American Home Shield 2015 Annual Report Download - page 85

Table of Contents
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Note 3. 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 and Company-owned operations primarily under the Merry Maids brand name, on-site wood
furniture repair and restoration services 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 Note 2 to the consolidated financial
statements. The Company derives substantially all of its revenue from customers and franchisees in the United States with
approximately two percent generated in foreign markets. Operating expenses of the business units consist primarily of direct costs and
indirect costs allocated from Corporate. Identifiable assets are those used in carrying out the operations of the business unit and
include intangible assets directly related to its operations. In periods prior to the TruGreen Spin-off, expenses which were allocated to
TruGreen but are not reflected in discontinued operations were included in Corporate. Such expenses amounted to $38 million in
2013.
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 (loss) before: unallocated corporate expenses; income (loss) from discontinued operations,
net of income taxes; provision (benefit) for income taxes; loss on extinguishment of debt; interest expense; depreciation and
amortization expense; 401(k) Plan corrective contribution; non-cash impairment of software and other related costs; non-cash
impairment of property and equipment; non-cash stock-based compensation expense; restructuring charges; gain on sale of Merry
Maids branches; management and consulting fees; consulting agreement termination fees; and other non-operating expenses. 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, consulting
agreements and equity-based, long-term incentive plans.
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