Discontinued Operations

9 Months Ended

Sep. 30, 2020

Note 5. Discontinued Operations

In January 2020, we announced we were exploring strategic alternatives related to ServiceMaster Brands in order to focus on our core pest control and termite business. On October 1, 2020, we completed the sale of the ServiceMaster Brands Divestiture Group for $1,553 million, resulting in an estimated gain of approximately $400 million, net of taxes, which will be recorded in net earnings from discontinued operations. After applicable taxes and fees, we expect net proceeds of approximately $1,116 million.

The ServiceMaster Brands Divestiture Group is classified as held for sale on the Condensed Consolidated Statements of Financial Position and as discontinued operations on the Condensed Consolidated Statements of Operations and Comprehensive Income and Condensed Consolidated Statements of Cash Flows for all periods presented. The net amount of assets and liabilities held for sale related to discontinued operations are required to be recorded at the lower of carrying value or fair value less costs to sell.

In connection with the sale of the ServiceMaster Brands Divestiture Group, the Company and Roark entered into a transition services agreement whereby the Company will provide certain post-closing services to Roark and ServiceMaster Brands related to the business of ServiceMaster Brands. The charges for the transition services are designed to allow us to fully recover the direct costs of providing the services, plus specified margins and any out-of-pocket costs and expenses. The Company and Roark also entered into a sublease agreement whereby ServiceMaster Brands will sublease a portion of the Company’s headquarters in Memphis, Tennessee.

The following table summarizes the comparative financial results of discontinued operations which are presented as Net earnings from discontinued operations on the Condensed Consolidated Statements of Operations and Comprehensive Income:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Revenue	$	71	$	63	$	198	$	191
Cost of services rendered and products sold		32		27		93		79
Selling and administrative expenses		11		12		34		38
Amortization expense		—		1		1		3
Restructuring and other charges⁽¹⁾		9		1		18		3
Interest and net investment income		—		—		—		(1)
Income before income taxes		18		22		53		69
Provision for income taxes		4		5		13		18
Net earnings from discontinued operations	$	14	$	17	$	40	$	51
Weighted-average common shares outstanding - Basic		132.0		135.8		132.9		135.9
Weighted-average common shares outstanding - Diluted		132.0		136.5		133.1		136.5
Basic Earnings Per Share:
Net earnings from discontinued operations	$	0.11	$	0.13	$	0.30	$	0.38
Diluted Earnings Per Share:
Net earnings from discontinued operations	$	0.11	$	0.13	$	0.30	$	0.38

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(1)Includes $9 million and $18 million of professional fees and other costs incurred in connection with the strategic evaluation and ultimate sale in the three and nine months ended September 30, 2020, respectively.

The total assets and liabilities held for sale related to discontinued operations are stated separately in the Condensed Consolidated Statements of Financial Position and comprised the following items:


	As of		As of
(In millions)	September 30, 2020		December 31, 2019
Assets:
Current Assets:
Receivables, less allowances of $5 and $3, respectively	$	47	$	40
Inventories		6		2
Prepaid expenses and other assets		3		3
Total Current Assets		56		45
Other Assets:
Property and equipment, net		12		8
Operating lease right-of-use assets		2		2
Goodwill		180		183
Intangible assets, primarily trade names, service marks and trademarks, net		626		622
Notes receivable		11		13
Deferred customer acquisition costs		1		1
Other assets		4		5
Total Assets	$	892	$	879
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable	$	11	$	8
Accrued liabilities:
Payroll and related expenses		4		5
Other		30		23
Deferred revenue		4		4
Current portion of lease liability		1		1
Current portion of long-term debt		2		1
Total Current Liabilities		51		42
Long-Term Debt		1		2
Other Long-Term Liabilities:
Deferred taxes		2		1
Other long-term obligations		6		6
Long-term lease liability		1		2
Total Liabilities	$	62	$	52

All assets and liabilities held for sale were classified as Current assets held for sale and Current liabilities held for sale as of September 30, 2020 in the Condensed Consolidated Statements of Financial Position. Certain assets and liabilities have been reclassified to assets and liabilities held for sale as of December 31, 2019, to conform to the current period presentation.

The following selected financial information of ServiceMaster Brands is included in the Condensed Consolidated Statements of Cash Flows as cash flows from discontinued operations:


	Three Months Ended September 30,
(In millions)	2020		2019
Depreciation	$	—	$	1
Amortization		—		1
Capital expenditures		(1)		(1)