively. In determining the Company’s accrual for self-insured claims, the Company uses historical claims experience to establish both the current year accrual and the underlying provision for future losses. This actuarially determined provision and related accrual includes known claims, as well as incurred but not reported claims. The Company adjusts its 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.

 

Accruals for home service contract claims in the American Home Shield business are made based on the Company’s claims experience and actuarial projections. Termite damage claim accruals are recorded based on both the historical rates of claims incurred within a contract year and the cost per claim. Current activity could differ causing a change in estimates. The Company has certain liabilities with respect to existing or potential claims, lawsuits and other proceedings. The Company accrues for these liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified.

 

As part of the American Residential Services and American Mechanical Services sale agreements in 2006, the Company continues to be obligated to third parties with respect to operating leases for which the Company has been released as being the primary obligor, as well as certain real estate leased and operated by the buyers. The Company’s obligations under these agreements may be limited in terms of time and or amount, and in some cases, the Company may have recourse against the buyers for potential future payments made by the Company. At the present time, the Company does not believe it is probable that the buyers will default on their obligations subject to guarantee. The fair value of the Company’s obligations related to these guarantees is not significant and no liability has been recorded.

 

In the ordinary course of conducting business activities, the Company and its subsidiaries become involved in judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. These proceedings include, on an individual, collective and class action basis, regulatory, insured and uninsured employment, general, and commercial liability actions and environmental proceedings. Additionally, the Company has entered into settlement agreements in certain cases, including putative class actions, which are subject to court approval. If one or more of these settlements are not finally approved, the Company could have additional or different exposure. The enactment of new federal or state legislation or the promulgation of new regulation or interpretation at any level of government may also expose the Company to potential new liabilities or costs, or may require the Company to modify its business model or business practices. At this time, the Company does not expect any of these proceedings or changes in law to have a material effect on its financial position, results of operations or cash flows; however, the Company can give no assurance that the results of any such proceedings may not be material to its financial position, results of operations and cash flows for any period in which costs, if any, are recognized.

 

Note 5. Goodwill and Intangible Assets

 

In accordance with applicable accounting standards, goodwill and intangible assets that are not amortized 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. The results for the three and six months ended June 30, 2010 include a non-cash impairment charge of $46.9 million to reduce the carrying value of goodwill and trade names as a result of the Company’s interim impairment testing of goodwill and indefinite-lived intangible assets.

 

Based on the results of operations at TruGreen LandCare in the first six months of 2010 and the revised outlook for the

 

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remainder of 2010, the Company has concluded there was an impairment indicator requiring the performance of an interim goodwill impairment test for the TruGreen LandCare reporting unit as of June 30, 2010. The first step of the goodwill impairment test involves a comparison of the estimated fair value of the reporting unit to its carrying amount, including goodwill. In performing the first step, the Company determined the fair value of the TruGreen LandCare reporting unit using a combination of a discounted cash flow analysis, a market-based comparable approach and a market-based transaction approach. Based on the results of the step one analysis, the Company determined that the carrying value of the TruGreen LandCare reporting unit exceeded its fair value, indicating that goodwill was potentially impaired. As a result, the Company completed the second step of the goodwill impairment test which involves calculating the implied fair value of the reporting unit’s goodwill by allocating the fair value of the reporting unit to all assets and liabilities other than goodwill and comparing it to the carrying amount of goodwill. The Company determined that the implied fair value of goodwill was less that the carrying value for TruGreen LandCare by $43.0 million, which was recorded as a goodwill impairment charge in the second quarter of 2010. As of June 30, 2010, there was no remaining goodwill at TruGreen LandCare.

 

As a result of the aforementioned goodwill impairment indicators and in accordance with applicable accounting standards, the Company performed an impairment analysis on its indefinite lived intangible asset related to TruGreen LandCare’s trade name to determine the fair value as of June 30, 2010. Based on the lower projected cash flows for TruGreen LandCare as discussed above, the Company determined the fair value attributable to the indefinite lived intangible asset was less than the carrying value for TruGreen LandCare by $3.9 million, which was recorded as a trade name impairment in the second quarter of 2010.

 

The Company determined that there were no impairment indicators for the goodwill or other indefinite lived intangible assets of any reporting units other than TruGreen LandCare as of June 30, 2010.

 

The table below summarizes the goodwill balances by segment for continuing operations:

 

(In thousands)

 

TruGreen
LawnCare

 

TruGreen
LandCare

 

Terminix

 

American
Home
Shield

 

ServiceMaster
Clean

 

Other
Operations &
Headquarters

 

Total

 

Balance at Dec. 31, 2009

 

$

1,178,436

 

$

43,901

 

$

1,361,698

 

$

348,010

 

$

135,713

 

$

51,996

 

$

3,119,754

 

Impairment charge

 

 

(42,984

)

 

 

 

 

(42,984

)

Acquisitions

 

4,430

 

 

8,419

 

 

 

504

 

13,353

 

Other(1)

 

(298

)

(917

)

(324

)

(123

)

(74

)

(47

)

(1,783

)

Balance at Jun. 30, 2010

 

$

1,182,568

 

$

 

$

1,369,793

 

$

347,887

 

$

135,639

 

$

52,453

 

$

3,088,340

 

 


(1)                                 Reflects the impact of the amortization of tax deductible goodwill and foreign exchange rate changes.

 

The accumulated impairment losses as of June 30, 2010 were $43.0 million associated with our TruGreen LandCare segment. There were no accumulated impairment losses as of December 31, 2009.

 

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

 

 

 

As of
June 30, 2010

 

As of
December 31, 2009

 

(In thousands)

 

Gross

 

Accumulated
Amortization

 

Net

 

Gross

 

Accumulated
Amortization

 

Net

 

Trade names(1)

 

$

2,376,200

 

$

 

$

2,376,200

 

$

2,380,100

 

$

 

$

2,380,100

 

Customer relationships

 

674,898

 

(425,086

)

249,812

 

669,581

 

(352,605

)

316,976

 

Franchise agreements

 

88,000

 

(30,845

)

57,155

 

88,000

 

(26,418

)

61,582

 

Other

 

49,630

 

(25,036

)

24,594

 

49,630

 

(21,051

)

28,579

 

Total

 

$

3,188,728

 

$

(480,967

)

$

2,707,761

 

$

3,187,311

 

$

(400,074

)

$

2,787,237

 

 


(1)                                 Not subject to amortization.

 

Note 6. Stock-Based Compensation

 

For the three and six months ended June 30, 2010, the Company recognized stock-based compensation expense of $2.2 million ($1.3 million, net of tax) and $4.3 million ($2.6 million, net of tax), respectively. For the three and six months ended June 30, 2009, the Company recognized stock-based compensation expense of $2.0 million ($1.2 million, net of tax) and $3.9 million ($2.3 million, net of tax), respectively. As of June 30, 2010, there was $15.5 million of total unrecognized compensation cost related to non-vested stock options granted by Holdings under the ServiceMaster Global Holdings, Inc. Stock Incentive Plan. These remaining costs are expected to be recognized over a weighted-average period of 2.0 years.

 

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Note 7. Supplemental Cash Flow Information

 

Supplemental information relating to the condensed consolidated statement of cash flows for the six months ended June 30, 2010 and 2009 is presented in the following table:

 

 

 

Six months ended
June 30,

 

(In thousands)

 

2010

 

2009

 

Cash paid for or (received from):

 

 

 

 

 

Interest expense

 

$

136,540

 

$

162,652

 

Interest and dividend income

 

(2,790

)

(3,626

)

Income taxes, net of refunds

 

10,127

 

195

 

 

Note 8. Comprehensive Income

 

Total comprehensive income (loss) was $5.5 million and ($26.4) million for the three and six months ended June 30, 2010 and $41.7 million and $41.7 million for the three and six months ended June 30, 2009, respectively. Total comprehensive income primarily includes net income (loss), unrealized gain (loss) on marketable securities, unrealized gain (loss) on derivative instruments and the effect of foreign currency translation.

 

Note 9. Receivable Sales

 

The Company has entered into an accounts receivable securitization arrangement under which TruGreen LawnCare and Terminix may sell certain eligible trade accounts receivable to ServiceMaster Funding Company LLC (“Funding”), the Company’s wholly owned, bankruptcy-remote subsidiary, which is consolidated for financial reporting purposes. Funding, in turn, may transfer, on a revolving basis, an undivided percentage ownership interest of up to $50.0 million in the pool of accounts receivable to one or both of the unrelated purchasers who are parties to the accounts receivable securitization arrangement (“Purchasers”). The amount of the eligible receivables varies during the year based on seasonality of the businesses and could, at times, limit the amount available to the Company from the sale of these interests.

 

During the six months ended June 30, 2010, there were no transfers of interests in the pool of trade accounts receivables to Purchasers under this arrangement. As of June 30, 2010 and December 31, 2009, the Company had $10.0 million outstanding under the arrangement and, as of June 30, 2010, had $40.0 million of remaining capacity available under the trade accounts receivable securitization arrangement.

 

The accounts receivable securitization arrangement is a 364-day facility that is renewable annually at the option of Funding, with a final termination date of July 17, 2012. Only one of the Purchasers is required to purchase interests under the arrangement. If this Purchaser were to exercise its right to terminate its participation in the arrangement, which it may do in the third quarter of each year, the amount of cash available to the Company under this agreement may be reduced or eliminated. As part of the annual renewal of the facility, which last occurred on July 20, 2010, this Purchaser agreed to continue its participation in the arrangement at least through July 19, 2011.

 

The Company has recorded its obligation to repay the third party for its interest in the pool of receivables as long-term debt in the condensed consolidated financial statements. The interest rates applicable to the Company’s obligation are based on a fluctuating rate of interest based on the third party Purchaser’s pooled commercial paper rate (0.42% at June 30, 2010). In addition, the Company pays usage fees on its obligations and commitment fees on undrawn amounts committed by the Purchasers. All obligations under the accounts receivable securitization arrangement must be repaid by July 17, 2012, the final termination date of the arrangement.

 

Note 10. Cash and Marketable Securities

 

Cash, money market funds and certificates of deposits, with maturities of three months or less when purchased, are included in the condensed consolidated statement of financial position caption “Cash and cash equivalents”. As of June 30, 2010 and December 31, 2009, the Company’s investments consist primarily of domestic publicly traded debt and certificates of deposit totaling $98.3 million and $93.9 million, respectively, and common equity securities of $34.9 million and $38.3 million, respectively.

 

The aggregate market value of the Company’s short-term and long-term investments in debt and equity securities was $133.2 million and $132.2 million, and the aggregate cost basis was $128.2 million and $126.7 million at June 30, 2010 and December 31, 2009, respectively.

 

Gains and losses on sales of investments, as determined on a specific identification basis, are included in investment income

 

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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 Company recorded gross realized gains resulting from sales of available-for-sale securities of $0.6 million ($0.4 million, net of tax) and $1.1 million ($0.7 million, net of tax) for the three and six months ended June 30, 2010, respectively, and $1.0 million ($0.6 million, net of tax) and $1.6 million ($1.0 million, net of tax) for the three and six months ended June 30, 2009, respectively. The Company recorded gross realized losses resulting from sales of available-for-sale securities of $0.1 million ($0.1 million, net of tax) and $0.1 million ($0.1 million, net of tax) for the three and six months ended June 30, 2010, respectively, and $0.2 million ($0.1 million, net of tax) and $1.4 million ($0.9 million, net of tax) for the three and six months ended June 30, 2009, respectively. The Company recorded impairment charges of $0.5 million ($0.3 million, net of tax) and $5.9 million ($3.7 million, net of tax) for the three and six months ended June 30, 2009, respectively, due to other than temporary declines in the value of certain investments. The Company had no such impairments for the three and six months ended June 30, 2010. Unrealized gains in the investment portfolio were $7.8 million and $7.7 million as of June 30, 2010 and December 31, 2009, respectively. Unrealized losses were $2.8 million and $2.2 million as of June 30, 2010 and December 31, 2009, respectively. The portion of unrealized losses which had been in a loss position for more than one year at June 30, 2010 and December 31, 2009 was approximately $0.5 million and $0.7 million, respectively. The aggregate fair value of the investments with unrealized losses totaled $13.4 million and $26.8 million at June 30, 2010 and December 31, 2009, respectively.

 

Note 11. Long-Term Debt

 

Long-term debt at June 30, 2010 and December 31, 2009 is summarized in the following table:

 

(In thousands)

 

As of
June 30,
2010

 

As of
December 31,
2009

 

Senior secured term loan facility maturing in 2014

 

$

2,570,500

 

$

2,583,750

 

10.75% /11.50% senior toggle notes maturing in 2015

 

1,061,000

 

1,061,000

 

Revolving credit facility maturing in 2013

 

 

 

7.10% notes maturing in 2018(1)

 

64,587

 

63,624

 

7.45% notes maturing in 2027(1)

 

149,220

 

147,885

 

7.25% notes maturing in 2038(1)

 

60,228

 

59,824

 

Other

 

64,068

 

58,861

 

Less current portion

 

(62,137

)

(64,395

)

Total long-term debt

 

$

3,907,466

 

$

3,910,549

 

 


(1)          The increase in the balance from December 31, 2009 to June 30, 2010 reflects the amortization of fair value adjustments related to purchase accounting, which effectively increases the stated coupon interest rates.

 

The Company had $70.1 million and $70.2 million of accrued interest at June 30, 2010 and December 31, 2009, respectively. Accrued interest is included in Accrued Liabilities — Other on the condensed consolidated statements of financial position.

 

In June 2010, the Company entered into two, two-year interest rate swap agreements effective March 3, 2011. The total notional amount of the agreements was $250.0 million. Under the terms of the agreements, the Company will pay a weighted average fixed rate of interest of 1.70% on the $250.0 million notional amount and the Company will receive a floating rate of interest (based on the one month LIBOR) on the notional amount. Therefore, during the term of the swap agreements, the effective interest rate for $250.0 million of the term loans will be fixed at a rate of 1.70% plus the incremental borrowing margin described in Note 14 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

 

In June 2010, the Company entered into two, two-year interest rate swap agreements effective September 1, 2011. The total notional amount of the agreements was $200.0 million. Under the terms of the agreements, the Company will pay a weighted average fixed rate of interest of 2.22% on the $200.0 million notional amount and the Company will receive a floating rate of interest (based on the one month LIBOR) on the notional amount. Therefore, during the term of the swap agreements, the effective interest rate for $200.0 million of the term loans will be fixed at a rate of 2.22% plus the incremental borrowing margin described in Note 14 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

 

In accordance with accounting standards for derivative instruments and hedging activities, these interest rate swap agreements are classified as cash flow hedges and, as such, the hedging instruments are recorded on the balance sheet as either an asset or liability at fair value, with the effective portion of the changes in fair value attributable to the hedged risks recorded in other comprehensive income.

 

Note 12. Discontinued Operations

 

Reported “loss from discontinued operations, net of income taxes” for all periods presented includes the operating results of the sold businesses noted in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The operating results and financial position of discontinued operations are as follows:

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

(In thousands)

 

2010

 

2009

 

2010

 

2009

 

Operating Results:

 

 

 

 

 

 

 

 

 

Operating revenue

 

$

 

$

56

 

$

 

$

56

 

Operating loss

 

(326

)

(177

)

(944

)

(441

)

Loss from discontinued operations, before income taxes

 

(326

)

(177

)

(944

)

(441

)

Benefit from income taxes

 

(121

)

(70

)

(362

)

(171

)

Loss from discontinued operations, net of income taxes

 

$

(205

)

$

(107

)

$

(582

)

$

(270

)

 

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(In thousands)

 

As of
June 30, 2010

 

As of
December 31,
2009

 

Financial Position:

 

 

 

 

 

Current assets

 

$

16

 

$

42

 

Total assets

 

$

16

 

$

42

 

Current liabilities

 

$

2,736

 

$

2,806

 

Long-term liabilities

 

4,080

 

4,145

 

Total liabilities

 

$

6,816

 

$

6,951

 

 

The table below summarizes the activity for the six months ended June 30, 2010 for the remaining liabilities from operations that were disposed of in years prior to 2010. The remaining obligations primarily relate to long-term self-insurance claims. The Company believes that the remaining reserves continue to be adequate and reasonable.

 

(In thousands)

 

As of
December 31,
2009

 

Cash Payments
or Other

 

Expense

 

As of
June 30, 2010

 

Remaining liabilities of discontinued operations:

 

 

 

 

 

 

 

 

 

ARS/AMS

 

$

2,921

 

$

(485

)

$

658

 

$

3,094

 

LandCare Construction

 

722

 

(65

)

8

 

665

 

LandCare utility line clearing business

 

911

 

(75

)

 

836

 

Certified Systems, Inc. and other

 

2,149

 

(167

)

 

1,982

 

InStar

 

248

 

(38

)

29

 

239

 

Total liabilities of discontinued operations

 

$

6,951

 

$

(830

)

$

695

 

$

6,816

 

 

Note 13. Income Taxes

 

At June 30, 2010 and December 31, 2009, the Company had $15.6 million of tax benefits primarily reflected in state tax returns that had not been recognized for financial reporting purposes (“unrecognized tax benefits”). The Company currently estimates that, as a result of pending tax settlements and expiration of statutes of limitations, the amount of unrecognized tax benefits could be reduced by approximately $9.8 million during the next 12 months.

 

Note 14. Business Segment Reporting

 

The business of the Company is conducted through six reportable segments: TruGreen LawnCare, TruGreen LandCare, Terminix, American Home Shield, ServiceMaster Clean and Other Operations and Headquarters.

 

In accordance with accounting standards for segments, the Company’s reportable segments are strategic business units that offer different services. The TruGreen LawnCare segment provides residential and commercial lawn care services. The TruGreen LandCare segment provides landscaping services primarily to commercial customers. The Terminix segment provides termite and pest control services to residential and commercial customers. The American Home Shield segment provides home service contracts to consumers that cover heating, ventilation, air conditioning, plumbing and other home systems and appliances. The ServiceMaster Clean segment provides residential and commercial disaster restoration and cleaning services primarily under the ServiceMaster and ServiceMaster Clean brand names, on-site furniture repair and restoration services primarily under the Furniture Medic brand name and home inspection services primarily under the AmeriSpec brand name. The Other Operations and Headquarters segment includes the franchised and Company-owned operations of Merry Maids, which provides house cleaning services. The Other Operations and Headquarters segment also includes The ServiceMaster Acceptance Company Limited Partnership (“SMAC”), our financing subsidiary exclusively dedicated to providing financing to our franchisees and retail customers of our operating units, and the Company’s headquarters operations, which provide various technology, marketing, finance, legal and other support services to the business units.

 

In the second quarter of 2010, the Company revised its methodology for the allocation of general corporate overhead expenses to each reportable segment. The portion of general corporate support services previously allocated to each reportable segment are now reflected in the Other Operations and Headquarters segment. Under the revised method, allocations are limited to corporate support services incurred directly on behalf of each reportable segment. The operating income presented below for each reportable segment has been revised to reflect the new allocation methodology for all periods presented. The revision to the allocation methodology had no impact on reported operating revenue for each reportable segment or total operating income.

 

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Segment information for continuing operations is presented below.

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

(In thousands)

 

2010

 

2009

 

2010

 

2009

 

Operating Revenue:

 

 

 

 

 

 

 

 

 

TruGreen LawnCare

 

$

378,642

 

$

348,403

 

$

502,724

 

$

483,069

 

TruGreen LandCare

 

63,463

 

69,433

 

122,263

 

136,318

 

Terminix

 

323,393

 

307,375

 

594,310

 

570,536

 

American Home Shield

 

183,792

 

179,823

 

316,997

 

310,691

 

ServiceMaster Clean

 

32,034

 

30,581

 

64,296

 

60,737

 

Other Operations and Headquarters

 

21,738

 

21,677

 

41,880

 

41,868

 

Total Operating Revenue

 

$

1,003,062

 

$

957,292

 

$

1,642,470

 

$

1,603,219

 

Operating Income (Loss):(1),(2),(3)

 

 

 

 

 

 

 

 

 

TruGreen LawnCare

 

$

52,606

 

$

41,055

 

$

13,518

 

$

24,009

 

TruGreen LandCare

 

(50,572

)

591

 

(47,229

)

8,631

 

Terminix

 

68,755

 

65,381

 

121,735

 

115,288

 

American Home Shield

 

21,360

 

28,750

 

28,468

 

36,144

 

ServiceMaster Clean

 

12,572

 

12,139

 

25,244

 

24,124

 

Other Operations and Headquarters

 

(30,205

)

(29,911

)

(58,573

)

(61,513

)

Total Operating Income

 

$

74,516

 

$

118,005

 

$

83,163

 

$

146,683

 

 


(1)          Presented below is a reconciliation of segment operating income to income (loss) from continuing operations before income taxes.

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

(In thousands)

 

2010

 

2009

 

2010

 

2009

 

Total Segment Operating Income

 

$

74,516

 

$

118,005

 

$

83,163

 

$

146,683

 

Non-operating expense (income):

 

 

 

 

 

 

 

 

 

Interest expense

 

73,169

 

74,656

 

145,850

 

151,322

 

Interest and net investment (income) loss

 

(996

)

(3,395

)

(3,498

)

1,366

 

Gain on extinguishment of debt

 

 

 

 

(46,106

)

Other expense

 

176

 

179

 

347

 

379

 

Income (Loss) from Continuing Operations before Income Taxes

 

$

2,167

 

$

46,565

 

$

(59,536

)

$

39,722

 

 

(2)            As described in Note 5, includes a non-cash impairment charge of $46.9 million recorded in the second quarter of 2010 to reduce the carrying value of goodwill and trade names at TruGreen LandCare as a result of the Company’s interim impairment test of goodwill and indefinite-lived intangible assets.

 

(3)            Includes (i) restructuring charges related to a reorganization of field leadership and a restructuring of branch operations at TruGreen LawnCare, a branch optimization project at Terminix and information technology outsourcing at Other Operations and Headquarters and (ii) Merger related charges. Presented below is a summary of restructuring and Merger related charges (credits) by segment.

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

(In thousands)

 

2010

 

2009

 

2010

 

2009

 

Restructuring and Merger related charges:

 

 

 

 

 

 

 

 

 

TruGreen LawnCare

 

$

2,939

 

$

 

$

5,962

 

$

 

TruGreen LandCare

 

87

 

(21

)

658

 

(51

)

Terminix

 

32

 

(69

)

78

 

3,151

 

American Home Shield

 

 

36

 

(127

)

75

 

ServiceMaster Clean

 

 

 

 

 

Other Operations and Headquarters

 

1,109

 

5,638

 

1,520

 

11,186

 

Total restructuring and Merger related charges

 

$

4,167

 

$

5,584

 

$

8,091

 

$

14,361

 

 

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Note 15. Related Party Transactions

 

In connection with the Merger and the related transactions, the Company entered into a consulting agreement with CD&R, which was subsequently amended, under which CD&R provides the Company with on-going consulting and management advisory services in exchange for an annual management fee of $2.0 million, which is payable quarterly. On July 30, 2009, the annual management fee payable under the consulting agreement with CD&R was increased from $2.0 million to $6.25 million in order to align our fee structure with current market rates. Under this agreement, the Company recorded a management fee of $1.6 million and $3.2 million for the three and six months ended June 30, 2010, respectively, and $0.5 million and $1.0 million for the three and six months ended June 30, 2009, respectively. The full year management fee was applied in 2009, and the incremental fees relating to the first three quarters of 2009 were recorded and paid to CD&R in the third quarter of 2009. The amended consulting agreement also provides that CD&R may receive additional fees in connection with certain subsequent financing and acquisition or disposition transactions.

 

In addition, in August 2009, the Company entered into consulting agreements with Citigroup, BAS and JPMorgan, each of which is an Equity Sponsor or an affiliate of an Equity Sponsor. Under the consulting agreements, Citigroup, BAS and JPMorgan each provide the Company with on-going consulting and management advisory services through June 30, 2016 or the earlier termination of the existing consulting agreement between the Company and CD&R. The Company pays annual management fees of $0.5 million, $0.5 million and $0.25 million to Citigroup, BAS and JPMorgan, respectively. The Company recorded consulting fees related to these agreements of $0.3 million and $0.6 million for the three and six months ended June 30, 2010, respectively. The full year management fee was applied in 2009, and the incremental fees relating to the first three quarters of 2009 were recorded and paid to Citigroup, BAS and JPMorgan in the third quarter of 2009.

 

Between the Merger and June 30, 2010, Holdings has completed open market purchases totaling $65.0 million in face value of the Permanent Notes for a cost of $21.4 million. The debt acquired by Holdings has not been retired, and the Company has continued to pay interest in accordance with the terms of the debt. The Company recorded interest expense of $3.5 million and $3.4 million for the six months ended June 30, 2010 and 2009, respectively, related to the Permanent Notes held by Holdings. The Company made cash payments to Holdings of $3.5 million and $3.0 million during the six months ended June 30, 2010 and 2009, respectively. Interest accrued by the Company and payable to Holdings as of June 30, 2010 and December 31, 2009 amounted to $3.2 million.

 

Note 16. Newly Issued Accounting Statements and Positions

 

In September 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13, “Multiple-Deliverable Revenue Arrangements”, which amends the multiple-element arrangement guidance under ASC 605, “Revenue Recognition”. This standard amends the criteria for separating consideration received for products or services in multiple-deliverable arrangements. This standard establishes a selling price hierarchy for determining the selling price of a deliverable, eliminates the residual method of allocation, and requires that total arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this standard significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. This standard is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 (calendar year 2011). The Company is currently evaluating the effect of this standard on its condensed consolidated financial statements.

 

In December 2009, the FASB issued ASU 2009-17, “Accounting by Enterprises Involved with Variable Interest Entities” (“ASU 2009-17”). ASU 2009-17 formally incorporates into the FASB Codification amendments to FASB Interpretation No. 46(R) made by Statement of Financial Accounting Standards (“SFAS “) 167 to require that a comprehensive qualitative analysis be performed to determine whether a holder of variable interests in a variable interest entity also has a controlling financial interest in that entity. In addition, the amendments require that the same type of analysis be applied to entities that were previously designated as qualifying special-purpose entities. This standard applies prospectively for fiscal years beginning on or after November 15, 2009. The Company adopted the required provisions of this standard during the first quarter of 2010. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

 

In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements”, which amends ASC 820 to add new requirements for disclosures about transfers into and out of Level 1 and 2 measurements and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The ASU also clarifies existing fair value disclosure requirements about the level of disaggregation and about inputs and valuation techniques used to measure fair value. Further, the ASU amends guidance on employers’ disclosures about postretirement benefit plan assets under ASC 715 to require that disclosures be provided by classes of assets instead of by major categories of assets. This standard is effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company applied the required provisions of this standard on the Company’s condensed consolidated financial statements during the first quarter of 2010 (see Note 17).

 

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Note 17. Fair Value of Financial Instruments

 

The period end carrying amounts of receivables, 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 market rates at period end. The period end carrying amounts of current and long-term marketable securities also approximate fair value, with unrealized gains and losses reported net-of-tax as a component of accumulated comprehensive income (loss), or, for certain unrealized losses, reported in interest and net investment income in the condensed consolidated statement of operations if the decline in value is other than temporary. The carrying amount of total debt was $3,969.6 million and $3,974.9 million and the estimated fair value was $3,900.6 million and $3,716.5 million at June 30, 2010 and December 31, 2009, respectively. The fair values of the Company’s financial instruments 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 as of June 30, 2010 and December 31, 2009.

 

The Company has estimated the fair value of its 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 fair value estimates incorporate quoted market prices, other observable inputs (for example, forward interest rates) and unobservable inputs (for example, forward commodity prices) at the balance sheet date.

 

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

 

Fuel swap contracts are valued using forward fuel price curves obtained from third party market data providers. The fair value of each contract is the sum of the expected future settlements between the contract counterparties, discounted to present value. The expected future settlements are determined by comparing the contract fuel price to the expected forward fuel price as of each settlement date and applying the difference between the contract and expected prices to the notional gallons in the fuel swap contracts.

 

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Table of Contents

 

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

 

 

 

 

 

 

As of
June 30, 2010

 

As of
December 31, 2009

 

 

 

 

 

 

 

Estimated Fair Value Measurements

 

 

 

 

 

(In thousands)

 

Balance Sheet Locations

 

Carrying
Value

 

Quoted
Prices In
Active
Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Carrying
Value

 

Estimated
Fair Value

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation trust assets

 

Long-term marketable securities

 

$

9,017

 

$

9,017

 

$

 

$

 

$

9,985

 

$

9,985

 

Investments in marketable securities

 

Marketable securities and Long-term marketable securities

 

124,198

 

43,956

 

80,242

 

 

122,201

 

122,201

 

Fuel swap contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

Prepaid expenses and other assets

 

4,087

 

 

 

4,087

 

7,840

 

7,840

 

Noncurrent

 

Other assets

 

152

 

 

 

152

 

 

 

Total financial assets

 

 

 

$

137,454

 

$

52,973

 

$

80,242

 

$

4,239

 

$

140,026

 

$

140,026

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fuel swap contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

Other accrued liabilities

 

$

1,438

 

$

 

$

 

$

1,438

 

$

924

 

$

924

 

Noncurrent

 

Other long-term obligations

 

829

 

 

 

829

 

 

 

Interest rate swap contracts

 

Other long-term obligations

 

58,390

 

 

58,390

 

 

54,120

 

54,120

 

Total financial liabilities

 

 

 

$

60,657

 

$

 

$

58,390

 

$

2,267

 

$

55,044

 

$

55,044

 

 

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

 

(In thousands)

 

Fuel Swap Contract
Assets (Liabilities)

 

Balance at December 31, 2009

 

$

6,916

 

Total gains (losses) (realized and unrealized)

 

 

 

Included in earnings(1)

 

2,784

 

Included in other comprehensive income

 

(4,944

)

Settlements, net

 

(2,784

)

Balance at June 30, 2010

 

$

1,972

 

 

(In thousands)

 

Fuel Swap Contract
Assets (Liabilities)

 

Balance at December 31, 2008

 

$

(24,924

)

Total gains (losses) (realized and unrealized)

 

 

 

Included in earnings(1)

 

(14,781

)

Included in other comprehensive income

 

20,157

 

Settlements, net

 

14,781

 

Balance at June 30, 2009

 

$

(4,767

)

 


(1)                                Gains (losses) included in earnings are reported in cost of services rendered and products sold.

 

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

 

18



Table of Contents

 

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 of approximately 25 million gallons. The Company has also hedged the interest payments on a portion of its variable rate debt through the use of interest rate swap agreements. Substantially 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 statement 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 other comprehensive income. Any change in the fair value of the hedging instrument resulting from ineffectiveness, as defined by accounting standards, is recognized in current period earnings. Cash flows related to fuel and interest rate derivatives are classified as operating activities in the condensed consolidated statement of cash flows.

 

The effect of derivative instruments on the condensed consolidated statement of operations and other comprehensive income for the six months ended June 30, 2010 and 2009, respectively, is presented as follows:

 

(In thousands)

 

Effective Portion of
Gain (Loss) Recognized in
Accumulated Other

 

Effective Portion of Gain (Loss)
Reclassified from
Accumulated Other

 

 

 

Derivatives designated as
Cash Flow Hedge

 

Comprehensive Income
(Loss)

 

Comprehensive Income
(Loss) into Income

 

Location of Gain (Loss)

 

Relationships

 

Six months ended June 30, 2010

 

included in Income

 

 

 

 

 

 

 

 

 

Fuel swap contracts

 

$

(4,944

)

$

2,784

 

Cost of services rendered and products sold

 

Interest rate swap contracts

 

$

(4,270

)

$

(27,216

)

Interest expense

 

 

Derivatives designated as
Cash Flow Hedge

 

Effective Portion of
Gain (Loss) Recognized in
Accumulated Other
Comprehensive Income
(Loss)

 

Effective Portion of Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive Income
(Loss) into Income

 

Location of Gain (Loss)

 

Relationships

 

Six months ended June 30, 2009

 

included in Income

 

 

 

 

 

 

 

 

 

Fuel swap contracts

 

$

20,157

 

$

(14,781

)

Cost of services rendered and products sold

 

Interest rate swap contracts

 

$

2,553

 

$

(23,389

)

Interest expense

 

 

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, 2010. As of June 30, 2010, the Company had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of $75.1 million, maturing through 2011. Under the terms of its fuel swap contracts, the Company is required to post collateral in certain circumstances, including in the event that the fair value of the contracts exceeds a certain agreed upon liability level. As of June 30, 2010, the Company had posted $5.0 million in letters of credit as collateral for these contracts, none of which were issued under the Company’s Revolving Credit Facility. As of June 30, 2010, the Company had interest rate swap contracts to pay fixed rates for interest on long-term debt with an aggregate notional amount of $1.43 billion, maturing through 2012.

 

The effective portion of the gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments is recorded in other comprehensive income. These amounts are reclassified into earnings in the same period or periods during which the hedged forecasted debt interest settlement or the fuel settlement affects earnings. The amount expected to be reclassified into earnings during the next 12 months includes unrealized gains and losses related to open fuel hedges and interest rate swaps. Specifically, as the underlying forecasted transactions occur during the next 12 months, the hedging gains and losses in accumulated other comprehensive income expected to be recognized in earnings is a loss of $21.3 million, net of tax, at June 30, 2010. The amounts that are ultimately reclassified into earnings will be based on actual interest rates and fuel prices at the time the positions are settled and may differ materially from the amount noted above.

 

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Table of Contents

 

Note 18. Condensed Consolidating Financial Statements of The ServiceMaster Company and Subsidiaries

 

The following condensed consolidating financial statements of the Company and its subsidiaries have been prepared pursuant to Rule 3-10 of Regulation S-X. These condensed consolidating financial statements have been prepared from the Company’s financial information on the same basis of accounting as the condensed consolidated financial statements. Goodwill and other intangible assets have been allocated to all of the subsidiaries of the Company based on management’s estimates.

 

The payment obligations of the Company under the Permanent Notes are jointly and severally guaranteed on a senior unsecured basis by certain of the Company’s domestic subsidiaries excluding certain subsidiaries subject to regulatory requirements in various states (“Guarantors”). Each of the Guarantors is wholly owned, directly or indirectly, by the Company, and all guarantees are full and unconditional. All other subsidiaries of the Company, either directly or indirectly owned, do not guarantee the Permanent Notes (“Non-Guarantors”).

 

20



Table of Contents

 

THE SERVICEMASTER COMPANY AND SUBSIDIARIES

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2010 (Unaudited)

(In thousands)

 

 

 

The

 

 

 

 

 

 

 

 

 

 

 

ServiceMaster

 

 

 

Non-

 

 

 

 

 

 

 

Company

 

Guarantors

 

Guarantors

 

Eliminations

 

Consolidated

 

Operating Revenue

 

$

 

$

798,804

 

$

223,052

 

$

(18,794

)

$

1,003,062

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of services rendered and products sold

 

 

487,251

 

105,124

 

(18,794

)

573,581

 

Selling and administrative expenses

 

2,277

 

164,280

 

96,906

 

 

263,463

 

Amortization expense

 

56

 

31,429

 

8,966

 

 

40,451

 

Goodwill and trade name impairment

 

 

46,884

 

 

 

46,884

 

Restructuring and Merger related charges

 

1,005

 

3,058

 

104

 

 

4,167

 

Total operating costs and expenses

 

3,338

 

732,902

 

211,100

 

(18,794

)

928,546

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (Loss) Income

 

(3,338

)

65,902

 

11,952

 

 

74,516

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating Expense (Income):

 

 

 

 

 

 

 

 

 

 

 

Interest expense (income)

 

50,486

 

25,970

 

(3,287

)

 

73,169

 

Interest and net investment loss (income)

 

1,518

 

1,545

 

(4,059

)

 

(996

)

Other expense

 

 

 

176

 

 

176

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income from Continuing Operations before Income Taxes

 

(55,342

)

38,387

 

19,122

 

 

2,167

 

(Benefit) provision for income taxes

 

(30,825

)

3,931

 

16,412

 

 

(10,482

)

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income from Continuing Operations

 

(24,517

)

34,456

 

2,710

 

 

12,649

 

Income (loss) from discontinued operations, net of income taxes

 

 

114

 

(319

)

 

(205

)

Equity in losses of subsidiaries (net of tax)

 

36,961

 

(9,092

)

 

(27,869

)

 

Net Loss

 

$

12,444

 

$

25,478

 

$

2,391

 

$

(27,869

)

$

12,444

 

 

21



Table of Contents

 

THE SERVICEMASTER COMPANY AND SUBSIDIARIES

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2009 (Unaudited)

(In thousands)

 

 

 

The

 

 

 

 

 

 

 

 

 

 

 

ServiceMaster

 

 

 

Non-

 

 

 

 

 

 

 

Company

 

Guarantors

 

Guarantors

 

Eliminations

 

Consolidated

 

Operating Revenue

 

$

 

$

758,031

 

$

218,407

 

$

(19,146

)

$

957,292

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of services rendered and products sold

 

 

472,335

 

100,184

 

(19,146

)

553,373

 

Selling and administrative expenses

 

1,009

 

161,166

 

77,754

 

 

239,929

 

Amortization expense

 

55

 

31,353

 

8,993

 

 

40,401

 

Restructuring and Merger related charges

 

1,154

 

(90

)

4,520

 

 

5,584

 

Total operating costs and expenses

 

2,218

 

664,764

 

191,451

 

(19,146

)

839,287

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (Loss) Income

 

(2,218

)

93,267

 

26,956

 

 

118,005

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating Expense (Income):

 

 

 

 

 

 

 

 

 

 

 

Interest expense (income)

 

84,241

 

(6,682

)

(2,903

)

 

74,656

 

Interest and net investment (income) loss

 

(321

)

2,357

 

(5,431

)

 

(3,395

)

Other expense

 

 

 

179

 

 

179

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income from Continuing Operations before Income Taxes

 

(86,138

)

97,592

 

35,111

 

 

46,565

 

(Benefit) provision for income taxes

 

(33,862

)

9,638

 

48,397

 

 

24,173

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income from Continuing Operations

 

(52,276

)

87,954

 

(13,286

)

 

22,392

 

Loss from discontinued operations, net of income taxes

 

 

 

(107

)

 

(107

)

Equity in earnings of subsidiaries (net of tax)

 

74,561

 

(17,283

)

 

(57,278

)

 

Net Income (Loss)

 

$

22,285

 

$

70,671

 

$

(13,393

)

$

(57,278

)

$

22,285

 

 

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Table of Contents

 

THE SERVICEMASTER COMPANY AND SUBSIDIARIES

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2010 (Unaudited)

(In thousands)

 

 

 

The

 

 

 

 

 

 

 

 

 

 

 

ServiceMaster

 

 

 

Non-

 

 

 

 

 

 

 

Company

 

Guarantors

 

Guarantors

 

Eliminations

 

Consolidated

 

Operating Revenue

 

$

 

$

1,295,749

 

$

382,140

 

$

(35,419

)

$

1,642,470

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of services rendered and products sold

 

 

834,069

 

177,451

 

(35,419

)

976,101

 

Selling and administrative expenses

 

4,540

 

261,647

 

181,151

 

 

447,338

 

Amortization expense

 

111

 

62,852

 

17,930

 

 

80,893

 

Goodwill and trade name impairment

 

 

46,884

 

 

 

46,884

 

Restructuring and Merger related charges

 

1,136

 

6,698

 

257

 

 

8,091

 

Total operating costs and expenses

 

5,787

 

1,212,150

 

376,789

 

(35,419

)

1,559,307

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (Loss) Income

 

(5,787

)

83,599

 

5,351

 

 

83,163

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating Expense (Income):

 

 

 

 

 

 

 

 

 

 

 

Interest expense (income)

 

100,066

 

52,185

 

(6,401

)

 

145,850

 

Interest and net investment loss (income)

 

2,169

 

2,742

 

(8,409

)

 

(3,498

)

Other expense

 

 

 

347

 

 

347

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income from Continuing Operations before Income Taxes

 

(108,022

)

28,672

 

19,814

 

 

(59,536

)

(Benefit) provision for income taxes

 

(52,442

)

(16,008

)

28,548

 

 

(39,902

)

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income from Continuing Operations

 

(55,580

)

44,680

 

(8,734

)

 

(19,634

)

Income (loss) from discontinued operations, net of income taxes

 

 

335

 

(917

)

 

(582

)

Equity in losses of subsidiaries (net of tax)

 

35,364

 

(13,585

)

 

(21,779

)

 

Net Loss

 

$

(20,216

)

$

31,430

 

$

(9,651

)

$

(21,779

)

$

(20,216

)

 

23



Table of Contents

 

THE SERVICEMASTER COMPANY AND SUBSIDIARIES

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2009 (Unaudited)

(In thousands)