American Home Shield 2015 Annual Report Download

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Annual Report 2015

Table of contents

  • Page 1
    Annual Report 2015

  • Page 2
    ... Flow means (i) net cash provided from operating activities from continuing operations before: call premium paid on retirement of debt; premium received on issuance of debt; cash paid for consulting agreement termination fees; and excess tax benefits from stock-based compensation; (ii) less property...

  • Page 3
    ... from the CEO Dear Investors, Customers, Employees and Franchisees, On behalf of our 13,000 employees, I'm proud to share our 2015 Annual Report and highlight some of the stories that drove our success in the past year, culminating in a spot among Fortune magazine's World's Most Admired Companies...

  • Page 4
    ... and contractors with better technology and tools that make it easier to do business with us - when they want, where they want and how they want. "We're excited about ServSmart, because it is changing the way people buy home services and it enables us to grow," said Rob Gillette, ServiceMaster CEO...

  • Page 5
    ... services from us in digital ways that are most convenient for them," said Jamie Smith, chief information officer, ServiceMaster. "We're also changing the way we communicate in the marketplace and creating a new level of accountability. It's an exciting time for the company." 2015 Annual Report...

  • Page 6
    ...customer calls. But when you ask DiMatteo, a lead customer service representative for American Home Shield (AHS), her customers and co-workers, you'll hear a very different story. DiMatteo was contacted in September 2015 by a distraught customer who'd been living with a malfunctioning heating system...

  • Page 7
    ... the new online reservation system," said Rob Jackson, A-US Air Conditioning and AHS contractor Jackson. "We have a lot of confidence in our partnership with ServiceMaster. They trust us because we stand behind our work. We trust them because they empower us to do our job." 2015 Annual Report 5

  • Page 8
    ...network shares our commitment to superior customer service. Whether they are part of ServiceMaster Clean, ServiceMaster Restore, Merry Maids, Furniture Medic or AmeriSpec, the hard work and dedication of our franchisees is helping to transform our business." Marty Wick, president, Franchise Services...

  • Page 9
    ... community organizations they support directly. In 2015, ServiceMaster distributed 25 Dollars for Doers grants to employees who donated 40-plus hours of volunteer time or served on boards of non-profit organizations. Volunteer Hours (2015) 14,000+ valued at more than $300,000 Annual We Serve Day...

  • Page 10
    ... valued customers, across every touch point. Our vision to be the leading provider of essential services for homes and businesses begins with our people who have been delivering dependable and accessible services for 87 years. Learn more at ServiceMaster.com and follow us on Twitter @ServiceMaster...

  • Page 11
    ... for serving our customers for many years to come. My goal is to deliver a quality product to my customer. I look at the most critical factors impacting a project's implementation and find the best solution for success. Rajeena Choran Business Analyst, American Home Shield 2015 Annual Report 9

  • Page 12
    ..., to deliver memorable customer experiences. "It's not just about negotiating better pricing and cost savings," said Mary Kay Wegner, senior vice president, service and operations, Terminix, who also oversees supply management for ServiceMaster. "We view supply management in terms of selecting and...

  • Page 13
    ...2016. Our mobile experience will travel to approximately 70 markets in the United States and Canada in 2016. We're also taking the #ServiceMasterExperience to company locations along the way, so our employees get a first-hand look at all of the expert services we offer customers. Our franchisees and...

  • Page 14
    ... Terminix and ServiceMaster," said Bill Derwin, president, Terminix. "We will continue to drive our organic growth, add new services and make strategic acquisitions. This will allow us to leverage our technical expertise, marketing strength and systems to provide value to new and existing customers...

  • Page 15
    ...,000 online sales transactions," said Tim Haynes, president, American Home Shield. "Our sales through mobile devices increased more than 300 percent over the previous year and 26 percent of AHS service requests were made online, without ever having to speak with a customer service representative. We...

  • Page 16
    Board of Directors John Krenicki, Jr.5 Chairman of the Board, ServiceMaster Operating Partner, Clayton, Dubilier & Rice Robert J. Gillette Chief Executive Officer, ServiceMaster 4 Stephen J. Sedita1 (A, C) Retired Executive, General Electric Thomas C. Tiller, Jr.3 (C, N) Retired Executive, Abound ...

  • Page 17
    ... Jamie Smith7 Senior Vice President and Chief Information Officer Peter Tosches10 Senior Vice President, Corporate Communications Mary Kay Wegner2 Senior Vice President, Service and Operations, Terminix Marty Wick1 President, Franchise Services Group 5 7 1 2 3 10 9 8 4 6 2015 Annual Report 15

  • Page 18
    ... years ending December 31, 2015 Income from Continuing Operations Amortization expense 401(k) Plan corrective contribution Impairment of software and other related costs Consulting agreement termination fees Restructuring charges Gain on sale of Merry Maids branches Management and consulting fees...

  • Page 19
    ... 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) Securities registered pursuant to Section 12 (b) of the Act: Common stock, par value $0.01 per share...

  • Page 20
    ...executive officers may be affiliates) was approximately $3,814 million based on the closing price of common stock on the NYSE on June 30, 2015 of $36.17 per share. The number of shares of the registrant's common stock outstanding as of February 19, 2016: 135,575,559 shares of common stock, par value...

  • Page 21
    ... Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Exhibits and Financial Statement Schedules Item...

  • Page 22
    ... or businesses, typically their most highly valued assets. We have leading market positions across the majority of the markets we serve, as measured by customer-level revenue. Our portfolio of well-recognized brands includes Terminix (termite and pest control), American Home Shield (home warranties...

  • Page 23
    ... the value proposition of professional preventative termite services. As a result, the termite control industry experiences high renewal rates on annual preventative inspection and treatment contracts, and revenues from such contracts are generally stable and recurring. 5 2015 Annual Report 21

  • Page 24
    ... of termite and pest control services which are contracted and recurring, as well as the high renewal rates for those services, limit the effect of weather anomalies on the termite and pest control industry in any given year. Home Warranty Industry We estimate that the U.S. home warranty market was...

  • Page 25
    ... and commercial services. The effectiveness of our marketing efforts is demonstrated by an increase in lead generation and online sales, as well as an improvement in close rates over the last few years. For example, in our direct-to-consumer channel at American Home Shield, new home warranty lead...

  • Page 26
    ... Direct-to-consumer through our company-owned branches; Indirectly through partnerships with high-quality contractors in our home warranty business; and Through trusted service providers who are franchisees. To accelerate new customer growth, we make strategic investments in sales, marketing and...

  • Page 27
    ...our estimate of sales generated by our franchisees, a portion of which is included in our reported revenue from royalty fees, and sales generated by our company-owned operations. Terminix Competitive Strengths 1 market position and #1 recognized brand in U.S. termite and pest control services Track...

  • Page 28
    ..., American Home Shield operates and takes service calls 24 hours a day, seven days a week. Furthermore, as a result of our large contractor network and sophisticated IT systems, approximately 90 percent of the time we successfully assign contractors to a job within 15 minutes or less. American Home...

  • Page 29
    .... In our Terminix and American Home Shield segments, California, Texas and Florida collectively accounted for approximately one-third of the revenue in 2015. Competition We compete in residential and commercial services industries, focusing on termite and pest control, home warranties, disaster...

  • Page 30
    ... window to customers. Similarly, American Home Shield's call centers, which operate and take service calls 24 hours a day, seven days a week, successfully assign contractors to a job within 15 minutes or less approximately 90 percent of the time. Employees The average number of persons employed by...

  • Page 31
    ... requirements and deal with franchisees and licensees in good faith. From time to time, we and one or more franchisees may become involved in a dispute regarding the franchise relationship, including payment of royalties or fees, location of branches, advertising, purchase of products by franchisees...

  • Page 32
    ...Texas and Florida, which collectively represented approximately one-third of our revenue in 2015 in our Terminix and American Home Shield segments, could affect the demand for our services. Consumer spending and confidence tend to decline during times of declining economic conditions. A worsening of...

  • Page 33
    ... cannot travel to service locations due to hazardous road conditions. In addition, extreme temperatures can lead to an increase in service requests related to household systems and appliances in our American Home Shield business, resulting in higher claim frequency and costs and lower profitability...

  • Page 34
    ... relating to consumer protection, wage and hour requirements, franchising, the employment of immigrants, labor relations, permitting and licensing, building code requirements, workers' safety, the environment, insurance and home warranties, employee benefits, marketing (including, without limitation...

  • Page 35
    ... our new services or products or sales and marketing plans, could cause us to re-evaluate or change our business strategies and could have a material adverse impact on our reputation, business, financial position, results of operations and cash flows and our future plans. 17 2015 Annual Report 33

  • Page 36
    ...our services and products and could result in a violation of applicable laws, regulations, orders, industry standards or agreements and subject us to costs, penalties and liabilities which could have a material adverse impact on our reputation, business, financial position, results of operations and...

  • Page 37
    ..., reputation, customer relationships, financial position, results of operations and cash flows. Also, to the extent 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...

  • Page 38
    ... or with comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic downturns; our ability to refinance indebtedness may be limited or the associated costs may increase; our flexibility to adjust to changing market conditions and ability...

  • Page 39
    ... obligations to fund general corporate expenses or service our debt obligations. These restrictions are related to regulatory requirements at American Home Shield and to a subsidiary borrowing arrangement at ServiceMaster Acceptance Company Limited Partnership ("SMAC"). The payment of ordinary and...

  • Page 40
    ... costs and a diversion of our management's attention and resources, which would harm our business, operating results and financial condition. Future sales of shares by existing stockholders could cause our stock price to decline. Sales of substantial amounts of our common stock in the public market...

  • Page 41
    ... Revenue Service limits, during pre specified offering periods at a discount established by the Company not to exceed ten percent of the then current fair market value. On April 27, 2015, our stockholders approved the Employee Stock Purchase Plan with a maximum of one million shares of common stock...

  • Page 42
    ... of our subsidiaries to pay dividends or otherwise transfer assets to us. In addition, the payment of ordinary and extraordinary dividends by our subsidiaries that are regulated as insurance, home service, or similar companies is subject to applicable state law limitations, and Delaware law may...

  • Page 43
    ... between the companies. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES The headquarters for Terminix, along with the corporate headquarters, are located in leased premises at 860 Ridge Lake Boulevard, Memphis, Tennessee. The headquarters for American Home Shield are located in leased...

  • Page 44
    ... the corporate headquarters, call center facilities, offices and training facilities described above, are suitable and adequate to support the current needs of its business. Reportable Segment Owned Facilities Leased Facilities Terminix American Home Shield Franchise Services Group ITEM 3. LEGAL...

  • Page 45
    .... Any future determination to pay dividends on our common stock is subject to the discretion of our board of directors and will depend upon various factors, including our results of operations, financial condition, liquidity requirements, capital requirements, level of 27 2015 Annual Report 43

  • Page 46
    ... Securities Total number of shares purchased as part of publicly announced plans or programs Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs Period Total number of shares purchased(1) Average price paid per share Oct. 1, 2015 through...

  • Page 47
    ... per share data) 2015 Year Ended December 31, 2014 2013 2012 2011 Operating Results: Revenue Cost of services rendered and products sold Selling and administrative expenses 401(k) Plan corrective contribution(1) Impairment of software and other related costs(2) Consulting agreement termination fees...

  • Page 48
    ... expense), restructuring initiatives, consulting agreements and equity-based, long-term incentive plans, which may vary for different companies for reasons unrelated to operating performance. Adjusted EBITDA is not necessarily comparable to other similarly titled financial measures of other...

  • Page 49
    ... millions) 2015 Year Ended December 31, 2014 2013 2012 2011 Adjusted EBITDA: Terminix American Home Shield Franchise Services Group Reportable Segment Adjusted EBITDA Corporate(a) Total Adjusted EBITDA Depreciation and amortization expense 401(k) Plan corrective contribution(b) Non-cash stock-based...

  • Page 50
    ...(In millions) 2015 Year Ended December 31, 2014 2013 2012 2011 Net Cash Provided from Operating Activities from Continuing Operations Call premium paid on retirement of debt Premium received on issuance of debt Cash paid for consulting agreement termination fees Excess tax benefits from stock-based...

  • Page 51
    ...three reportable segments: Terminix, American Home Shield and Franchise Services Group. Management Change On September 22, 2015, our board of directors appointed Mark J. Barry as our Chief Marketing & Strategy Officer. Prior to his promotion, Mr. Barry served as Group President, American Home Shield...

  • Page 52
    ... revenue generating businesses in order to track the performance of those businesses. Customer counts represent our recurring customer base, which includes customers with active contracts for recurring services and excludes customers who purchased a service we consider non-recurring. At Terminix...

  • Page 53
    ...105.25% of the principal amount. In connection with the redemption, we recorded a loss on extinguishment of debt of $31 million in the year ended December 31, 2015, which includes a pre-payment premium of $25 million and the write-off of $6 million of debt issuance costs. 35 2015 Annual Report 51

  • Page 54
    ... Review" for a discussion of the drivers of the year-over-year changes. American Home Shield Franchise Services Group (In millions) Terminix Corporate Total Year Ended December 31, 2013 Pest Control Termite and Other Services(1) Home Warranties(2) Franchise-Related Revenue Other Year Ended...

  • Page 55
    ... as a result of lower fuel prices in 2015. The increase in contract claims cost at American Home Shield was driven by an increase in the average cost per service request associated with appliance repairs due to greater use of more expensive out-of-network contractors, largely in the fourth quarter...

  • Page 56
    ... and Corporate: American Home Shield Franchise Services Group (In millions) Terminix Corporate Total Year Ended December 31, 2013 HSA selling and administrative expenses Sales and marketing costs Legal and tax-related reserves Cost reduction initiatives Technology costs Key executive transition...

  • Page 57
    ... in the year ended December 31, 2014 relating to our decision in the first quarter of 2014 to abandon our efforts to deploy a new operating system at American Home Shield. Consulting Agreement Termination Fees On July 1, 2014, in connection with the completion of our initial public offering, we...

  • Page 58
    ... of software and other related costs at American Home Shield recorded in the year ended December 31, 2014 as described in "-Impairment of Software and Other Related Costs." Represents the $23 million charge recorded in the year ended December 31, 2015 related to the 401(k) Plan as described in "-401...

  • Page 59
    ...HSA accounts, the customer retention rate for our American Home Shield segment was 76 percent. (2) Terminix Segment The Terminix segment, which provides termite and pest control services to residential and commercial customers and distributes pest control products, reported a five percent increase...

  • Page 60
    ... conditions and consumer awareness of termite swarms. Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 Pest control revenue increased four percent compared to 2013, reflecting improved price realization, a favorable product mix and the introduction of a new mosquito service...

  • Page 61
    ... legal matters. American Home Shield Segment The American Home Shield segment, which provides home warranties for household systems and appliances, reported an 11 percent increase in revenue and a 15 percent increase in Adjusted EBITDA for the year ended December 31, 2015 compared to the year ended...

  • Page 62
    ... repair) and AmeriSpec (home inspection) businesses, reported an eight percent decrease in revenue and a one percent decrease in Adjusted EBITDA for the year ended December 31, 2015 compared to the year ended December 31, 2014. The Franchise Services Group segment reported a seven percent increase...

  • Page 63
    ... and workers' compensation insurance program was driven by adverse claims trends. The cost reduction initiatives were primarily driven by the transfer of employees to New TruGreen in combination with fees received under the transition services agreement with New TruGreen. 45 2015 Annual Report 61

  • Page 64
    ... services agreement with New TruGreen pursuant to which we provide New TruGreen with specified communications, public relations, finance and accounting, tax, treasury, internal audit, human resources operations and benefits, risk management and insurance, supply management, real estate management...

  • Page 65
    ... stock. We expect to fund the share repurchases from operating cash flow. Cash and short- and long-term marketable securities include balances associated with regulatory requirements at American Home Shield. See "-Limitations on Distributions and Dividends by Subsidiaries." American Home Shield...

  • Page 66
    ...$42 million of available cash was used to pay debt issuance costs of $24 million and to pay original issue discount of $18 million in connection with the Term Loan Facility. On July 23, 2014, we entered into two four-year interest rate swap agreements effective August 1, 2014. The aggregate notional...

  • Page 67
    ... in excess tax benefits from stock-based compensation expense. For the year ended December 31, 2015, working capital requirements were negatively impacted by the timing of interest payments driven by the redemption of the 2020 Notes, offset, in part, by favorable changes in the payment terms with...

  • Page 68
    ... issue discount, paid $5 million in debt issuance costs, recognized $13 million in excess tax benefits from the exercise of stock options and vesting of RSUs and received $16 million from the issuance of common stock. On July 1, 2014, we completed the initial public offering of 41,285,000 shares...

  • Page 69
    ... reflecting the change in the timing of payments to vendors. Accrued interest payable decreased from prior year levels, reflecting the reduction in long-term debt. Deferred revenue increased from prior year levels, primarily reflecting customer growth American Home Shield. 51 2015 Annual Report 67

  • Page 70
    ... of our obligations under the contracts and are representative of the relative value provided to the customer (proportional performance method). Accruals for home warranty claims at American Home Shield are made based on our claims experience and actuarial projections. The Company's actuary performs...

  • Page 71
    ... estimated 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 approaches utilize comparable company public trading values, comparable...

  • Page 72
    ...home warranty claims; estimates of future payments under operating and capital leases; estimates on current and deferred tax provisions; the outcome (by judgment or settlement) and costs of legal or administrative proceedings, including, without limitation, collective, representative or class action...

  • Page 73
    ... ABOUT MARKET RISK The economy and its impact on discretionary consumer spending, labor wages, fuel prices and other material costs, home resales, unemployment rates, insurance costs and medical costs could have a material adverse impact on future results of operations. 55 2015 Annual Report 71

  • Page 74
    ... into specific financial arrangements, primarily fuel swap agreements and interest rate swap agreements, in the normal course of business to manage certain market risks, with a policy of matching positions and limiting the terms of contracts to relatively short durations. The effect of derivative...

  • Page 75
    ... PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of ServiceMaster Global Holdings, Inc. Memphis, Tennessee We have audited the accompanying consolidated statements of financial position of ServiceMaster Global Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2015...

  • Page 76
    ... share data) Year Ended December 31, 2014 2015 2013 Revenue Cost of services rendered and products sold Selling and administrative expenses Amortization expense 401(k) Plan corrective contribution Impairment of software and other related costs Consulting agreement termination fees Restructuring...

  • Page 77
    ..., primarily trade names, service marks and trademarks, net Notes receivable Long-term marketable securities Other assets Total Assets Liabilities and Shareholders' Equity: Current Liabilities: Accounts payable Accrued liabilities: Payroll and related expenses Self-insured claims and related expenses...

  • Page 78
    ... Equity 2015 Annual Report $ $ $ $ Balance December 31, 2012 Net loss Other comprehensive income, net of tax Total comprehensive loss Issuance of common stock Exercise of stock options Vesting of RSUs DSUs converted into common stock Repurchase of common stock Stock-based employee compensation...

  • Page 79
    ... related costs Gain on sale of Merry Maids branches Loss on extinguishment of debt Call premium paid on retirement of debt Deferred income tax provision Stock-based compensation expense Excess tax benefits from stock-based compensation Gain on sale of marketable securities Other Change in working...

  • Page 80
    ..., furniture repair and home inspection. The Company provides these services through an extensive service network of company-owned, franchised and licensed locations operating primarily under the following leading brands: Terminix, American Home Shield, ServiceMaster Restore, ServiceMaster Clean...

  • Page 81
    ... Company had $552 million and $514 million of deferred revenue as of December 31, 2015 and 2014, respectively. Deferred revenue consists primarily of payments received for annual contracts relating to home warranties, termite baiting, termite inspection and pest control services. Deferred Customer...

  • Page 82
    ..., net of tax) in the year ended December 31, 2014 related to its decision in the first quarter of 2014 to abandon its efforts to deploy a new operating system at American Home Shield. This impairment represented an adjustment of the carrying value of the asset to its estimated fair value of zero on...

  • Page 83
    ... to make funds available to the Company through the payment of dividends. Financial Instruments and Credit Risk 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 of...

  • Page 84
    ... in accounting for revenue arising from contracts with customers. This model supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that "an entity recognizes revenue to depict the transfer of promised goods or services...

  • Page 85
    ..., 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...

  • Page 86
    ... operations for each reportable segment and Corporate is presented below: (In millions) 2015 Year Ended December 31, 2014 2013 Revenue: Terminix American Home Shield Franchise Services Group Reportable Segment Revenue Corporate Total Revenue Reportable Segment Adjusted EBITDA:(1) Terminix American...

  • Page 87
    ...2015 Year Ended December 31, 2014 2013 (In millions) Reportable Segment Adjusted EBITDA: Terminix American Home Shield Franchise Services Group Reportable Segment Adjusted EBITDA Unallocated corporate expenses Depreciation and amortization expense 401(k) Plan corrective contribution Non-cash stock...

  • Page 88
    ... as follows: (In millions) 2015 Year Ended December 31, 2014 2013 Gross unrecognized tax benefits at beginning of period Increases in tax positions for prior years Increases in tax positions for current year Lapse in statute of limitations Gross unrecognized tax benefits at end of period $ $ 13...

  • Page 89
    ... statutory tax rate to the Company's effective income tax rate for continuing operations is as follows: 2015 Year Ended December 31, 2014 2013 Tax at U.S. federal statutory rate State and local income taxes, net of U.S. federal benefit Tax credits Other permanent items Stock option forfeitures...

  • Page 90
    ... were recorded in the financial statements at their estimated fair values as of the acquisition dates. 2015 During the year ended December 31, 2015, the Company completed several pest control and termite acquisitions. The total net purchase price for these acquisitions was $125 million. The...

  • Page 91
    ... services agreement with New TruGreen pursuant to which the Company provides New TruGreen with specified communications, public relations, finance and accounting, tax, treasury, internal audit, human resources operations and benefits, risk management and insurance, supply management, real estate...

  • Page 92
    ... Company has agreed to retain liability, as well as insurance coverage, non-competition, indemnification and other matters), (2) an employee matters agreement allocating liabilities and responsibilities relating to employee benefit plans and programs and other related matters and (3) a tax matters...

  • Page 93
    ...and 2013. Represents severance costs. Represents restructuring charges related to an initiative to enhance capabilities and reduce costs in the Company's headquarters functions that provide company-wide administrative services for its operations. For the years ended December 75 2015 Annual Report 91

  • Page 94
    ... American Home Shield business are made based on the Company's claims experience and actuarial projections. Termite damage claim accruals in the Terminix business are recorded based on both the historical rates of claims incurred within a contract year and the cost per claim. Current activity could...

  • Page 95
    ... on an individual, collective, representative and class action basis, or other proceedings involving regulatory, employment, general and commercial liability, automobile liability, wage and hour, environmental and other matters. The Company has entered into settlement agreements in certain cases...

  • Page 96
    ... consolidated statements of operations and comprehensive income (loss). Due to the termination of the consulting agreements, there were no consulting fees recorded in the year ended December 31, 2015. Note 11. Employee Benefit Plans Discretionary contributions to the Company's 401(k) plan were made...

  • Page 97
    ...On July 23, 2014, the Company entered into three forty-one month interest rate swap agreements effective March 1, 2015. The aggregate notional amount of the agreements was $400 million. Under the terms of the agreements, the Company will pay a weighted-average fixed rate of interest of 1.927 percent...

  • Page 98
    ... 31, 2015, future scheduled long-term debt payments are $54 million, $66 million, $121 million, $38 million and $32 million for the years ended December 31, 2016, 2017, 2018, 2019 and 2020, respectively. Certain of the Company's assets, including vehicles, equipment and a call center facility...

  • Page 99
    ... statements of financial position. As of December 31, 2015 and 2014, the Company's investments consisted primarily of domestic publicly traded debt and certificates of deposit ("Debt securities") and common equity securities ("Equity securities"). The amortized cost, fair value and gross unrealized...

  • Page 100
    ... of Operations and Comprehensive Income (Loss) Location (Losses) gains on derivatives: Fuel swap contracts Interest rate swap contracts Net losses on derivatives Impact of income taxes Total reclassifications related to derivatives Gains on available-for-sale securities Impact of income taxes Total...

  • Page 101
    ... Revenue Service limits, during pre-specified offering periods at a discount established by the Company not to exceed ten percent of the then-current fair market value. On April 27, 2015, the Company's stockholders approved the Employee Stock Purchase Plan with a maximum of one million shares...

  • Page 102
    ... which to estimate expected life due to the limited period of time the Company's equity shares have been publicly traded. 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 2015 Year Ended...

  • Page 103
    ... exercise price of such options immediately prior to the TruGreen Spin-off by a fraction, the numerator of which was the fair market value of a share of its common stock immediately following the TruGreen Spin-off ($12.00 per share) and the denominator of which was the fair 85 2015 Annual Report...

  • Page 104
    ... 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 December 31, 2015 and 2014. The Company has estimated the fair value of...

  • Page 105
    ... Prices In Other Significant Active Observable Unobservable Markets Inputs Inputs (Level 1) (Level 2) (Level 3) (In millions) Statement of Financial Position Location Carrying Value As of December 31, 2015: Financial Assets: Deferred compensation trust Investments in marketable securities...

  • Page 106
    ... market data providers. A decrease in the forward price would result in a decrease in the fair value of the fuel swap contracts. The Company uses derivative financial instruments to manage risks associated with changes in fuel prices and interest rates. The Company does not hold or issue derivative...

  • Page 107
    ... the average market price of the Company's common stock for each respective reporting date. On June 25, 2014, the Company's registration statement on Form S-1 was declared effective by the SEC for an initial public offering of its common stock, and, on July 1, 2014, the Company completed the...

  • Page 108
    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of ServiceMaster Global Holdings, Inc. Memphis, Tennessee We have audited the internal control over financial reporting of ServiceMaster Global Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2015, based...

  • Page 109
    ... results are not affected. First Quarter Second Quarter 2015 Third Quarter Fourth Quarter (in millions, except per share data) Year Operating Revenue Gross Profit Income from Continuing Operations(1) Loss from Discontinued Operations, net of income taxes Net Income(1) Basic earnings (loss) per...

  • Page 110
    ...14 million, net of tax) related to the 401(k) Plan. The results for the first quarter of 2014 include a $48 million ($29 million, net of tax) non-cash impairment charge relating to the Company's decision to abandon efforts to deploy a new operating system at American Home Shield. The results for the...

  • Page 111
    ... supervision and with the participation of the Company's CEO, Robert J. Gillette, and Senior Vice President and CFO, Alan J.M. Haughie, the effectiveness of its internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the...

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    ... Schedule II-Valuation and Qualifying Accounts 3. Exhibits 112 97 116 101 102 117 The exhibits filed with this report are listed on the Exhibit Index. Entries marked by the symbol # next to the exhibit's number identify management compensatory plans, contracts or arrangements. 110 2015 Annual...

  • Page 113
    ...behalf by the undersigned, thereunto duly authorized. SERVICEMASTER GLOBAL HOLDINGS, INC. By: /s/ ROBERT J. GILLETTE Name: Robert J. Gillette Title: Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons...

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    ... of Contents SCHEDULE I SERVICEMASTER GLOBAL HOLDINGS, INC. (PARENT COMPANY ONLY) Condensed Statements of Income (In millions) 2015 Year ended December 31, 2014 2013 Revenue Selling and administrative expenses Loss from Continuing Operations before Income Taxes Benefit for income taxes Income (Loss...

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    ... Total Current Liabilities Other Long-Term Liabilities: Deferred taxes Total Other Long-Term Liabilities Shareholders' Equity Total Liabilities and Shareholders' Equity $ 14 1 15 552 568 $ 21 - 21 362 383 $ $ $ 1 22 23 - - 545 568 $ 2 - 2 22 22 359 383 $ $ 97 2015 Annual Report 113

  • Page 116
    ...) 2015 Year ended December 31, 2014 2013 Cash and Cash Equivalents at Beginning of Period Net Cash Used for Operating Activities from Continuing Operations Cash Flows from Financing Activities from Continuing Operations: Borrowings of debt Payments of debt Contribution to ServiceMaster Company...

  • Page 117
    ... statements of ServiceMaster Global Holdings, Inc. included in this Annual Report on Form 10-K. 3. Long-Term Debt On April 19, 2013, the Parent Company entered into a revolving promissory note with ServiceMaster Company, LLC with a maximum borrowing capacity of $25 million that was scheduled to...

  • Page 118
    ... accounts. Deductions for the income tax valuation allowance in 2015, 2014 and 2013 are primarily attributable to the reduction of net operating loss carryforwards and other deferred tax assets related to the uncertainty of future taxable income in certain jurisdictions. 116 2015 Annual Report...

  • Page 119
    ... 2.3 to the Current Report on Form 8-K of The ServiceMaster Company, LLC, filed January 17, 2014. Tax Matters Agreement, dated as of January 14, 2014, by and among ServiceMaster Global Holdings, Inc., The ServiceMaster Company, LLC, TruGreen Holding Corporation and TruGreen Limited Partnership, is...

  • Page 120
    ..., among The ServiceMaster Company, LLC and The Bank of New York Mellon Trust Company, N.A. (as successor to Harris Trust and Savings Bank), as Trustee is incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K of The ServiceMaster Company, LLC, filed January 17, 2014. Form of 7.45...

  • Page 121
    ... agent for the lenders party thereto, and the other parties thereto, is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of ServiceMaster Global Holdings, Inc. and the ServiceMaster Company, LLC filed July 2, 2014. First Term Loan Amendment, dated as of April 1, 2015...

  • Page 122
    ... to the Current Report on Form 8-K of The ServiceMaster Company, filed on June 18, 2013. Form of Employee Stock Option Agreement for Robert J. Gillette is incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K of The ServiceMaster Company, filed on June 18, 2013. Director Stock...

  • Page 123
    ... on Form S-1 of ServiceMaster Global Holdings, Inc., filed June 16, 2014. ServiceMaster Global Holdings, Inc. Executive Annual Bonus Plan is incorporated by reference to Annex A to the definitive Proxy Statement on Schedule 14A of ServiceMaster Global Holdings, Inc., filed March 20, 2015 (the "2015...

  • Page 124
    ... Statement on Form S-1 of ServiceMaster Global Holdings, Inc., filed June 16, 2014. Form of Employee Stock Option Agreement under the Omnibus Plan for awards granted between February 24, 2015 and February 21, 2016 is incorporated by reference to Exhibit 10.70 to the Annual Report on Form 10-K for...

  • Page 125
    ... in our earnings to achieve a one-to-one ratio of earnings to fixed charges for the year ended December 31, 2011 was $13 million. For purposes of calculating our ratio of earnings to fixed charges for the year ended December 31, 2011, fixed charges were $266 million. (b) 2015 Annual Report 123

  • Page 126
    ...tion; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 26, 2016 /s/ Robert J. Gillette Robert J. Gillette Chief Executive Officer 124 2015 Annual Report

  • Page 127
    ... or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 26, 2016 /s/ Alan J. M. Haughie Alan J. M. Haughie Senior Vice President and Chief Financial Officer 2015 Annual Report 125

  • Page 128
    ... of Chapter 63 of Title 18 of The United States Code I, Robert J. Gillette, the Chief Executive Officer of ServiceMaster Global Holdings, Inc., certify that (i) the Annual Report on Form 10-K for the year ended December 31, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the...

  • Page 129
    ... 18 of The United States Code I, Alan J. M. Haughie, the Senior Vice President and Chief Financial Officer of ServiceMaster Global Holdings, Inc., certify that (i) the Annual Report on Form 10-K for the year ended December 31, 2015, fully complies with the requirements of Section 13(a) or 15(d) of...

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    128 2015 Annual Report

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    ... AZ 85253 Investor Relations James E. Shields Vice President, Investor Relations 860 Ridge Lake Blvd. Memphis, TN 38120 (901) 597-6839 [email protected] Transfer Agent Computershare 2 North LaSalle Street Chicago, IL 60602 (877) 373-6374 www.computershare.com Common Stock Ticker Symbol...

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