NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation

ServiceMaster Global Holdings, Inc. and its majority-owned subsidiary partnerships, limited liability companies and corporations (collectively, “ServiceMaster,” the “Company,” “we,” “us, and “our”) is a leading provider of essential residential and commercial services. The Company’s services include termite and pest control, home service plans, disaster restoration, janitorial, residential cleaning, cabinet and wood 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, Merry Maids, Furniture Medic and AmeriSpec. All consolidated Company subsidiaries are wholly-owned. Intercompany transactions and balances have been eliminated.

The unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The Company recommends that the quarterly unaudited condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC (the “2017 Form 10-K”). The unaudited condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for any interim period are not indicative of the results that might be achieved for a full year.

American Home Shield Spin-off

On July 26, 2017, the Company announced that it intends to separate its American Home Shield business from its Terminix and Franchise Services Group businesses by means of a spin-off of the American Home Shield business to Company stockholders, resulting in two publicly traded companies. The spin-off is designed to create two independent companies, each with an enhanced strategic focus, simplified operating structure, distinct investment identity and strong financial profile. The transaction is expected to be completed late in the third quarter of 2018, subject to satisfaction of customary conditions, including the effectiveness of a Registration Statement on Form 10 and final approval by the Company’s board of directors. The Company has received a favorable private letter ruling from the IRS regarding the tax-free treatment of the distribution to the Company’s stockholders.



Note 2. Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the Company’s 2017 Form 10-K. There have been no material changes to the significant accounting policies for the three and six months ended June 30, 2018, other than those described below.

Adoption of New Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” to provide a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. On January 1, 2018, the Company adopted FASB Accounting Standards Codification (“ASC”) 606 using the modified retrospective method to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605, “ Revenue Recognition .” The Company implemented internal controls and system functionality where necessary to enable the preparation of financial information on adoption. See Note 3 to the condensed consolidated financial statements for more details.

In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, “ Recognition and Measurement of Financial Assets and Financial Liabilities ” to change how entities measure certain equity investments, to require the disclosure of changes in the fair value of financial liabilities measured under the fair value option that are attributable to a company’s own credit, and to change certain other disclosure requirements. The changes in ASU 2016-01 specifically require that the changes in fair value of all investments in equity securities be recognized in net income. In March 2018, the FASB issued an amendment to this standard (ASU 2018-03), which provides further clarification regarding this standard.  The Company adopted this ASU on January 1, 2018. As a result of the adoption, less than $1 million of gains and less than $1 million of losses related to the Company’s equity investments were recognized in Net income for the three and six months ended June 30, 2018, respectively, and approximately $2 million was reclassified from Accumulated other comprehensive income (“AOCI”) to Accumulated deficit related to unrealized gains on available-for-sale equity securities upon adoption. Additionally, the Company holds minority interests in several strategic investments which do not have readily determinable fair values. The carrying amount of these investments at June 30, 2018 is approximately $4 million. These investments are recorded at cost and will be remeasured upon the occurrence of observable price changes or impairments. No adjustments to the carrying amount were made during the period.

In January 2017, the FASB issued ASU 2017-01, “ Business Combinations (Topic 805): Clarifying the Definition of a Business .” The ASU clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted

for as acquisitions (or disposals) of assets or businesses by providing a screen to determine when an integrated set of assets or activities is not a business. The Company adopted this ASU on January 1, 2018. The consolidated financial statements may be impacted if an acquisition does not qualify as a business combination under the ASU. Such acquisitions would be accounted for as asset purchases.

In May 2017, the FASB issued ASU 2017-09, “ Stock Compensation – Scope of Modification Accounting .” The ASU clarifies the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. The Company adopted this ASU on January 1, 2018 and will apply the guidance prospectively to awards modified on or after the adoption date.

In February 2018, the FASB issued ASU 2018-02, “ Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ” allowing a reclassification from AOCI to Retained Earnings for stranded tax effects resulting from the corporate income tax rate change in the Tax Cuts and Jobs Act (the “Act” or “U.S. Tax Reform”). It is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. As allowed by the ASU, the Company elected to early adopt the amendments of this ASU on January 1, 2018 and reclassified approximately $4 million of unrealized losses from AOCI to Accumulated deficit.

Following are the results of the adoption of these standards on the Company’s consolidated statements of stockholders’ equity previously reported:

Accounting Standards Issued But Not Yet Effective

In February 2016, the FASB issued ASU 2016-02, “ Leases (Topic 842) ” which is the final standard on accounting for leases. While both lessees and lessors are affected by the new guidance, the effects on lessees are much more significant. The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases. Entities are required to use a modified retrospective approach to adopt the guidance. The amendments in ASU 2016-02 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. To date, the Company has performed the following: A transition team has been established to implement the required changes; the Company has substantially completed its inventory of all leases; an initial assessment of the Company’s leases and embedded leases is underway; and the Company has begun the process of implementing new controls to assist in the measurement of right-of-use assets and lease liabilities and related disclosures. The Company plans to adopt the new lease standard in the first quarter of 2019. The Company expects the adoption will increase the amount of total assets and total liabilities that is reported relative to such amounts prior to adoption and is currently evaluating the impact of adoption on its consolidated statements of operations and comprehensive income.

In August 2017, the FASB issued ASU 2017-12, “Der ivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities .” The ASU simplifies certain aspects of hedge accounting and improves disclosures of hedging arrangements through the elimination of the requirement to separately measure and report hedge ineffectiveness. The ASU generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item in order to align financial reporting of hedging relationships with economic results. Entities must apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements must be applied prospectively. The Company is currently evaluating the impact of the adoption of ASU 2017-12, including transition elections and required disclosures, on the Company’s consolidated financial statements and plans to adopt the new standard in the first quarter of 2019.

In July 2018, the FASB issued ASU 2018-09, “ Codification Improvements. ” This ASU does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. Certain updates are applicable immediately while others provide for a transition period to adopt as part of the next fiscal year beginning after December 15, 2018. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.



Note 3. Revenues



The following table presents the Company’s reportable segment revenues, disaggregated by revenue source. T he Company disaggregates revenue from contracts with customers into major product lines. The Company has determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. As noted in the business segment reporting information in Note 15, the Company’s reportable segments are Terminix, American Home Shield and Franchise Services Group.



At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or a bundle of goods and services) that is distinct. To identify the performance obligation, the Company considers all of the goods and services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.

Terminix segment

Pest control services

Pest control services can be for one-time or recurring services. Revenues from pest control services are recognized at the agreed-upon contractual amount over time as the services are provided, most of which are started and completed within one day, as the customer simultaneously receives and consumes the benefits of the services as they are performed. Upon completion of service, a receivable is recorded related to this revenue as the Company has an unconditional right to invoice and receive payment. Payments are typically received shortly after services have been rendered.

Termite and other services

The Company eradicates termites through the use of baiting systems and non-baiting methods (e.g., fumigation or liquid treatments). Termite services using liquid and baiting systems are sold through annual renewable contracts. The Company also performs other termite and other related services, including wildlife exclusion, crawl space encapsulation and attic insulation, which may be one-time or renewable services. Revenue for termite services are recognized at the agreed-upon contractual amount upon the completion of the service. All termite services are generally started and completed within one day. Upon completion of the service, a receivable is recorded related to this revenue as the Company has an unconditional right to invoice and receive payment. Payments are typically received shortly after services have been rendered.

Most termite services can be renewed after the initial year. Revenue on renewal contracts is recognized upon completion of an annual inspection and receipt of payment from the customer which evidences the extension of the contract into a renewal period. Advanced r enewal payments generate a contract liability and are deferred until the related renewal period.

Termite inspection and protection contracts are frequently sold through annual contracts. For these contracts, the Company has a stand ready obligation of which the customer receives and consumes the benefits over the annual period. Associated service costs are expensed as incurred. The Company measures progress toward satisfaction of its stand ready obligation over time using costs incurred as the measure of progress under the input method, which results in straight-line recognition of revenue. Payments are received at the commencement of the contract, which generates a contract liability, or in installments over the contract period.

Sales of products and other  

Product revenues are generated from selling products to distributors and franchisees. Revenues from product sales are generally recognized once control of the products transfers to the customer. A receivable is recorded related to these sales as the Company has an unconditional right to invoice and receive payment. Payments are typically received shortly after a customer is invoiced.

American Home Shield segment

Home service plans

Home service plan contracts are sold through annual renewable contracts and customer payments are received at the commencement of the contract or in installments over the contract period, which generates a contract liability. The Company recognizes revenue related to these contracts at the agreed-upon contractual amount over time using the input method in proportion to the costs expected to be incurred in performing services under the contracts. As the costs to fulfill the obligations of the service plan contracts are incurred on an other than straight-line basis, the Company utilizes historical evidence to estimate the expected claims expense and related timing of such costs. This adjustment to the straight-line revenue creates a contract asset or contract liability. The Company regularly reviews its estimates of claims costs and adjusts the estimates when appropriate.

Franchise Services Group segment

Royalty fees

The Company has franchise agreements in its ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic and AmeriSpec businesses. Royalty fee revenue consists principally of sales-based royalties received as part of the consideration for the franchise right and is calculated as a percentage of customer level revenue. Revenue is recognized by the Company at the agreed-upon contractual rates over time as the customer level revenue is generated by the franchisees. A receivable is recognized for an estimate of the unreported royalty fees, which are reported and remitted to the Company in arrears.

Janitorial national accounts

National account revenues are recognized at the agreed-upon contractual amounts over time as services are completed based on contractual arrangements to provide services at the customers’ locations. The Company engages either a franchisee or non-franchisee business to perform the services. Under these agreements, the Company is directly responsible for providing the services and receives payment directly from the customer. A receivable is recorded related to this revenue as the Company has an unconditional right to invoice and receive payment. Payments are typically received shortly after services have been rendered.

Sales of products and other

Product revenues are generated from selling products to franchisees. Revenues from product sales are generally recognized once control of the products transfers to the customer. A receivable is recorded related to these sales as the Company has an unconditional right to invoice and receive payment. Payments are typically received shortly after a customer is invoiced.

Initial franchise fees result from the sale of a franchise license, which includes the use of the name, trademarks and proprietary methods. The franchise license is considered symbolic intellectual property and revenue related to the sale of this right is recognized at the agreed-upon contractual amount over the term of the initial franchise agreement.

Franchisees contribute a percentage of customer level revenue into a national advertising fund managed by the Company. In cases where the Company has ultimate control of the marketing and advertising, the Company recognizes both revenue and expense for the amount earned.  Prior to the adoption of ASC 606, this revenue was recorded net of the advertising expense incurred.  The impact to revenues as a result of applying ASC 606 was an increase of $4  million and $7  million for the three and six months ended June 30, 2018, respectively.

In addition, the Company has contractual arrangements with several national insurance companies to maintain a call center which receives and provides non-recurring disaster recovery and restoration referrals from the insurers to qualifying franchisees. The Company receives a referral fee from the franchisee. The Company recognizes the referral fee at the agreed-upon contractual amount as revenue in the month the referral is issued.



Costs to obtain a contract with a customer

Terminix and American Home Shield

The Company capitalizes the incremental costs of obtaining a contract with a customer, primarily commissions, and recognizes the expense on a straight-line basis over the expected customer relationship period. As of January 1, 2018, the date the Company adopted ASC 606, the Company capitalized a total of $61  million at Terminix and $21  million at American Home Shield in deferred customer acquisition costs related to contracts that were not completed. As of June 30, 2018, the Company had capitalized a total of $71  million at Terminix and $21  million at American Home Shield in deferred customer acquisition costs related to contracts that were not completed. In the three and six months ended June 30, 2018, the amount of amortization was $16  million and $32  million, respectively, at Terminix and $6  million and $11  million, respectively, at American Home Shield. There was no   impairment loss in relation to costs capitalized.

Franchise Services Group

The Company capitalizes the incremental costs of selling a new franchise license, primarily commissions, and recognizes the expense over the term of the initial franchise agreement. As of January 1, 2018, the date the Company adopted ASC 606, the Company capitalized a total of $1  million in deferred customer acquisition costs related to contracts that were not completed. As of June 30, 2018, the Company had capitalized a total of $ 1  million in deferred customer acquisition costs related to contracts that were not completed. In the three and six months ended June 30, 2018, the amount of amortization was less than $1  million. There was no impairment loss in relation to costs capitalized.

Contract balances

Timing of revenue recognition may differ from the timing of invoicing to customers. Contracts with customers are generally for a period of one year or less, and are generally renewable. The Company records a receivable related to revenue recognized on services once the Company has an unconditional right to invoice and receive payment in the future related to the services provided. All accounts receivables are recorded within Receivables, less allowances, on the condensed consolidated statements of financial position. The current portion of Notes receivable, which represent amounts financed for customers through the Company’s financing subsidiary, are included within Receivables, less allowances, on the condensed consolidated statement of financial position and totaled $45  million as of June 30, 2018.

Deferred revenue represents a contract liability and is recognized when cash payments are received in advance of the performance of services, including when the amounts are refundable. For Terminix, amounts are recognized as revenue upon completion of services. For American Home Shield, amounts are recognized as revenue in proportion to the costs expected to be incurred in performing services under the Company’s contracts.

Deferred revenue by segment was as follows (in millions):



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Changes in deferred revenue for the six months ended June 30, 2018 were as follows (in millions):





There was approximately $93  million and $196  million of revenue recognized in the three and six months ended June 30, 2018, that was included in the deferred revenue balance as of January 1, 2018. 

Arrangements with Multiple Performance Obligations

The Company’s contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. Any discounts given are allocated to the services to which the discounts relate.

Practical Expedients and Exemptions

The Company offers certain interest-free contracts to customers where payments are received over a period not exceeding one year. Additionally, certain Terminix customers may pay in advance for services and American Home Shield customers have the option to pay for an annual home service plan in advance. The Company does not adjust the promised amount of consideration for the effects of these financing components. At contract inception, the period of time between the performance of services and the customer payment is one year or less.

Revenue is recognized net of any taxes collected from customers which are subsequently remitted to taxing authorities.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Certain non-commission related incremental costs to obtain a contract with a customer are expensed as incurred because the amortization period would have been one year or less. These costs are included in Selling and administrative expenses on the condensed consolidated statements of operations and comprehensive income.

The Company utilizes the portfolio approach to recognize revenue in situations where a portfolio of contracts have similar characteristics. The revenue recognized under the portfolio approach is not materially different than if every individual contract in the portfolio was accounted for separately.

Impact of ASC 606 on the Condensed Consolidated Financial Statements

The Company recorded a net reduction to opening retained earnings of $16  million, net of tax, as of January 1, 2018 due to the cumulative impact of adopting ASC 606. Changes to the condensed consolidated statements of operations and comprehensive income include: i) c osts of obtaining a contract that would have been incurred regardless of whether the contract was obtained, such as direct mail and digital advertising, are now expensed as incurred; ii) initial fees and the related commissions from sales of franchise licenses, previously recognized in the year of the sale, are now recognized over the term of the initial franchise agreement; iii) Franchise Services Group national advertising fund income, previously recorded net of advertising expense incurred for the Company’s advertising programs, will now be reported gross, generally with offsetting increases to both revenue and expense such that there will not be a significant, if any, impact on net income; and iv) commissions costs at Terminix and American Home Shield incremental to a successful sale are deferred and recognized over the expected customer relationship period. Previously, commissions and other sales-related costs were deferred and recognized over the initial contract period.

Changes to the condensed consolidated statements of financial position include: i) the reclassification of Receivables to contract assets which are presented net of contract liabilities within Deferred revenue and ii) the reclassification of Deferred customer acquisition costs to long-term assets as costs are recognized over the expected customer relationship period , which is in excess of one year. Previously, when a customer elected to pay for their home service plan contract on a monthly basis, Receivables and Deferred revenue were recorded based on the total amount due from the customer. Receivables were reduced as amounts were paid, and the Deferred revenue was amortized over the life of the contract. Currently, only the portion of the contract that is due in the current month will be recorded within Receivables.

The following tables compare affected lines of the condensed consolidated financial statements as prepared under the provisions of ASC 606 to a presentation of these financial statements under the prior revenue recognition guidance (in millions):













  The adoption of ASC 606 had no significant impact on the Company’s cash flows. The aforementioned impacts resulted in offsetting shifts in cash flows from operations between net income and various change in working capital line items.

Note 4. Restructuring Charges

The Company incurred restructuring charges of less than $1  million (less than $1  million, net of tax) and $1  million ( $1  million, net of tax) in the three months ended June 30, 2018 and 2017, respectively, and $12  million ( $10  million, net of tax) and $3  million ( $2  million, net of tax) in the six months ended June 30, 2018 and 2017, respectively Restructuring charges were comprised of the following:





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The pretax charges discussed above are reported in Restructuring charges in the unaudited condensed consolidated statements of operations and comprehensive income. Certain restructuring comparative figures in the condensed consolidated statements of cash flows have been reclassified to conform to the current year presentation.

A reconciliation of the beginning and ending balances of accrued restructuring charges, which are included in Accrued liabilities—Other on the unaudited condensed consolidated statements of financial position, is presented as follows:



The company expects substantially all of its accrued restructuring charges to be paid by December 31, 2019.

Note 5. American Home Shield Spin-Off

The Company’s financial statements include nonrecurring costs incurred to evaluate, plan and execute the spin-off of the American Home Shield business to Company stockholders. These costs are primarily related to third-party consulting and other incremental costs directly associated with the spin-off process. At December 31, 2017, the Company had $1 million of American Home Shield spin-off charges accrued, and $2 million of prepaid spin-off charges which were recognized during the six months ended June 30, 2018. The Company’s results for the three and six months ended June 30, 2018 include American Home Shield spin-off charges of $8 million ($6 million, net of tax) and $15 million ($12 million, net of tax), respectively. Of this amount, $7 million was unpaid and accrued at June 30, 2018 in Accrued liabilities – Other and Accounts payable on the condensed consolidated statements of financial position. The Company expects substantially all of the American Home Shield spin-off charges to be paid within one year.

The Company expects to incur aggregate charges related to the spin-off of $35 million to $45 million in 2018. In addition, incremental capital expenditures will be required to effect the spin-off in 2018 and will range from $20 million to $30 million, principally reflecting costs to replicate information technology systems historically shared by the Company’s business units.

Note 6. Commitments and Contingencies

The Company carries insurance policies on insurable risks at levels that it believes to be appropriate, including workers’ compensation, automobile and general liability risks. The Company purchases insurance policies from third-party insurance carriers, which typically incorporate significant deductibles or self-insured retentions. The Company is responsible for all claims that fall below the retention limits, exceed our coverage limits or are otherwise not covered by our insurance policies. In determining the Company’s accrual for self-insured claims, the Company uses historical claims experience to establish both the current year accrual and the underlying provision for future losses. This actuarially determined provision and related accrual include known claims, as well as incurred but not reported claims. The Company adjusts its estimate of accrued self-insured claims when required to reflect changes based on factors such as changes in health care costs, accident frequency and claim severity.

A reconciliation of beginning and ending accrued self-insured claims, which are included in Accrued liabilities—Self-insured claims and related expenses and Other long-term obligations, primarily self-insured claims on the condensed consolidated statements of financial position, net of insurance recoverables, which are included in Prepaid expenses and other assets and Other assets on the condensed consolidated statements of financial position, is presented as follows:



The Company also accrues for home service plan claims and termite damage claims in Accrued liabilities-Self-insured claims and related expenses. Accruals for home service plan claims in the American Home Shield business are made based on the Company’s claims experience and actuarial projections. The Company’s actuary performs a reserve analysis utilizing generally accepted actuarial methods that incorporates cumulative historical claims experience and information provided by the Company. The Company regularly reviews its estimates of claims costs and adjust the estimates when appropriate. Reserves are established based on the ultimate cost to settle claims. Home service plan claims take about three months to settle, on average, and substantially all claims are settled within six months. The amount of time required to settle a claim can vary based on a number of factors, including whether a replacement is ultimately required. During the quarter ended June 30, 2018, the Company revised its previous estimate of contract claims and increased contract claims accruals by $12 million. 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 differ causing a change in estimates.

The Company has certain liabilities with respect to existing or potential claims, lawsuits and other proceedings. The Company accrues for these liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified.

On December 16, 2016, the U.S. Virgin Islands Department of Justice filed a civil complaint in the Superior Court of the Virgin Islands related to a fumigation incident in a matter styled Government of the United States Virgin Islands v. The ServiceMaster Company, LLC, The Terminix International Company Limited Partnership, and Terminix International USVI, LLC. The amount and extent of any potential penalties, fines sanctions, costs and damages that the federal or other governmental authorities may yet impose, investigation or other costs and reputational harm, as well as the impact of any additional civil, criminal or other claims or judicial,

administrative or regulatory proceedings resulting from or related to the U.S. Virgin Islands fumigation matter, which could be material, is not currently known, and any such further penalties, fines, sanctions, costs or damages would not be covered under the Company’s general liability policies.

In the ordinary course of conducting business activities, the Company and its subsidiaries become involved in judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. These proceedings include insured and uninsured matters that are brought 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, including with respect to putative collective and class actions, which are subject to court or other approvals. If one or more of the Company’s settlements are not finally approved, the Company could have additional or different exposure, which could be material. Subject to the paragraphs above, the Company does not expect any of these proceedings to have a material effect on its reputation, business, financial position, results of operations or cash flows; however, the Company can give no assurance that the results of any such proceedings will not materially affect our reputation, business, financial position, results of operations and cash flows.

Note 7. Goodwill and Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized and are subject to assessment for impairment by applying a fair-value based test on an annual basis or more frequently if circumstances indicate a potential impairment. The Company’s annual assessment date is October 1. There were no goodwill or trade name impairment charges recorded in the three and six months ended June 30, 2018 and 2017. There were no accumulated impairment losses recorded as of June 30, 2018. The table below summarizes the goodwill balances for continuing operations by reportable segment:





The table below summarizes the other intangible asset balances for continuing operations:



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For the existing intangible assets, the Company anticipates amortization expense for the remainder of 2018 and each of the next five years of $1 5  million, $ 24  million ,   $ 21  million, $ 1 7  million, $1 4  million and $ 12  million, respectively.



Note 8. Stock-Based Compensation

For the three months ended June 30, 2018 and 2017, the Company recognized stock-based compensation expense of $4  million ( $ 3  million, net of tax) and $4  million ( $2  million, net of tax), respectively. For the six months ended June 30, 2018 and 2017, the Company recognized stock-based compensation expense of $8  million ( $6  million, net of tax) and $9  million ( $5  million, net of tax), respectively. These charges are recorded within Selling and administrative expenses in the condensed consolidated statements of operations and comprehensive income.

As of June 30, 2018 there was $ 32  million of total unrecognized compensation costs related to non-vested stock options, restricted stock units (“RSUs”) and performance shares granted under the Amended and Restated ServiceMaster Global Holdings, Inc. 2014 Omnibus Incentive Plan (the “Omnibus Incentive Plan”). These remaining costs are expected to be recognized over a weighted-average period of 2.4 1 years.



Note 9. Comprehensive Income

Comprehensive income, which primarily includes net income (loss), unrealized gain (loss) on derivative instruments and the effect of foreign currency translation gain, is disclosed in the condensed consolidated statements of operations and comprehensive income. Unrealized gains on marketable securities of $3 million ($2 million, net of tax) were included in other comprehensive income prior to the Company’s adoption of ASU 2016-01 on January 1, 2018. Subsequent to the adoption, these unrealized gains have been reclassified to retained earnings. Additionally, stranded tax effects of approximately $4 million resulting from the corporate income tax rate change in U.S. Tax Reform were reclassified upon the Company’s adoption of ASU 2018-02 on January 1, 2018. The income tax effects remaining in AOCI will be released into earnings as the related pre-tax amounts are reclassified to earnings.

The following tables summarize the activity in accumulated other comprehensive income, net of the related tax effects.



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