What changed in this filing

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Item 1. Financial Statements

2022-05-04 compared with 2021-11-10 · 821 added, 789 removed, 592 unchanged (73% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share data)

September 30,

(In millions, except share data)

Current assets:

Cash and cash equivalents

Accounts receivable, net of allowances of $ 3 and $ 4 at

September 30, 2021 and December 31, 2020, respectively

Restricted cash

Accounts receivable, net of allowances of $ 3 at March 31, 2022 and

December 31, 2021

Contract assets

5 unchanged sentences

Deferred tax assets

Liabilities and Shareholders’

Pension and post-retirement assets

Liabilities, Redeemable Convertible Preferred Stock, and Shareholders’

Current liabilities:

3 unchanged sentences

Accrued salaries and wages

Deferred consideration

Other accrued liabilities

Contract liabilities

Operating and finance leases

Other accrued liabilities

Total current liabilities

Long-term debt, less current portion

Pension and post-retirement obligations

Contingent consideration and compensation liabilities

3 unchanged sentences

Total liabilities

Commitments and contingencies (Note 16)

5.5 % Series B Redeemable Convertible Preferred Stock, $ 0.0001 par value, 800,000 authorized

shares, 800,000 shares and 0 shares issued and outstanding at March 31, 2022 and December 31,

2021, respectively;

aggregate liquidation preference of $ 840

Shareholders’

Series A Preferred shares, $ 0.0001 par value, 7 authorized shares, 4 shares issued

and outstanding at September 30, 2021 and December 31, 2020

Common shares, $ 0.0001 par value, 500 authorized shares, 224 shares and 168 shares

issued at September 30, 2021 and December 31, 2020, respectively (includes

Series A Preferred Stock, $ 0.0001 par value, 7,000,000 authorized shares, 4,000,000 shares

issued and outstanding at March 31, 2022 and December 31, 2021

Common Stock, $ 0.0001 par value, 500,000,000 authorized shares, 233,188,612 shares and

224,625,193 shares issued at March 31, 2022 and December 31, 2021, respectively (excluding

7,539,697 shares declared for stock dividend at December 31, 2021)

1 unchanged sentence

Accumulated deficit

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Total shareholders’

Total liabilities and shareholders’

Total liabilities, redeemable convertible preferred stock, and shareholders’

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In millions, except per share amounts)

Three Months Ended

September 30,

Nine Months Ended

September 30,

For the Three Months Ended March 31,

Cost of revenues

Selling, general, and administrative expenses

Impairment of goodwill and intangible assets

Operating income (loss)

Interest expense, net

Loss on extinguishment of debt

Non-service pension benefit

Investment income and other, net

3 unchanged sentences

Net income (loss)

Net income (loss) attributable to common shareholders:

Stock dividend on Series B Preferred Stock

Net income (loss) attributable to common shareholders

Net income (loss) per common share:

4 unchanged sentences

(In millions)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net income (loss)

Other comprehensive income (loss):

Fair value change - derivatives, net of tax (expense) benefit

Fair value change - derivatives, net of tax (expense)

of ($ 3 ) and $ 0 , respectively

6 unchanged sentences

(In millions, except share amounts)

Preferred Shares Issued

Preferred Stock Issued

and Outstanding

Common Shares Issued

Common Stock Issued

and Outstanding

3 unchanged sentences

Balance, December 31, 2021

Net income (loss)

Fair value change - derivatives

Foreign currency translation adjustment

Preferred Share dividend

Warrants exercised

Series A Preferred Stock dividend

Series B Preferred Stock dividend

Share repurchases

Profit sharing plan contributions

1 unchanged sentence

Balance, March 31, 2022

Fair value change - derivatives

Foreign currency translation adjustment

Share-based compensation and other, net

Balance, June 30, 2021

Fair value change - derivatives

Foreign currency translation adjustment

Issuance of common shares

Share-based compensation and other, net

Balance, September 30, 2021

Preferred Shares Issued

Preferred Stock Issued

and Outstanding

Common Shares Issued

Common Stock Issued

and Outstanding

3 unchanged sentences

Balance, December 31, 2020

Fair value change - derivatives

Foreign currency translation adjustment

Share cancellations

Share-based compensation

Balance, March 31, 2020

Fair value change - derivatives

Foreign currency translation adjustment

Share-based compensation

Balance, June 30, 2020

Net income (loss)

Fair value change - derivatives

Foreign currency translation adjustment

Series A Preferred Stock dividend

Warrants exercised

Share-based compensation

Balance, September 30, 2020

Profit sharing plan contributions

Share-based compensation and other, net

Balance, March 31, 2021

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In millions)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Impairment of goodwill and intangible assets

Deferred taxes

2 unchanged sentences

Non-cash lease expense

Loss on extinguishment of debt

Non-service pension benefit

Changes in operating assets and liabilities, net of effects of business acquisitions:

2 unchanged sentences

Prepaid expenses and other current assets

Pension contribution

Accounts payable

2 unchanged sentences

Other assets and liabilities

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

6 unchanged sentences

Payments on long-term borrowings

Payments of debt issuance costs

Proceeds from share issuance and warrant exercises

Payments of acquisition-related consideration

Deferred financing costs paid

Repurchases of Common Stock

Proceeds from equity issuances

Restricted shares tendered for taxes

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of foreign currency exchange rate change on cash and cash equivalents

Net increase in cash and cash equivalents

Net (decrease) increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash, beginning of period

3 unchanged sentences

Cash paid for income taxes, net of refunds

Accrued consideration issued in business combinations

Shares issued to profit sharing plan

Shares of Common Stock issued to profit sharing plan

See notes to condensed consolidated financial statements.

4 unchanged sentences

APi Group Corporation (the “Company”

or “APG”) is a market-leading business services provider of safety, specialty, and industrial services in over 200 locations, primarily in North America and Europe.

or “APG”) is a global, market-leading business services provider of safety and specialty services in over 500 locations in approximately 20 countries.

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

5 unchanged sentences

GAAP”) for complete financial statements.

The unaudited condensed consolidated balance sheet as of December 31, 2020 was derived from audited financial statements for the year then ended but does not include all of the information and footnotes required by U.S.

The condensed consolidated balance sheets as of December 31, 2021 were derived from audited financial statements for the year then ended but do not include all of the information and footnotes required by U.S.

GAAP with respect to annual financial statements.

2 unchanged sentences

Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.

Resegmentation

The Company has combined the leadership responsibility and full accountability for the Industrial Services and Specialty Services operating segments.

As a result, beginning with the three months ended March 31, 2022, the information for the Industrial Services segment is combined with the Specialty Services segment and the Company presents financial information for the Safety Services and Specialty Services segments, the two operating segments and also the reportable segments.

The Company's chief operating decision maker regularly reviews financial information to allocate resources and assess performance utilizing these reorganized segments.

Certain prior year amounts have been recast to conform to the current year presentation.

Throughout these Interim Statements, unless otherwise indicated, amounts and activity reflect reclassifications related to the Company's resegmentation, as described in Note 20 - "Segment Information."

Cash, cash equivalents, and restricted cash

Cash and cash equivalents include cash on hand and highly liquid investments that have a maturity of three months or less when purchased.

Restricted cash reflects collateral against certain bank guarantees.

Restricted cash is reported as prepaid expenses and other current assets and other assets in the unaudited condensed consolidated balance sheets.

The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents.

Restricted cash is reported as current restricted cash and other assets in the condensed consolidated balance sheets.

Restricted cash reflects collateral against certain bank guarantees and amounts held in escrow as described in Note 11 - "Debt".

The Company holds investments in joint ventures which are accounted for under the equity method of accounting as the Company does not exercise control over the joint ventures.

The Company’s share of earnings from the joint ventures w as $ 1 and $ 5 d uring the three months ended September 30, 2021 and 2020, respectively , and $ 3 and $ 12 d uring the nine months ended September 30, 2021 and 2020, respectively.

The earnings are recorded w ithin investment income and other, net in the unaudited condensed consolidated statements of operations.

The investment balances were $ 6 and $ 9 as of September 30, 2021 and December 31, 2020, respectively, and are recorded within other assets in the unaudited condensed consolidated balance sheets.

The Company’s share of earnings from the joint ventures w as less than $ 1 and $ 1 d uring the three months ended March 31, 2022 and 2021, respectively.

The earnings are recorded w ithin investment income and other, net in the condensed consolidated statements of operations.

The investment balances were $ 3 and $ 4 as of March 31, 2022 and December 31, 2021, respectively, and are recorded within other assets in the condensed consolidated balance sheets.

Pension and post-retirement obligations

The Company's accounting policies related to pension and post-retirement obligations are disclosed in Note 14 - "Pension".

RECENT ACCOUNTING PRONOUNCEMENTS

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Accounting standards issued and adopted

In January 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU 2020-01”) to clarify the interaction in accounting for equity securities under Topic 321, investments accounted for under the equity method of accounting in Topic 323, and the accounting for certain forward contracts and purchased options accounted for under Topic 815.

ASU 2020-01 is effective for fiscal years, and for

interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which helps limit the accounting impact from contract modifications, including hedging relationships, due to the transition from the London Interbank Offering Rate ("LIBOR") to alternative reference rates, such as the Secured Overnight Financing Rate, that are completed by December 31, 2022.

The Company adopted this standard on January 1, 2022, and it did not have an impact on the consolidated financial statements.

The Company will continue to use the one-month LIBOR until it is it is phased out on June 30, 2023 and does not expect the transition from LIBOR to alternative reference interest rates to have a significant impact to operating results, financial position or cash flows, but will continue to monitor the impact of this transition until it is completed.

In August 2020, the FASB issued ASU 2020-06, Debt –

Debt Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging –

Contracts in Entity’s Own Equity (Subtopic 815-40) , which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share (EPS) calculations as a result of these changes.

The Company adopted this ASU on January 1, 2022 and it did not have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions to the existing guidance for income taxes related to the approach for intra-period tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

This ASU also simplifies the accounting for income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or rates in the effective tax rate computation, the recognition of franchise tax, and the evaluation of a step-up in the tax basis of goodwill, among other clarifications.

ASU 2019-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted.

The Company adopted this ASU on January 1, 2021 and it had no impact on its consolidated financial statements.

Accounting standards issued but not yet adopted:

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which improves comparability after business combinations by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination.

ASU 2021-08 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted.

The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.

BUSINESS COMBINATIONS

The Company continually evaluates potential acquisitions that strategically fit within the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area.

The Company continually evaluates potential acquisitions that strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area.

Acquisitions are accounted for as business combinations using the acquisition method of accounting.

1 unchanged sentence

In the months after closing, as the Company obtains additional information about the acquired assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price.

Purchase price is allocated to acquired assets and liabilities assumed based upon their estimated fair values as determined based on estimates and assumptions deemed reasonable by the Company.

Purchase price is allocated to acquired assets and liabilities assumed based upon their estimated fair values, with limited exceptions as permitted pursuant to U.S.

GAAP, as determined based on estimates and assumptions deemed reasonable by the Company.

The Company engages third-party valuation specialists to assist with preparation of critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions.

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Goodwill is attributable to the workforce of the acquired businesses, the complementary strategic fit and resulting synergies these businesses bring to existing operations, and the opportunities in new markets expected to be achieved from the expanded platform.

2021 Acquisitions

During the nine months ended September 30, 2021, the Company completed the acquisition of Premier Fire & Security, Inc.

("Premier Fire") on July 1, 2021, and included in the Safety Services segment, as well as several other individually immaterial acquisitions.

Total purchase consideration for all of the completed acquisitions of $ 68 consisted of cash paid at closing of $ 51 , net of cash acquired of $ 4 , and accrued consideration of $ 13 .

The results of operations of these acquisitions are included in the Company’s unaudited condensed consolidated statement of operations from their respective dates of acquisition.

Net revenues and operating income from material acquisitions were $ 9 and less than $ 1 , respectively, for the nine months ended September 30, 2021.

The Company has not finalized its accounting for 2021 acquisitions.

The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

Based on preliminary estimates, the total amount of goodwill from the 2021 acquisitions expected to be deductible for tax purposes is $ 21 .

See N ote 6 –

“Goodwill and Intangibles”

for the provisional goodwill assigned to each segment.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the dates of acquisition:

2022 Chubb Acquisition

On January 3, 2022, the Company completed its acquisition of the Chubb fire and security business (the "Chubb Acquisition").

The Chubb fire and security business (the "Chubb business") is a globally recognized fire safety and security services provider, offering customers complete and reliable services from design and installation to monitoring and on-going maintenance and recurring services.

The Chubb business is headquartered in England, and has significant operations in 17 countries including Australia, France, and the Netherlands, expanding the Company's geographic footprint to a total of 20 countries.

The results of the Chubb business are reported within the Company's Safety Services segment.

The aggregate consideration paid by the Company for the stock purchase of the Chubb business was funded through a combination of cash on hand and net proceeds from the private placement of Series B Preferred Stock (as defined in Note 15 - "Related-Party Transactions"), the offering of the 4.750 % Senior Notes, and the 2021 Term Loan (both defined in Note 11 - "Debt").

During the three months ended March 31, 2022, the Company incurred transaction costs of $ 24 , which were expensed and included as a component of selling general and administrative expense in the condensed consolidated statements of operations.

The Chubb Acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”).

The purchase price has been preliminarily allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon their estimated fair values, with the exception of the following:

(1) pre-acquisition contingencies which are recognized and measured in accordance with ASC 450, Contingencies (“ASC 450”) if fair value cannot be determined;

(2) deferred income tax assets acquired and liabilities assumed are recognized and measured in accordance with ASC 740, Income Taxes ;

(3) pensions and other post-retirement benefits other than pensions are recognized and measured in accordance with ASC 715, Compensation –

Retirement Benefits ;

(4) contract assets and liabilities are measured and recognized in accordance with ASC 606, Revenue from Contracts with Customers;

and (5) certain lease related assets and liabilities which are measured and recognized in accordance with ASC 842, Leases .

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of the Chubb Acquisition:

Cash paid at closing

Accrued consideration

Other estimated adjustments

Total consideration

Current assets

Accounts receivable

Contract assets

Other current assets

Property and equipment

Intangible assets, net

Current liabilities

Noncurrent liabilities

Operating lease right of use assets

Pension and post-retirement assets

Other noncurrent assets

Accounts payable

Contract liabilities

Accrued expenses

Finance and operating lease liabilities

Pension and post-retirement obligations

Deferred tax liabilities

Other noncurrent liabilities

Net assets acquired

On July 26, 2021, the Company entered into an agreement to acquire the Chubb Limited fire and security business from Carrier Global Corporation for an enterprise value of $ 3,100 , which is comprised of $ 2,900 cash and approximately $ 200 of assumed liabilities, subject to adjustments at closing.

Since the Chubb Acquisition occurred during the three months ended March 31, 2022, the Company has not finalized its accounting for any areas of purchase price allocation related to the Chubb Acquisition.

The Company anticipates it will finalize its accounting for the Chubb Acquisition during the fourth quarter of 2022.

The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill.

The Company has assigned the provisional goodwill of $ 1,225 to its Safety Services reportable segment (see Note 6 - "Goodwill and Intangibles").

Based on U.S.

income tax principles related to acquisitions of non-U.S.

entities, the Company does not expect any of the provisional amount of goodwill to be deductible for U.S.

income tax purposes.

Based on internal assessments as well as discussions with the Chubb business’s management, the Company has identified the following significant intangible assets:

tradenames and trademarks, customer relationships, and contractual backlog.

The following table summarizes the preliminary fair value of the identifiable intangible assets:

Customer relationships

Contractual backlog

Total intangibles

The estimated useful lives over which the intangible assets will be amortized are as follows:

customer relationships ( 15 years ), tradenames and trademarks ( 15 years ), and contractual backlog ( 1 year ).

As of the effective time of the Chubb Acquisition, identifiable intangible assets are required to be measured at fair value, and these assets could include assets that are not intended to be used or sold or that are intended to be used in a manner other than their highest and best use.

With respect to the intangible assets associated with the Chubb Acquisition, the Chubb business owns the rights to a number of trade names and trademarks.

For purposes of these condensed consolidated financial statements, the fair value and weighted-average useful lives of these intangible assets have been estimated using variations of the income approach.

Significant inputs used to value these intangible assets include projections of future cash flows, long-term growth rates, customer attrition rates, discount rates, royalty rates, and applicable income tax rates.

The results of operations for the Chubb business are included in the consolidated financial statements of the Company from the date of acquisition.

Pro forma consolidated financial information

The following pro forma consolidated financial information reflects the results of operations of the Company for the three months ended March 31, 2021 as if the Chubb Acquisition and related financing had occurred as of January 1, 2021, after giving effect to certain purchase accounting and financing adjustments.

These amounts are based on financial information of the Chubb business and are not necessarily indicative of what the Company’s operating results would have been had the Chubb Acquisition and related financing taken place on January 1, 2021.

Three Months Ended

March 31, 2021

Net income (loss)

Pro forma financial information is presented as if the operations of Chubb had been included in the consolidated results of the Company since January 1, 2021, and gives effect to transactions that are directly attributable to the Chubb Acquisition and related financing.

Adjustments, net of related tax impacts, include:

additional depreciation and amortization expense related to the fair value of acquired property and equipment and intangible assets as if such assets were acquired on January 1, 2021;

costs related to the fair value step-up of acquired inventory;

interest expense under the Company’s 2021 Term Loan and 4.750 % Senior Notes (both defined in Note 11 - "Debt") as if the amounts borrowed to partially finance the purchase price were borrowed on January 1, 2021.

Total cumulative transaction costs of $ 43 , which were expensed and have been included as a component of selling, general, and administrative expenses, were reflected as if the transaction occurred as of January 1, 2021.

2021 Acquisitions

During 2020, the Company completed the acquisition of SK FireSafety (“SKG”) within the Safety Services segment and a number of other immaterial acquisitions for consideration transferred of $ 324 , which includes a cash payment made at closing of $ 319 , net of cash acquired, and $ 5 of accrued consideration that may be paid out in 1 -2 years from date of acquisition.

SKG is a European market-leading provider of commercial safety services with operations primarily in the Netherlands, Belgium, Sweden, Norway, and the United Kingdom.

On October 1, 2020, the Company completed the SKG Acquisition and acquired all of the outstanding stock.

Through the acquisition of SKG, APG established a European platform for international organic and acquisition expansion.

The other acquisitions were primarily in the Safety Services segment and based in the United States.

The Company has finalized its accounting for all 2020 acquisitions.

During Q2 2021, the Company recorded a measurement period adjustment, primarily related to intangible assets and goodwill, for which the resulting impact to amortization expense was immaterial.

Based on final purchase price allocations, the total amount of goodwill from the 2020 acquisitions expected to be deductible for tax purposes is $ 20 .

See Note 6 –

The Company completed the acquisitions of Premier Fire & Security, Inc.

("Premier Fire") in July 2021, and Northern Air Corporation ("NAC") in November 2021, both included in the Safety Services segment, as well as several other individually immaterial acquisitions.

Total purchase consideration for all of the completed acquisitions of $ 111 consisted of cash paid at closing of $ 93 , gross cash acquired of $ 7 , and accrued consideration of $ 18 .

The results of operations of these acquisitions are included in the Company’s condensed consolidated statements of operations from their respective dates of acquisition.

The Company has not finalized its accounting for the Premier Fire and NAC acquisitions.

The areas of the purchase price allocation that are not yet finalized for the material 2021 acquisitions include the valuation of intangible assets and income tax related matters.

During the three months ended March 31, 2022, the Company recorded a measurement period adjustment, primarily related to a reclassification between intangible assets and goodwill for the NAC acquisition.

The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

Based on preliminary estimates, the total amount of goodwill from the 2021 acquisitions expected to be deductible for ta x purposes is $ 46 .

See N ote 6 –

“Goodwill and Intangibles”

for the provisional goodwill assigned to each segment.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the dates of acquisition:

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the dates of acquisition:

Cash paid at closing

3 unchanged sentences

Property and equipment

Customer relationships

Trade names and trademarks

Contractual backlog

Other noncurrent assets

Intangible assets, net

Current liabilities

Noncurrent liabilities

Net assets acquired

Net revenues and operating income from the Company's material acquisitions over the previous 12 months was $ 543 and $ 10 , respectively, for the three months ended March 31, 2022.

Accrued consideration

The Company’s acquisition purchase agreements typically include deferred payment provisions, often to sellers who become employees of the Company.

The Company’s acquisition purchase agreements typically include deferred payment provisions, often to sellers who become employees of the Company or its subsidiaries.

The provisions are made up of three general types of arrangements, contingent compensation and contingent consideration (both of which are contingent on the future performance of the acquired entity) and deferred payments related to indemnities.

1 unchanged sentence

Contingent consideration arrangements are not contingent on employment and are included as part of purchase consideration at the time of the initial acquisition and are paid over a three to five year period.

The liability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a twelve - twenty-four month period.

The liability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a twelve to twenty-four month period.

Deferred payments are not contingent on any future performance or employment obligations and can be offset for working capital true-ups, and representations and warranty items.

The total contingent compensation arrangement liability was $ 13 and $ 39 at September 30, 2021 and December 31, 2020, respectively.

The maximum payout of these arrangements upon completion of the future performance periods was $ 49 and $ 85 , inclusive of the $ 13 and $ 39 , accrued as of September 30, 2021 and December 31, 2020, respectively.

The contingent compensation liability is included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets for all periods presented.

The total contingent compensation arrangement liability was $ 15 and $ 12 at March 31, 2022 and December 31, 2021, respectively.

The maximum payout of these arrangements upon completion of the future performance periods was $ 22 and $ 57 , inclusive of the $ 15 and $ 12 , accrued as of March 31, 2022 and December 31, 2021, respectively.

The contingent compensation liability is included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for all periods presented.

The Company primarily determines the contingent compensation liability based on forecasted cumulative earnings compared to the cumulative earnings target set forth in the arrangement.

For one of the Company’s contingent compensation arrangements, the liability is determined based on the Monte Carlo Simulation method.

Compensation expense associated with these arrangements is recognized ratably over the required employment period.

The contingent consideration obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings.

For additional considerations regarding the fair value of the Company's contingent consideration liabilities, see Note 7 - "Fair Value of Financial Instruments."

The total liability for deferred payments was $ 13 and $ 16 at September 30, 2021 and December 31, 2020, respectively, and are included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets for all periods presented.

The total liability for deferred payments w as $ 14 and $ 15 at March 31, 2022 and December 31, 2021, respectively, and are included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for all periods presented.

Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when or as control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred.

Net revenues are primarily recognized by the Company over time utilizing the cost-to-cost measure of progress, consistent with the Company’s previous revenue recognition practices.

Net revenues recognized at a point in time primarily relate to distribution contracts and were not material for the three and nine months ended September 30, 2021 and 2020, respectively.

Net revenues are primarily recognized by the Company over time utilizing the cost-to-cost measure of progress.

Net revenues recognized at a point in time primarily relate to distribution contracts and short-term time and materials contracts.

Contracts with customers

The Company derives net revenues primarily from Safety Services, Specialty Services and Industrial Services contracts with a duration of less than one week to three years (with the majority of contracts with durations of less than six months) which are subject to multiple pricing options, including fixed price, unit price, time and material, or cost plus a markup.

The Company derives net revenues primarily from contracts with a duration of less than one week to three years (with the majority of contracts with durations of less than six months) which are subject to multiple pricing options, including fixed price, unit price, time and material, or cost plus a markup.

The Company also enters into fixed price service contracts related to monitoring, maintenance, and inspection of safety systems.

1 unchanged sentence

When doing so, the Company is considered the principal in these transactions and revenues are recognized on a gross basis.

Net revenues for fixed price agreements are generally recognized over time using the cost-to-cost method of accounting, which measures progress based on the cost incurred relative to total expected cost in satisfying the performance obligation.

The cost-to-cost method is used as it best depicts the continuous transfer of control of goods or services to the customer.

1 unchanged sentence

These contract costs are included in the results of operations under cost of revenues.

Labor costs are considered to be incurred as the work is performed.

Subcontractor labor is recognized as the work is performed.

Net revenues from time and material contracts are recognized as the services are provided and is equal to the sum of the contract costs incurred plus an agreed upon markup.

Labor and subcontractor labor costs are considered to be incurred and recognized as the work is performed.

Net revenues from time and material contracts are generally recognized as the services are provided and is equal to the sum of the contract costs incurred plus an agreed upon markup.

Net revenues earned from distribution contracts are recognized upon shipment or performance of the service.

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Provisions for estimated losses on uncompleted contracts are recorded in the period in which such estimated losses are determined.

The Company disaggregates its net revenues primarily by segment, service type, and country from which revenues are invoiced, as the nature, timing and uncertainty of cash flows are relatively consistent within each of these categories.

Disaggregated net revenues information is as follows:

Three Months Ended September 30, 2021

Corporate and

Heating, Ventilation and Air Conditioning ("HVAC")

Infrastructure/Utility

Specialty Contracting

Corporate and Eliminations

Three Months Ended September 30, 2020

Corporate and

Infrastructure/Utility

Specialty Contracting

Corporate and Eliminations

Nine Months Ended September 30, 2021

The Company disaggregates its net revenues primarily by segment, service type, and country from which revenues are invoiced, as th e nature, timing and uncertainty of cash flows are relatively consistent within each of these categories.

The following table provides disclosure of disaggregated net revenues by segment for the three months ended March 31, 2022 and 2021.

Prior period balances in this table have been recast to reflect current period presentation, as described in Note 2 - "Basis of Presentation and Significant Accounting Policies." Disaggregated net revenues information is as follows:

Three Months Ended March 31, 2022

Corporate and

2 unchanged sentences

Corporate and Eliminations

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Corporate and

2 unchanged sentences

Corporate and Eliminations

Three Months Ended September 30, 2021

Corporate and

United States

Canada and Europe

Three Months Ended September 30, 2020

Corporate and

United States

Canada and Europe

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Corporate and

United States

Canada and Europe

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Corporate and

United States

Canada and Europe

The Company’s contracts with its customers generally require significant services to integrate complex activities and equipment into a single deliverable and are, therefore, generally accounted for as a single performance obligation to provide a single contracted service for the duration of the project.

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The Company utilizes the practical expedient under ASC 606 and does not disclose unsatisfied performance obligations for service contracts as these contracts generally have an original duration of less than one year.

For those contracts with an original duration exceeding one year, the aggregate amount of transaction price allocated to the performance obligations unsatisfied at September 30, 2021 was $ 998 .

The Company expects to recognize revenue on approximately 90 % of the remaining performance obligations over the next 12 months .

When more than one contract is entered into with a customer on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as one,

or more than one, performance obligation.

For those in-process contracts with an original duration exceeding one year, the aggregate amount of transaction price allocated to the performance obligations unsatisfied at March 31, 202 2 was $ 715 .

The Company expects to recognize revenue on approximately 75 % of the remaining performance obligations over the next 12 m onths .

This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts.

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Such changes in estimates may also result in the reversal of previously recognized net revenues if the ultimate outcome differs from the Company’s previous estimate.

For the three and nine months ended September 30, 2021 and 2020, there were no significant reversals of net revenues recognized associated with the revision of transaction prices.

For the three months ended March 31, 2022 and 2021, there were no significant reversals of net revenues recognized associated with the revision of transaction prices.

The Company typically does not incur any returns, refunds or similar obligations after the completion of the performance obligation since any deficiencies are corrected during the course of performance.

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It is also common for contracts in the Company’s industries to specify a general contractor is not required to submit payments to a subcontractor until it has received those funds from the owner or funding source.

In most instances, the Company receives payment of invoices between 30 to 90 days of the date of the invoice.

In most instances, the Company receives payment of invoices between 30 to 90 days from the date of the invoice.

The timing of revenue recognition may differ from the timing of invoicing to customers.

Contract assets include unbilled amounts from the Company’s projects when net revenues are recognized under the cost-to-cost measure of progress and exceeds the amounts invoiced to the Company’s customers, as the amounts cannot be billed under the terms of the Company’s contracts.

Contract assets include unbilled amounts from the Company’s projects when revenues are recognized under the cost-to-cost measure of progress and exceed the amounts invoiced to the Company’s customers, as the amounts cannot be billed under the terms of the Company’s contracts.

In addition, many of the Company’s time and material arrangements are billed in arrears pursuant to contract terms, resulting in contract assets being recorded as net revenues are recognized in advance of billings.

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The Company’s revenue arrangements are typically accounted for under such expedient as payments are within one year of performance for the Company’s services.

As of September 30, 2021, none of the Company’s contracts contained a significant financing component.

As of March 31, 2022, none of the Company’s contracts contained a significant financing component.

Contract liabilities from the Company’s contracts arise when amounts invoiced to the Company’s customers exceed net revenues recognized under the cost-to-cost measure of progress.

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Contract liabilities decrease as the Company recognizes net revenues from the satisfaction of the related performance obligation.

Contract assets and liabilities are classified as current in the unaudited condensed consolidated balance sheets as all amounts are expected to be relieved within one year.

The opening and closing balances of accounts receivable, net of allowances, contract assets and contract liabilities from contracts with customers as of September 30, 2021 and December 31, 2020 are as follows:

Balance as of September 30, 2021

Contract assets and contract liabilities are classified as current in the condensed consolidated balance sheets as all amounts are expected to be relieved within one year.

The balances of accounts receivable, net of allowances, contract assets and contract liabilities from contracts with customers as of March 31, 2022 and December 31, 2021 are as follows:

Balance as of March 31, 2022

Balance as of December 31, 2021

The Company did not recognize significant net revenues associated with the final settlement of contract value for any projects completed in prior periods.

The Company did not recognize significant revenues associated with the final settlement of contract value for any projects completed in prior periods.

In accordance with industry practice, accounts receivable includes retentions receivable, a portion of which may not be received within one year.

At September 30, 2021 and December 31, 2020 , retentions receivable were $ 117 and $ 122 , respectively, while the portions that may not be received within one year were $ 21 and $ 26 , respectively.

At March 31, 2022 and December 31, 2021, retentions receivable wer e $ 120 and $ 117 , respectively, while the portions that may not be received within one year were $ 21 and $ 25 , respectively.

There were no other significant changes due to business acquisitions or significant changes in estimates of contract progress or transaction price.

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GOODWILL AND INTANGIBLES

The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2021 are as follows:

The following table provides disclosure of goodwill by segment as of March 31, 2022 and December 31, 2021.

Prior period balances in this table have been recast to reflect current period presentation, as described in Note 2 - "Basis of Presentation and Significant Accounting Policies," The changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2022 are as follows:

Goodwill as of December 31, 2021

Measurement period adjustments and other (1)

Goodwill as of September 30, 2021

(1) Measurement period adjustments related to the purchase accounting for SKG and finalization of certain immaterial acquisitions in 2020 (see Note 4 –

“Business Combinations”).

Other includes fluctuations due to foreign currency translation.

As of September 30, 2020, the Company had recorded accumulated goodwill impairment charges of $ 193 , including $ 83 in the Safety Services segment, $ 52 in the Specialty Services segment, and $ 58 in the Industrial Services segment.

During 2020, while the Company’s services were largely deemed essential under various governmental orders, the Company did experience negative impacts from COVID-19 on its operations including impacts from the Company’s suppliers, other vendors, and customer base.

In addition to the impacts of COVID-19, the Company was also impacted by a significant decline in demand and volatility in oil prices as some of the Company’s services involve work within the energy industry.

As a result of these factors and the significant decline in the Company’s market capitalization during the first quarter 2020, the Company concluded an impairment triggering event had occurred for all of its reporting units and performed impairment tests for its goodwill and recoverability tests for its long-lived assets, which primarily include finite-lived intangible assets, property and equipment and right of use lease assets.

During the first quarter of 2020, based on preliminary carrying values from the October 1, 2019 acquisition of APi Group, Inc.

(“APi Acquisition”), the Company determined goodwill was impaired as the preliminary carrying values of some reporting units exceeded fair values.

During the nine months ended September 30, 2020, the Company recorded an impairment charge to goodwill of $ 193 .

The Company’s identifiable intangible assets are comprised of the following as of September 30, 2021 and December 31, 2020:

September 30, 2021

Goodwill as of March 31, 2022

(1) Measurement period adjustments and other includes fluctuations due to foreign currency translation and purchase accounting adjustments recorded during the three months ended March 31, 2022 related to a reclassification between intangible assets and goodwill (see Note 4 - "Business Combinations").

The Company’s identifiable intangible assets are comprised of the following as of March 31, 2022 and December 31, 2021:

March 31, 2022

Weighted Average

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Amortization expense recognized on identifiable intangible assets are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Cost of revenues

Selling, general, and administrative expense

Selling, general, and administrative expenses

Total intangible asset amortization expense

During the year ended December 31, 2020, the Company finalized the fair value of goodwill and intangible assets related to the APi Acquisition.

The measurement period adjustments recorded during the year ended December 31, 2020 resulted in a cumulative reversal to amortization expense that had been recorded earlier in the year.

If the final intangible assets fair values had been known at the date of the APi Acquisition, amortization expense would have increased by $ 15 to $ 46 and by $ 5 to $ 139 for the three and nine months ended September 30, 2020, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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Recurring fair value measurements

The Company’s financial assets and liabilities (adjusted to fair value at least quarterly) are derivative instruments, which are primarily included in other noncurrent liabilities, and contingent consideration, which is primarily included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets.

The following tables summarize the fair values and levels within the fair value hierarchy in which the measurements fall for assets and liabilities measured on a recurring basis as of September 30, 2021 and December 31, 2020:

Fair Value Measurements at September 30, 2021

Assets (Liabilities)

Fair Value Measurements at March 31, 2022

Financial Assets:

Derivatives designated as hedge instruments

Interest rate swaps

Cross currency swaps

Cash flow hedges - interest rate swaps

Cash flow hedges - cross currency swaps

Net investment hedges

Fair value hedges

Derivatives not designated as hedge instruments

Foreign currency contracts

Financial Liabilities:

Derivatives designated as hedge instruments

Fair value hedges

Derivatives not designated as hedge instruments

Foreign currency contracts

Contingent consideration obligations

Fair Value Measurements at December 31, 2021

Assets (Liabilities)

Financial Assets:

Derivatives designated as hedge instruments

Interest rate swaps

Cash flow hedges - cross currency swaps

Net investment hedges

Financial Liabilities:

Derivatives designated as hedge instruments

Cash flow hedges - interest rate swaps

Derivatives not designated as hedge instruments

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This analysis reflects the contractual terms of the purchase agreements (e.g., potential payment amounts, length of measurement periods, manner of calculating any amounts due) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows, and a discount rate.

Depending on the contractual terms of the purchase agreement, the

probability of achieving future cash flows or earnings generally represent the only significant unobservable inputs.

Depending on the contractual terms of the purchase agreement, the probability of achieving future cash flows or earnings generally represent the only significant unobservable inputs.

The contingent consideration obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings.

The table below presents a reconciliation of the fair value of the Company’s contingent consideration obligations that use unobservable inputs (Level 3), as well as other information about the contingent consideration obligations:

Nine Months Ended

September 30, 2021

Three Months Ended

March 31, 2022

Balance as of December 31, 2021

Adjustments to fair value

Balance as of September 30, 2021

Balance as of March 31, 2022

Number of open contingent consideration arrangements at the end of period

Maximum potential payout at end of period

At September 30, 2021, the remaining open contingent consideration arrangements are set to expire at various dates through 2024.

At March 31, 2022, the remaining open contingent consideration arrangements are set to expire at various dates through 2023.

Level 3 unobservable inputs were used to calculate the fair value adjustments shown in the table above.

The fair value adjustments and the related unobservable inputs were not considered significant for the three and nine months ended September 30, 2021.

The fair value adjustments and the related unobservable inputs were not considered significant for the three months ended March 31, 2022.

Fair value estimates

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4.125 % Senior Notes,”

as defined in Note 10 –

and " 4.750 % Senior Notes," as defined in Note 11 –

“Debt”), including current portion and excluding unamortized debt issuance costs, which is estimated by discounting future cash flows at currently available rates for borrowing arrangements with similar terms and conditions, which are considered to be Level 2 inputs under the fair value hierarchy.

The carrying values of variable interest rate long-term debt, including current portions and excluding accrued interest, approximate their fair values because of the variable interest rates of these instruments, which generally are reset monthly.

September 30, 2021

March 31, 2022

December 31, 2021

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4.750 % Senior Notes

From time to time, the Company enters into derivative transactions to hedge its exposure to fluctuations in interest and foreign currency rates.

4.125 % Senior Notes

The Company uses foreign currency forward contracts, cross currency swaps, and interest rate swap agreements to manage risks associated with foreign currency exchange rates, interest rates, and net investments in foreign operations.

The Company does not hold derivative financial instruments of a speculative nature or for trading purposes.

The Company records derivatives as assets and liabilities on the condensed consolidated balance sheets at fair value.

Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge.

Cash flows from derivatives are classified in the condensed consolidated statements of cash flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships.

The Company evaluates hedge effectiveness at inception and on an ongoing basis.

If a derivative is no longer expected to be effective, hedge accounting is discontinued.

The Company is exposed to credit risk in the event of nonperformance of counterparties for foreign currency forward exchange contracts and interest rate swap agreements.

The Company monitors its exposure to credit risk by using credit approvals and credit limits and by selecting major global banks and financial institutions as counterparties.

The Company does not anticipate nonperformance by any of these counterparties, and therefore, recording a valuation allowance against the Company's derivative balance is not considered necessary.

The Company does not enter into derivative transactions for trading purposes, and is not party to any derivatives that require collateral to be posted prior to settlement.

Cash flow hedges

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings.

Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Cross currency swaps

The Company enters into cross currency exchange contracts utilized to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies.

These transactions are designated as cash flow hedges.

The settlement or extension of these derivatives will result in reclassifications (from accumulated other comprehensive income ("AOCI")) to earnings in the period during which the hedged transactions affect earnings.

The Company periodically assesses whether its currency exchange contracts are effective, and when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively.

During 2021, the Company entered into two cross-currency swaps designated as cash flow hedges with gross notional U.S.

dollar equivalent amounts of $ 26 and $ 94 with maturity dates of September 2027 and 2030, respectively.

The total fair value of the cross-currency hedges was an asset of $ 8 and $ 6 as of March 31, 2022 and December 31, 2021, respectively.

The Company rec ognized income of $ 3 in investment income and other, net, during both the three months ended March 31, 2022 and 2021.

Interest rate swaps

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Interest rate swap contracts are used by the Company to separate interest rate risk management from the debt funding decision.

The cash paid and received from the settlement of interest rate swaps is included in interest expense in the unaudited condensed consolidated statement of operations.

At September 30, 2021, the Company had a 5-year $ 720 notional amount interest rate swap which effectively provides a fixed London Interbank Offering Rate (“LIBOR”) at 1.62 %.

This interest rate swap is designated as a cash flow hedge of the interest rate risk attributable to the Company’s forecasted variable interest payments and has a maturity date of October 2024.

Variations in the liability balance are primarily driven by changes in the applicable forward yield curves related to the LIBOR.

The fair value of the interest rate swap designated as a hedging instrument was a liability of $ 22 and $ 35 as of September 30, 2021 and December 31, 2020, respectively.

Cross Currency Swaps

Currency exchange contracts utilized to maintain the functional currency value of expected financial transactions denominated in foreign currencies are designated as cash flow hedges.

Gains and losses related to changes in the market value of these contracts are reported as a component of accumulated other comprehensive income (loss) (“AOCI”) within shareholders’

equity in the unaudited condensed consolidated balance sheets and reclassified to earnings in the same line item in the unaudited condensed consolidated statements of operations and in the same period as the recognition of the underlying hedged transaction.

During the first quarter of 2021, the Company entered into cross-currency swaps with gross notional U.S.

dollar equivalent amount of $ 120 .

The fair value of the cross-currency swaps was an asset of $ 3 as of September 30, 2021.

Net Investment Hedge

The cash paid and received from the settlement of interest rate swaps is included in interest expense in the condensed consolidated statements of operations.

The Company elected a method that does not require continuous evaluation of hedge effectiveness.

At March 31, 2022, the Company had a 5-year $ 720 notional amount interest rate swap with a maturity date of October 2024 which effectively provides a fixed LIBOR of 1.62 %.

This interest rate swap is designated as a cash flow hedge of the interest rate risk attributable to the Company’s forecasted variable interest payments.

Variations in the liability balance are primarily driven by changes in the applicable forward yield curves related to LIBOR.

The fair value of interest rate swaps designated as a hedging instruments was an asset of $ 16 and a liability of $ 11 as of March 31, 2022 and December 31, 2021, respectively.

Net investment hedges

The Company has net investments in foreign subsidiaries subject to changes in foreign currency exchange rates.

During the first quarter of 2021, the Company entered into a $ 230 notional foreign currency swap designated as a net investment hedge for a portion of the Company’s net investments in Euro-denominated subsidiaries.

Gains and losses resulting from a change in fair value of the net investment hedge are offset by gains and losses on the underlying foreign currency exposure and are included in AOCI in the unaudited condensed consolidated balance sheets.

During the third quarter of 2021, the Company amended the critical terms of the foreign currency swap by extending the maturity date and modifying the U.S.

During 2021, the Company entered into a $ 230 notional foreign currency swap designated as a net investment hedge for a portion of the Company’s net investments in Euro-denominated subsidiaries.

During 2021, the Company amended the critical terms of the foreign currency swap by extending the maturity date and modifying the U.S.

dollar and Euro coupons.

The amended swap was redesignated as a net investment hedge as a result of the amendment, and the initial net investment hedge was dedesignated.

The amended swap was redesignated as a net investment hedge and recorded at fair value with changes recorded in AOCI.

The amended net investment hedge reduces the Company’s interest expense by approximately $ 3 annually and reduces its overall effective interest rate by approximately 24 basis points.

The fair value of the amended net investment hedge was an asset of $ 6 as of September 30, 2021.

The present value as of the date of designation of the dedesignated swap is recorded in AOCI on the unaudited condensed consolidated balance sheets.

The fair value previously recognized in AOCI related to interest rate movements of the dedesignated swap and is being amortized to interest expense on a straight-line basis through the third quarter 2029.

The amount amortized from AOCI into interest expense during the three and nine months ended September 30, 2021 was less than $ 1 .

As of September 30, 2021, approximately $ 5 of unrealized pre-tax gains remained in AOCI.

The amended swap was redesignated as a net investment hedge as a result of the amendment, recorded at fair value with changes recorded in AOCI, and the initial net investment hedge was dedesignated.

The amended net investment hedge reduces the Company’s interest expense by approximately $ 3 annually and reduces its overall effective interest rate by approximately 24 basis points, and will mature in July 2029.

The fair value of the amended net investment hedge was an asset of $ 15 and $ 12 as of March 31, 2022 and December 31, 2021, respectively.

The fair value previously recognized in AOCI related to interest rate movements of the dedesignated swap is being amortized to interest expense on a straight-line basis through the third quarter 2029.

The amount amortized from AOCI into interest expense during the three months ended March 31, 2022 and 2021, was less than $ 1 and $ 0 , respectively.

As of March 31, 2022 and December 31, 2021, approximately $ 4 and $ 5 of unrealized pre-tax gains remained in AOCI, respectively.

Fair value hedges

The Company has certain intercompany loans subject to changes in foreign currency exchange rates.

To hedge these exposures, the Company entered into three cross currency swaps each with maturity dates of January 2027.

These contracts are designated as fair value hedges with gross notional U.S.

dollar equivalents of $ 271 , $ 209 , and $ 241 in GBP, EUR, and CAD, respectively.

The Company measures the effectiveness of fair value hedges of anticipated transactions on a spot-to-spot basis.

Accordingly, the spot-to-spot change in the derivative fair values are recorded in the condensed consolidated statements of operations and perfectly offset the spot-to-spot change in the underlying intercompany loans, and as such, these hedges are deemed highly effective.

The excluded component of the fair values of these derivatives is reported in AOCI within shareholders’

equity in the condensed consolidated balance sheets.

Any cash flows associated with these instruments are included in operating activities in the condensed consolidated statements of cash flows.

The fair value of these hedges was a liability of $ 11 and an asset of $ 1 as of March 31, 2022, and are included in other noncurrent liabilities and other assets, respectively.

The Company rec ognized income of $ 6 in investment income and other, net, during the three months ended March 31, 2022 related to the fair value hedges.

Foreign currency contracts

The Company used foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions.

At September 30, 2021, the Company had no foreign currency contracts outstanding that are not designated as hedging instruments for accounting purposes.

Fair market value gains or losses on foreign currency contracts not designated as hedging instruments were included in the results of operations and are classified in investment income and other, net in the unaudited condensed consolidated statement of operations.

The Company rec ognized income of $ 0 and $ 1 in investment income and other, net, during the three and nine months ended September 30, 2021, respectively, and $ 0 during the three and nine months ended September 30, 2020 related to derivatives not designated as hedging instruments.

As of December 31, 2020, foreign currency contracts carried a liability balance of $ 9 and an asset balance of less than $ 1 .

The Company used foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain foreign currency transactions.

Certain of the Company’s derivative transactions are subject to master netting arrangements that allow the Company to net settle contracts with the same counterparties.

These arrangements generally do not call for collateral and no cash collateral had been received or pledged related to the underlying derivatives.

The Company rec ognized income of $ 1 in investment income and other, net, during both the three months ended March 31, 2022 and 2021, respectively, related to derivatives not designated as hedging instruments.

As of March 31, 2022 and December 31, 2021, foreign currency contracts carried both a liability and asset balance of less than $ 1 .

PROPERTY AND EQUIPMENT, NET

The components of property and equipment as of September 30, 2021 and December 31, 2020 are as follows:

September 30,

The components of property and equipment as of March 31, 2022 and December 31, 2021 are as follows:

Machinery and equipment

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Property and equipment, net

Depreciation expense related to property and equipment, including finance leases, was $ 20 and $ 21 during the three months ended September 30, 2021 and 2020, respectively, and $ 59 and $ 62 during the nine months ended September 30, 2021 and 2020, respectively.

Depreciation expense is included within cost of revenues and selling, general and administrative expenses in the unaudited condensed consolidated statements of operations.

During the second quarter of 2020, the Company finalized the fair values of property and equipment acquired in the APi Acquisition.

These measurement period adjustments resulted in a cumulative adjustment to depreciation expense.

If the property and equipment fair values had been known at the date of the APi Acquisition, depreciation expense would have decreased by $ 2 to $ 60 for the nine months ended September 30, 2020.

Depreciation expense related to property and equipment, including finance leases, was $ 19 during both the three months ended March 31, 2022 and 2021 .

Depreciation expense is included within cost of revenues and selling, general, and administrative expenses in the condensed consolidated statements of operations.

The Company determines if an arrangement is or contains a lease at inception, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations.

Under ASC 842, Leases ("ASC 842") a contract is or contains a lease when (i) explicitly or implicitly identified assets have been deployed in the contract and (ii) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract.

The Company also considers whether its service arrangements include the right to control the use of an asset.

The Company leases various facilities, equipment and vehicles from unrelated parties, which are primarily classified and accounted for as operating leases.

The facility leases are primarily for office space with initial terms extending up to 10 years .

The equipment leases are primarily related to heavy equipment utilized in the completion of construction jobs, and the terms of the agreements range from 1 to 7 years .

Vehicle leases have a minimum lease term ranging from 1 to 7 years .

Some leases include one or more options to renew, generally at the Company’s sole discretion, with renewal terms that can extend the lease term from 1 to 12 years or more.

In addition, certain leases contain termination options, where the rights to terminate are held by either the Company, the lessor, or both parties.

These options to extend or terminate a lease are included in the lease terms when it is reasonably certain that the Company will exercise that option.

The Company’s leases generally do not contain any material restrictive covenants.

See the table below for information pertaining to the effects of recently acquired leases as updated from the discussion in the Company’s 2021 audited consolidated financial statements included in the Company’s Form 10-K filed on March 1, 2022.

There were no other material impacts to the lease disclosures contained in the Company's Form 10-K.

The future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities recognized on the condensed consolidated balance sheets as of March 31, 2022 is as follows:

Operating Leases

Finance Leases

Remainder of 2022

Total lease payments

Less imputed interest

Total present value of lease liabilities

Operating and finance leases - current

Operating and finance leases - non-current

Total present value of lease liabilities

Supplemental condensed consolidated balance sheets information related to leases is as follows:

Weighted-average remaining lease term:

Operating leases

Finance leases

Weighted-average discount rate:

Operating leases

Finance leases

Debt obligations consist of the following:

Maturity Date

September 30,

Term Loan Facility

Revolving Credit Facility

October 1, 2024

2019 Term Loan

October 1, 2026

2020 Term Loan

Revolving Credit Facility

October 1, 2026

2021 Term Loan

January 3, 2028

4.125 % Senior Notes

July 15, 2029

4.750 % Senior Notes

October 15, 2029

Other Obligations

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Term loan facility

As of September 30, 2021 , the Company had $ 1,140 of principal outstanding under the 2019 Term Loan.

As of September 30, 2021, the Company had a 5-year interest rate swap with respect to $ 720 of notional value of the 2019 Term Loan, exchanging one-month LIBOR for a fixed rate of 1.62 % per annum.

As of March 31, 2022, the Company had $ 1,127 of principal outstanding under the 2019 Term Loan.

As of March 31, 2022, the Company had a 5-year interest rate swap with respect to $ 720 of notional value of the 2019 Term Loan, exchanging one-month LIBOR for a fixed rate of 1.62 % per annum.

Accordingly, the Company's fixed interest rate per annum on the swapped $ 720 notional value of the 2019 Term Loan is 4.12 % through its maturity.

The remaining $ 420 of the 2019 Term Loan balance is bearing interest at 2.58 % per annum based on one-month LIBOR plus 250 basis points .

The remaining $ 407 o f the 2019 Term Loan balance is bearing interest at 2.71 % p er annum based on one-month LIBOR plus 250 basis points, but the rate will fluctuate as LIBOR fluctuates .

Refer to Note 8 - "Derivatives" for additional information.

The Company amended its credit agreement ("2022 Incremental Amendment") and entered into an incremental $ 1,100 term loan ("2021 Term Loan"), with a maturity date of January 3, 2028 .

The interest rate applicable to the 2021 Term Loan is, at the Company's option, either (1) a base rate plus an applicable margin equal to 1.75 % or (2) Stock Eurocurrency rate (adjusted for statutory reserves) plus an applicable margin equal to 2.75 %.

The 2021 Term Loan balance is bearing interest at 2.96 % per annum based on one-month LIBOR plus 275 basis points, but the rate will fluctuate as LIBOR fluctuates.

During the three months ended March 31, 2022, the Company made payments of $ 13 and $ 15 on the 2019 Term Loan and 2021 Term Loan, respectively.

Under the 2022 Incremental Amendment, the Company increased the revolving credit facility capacity by an additional aggregate principal amount of $ 200 to $ 500 and extended the maturity date to 2026 .

The interest rate applicable to borrowings under the $ 500 five-year senior secured revolving credit facility (the “Revolving Credit Facility”) is, at the Company’s option, either (1) a base rate plus an applicable margin equal to 1.25 %, or (2) a Eurocurrency rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25 %.

At September 30, 2021 and December 31, 2020 , the Company had no amounts outstanding under the Revolving Credit Facility, and $ 226 and $ 230 was available at September 30, 2021 and December 31, 2020 , respectively, after giving effect to $ 74 and $ 70 of outstanding letters of credit .

As of September 30, 2021 and December 31, 2020, the Company was in compliance with all applicable debt covenants.

During the second quarter of 2021, APi Group DE, Inc, a wholly-owned subsidiary, completed a private offering of $ 350 aggregate principal amount of 4.125 % Senior Notes (“

4.125% Senior Notes”) issued under an indenture dated June 22, 2021 (the “Indenture”).

The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Company’s existing and future domestic subsidiaries.

At March 31, 2022 and December 31, 2021 , the Company had no amounts outstanding under the Revolving Credit Facility, a nd $ 398 and $ 227 was available at March 31, 2022 and December 31, 2021, respectively, after giving effect to $ 102 an d $ 73 of outstanding letters of credit .

As of March 31, 2022 and December 31, 2021, the Company was in compliance with all applicable debt covenants.

Information related to 2021 issuances and extinguishments of long-term debt are described in Note 11 - "Debt" in the Company’s 2021 Annual Report on Form 10-K.

4.125 % Senior Notes

During 2021, the Company, completed a private offering of $ 350 aggregate principal amount of 4.125 % Senior Notes (“

4.125 % Senior Notes”) issued under an indenture dated June 22, 2021.

The 4.125 % Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Company’s subsidiaries.

The Company used the net proceeds from the sale of the 4.125 % Senior Notes to repay the $ 250 million 2020 Term Loan, prepay a portion of the 2019 Term Loan and fund general corporate purposes.

In connection with the repayment of the 2020 Term Loan and prepayment on the 2019 Term Loan, the Company incurred a loss on debt extinguishment of $ 9 related to unamortized debt issuance costs, which was recorded within loss on debt extinguishment in the unaudited condensed consolidated statements of operations.

The Indenture contains customary terms and provisions (including representations, covenants, and conditions).

Certain covenants, among other things, restrict the Company's, and restricted subsidiaries’, ability to (i) incur additional indebtedness;

(ii) pay dividends or make other distributions or repurchase or redeem capital stock;

(iii) prepay, redeem or repurchase certain debt;

(iv) make loans and investments;

(v) sell, transfer and otherwise dispose of assets;

(vi) incur or permit to exist certain liens;

(vii) enter into transactions with affiliates;

(viii) enter into agreements restricting subsidiaries’

ability to pay dividends;

and (ix) consolidate, amalgamate, merge or sell all or substantially all assets.

The Indenture also contains customary events of default.

The Company was in compliance with all covenants contained in the Indenture as of September 30, 2021.

4.750 % Senior Notes

During 2021, the Company completed a private offering of $ 300 aggregate principal amount of 4.750 % Senior Notes due 2029 (the " 4.750 % Senior Notes") issued under an indenture dated October 21, 2021, as supplemented by a supplemental indenture dated January 3, 2022.

The gross proceeds from the offering were held in an escrow account as of December 31, 2021 and classified within restricted cash on the condensed consolidated balance sheets.

Upon closing of the Chubb Acquisition, the funds were released from escrow and at that time the 4.750 % Senior Notes were fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Company's subsidiaries.

The Company was in compliance with all covenants contained in the indentures for the 4.125 % Senior Notes and 4.750 % Senior Notes as of December 31, 2021 and March 31, 2022.

Other obligations

As of September 30, 2021 and December 31, 2020 , the Company had $ 1 and $ 5 in notes outstanding, respectively, for the acquisition of equipment and vehicles.

As of March 31, 2022 and December 31, 2021, the Company had $ 2 and $ 1 in notes outstanding, respectively, for the acquisition of equipment and vehicles.

Approximate annual maturities, excluding amortization of debt issuance costs, of the Company's financing arrangements for the periods subsequent to March 31, 2022 are as follows:

Remainder of 2022

The Company’s quarterly income tax provision is measured using an estimate of its consolidated annual effective tax rate, adjusted in the current period for discrete income tax items, within the periods presented.

The comparison of the Company’s income tax provision between periods may be impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate differentials and discrete items.

The Company’s effective tax rate was 38.5 % and 50.1 % for the three months ended September 30, 2021 and 2020, respectively and 31.3 % and 21.2 % for the nine months ended September 30, 2021 and 2020, respectively.

The Company’s effective tax rate was 71.3 % an d 42.3 % for the three months ended March 31, 2022 and 2021, respectively.

The difference between the effective tax rate and the statutory U.S.

Federal income tax rate of 21.0 % for the three and nine months ended September 30, 2021 and 2020 is due to nondeductible permanent items, state taxes and taxes on foreign earnings in jurisdictions that have higher tax rates.

As of September 30, 2021, the Company’s deferred tax assets included a valuation allowance of $ 4 primarily related to certain deferred tax assets of the Company’s foreign subsidiaries and a capital loss carryforward in the U.S.

Federal income tax rate of 21.0 % for the three months ended March 31, 2022 and 2021 is due to nondeductible permanent items, state taxes, and the reversal of the Company’s indefinite reinvestment assertion.

As of March 31, 2022, the Company’s deferred tax assets included a valuation allowan ce of $ 108 prim arily related to certain deferred tax assets of the Company’s foreign subsidiaries and a capital loss carryforward in the U.S.

The factors used to assess the likelihood of realization were the past performance of the related entities, forecasts of future taxable income, future reversals of existing taxable temporary differences, and available tax planning strategies that could be implemented to realize the deferred tax assets.

The ability or failure to achieve the forecasted taxable income in these entities could affect the ultimate realization of deferred tax assets.

As of September 30, 2021, the Company had gross federal, state and foreign net operating loss carryforwards of approximately $ 0 , $ 15 and $ 9 , respectively.

As of March 3 1, 2022, the Company had gross federal, state, and foreign net operating loss carryforwards of approximately $ 0 , $ 32 and $ 92 , respe ctively.

The state net operating losses have carryforward periods of five to twenty years and begin to expire in 2027 .

The foreign net operating losses generally have carryback periods of three years , carryforward periods of twenty years , or are indefinite, and begin to expire in 2036 .

The Company’s liability for unrecognized tax benefits is recorded within other non-current liabilities in the consolidated balance sheets and recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes in the income statement.

As of September 30, 2021 and December 31, 2020, the total gross unrecognized tax benefits were $ 3 and $ 2 , respectively.

The Company had accrued gross interest and penalties as of September 30, 2021 and December 31, 2020 of $ 1 and $ 1 ,

respectively.

During the nine months ended September 30, 2021 and 2020, the Company recognized net interest expense of $ 0 for all periods.

If all of the Company’s unrecognized tax benefits as of September 30, 2021 were recognized, $ 2 would impact the Company’s effective tax rate.

The Company’s liability for unrecognized tax benefits is recorded within other non-current liabilities in the condensed consolidated balance sheets and recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes in the condensed consolidated statements of operations.

As of March 31, 2022 and December 31, 2021, the total gross unrecognized tax benefits we re $ 3 a nd $ 2 , respectively.

The Company had accrued gross interest and penalties as of March 31, 2022 and December 31, 2021 of $ 1 and $ 1 , respectively.

During the three months ended March 31, 2022 and 2021, the Company recognized net interest e xpense of less than $ 1 for a ll periods.

If all of the Company’s unrecognized tax benefits as of March 31, 2022 were recognized, $ 2 would impact the Company’s effective tax rate.

The Company expects $ 1 of unrecognized tax benefits to expire in the next twelve months due to lapses in the statute of limitations.

As of September 30, 2021, with few exceptions, neither the Company nor its subsidiaries are subject to examination prior to tax year 2014.

federal jurisdiction exam for the period ended December 31, 2017 closed in the third quarter.

An adjustment for $ 1 was agreed to by the Company and the IRS.

Because the Company was previously an S corporation, this adjustment passed through to the former shareholders of the Company and did not have an impact on the consolidated financial statements.

As of March 31, 2022, with few exceptions, neither the Company nor its subsidiaries are subject to examination prior to tax year 2014.

There are various other audits in state and foreign jurisdictions.

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Employee Benefit Plans

Certain Company subsidiaries, including certain subsidiaries in Canada, contribute amounts to multiemployer pension plans and other multiemployer benefit plans and trusts, which are recorded as a component of employee wages and salaries within costs of revenue.

Multiemployer pension plans

Contributions are generally based on fixed amounts per hour per employee for employees covered under these plans.

1 unchanged sentence

Union payrolls cannot be determined for future periods because the number of union employees employed at a given time, and the plans in which they participate, vary depending upon the location and number of ongoing projects and the need for union resources in connection with those projects.

Total consolidated contributions to multiemployer plans were $ 26 and $ 25 during the three months ended September 30, 2021 and 2020 , respectively and $ 69 and $ 71 during the nine months ended September 30, 2021 and 2020, respectively .

The Company also has a trustee-administered profit sharing retirement plan covering substantially all of the Company's employees in the U.S.

Total consolidated contributions to multiemployer plans were $ 24 and $ 23 during the three months ended March 31, 2022 and 2021, respectively .

The Company assumed both funded and unfunded foreign defined benefit pension plans that cover a portion of the Company's employees, and the largest plans are closed to new participants.

Refer to N ote 14 - "Pension" for more information on these plans.

Profit sharing plans

The Company has a trustee-administered profit sharing retirement plan covering substantially all of the Company's employees in the U.S.

not covered by collective bargaining agreements and also adopted a profit sharing plan for employees in Canada (collectively, “Profit Sharing Plans”).

The Profit Sharing Plans provide for annual discretionary contributions in amounts based on a performance grid as determined by the Company’s directors.

In connection with these plans, the Company recognized $ 4 and less than $ 1 in expense during the three months ended September 30, 2021 and 2020, respectively and $ 11 and $ 6 in expense during the nine months ended September 30, 2021 and 2020, respectively.

Effective January 1, 2021, most of the Company’s employees in the U.S and Canada, including named executive officers, are eligible to participate in the Company’s Employee Stock Purchase Plan (the “ESPP”).

In connection with these plans, the Company recogniz ed $ 2 and $ 3 in expense during the three months ended March 31, 2022 and 2021, respectively.

Employee stock purchase plan

Most of the Company’s employees in the U.S and Canada, including named executive officers, are eligible to participate in the Company’s Employee Stock Purchase Plan (the “ESPP”).

Sales of shares of the Company’s common stock under the ESPP are generally made pursuant to offerings that are intended to satisfy the requirements of Section 423 of the Internal Revenue Code.

1 unchanged sentence

Participants are subject to eligibility requirements and may not purchase more than 500 shares in any offering period or more than ten thousand dollars of common stock in a year under the ESPP.

During the three and nine months ended September 30, 2021, the Company has recognized $ 1 and $ 3 of expense, respectively, and issued 411,320 shares of the Company's common stock related to the ESPP.

During both the three months ended March 31, 2022 and 2021 the Company recognize d $ 1 of expense.

Post-retirement benefit plans

As part of the Chubb Acquisition, the Company assumed an unfunded post-retirement benefit plan that provides life benefits to certain eligible retirees in Canada.

As of March 31, 2022, the benefit obligation was $ 4 .

The PBO discount rate was 3.0 % at March 31, 2022.

Benefit payments, including amounts to be paid from corporate assets, and reflecting expected future service, as appropriate, are expected to be less than $ 1 for 2023 through 2028 , and thereafter.

The Company sponsors both funded and unfunded foreign defined benefit pension plans that cover a portion the Company's employees, and the largest plans are closed to new participants.

The Company assumed the pension plans as part of the Chubb Acquisition on January 3, 2022, therefore, the plans used a January 3, 2022 measurement date to determine the Company's preliminary valuation of the pension plans in the purchase price allocation.

Guidance under the Financial Accounting Standards Board ("FASB") ASC Topic 715:

Compensation –

Retirement Benefits requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans.

Under this guidance, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in other comprehensive income, net of tax effects, until they are amortized as a component of net periodic benefit cost.

Pension and post-retirement obligation balances and related costs reflected within the condensed consolidated balance sheets include costs directly attributable to plans dedicated to the Company.

January 3, 2022

Projected benefit obligation ("PBO") Funded Status

Fair value of plan assets

Benefit obligations

Funded status of plans

Supplemental condensed consolidated balance sheets information related to pension is as follows:

January 3, 2022

Pension and post-retirement benefits

Other accrued liabilities

Other noncurrent liabilities

Net amount recognized

Information for pension plans with accumulated benefit obligations in excess of plan assets:

January 3, 2022

Accumulated benefit obligation

Fair value of plan assets

Information for pension plans with projected benefit obligations in excess of plan assets:

January 3, 2022

Accumulated benefit obligation

Fair value of plan assets

The components of the net periodic pension benefit for the defined benefit pension plans are as follows:

Three Months ended March 31, 2022

Interest cost

Expected return on plan assets

Net periodic pension benefit

Major assumptions used in determining the benefit obligation and net periodic benefit cost for pension plans are presented in the following table as weighted averages:

Three Months ended March 31, 2022

Benefit Obligation

Discount rates:

Interest cost

Expected return on plan assets

pension plan assets are typically managed by decentralized fiduciary committees.

The disclosure below of asset categories is presented in aggregate 12 defined benefit plans in 7 countries;

however, there is variation in asset allocation policy from country to country.

Local regulations, local funding rules, and local financial and tax considerations are part of the funding and investment allocation process in each country.

Each plan has its own strategic asset allocation.

The asset allocations are reviewed periodically and rebalanced when necessary.

The fair value of the pension plan assets by asset category are as follows:

Quoted Prices in

Active Markets for

Identical Assets

Asset Category

Public Equities:

Global equity funds at net asset value 1

Fixed Income Securities:

Corporate Bonds

Fixed Income Securities 1

Real Estate 1,2

Cash & Cash Equivalents 1,4

Other Assets & Liabilities 5

Total at January 3, 2022

(1) In accordance with ASU 2015-07 Fair Value Measurement (Topic 820) certain investments that are measured at fair value using net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension assets.

(2) Represents investments in real estate, including commingled funds and directly held properties.

(3) Represents insurance contracts and global risk balanced commingled funds consisting mainly of equity, bonds and some commodities.

(4) Represents short-term commercial paper, bonds, and other cash or cash-like investments.

(5) Represents trust receivables and payables that are not leveled.

Derivatives in the plan are primarily used to manage risk and gain asset class exposure while still maintaining liquidity.

Derivative instruments mainly consist of equity futures, interest rate futures, interest rate swaps and currency forward contracts.

The plans review assets at least quarterly to ensure they are within the targeted asset allocation ranges and, if necessary, asset balances are adjusted back within target allocations.

The plans generally employ a broadly diversified investment manager structure that includes diversification by active and passive management, style, capitalization, country, sector, industry and number of investment managers.

Quoted market prices are used to value investments when available.

Investments in securities traded on exchanges, including listed futures and options, are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices.

Fixed income securities are primarily measured using a market approach pricing methodology, where observable prices are obtained by market transactions involving identical or comparable securities of issuers with similar credit ratings.

Mortgages have been valued on the basis of their future principal and interest payments discounted at prevailing interest rates for similar investments.

Investment contracts are valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations.

Real estate investments are valued on a quarterly basis using discounted cash flow models which consider long-term lease estimates, future rental receipts and estimated residual values.

Valuation estimates are supplemented by third-party appraisals on an annual basis.

Over-the-counter securities and government obligations are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes.

Temporary cash investments are stated at cost, which approximates fair value.

The Company expects to make total contributions of approxim ately $ 33 to the global defined benefit pension plans in 2022, of which a one-time contribution of $ 27 was made during the first quarter of 2022.

Contributions do not reflect benefits to be paid directly from corporate assets.

Benefit payments, including amounts to be paid from the plans and corporate assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:

$ 94 in 2022, $ 94 in 2023, $ 95 in 2024, $ 96 in 2025, $ 95 in 2026, and $ 502 from 2027 through 2030.

Related-Party Transactions

An annual dividend for Series A Preferred Shares was declared as of December 31, 2020 and settled in shares during January 2021.

The Company issued 12.4 million shares to Mariposa Acquisition IV, LLC, a related entity that is controlled by the co-chairperson of the Company’s Board of Directors.

In addition, the Company incurred advisory fees of $ 1 during both the three months ended September 30, 2021 and 2020, and $ 3 during both the nine months ended September 30, 2021 and 2020, payable to Mariposa Capital, LLC, an entity owned by the co-chairperson of the Company’s Board of Directors.

The Company has entered into a Securities Purchase Agreement with Viking Global Equities Master Ltd.

and Viking Global Equities II LP ("Viking Purchasers"), an owner of more than 5 % of the Company's outstanding stock, to sell 200,000 Series B Preferred Shares (as defined in Note 14 - "Shareholders' Equity") for an aggregate purchase price of $ 200 .

The Company has entered into sales contracts with Royal Oak Enterprises, an entity controlled by the co-chairperson of the Company's Board of Directors, and recorded $ 5 in net revenues for the nine months ended September 30, 2021, and as of September 30, 2021 had $ 2 in accounts receivable, net of allowances.

Annual dividends for Series A Preferred Stock were declared as of December 31, 2021 and settled in shares during January 2022.

The Company issued 7,539,697 shares in January 2022 to Mariposa Acquisition IV, LLC, a related entity that is controlled by a co-chair of the Company’s Board of Directors.

In addition, the Company incurred advisory fees of $ 1 during both the three months ended March 31, 2022 and 2021, payable to Mariposa Capital, LLC, an entity owned by a co-chair of the Company’s Board of Directors.

On January 3, 2022, the Company issued and sold 800,000 shares of the Company’s 5.5 % Series B Perpetual Convertible Preferred Stock, par value $ 0.0001 per share (the “Series B Preferred Stock”) for an aggregate purchase price of $ 800 .

Of the 800,000 shares issued and sold, 200,000 shares were sold to Viking Global Equities Master Ltd.

and Viking Global Equities II LP ("Viking Purchasers"), an owner of more than 5 % of the Company's outstanding stock, for an aggregate purchase price of $ 200 .

The Company has entered into sales contracts with Royal Oak Enterprises, an entity controlled by a co-chair of the Company's Board of Directors, and recor ded $ 3 in net revenues for the three months ended March 31, 2022, and as of March 31, 2022 had $ 4 in accounts receivable, net of allowances.

From time to time, the Company also enters into other immaterial related party transactions.

Commitments and contingencies

The Company is unable to predict the final outcome of the following matters based on the information currently available except otherwise noted.

However, the Company does not believe that the resolution of any of these matters will have a material adverse effect upon the results of operations, cash flows, or financial condition.

Environmental

The Company's operations are subject to environmental regulation by various authorities.

The Company has accrued for the costs of environmental remediation activities, including but not limited to, investigatory, remediation, operating and maintenance costs and performance guarantees, and periodically reassess these amounts.

Management believes that the likelihood of incurring losses materially in excess of the amounts accrued is remote.

The Company has recorded the fair value of legal obligations associated with the retirement of long-lived assets as asset retirement obligations.

Over time, the liability is increased for changes in its present value and the capitalized cost is depreciated over the useful life of the related asset.

The outstanding liability for environmental obligations, including asset retirement obligations, was $ 22 and $ 6 , and is i ncluded in other noncurrent liabilities as of March 31, 2022 and December 31, 2021, respectively.

Legal proceedings

From time to time, the Company is subject to workmanship warranty, casualty, negligence, construction defect, breach of contract, product liability, and other claims and legal proceedings in the ordinary course of business relating to the products the Company installs that, if adversely determined, could adversely affect the Company's consolidated financial condition, results of operations and cash flows.

The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's business, financial condition, results of operations or liquidity.

SHAREHOLDERS’

Preferred Shares

Series A Preferred Shares

The Company has 4,000,000 shares of Series A Preferred Stock issued and outstanding as of September 30, 2021 ("Series A Preferred Shares").

The Series A Preferred Shares will be automatically converted into shares of common stock on a one for one basis upon the last day of 2026.

The holders of the Series A Preferred Shares are entitled to receive an annual dividend in the form of common stock or cash, at the Company’s sole option based on the increase in the market price of the Company’s common stock.

Series B Preferred Shares

On July 26, 2021, the Company entered into a Securities Purchase Agreement to sell 800,000 shares of the Company’s Series B Perpetual Convertible Preferred Stock, (the “Series B Preferred Shares”), for an aggregate purchase price of $ 800 .

The holders of the Series B Preferred Shares will be entitled to dividends at the rate of 5.5 % per annum, payable in cash or the Company’s common stock, at the Company's election.

The Series B Preferred Shares will rank senior to common stock and Series A Preferred Shares with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Company.

The Series B Preferred Shares will be convertible, at the holder’s option, into shares of the Company’s common stock at a conversion price equal to $ 24.60 per share, subject to certain adjustments.

The Series B Preferred Shares rights include voting rights on an as-converted basis, certain pre-emptive rights on private equity offerings by the Company and certain registration rights.

The Company intends to use the net proceeds from the Series B Preferred Shares issuance to fund a portion of the consideration for the Chubb Acquisition.

The Series B Preferred Shares issuance is expected to close concurrently with the closing of the Chubb Acquisition, which is anticipated to be around year-end 2021.

Common Shares

During September 2021, the Company issued 22,716,049 shares of the Company’s common stock in a public underwritten offering.

The proceeds from this offering totaled approximately $ 446 , net of related expenses.

The Company expects to use the net proceeds from this offering for general corporate purposes, which may include future acquisitions and other business opportunities, capital expenditures and working capital.

EQUITY and redeemable convertible preferred stock

Shareholders' equity

Series A Preferred Stock

The Company has 4,000,000 shares of Series A Preferred Stock issued and outstanding as of March 31, 2022 ("Series A Preferred Stock").

The Series A Preferred Stock will be automatically converted into shares of common stock on a one for one basis upon the last day of 2026.

The holders of the Series A Preferred Stock are entitled to receive an annual dividend in the form of common stock or cash, at the Company’s sole option based on the increase in the market price of the Company’s common stock.

Stock Repurchases

On March 9, 2022, the Company announced that the Company's Board of Directors authorized a stock repurchase program ("SRP") to purchase up to an aggregate of $ 250 of shares of the Company’s common stock.

Acquisitions pursuant to the SRP may be made from time to time through a combination of open market repurchases in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions, at the Company’s discretion, as permitted by securities laws and other legal requirements.

In connection with the SRP, the Company may enter into Rule 10b5-1 trading plans which would generally permit the Company to repurchase shares at times when it might otherwise be prevented from doing so under the securities laws.

The SRP will expire on February 29, 2024 unless otherwise modified or earlier terminated by the Company's Board of Directors at any time in its sole discretion.

During the three months ended March 31, 2022, the Company repurchased 531,431 shares of common stock for approximately $ 11 under the SRP, leaving approximately $ 239 of authorized repurchase s.

Redeemable Convertible Preferred Stock

Series B Preferred Stock

During the three months ended March 31, 2022, the Company authorized, issued, and sold, for an aggregate purchase price of $ 800 , 800,000 shares of the Company’s 5.5 % Series B Preferred Stock, par value $ 0.0001 per share.

The holders of the Series B Preferred Stock are entitled to dividends at the rate of 5.5 % per annum, payable in cash or the Company’s common stock, at the Company's election.

The Series B Preferred Stock ranks senior to the Company's common stock and Series A Preferred Stock with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Company.

The Series B Preferred Stock is classified as mezzanine equity on the condensed consolidated balance sheets due to a provision that a change in control or de-listing of the Company could require the Company to redeem the Series B Preferred Stock for cash at the election of the holder.

The Series B Preferred Stock is convertible, at the holder’s option, into shares of the Company’s common stock at a conversion price equal to $ 24.60 per share, subject to certain customary adjustments.

The holders of Series B Preferred Stock have certain other rights including voting rights on an as converted basis, certain pre-emptive rights on private equity offerings by the Company, certain registration rights, and, in the case of certain holders, certain director designation rights, as provided in the certificate of designation governing the Series B Preferred Stock.

The Company may, at its option, effect conversion of the outstanding shares of Series B Preferred Stock to common stock, but only if the volume-weighted average price of the Company's common stock exceeds $ 36.90 per share for 15 consecutive trading days.

The holders of Series B Preferred Stock are entitled to receive cumulative dividends at a rate of 5.5 % as and when declared by the board of directors, prior and in preference to any declaration or payment of any dividend on the Company's common stock and Series A Preferred Stock.

Series B dividends are cumulative and accrued quarterly, in cash or in common stock, based on an annual 5.5 % dividend rate.

The Company declared a Series B Preferred Stock dividend on March 15, 2022 , and issued $ 11 , or 519,469 shares of common stock to the Series B Preferred Stock holders on March 31, 2022.

If regula r dividends are to be paid in shares of common stock, then each holder shall be entitled to receive such number of whole shares of common stock as is determined by dividing the pro rata amount of regular dividends to which a holder is entitled by the average price per share of common stock over the dividend determination period from dividend notice until the payment date.

Share-based compensation

The Company maintains a 2019 Equity Incentive Plan (the “2019 Plan”), which allows for grants of share-based awards.

The Company has issued Time-Based Restricted Stock Units ("RSUs"), Performance-Based Restricted Stock Units with EBITDA-based performance conditions (“PSUs”), and Performance-Based Restricted Stock Units with share-price targets ("MSUs"), which are all generally subject to forfeiture if employment terminates prior to vesting.

Forfeitures are estimated and recorded using historical forfeiture rates.

During the three months ended March 31, 2022, the Company awarded new RSUs, PSUs, and MSUs, detailed below.

Time-Based Restricted Stock Units

The RSUs entitle recipients to shares of the Company’s common stock and primarily vest in equal installments over a three-year service period from date of grant.

The RSUs granted to the Company’s recipients vest ratably over the service period, generally on the anniversary date of their grant date.

The following table summarizes the changes in the number of outstanding RSUs for the three months ended March 31, 2022 (shares in whole numbers and per share values in whole dollars):

Time-Based Restricted Stock Units

Weighted-Average Grant Date Fair Value Per Share

Weighted-Average Remaining Contractual Term

Outstanding at December 31, 2021

Outstanding at March 31, 2022

Expected to vest at March 31, 2022

Performance-Based Restricted Stock Units

The PSUs entitle the recipient to shares of the Company's common stock if specified performance conditions are achieved.

During the three months ended March 31, 2022, the Compan y approved and granted PSUs with EBITDA-based financial performance conditions.

PSUs vest, if at all, following a 3 year performance period.

If the performance conditions are not met, no compensation cost is recognized and any recognized compensation cost is reversed.

The following table summarizes the changes in the number of outstanding PSUs for the three months ended March 31, 2022 (shares in whole numbers and per share values in whole dollars):

Performance-Based Restricted Stock Units

Weighted-Average Grant Date Fair Value Per Share

Weighted-Average Remaining Contractual Term

Outstanding at December 31, 2021

Outstanding at March 31, 2022

Expected to vest at March 31, 2022

The MSUs entitle the recipient to shares of the Company's common stock if specified market conditions are achieved.

During the three months ended March 31, 2022, the Company approved and granted 444,926 MSUs with certain share-price targets.

The MSUs will vest 100 %, if at all, on the later of March 9, 2025, the third anniversary of the grant date, and the date that such performance condition is satisfied (but no later than March 9, 2027).

For awards subject to a market condition, the grant-date fair value is estimated using a Monte Carlo valuation model.

The Company recognizes stock-based compensation expense for awards subject to market-based vesting conditions regardless of whether it becomes probable that these conditions will be achieved or not, and stock-based compensation expense for any such awards is not reversed if vesting does not actually occur.

The Monte Carlo model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment.

Expected volatility is calculated based on the historical volatility and implied volatility of the Company's common stock, and the risk-free interest rate is based on U.S.

Treasury yield curve rates with maturities consistent with the three-year vesting period.

The key assumptions used in valuing these market-based awards were as follows:

Risk-free interest rate

Dividend yield

Expected volatility

Total MSUs granted during the three months ended March 31, 2022 had a weighted-average grant date fair value of $ 16.31 .

The Company recogniz ed $ 3 and $ 2 of comp ensation expense during the three months ended March 31, 2022 and 2021, respectively, for the RSUs, PSUs, and MSUs in total.

Total unrecognized compensation related to unvested RSUs, PSUs and MSUs as of March 31, 2022 was approximate ly $ 36 , w hich is expected to be recognized over a weighted average period of appro ximately 1.7 years, 2.6 ye ars, and 2.9 years, respectively.

The Company's actua l tax benefits realized from the tax deductions related to the vesting of RSUs for both the three months ended March 31, 2022 and 2021 was $ 1 .

Earnings (Loss) Per Share

Net income is allocated between the Company’s common shares and other participating securities based on their participation rights.

The Series A Preferred Shares represent participating securities.

Earnings attributable to Series A Preferred Shares are not included in earnings attributable to common shares in calculating earnings per common share (the two-class method).

For periods of net loss, there is no impact from the two-class method on earnings (loss) per share (“EPS”) as net loss is allocated to common shares because Series A Preferred Shares are not contractually obligated to share the loss.

The Series A Preferred Stock and Series B Preferred Stock represent participating securities.

Earnings attributable to Series A Preferred Stock and Series B Preferred Stock are not included in earnings attributable to common shares in calculating earnings per common share (the two-class method).

For periods of net loss, there is no impact from the two-class method on earnings (loss) per share (“EPS”) as net loss is allocated to common shares because Series A Preferred Stock and Series B Preferred Stock are not contractually obligated to share the loss.

The following table sets forth the computation of earnings (loss) per common share using the two-class method.

The dilutive effect of outstanding Series A Preferred Shares and the Series A Preferred Share dividend is reflected in diluted EPS using the if-converted method, and warrants, options, and restricted and performance shares are reflected using the treasury stock method.

For periods of net loss, basic and diluted EPS are the same, as the assumed exercise of Series A Preferred Shares, restricted and performance shares, warrants and stock options are anti-dilutive (amounts in millions, except share and per share amounts):

The dilutive effect of outstanding Series A Preferred Stock, the Series B Preferred Stock, the Series A Preferred Stock dividend, and the Series B Preferred Stock Dividend is reflected in diluted EPS using the if-converted method, and warrants, options, and restricted and performance shares are reflected using the treasury stock method.

For periods of net loss, basic and diluted EPS are the same, as the assumed exercise of Series A Preferred Stock, Series B Preferred Stock, restricted and performance shares, and stock options are anti-dilutive (amounts in millions, except share and per share amounts):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Basic earnings (loss) per common share:

Net income (loss)

Less income attributable to Series A Preferred Shares

Net income (loss) attributable to common shareholders - basic

Weighted average shares outstanding - basic

Basic earnings (loss) per common share

Diluted earnings (loss) per common share:

Net income (loss)

Less income attributable to Series A Preferred Shares

Net income (loss) attributable to common shareholders - diluted

Weighted average shares outstanding - basic

Dilutive securities:

RSUs, warrants and stock options (1)

Shares issuable pursuant to the annual Series A Preferred Share dividend (2)

Weighted average shares outstanding - diluted

Diluted earnings (loss) per common share

(1) For all periods presented, 4,000,000 Series A Preferred Shares, which are convertible to the same number of common shares, have been excluded from the calculation of diluted shares, as their inclusion would be anti-dilutive.

For the nine months ended September 30, 2020, 162,500 stock options to purchase the same number of common shares and 21,265,359 common shares that would be issuable upon exercise of 63,796,076 warrants exercisable to purchase common shares on a 3:1 basis ( 21,265,359 ordinary share equivalents) for which the exercise price exceeded the average market price, have been excluded from the calculation of diluted shares, as their inclusion would be anti-dilutive.

(2) For the three and nine months ended September 30, 2021, and the three months ended September 30, 2020, dilutive securities include common share equivalents which represent the annual dividend, payable in common shares, that Series A Preferred Shares would be entitled to receive assuming that the volume weighted average price of the Company’s common shares for the last ten trading days of the period would be the same average price during the last ten trading days of the calendar year.

The annual dividend amount is equal to 20 % of the increase in the volume-weighted average market price per share of the Company’s common shares for the last ten trading days of the calendar year, multiplied by 141,194,638 shares (the “Annual Dividend Amount”).

During 2020, the Annual Dividend Amount was calculated based on the Company’s share price appreciation over the initial offering price of $ 10.00 .

During 2021, the Annual Dividend Amount was calculated based on the Company’s share price appreciation over the highest price previously used in calculating the Annual Dividend Amount of $ 17.8829 .

Less stock dividend attributable to Series B Preferred Stock

Net income (loss) attributable to common shareholders

Basic and diluted weighted average shares outstanding (1)

Income (loss) per common share - basic and diluted

(1) The following items were excluded from the calculation of diluted shares as their inclusion would be anti-dilutive:

For the three months ended March 31, 2022 and 2021, 4,000,000 shares of Series A Preferred Stock, which are convertible to the same number of common shares.

For the three months ended March 31, 2022, 800,000 shares of Series B Preferred Stock, which are convertible to 32,520,000 common shares.

For the three months ended March 31, 2022 and 2021, 162,500 stock options to purchase the same number of common shares.

For the three months ended March 31, 2022, 897,392 RSUs, 1,036,000 PSUs, and 444,926 MSUs.

For the three months ended March 31, 2021 1,062,367 RSUs and 674,229 PSUs, respectively.

SEgment information

The Company manages its operations under three operating segments which represent the Company’s three reportable segments:

Safety Services, Specialty Services, and Industrial Services.

The Company has combined the leadership responsibility and full accountability for two of its operating segments.

As a result, beginning with the three months ended March 31, 2022, the information for the Industrial Services segment is combined with the Specialty Services segment and the Company presents financial information for the Safety Services and Specialty Services segments, which are the two primary operating segments and also the reportable segments.

Refer to Note 2 - "Basis of Presentation and Significant Accounting Policies" for more information.

The information in the tables below has been retroactively adjusted to reflect these changes in reporting segments.

The Company manages its operations under two operating segments which represent the Company’s two reportable segments:

Safety Services and Specialty Services.

This structure is generally focused on various businesses related to contracting services and maintenance of industrial and commercial facilities.

All three reportable segments derive their revenues from installation, inspection, maintenance, service and repair, retrofitting and upgrading, engineering and design, distribution, fabrication, and various types of other services primarily in the United States as well as Canada and Europe.

The Safety Services segment focusing on end-to-end integrated occupancy systems (fire protection solutions, HVAC and entry systems), including design, installation, inspection and service of these integrated systems.

Both reportable segments derive their revenues from installation, inspection, maintenance, service and repair, retrofitting and upgrading, engineering and design, distribution, fabrication, and various types of other services in approximately 20 countries.

The Safety Services segment focuses on end-to-end integrated occupancy systems (fire protection solutions, HVAC and entry systems), including design, installation, inspection and service of these integrated systems.

The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high tech, industrial and special-hazard settings.

The Specialty Services segment provides a variety of infrastructure services and specialized industrial plant services, which includes maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer and telecommunications infrastructure.

This segment’s services include engineering and design, fabrication, installation, maintenance service and repair, and retrofitting and upgrading.

Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants and governmental agencies throughout the United States.

The Industrial Services segment provides a variety of services to the energy industry focused on transmission and distribution.

This segment’s services include pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance

This segment’s services include engineering and design, fabrication, installation, maintenance service and repair, retrofitting and upgrading, pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance to customers within the energy industry.

The accounting policies of the reportable segments are the same as those described in Note 2 –

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The tables below may contain slight summation differences due to rounding:

Three Months Ended September 30, 2021

Corporate and

EBITDA Reconciliation

Operating income (loss)

Investment income and other, net

Capital expenditures

Three Months Ended September 30, 2020

Corporate and

EBITDA Reconciliation

Operating income (loss)

Investment income and other, net

Capital expenditures

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Corporate and

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Investment income and other, net

Loss on extinguishment of debt

Non-service pension benefit

Capital expenditures

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Corporate and

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Capital expenditures

SUBSEQUENT EVENTS

In October 2021, APi Escrow Corp.

(the “Escrow Issuer”), a wholly-owned subsidiary of the Company, completed a private offering of $ 300 aggregate principal amount of 4.750 % Senior Notes due 2029 ("4.750% Senior Notes").

The Company intends to use the net proceeds from the sale of the 4.750% Senior Notes to finance a portion of the consideration for the Chubb Acquisition and related fees and expenses.

The gross proceeds from the offering (plus an additional amount in cash sufficient to fund a Special Mandatory Redemption on the last day of the third full calendar month following the closing of the offering) were deposited into an escrow account.

If and when the Chubb Acquisition occurs, the Special Mandatory Redemption provisions will terminate and the Escrow Issuer will merge with and into APi Group DE, Inc.

(“APi DE”), a wholly-owned subsidiary of the Company, with APi DE continuing as the surviving entity.

Upon the merger, APi DE will assume all of the obligations of the Escrow Issuer, and at that time the 4.750% Senior Notes will be fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Company’s existing and future subsidiaries.

If escrow conditions, including the closing of the Chubb Acquisition, do not occur on or prior to October 27, 2022, the Escrow Issuer must redeem all of the 4.750% Senior Notes at a price equal to the principal amount of the Senior Notes plus accrued interest (the “Special Mandatory Redemption”).

If the escrow conditions do occur prior to October 27, 2022, then all amounts in the escrow account will be released to fund the Chubb Acquisition and related fees and expenses.

During November 2021, the Company completed an acquisition within the Safety Services segment for a purchase price of $ 34 , primarily made up of cash paid at closing .

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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These forward-looking statements are based on our current expectations and assumptions and on information currently available to management and include, among others, statements regarding, as of the date such statements are made:

our expectations regarding the impact of the COVID-19 pandemic on our business, including the seasonal and cyclical volatility of our business, and future financial results;

our beliefs regarding the recurring and repeat nature of our business and its impact on our cash flows and organic growth opportunities;

our expectations regarding industry trends and their impact on our business, and our ability to capitalize on the opportunities presented in the markets we serve;

our beliefs and expectations regarding our business strategies and competitive strengths

our beliefs regarding the nature of our contractual arrangements and renewals rates and their impact on our future financial results;

our beliefs regarding our acquisition platform and ability to execute on and successfully integrate strategic acquisitions;

our expectations regarding the future impact of the COVID-19 pandemic on our business, including our belief regarding the future demand for our services, the seasonal and cyclical volatility of our business, and future financial results;

our beliefs regarding the recurring and repeat nature of our business, customers and revenues, and its impact on our cash flows and organic growth opportunities and our belief that it helps mitigate the impact of economic downturns;

our intent to continue to grow our business, both organically and through acquisitions, and our beliefs regarding the impact of our business strategies on our growth;

our beliefs regarding our customer relationships;

our beliefs regarding our customer relationships and plans to grow existing business and expand service offerings;

our beliefs regarding our ability to pass along commodity price increases to our customers;

our expectations regarding the cost of compliance with laws and regulations;

our expectations regarding labor matters;

our beliefs regarding market risk and our ability to mitigate that risk;

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our expectations regarding future capital expenditures;

our expectations regarding the pending acquisition of the Chubb fire and security business, including the timing for closing, the sources of financing for the consideration, and the expected benefits of the acquisition and future value creation opportunities;

our expectations regarding the acquisition of the Chubb business, including the expected benefits of the acquisition and future growth, expansion, cross-selling and other value creation opportunities;

our belief regarding the impact of the conflict between Russia and Ukraine on our business, customers, suppliers and vendors;

our beliefs regarding the sufficiency of our current sources of liquidity to fund our future liquidity requirements, our expectations regarding the types of future liquidity requirements and our expectations regarding the availability of future sources of liquidity.

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a decline in demand for our services or for the products and services of our customers;

the fact our revenues are derived primarily from contracts with durations of less than six months and the risk that customers will not renew or enter into new contracts;

the fact that our revenues are derived primarily from contracts with durations of less than six months and the risk that customers will not renew or enter into new contracts;

our ability to successfully acquire other businesses, successfully integrate acquired businesses into our operations and manage the risks and potential liabilities associated with those acquisitions;

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our ability to properly manage and accurately estimate costs associated with specific customer projects, in particular for arrangements with fixed price terms;

increases in the cost, or reductions in the supply, of the materials we use in our business and for which we bear the risk of such increases;

supply chain constraints and interruptions, and the resulting increases in the cost, or reductions in the supply, of the materials and commodities we use in our business and for which we bear the risk of such increases;

the impact of inflation;

our relationship with our employees, a large portion of which are covered by collective bargaining arrangements, and our ability to effectively manage and utilize our workforce;

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our substantial level of indebtedness and the effect of restrictions on our operations set forth in the documents that govern such indebtedness;

our ability to successfully complete the pending acquisition of the Chubb fire and security business, including obtaining the necessary regulatory approvals and financing for the consideration, and to realize the expected benefits of the acquisition;

our expectations regarding the acquisition of the Chubb fire and security business, including the expected benefits of the acquisition and future value creation opportunities;

the impact of the conflict between Russia and Ukraine;

our compliance with certain financial maintenance covenants in our credit agreement and the effect on our liquidity of any failure to comply with such covenants.

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refer to APi Group Corporation and its subsidiaries.

APG is a market-leading business services provider of safety, specialty and industrial services in over 200 locations, primarily in North America and with an expanding platform in Europe.

APG is a global market-leading business services provider of safety and specialty services in over 500 locations in approximately 20 countries.

We provide statutorily mandated and other contracted services to a strong base of long-standing customers across industries.

We have a winning leadership culture driven by entrepreneurial business leaders that deliver innovative solutions to our customers.

We operate our business under three primary operating segments which are also our reportable segments:

We operate our business under two primary operating segments, which are also our reportable segments:

Safety Services –

A leading provider of safety services in North America and Europe, focusing on end-to-end integrated occupancy systems (fire protection solutions, Heating, Ventilation, and Air Conditioning (“HVAC”) and entry systems), including design, installation, inspection and service of these integrated systems.

A leading provider of safety services in North America, Asia Pacific, and Europe, focusing on end-to-end integrated occupancy systems (fire protection solutions, Heating, Ventilation, and Air Conditioning (“HVAC”) and entry systems), including design, installation, inspection and service of these integrated systems.

The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high tech, industrial and special-hazard settings.

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A leading provider of a variety of infrastructure services and specialized industrial plant services, which include maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer and telecommunications infrastructure.

Our services include engineering and design, fabrication, installation, maintenance service and repair, and retrofitting and upgrading.

Industrial Services –

A leading provider of a variety of services to the energy industry focused on transmission and distribution.

This segment’s services include pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance.

Our services include engineering and design, fabrication, installation, maintenance service and repair, retrofitting and upgrading, pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance to customers within the energy industry.

We focus on growing our recurring revenues and repeat business from our diversified long-standing customers across a variety of end markets, which we believe provides us with stable cash flows and a platform for organic growth.

Maintenance and service revenues are generally more predictable through contractual arrangements with typical terms ranging from days to three years, with the majority having durations of less than six months and are often recurring due to consistent renewal rates and long-standing customer relationships.

We believe maintenance and service revenues are generally more predictable through contractual arrangements with typical terms ranging from days to three years, with the majority having short durations and are often recurring due to consistent renewal rates and long-standing customer relationships.

For financial information about our operating segments, see Note 20 –

“Segment Information”

to our unaudited condensed consolidated financial statements included herein.

Certain Factors and Trends Affecting our Results of Operations

Effect of Seasonality and Cyclical Nature of Business

Our net revenues and results of operations can be subject to seasonal and other variations.

These variations are influenced by weather and include impacts of customer spending patterns, bidding seasons, project schedules, holidays and timing, in particular, for large, non-recurring projects.

Typically, our net revenues are lowest in the first quarter during the winter months in North America because cold, snowy or wet conditions can cause project delays.

Continued cold and wet weather can often affect second quarter productivity.

Net revenues are generally higher during the summer and fall months during the third and early fourth quarter, due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate.

In the fourth quarter, many projects tend to be completed by customers seeking to spend their capital budgets before the end of the year, which generally has a positive effect on our net revenues.

However, the holiday season and inclement weather can cause delays, which can reduce net revenues and increase costs on affected projects.

Additionally, the industries we serve can be cyclical.

Fluctuations in end-user demand within those industries, or in the supply of services within those industries, can affect demand for our services.

As a result, our business may be adversely affected by industry declines or by delays in new projects.

Variations or unanticipated changes in project schedules in connection with large projects can create fluctuations in net revenues.

to our condensed consolidated financial statements included herein.

Recent Developments and Certain Factors and Trends Affecting our Results of Operations

On January 3, 2022, we completed the acquisition of the Chubb fire and security business (the "Chubb Acquisition").

The purchase consideration included $2,935 million of cash transferred at closing less $60 million of cash acquired.

We expect the Chubb business will be a core asset within our Safety Services segment, and will provide meaningful opportunities for future value creation through providing complementary revenue growth by expanding our opportunities for cross-selling products and services across our key end markets.

For additional information about our acquisition activity, see Note 4 –

“Business Combinations" to our condensed consolidated financial statements included herein.

Resegmentation

Beginning in 2022, we reorganized our governance structure and combined the leadership responsibility and full accountability of our Industrial Services and Specialty Services segments into one operating segment.

As a result, the information for our Industrial Services segment is combined with the Specialty Services segment and we present financial information for the Safety Services and Specialty Services segments, which are our two primary operating segments and also our reportable segments.

Our chief operating decision maker regularly reviews financial information to allocate resources and assess performance utilizing these reorganized segments.

Certain prior year amounts have been recast to conform to the current year presentation and the information in the tables below has been retroactively adjusted to reflect these changes in reporting segments.

Economic, Industry and Market Factors

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While we actively monitor economic, industry and market factors that could affect our business, we cannot predict the effect that changes in such factors may have on our future consolidated results of operations, liquidity and cash flows, and we may be unable to fully mitigate, or benefit from, such changes.

Recent Developments

On July 1, 2021, we completed the acquisition of Premier Fire & Security, Inc.

within the Safety Services segment.

We also completed several individually immaterial acquisitions during the nine months ended September 30, 2021.

Total purchase consideration for all of the completed acquisitions of $68 million consisted of cash paid at closing of $51 million, net of cash acquired of $4 million, and accrued consideration of $13 million.

The results of operations of these acquisitions are included in the Company’s unaudited condensed consolidated statement of operations from their respective dates of acquisition.

Net revenues and operating income from material acquisitions were $9 million and less than $1 million, respectively, for the nine months ended September 30, 2021.

See Note 4 –

“Business Combinations”

for further details.

Chubb Acquisition Overview

On July 26, 2021, we entered into an agreement to acquire the Chubb Limited fire and security business (the "Chubb Business") from Carrier Global Corporation for an enterprise value of $3,100 million, which is comprised of $2,900 million cash and approximately $200 million of assumed liabilities, and other adjustments (the "Chubb Acquisition").

This amount is subject to working capital and other closing adjustments as of the date of the acquisition, which is expected to close around year-end 2021.

We expect the Chubb Business will be a core asset for us, and will provide meaningful opportunities for future value creation through

providing complementary revenue growth by expanding our opportunities for cross-selling products and services across our key end markets.

COVID-19 Update

We continue to monitor short- and long-term impacts of the COVID-19 pandemic.

As the situation has continued to evolve, the impacts on our work have also evolved due to the domino effects of various local, state and national governmental orders, including but not limited to, reduced efficiency in performing our work while adhering to physical distancing protocols demanded by COVID-19.

Beginning in the fourth quarter of 2021, the U.S.

government began implementation of a COVID-19 vaccine mandate for certain federal contractors and subcontractors, subject to exception upon an approved reasonable accommodation based on disability or religion.

In addition, the U.S.

Occupational Health and Safety Administration (“OSHA”) has implemented, via an Emergency Temporary Standard (“ETS”), a COVID-19 mandate applicable to all private employers with 100 or more employees.

Employers subject to the ETS are required, in turn, to mandate that their employees are vaccinated against COVID-19 or submit to weekly testing and other safety measures.

States may issue similar vaccination and\or testing mandates for state contractors;

other states, in opposition to the current and anticipated federal mandates, may issue orders intended to obstruct compliance with those mandates.

We may experience labor shortages or loss of work as a result of current and anticipated COVID-19-vaccine-related mandates.

Although we are actively quoting new work for customers, should the macro economy continue to be negatively impacted by the COVID-19 pandemic or worsen due to surges in cases, new variants, vaccination mandates, or additional restrictions on operations, it is possible additional projects could be delayed indefinitely or cancelled, or that we may not be allowed access to our customers’

facilities to perform inspection and service projects.

In addition, the effects of the COVID-19 pandemic have resulted and could continue to result in greater seasonal and cyclical volatility than would otherwise exist under normal conditions.

In the event that vaccination mandates lead to a substantial increase in requests for accommodation and/or conflicts with certain state laws, we may have increased exposure to employment law and litigation risk.

Vaccination mandates or other mitigation efforts, and outbreaks in jurisdictions in which we operate or at our project or work sites, could have a material negative impact on our net revenues and earnings.

If a large number of our employees who are located in a particular jurisdiction or are working on a project or work site are exposed to or infected with COVID-19 and we are unable to hire qualified personnel due to labor shortages and other impacts of the COVID-19 outbreak, we may be required to delay projects or the provision of our services for a period of time.

This could negatively impact our net revenues, have a material adverse impact on our operating results, and cause harm to our reputation.

Generally, in 2021, with end of shelter-in-place orders and increases in vaccination rates, we continue to experience stabilization and volume improvements as our teams and customers have adapted to working in the long-term COVID-19 environment.

There can be no assurance this trend, which would allow us to recover pre-pandemic volume levels, will continue in a positive manner.

We have begun to experience supply chain disruptions, which are negatively impacting the source and supply of materials needed for our business.

The continued impact of COVID-19 on our vendors is evolving and could continue to make it difficult to obtain needed materials at reasonable prices.

The preemptive cost reduction plan, which saved both expense and cash in 2020, has been generally eased in 2021.

The United States Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency has warned cybercriminals will take advantage of the uncertainty created by COVID-19 to launch cybersecurity attacks.

The risks could include more frequent malicious cybersecurity and fraudulent activities, as well as schemes which attempt to take advantage of employees’

use of various technologies to enable remote work activities.

We believe the COVID-19 outbreak has incrementally increased our cyber risk profile, but we are unable to predict the extent or impacts of those risks at this time.

A significant disruption in our information technology systems, unauthorized access to or loss of confidential information, or legal claims resulting from violation of privacy laws could each have a material adverse effect on our business.

While we cannot estimate the duration or future negative financial impact of the COVID-19 pandemic on our business, we are currently experiencing some negative impact, which we expect to continue in the future.

In prior economic downturns, such as those caused by recessions, the impact on our business has generally lagged when compared to the impact on other industries.

It remains uncertain if the economic downturn caused by COVID-19 will impact us in a manner similar to past economic downturns.

We continue to monitor short- and long-term impacts of the COVID-19 pandemic, and as the situation has continued to evolve, the impacts on our work have also evolved.

Throughout 2020 and into 2021, we encountered headwinds related to job site accessibility, project delays, workflow disruptions due to COVID-19 protocols, and diminished demand from our customers.

With the progress in the administration of vaccines during 2021, we began, and continue to experience stabilization and volume improvements as our teams and customers adapted to working in the long-term COVID-19 environment and the markets in which we operate began to recover.

In the later half of 2021 and into the first quarter of 2022, we experienced supply chain disruptions, which has negatively impacted the source and supply of materials needed to perform our work.

Additionally, the outbreak of recent variants and their related containment and mitigation efforts that have been put in place around the world, has impacted the availability of skilled labor resources, particularly in our international businesses, interrupting our ability to execute our jobs.

Although the majority of our businesses have largely recovered from the impacts of the COVID-19 pandemic, there remains significant uncertainty about the future impacts of the pandemic, or any resulting market disruption or volatility, including the potential effects on our operations.

We continue to be cautiously optimistic about the markets in which we operate and the customers we serve;

however, should there be a slowdown in economic activity due to surges in the number of cases, or an increase in variants of the virus that are more virulent, contagious, or against which current vaccines are less effective, it is possible that projects could be delayed or canceled or that we could experience restricted access to our customers’

facilities, preventing us from performing maintenance and service projects.

The extent to which our business and results of operations are impacted in future periods will also depend upon a number of other factors, including limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring vaccination, testing, or quarantine, our customers’

demand for our services, and our ability to continue to safely and effectively operate in this environment.

Russia-Ukraine conflict

The military conflict between Russia and Ukraine has had political, social and economic impacts that have affected our business, and which may have future business impacts that are difficult to predict and/or quantify.

The most immediate impact has been on energy supply and pricing, increasing our direct costs.

In addition, the conflict is and may in the future exacerbate general global inflationary pressures as the longer term interruption in production of goods in Ukraine emerges.

The conflict is also reducing international political stability, which in turn may adversely impact markets in a variety of ways.

For example, sanctions and other penalties imposed by countries across the globe against Russia are creating substantial uncertainty in the global economy.

While we do not have operations in Russia or Ukraine and believe that we do not have a material direct exposure to customers, suppliers and vendors in those countries, we are unable to predict the impact that these actions will have on the global economy or on our financial condition, results of operations, and cash flows.

Should the conflict escalate beyond its current scope, including, among other potential impacts, the geographic proximity of the conflict relative to the rest of Europe, where a material portion of our business is carried out, further impacts on our business could emerge.

The precise impacts on our business are difficult to predict but could include increased direct costs of materials and labor;

increased credit or other capital costs;

and impacts on demand for our services, which could include increased demand for our services related to energy production outside of the conflict area but that could also include a reduction in demand in other geographies or markets.

Effect of Seasonality and Cyclical Nature of Business

Our net revenues and results of operations can be subject to variability stemming from seasonality and industry cyclicality.

Seasonal variations are primarily related to large, non-recurring projects that can be influenced by weather conditions impacting customer spending patterns, contract award seasons, and project schedules, as well as the timing of holidays.

Consequently, net revenues for our businesses are typically lower during the first and second quarters due to the prevalence of unfavorable weather conditions, which can cause project delays and affect productivity.

Additionally, the industries we serve can be cyclical.

Fluctuations in end-user demand, or in the supply of services, within those industries, can affect demand for our services.

As a result, our business may be adversely affected by industry declines or by delays in new projects.

Variations or unanticipated changes in project schedules in connection with large projects can create fluctuations in net revenues.

Recent Accounting Pronouncements

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“Recent Accounting Pronouncements”

to our unaudited condensed consolidated financial statements included herein.

to our condensed consolidated financial statements included herein.

Description of Key Line Items

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Selling expenses consist primarily of compensation and associated costs for sales and marketing personnel, costs of advertising, trade shows and corporate marketing.

General and administrative expense consists primarily of compensation and associated costs for executive management, personnel, facility leases, outside professional fees and other corporate expenses.

General and administrative expenses consist primarily of compensation and associated costs for executive management, personnel, facility leases, administrative expenses associated with accounting, finance, legal, information systems, leadership development, human resources, and risk management and overhead associated with these functions.

General and administrative expenses also include outside professional fees and other corporate expenses.

Amortization of Intangible Assets

Amortization expense reflects the charges incurred to amortize our finite-lived identifiable intangible assets, such as customer relationships, which are amortized over their estimated useful lives.

There is a portion of amortization expense related to the backlog of intangible assets reflected in cost of revenues in the unaudited condensed consolidated statement of operations.

Impairment of Goodwill and Intangible Assets

Goodwill is tested for impairment annually, or more frequently as events and circumstances change.

Expenses for impairment charges related to the write-down of goodwill balances and identifiable intangible assets balances are recorded to the extent their carrying values exceed their estimated fair values.

Expenses for impairment charges related to the write-down of other long-lived assets (which includes amortizable intangibles) are recorded when triggering events indicate their carrying values may exceed their estimated fair values.

There is a portion of amortization expense related to the backlog intangible assets reflected in cost of revenues in the condensed consolidated statements of operations.

Non-service pension benefit

Non-service pension benefit reflects the sum of the components of pension expense not related to service cost, i.e.

interest cost, expected return on assets, and amortizations of prior service costs and actuarial gains and losses.

Critical Accounting Policies and Estimates

For information regarding our Critical Accounting Policies, see the “Critical Accounting Policies”

section of the “APG Management’s Discussion and Analysis of Financial Condition and Results of Operations”

in our Form 10-K.

section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

in our Form 10-K for the fiscal year ended December 31, 2021.

Results of Operations

The following is a discussion of our financial condition and results of operations during the three and nine months ended September 30, 2021 and the three and nine months ended September 30, 2020.

Three months ended September 30, 2021 compared to the three months ended September 30, 2020

Three Months Ended September 30,

($ in millions)

Cost of revenues

Selling, general, and administrative expenses

Impairment of goodwill and intangible assets

Operating income

Interest expense, net

Investment income and other, net

Other expense, net

Income before income taxes

Income tax provision

NM = Not meaningful

Net revenues for the three months ended September 30, 2021 were $1,047 million compared to $958 million for the same period in 2020, an increase of $89 million or 9.3%.

The increase in net revenues was primarily driven by additional revenues from acquisitions completed in the previous 12 months in the Safety Services segment.

In addition, the increase in net revenues was due to general market recoveries from the COVID-19 pandemic within our Safety Services segment, growth in inspection and service revenue, and increased demand and timing for specialty contracting work within our Specialty Services segment.

These increases were partially offset by a decline in the Industrial Services segment.

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the three months ended September 30, 2021 and 2020, respectively:

Three Months Ended September 30,

($ in millions)

Our gross profit for the three months ended September 30, 2021 was $252 million compared to $222 million for the same period in 2020, an increase of $30 million, or 13.5%.

Gross margin was 24.1%, an increase of 90 basis points compared to prior year, primarily due to a $4 million decrease in backlog amortization expense, which positively impacted the rate by 40 basis points.

Also driving the improvement was outsized growth in the Safety Services segment, our highest margin segment, and improved mix of service and inspection revenue, partially offset by supply chain disruptions and inflation causing downward pressure on margins.

Operating expenses

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended September 30, 2021 and 2020, respectively:

Three Months Ended September 30,

($ in millions)

Selling, general, and administrative expenses (excluding amortization expense)

Amortization expense

Impairment of goodwill and intangible assets

Total operating expenses

Operating expenses as a % of net revenues

Operating margin

Our operating expenses for the three months ended September 30, 2021 were $211 million compared to $160 million for the same period in 2020, an increase of $51 million.

Operating expenses as a percentage of net revenues were 20.2% for 2021 compared to 16.7% for 2020.

In the second quarter of 2020, we took various actions in response to the COVID-19 pandemic which resulted in lower operating expenses as a percentage of net revenues for the three months ended September 30, 2020.

This included implementing a preemptive cost reduction plan to lower expenses throughout 2020.

However, as COVID-19 restrictions began to ease and volumes increased, we restored many of these costs in fourth quarter of 2020 and into 2021, resulting in an increase in operating expenses as a percentage of net revenues.

Also driving the increase was higher levels of spending related to higher sales volumes, acquisition expenses and business process transformation projects, including system and process development costs and expenses associated with the implementation of compliance programs related to the Sarbanes-Oxley Act of 2002 during the third quarter of 2021.

In addition, the third quarter of 2020 included an impairment charge reversal of $11 million that did not recur in the third quarter of 2021.

Interest expense, net

Interest expense was relatively flat at $14 million and $13 million for the three months ended September 30, 2021 and 2020, respectively.

Investment income and other, net

Investment income and other, net was income of $3 million and $6 million for the three months ended September 30, 2021 and 2020, respectively.

The decline in investment income and other, net was primarily due to a decrease in income from joint venture investments of $4 million.

Income tax provision

The income tax expense for the three months ended September 30, 2021 was $11 million compared to $28 million in the same period of the prior year.

This change was driven by lower income before taxes in the three months ended September 30, 2021 compared to the same period in 2020.

The effective tax rate for the three months ended September 30, 2021 was 38.5%, compared to 50.1% in the same period of 2020.

The difference in the effective tax rate was driven by discrete and nondeductible permanent items, which have a greater impact on the effective tax rate when income or losses are smaller.

The difference between the effective tax rate and the statutory U.S.

federal income tax rate of 21.0% is due to the nondeductible permanent items, state taxes, and foreign earnings in jurisdictions that have higher tax rates.

Net income and EBITDA

The following table presents net income and EBITDA for the three months ended September 30, 2021 and 2020, respectively:

Three Months Ended September 30,

($ in millions)

Net income as a % of net revenues

EBITDA as a % of net revenues

Our net income for the three months ended September 30, 2021 was $19 million compared to $27 million for the same period in 2020, a decrease of $8 million.

Net income as a percentage of net revenues for the three months ended September 30, 2021 was 1.8% compared to 2.8% for the same period in 2020.

EBITDA for the three months ended September 30, 2021 was $96 million compared to $120 million for the same period in 2020, a decrease of $24 million.

The decline in net income and EBITDA resulted from higher spending related to acquisition expenses and business process transformation projects to enhance systems and implement compliance programs related to the Sarbanes-Oxley Act of 2002 and a favorable adjustment related to impairment charges that was recorded in the third quarter of 2020.

These items were partially offset by an improved mix of service and inspection revenue.

Operating Segment Results for the three months ended September 30, 2021 versus the three months ended September 30, 2020

Three Months Ended September 30,

($ in millions)

Safety Services

Specialty Services

Industrial Services

Corporate and Eliminations

Operating Income (Loss)

Three Months Ended September 30,

($ in millions)

Safety Services

Safety Services operating margin

Specialty Services

Specialty Services operating margin

Industrial Services

Industrial Services operating margin

Corporate and Eliminations

Three Months Ended September 30,

($ in millions)

Safety Services

Safety Services EBITDA as a % of net revenues

Specialty Services

Specialty Services EBITDA as a % of net revenues

Industrial Services

Industrial Services EBITDA as a % of net revenues

Corporate and Eliminations

The following discussion breaks down the net revenues, operating income (loss) and EBITDA by operating segment for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Safety Services

Safety Services net revenues for the three months ended September 30, 2021 increased by $129 million or 31.9% compared to the same period in the prior year.

The increase was primarily driven by additional net revenues contributed by acquisitions completed in the prior 12 months and general market recoveries in both our Life Safety and HVAC service businesses as compared to the poor market conditions in the third quarter of 2020, which was negatively impacted by the COVID-19 pandemic.

We also experienced an increase in inspection and service revenue in our Life Safety business.

Safety Services operating margin for the three months ended September 30, 2021 and 2020 was approximately 10.5% and (5.9)%, respectively.

The improvement was the result of an impairment charge of $49 million recorded in the third quarter of 2020 that did not recur, and decreased amortization expense of $19 million.

The improvement was partially offset by an increase in operating expenses resulting from the restoration of costs that had been reduced during the prior year as part of our COVID-19 response.

Safety Services EBITDA as a percentage of net revenues for the three months ended September 30, 2021 and 2020 was approximately 14.1% and 4.2%, respectively.

This improvement is primarily related to the non-recurrence of the impairment charge recorded during the prior year and higher volume as described above.

Specialty Services

Specialty Services net revenues for the three months ended September 30, 2021 increased by $36 million or 9.0% compared to the same period in the prior year.

The increase was primarily driven by higher demand and timing for specialty contracting services during the third quarter of 2021, resulting from general improvements in market conditions compared to the prior year, which was negatively impacted by the COVID-19 pandemic.

These increases were partially offset by lower volumes in fabrication, infrastructure, and certain utility businesses.

Specialty Services operating margin for the three months ended September 30, 2021 and 2020 was approximately 7.1% and 26.3%, respectively.

The decrease was due to the non-recurrence of a $68 million favorable adjustment that was recorded during the three months ended September 30, 2020 to reverse part of an impairment charge recorded in the first quarter of 2020.

The decrease was partially offset by increased amortization expense of $6 million and supply chain disruptions and inflation causing downward pressure on margins.

Our Specialty Services EBITDA as a percentage of net revenues for the three months ended September 30, 2021 and 2020 was approximately 12.8% and 31.5%, respectively, due to the factors discussed above and a decrease in income from joint venture investments of $4 million.

Industrial Services

Industrial Services net revenues for the three months ended September 30, 2021 decreased by $55 million or (34.8)% compared to the same period in the prior year.

The decline was the result of the suppression of demand for our services due to decisions by our customers to delay and suspend projects, strategic focus on improving margin resulting from disciplined project and customer selection, and difficult market conditions.

In addition, the sale of two Industrial Services businesses accounted for $5 million of the decline.

Industrial Services operating margin for the three months ended September 30, 2021 and 2020 was approximately 0% and 10.8%, respectively.

The decline was the result of lower volume of projects while certain indirect costs for leases and equipment did not decline as significantly, and an increase in amortization expense of $13 million, partially offset by a $8 million impairment charge recorded in the third quarter of 2020 that did not recur.

Industrial Services EBITDA as a percentage of net revenues was 8.7% and 8.2% for the three months ended September 30, 2021 and 2020, respectively, driven by the impacts of lower volumes and factors described above.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

Nine Months Ended September 30,

The following is a discussion of our financial condition and results of operations during the three months ended March 31, 2022 and the three months ended March 31, 2021.

Three months ended March 31, 2022 compared to the three months ended March 31, 2021

Three Months Ended March 31,

($ in millions)

1 unchanged sentence

Selling, general, and administrative expenses

Impairment of goodwill and intangible assets

Operating income (loss)

Interest expense, net

Loss on extinguishment of debt

Non-service pension benefit

Investment income and other, net

4 unchanged sentences

NM = Not meaningful

Net revenues for the nine months ended September 30, 2021 were $2,828 million compared to $2,705 million for the same period in 2020, an increase of $123 million or 4.5%.

The increase in net revenues was primarily driven by growth in inspection and services revenue in our Life Safety business and additional revenue contributed by acquisitions completed in the previous 12 months within our Safety Services segment.

Also driving the increase was greater demand for specialty contracting work within our Specialty Services segment.

Both our Safety Services and Specialty Services segments benefited from general market recoveries from the COVID-19 pandemic during the nine months ended September 30, 2021.

These improvements were partially offset by a decline in our Industrial Services segment, which continued to experience difficult market conditions and suppressed demand during the nine months ended September 30, 2021.

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the nine months ended September 30, 2021 and 2020, respectively:

Nine Months Ended September 30,

Net revenues for the three months ended March 31, 2022 were $1,471 million compared to $803 million for the same period in 2021, an increase of $668 million or 83.2%.

The increase in net revenues was primarily driven by additional revenues contributed by acquisitions completed during the previous 12 months within the Safety Services segment.

In addition, the increase in net revenues was due to growth in inspection and service revenue, our ability to pass through inflationary increases in costs through project pricing, as well as continued market recoveries from the COVID-19 pandemic within our Safety Services and Specialty Services segments.

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the three months ended March 31, 2022 and 2021, respectively:

Three Months Ended March 31,

($ in millions)

Our gross profit for the nine months ended September 30, 2021 was $665 million, compared to $558 million for the same period in 2020, an increase of $107 million or 19.2%.

Gross margin was 23.5%, an increase of 290 basis points compared to prior year primarily due to a $46 million decrease in backlog amortization expense, which positively impacted the rate by 160 basis points.

In addition, outsized growth in the Safety Services segment, improved mix of service and inspection, and disciplined project and customer selection drove higher gross margins.

These increases were partially offset by supply chain disruptions and inflation causing downward pressure on margins, project delays, jobsite conditions and suppression of demand in the energy industry.

Our gross profit for the three months ended March 31, 2022 was $376 million compared to $181 million for the same period in 2021, an increase of $195 million, or 107.7%.

Gross margin was 25.6%, an increase of 310 basis points compared to prior year, primarily due to acquisitions completed during the previous 12 months within the Safety Services segment and an improved mix of inspection and service revenue and growth within the Safety Services segment.

These improvements were partially offset by supply chain disruptions and inflation causing downward pressure on margins.

Operating expenses

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the nine months ended September 30, 2021 and 2020, respectively:

Nine Months Ended September 30,

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended March 31, 2022 and 2021, respectively:

Three Months Ended March 31,

($ in millions)

Selling, general, and administrative expenses (excluding amortization expense)

Amortization expense

Impairment of goodwill and intangible assets

Total operating expenses

Operating expenses as a % of net revenues

Selling, general, and administrative expenses

Selling, general, and administrative expenses as a % of net revenues

Selling, general, and administrative expenses (excluding amortization) (Non-GAAP)

Selling, general, and administrative expenses (excluding amortization) as a % of net revenues

Operating margin

Our operating expenses for the nine months ended September 30, 2021 were $579 million, compared to $703 million for the same period in 2020, a decrease of $124 million.

Operating expenses as a percentage of net revenues were 20.5% for 2021 compared to 26.0% for 2020, improving primarily due to the $197 million impairment charge related to goodwill and intangible assets recorded in the nine months ended September 30, 2020 that did not recur in 2021.

This decline was offset by an increase of 15.6% in selling, general, and administrative expenses (excluding amortization) due to higher spending related to acquisition expenses, business process transformation projects to enhance systems and implement compliance programs related to Sarbanes-Oxley Act of 2002, and the preemptive cost reduction plan we implemented in the second quarter of 2020 to reduce expenses in response to the COVID-19 pandemic.

As COVID-19 restrictions began to ease, we restored many of these costs in the fourth quarter of 2020, resulting in an increase in selling, general, and administrative expenses in the nine months ended September 30, 2021.

Our selling, general, and administrative expenses ("SG&A expenses") for the three months ended March 31, 2022 were $383 million compared to $183 million for the same period in 2021, an increase of $200 million.

SG&A expenses as a percentage of net revenues was 26.0% during the three months ended March 31, 2022 compared to 22.8% for the same period in 2021.

The primary drivers for the increase in SG&A expenses include additional SG&A expenses contributed by acquisitions completed in the prior 12 months, as well as higher levels of spending associated with acquisitions, including integration, transformation, and reorganization expenses and an increase in amortization expense of $24 million compared to the same period in 2021.

Our SG&A expenses excluding amortization for the three months ended March 31, 2022 were $329 million, or 22.4% of net revenues, compared to $153 million, or 19.1% of net revenues, for the same period of 2021 primarily due to the factors discussed above.

See the discussion and reconciliation of our non-U.S.

GAAP financial measures below.

Interest expense, net

Interest expense was $43 million for the nine months ended September 30, 2021 which is slightly higher than $41 million for the same period of the prior year.

Interest expense was $27 million and $15 million for the three months ended March 31, 2022 and 2021, respectively.

The increase in interest expense was primarily due to the increased debt volume following the Chubb Acquisition related financing.

Non-service pension benefit

The non-service pension benefit was $11 million and $0 million for the three months ended March 31, 2022 and 2021, respectively.

The higher year-on-year benefit in 2022 was solely due to the acquisition of pension plans during the three months ended March 31, 2022.

Refer to Note 14 - "Pension" to our condensed consolidated financial statements herein for additional details.

Investment income and other, net

Investment income and other, net was income of $12 million and $20 million for the nine months ended September 30, 2021 and 2020, respectively.

The decline in investment income and other, net was primarily due to a decrease in income from joint venture investments of $9 million.

Loss on extinguishment of debt

During the second quarter of 2021 we completed a private offering of $350 million aggregate principal amount of senior notes.

The proceeds from the offering were used to repay all outstanding indebtedness under the 2020 Term Loan, prepay a portion of the 2019 Term Loan, pay for transaction fees and expenses, and fund general corporate purposes.

In connection with the repayment of the 2020 Term Loan and prepayment on a portion of the 2019 Term Loan, the Company incurred a loss on extinguishment of debt of $9 million related to unamortized debt issuance costs.

Income tax provision (benefit)

The income tax expense for the nine months ended September 30, 2021 was $14 million compared to a benefit of $35 million in the same period of the prior year.

This change was driven by the fact that we had net income for the first nine months of 2021, whereas we were in a loss position in the same period of 2020 due to an impairment charge recorded in 2020.

The effective tax rate for the nine months ended September 30, 2021 was 31.3% compared to 21.2% in the same period of 2020.

The difference in the effective tax rate was driven by discrete and nondeductible permanent items, which have a greater impact on the effective tax rate when income or losses are smaller.

Investment income and other, net was less than $1 million and $3 million for the three months ended March 31, 2022 and 2021, respectively.

The decline in investment income and other, net was primarily due to a the impact of changes in foreign currency rates and fluctuations in the fair value of our derivative instruments.

Income tax provision

The income tax expense (benefit) for the three months ended March 31, 2022 was $(16) million compared to $(6) million in the same period of the prior year.

This change was driven by lower income before taxes in the three months ended March 31, 2022 compared to the same period in 2021.

The effective tax rate for the three months ended March 31, 2022 was 71.3%, compared to 42.3% in the same period of 2021.

The difference in the effective tax rate was driven by a discrete item that was recorded during the three months ended March 31, 2022 for the reversal of the our indefinite reinvestment assertion.

The difference between the effective tax rate and the statutory U.S.

federal income tax rate of 21.0% is due to the nondeductible permanent items, state taxes and foreign earnings in jurisdictions that have higher tax rates.

Net income (loss) and EBITDA

The following table presents net income and EBITDA for the nine months ended September 30, 2021 and 2020, respectively:

Nine Months Ended September 30,

federal income tax rate of 21.0% is due to the nondeductible permanent items, state taxes, and the reversal of the our indefinite reinvestment assertion.

Net loss and EBITDA

The following table presents net loss and EBITDA for the three months ended March 31, 2022 and 2021, respectively:

Three Months Ended March 31,

($ in millions)

Net income (loss)

EBITDA (Non-GAAP)

Net income (loss) as a % of net revenues

EBITDA as a % of net revenues

Our net income (loss) for the nine months ended September 30, 2021 was $32 million compared to $(131) million for the same period in 2020, an improvement of $163 million.

Net income (loss) as a percentage of net revenues for the nine months ended September 30, 2021 was 1.1% compared to (4.8)% for the same period in 2020.

The change was principally from an impairment charge that occurred in the nine months ended September 30, 2020 related to goodwill of $197 million that did not recur in 2021, and improved gross margin.

EBITDA as a percentage of net revenues for the nine months ended September 30, 2021 was 8.6% compared to 2.6% for the same period in 2020.

Improvements in EBITDA were primarily a result of the non-recurrence of the impairment charge of $197 million recorded in the nine months ended September 30, 2020 and improved gross margin.

Our net loss for the three months ended March 31, 2022 was $(7) million compared to $(8) million for the same period in 2021, an increase of $1 million.

The slight improvement resulted from additional revenue and profit contributed by acquisitions completed in the previous 12 months and an improved mix of inspection and service revenue.

These increases were largely offset by higher levels of spending related to acquisition expenses and increased interest costs associated with newly issued term loan debt.

Net loss as a percentage of net revenues for the three months ended March 31, 2022 was (0.5)% compared to (1.0)% for the same period in 2021.

EBITDA for the three months ended March 31, 2022 was $80 million compared to $51 million for the same period in 2021, an increase of $29 million.

The increase in EBITDA was primarily driven by the factors previously discussed and an increase in our income tax benefit of $10 million, offset by increased amortization expense of $26 million and increased interest expense of $12 million.

See the discussion and reconciliation of our non-U.S.

GAAP financial measures below.

Operating Segment Results for the nine months ended September 30, 2021 versus the nine months ended September 30, 2020

Nine Months Ended September 30,

Operating Segment Results for the three months ended March 31, 2022 compared to the three months ended March 31, 2021

Three Months Ended March 31,

($ in millions)

1 unchanged sentence

Specialty Services

Industrial Services

Corporate and Eliminations

Operating Income (Loss)

Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions)

3 unchanged sentences

Specialty Services operating margin

Industrial Services

Industrial Services operating margin

Corporate and Eliminations

Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions)

3 unchanged sentences

Specialty Services EBITDA as a % of net revenues

Industrial Services

Industrial Services EBITDA as a % of net revenues

Corporate and Eliminations

The following discussion breaks down the net revenues, operating income and EBITDA by operating segment for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The following discussion breaks down the net revenues, operating income (loss) and EBITDA by operating segment for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Safety Services

Safety Services net revenues for the nine months ended September 30, 2021 increased by $312 million or 26.0% compared to the same period in the prior year.

This increase is primarily attributable to an increase in inspection and service revenue within our Life Safety business, market recoveries in both Life Safety and HVAC services, and additional revenue contributed by acquisitions completed in the prior 12 months.

Safety Services operating margin for the nine months ended September 30, 2021 and 2020 was approximately 10.1% and (1.0)%, respectively.

The improvement was primarily driven by an impairment charge of $83 million recorded in the nine months ended September 30, 2020 that did not recur in 2021.

In addition, the improvement was driven by disciplined project and customer selection, and a decrease in amortization expense of $34 million.

Safety Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2021 and 2020 was approximately 14.1% and 7.0%, respectively.

This expansion is primarily related to improved mix and non-recurrence of impairment charges recorded in the nine months ended September 30, 2020.

Safety Services net revenues for the three months ended March 31, 2022 increased by $608 million or 130.5% compared to the same period in the prior year.

The increase was primarily driven by additional net revenues contributed by acquisitions completed in the prior 12 months, general market recoveries in both our Life Safety and HVAC service businesses and increased inspection and service revenue within our Life Safety businesses.

Safety Services operating margin for the three months ended March 31, 2022 and 2021 was approximately 5.9% and 9.7%, respectively.

The decline was the result of supply chain disruptions and inflation causing downward pressure on margins and increased integration expenses, partially offset by an increase in service and inspection revenue.

Safety Services EBITDA as a percentage of net revenues for the three months ended March 31, 2022 and 2021 was approximately 11.5% and 13.9%, respectively.

This decline was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the nine months ended September 30, 2021 increased by $123 million or 11.7% compared to the same period in the prior year.

The increase was primarily driven by increased demand and timing for our specialty contracting services and timing for project work as compared to the prior year, which was negatively impacted by the COVID-19 pandemic.

These increases were partially offset by project deferrals and jobsite disruptions driven by unfavorable weather conditions in the first quarter of 2021 and lower volumes in fabrication, infrastructure, and certain utility businesses.

Specialty Services operating margin for the nine months ended September 30, 2021 and 2020 was approximately 5.1% and (0.9)%, respectively.

The improvement was the result of an impairment charge of $52 million recorded in the nine months ended September 30, 2020 that did not recur and a decrease in amortization expense of $7 million.

Our Specialty Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2021 and 2020 was approximately 11.2% and 7.6%, respectively.

This improvement is primarily related to the impairment charge recorded in the nine months ended September 30, 2020 that did not recur, partially offset by a decrease in income from joint venture investments of $9 million.

Industrial Services

Industrial Services net revenues for the nine months ended September 30, 2021 decreased by $272 million or (58.1)% compared to the same period in the prior year.

The decline was the result of a suppression of demand for our services, our strategic focus on improving margin resulting from disciplined project and customer selection, and a general market weakness in the energy industry.

Also impacting the decline was the sale of two Industrial Services businesses that accounted for $83 million of net revenues during the nine months ended September 30, 2020.

Industrial Services operating margin for the nine months ended September 30, 2021 and 2020 was approximately (11.7)% and (7.9)%, respectively.

The decline was primarily attributable to a lower volume of projects while certain indirect costs for leases and equipment remained consistent with prior periods and increased amortization expense of $2 million, partially offset by an impairment charge of $62 million recorded in the nine months ended September 30, 2020 that did not recur.

Industrial Services EBITDA as a percentage of net revenues was 3.1% and (2.4)% for the nine months ended September 30, 2021 and 2020, respectively.

This improvement is primarily related to the impairment charge of $62 million in 2020 that did not recur, partially offset by impacts of lower volumes described above.

Non-GAAP Financial Measures (Unaudited)

Specialty Services net revenues for the three months ended March 31, 2022 increased by $68 million or 19.8% compared to the same period in the prior year.

The increase was primarily driven by increased activity in the specialty contracting markets during the three months ended March 31, 2022 compared to the same period in the prior year and general market recoveries driving a resumption in the demand for our services when compared to the prior year, which was negatively impacted by the COVID-19 pandemic.

Additionally, we have been able to offset some of the inflationary increases in cost of good sold through strategic pricing improvements and contract negotiations, resulting in increased net revenues during the three months ended March 31, 2022 compared to the same period on the prior year.

Specialty Services operating margin for the three months ended March 31, 2022 and 2021 was approximately (1.7)% and (5.2)%, respectively.

The improvement was primarily driven by higher levels of productivity in the execution of specialty contracting work during the first quarter of 2022 compared to the same period during the prior year.

During the three months ended March 31, 2021, we experienced margin contractions due to lower sales volumes but consistent indirect costs.

Comparatively, during the three months ended March 31, 2022, margins increased due to the growth in sales volumes.

These improvements were partially offset by supply chain disruptions and inflationary pressures on margins.

Specialty Services EBITDA as a percentage of net revenues for the three months ended March 31, 2022 and 2021 was approximately 4.9% and 4.1%, respectively, due to the factors discussed above.

Non-GAAP Financial Measures

We supplement our reporting of consolidated financial information determined in accordance with U.S.

GAAP with EBITDA (defined below), which is a non-U.S.

GAAP financial measure.

We use EBITDA to evaluate our performance, both internally and as compared with our peers, because it excludes certain items that may not be indicative of our core operating results.

Management believes this measure is useful to investors since it (a) permits investors to view the Company’s performance using the same tools management uses to evaluate the Company’s past performance, reportable business segments and prospects for future performance, (b) permits investors to compare the Company with its peers, and (c) determines certain elements of management’s incentive

compensation.

Specifically, earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting.

The Company supplements the reporting of its consolidated financial information with EBITDA.

The Company believes this non-U.S.

GAAP measure provides meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance.

Consolidated EBITDA is calculated in a manner consistent with segment EBITDA, which is a measure of segment profitability.

This non-U.S.

GAAP financial measure, however, has limitations as an analytical tool and should not be considered in isolation from, a substitute for, or superior to, the related financial information we report in accordance with U.S.

The principal limitation of this non-U.S.

GAAP financial measure is it excludes significant expenses required by U.S.

GAAP with Selling, general, and administrative expenses (excluding amortization) and EBITDA (defined below), which are non-U.S.

GAAP financial measures.

We use these non-U.S.

GAAP financial measures to evaluate our performance, both internally and as compared with our peers, because they exclude certain items that may not be indicative of our core operating results.

Management believes these measures are useful to investors since they (a) permit investors to view our performance using the same tools that management uses to evaluate our past performance, reportable business segments, and prospects for future performance, (b) permit investors to compare us with our peers, and (c) in the case of EBITDA, determines certain elements of management’s incentive compensation.

These non-U.S.

GAAP financial measures, however, have limitations as analytical tools and should not be considered in isolation from, a substitute for, or superior to, the related financial information we report in accordance with U.S.

The principal limitation of these non-U.S.

GAAP financial measure is that they exclude significant expenses required by U.S.

GAAP to be recorded in our financial statements and may not be comparable to similarly titled measures of other companies due to potential differences in calculation methods.

In addition, this measure is subject to inherent limitations as it reflects the exercise of judgment by management about which items are excluded or included in determining this non-U.S.

GAAP financial measure.

Investors are encouraged to review the following reconciliation of this non-U.S.

GAAP financial measure to its most comparable U.S.

GAAP financial measure and not to rely on any single financial measure to evaluate our business.

The following table presents a reconciliation of net income to EBITDA for the periods indicated:

Three Months Ended September 30,

In addition, these measures are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-U.S.

GAAP financial measures.

Investors are encouraged to review the following reconciliations of these non-U.S.

GAAP financial measures to the most comparable U.S.

GAAP financial measures and not to rely on any single financial measure to evaluate our business.

Selling, general, and administrative expenses (excluding amortization)

Selling, general, and administrative expenses (excluding amortization) is a measure of operating costs used by management to manage the business and its segments.

We believe this non-U.S.

GAAP measure provides meaningful information and helps investors understand our core selling, general, and administrative expenses excluding acquisition-related amortization expense to better enable investors to understand our financial results and assess our prospects for future performance.

The following table presents a reconciliation of selling, general, and administrative expenses to selling, general, and administrative expenses (excluding amortization) for the periods indicated:

Three Months Ended March 31,

($ in millions)

Reported net income

Adjustments to reconcile net income to EBITDA:

Interest expense, net

Income tax provision

Nine Months Ended September 30,

Reported selling, general, and administrative expenses

Adjustments to reconcile to selling, general, and administrative expenses to selling, general, and administrative expenses (excluding amortization)

Amortization expense

Selling, general, and administrative expenses (excluding amortization)

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting.

We supplement the reporting of our consolidated financial information with EBITDA.

We believe this non-U.S.

GAAP measure provides meaningful information and helps investors understand our financial results and assess its prospects for future performance.

Consolidated EBITDA is calculated in a manner consistent with segment EBITDA, which is a measure of segment profitability.

The following table presents a reconciliation of net income to EBITDA for the periods indicated:

Three Months Ended March 31,

($ in millions)

4 unchanged sentences

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from the operating activities of our consolidated subsidiaries, available cash and cash equivalents, and our access to our Revolving Credit Facility.

Our primary sources of liquidity are cash flows from the operating activities of our consolidated subsidiaries, available cash and cash equivalents, our access to our Revolving Credit Facility and the proceeds from debt offerings.

We believe these sources will be sufficient to fund our liquidity requirements for at least the next twelve months.

Although we believe we have sufficient resources to fund our future cash requirements, there are many factors with the potential to influence our cash flow position including weather, seasonality, commodity prices, market conditions, and prolonged impacts of COVID-19, over which we have no control.

As of September 30, 2021, we had $1,354 million of total liquidity, comprising $1,128 million in cash and cash equivalents and $226 million ($300 million less outstanding letters of credit of approximately $74 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

During the nine months ended September 30, 2021, we received approximately $230 million of cash proceeds from the exercise of approximately 60 million outstanding warrants, resulting in the issuance of approximately 20 million shares of common stock, and $446 million in cash proceeds from the issuance of approximately 23 million shares of common stock.

During the second quarter of 2021, we completed a private offering of $350 million aggregate principal amount of 4.125% Senior Notes due 2029 (the “4.125% Senior Notes”).

T he 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain of our existing and future domestic subsidiaries.

The proceeds from the sale of the 4.125% Senior Notes were used to repay all outstanding indebtedness under the term loan incurred on October 22, 2020 (the “2020 Term Loan”), prepay a portion of the term loan incurred on October 1, 2019 (the “2019 Term Loan”), pay for transaction fees and expenses, and fund general corporate purposes.

In connection with the repayment of the 2020 Term Loan and partial repayment on the 2019 Term

Loan, we incurred a loss on debt extinguishment of $9 million related to unamortized debt issuance costs, which was recorded within loss on debt extinguishment in the unaudited condensed consolidated statements of operations.

As of March 31, 2022, we had $713 million of total liquidity, comprising $315 million in cash and cash equivalents and $398 million ($500 million less outstanding letters of credit of approximately $102 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

During the three months ended March 31, 2022, we issued and sold 800,000 shares of Series B Preferred Stock (defined below) for an aggregate purchase price of $800 million, and entered into an amendment to our credit agreement.

As part of this amendment, we incurred a $1,100 million seven-year incremental term loan ("2021 Term Loan"), the Revolving Credit Facility was upsized from $200 million to $500 million, the maturity date of the Revolving Credit Facility was extended five years, and the letter of credit sublimit was increased by $100 million to $250 million.

We expect to continue to be able to access the capital markets through equity and debt offerings for liquidity purposes as needed.

Our principal liquidity requirements have been, and we expect will be, any accrued consideration due to selling shareholders, including tax payments in connection therewith, for working capital and general corporate purposes, including capital expenditures and debt service, as well as to identify, execute and integrate strategic acquisitions and business transformation.

We expect to fund the acquisition of the Chubb fire and security business, anticipated to close around year-end 2021, through a combination of cash on hand, perpetual preferred equity financing, the issuance of the 4.750% Senior Notes as described below, and other debt financing.

In December 2020, our Board of Directors authorized a share repurchase program, authorizing the purchase of up to an aggregate of $100 million of shares of common stock.

There were no stock repurchases during the nine months ended September 30, 2021 under the share repurchase program and approximately $70 million of repurchases remained authorized.

In March 2022, we announced that our Board of Directors authorized a stock repurchase program, authorizing the purchase of up to an aggregate of $250 million of shares of common stock through February 2024.

During the three months ended March 31, 2022, we repurchased 531,431 shares of common stock for approximately $11 million under this stock repurchase program, leaving approximately $239 million of authorized repurchases.

The following table summarizes net cash flows with respect to our operating, investing and financing activities for the periods indicated:

Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions)

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of foreign currency exchange rate change on cash and cash equivalents

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash, cash equivalents, and restricted cash at the end of the period

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $68 million for the nine months ended September 30, 2021 compared to $329 million for the same period in 2020.

Cash flow from operations is primarily driven by changes in the mix and timing of demand for our services and working capital needs associated with the various services we provide.

Net Cash Provided by (Used in) Operating Activities

Net cash provided by (used in) operating activities was $(118) million for the three months ended March 31, 2022 compared to $32 million for the same period in 2021.

Cash flows from operations is primarily driven by changes in the mix and timing of demand for our services and working capital needs associated with the various services we provide.

Working capital is primarily affected by changes in total accounts receivable, accounts payable, accrued expenses, and contract assets and contract liabilities, all of which tend to be related and are affected by changes in the timing and volume of work performed.

During 2020, the decline in volume of business due to the COVID-19 pandemic drove a significant decrease in our working capital, which generated substantial operating cash flows.

During the nine months ended September 30, 2021, we experienced recovery from the impacts of COVID-19 and the volume of business has expanded, driving higher working capital requirements, specifically higher accounts receivable and contract assets, and leading to lower operating cash flows.

During the three months ended March 31, 2022, operating cash flows were impacted by inflationary pressures and supply chain disruptions leading to an increase in the required level of working capital investment needed to ensure we have materials available to meet our growth in sales volumes, as well as higher levels of spending related to acquisition costs.

Further, the increase in the cost of our debt related to new debt issuances that occurred during the later half of 2021 and the first quarter of 2022 and a one-time contribution to assumed pension plans of $27 million were also factors in our increased use of cash for operating activities during the three months ended March 31, 2022 compared to the same period in the prior year.

Net Cash Used in Investing Activities

Net cash used in investing activities was $81 million for the nine months ended September 30, 2021 compared to $17 million for the same period in 2020.

During the prior year, our acquisition activity was reduced due to uncertainties around the COVID-19 pandemic, the transition to being a publicly traded company and other corporate priorities.

Comparatively, during the current year, our strategic focus on accretive acquisitions has resulted in increased acquisition activity, primarily within the Safety Services segment, resulting in the use of $51 million for acquisitions during the nine months ended September 30, 2021 compared to $6 million for the same period in 2020.

Our capital expenditures were approximately $43 million and $24 million in the nine months ended September 30, 2021 and 2020, respectively.

The increase in capital spending is due to the reduction in capital expenditures that occurred in 2020 as a result of COVID-19, and as we return to a more normalized level of spending, capital spending has increased in the current period, and is expected to be less than 2% of net revenues annually.

Net Cash Provided by (used in) Financing Activities

Net cash provided by financing activities was $629 million for the nine months ended September 30, 2021 compared to a usage of $101 million for the same period in 2020.

The increase in cash provided by financing activities was primarily due to $230 million of proceeds from the issuance of common shares in connection with the warrant exercises which occurred during the first quarter of 2021, $446 million of net proceeds from the common stock issuance, which occurred during the third quarter of 2021, and net proceeds from the issuance of long-term debt of $30 million, which were partially offset by $72 million of payments made on acquisition-related consideration.

Net cash used in investing activities was $2,884 million for the three months ended March 31, 2022 compared to $23 million for the same period in 2021.

During the current year, we completed the Chubb Acquisition within our Safety Services segment, consistent with our focus on accretive acquisitions, resulting in the use of $2,875 million for acquisitions during the three months ended March 31, 2022 compared to $7 million for the same period in 2021.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $1,831 million for the three months ended March 31, 2022 compared to $223 million for the same period in 2021.

The increase in cash provided by financing activities was primarily due to $1,101 million of proceeds from the issuance of the 2021 Term Loan and other debt, and $797 million of proceeds from the issuance of Series B Preferred Stock, partially offset by payments of $30 million on long-term debt and $11 million of share repurchases.

In the prior year, the cash provided was due to $230 million of proceeds from the issuance of common stock in connection with the warrant exercises which occurred during the first quarter of 2021.

Financing Activities

During the second quarter of 2021, we completed a private offering of $350 million aggregate principal amount of 4.125% Senior Notes, issued under an indenture, dated June 22, 2021 (the “Indenture”).

The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain existing and future domestic subsidiaries.

We used the net proceeds from the sale of the 4.125% Senior Notes to repay the $250 million 2020 Term Loan, prepay a portion of the 2019 Term Loan and for general corporate purposes.

As of September 30, 2021, we had $350 million aggregate principal amount of 4.125% Senior Notes outstanding.

The Indenture contains customary terms and provisions (including representations, covenants, and conditions).

Certain covenants, among other things, restrict our, and our restricted subsidiaries’, ability to (i) incur additional indebtedness;

(ii) pay dividends or make other distributions or repurchase or redeem capital stock;

(iii) prepay, redeem or repurchase certain debt;

(iv) make loans and investments;

(v) sell, transfer and otherwise dispose of assets;

(vi) incur or permit to exist certain liens;

(vii) enter into transactions with affiliates;

(viii) enter into agreements restricting subsidiaries’

ability to pay dividends;

and (ix) consolidate, amalgamate, merge or sell all or substantially all assets.

The Indenture also contains customary events of default.

The 4.125% Senior Notes will mature on July 15, 2029, unless redeemed earlier, and bear interest at a rate of 4.125% per year until maturity.

Interest will be payable in cash, semi-annually in arrears, on January 15 and July 15 of each year, beginning on January 15, 2022.

The 4.125% Senior Notes are subject to redemption in whole or in part at any time on or after July 15, 2024 at the redemption prices set forth in the Indenture.

In addition, before July 15, 2024, up to 35% of the aggregate principal amount of the 4.125% Senior Notes may be redeemed with the net proceeds of certain equity offerings at the redemption price set forth in the Indenture, subject to certain conditions.

Further, all or a portion of the 4.125% Senior Notes may be redeemed at any time prior to July 15, 2024 at a price equal to 100% of the principal amount, plus a “make-whole”

premium and accrued interest, if any, to the date of redemption.

As of September 30, 2021, we have a credit agreement (the “Credit Agreement”) which provides for:

(1) a term loan facility, pursuant to which we incurred the $1,200 million 2019 Term Loan used to fund a part of the cash portion of the purchase price in the APi Acquisition, and (2) a $300 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”) of which up to $150 million can be used for the issuance of letters of credit.

As of September 30, 2021, we had $1,140 million of indebtedness outstanding on the 2019 Term Loan and had no amounts outstanding under the Revolving Credit Facility, under which $226 million was available after giving effect to $74 million of outstanding letters of credit, which reduce availability.

One of our Canadian subsidiaries had a $20 million unsecured line of credit agreement with a variable interest rate based upon the prime rate.

This line of credit was closed during the first quarter of 2021.

Credit Agreement

In anticipation of the Chubb Acquisition, on December 16, 2021, APi Group DE, as borrower, we, as guarantor and our subsidiary guarantors named therein entered into Amendment No.

2 to the Credit Agreement ("Amendment No.

On January 3, 2022, the closing date of the Chubb Acquisition, we closed the transactions contemplated by Amendment No.

2, pursuant to which (1) we incurred a $1,100 million seven-year incremental term loan, (2) the Revolving Credit Facility was upsized from $200 million to $500 million, (3) the maturity date of the Revolving Credit Facility was extended five years, (4) the letter of credit sublimit was increased by $100 million to $250 million, (5) additional loan parties and collateral in additional jurisdictions became subject to the Credit Agreement, (6) changes were made to the guarantor coverage requirements under the Credit Agreement with respect to consolidated EBITDA, and (7) certain other changes were made to the Credit Agreement.

The interest rate applicable to the 2021 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.75% or (b) a Eurocurrency rate (adjusted for statutory reserves) plus an applicable margin equal to 2.75%.

Principal payments on the 2021 Term Loan will be made in quarterly installments on the last day of each fiscal quarter, for a total annual amount equal to 1.00% of the initial aggregate principal amount of the 2021 Term Loan.

The 2021 Term Loan matures on January 3, 2028.

The 2021 Term Loan is subject to the same mandatory prepayment provisions as the 2019 Term Loan.

The Credit Agreement contains customary representations and warranties, and affirmative and negative covenants, including covenants that, among other things, restrict our, and our restricted subsidiaries’, ability to (i) incur additional indebtedness;

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Furthermore, with respect to the revolving credit facility, we must maintain a first lien net leverage ratio that does not exceed (i) 4.00 to 1.00 for each fiscal quarter ending in 2021, and (ii) 3.75 to 1.00 for each fiscal quarter ending thereafter, if on the last day of any fiscal quarter the outstanding amount of all revolving loans and letter of credit obligations (excluding undrawn letters of credit up to $40 million) under the Credit Agreement is greater than 30% of the total revolving credit commitments thereunder subject to a right of cure.

Our first lien net leverage ratio as of September 30, 2021 was 0.04:1.00.

We were in compliance with all covenants contained in the Indenture and Credit Agreement as of September 30, 2021 and, in the case of the Credit Agreement, as of December 31, 2020.

In October 2021, APi Escrow Corp.

(the “Escrow Issuer”), one of our wholly-owned subsidiaries, completed a private offering of $300 million aggregate principal amount of Senior Notes maturing on October 15, 2029 ("4.750% Senior Notes"), unless earlier redeemed, and bear interest at a rate of 4.750% per year until maturity.

Interest will be payable in cash, semi-annually in arrears, on April 15 and October 15 of each year, beginning on April 15, 2022.

We intend to use the net proceeds from the sale of the 4.750% Senior Notes to finance a portion of the consideration for the Chubb Acquisition.

The Senior Notes contain customary terms and provisions (including representations, covenants, and conditions).

Certain covenants, among other things, restrict our, and our restricted subsidiaries’, ability to (i) incur additional indebtedness;

(ii) pay dividends or make other distributions or repurchase or redeem capital stock;

(iii) prepay, redeem or repurchase certain debt;

(iv) make loans and investments;

(v) sell, transfer and otherwise dispose of assets;

(vi) incur or permit to exist certain liens;

(vii) enter into transactions with affiliates;

(viii) enter into agreements restricting subsidiaries’

ability to pay dividends;

and (ix) consolidate, amalgamate, merge or sell all or substantially all assets.

The Indenture also contains customary events of default.

If and when the Chubb Acquisition occurs, the Special Mandatory Redemption provisions will terminate and the Escrow Issuer will merge with and into APi Group DE, Inc.

(“APi DE”), one of our wholly-owned subsidiaries, with APi DE continuing as the surviving entity.

If escrow conditions, including the closing of the Chubb Acquisition, do not occur on or prior to October 27, 2022, the Escrow Issuer must redeem all of the 4.750% Senior Notes at a price equal to the principal amount of the 4.750% Senior Notes plus accrued interest (the “Special Mandatory Redemption”).

If the escrow conditions do occur prior to October 27, 2022, then all amounts in the escrow account will be released to fund the Chubb Acquisition and related fees and expenses.

Equity Offering

On May 12, 2021, we filed a universal shelf registration statement on Form S-3 (the “Form S-3”) which enabled us to issue from time to time up to $500 million in shares of our common stock, preferred stock or debt securities, and on May 21, 2021, the Form S-3 was declared effective.

On September 17, 2021, we completed an underwritten offering of 22,716,049 shares of our common stock at a public offering price of $20.25 per share.

This number of shares includes 2,962,962 shares sold to the underwriters upon exercise in full of their option to purchase additional shares.

The offering resulted in gross proceeds of approximately $460 million, before underwriting discounts and commissions and offering expenses of approximately $14 million.

The offering was registered with the SEC pursuant to the Form S-3.

Our first lien net leverage ratio as of March 31, 2022 was 2.93:1.00.

As of March 31, 2022, we had $1,127 million and $1,085 million of indebtedness outstanding on the 2019 Term Loan and 2021 Term Loan, respectively.

We had no amounts outstanding under the Revolving Credit Facility, under which $398 million was available after giving effect to $102 million of outstanding letters of credit, which reduce availability.

We completed a private offering of $350 million aggregate principal amount of 4.125% Senior Notes due 2029 (the “4.125% Senior Notes”), issued under an indenture, dated June 22, 2021.

The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain subsidiaries.

The 4.125% Senior Notes will mature on July 15, 2029, unless redeemed earlier, and bear interest at a rate of 4.125% per year until maturity, payable semi-annually in arrears.

We used the net proceeds from the sale of the 4.125% Senior Notes to repay the $250 million 2020 Term Loan, prepay a portion of the 2019 Term Loan and for general corporate purposes.

As of March 31, 2021, we had $350 million aggregate principal amount of 4.125% Senior Notes outstanding.

We completed a private offering of $300 aggregate principal amount of 4.750% Senior Notes due 2029 (the “4.750% Senior Notes”) issued under an indenture dated October 21, 2021, as supplemented by a supplemental indenture dated January 3, 2022.

The 4.750% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain subsidiaries.

The 4.750% Senior Notes will mature on October 15, 2029, unless earlier redeemed, and bear interest at a rate of 4.750% per year until maturity, payable semi-annually in arrears.

We used the net proceeds from the sale of the 4.750% Senior Notes to finance a portion of the consideration for the Chubb Acquisition.

As of March 31, 2021, we had $300 million aggregate principal amount of 4.750% Senior Notes outstanding.

Debt Covenants

We were in compliance with all covenants contained in the indentures governing the 4.125% Senior Notes and 4.750% Senior Notes and Credit Agreement as of March 31, 2022 and December 31, 2021.

Issuance of Series B Preferred Stock

On January 3, 2022, concurrent with the closing of the Chubb Acquisition, we issued and sold 800,000 shares of our 5.5% Series B Perpetual Convertible Preferred Stock, par value $0.0001 per share (the "Series B Preferred Stock"), for an aggregate purchase price of $800 million, pursuant to securities purchase agreements entered into on July 26, 2021 with certain investors.

The net proceeds from the Series B Preferred Stock issuance were used to fund a portion of the consideration for the Chubb Acquisition.

The holders of the Series B Preferred Stock are entitled to dividends at the rate of 5.5% per annum, payable in cash or common stock, at our election.

The Series B Preferred Stock ranks senior to our common stock and Series A Preferred Stock with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution, or winding up of our affairs.

The Series B Preferred Stock is convertible, at the holder’s option, into shares of our common stock at a conversion price equal to $24.60 per share, subject to certain customary adjustments.

The holders of Series B Preferred Stock have certain other rights including voting rights on an as-converted basis, certain pre-emptive rights on our private equity offerings, certain registration rights, and, in the case of certain holders, certain director designation rights, as provided in the certificate of designation governing the Series B Preferred Stock.

We may, at our option, effect conversion of the outstanding shares of Series B Preferred Stock to common stock, but only if the volume-weighted average price of our common stock exceeds $36.90 per share for 15 consecutive trading days.

Material Cash Requirements from Known Contractual and Other Obligations

Our material cash requirements from known contractual and other obligations primarily relate to the following, for which information on both a short-term and long-term basis is provided in the indicated notes to the condensed consolidated financial statements and expected to be satisfied using cash generated from operations:

Operating and Finance Leases –

See Note 10 –

Debt –

See Note 11 –

"Debt" for future principal payments and interest rates on our debt instruments.

Tax Obligations –

See Note 12 –

"Income Taxes."

Pension obligations –

See Note 14 –

We make investments in our properties and equipment to enable continued expansion and effective performance of our business.

Our capital expenditures are expected to be approximately 1.5% of annual net revenues.

Quantitative and Qualitat ive Disclosures about Market Risk

Interest rate risk

As of September 30, 2021, our variable interest rate debt was primarily related to our $1,200 million 2019 Term Loan and the $300 million Revolving Credit Facility.

As of September 30, 2021, excluding letters of credit outstanding of $74 million, we had no amounts of outstanding revolving loans and $1,140 million outstanding on the 2019 Term Loan.

As of September 30, 2021, we had a 5-year interest rate swap with respect to $720 million of notional value of the 2019 Term Loan, exchanging one-month LIBOR for a fixed rate of 1.62% per annum.

As of March 31, 2022, our variable interest rate debt was primarily related to our $1,200 million 2019 Term Loan, our $1,100 million 2021 Term Loan, and our $500 million Revolving Credit Facility.

As of March 31, 2022, excluding letters of credit outstanding of $102 million, we had no amounts of outstanding revolving loans, $1,127 million outstanding on the 2019 Term Loan, and $1,085 outstanding on the 2021 Term Loan.

As of March 31, 2022, we had a 5-year interest rate swap with respect to $720 million of notional value of the 2019 Term Loan, exchanging one-month LIBOR for a fixed rate of 1.62% per annum.

Accordingly, our fixed interest rate per annum on the swapped $720 million notional value of the 2019 Term Loan is 4.12% through its maturity.

The remaining $407 million of our 2019 Term Loan balance is bearing interest at 2.71% per annum based on one-month LIBOR plus 250 basis points.

Additionally, during the third quarter of 2021, we amended and redesignated our net investment hedge with a notional value of $230 million.

The 2021 Term Loan balance is bearing interest at 2.96% per annum based on one-month LIBOR plus 275 basis points, but the rate will fluctuate as LIBOR fluctuates.

Additionally, during 2021, we entered into a euro-denominated net investment hedge with a notional value of $230 million.

The net investment hedge reduces our interest expense by approximately $3 million annually and reduces our overall effective interest rate by approximately 24 basis points.

A 100-basis point increase in the applicable interest rates under our credit facilities (including the unhedged portion of our 2019 Term Loan debt) would have increased our interest expense by approximately $5 million for the nine months ended September 30, 2021.

While we cannot predict our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, we continue to evaluate our financial position on an ongoing basis.

In addition, there is currently uncertainty about whether LIBOR will continue to exist after 2021.

The ICE Benchmark Administration intends to cease the publication of U.S.

dollar LIBOR as follows:

the 1 week and 2 month tenors on December 31, 2021 and all other tenors on June 30, 2023.

The discontinuation of LIBOR after 2021 and the replacement with an alternative reference rate may adversely impact interest rates and our interest expense could increase.

dollar LIBOR for all tenors (excluding 1 week and 2 month) on June 30, 2023.

The discontinuation of the 1 month LIBOR after 2023 and the replacement with an alternative reference rate, such as the Secured Overnight Financing Rate may adversely impact interest rates and our interest expense could increase.

Foreign currency risk

Our foreign operations are primarily in Canada and Europe.

Revenues generated from foreign operations represented approximately 10% of our consolidated net revenues for the nine months ended September 30, 2021.

Our operations are in approximately 20 countries globally.

Revenues generated from foreign operations represented approximately 40% of our consolidated net revenues for the three months ended March 31, 2022.

Net revenues and expenses related to our foreign operations are, for the most part, denominated in the functional currency of the foreign operation, which minimizes the impact fluctuations in exchange rates would have on net income or loss.

We are subject to fluctuations in foreign currency exchange rates when transactions are denominated in currencies other than the functional currencies.

Such transactions were not material to our operations during the nine months ended September 30, 2021.

Translation gains or losses, which are recorded in accumulated other comprehensive loss in the unaudited condensed consolidated balance sheets, result from translation of the assets and liabilities of our foreign subsidiaries into U.S.

Foreign currency translation losses (gains) totaled approximately $(9) million and $1 million for the three months ended September 30, 2021 and 2020, respectively, and $(9) million and $1 million for the nine months ended September 30, 2021, and 2020, respectively.

Our exposure to fluctuations in foreign currency exchange rates has increased as a result of the SKG Acquisition and will continue to increase in the future if we continue to expand our operations outside of the United States.

We seek to manage foreign currency exposure by minimizing our consolidated net asset and liability positions in currencies other than the functional currency.

Our foreign currency exposure was not significant to our consolidated financial position as of September 30, 2021.

Such transactions were not material to our operations during the three months ended March 31, 2022.

Translation gains or losses, which are recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets, result from translation of the assets and liabilities of our foreign subsidiaries into U.S.

Foreign currency translation losses (gains) totaled approximately $(59) million and ($4) million for the three months ended March 31, 2022 and 2021, respectively.

Our exposure to fluctuations in foreign currency exchange rates has increased as a result of the Chubb Acquisition and may continue to increase in the future if we continue to expand our operations outside of the U.S.

We seek to manage foreign currency exposure by minimizing our consolidated net asset and liability positions in currencies other than the functional currency of our foreign subsidiaries.

Our foreign currency exposure was not significant to our consolidated financial position as of March 31, 2022.

We use foreign currency contracts as a way to mitigate foreign currency exposure from time to time.

In order to manage foreign currency risk related to the Chubb business intercompany financing structure, we entered into cross-currency swaps to manage the foreign currency risk of certain intercompany loans.

Other market risk

8 unchanged sentences

We are also exposed to increases in energy prices, particularly as they relate to gasoline prices for our vehicle fleet.

Disruptions in our supply chain can occur due to market inefficiencies but can also be driven by other events, like cybersecurity breaches, pandemics or similar disruptive

Disruptions in our supply chain can occur due to market inefficiencies but can also be driven by other events, like cybersecurity breaches, pandemics or similar disruptive events.

While we believe we can increase our contract prices to adjust for some price increases in commodities, there can be no assurance that such price increases, if they were to occur, would be recoverable.

Additionally, our fixed price contracts do not allow us to adjust prices and, as a result, increases in material costs could reduce profitability with respect to projects in progress.

Additionally, some of our fixed price contracts do not allow us to adjust prices and, as a result, increases in material costs could reduce profitability with respect to projects in progress.

Significant declines in market prices for oil and gas and other fuel sources may also impact our operations.

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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-Q

Item 1. Financial Statements