Business Segment Reporting

12 Months Ended

Dec. 31, 2012

Business Segment Reporting

Business Segment Reporting

Note 3. Business Segment Reporting

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

        In accordance with accounting standards for segments, the Company's reportable segments are strategic business units that offer different services. The Terminix segment provides termite and pest control services to residential and commercial customers and distributes pest control products. The TruGreen segment provides residential and commercial lawn, tree and shrub care services. The American Home Shield segment provides home warranties and preventative maintenance contracts for household systems and appliances. The ServiceMaster Clean segment provides residential and commercial disaster restoration, janitorial and cleaning services through franchises primarily under the ServiceMaster and ServiceMaster Clean brand names, on-site wood furniture repair and restoration services primarily under the Furniture Medic brand name and home inspection services primarily under the AmeriSpec brand name. The Other Operations and Headquarters segment includes the franchised and Company-owned operations of Merry Maids, which provide home cleaning services. The Other Operations and Headquarters segment also includes SMAC, our financing subsidiary exclusively dedicated to providing financing to our franchisees and retail customers of our operating units, and the Company's headquarters operations, which provide various technology, marketing, finance, legal and other support services to the business units. The composition of our reportable segments is consistent with that used by our chief operating decision maker to evaluate performance and allocate resources.

        Information regarding the accounting policies used by the Company is described in Note 1. The Company derives substantially all of its revenue from customers and franchisees in the United States with less than two percent generated in foreign markets. Operating expenses of the business units consist primarily of direct costs. Identifiable assets are those used in carrying out the operations of the business unit and include intangible assets directly related to its operations.

        Segment information for continuing operations is presented below:

	Year Ended December 31,
(In thousands)	2012			2011			2010
Operating Revenue:
Terminix	$	1,265,417		$	1,193,075		$	1,157,346
TruGreen		979,081			1,100,741			1,096,667
American Home Shield		720,860			686,737			656,572
ServiceMaster Clean		139,441			138,691			132,132
Other Operations and Headquarters		88,482			86,628			84,677
Total Operating Revenue	$	3,193,281		$	3,205,872		$	3,127,394
Operating Income (Loss):(1)(2)(3)
Terminix	$	236,160		$	220,622		$	199,750
TruGreen		(805,022	)		129,324			112,312
American Home Shield		126,098			94,869			68,380
ServiceMaster Clean		54,435			57,674			55,450
Other Operations and Headquarters		(144,433	)		(127,029	)		(129,200	)
Total Operating (Loss) Income	$	(532,762	)	$	375,460		$	306,692
Identifiable Assets:
Terminix	$	2,591,967		$	2,601,869		$	2,615,388
TruGreen		1,200,063			2,087,055			2,103,341
American Home Shield		976,280			954,599			956,089
ServiceMaster Clean		373,314			370,526			385,287
Other Operations and Headquarters		1,269,290			1,132,757			954,583
Total Identifiable Assets(4)	$	6,410,914		$	7,146,806		$	7,014,688
Depreciation & Amortization Expense:
Terminix	$	75,713		$	75,347		$	67,761
TruGreen		45,729			41,929			66,069
American Home Shield		8,606			27,331			42,259
ServiceMaster Clean		5,071			6,150			7,106
Other Operations and Headquarters		11,123			12,679			13,430
Total Depreciation & Amortization Expense(5)	$	146,242		$	163,436		$	196,625
Capital Expenditures:
Terminix	$	13,623		$	23,457		$	32,380
TruGreen		29,079			44,714			49,014
American Home Shield		15,087			17,529			8,031
ServiceMaster Clean		454			935			435
Other Operations and Headquarters		14,985			9,905			44,374
Total Capital Expenditures	$	73,228		$	96,540		$	134,234

(1)

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

	Year Ended December 31,
(In thousands)	2012			2011			2010
Total Segment Operating (Loss) Income	$	(532,762	)	$	375,460		$	306,692
Non-operating Expense (Income):
Interest expense		246,284			273,123			286,933
Interest and net investment income		(7,845	)		(10,886	)		(9,358	)
Loss on extinguishment of debt		55,554			774			—
Other expense		622			700			733
(Loss) Income from Continuing Operations before Income Taxes	$	(827,377	)	$	111,749		$	28,384

(2)

As described in Note 1, includes, as a result of the Company's impairment testing of indefinite-lived intangible assets, pre-tax non-cash impairment charges of $908.9 million recorded in the year ended December 31, 2012 to reduce the carrying value of TruGreen's goodwill and the TruGreen trade name and $36.7 million recorded in the year ended December 31, 2011 to reduce the carrying value of the TruGreen trade name. There were no similar impairment charges included in continuing operations in 2010.

(3)

Includes restructuring charges (credits) primarily related to a branch optimization project at Terminix, a reorganization of field leadership and a restructuring of branch operations at TruGreen, a reorganization of leadership at American Home Shield and ServiceMaster Clean, an initiative to enhance capabilities and reduce costs in our centers of excellence at Other Operations and Headquarters and other restructuring costs. Presented below is a summary of restructuring charges (credits) by segment:

	Year Ended December 31,
(In thousands)	2012		2011		2010
Restructuring charges (credits):
Terminix	$	3,652	$	3,560	$	3,491
TruGreen		3,241		1,115		6,922
American Home Shield		647		—		(127	)
ServiceMaster Clean		1,370		36		71
Other Operations and Headquarters		9,267		3,451		1,091
Total restructuring charges	$	18,177	$	8,162	$	11,448

(4)

Assets of discontinued operations are not included in the business segment table.

(5)

There are no adjustments necessary to reconcile total depreciation and amortization as presented in the business segment table to the consolidated totals. Amortization of debt issue costs is not included in the business segment table.

        The Other Operations and Headquarters segment includes the operations of Merry Maids, as well as the Company's headquarters function. The Merry Maids operations reported revenue of $82.0 million, $81.0 million and $78.6 million for the years ended December 31, 2012, 2011 and 2010, respectively, and operating income of $14.3 million, $18.0 million and $16.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.

        See Note 4 for information relating to segment goodwill.