What changed in this filing

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Item 1A. Risk Factors

2020-12-17 compared with 2019-12-20 · 72 added, 45 removed, 153 unchanged (43% of the section changed)

RISK FACTORS.

The following risks, some of which have occurred and any of which may occur in the future, could materially and adversely affect our business, financial condition, cash flows, results of operations, and/or the trading price of our common stock.

The risks described below identify the material risks we face;

however, our business could also be affected by factors that are not presently known to us or that we currently consider to be immaterial.

You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and the consolidated financial statements and accompanying notes (the “Financial Statements”).

Risks Relating to the Novel Coronavirus (“COVID-19”) Pandemic (the “Pandemic”)

The Pandemic has had and is expected to continue having a negative effect on the global economy and the United States economy;

it has disrupted and is expected to continue disrupting our operations and our clients’ operations;

and it has adversely affected and may continue to adversely affect our business, results of operations, cash flows, and financial condition.

The Pandemic and measures taken by authorities in response to the Pandemic, such as travel bans and restrictions, shelter-in-place/stay-at-home orders, and business and school shutdowns, have disrupted and are expected to continue disrupting the economy and our business.

These disruptions heighten the potential adverse effects on our business, financial condition, results of operations, and cash flows that are described in certain of the risk factors described below.

The evolving scale and scope of the Pandemic will affect the degree of these adverse effects, including, but not limited to, the likelihood of and impacts from:

• overall economic conditions, which have been and will likely continue to be adversely impacted by the Pandemic and related shutdowns;

• our ability to maintain sufficient key personnel due to employee illness, quarantine requirements, worker absences, social-distancing requirements, and travel or other restrictions;

• reduced availability and productivity of labor;

• continued or expanded closures of our clients’ facilities;

• our clients’ demand and ability to pay for our services, or attempts by our clients to defer payments owed to us;

• our ability to obtain new clients, expand, or otherwise execute strategic plans;

• our ability to comply with new legal or regulatory requirements enacted in connection with the Pandemic;

• legal actions or proceedings related to the Pandemic;

• the ability of third parties on which we rely, including our suppliers, to timely meet their obligations to us, or significant disruptions in their ability to do so.

The extent of the impact of the Pandemic depends on future developments and remains highly uncertain due to the unknown duration and severity of the Pandemic.

Given these uncertainties, we cannot estimate the full impacts the Pandemic will have on our business, results of operations, cash flows, or financial condition, but the adverse impacts could be material.

Risks Relating to Our Strategy and Operations

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We also compete indirectly with companies that can perform for themselves one or more of the services we provide.

Further, if we are unable to respond adequately to changing technology, we may lose existing clients and fail to win future business opportunities.

Further, if we are unable to respond adequately to changing technology, we may

lose existing clients and fail to win future business opportunities.

A failure to respond effectively to competitive pressures or failure in our ability to increase prices as costs rise could reduce margins and materially adversely affect our financial performance.

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Any unplanned turnover in senior management or inability to attract and retain qualified personnel could have a negative effect on our results of operations.

We employ approximately 140,000 persons, and our operations depend on the services of a large and diverse workforce.

We employ approximat ely 114,000 persons, and our operations depend on the services of a large and diverse workforce.

We must attract, train, and retain a large and growing number of qualified employees while controlling related labor costs.

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Our ability to preserve long-term client relationships is essential to our continued success.

We primarily provide services pursuant to agreements that are cancelable by either party upon 30–90 days’ notice.

We primarily provide services pursuant to agreements that are cancelable by either party upon 30 to 90 days’ notice.

As we generally incur higher initial costs on new contracts until the labor management and facilities operations normalize, our business associated with long-term client relationships is generally more profitable than short-term client relationships.

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We may periodically engage in various initiatives intended to drive long-term profitable growth and increase operational efficiency.

Planned changes to our business systems and processes may not create the operational efficiencies or cost benefits that we expect and could result in unanticipated consequences, including substantial disruption to our back-office operations and service delivery.

Planned changes to our business systems and processes may not create the growth, operational efficiencies or cost benefits that we expect and could result in unanticipated consequences, including substantial disruption to our back-office operations and service delivery.

We may not be able to fully execute on such initiatives to the extent expected within the anticipated timeframe as a result of numerous factors, such as client resistance, inability to deliver requested end-to-end services, and difficulty penetrating certain markets.

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• clients or key employees of an acquired business may not remain, which could negatively impact our ability to grow that acquired business;

integration of an acquired business’s accounting, information technology, human resources, and other administrative systems may fail to permit effective management and expense reduction;

• integration of an acquired business’s accounting, information technology, HR, and other administrative systems may fail to permit effective management and expense reduction;

• unforeseen challenges may arise in implementing internal controls, procedures, and policies;

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• unanticipated or unknown liabilities may arise related to an acquired business.

We manage our insurable risks through a combination of third-party purchased policies and self-insurance, and we retain a substantial portion of the risk associated with expected losses under these programs, which exposes us to volatility associated with those risks, including the possibility that adjustments to our ultimate insurance loss reserves could result in material charges against our earnings.

We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks.

We are responsible for claims both within and in excess of our retained limits under our insurance policies, and while we endeavor to purchase insurance coverage that is appropriate to our assessment of risk, we are unable to predict with certainty the frequency, nature, or magnitude of claims for direct or consequential damages.

If our insurance coverage proves to be inadequate or unavailable, our business may be negatively impacted.

The determination of required insurance reserves is dependent upon actuarial judgments.

We use the results of actuarial studies to estimate insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years.

Actual experience related to our insurance reserves can cause us to change our estimates for reserves and any such changes may materially impact results, causing significant volatility in our operating results.

We have previously experienced material adjustments to reserves resulting from negative trends in our actuarial estimates, and we may continue to experience these and other material negative trends in future periods.

Should we be unable to renew our excess, umbrella, or other commercial insurance policies at competitive rates, it could have a material adverse impact on our business, as would the incurrence of catastrophic uninsured claims or the inability or refusal of our insurance carriers to pay otherwise insured claims.

Further, to the extent that we self-insure our losses, deterioration in our loss control and/or our continuing claim management efforts could increase the overall cost of claims within our retained limits.

A material change in our insurance costs due to changes in the frequency of claims, the severity of the claims, the costs of excess/umbrella premiums, or regulatory changes could have a material adverse effect on our financial position, results of operations, or cash flows.

In 2015, we formed a wholly-owned captive insurance company, IFM Assurance Company (“IFM”), which we believe has provided us with increased flexibility in the end-to-end management of our insurance program.

There can be no assurance that IFM will continue to bring about the intended benefits or the desired flexibility in the management of our insurance programs, because we may experience unanticipated events that will reduce or eliminate expected benefits, including anticipated savings related to coverage provided by IFM to our subsidiaries.

Our risk management and safety programs may not have the intended effect of reducing our liability for personal injury or property loss.

We attempt to mitigate risks relating to personal injury or property loss through the implementation of company-wide safety and loss control efforts designed to decrease the incidence of accidents or events that might increase our liability.

It is expected that any such decrease would also have the effect of reducing our insurance costs for our casualty programs.

However, incidents involving personal injury or property loss may be caused by multiple potential factors, a significant number of which are beyond our control.

Therefore, there can be no assurance that our risk management and safety programs will have the desired effect of controlling costs and liability exposure.

Our international business involves risks different from those we face in the United States that could have an effect on our results of operations and financial condition.

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subsidiaries are translated into U.S.

dollars, and those results are affected by movements in foreign currencies relative to the U.S.

dollars, and those translations are affected by movements in foreign currencies relative to the U.S.

There can be no assurance that the foregoing factors will not have a material adverse effect on our international operations or on our consolidated financial condition and results of operations.

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Although we have in place controls and programs to monitor the work of our subcontractors and our joint venture partners, there can be no assurance that these controls or programs will have the desired effect, and we may incur significant liability as a result of the actions or inactions of one or more of our subcontractors or joint venture partners.

Risks Relating to Insurance and Safety Matters

We manage our insurable risks through a combination of third-party purchased policies and self-insurance, and we retain a substantial portion of the risk associated with expected losses under these programs, which exposes us to volatility associated with those risks, including the possibility that changes in estimates to our ultimate insurance loss reserves could result in material charges against our earnings.

We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks.

If our insurance coverage proves to be inadequate or unavailable, our business may be negatively impacted.

The determination of required insurance reserves is dependent upon actuarial judgments.

We use the results of actuarial studies to estimate insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years.

Should we be unable to renew our excess, umbrella, or other commercial insurance policies, it could have a material adverse impact on our business, as would the incurrence of catastrophic uninsured claims or the inability or refusal of our insurance carriers to pay otherwise insured claims.

Our risk management and safety programs may not have the intended effect of reducing our liability for personal injury or property loss.

It is expected that any such decrease could also have the effect of reducing our insurance costs for our casualty programs.

However, incidents involving personal injury or property loss may be caused by multiple potential factors, a significant number of which are beyond our control.

Therefore, there can be no assurance that our risk management and safety programs will have the desired effect of controlling costs and liability exposure.

Risks Relating to Information Technology and Cybersecurity

We may experience breaches of, or disruptions to, our information technology systems or those of our third-party providers or clients, or other compromises of our data that could adversely affect our business.

Our information technology systems and those of our third-party providers or clients could be the target of cyber attacks, hacking, unauthorized access, phishing, computer viruses, malware, or other intrusions, which could result in operational disruptions or information misappropriation, such as theft of intellectual property or inappropriate disclosure of confidential, proprietary, or personal information.

Our information technology systems and those of our third-party providers or clients could be the target of cyber attacks, ransomware attacks, hacking, unauthorized access, phishing, computer viruses, malware, or other intrusions, which could result in operational disruptions or information misappropriation, such as theft of intellectual property or inappropriate disclosure of confidential, proprietary, or personal information.

We maintain confidential, proprietary, and personal information in our information technology systems and in systems of third-party providers relating to our current, former, and prospective employees, clients, and other third parties.

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Furthermore, while we continue to devote significant resources to monitoring and updating our systems and implementing information security measures to protect our systems, there can be no assurance that the controls and procedures we have in place will be sufficient to protect us from future security breaches.

As cyber threats are continually evolving, our controls and procedures may become inadequate and we may be required to devote additional resources to modifying or enhancing our systems in the future.

As cyber threats are continually evolving, our controls and procedures

may become inadequate and we may be required to devote additional resources to modifying or enhancing our systems in the future.

We may also be required to expend resources to remediate cyber-related incidents or to enhance and strengthen our cyber security.

Any such disruptions to our information technology systems, breaches or compromises of data, and/or misappropriation of information could result in lost sales, negative publicity, litigation, violations of privacy and other laws, or business delays that could have a material adverse effect on our business.

Additionally, we believe that along with the GDPR and the California Consumer Privacy Act, which goes into effect on January 1, 2020, further increased regulation is likely in the area of data privacy.

Additionally, we believe that along with the GDPR and the California Consumer Privacy Act, which went into effect on January 1, 2020, further increased regulation is likely in the area of data privacy.

Compliance with this rapidly expanding area of law will require significant management and financial resources, and we could be subjected to additional legal risk or financial losses if we are not in compliance.

This expanding area of law may also lead to potentially significant additional claims, including class action claims, being alleged against us.

Risks Relating to Labor, Legal Proceedings, Tax, and Regulatory Matters

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We incur risks relating to our employment of these workers, including but not limited to:

claims by our employees of discrimination, harassment, violations of wage and hour requirements, or violations of other federal, state, or local laws;

claims of misconduct or negligence on the part of our employees;

claims related to the employment of unlicensed personnel;

and claims by our employees of discrimination, harassment, violations of wage and hour requirements, or violations of other federal, state, or local laws.

and claims related to the employment of unlicensed personnel.

We also incur risks and claims related to the imposition on our employees of policies or practices of our clients that may be different from our own.

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These lawsuits and other proceedings may consume substantial amounts of our financial and managerial resources.

An unfavorable outcome with respect to these lawsuits and any future lawsuits may, individually or in the aggregate, cause us to incur substantial liabilities that could have a material adverse effect upon our business, reputation, financial condition, or results of operations.

A significant number of our employees are covered by collective bargaining agreements that could expose us to potential liabilities in relationship to our participation in multiemployer pension plans, requirements to make contributions to other benefit plans, and the potential for strikes, work slowdowns or similar activities, and union organizing drives.

An unfavorable outcome with respect to current lawsuits, including the Bucio case described in Note 13, “Commitments and Contingencies,” in the Notes to consolidated financial statements (included in Part II., Item 8 of this Form 10-K), and any future lawsuits may, individually or in the aggregate, cause us to incur substantial liabilities that could have a material adverse effect upon our business, reputation, financial condition, results of operations, or cash flows.

A significant number of our employees are covered by collective bargaining agreements that could expose us to potential liabilities in relation to our participation in multiemployer pension plans, requirements to make contributions to other benefit plans, and the potential for strikes, work slowdowns or similar activities, and union organizing drives.

We participate in various multiemployer pension plans that provide defined pension benefits to employees covered by collective bargaining agreements.

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The failure to make timely and accurate contributions as a result of a systems failure could have a negative impact on our financial position.

At October 31, 2019 , approximately 32% of our employees were subject to various local collective bargaining agreements, some of which will expire or become subject to renegotiation during 2020.

At October 31, 2020, approximatel y 32% o f our employees were subject to various local collective bargaining agreements, some of which will expire or become subject to renegotiation during 2021.

In addition, at any given time we may face union organizing activity.

When one or more of our major collective bargaining agreements becomes subject to renegotiation or when we face union organizing drives, any disagreement between us and the union on important issues may lead to a strike, work slowdown, or other job actions at one or more of our locations.

In a market where we are unionized but competitors are not unionized, we could lose clients to such competitors.

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Negative or unexpected tax consequences could adversely affect our results of operations.

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) made significant changes to U.S.

federal tax laws.

Such changes include a reduction in the corporate tax rate as well as limitations on certain corporate deductions and credits that could have a negative impact on our business.

The Tax Act requires significant judgments to be made in the interpretation of the law and significant estimates in the calculation of the provision for income taxes.

However, additional guidance that may significantly differ from our interpretation of the law may be issued by the Internal Revenue Service (“IRS”), the Department of Treasury, or another governing body, which may result in a material adverse effect on our business, financial condition, results of operations, or cash flows.

In addition, we are subject to tax audits by governmental authorities, primarily in the United States and United Kingdom.

If we experience unfavorable results from one or more such tax audits, there could be an adverse effect on our tax rate and therefore on our net income.

We are subject to a variety of taxes and tax collection and remittance obligations in the United States and foreign jurisdictions, primarily the United Kingdom.

We compute our income tax provision based on enacted tax rates in the jurisdictions in which we operate.

As tax rates vary among taxing jurisdictions, a change in earnings attributable to the various jurisdictions in which we operate could result in an unfavorable change in our overall tax provision.

Additionally, at any point in time, we may be under examination for income-based, sales-based, payroll, or other non-income taxes.

We regularly assess the likelihood of adverse outcomes resulting from these audits to determine the adequacy of our provision for income taxes.

We may recognize additional tax expense, be subject to additional tax liabilities, or incur losses and penalties due to adverse outcomes in tax audits or changes in laws, regulations, administrative practices, principles, assessments by authorities, and interpretations related to tax laws, including tax rules in various jurisdictions, which could have an adverse effect on our operating results and financial condition.

Risks Relating to Market and Economic Conditions

Changes in general economic conditions, such as changes in energy prices, government regulations, or consumer preferences, could reduce the demand for facility services and, as a result, reduce our earnings and adversely affect our financial condition.

In certain geographic areas and service lines, our most profitable revenues are related to supplemental services requested by clients outside of the standard service specification (“tag work”).

In certain geographic areas and service lines, our most profitable revenues are related to supplemental services requested by clients outside of the standard service specification (“work orders”).

This contract type is commonly used in janitorial services and includes cleanup after tenant moves, construction cleanup, flood cleanup, and snow removal.

A decline in occupancy rates could result in a decline in scope of work, including tag work, and depressed prices for our services.

A continuing decline in occupancy rates could result in a decline in scope of work, including work orders, and depressed prices for our services.

Slow domestic and international economic growth or other negative changes in global, national, and local economic conditions could have a negative impact on our business.

Specifically, adverse economic conditions may result in clients cutting back on discretionary spending.

Additionally, since a significant portion of our aviation services and parking revenues are tied to the volume of airline passengers, hotel guests, and sports arena attendees, results for these businesses could be adversely affected by curtailment of business, personal travel, or discretionary spending.

Additionally, since a significant portion of our aviation services and parking revenues are tied to the volume of airline passengers, hotel guests, and sports arena attendees, results for these businesses could be adversely affected by continued curtailment of business, personal travel, or discretionary spending.

The use of ride sharing services and car sharing services may also lead to a decline in parking demand at airports and in urban areas.

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The degree to which we are leveraged could have important consequences for shareholders.

For example, it could:

For example, being highly leveraged could:

require us to dedicate a substantial portion of our cash flows from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, share repurchases, capital expenditures, acquisitions, and other general corporate purposes;

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If the fair value of one of our reporting units is less than its carrying value, or if as a result of a recoverability test we conclude that the projected undiscounted cash flows are less than the carrying amount, we would record an impairment charge related to goodwill or long-lived assets, respectively.

The assumptions used to determine impairment require significant judgment and the amount of the impairment could have a material adverse effect on our reported financial results for the period in which the charge is taken.

(For example, during the second quarter of 2020, given the general deterioration in economic and market conditions arising from the Pandemic, we identified a triggering event that resulted in the impairment of goodwill and intangible assets.) The assumptions used to determine impairment require significant judgment, and the amount of the impairment could have a material adverse effect on our reported financial results for the period in which the charge is taken.

If we fail to maintain proper and effective internal control over financial reporting in the future, our ability to produce accurate and timely financial statements could be negatively impacted, which could harm our operating results and investor perceptions of our Company and as a result may have a material adverse effect on the value of our common stock.

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In addition, with the increasing frequency of cyber-related frauds perpetrated to obtain inappropriate payments, we need to ensure our internal controls related to authorizing the transfer of funds and changing our vendor master files are adequate.

Furthermore, the introduction of new, and changes to existing, enterprise resource planning (“ERP”) and financial reporting information systems create implementation and change management risks that require effective internal controls to mitigate.

Failure to maintain an effective internal control environment could have a material adverse effect on our ability to accurately report our financial results, the market’s perception of our business, and our stock price.

General Risk Factors

Our business may be negatively impacted by adverse weather conditions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors