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SERVICEMASTER CO
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/31/2009
Filed Period 12/31/2008

Table of contents

  • Page 1
    SERVICEMASTER CO 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/31/2009 Filed Period 12/31/2008

  • Page 2
    ... jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 860 Ridge Lake Boulevard, Memphis, Tennessee 38120 (Address of principal executive offices, including zip code) (901) 597-1400 (Registrant's telephone number, including area code) Securities registered pursuant to...

  • Page 3
    ... is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý The registrant is a privately held corporation and its equity shares are not publicly traded. At March 14, 2009, 1,000 shares of the registrant's common stock were outstanding, all of which were owned by CDRSVM Holding, Inc.

  • Page 4
    ... and Corporate Governance 129 Executive Compensation 132 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 153 Certain Relationships and Related Transactions, and Director Independence 156 Principal Accounting Fees and Services 159 Exhibits and Financial...

  • Page 5
    ...LawnCare; TruGreen LandCare; Terminix; American Home Shield; and Other Operations and Headquarters. All ServiceMaster subsidiaries are wholly owned. The financial information for each operating segment for 2008, 2007 and 2006 is contained in Part II, Item 8 of this Annual Report on Form 10-K. MERGER...

  • Page 6
    ... consolidated revenue from continuing operations derived from each of ServiceMaster's reportable segments in the years indicated: Segment 2008 2007 2006 TruGreen LawnCare 33% 33% 32% TruGreen LandCare 9% 12% 13% Terminix 33% 33% 32% American Home Shield 18% 16% 17% Other Operations and Headquarters...

  • Page 7
    ... and central air conditioning systems, hot water heaters and other covered appliances that break down due to normal wear and tear and services those contracts through independent repair contractors. As of December 31, 2008, American Home Shield issued and administered home warranty contracts in 49...

  • Page 8
    ..., American Home Shield and Terminix, in certain jurisdictions, market their services through real estate brokerage offices in conjunction with the resale of single-family residences and through financial institutions and insurance agencies. HEADQUARTER FUNCTIONS The Business Support Center...

  • Page 9
    ... agreements are renewed prior to expiration. The majority of international licenses are for ten year terms. COMPETITION ServiceMaster competes with many other companies in the sale of its services, franchises and products. The principal methods of competition in ServiceMaster's businesses include...

  • Page 10
    ... include laws relating to consumer protection, wage and hour regulations, deceptive trade practices, permit and license requirements, real estate settlement, workers' safety, environmental regulations and employee benefits. The TruGreen LawnCare, TruGreen LandCare and Terminix businesses must also...

  • Page 11
    ... various insurance coverages, including deductible reimbursement policies, to our business units through our wholly-owned captive insurance company, which is domiciled in Vermont. EMPLOYEES On December 31, 2008, ServiceMaster had approximately 27,000 employees. AVAILABLE INFORMATION ServiceMaster...

  • Page 12
    ... with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Risks Related to Our Business and Our Industry Recent market events and conditions, including...

  • Page 13
    ... landscape maintenance services, termite and pest control services, home inspection services and disaster restoration services. For example, in our markets that do not have a year-round growing season, the demand for our lawn care and landscape maintenance services decreases during the winter months...

  • Page 14
    ... all of our expected cost savings. We may not be able to fully implement our business strategies or realize, in whole or in part within the time frames anticipated, the anticipated benefits of our various initiatives, such as our Terminix Termite Inspection and Protection Plan and TruGreen Targeted...

  • Page 15
    ...and regulations include laws relating to consumer protection, wage and hour requirements, the employment of immigrants, labor relations, permit and licensing requirements, workers' safety, the environment, insurance and home warranty, employee benefits, telemarketing and advertising, the application...

  • Page 16
    ... our brands, customer relationships, operating results and financial condition. Also, if a third-party outsourcing provider relationship is terminated, there is a risk that we may not be able to enter into a similar agreement with an alternate provider in a timely manner or on terms that we consider...

  • Page 17
    ... effectively depends in part on our rights to service marks, trademarks, trade names and other intellectual property rights we own or license, particularly our registered brand names, Terminix, TruGreen, TruGreen LawnCare, TruGreen LandCare, Merry Maids, ServiceMaster Clean, American Home Shield...

  • Page 18
    ... diversion of resources needed to integrate new businesses, technologies, products, personnel or systems; the inability to retain employees, customers and suppliers; the assumption of actual or contingent liabilities; failure to follow internal processes; write-offs or impairment charges relating to...

  • Page 19
    ... less debt or with comparable debt on more favorable terms and, as a result, they may be better positioned to withstand economic downturns; our ability to refinance debt may be limited or the associated costs may increase; and our flexibility to adjust to changing market conditions and ability to...

  • Page 20
    ... our other debt may prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to execute our business strategy successfully or effectively compete with companies that are not similarly restricted. We may also incur future debt...

  • Page 21
    ... described under "Risks Relating to Our Business and Our Industry" above. The payment of ordinary and extraordinary dividends by our subsidiaries that are regulated as insurance, home warranty, service contract or similar companies is subject to applicable state law limitations. If we cannot receive...

  • Page 22
    ... with the headquarters, call center facility, offices, training facilities and warehouses described above, are suitable and adequate to support the current needs of its business. Operating Company Owned Leased Facilities Facilities TruGreen LawnCare TruGreen LandCare Terminix American Home Shield...

  • Page 23
    ... reached a compromised settlement of all matters and a Consent Order was signed by Terminix and executed by the Commissioner of Agriculture on November 14, 2008. Class Action suits brought against the Company and CD&R Following the announcement of the proposed acquisition of ServiceMaster by CD...

  • Page 24
    ... any of these proceedings to have a material effect on our business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K, no matters were submitted to a vote...

  • Page 25
    ... held corporation and its equity shares are no longer publicly traded. There are restrictions on the Company's ability to pay dividends in the future. For further discussion see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10...

  • Page 26
    ..., as well as costs associated with Fast Forward, and payments for employee retention and severance related to the Company's decision to consolidate its corporate headquarters into its operations support center in Memphis, Tennessee and close its former headquarters in Downers Grove, Illinois. The...

  • Page 27
    ... December 31, 2008 related to the long-lived assets (other than goodwill) at its InStar business in connection with the decision to sell the InStar business. This charge is classified within the financial statement caption "(loss) income from discontinued operations, net of income taxes." (2) In the...

  • Page 28
    ..., 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...

  • Page 29
    ... different, and sometimes higher, cost basis associated with the allocation of the purchase price. The Company refers to the operations of ServiceMaster for both the Predecessor and Successor periods. The consolidated statement of financial position as of December 31, 2008 and December 31, 2007 and...

  • Page 30
    ... net investment income, merger related charges and restructuring charges supported by the improved results at Terminix, TruGreen LandCare, American Home Shield and Other Operations and Headquarters as described in our "Segment Review (Year ended December 31, 2008 compared with the Successor period...

  • Page 31
    ..., health care and related costs increased $9.2 million for the year ended December 31, 2008 as compared to the combined periods for the year ended December 31, 2007. For 2009, the Company estimates that it will be able to hold its healthcare costs, on a per employee basis, at 2008 levels through the...

  • Page 32
    ... 1, 2007 to July 24, 2007. The effective tax rate for the year ended December 31, 2008 includes a reduction in income tax benefit resulting from the establishment of a valuation allowance related to certain deferred tax assets for which the realization in future years is not more likely than not as...

  • Page 33
    ... closing of American Home Shield's call center located in Santa Rosa, California. The second phase includes the organization of certain corporate support functions into centers of excellence which are expected to deliver higher quality services to our business units at lower costs, the outsourcing...

  • Page 34
    ... 2008 2007 2006 TruGreen LawnCare(1)- Growth in Full Program Accounts Customer Retention Rate Terminix- Growth in Pest Control Customers Pest Control Customer Retention Rate Growth in Termite Customers Termite Customer Retention Rate American Home Shield- Growth in Warranty Contracts Customer...

  • Page 35
    ... excludes non-cash option and restricted stock expense and non-cash effects on Adjusted EBITDA attributable to the application of purchase accounting in connection with the Merger. The Company presents Comparable Operating Performance because it believes that it is useful for investors, analysts and...

  • Page 36
    ... (i) restructuring charges associated with Project Accelerate, (ii) severance costs and costs related to the consolidation of our corporate headquarters in Memphis, Tennessee, including the closing of our office in Downers Grove, Illinois, (iii) costs to exit leases and severance payments related to...

  • Page 37
    ... most directly comparable financial measure under GAAP, to Adjusted EBITDA and Comparable Operating Performance for the periods presented. Other Operations TruGreen TruGreen American and LawnCare LandCare Terminix Home Shield Headquarters (in thousands) Successor Year Ended Dec. 31, 2008 Operating...

  • Page 38
    Comparable Operating Performance of all other discontinued operations Comparable Operating Performance of discontinued operations $ - -$ - -$ - -$ - -$ 326 326 (5,413)$ (5,413) 35

  • Page 39
    ... as costs associated with Project Accelerate, (ii) severance costs and costs related to the consolidation of our corporate headquarters in Memphis, Tennessee, including the closing of our office in Downers Grove, Illinois, (iii) costs to exit leases and severance payments related to organizational...

  • Page 40
    ...periods for the year ended December 31, 2007. The revenue results were adversely impacted by soft consumer demand and poor weather in early 2008, partially offset by additional seasonal sales of ice-melt materials, improved price realization and increased customer counts. Customer counts at December...

  • Page 41
    ... and training, and (4) increased customer retention from new operating and account management initiatives. Terminix Segment The Terminix segment, which includes termite and pest control services, reported a 0.2 percent increase in revenue for the year ended December 31, 2008 compared to the combined...

  • Page 42
    ... American Home Shield Segment The American Home Shield segment, which provides home warranties to consumers that cover heating, ventilation, air conditioning ("HVAC"), plumbing and other systems and appliances, reported an 8.7 percent increase in revenue for the year ended December 31, 2008 compared...

  • Page 43
    ...not fit within the long-term strategic plans of the Company and committed to a plan to sell the business. InStar provides disaster response and reconstruction services to primarily commercial customers and was previously reported as part of the Company's Other Operations and Headquarters segment. As...

  • Page 44
    ... a $12.9 million ($8.8 million, net of tax) goodwill impairment charge. The Successor period from July 25, 2007 to December 31, 2007 and the Predecessor period from January 1, 2007 to July 24, 2007 compared with the year ended December 31, 2006 The Company reported revenue of $1,934.4 million in the...

  • Page 45
    ... care and related costs did not increase significantly for the combined periods for the year ended December 31, 2007 as inflationary increases were offset by favorable experience in self-insured claims. Changes in short term interest rates have had a beneficial impact on the Company's business on...

  • Page 46
    ... for the year ended December 31, 2007 reflecting (1) the impact to investment gains and income realized on the American Home Shield investment portfolio from revaluing the investment portfolio in purchase accounting, and (2) lower investment income resulting from a decrease in the market value of...

  • Page 47
    ... related to the Company's consolidation of its corporate headquarters into its operations support center in Memphis, Tennessee and closing of its headquarters in Downers Grove, Illinois. Such costs include employee retention and severance costs, lease termination costs, temporary employee staffing...

  • Page 48
    ...of the sales team and reductions in higher margin enhancement revenue. Terminix Segment The Terminix segment, which includes termite and pest control services, reported a 1.5 percent increase in revenue for the combined periods for the year ended December 31, 2007 compared to the year ended December...

  • Page 49
    ... costs, effective management of seasonal staffing of production and sales labor, and reduced overhead spending, offset, in part, by increased provisions for certain legal matters. American Home Shield Segment The American Home Shield segment, which provides home warranties to consumers that cover...

  • Page 50
    ...not fit within the long-term strategic plans of the Company and committed to a plan to sell the business. InStar provides disaster response and reconstruction services to primarily commercial customers and was previously reported as part of the Company's Other Operations and Headquarters segment. As...

  • Page 51
    ...-in acquisition program at Terminix, TruGreen LawnCare and Merry Maids. The change in notes receivable, financial investments and securities for the year ended December 31, 2008 includes an increase in the net sale of marketable securities at American Home Shield due in part to lowering the amount...

  • Page 52
    ...transferred $25 million from the money market funds invested in U.S. Government securities to a money market account used to fund seasonal working capital needs. The Company also made scheduled principal payments of long-term debt of $59.0 million in the year ended December 31, 2008. During the year...

  • Page 53
    ..., is associated with regulatory requirements at American Home Shield and for other purposes. For example, the payment of ordinary and extraordinary dividends to ServiceMaster by our subsidiaries that are regulated as insurance, home warranty or similar companies is subject to applicable state law...

  • Page 54
    ...'s financial position. These actions may include open market debt repurchases, negotiated repurchases and other retirements of outstanding debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, trading levels of the Company's debt from time...

  • Page 55
    ... receivables varies during the year based on seasonality of the business and could, at times, limit the amount available to the Company from the sale of these interests. The accounts receivable securitization arrangement is a 364-day facility that is renewable annually at the option of Funding, with...

  • Page 56
    ... are reported in the Consolidated Statements of Financial Position These amounts represent future interest payments related to the Company's existing debt obligations based on fixed and variable interest rates and principal maturities specified in the associated debt agreements. Payments related to...

  • Page 57
    ... from prior year levels relating to decreased bonus accruals, the payment of employee retention and severance accruals related to the Company's corporate headquarters consolidation plan and payments due under change in control and severance agreements. Other accrued liabilities increased from prior...

  • Page 58
    ...pay all claims that fall within the retention limits. Accruals for self-insurance losses and warranty 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...

  • Page 59
    ... estimates when required to reflect changes based on factors such as changes in tax laws, results of tax authority reviews and statutory limitations. The Company accounts for uncertain tax positions in accordance with FIN 48. Accordingly, the Company reports a liability for unrecognized tax benefits...

  • Page 60
    ... to amortization by business segment as of December 31, 2008, is as follows (in millions): Balance as of Other Balance as of December 31, 2007 Impairment Activity December 31, 2008 TruGreen LawnCare TruGreen LandCare Terminix American Home Shield Other Operations & Headquarters(1) Total $ $ 783...

  • Page 61
    ... date. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company has entered into specific financial arrangements in the normal course of business to manage certain market risks, with a policy of matching positions and limiting the terms...

  • Page 62
    ... statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has elected not to apply the fair value option to any of its financial assets or liabilities. In December 2007, the FASB issued SFAS 141(R), "Business Combinations". This Statement...

  • Page 63
    ... how derivative instruments and related hedged items affect the entity's financial position, results of operations and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company intends to provide these...

  • Page 64
    ... insurance to us; changes in the type or mix of our service offerings or products; existing and future governmental regulation and the enforcement thereof, including regulation relating to restricting or banning of telemarketing, direct mail or other marketing activities, the Termite Inspection...

  • Page 65
    ...consumer spending, labor wages, fuel prices, fertilizer and other material costs, home re-sales, unemployment rates, insurance costs and medical costs could have a material adverse impact on future results of operations. The Company does not hold or issue derivative financial instruments for trading...

  • Page 66
    ... debt as of December 31, 2008 (after considering the effect of the interest rate swap agreements), including the principal cash payments and related weighted-average interest rates by expected maturity dates based on applicable rates at December 31, 2008. Expected Year of Maturity As of December 31...

  • Page 67
    ... opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other...

  • Page 68
    ... of Contents of December 31, 2008 and the related consolidated statements of operations, shareholder's equity, and cash flows for the year ended December 31, 2008 and our report dated March 27, 2009 expressed an unqualified opinion on those financial statements and includes an explanatory paragraph...

  • Page 69
    .... 31, 2008 Dec. 31, 2007 Predecessor Jan. 1, 2007 to Year Ended Jul. 24, 2007 Dec. 31, 2006 Operating Revenue Operating Costs and Expenses: Cost of services rendered and products sold Selling and administrative expenses Amortization expense Trade name impairment Merger related charges Restructuring...

  • Page 70
    ...093,909 3,049,923 Goodwill Intangible assets, primarily trade names, service marks and trademarks, net 2,967,984 3,185,253 25,628 26,401 Notes receivable 110,134 158,939 Long-term marketable securities 35,350 30,334 Other assets 83,014 84,942 Debt issuance costs $7,493,627 $7,591,060 Total Assets 66

  • Page 71
    ... Financial Position (Continued) (In thousands, except share data) Successor As of December 31, 2008 2007 Liabilities and Shareholder's Equity: Current Liabilities: $ 89,242 $ 103,400 Accounts payable Accrued liabilities: 83,036 132,054 Payroll and related expenses 91,923 84,781 Self-insured claims...

  • Page 72
    ... of FIN 48 Shareholders' dividends Shares issued under options, grant plans and other (10,445 shares) Shares issued for acquisitions (56 shares) Balance July 24, 2007 Successor Net loss Other comprehensive income (loss), net of tax: Net unrealized gain on securities Net unrealized loss on derivative...

  • Page 73
    ... of debt issuance costs Deferred income tax (benefit) provision Option and restricted stock expense Trade name impairment Restructuring charges Cash payments related to restructuring charges Merger related charges Change in working capital, net of acquisitions: Change in tax accounts: Current income...

  • Page 74
    ... 2007 to Dec. 31, 2008 Dec. 31, 2007 Predecessor Jan. 1, 2007 to Year Ended Jul. 24, 2007 Dec. 31, 2006 Cash Flows from Financing Activities from Continuing Operations: $ 357,000 $ Borrowings of debt (240,985) Payments of debt - Borrowings under senior secured term loan facility - Borrowings under...

  • Page 75
    ...in 2008 and the sale of American Residential Services and American Mechanical Services in 2006. Basis of Presentation: On March 18, 2007, ServiceMaster entered into the Merger Agreement with Holdings and Acquisition Co. The Merger Agreement provided that, upon the terms and subject to the conditions...

  • Page 76
    ...for warranty 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...

  • Page 77
    ..., as well as home warranty services, 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 warranty contracts) are expensed as incurred. The Company recognizes revenue over the life of...

  • Page 78
    ... Notes to the Consolidated Financial Statements (Continued) Note 1. Significant Accounting Policies (Continued) contracts relating to home warranty, termite baiting, termite inspection, pest control and lawn care services. Deferred Customer Acquisition Costs: Customer acquisition costs, which are...

  • Page 79
    ..., for years beyond the budget, the Company's estimates, which are based on assumed growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. In addition, the market-based comparable and transaction...

  • Page 80
    ... to amortization by business segment as of December 31, 2008, is as follows (in millions): Balance as of Other Balance as of December 31, 2007 Impairment Activity December 31, 2008 TruGreen LawnCare TruGreen LandCare Terminix American Home Shield Other Operations & Headquarters(1) Total $ $ 783...

  • Page 81
    ... approximate fair value as the effective interest rates for these instruments are comparable to market rates at year-end. The year-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...

  • Page 82
    ... related to its uncertain tax positions in income tax expense. Stock-Based Compensation: The Company accounts for stock-based compensation under SFAS 123 (revised 2004), "Share-Based Payment" (SFAS 123(R)), which requires that stock options and share grants be measured at fair value and this value...

  • Page 83
    ... statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has elected not to apply the fair value option to any of its financial assets or liabilities. In December 2007, the FASB issued SFAS 141(R), "Business Combinations". This Statement...

  • Page 84
    ... of ServiceMaster common stock on the NYSE was July 24, 2007. The Company incurred certain costs related to the Merger that are presented as "Merger related charges" in the Consolidated Statements of Operations and are recorded in the Other Operations and Headquarters business segment. For the year...

  • Page 85
    ... Merger related charges 99 Debt issuance costs 239 Repayment of existing indebtedness $5,278 Total uses The excess of the purchase price over the net tangible and intangible assets acquired was recorded as goodwill. The Company recorded purchase accounting adjustments to increase the carrying value...

  • Page 86
    ... Current assets (deferred customer acquisition costs) Current liabilities (primarily deferred revenue) Fixed assets Fair value adjustment to existing debt Other non-current liabilities Historical debt issuance fees written off Deferred taxes Other Allocation of purchase price in excess of historical...

  • Page 87
    ...,542 Interest expense, net (399,789) (402,640) Net loss $ (139,695)$ (138,180) Note 4. Business Segment Reporting The business of the Company is conducted through five reportable segments: TruGreen LawnCare, TruGreen LandCare, Terminix, American Home Shield and Other Operations and Headquarters. 83

  • Page 88
    ... termite and pest control services to residential and commercial customers. The American Home Shield segment provides home warranties to consumers that cover HVAC, plumbing and other home systems and appliances. The Other Operations and Headquarters segment includes the franchised and Company...

  • Page 89
    ... 25, 2007 to Dec. 31, 2008 Dec. 31, 2007 Predecessor Jan. 1, 2007 to Year Ended Jul. 24, 2007 Dec. 31, 2006 Operating Revenue: TruGreen LawnCare TruGreen LandCare Terminix American Home Shield Other Operations and Headquarters Total Operating Revenue Operating Income (Loss):(1,2) TruGreen LawnCare...

  • Page 90
    ..., as well as costs associated with Fast Forward, and payments for employee retention and severance related to the Company's decision to consolidate its corporate headquarters into its operations support center in Memphis, Tennessee and close its former headquarters in Downers Grove, Illinois. The...

  • Page 91
    ... Financial Statements (Continued) Note 4. Business Segment Reporting (Continued) The 2008 and 2007 results also include merger charges related to the purchase of ServiceMaster by a group of investors led by Clayton, Dubilier & Rice, Inc. The merger related charges totaled $1.2 million for the year...

  • Page 92
    ... business was transferred from the American Home Shield segment to the Other Operations & Headquarters segment. Excludes the impact of the Merger on the goodwill of the InStar reporting unit, which was a part of the Other Operations & Headquarters segment prior to being classified as held for sale...

  • Page 93
    ...Financial Statements (Continued) Note 5. Goodwill and Intangible Assets (Continued) The table below summarizes the other intangible asset balances for continuing operations: December 31, 2008... the year ended December 31, 2006, respectively. For the existing intangible assets, the Company anticipates ...

  • Page 94
    ... benefits that, if recognized, would have affected the effective tax rate and $12.9 million that would have been recorded as a purchase accounting adjustment to goodwill. As noted earlier, the FASB issued FAS 141(R) in December 2007 and is effective for fiscal years beginning after December 15, 2008...

  • Page 95
    ... tax positions and favorable state audit settlements. As of December 31, 2007, the Company had accrued for the payment of interest and penalties of approximately $2.4 million. The reconciliation of income tax computed at the U.S. federal statutory tax rate to the Company's effective income tax rate...

  • Page 96
    .... Deferred income tax balances reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The deferred tax asset primarily reflects the impact of future tax deductions related to the Company's accruals...

  • Page 97
    .... The assets and liabilities of these businesses were recorded in the financial statements at their estimated fair values as of the acquisition dates. Current Year During the year ended December 31, 2008, the Company completed several lawn care and pest control acquisitions, along with several Merry...

  • Page 98
    ... the Consolidated Financial Statements (Continued) Note 7. Acquisitions (Continued) Prior Years During the Successor period from July 25, 2007 to December 31, 2007, the Company completed several lawn care and pest control acquisitions for a total net purchase price of $17.9 million. Related to these...

  • Page 99
    ...not fit within the long-term strategic plans of the Company and committed to a plan to sell the business. InStar provides disaster response and reconstruction services to primarily commercial customers and was previously reported as part of the Company's Other Operations and Headquarters segment. As...

  • Page 100
    ...The table below summarizes the activity during the year ended December 31, 2008 for the remaining liabilities from operations that were discontinued in years prior to 2008. The remaining obligations primarily relate to long-term self-insurance claims. The Company believes that the remaining reserves...

  • Page 101
    ... closing of American Home Shield's call center located in Santa Rosa, California. The second phase includes the organization of certain corporate support functions into centers of excellence which are expected to deliver higher quality services to our business units at lower costs, the outsourcing...

  • Page 102
    ...-tax) for the year ended December 31, 2006. These Merger related charges include investment banking, accounting, legal and other costs associated with the Merger, which cannot be capitalized as part of the purchase cost for financial reporting purposes. The Company has change in control severance...

  • Page 103
    ...leases provide that the Company pay taxes, insurance and maintenance applicable to the leased premises. As leases for existing locations expire, the Company expects to renew the leases or substitute another location and lease. Rental expense for the year ended December 31, 2008, the Successor period...

  • Page 104
    ...for warranty 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...

  • Page 105
    ... for a cost of $4.5 million. Note 12. Employee Benefit Plans Effective January 2, 2007, the Company approved a new long-term incentive plan (the "LTIP") designed to reward certain employees based on the accumulated three year Company financial performance against pre-tax income and revenue goals...

  • Page 106
    ...,269) (53,564) Total long-term debt $4,044,823 $4,077,247 • (1) The increase in the balance from 2007 to 2008 reflects the amortization of fair value adjustments related to purchase accounting which effectively increases the stated coupon interest rates. In connection with the completion of the...

  • Page 107
    ... Financial Statements (Continued) Note 14. Long-Term Debt (Continued) The Term Facilities will mature on July 24, 2014. The interest rates applicable to the loans under the Term Facilities are based on a fluctuating rate of interest measured by reference to either, at ServiceMaster's option...

  • Page 108
    ... Notes are effectively junior to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness. During the first quarter of 2009, the Company completed open market purchases of $89.0 million in face value of our Permanent Notes for a cost of...

  • Page 109
    ... and $10 million transferred under the Company's accounts receivable securitization arrangement. Note 15. Cash and Marketable Securities Cash, money market funds and certificates of deposits, with maturities of three months or less, are included in the Statements of Financial Position caption "Cash...

  • Page 110
    ... receivables varies during the year based on seasonality of the business and could, at times, limit the amount available to the Company from the sale of these interests. The accounts receivable securitization arrangement is a 364-day facility that is renewable annually at the option of Funding, with...

  • Page 111
    ...table summarizes the activity in other comprehensive (loss) income and the related tax effects. Successor Year ended Jul. 25, 2007 to Dec. 31, 2008 Dec. 31, 2007 Predecessor Jan. 1, 2007 to Year Ended Jul. 24, 2007 Dec. 31, 2006 (In thousands) Net unrealized (losses)/gains on securities: $ (14,859...

  • Page 112
    .... The Stock Incentive Plan provides for the sale of shares of Holdings stock to ServiceMaster's executive officers, other key employees and directors as well as the grant of deferred share units and options to purchase shares of Holdings to those individuals. The board of directors of Holdings, or...

  • Page 113
    ...by the board of directors of Holdings of the fair market value of the common stock of Holdings as of the purchase/grant date. In 2008, Holdings completed various equity offerings to certain executive officers and key employees pursuant to the Stock Incentive Plan. The shares sold and options granted...

  • Page 114
    ... method as outlined by the SEC in Staff Accounting Bulletins No. 107 and 110. The risk-free interest rates were based on the U.S. Treasury securities with terms similar to the expected lives of the options as of the grant dates. Assumption Year Ended Dec. 31, 2008 Jul. 25 to Dec. 31, 2007 Expected...

  • Page 115
    ... pre-tax. These charges were not included in the statements of operations of the Predecessor or Successor, rather they were reflected as a cost of the Merger. Note 21. Fair Value of Financial Instruments The Company has estimated the fair value of its financial instruments measured at fair value on...

  • Page 116
    ...$ (1) Gains included in earnings are reported in cost of services rendered and products sold. The Company uses fuel swap contracts to mitigate the impact of fluctuations in fuel prices. The Company's exposure to market risk for changes in fuel prices relates to the forecasted consumption of fuel...

  • Page 117
    ... The ServiceMaster NonCompany Guarantors Guarantors Eliminations Consolidated Operating Revenue Operating Costs and Expenses: Cost of services rendered and products sold Selling and administrative expenses Amortization expense Trade name impairment Merger related charges Restructuring charges Total...

  • Page 118
    ...) The ServiceMaster NonCompany Guarantors Guarantors Eliminations Consolidated Operating Revenue Operating Costs and Expenses: Cost of services rendered and products sold Selling and administrative expenses Amortization expense Merger related charges Restructuring charges Total operating costs and...

  • Page 119
    ...) The ServiceMaster NonCompany Guarantors Guarantors Eliminations Consolidated Operating Revenue Operating Costs and Expenses: Cost of services rendered and products sold Selling and administrative expenses Amortization expense Merger related charges Restructuring charges Total operating costs and...

  • Page 120
    ...) The ServiceMaster NonCompany Guarantors Guarantors Eliminations Consolidated Operating Revenue Operating Costs and Expenses: Cost of services rendered and products sold Selling and administrative expenses Amortization expense Merger related charges Restructuring charges Total operating costs and...

  • Page 121
    ...: Accounts payable Accrued liabilities: Payroll and related expenses Self-insured claims and related expenses Other Deferred revenue Liabilities of discontinued operations Current portion of long-term debt Total Current Liabilities Long-Term Debt Other Long-Term Liabilities: Deferred taxes...

  • Page 122
    ...: Accounts payable Accrued liabilities: Payroll and related expenses Self-insured claims and related expenses Other Deferred revenue Liabilities of discontinued operations Current portion of long-term debt Total Current Liabilities Long-Term Debt Other Long-Term Liabilities: Deferred taxes...

  • Page 123
    ... of The ServiceMaster Company - (60,764) - - (60,764) Other business acquisitions, net of cash acquired 1,003 - 94,434 - 95,437 Notes receivable, financial investments and securities (26,108) (132,122) 83,629 - (74,601) Net Cash (Used for) Provided from Investing Activities from Continuing...

  • Page 124
    ... of The ServiceMaster Company Other business acquisitions, net of cash acquired Notes receivable, financial investments and securities Net Cash Used for Investing Activities from Continuing Operations Cash Flows from Financing Activities from Continuing Operations: Payments of debt Borrowings...

  • Page 125
    ... of The ServiceMaster Company - (25,460) - - (25,460) Other business acquisitions, net of cash acquired - - 38,127 - 38,127 Notes receivable, financial investments and securities (4,030) (44,658) 31,853 - (16,835) Net Cash (Used for) Provided from Investing Activities from Continuing Operations...

  • Page 126
    ... (88,560) (57,624) 2,778 - (143,406) Other business acquisitions, net of cash acquired - - (26,495) - (26,495) Notes receivable, financial investments and securities (88,560) (88,275) (42,840) - (219,675) Net Cash Used for Investing Activities from Continuing Operations Cash Flows from Financing...

  • Page 127
    ... of America. As discussed in Note 2 to the consolidated financial statements, effective July 24, 2007, the Company merged with CDRSVM Acquisition Co., Inc. (the "Merger") and all of the outstanding stock of the Company was acquired by ServiceMaster Global Holdings, Inc. in a business combination...

  • Page 128
    ... "Interim Reporting" section in the Significant Accounting Policies, for interim accounting purposes, TruGreen LawnCare and other business segments of the Company incur pre-season advertising costs. In addition, TruGreen LawnCare incurs costs related to annual repairs and maintenance procedures that...

  • Page 129
    ...as well as costs associated with Fast Forward, and payments for employee retention and severance related to the Company's decision to consolidate its corporate headquarters into its operations support center in Memphis, Tennessee and close its former headquarters in Downers Grove, Illinois. The 2006...

  • Page 130
    ... Chief Executive Officer, J. Patrick Spainhour, and ServiceMaster's Senior Vice President and Chief Financial Officer, Steven J. Martin, have evaluated ServiceMaster's disclosure controls and procedures (as defined in Rule 15d-15(e)) as of the end of the period covered by this Annual Report on Form...

  • Page 131
    ... in the audit or review of ServiceMaster's financial statements during the Service Period. Therefore, the Audit Committee concurred in Deloitte's conclusion, reconfirmed in a report to the Audit Committee issued October 21, 2008, that Deloitte's impartiality and objectivity related to its audits of...

  • Page 132
    ... partner's trading activities affected Deloitte's independence in certifying the financial statements of the affected Deloitte clients and, thereby, the compliance of those clients' annual reports with applicable securities laws. Both Deloitte and ServiceMaster continue to believe that actions of...

  • Page 133
    .... Mr. Giuriceo serves on the Board of Directors of Sally Beauty Holdings, Inc. Mr. Wasserman has been with CD&R for ten years. Before joining CD&R, Mr. Wasserman worked in the principal investment area at Goldman, Sachs & Co. and as a management consultant at Monitor Company. Mr. Wasserman serves on...

  • Page 134
    ... Chief Executive Officer of Ann Taylor Stores Corporation, a women's specialty retailer, from 1996 to 2005. Mr. Spainhour serves on the Board of Directors of Circuit City Stores, Inc. and Tupperware Brands Corporation. Steven J. Martin has served as Senior Vice President and Chief Financial Officer...

  • Page 135
    ... and Chief Information Officer for American Home Shield from October 1994 to August 2007. Peter L. Tosches has served as Vice President, Corporate Communications since December 2007. Prior to joining ServiceMaster, Mr. Tosches served as Director, Internal Communications of Mars North America...

  • Page 136
    ...2006, and served as Division Vice President of Terminix from December 1997 to January 2005. David J. Crawford has served as President and Chief Operating Officer of American Home Shield since March 2006. Mr. Crawford served as Senior Vice President, Sales of American Home Shield from January 2005 to...

  • Page 137
    ... plans for executive officers are designed to: • • attract, motivate and retain highly qualified executives; reward successful performance by the executives and the Company by linking a significant portion of compensation to financial and business results; and align our executives' long-term...

  • Page 138
    ...the Company, and the competitive market data presented to the Board by our Senior Vice President, Human Resources. The Chief Executive Officer recommends compensation for the Company's other executive officers based on his assessment of each executive officer's individual responsibility, performance...

  • Page 139
    ... of our CEO was 102% of the market data at the market median of the Peer Group, and base salary for all Named Executive Officers was a collective average of 92% of the market data at the market median of the Peer Group. Base salaries for executive officers are reviewed annually by the Board during...

  • Page 140
    ...) financial performance goals. To encourage greater focus on long-term performance, in connection with Holdings' implementation of the MSIP, we reduced targets under our Annual Bonus Plan to market median for certain executives, including our Named Executive Officers, and eliminated the Corporate...

  • Page 141
    ... budget for the year. In the event the Company and, where applicable, the business unit achieve the performance targets, payout under the Annual Bonus Plan would be 100% of a specified percentage of the executive's base salary. In the event the Company and, where applicable, the business unit do not...

  • Page 142
    ...52% Business Unit Corporate Corporate Corporate Terminix SVMClean The percentages of Target Bonus Earned for Messrs. Martin, Brackett, and Isakson reflect the inclusion of the bridge bonus as set forth in the "2008 ABP Payments" table below. Mr. Sutton and Ms. Goettel terminated employment in 2008...

  • Page 143
    ... of Contents 2008 Annual Bonus Plan Payout The following table sets forth information regarding the Annual Bonus Plan payments to the Named Executive Officers. 2008 ABP Payments Actual Actual Target Target % of $ of Total % of % of Salary Bonus Bridge Bonus Named Executive Officer Salary Salary...

  • Page 144
    ... made in 2008. Any payments under the LTIP are to be made by March 15, 2010. MSIP The MSIP provides certain key employees of ServiceMaster with the opportunity to invest in shares of Holdings common stock and to receive options to purchase shares of Holdings common stock. Our executive officers are...

  • Page 145
    ... The options held by the Named Executive Officers are set forth in the "2008 Outstanding Equity Awards at Fiscal Year-End" table below. Retirement Benefits Employees, including the Named Executive Officers, are generally eligible to participate in the ServiceMaster Profit Sharing and Retirement Plan...

  • Page 146
    ... and in order to help position the Company to withstand the effects of any loss of revenue resulting from the current economic downturn, the Company's executive committee, which includes all of the Named Executive Officers still employed by the Company, chose to forego any salary increases in 2009...

  • Page 147
    ...Principal Position Year Salary ($) Non-Equity Stock Option Incentive Plan All Other Bonus Awards Awards Compensation Compensation ($)(1) ($)(2) ($)(3) ($)(4) ($)(5) Total ($) J. Patrick Spainhour Chief Executive Officer Steven J. Martin Senior Vice President and Chief Financial Officer Greerson...

  • Page 148
    ... membership fees for one business and social dining club of $1,485. The incremental cost of the use of Company aircraft is calculated based on the variable operating costs to ServiceMaster, including fuel costs, mileage, trip-related maintenance, universal weather-monitoring costs, on-board catering...

  • Page 149
    ... Spainhour to serve as our Chief Executive Officer effective as of June 30, 2006. The original term of the employment agreement ended on December 31, 2008, and was renewed through December 31, 2009. The agreement automatically renews each year unless terminated by ServiceMaster or Mr. Spainhour. The...

  • Page 150
    ...Executive Officer in 2008, and no stock vested during 2008 as the Company does not have a plan that includes restricted stock. 2008 Outstanding Equity Awards at Fiscal Year-End Option Awards Named Executive Officer Award Type Options Grant Date Number of Securities Underlying Unexercised Options...

  • Page 151
    ... participant's termination of employment, (ii) a fixed date selected by the participant, or (iii) a change in control of Holdings. Deferred share units were acquired for $10 per deferred share unit. Messrs. McMullen, Isakson and Brackett are the only Named Executive Officers who elected to allocate...

  • Page 152
    ...the business affairs or reputation of the Company or an affiliated company. "Good reason" means a material reduction in position, duties or responsibilities, a transfer of the executive's home office by more than 40 miles, a reduction in salary, a failure to maintain substantially comparable benefit...

  • Page 153
    ...'s participation in the MSIP satisfied all of the Company's obligations to provide long-term incentive opportunities under his change in control severance agreement; and the annual bonus plan in which the officer participated on the date of his purchase of shares under the MSIP satisfied all of the...

  • Page 154
    ... achievement of the applicable pre-tax income and revenue goals through the end of the month immediately prior to the date of termination. MSIP If an executive's employment is terminated by the Company with cause before there is a public offering of Holdings shares, all options (vested and unvested...

  • Page 155
    ... term, after which date such options are cancelled. If an executive's employment terminates voluntarily before there is a public offering of the shares, all unvested options are immediately cancelled and Holdings and certain Equity Sponsors have the right to purchase the shares at fair market value...

  • Page 156
    ... effective September 12, 2008, Mr. Sutton was entitled to change in control severance benefits for good reason. Under the terms of the MSIP, Mr. Sutton's options to purchase shares of Holdings common stock, all of which were unvested, were canceled upon Mr. Sutton's termination of employment...

  • Page 157
    ... Item 11 of this Annual Report on Form 10-K; and all of our executive officers and directors as a group. The amounts and percentages of shares beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under SEC rules...

  • Page 158
    ... The ServiceMaster Company, 860 Ridge Lake Boulevard, Memphis, Tennessee 38120. Name of Beneficial Owner Number of Shares Owned Percent of Class (%) Clayton, Dubilier & Rice Fund VII, L.P. and related funds(1) Citigroup Private Equity LP managed funds(2) BAS Capital Funding Corporation and related...

  • Page 159
    ...shares. All executive officers as a group have the right to acquire 900,675 shares prior to May 14, 2009 through the exercise of stock options. All employees of the Company as a group held 2,125,238 shares of common stock as of December 31, 2008, constituting 1.46% of the total ownership of Holdings...

  • Page 160
    ... shares in Holdings, our indirect parent company, to be issued upon the exercise of outstanding options granted under the MSIP. Number of Securities Number of Remaining Available for Securities to Future Issuance Under be Issued Upon Equity Compensation Exercise of Weighted Average Plans (excluding...

  • Page 161
    ... Vice Chairman and Chief Financial Officer. Hinshaw & Culbertson served as one of our casualty program law firms prior to Ernest Mrozek's becoming employed by ServiceMaster. Ernest Mrozek did not have management responsibility for our litigation program. Stockholders Agreement On the Closing Date...

  • Page 162
    ... complete. If an individual designated by CD&R serves in an executive management position, Holdings will pay CD&R an additional fee to be reasonably determined by CD&R, but not to exceed the amount of the annual fee then in effect. The Company recorded a management fee of $2 million for the year...

  • Page 163
    ...-related fees" are fees for assurance and related services that are reasonably related to the performance of the audit or review of ServiceMaster's financial statements; "tax fees" are fees for tax compliance, tax advice and tax planning; and "all other fees" are fees for any products and services...

  • Page 164
    ... Public Accounting Firm contained in Part II, Item 8 of this Annual Report on Form 10-K. Consolidated Statements of Financial Position as of December 31, 2008 and 2007 (Successor) contained in Part II, Item 8 of this Annual Report on Form 10-K. Consolidated Statements of Operations for the year...

  • Page 165
    .... Signature Title Date /s/ J. PATRICK SPAINHOUR Chief Executive Officer (Principal Executive Officer) March 30, 2009 J. Patrick Spainhour /s/ STEVEN J. MARTIN Steven J. Martin Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) March 30...

  • Page 166
    ... PUBLIC ACCOUNTING FIRM To the Board of Directors The ServiceMaster Company Memphis, Tennessee We have audited the consolidated statements of financial position of The ServiceMaster Company and subsidiaries (the "Company") as of December 31, 2008 and 2007 (Successor Company), and the related...

  • Page 167
    ...at Beginning of Period Additions Charged to Balance at Costs and End of Expenses Deductions(1) Period AS OF AND FOR THE YEAR ENDING DECEMBER 31, 2008 (SUCCESSOR) Continuing Operations- Allowance for doubtful accounts Accounts receivable Notes receivable Income tax valuation allowance $ 19,420 $ 36...

  • Page 168
    ... Bank, N.A., as administrative agent, is incorporated by reference to Exhibit 4.2 to the registrant's Current Report on Form 8K dated July 24, 2008. First Supplemental Indenture, dated August 13, 2008, among TruGreen LandCare, The ServiceMaster Company, each existing Subsidiary Guarantor under the...

  • Page 169
    ... by reference to Exhibit 10.3 to the 2007 8-K. Security Agreement, dated as of July 24, 2007, made by the Company and ServiceMaster Consumer Services Limited Partnership, in favor of the Term Loan Collateral Agent and Term Loan Administrative Agent is incorporated by reference to Exhibit 10.4 to the...

  • Page 170
    ... Statement relating to The ServiceMaster Company's 2003 Annual Meeting of Shareholders held May 21, 2003. ServiceMaster Deferred Compensation Plan, as amended and restated effective January 1, 2005, is incorporated by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K dated...

  • Page 171
    ... to the Current Report on Form 8-K dated December 23, 2008. Ratio of Earnings to Fixed Charges Subsidiaries. Certification of Chief Executive Officer pursuant to Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer pursuant to...

  • Page 172
    ...-Oxley Act of 2002. 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. 32.2†* †Indicates compensatory plan, contract or arrangement. Filed herewith 168

  • Page 173

  • Page 174
    QuickLinks -- Click here to rapidly navigate through this document Exhibit 12 RATIOS OF EARNINGS TO FIXED CHARGES Our consolidated ratios of earnings to fixed charges for the year ended December 31, 2008, the Successor period from July 25, 2007 to December 31, 2007, the Predecessor period from ...

  • Page 175
    QuickLinks Exhibit 12

  • Page 176
    ...Services, Inc. ServiceMaster Consumer Services Limited Partnership ServiceMaster Employer Services, Inc. ServiceMaster Funding Company LLC ServiceMaster Gift L.L.C. ServiceMaster Holding Corporation ServiceMaster International Holdings, Inc. ServiceMaster Limited ServiceMaster Management Corporation...

  • Page 177
    ...Steward Insurance Company Terminix International, Inc. Terminix International, S.A. The ServiceMaster Acceptance Company Limited Partnership The ServiceMaster Foundation The Terminix International Company Limited Partnership TruGreen Companies L.L.C. TruGreen Home Landscape Services, L.L.C. TruGreen...

  • Page 178
    QuickLinks Exhibit 21

  • Page 179
    ... OF CHIEF EXECUTIVE OFFICER I, J. Patrick Spainhour, certify that: 1. 2. I have reviewed this annual report on Form 10-K of The ServiceMaster Company; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the...

  • Page 180
    QuickLinks Exhibit 31.1

  • Page 181
    ...CHIEF FINANCIAL OFFICER I, Steven J. Martin, certify that: 1. 2. I have reviewed this annual report on Form 10-K of The ServiceMaster Company; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements...

  • Page 182
    QuickLinks Exhibit 31.2

  • Page 183
    ... United States Code I, J. Patrick Spainhour, the Chief Executive Officer of The ServiceMaster Company, certify that (i) the Annual Report on Form 10-K for the year ended December 31, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii...

  • Page 184
    QuickLinks Exhibit 32.1

  • Page 185
    ...Code I, Steven J. Martin, the Senior Vice President and Chief Financial Officer of The ServiceMaster Company, certify that (i) the Annual Report on Form 10K for the year ended December 31, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and...

  • Page 186
    QuickLinks Exhibit 32.2