TERMINIX GLOBAL HOLDINGS INC - FORM 8-K - EX-99.1 - October 3, 2018

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Exhibit 99.1



ServiceMaster Global Holdings, Inc.

Unaudited Pro Forma Condensed Consolidated Financial Statements

 

Overview

On October 1, 2018, ServiceMaster Global Holdings, Inc. (“ServiceMaster,” “we” or the “Company”) completed the previously announced distribution of approximately 80.2% of the outstanding common stock of frontdoor, inc. (“Frontdoor”) to the Company’s stockholders (the “Transaction”). Frontdoor was formed to hold the Company’s American Home Shield business and, as a result of the Transaction, is an independent public company whose stock is listed and trading under the symbol “FTDR” on the Nasdaq Global Select Market. The distribution was made to the Company’s stockholders of record as of the close of business on September 14, 2018 (the “Record Date”), and such stockholders received one share of Frontdoor common stock for every two ServiceMaster common shares held as of close of business on the Record Date.

Basis of Presentation

The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the fiscal years ended December 31, 2017, 2016 and 2015 (collectively, the “Statements”) give effect to the Transaction as if the Transaction occurred on January 1, 2015. The Statements have been derived from, and should be read in conjunction with, the audited consolidated financial statements and notes thereto included in ServiceMaster’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 that has been filed with the Securities and Exchange Commission (“SEC”). The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 2018 and the Unaudited Pro Forma Condensed Consolidated Statement of Financial Position as of June 30, 2018 give effect to the Transaction as if the Transaction occurred on June 30, 2018, and have been derived from the unaudited condensed consolidated financial statements and notes thereto included in ServiceMaster’s Form 10-Q for the six months ended June 30, 2018 that has been filed with the SEC.

The following Unaudited Pro Forma Condensed Consolidated Financial Statements are provided for illustrative purposes only and do not reflect what ServiceMaster’s results of operations or financial position would have been had the Transaction been completed on the dates assumed and are not necessarily indicative of ServiceMaster’s future results of operations or financial position. Beginning in the fourth quarter of 2018, the American Home Shield segment’s historical financial results for periods prior to the Transaction will be reflected in ServiceMaster’s consolidated financial statements as discontinued operations.

The Company believes that the adjustments included within the “Discontinued Operations – AHS” column of the Unaudited Pro Forma Condensed Consolidated Financial Statements are consistent with the guidance for discontinued operations under GAAP. The Company’s current estimates on a discontinued operations basis are preliminary and could change as the Company finalizes discontinued operations accounting to be reported in the Company’s Annual Report on Form 10-K for the year ending December 31, 2018.

On August 17, 2018, ServiceMaster entered into a debt-for-debt exchange with Frontdoor, reducing the Company’s total outstanding debt by $982 million. The Unaudited Pro Forma Condensed Consolidated Financial Statements presented herein do not reflect this reduction in either interest expense on the Unaudited Pro Forma Condensed Consolidated Statement of Operations or long-term debt on the Unaudited Pro Forma Condensed Consolidated Statement of Financial Position.

 The Unaudited Pro Forma Condensed Consolidated Financial Statements give effect to the following:

· the presentation of the American Home Shield segment’s direct operating results as discontinued operations;

· the transfer by the Company to Frontdoor, pursuant to an internal reorganization in connection with the Transaction, of all the assets and liabilities that comprised the American Home Shield segment;

· the distribution of Frontdoor common stock to ServiceMaster stockholders and the retention by ServiceMaster of 19.8% ownership of Frontdoor’s outstanding common stock; and

· a reduction of cash of $64 million, resulting in Frontdoor cash and marketable securities of $275 million for general corporate purposes and balances associated with regulatory requirements.  

1

 

 



ServiceMaster historically incurred the cost of certain corporate-level activities which it performed on behalf of the American Home Shield Business. Such corporate costs include: accounting and finance, legal, human resources, information technology, insurance, operations, real estate, tax services and other costs. These costs will be transitioned to Frontdoor through a combination of (1) immediate transfers of certain activities to Frontdoor and (2) payments to ServiceMaster by Frontdoor under transition services agreements. At June 30, 2018 and December 31, 2017, the corporate-level activities historically allocated to the American Home Shield Business that are not included within discontinued operations totaled approximately $22 million and $44 million, respectively. The adjustments presented in these Unaudited Pro Forma Condensed Consolidated Financial Statements do not include the impact of potential future reduced costs as a result of the transition of these services.

2

 

 





 

 

 

 

 

 

 

 

 

 

 

 

SERVICEMASTER GLOBAL HOLDINGS, INC.

Unaudited Pro Forma Condensed Consolidated Statements of Operations

(In millions, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended June 30, 2018



 

 

 

 

 

 

 

Pro Forma



 

 

 

 

Discontinued

 

 

 

 

ServiceMaster



 

As

 

Operations -

 

Pro Forma

 

Continuing



 

Reported

 

AHS (A)

 

Adjustments

 

Operations

Revenue 

 

$

 1,549 

 

$

 (602)

 

$

 —

 

$

 947 

Cost of services rendered and products sold

 

 

 829 

 

 

 (331)

 

 

 —

 

 

 498 

Selling and administrative expenses

 

 

 422 

 

 

 (150)

 

 

 —

 

 

 273 

Amortization expense

 

 

 12 

 

 

 (4)

 

 

 —

 

 

 8 

Restructuring charges

 

 

 12 

 

 

—

 

 

 —

 

 

 12 

American Home Shield spin-off charges

 

 

 15 

 

 

 (15)

 

 

 —

 

 

—

Interest expense

 

 

 75 

 

 

—

 

 

 —

 

 

 75 

Interest and net investment income

 

 

 (2)

 

 

 1 

 

 

 —

 

 

 (1)

Income from Continuing Operations before Income Taxes 

 

 

 185 

 

 

 (103)

 

 

 —

 

 

 82 

Provision for income taxes

 

 

 48 

 

 

 (15)

 

 

 —

 

 

 34 

Income from Continuing Operations 

 

$

 137 

 

$

 (88)

 

$

 —

 

$

 48 



 

 

 

 

 

 

 

 

 

 

 

 

Per Share information:

 

 

 

 

 

 

 

 

 

 

 

 

Based earnings per share of common stock from continuing operations

 

$

 1.01 

 

 

 

 

 

 

 

$

 0.36 

Diluted earnings per share of common stock from continuing operations

 

$

 1.01 

 

 

 

 

 

 

 

$

 0.36 



 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 135.4 

 

 

 

 

 

 

 

 

 135.4 

Diluted

 

 

 135.7 

 

 

 

 

 

 

 

 

 135.7 



See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.



3

 

 







 

 

 

 

 

 

 

 

 

 

 

 

SERVICEMASTER GLOBAL HOLDINGS, INC.

Unaudited Pro Forma Condensed Consolidated Statements of Operations

(In millions, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Year Ended December 31, 2017



 

 

 

 

 

 

 

 

 

Pro Forma



 

 

 

 

Discontinued

 

 

 

 

ServiceMaster



 

As

 

Operations -

 

Pro Forma

 

Continuing



 

Reported

 

AHS (A)

 

Adjustments

 

Operations

Revenue 

 

$

 2,912 

 

$

 (1,157)

 

$

 —

 

$

 1,755 

Cost of services rendered and products sold

 

 

 1,552 

 

 

 (591)

 

 

 —

 

 

 962 

Selling and administrative expenses

 

 

 773 

 

 

 (274)

 

 

 —

 

 

 500 

Amortization expense

 

 

 27 

 

 

 (8)

 

 

 —

 

 

 18 

401(k) Plan corrective contribution

 

 

 (3)

 

 

 —

 

 

 —

 

 

 (3)

Fumigation related matters

 

 

 4 

 

 

 —

 

 

 —

 

 

 4 

Impairment of software and other related costs

 

 

 2 

 

 

 —

 

 

 —

 

 

 2 

Restructuring charges

 

 

 34 

 

 

—

 

 

 —

 

 

 34 

American Home Shield spin-off charges

 

 

 13 

 

 

 (13)

 

 

 —

 

 

 (0)

Interest expense

 

 

 150 

 

 

 (1)

 

 

 —

 

 

 150 

Interest and net investment income

 

 

 (4)

 

 

 2 

 

 

 —

 

 

 (2)

Loss on extinguishment of debt

 

 

 6 

 

 

 —

 

 

 —

 

 

 6 

Income from Continuing Operations before Income Taxes 

 

 

 370 

 

 

 (271)

 

 

 —

 

 

 99 

Provision for income taxes

 

 

 (139)

 

 

 (103)

 

 

 1 

(D)

 

 (241)

Income from Continuing Operations 

 

$

 509 

 

$

 (168)

 

$

 (1)

 

$

 340 



 

 

 

 

 

 

 

 

 

 

 

 

Per Share information:

 

 

 

 

 

 

 

 

 

 

 

 

Based earnings per share of common stock from continuing operations

 

$

 3.79 

 

 

 

 

 

 

 

$

 2.53 

Diluted earnings per share of common stock from continuing operations

 

$

 3.76 

 

 

 

 

 

 

 

$

 2.51 



 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 134.4 

 

 

 

 

 

 

 

 

 134.4 

Diluted

 

 

 135.4 

 

 

 

 

 

 

 

 

 135.4 



See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.







4

 

 







 

 

 

 

 

 

 

 

 

 

 

 

SERVICEMASTER GLOBAL HOLDINGS, INC.

Unaudited Pro Forma Condensed Consolidated Statements of Operations

(In millions, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Year Ended December 31, 2016



 

 

 

 

 

 

 

 

Pro Forma



 

 

 

 

Discontinued

 

 

 

 

ServiceMaster



 

As

 

Operations -

 

Pro Forma

 

Continuing



 

Reported

 

AHS (A)

 

Adjustments

 

Operations

Revenue 

 

$

 2,746 

 

$

 (1,020)

 

$

 —

 

$

 1,726 

Cost of services rendered and products sold

 

 

 1,448 

 

 

 (524)

 

 

 —

 

 

 924 

Selling and administrative expenses

 

 

 711 

 

 

 (250)

 

 

 —

 

 

 461 

Amortization expense

 

 

 33 

 

 

 (6)

 

 

 —

 

 

 27 

401(k) Plan corrective contribution

 

 

 2 

 

 

 —

 

 

 —

 

 

 2 

Fumigation related matters

 

 

 93 

 

 

 —

 

 

 —

 

 

 93 

Insurance reserve adjustment

 

 

 23 

 

 

 —

 

 

 —

 

 

 23 

Impairment of software and other related costs

 

 

 1 

 

 

 —

 

 

 —

 

 

 1 

Restructuring charges

 

 

 17 

 

 

 (2)

 

 

 —

 

 

 15 

Gain on sale of Merry Maids branches

 

 

 (2)

 

 

 —

 

 

 —

 

 

 (2)

Interest expense

 

 

 153 

 

 

—

 

 

 —

 

 

 153 

Interest and net investment income

 

 

 (6)

 

 

 5 

 

 

 —

 

 

 (1)

Loss on extinguishment of debt

 

 

 32 

 

 

 —

 

 

 —

 

 

 32 

Income from Continuing Operations before Income Taxes 

 

 

 241 

 

 

 (242)

 

 

 —

 

 

—

Provision for income taxes

 

 

 85 

 

 

 (89)

 

 

 —

 

 

 (4)

Equity in losses of joint venture

 

 

 (1)

 

 

 —

 

 

 —

 

 

 (1)

Income from Continuing Operations 

 

$

 155 

 

$

 (153)

 

$

 —

 

$

 3 



 

 

 

 

 

 

 

 

 

 

 

 

Per Share information:

 

 

 

 

 

 

 

 

 

 

 

 

Based earnings per share of common stock from continuing operations

 

$

 1.15 

 

 

 

 

 

 

 

$

 0.02 

Diluted earnings per share of common stock from continuing operations

 

$

 1.13 

 

 

 

 

 

 

 

$

 0.02 



 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 135.3 

 

 

 

 

 

 

 

 

 135.3 

Diluted

 

 

 137.3 

 

 

 

 

 

 

 

 

 137.3 



See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.







5

 

 







 

 

 

 

 

 

 

 

 

 

 

 

SERVICEMASTER GLOBAL HOLDINGS, INC.

Unaudited Pro Forma Condensed Consolidated Statements of Operations

(In millions, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Year Ended December 31, 2015



 

 

 

 

 

 

 

 

Pro Forma



 

 

 

 

Discontinued

 

 

 

 

ServiceMaster



 

As

 

Operations -

 

Pro Forma

 

Continuing



 

Reported

 

AHS (A)

 

Adjustments

 

Operations

Revenue 

 

$

 2,594 

 

$

 (917)

 

$

 —

 

$

 1,678 

Cost of services rendered and products sold

 

 

 1,375 

 

 

 (468)

 

 

 —

 

 

 908 

Selling and administrative expenses

 

 

 666 

 

 

 (230)

 

 

 —

 

 

 437 

Amortization expense

 

 

 38 

 

 

 (4)

 

 

 —

 

 

 34 

401(k) Plan corrective contribution

 

 

 23 

 

 

 (1)

 

 

 —

 

 

 22 

Fumigation related matters

 

 

 9 

 

 

 —

 

 

 —

 

 

 9 

Impairment of software and other related costs

 

 

—

 

 

 —

 

 

 —

 

 

 —

Restructuring charges

 

 

 5 

 

 

—

 

 

 —

 

 

 5 

Gain on sale of Merry Maids branches

 

 

 (7)

 

 

 —

 

 

 —

 

 

 (7)

Interest expense

 

 

 167 

 

 

—

 

 

 —

 

 

 167 

Interest and net investment income

 

 

 (9)

 

 

 8 

 

 

 —

 

 

 (1)

Loss on extinguishment of debt

 

 

 58 

 

 

 —

 

 

 —

 

 

 58 

Income from Continuing Operations before Income Taxes 

 

 

 270 

 

 

 (222)

 

 

 —

 

 

 48 

Provision for income taxes

 

 

 107 

 

 

 (80)

 

 

 —

 

 

 27 

Income from Continuing Operations 

 

$

 162 

 

$

 (142)

 

$

 —

 

$

 21 



 

 

 

 

 

 

 

 

 

 

 

 

Per Share information:

 

 

 

 

 

 

 

 

 

 

 

 

Based earnings per share of common stock from continuing operations

 

$

 1.20 

 

 

 

 

 

 

 

$

 0.15 

Diluted earnings per share of common stock from continuing operations

 

$

 1.19 

 

 

 

 

 

 

 

$

 0.15 



 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 135.0 

 

 

 

 

 

 

 

 

 135.0 

Diluted

 

 

 136.6 

 

 

 

 

 

 

 

 

 136.6 

See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.



6

 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERVICEMASTER GLOBAL HOLDINGS, INC.

Unaudited Pro Forma Condensed Consolidated Statement of Financial Position

(In millions, except share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of June 30, 2018



 

 

 

 

Discontinued

 

 

 

 

 

 



 

 

 

 

 

Operations -

 

 

Pro Forma

 

 

 

 



 

As Reported

 

 

AHS (A)

 

 

Adjustments

 

 

Pro Forma

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 449 

 

 

$

 (314)

 

 

$

 64 

(B)

 

$

 199 

Marketable securities

 

 

 25 

 

 

 

 (25)

 

 

 

 —

 

 

 

 —

Investment in frontdoor, inc.

 

 

 —

 

 

 

 —

 

 

 

 694 

(C)

 

 

 694 

Receivables, net

 

 

 202 

 

 

 

 (22)

 

 

 

 —

 

 

 

 180 

Inventories

 

 

 46 

 

 

 

—

 

 

 

 —

 

 

 

 46 

Prepaid expenses and other assets

 

 

 92 

 

 

 

 (9)

 

 

 

 —

 

 

 

 83 

Total Current Assets

 

 

 814 

 

 

 

 (370)

 

 

 

 759 

 

 

 

 1,202 

Other Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

 245 

 

 

 

 (34)

 

 

 

 —

 

 

 

 211 

Goodwill

 

 

 2,396 

 

 

 

 (476)

 

 

 

 —

 

 

 

 1,920 

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

 

 

 1,743 

 

 

 

 (161)

 

 

 

 —

 

 

 

 1,582 

Restricted cash

 

 

 89 

 

 

 

 —

 

 

 

 —

 

 

 

 89 

Notes receivable

 

 

 43 

 

 

 

 (25)

 

 

 

 —

 

 

 

 18 

Long-term marketable securities

 

 

 21 

 

 

 

 (1)

 

 

 

 —

 

 

 

 21 

Deferred customer acquisition costs

 

 

 94 

 

 

 

 (21)

 

 

 

 —

 

 

 

 73 

Other assets

 

 

 86 

 

 

 

 (1)

 

 

 

 —

 

 

 

 84 

Total Assets

 

$

 5,530 

 

 

$

 (1,089)

 

 

$

 759 

 

 

$

 5,200 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 159 

 

 

$

 (47)

 

 

$

 —

 

 

$

 112 

Accrued liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll and related expenses

 

 

 58 

 

 

 

 (6)

 

 

 

 —

 

 

 

 52 

Self-insured claims and related expenses

 

 

 142 

 

 

 

 (85)

 

 

 

 —

 

 

 

 56 

Accrued interest payable

 

 

 13 

 

 

 

—

 

 

 

 —

 

 

 

 13 

Other

 

 

 68 

 

 

 

 (18)

 

 

 

 —

 

 

 

 50 

Deferred revenue

 

 

 290 

 

 

 

 (188)

 

 

 

 —

 

 

 

 101 

Current portion of long-term debt

 

 

 61 

 

 

 

 (2)

 

 

 

 —

 

 

 

 59 

Total Current Liabilities

 

 

 791 

 

 

 

 (347)

 

 

 

 —

 

 

 

 444 

Long-Term Debt

 

 

 2,675 

 

 

 

—

 

 

 

 —

 

 

 

 2,675 

Other Long-Term Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred taxes

 

 

 529 

 

 

 

 (46)

 

 

 

 (1)

(D)

 

 

 482 

Other long-term obligations, primarily self-insured claims

 

 

 188 

 

 

 

 (2)

 

 

 

 —

 

 

 

 186 

Total Other Long-Term Liabilities

 

 

 717 

 

 

 

 (48)

 

 

 

 (1)

 

 

 

 668 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock $0.01 par value, (authorized 2,000,000,000 shares with 147,079,375 shares issued and 135,557,005 outstanding at June 30, 2018)

 

 

 2 

 

 

 

 —

 

 

 

 —

 

 

 

 2 

Additional paid-in capital

 

 

 2,336 

 

 

 

 —

 

 

 

 —

 

 

 

 2,336 

Accumulated deficit

 

 

 (745)

 

 

 

 (693)

 

 

 

 760 

(E)

 

 

 (678)

Accumulated other comprehensive income

 

 

 20 

 

 

 

 —

 

 

 

 —

 

 

 

 20 

Less common stock held in treasury, at cost (11,522,370 shares at June 30, 2018)

 

 

 (267)

 

 

 

 —

 

 

 

 —

 

 

 

 (267)

Total Stockholders' Equity

 

 

 1,347 

 

 

 

 (693)

 

 

 

 760 

 

 

 

 1,414 

Total Liabilities and Stockholders' Equity

 

$

 5,530 

 

 

$

 (1,089)

 

 

$

 759 

 

 

$

 5,200 

See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.



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NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Note A: Adjustments reflect the classification of revenues, expenses, assets, liabilities and equity attributable to the American Home Shield segment as discontinued operations, which were included in the Company’s historical financial statements. Interest expense and corporate expenses that were not specifically related to the American Home Shield segment have been excluded as such general corporate expenses do not meet the requirements to be presented in discontinued operations.



Note B: Represents the establishment of the target cash amount of Frontdoor as contemplated by the Separation and Distribution Agreement. Per the Separation and Distribution Agreement, subject to the completion of a final evaluation of reserve requirements, Frontdoor will have approximately $275 million of cash and short-term marketable securities.



Note C:  Reflects the retention by ServiceMaster of 19.8% of the outstanding common stock of Frontdoor, recorded at its estimated fair value on the date of the Transaction using Frontdoor’s opening share price on October 1, 2018, of $41.50.



Note D: As a direct result of the Transaction, ServiceMaster anticipates recording a valuation allowance associated with certain of its deferred tax assets.



Note E: Reflects the impact to ServiceMaster’s Stockholders’ Equity from the pro forma adjustments described above.

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TERMINIX GLOBAL HOLDINGS INC Reports