What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-05-04 · 582 added, 327 removed, 1086 unchanged (46% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except share data)

(In millions, except share and per share data)

Current assets:

1 unchanged sentence

Restricted cash

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

December 31, 2021

Accounts receivable, net of allowances of $ 3 and $ 3 at June 30, 2022 and

December 31, 2021, respectively

Contract assets

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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,

shares, 800,000 shares and 0 shares issued and outstanding at June 30, 2022 and December 31,

2021, respectively;

2 unchanged sentences

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

issued and outstanding at June 30, 2022 and December 31, 2021

Common Stock, $ 0.0001 par value, 500,000,000 authorized shares, 233,218,322 shares and

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

224,625,193 shares issued at June 30, 2022 and December 31, 2021, respectively (excluding

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

8 unchanged sentences

(In millions, except per share amounts)

For the Three Months Ended March 31,

Three Months Ended

Six Months Ended

Cost of revenues

2 unchanged sentences

Interest expense, net

Loss on extinguishment of debt

Non-service pension benefit

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(In millions)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss)

Other comprehensive income (loss):

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

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

of ($ 8 ), ($ 3 ), ($ 11 ), and ($ 3 ), respectively

23 unchanged sentences

Balance, March 31, 2022

Net income (loss)

Fair value change - derivatives

Foreign currency translation adjustment

Series B Preferred Stock dividend

Share repurchases

Share-based compensation and other, net

Balance, June 30, 2022

Preferred Stock Issued

14 unchanged sentences

Balance, March 31, 2021

Net income (loss)

Fair value change - derivatives

Foreign currency translation adjustment

Share-based compensation and other, net

Balance, June 30, 2021

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In millions)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

1 unchanged sentence

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

Restructuring charges, net of cash paid

Deferred taxes

3 unchanged sentences

Non-service pension benefit

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

Loss on extinguishment of debt

Pension contributions

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

Accounts receivable

1 unchanged sentence

Prepaid expenses and other current assets

Pension contribution

Accounts payable

2 unchanged sentences

Other assets and liabilities

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

2 unchanged sentences

Proceeds from sales of property, equipment, held for sale assets, and businesses

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

1 unchanged sentence

Payments on long-term borrowings

Deferred financing costs paid

Payments of debt issuance costs

Repurchases of common stock

Proceeds from equity issuances

Payments of acquisition-related consideration

Restricted shares tendered for taxes

Net cash provided by financing activities

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

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

Net cash provided by (used in) financing activities

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

Net increase (decrease) 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 of common stock issued to profit sharing plan

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In the opinion of management, the Interim Statements include all adjustments (including normal recurring accruals) necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the dates and periods presented.

The Company revised its Condensed Consolidated Statements of Shareholders’

Equity for the three-month period ended March 31, 2022 to reclassify the Series B Preferred Stock dividend from Accumulated Deficit to Additional Paid-In Capital.

It is recommended that these Interim Statements be read in conjunction with the Company’s audited annual consolidated financial statements and accompanying footnotes thereto for the year ended December 31, 2021 .

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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.

As a result, beginning in 2022, the information for the legacy Industrial Services segment was combined with the legacy Specialty Services segment to form a new operating and reportable segment called Specialty Services.

Accordingly, 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.

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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".

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

Restricted cash reflects collateral against certain bank guarantees and amounts held in escrow.

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 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.

The Company’s share of earnings from the joint ventures w as $ 1 d uring the three months ended June 30, 2022 and 2021, and $ 1 and $ 2 during the six months ended June 30, 2022 and 2021, respectively.

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

The investment balances wer e $ 3 a nd $ 4 as of June 30, 2022 and December 31, 2021 , respectively, and are recorded within other assets in the condensed consolidated balance sheets.

Pension and post-retirement obligations

4 unchanged sentences

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.

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 Offered 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.

The Company will continue to use the one-month LIBOR until 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 –

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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.

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

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

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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 Chubb business is headquartered in the United Kingdom, and has operations in 17 countries, expanding the Company's geographic footprint to a total of approximately 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 total net consideration after estimated working capital adjustments was $ 2,899 , which included aggregate cash consideration of $ 2,935 paid by the Company for the stock purchase of the Chubb business.

Cash consideration 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 16 - "Related-Party Transactions"), the offering of the 4.750 % Senior Notes, and the 2021 Term Loan (both defined in Note 12 - "Debt").

Total consideration is still subject to post closing adjustments, which the Company anticipates will be finalized during the fourth quarter of 2022.

During the three and six months ended June 30, 2022, the Company incurred transaction costs of $ 0 and $ 24 , res pectively, which were expensed and included as a component of selling, general, and administrative expenses 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”).

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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

Other estimated adjustments

Total consideration

Accounts receivable

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Other noncurrent assets

Intangible assets

Accounts payable

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Net assets acquired

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.

Since the Chubb Acquisition occurred on January 3, 2022, the Company has not finalized its accounting for any areas of purchase price allocation related to the Chubb Acquisition.

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

During the three months ended June 30, 2022, the Company recorded a measurement period adjustments, primarily related to working capital balances, property, leases, and other noncurrent liabilities.

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").

The Company has assigned the provisional g oodwill of $ 1,229 to its Safety Services reportable segment (see Note 7 - "Goodwill and Intangibles").

Based on U.S.

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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 Company has identified the following significant intangible assets:

customer relationships, trade names and trademarks, and contractual backlog.

As of the effective date 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.

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.

Specifically, the excess earnings method was utilized to estimate the fair value of the customer relationships and the contractual backlog.

The relief from royalty method was utilized to estimate the fair value of the trade names and trademarks.

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

Customer relationships

Trade names and trademarks

Contractual backlog

1 unchanged sentence

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.

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

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.

The following pro forma consolidated financial information reflects the results of operations of the Company for the three and six months ended June 30, 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

June 30, 2021

Six Months Ended

June 30, 2021

Net income (loss)

4 unchanged sentences

interest expense under the Company’s 2021 Term Loan and 4.750 % Senior Notes (both defined in Note 12 - "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.

Total cumulative transaction-related costs of $ 44 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

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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 has not finalized its accounting for the NAC acquisition.

The area of the purchase price allocation that is not yet finalized for the NAC acquisition is the valuation of income tax related matters.

During the six months ended June 30, 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 –

Based on preliminary estimates, the total amount of goodwill from the 2021 acquisitions expected to be deductible for tax purpo ses is $ 48 .

S ee Note 7 –

“Goodwill and Intangibles”

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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.

For the three months ended June 30, 2022, net revenues and operating income from the Company's material acquisitions that closed over the previous 12 months w as $ 560 and $ 4 , respectively.

For the six months ended June 30, 2022, net revenues and operating income from the material acquisitions that closed over the previous 12 months was $ 1,103 and $ 14 , respect ively.

Accrued consideration

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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 $ 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 total contingent compensation arrangement liab ility was $ 16 and $ 12 at June 30, 2022 and December 31, 2021 , respectively.

The maximum payout of these arrangements upon completion of the future performance periods was $ 20 and $ 57 , inclusive of the $ 16 an d $ 12 , accrued as of June 30, 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.

3 unchanged sentences

For additional considerations regarding the fair value of the Company's contingent consideration liabilities, see Note 8 - "Fair Value of Financial Instruments."

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.

The total liability for deferred paym ents was $ 15 at both June 30, 2022 and December 31, 2021 , and are included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for all periods presented.

Restructuring

During the three months ended June 30, 2022, the Company initiated a multi-year restructuring program to drive efficiencies and synergies and optimize operating margin.

The Company expects to incur expenses related to workforce reductions, lease termination costs, and other facility rationalization costs over the next three years.

The Company recorded total restructuring costs of $ 11 , of which $ 2 was recorded in cost of revenues and $ 9 in selling, general, and administrative expenses on the condensed consolidated statements of operations for both the three and six months ended June 30, 2022, within the Safety Services segment.

The amounts recognized in the period relate to costs associated with workforce reductions.

As of June 30, 2022, the Company had $ 8 in restructuring liabilities recorded in other accrued liabilities on the condensed consolidated balance sheets for this plan, which are expected to be paid within the next six to nine months.

The Company continues to evaluate operating efficiencies and anticipates incurring additional costs in the coming quarters in connection with these activities, but is unable to estimate those amounts at this time as such plans are not yet finalized.

The following table summarizes the Company's 2022 restructuring program for the six month period ended June 30, 2022:

Six Months Ended

June 30, 2022

Balance as of December 31, 2021

Charged to cost of revenues - employee related

Charged to selling, general, and administrative expenses - employee related

Currency translation adjustment and other

Balance as of June 30, 2022

Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when or as control of promised goods and services are 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.

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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.

The following tables provide disclosure of disaggregated net revenues by segment for the three and six months ended June 30, 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

Three Months Ended June 30, 2022

Corporate and

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Corporate and Eliminations

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Corporate and

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Corporate and Eliminations

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Corporate and

Infrastructure / Utility

Specialty Contracting

Corporate and Eliminations

Six Months Ended June 30, 2021

Corporate and

Infrastructure / Utility

Specialty Contracting

Corporate and Eliminations

Three Months Ended June 30, 2022

Corporate and

United States

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Corporate and

United States

Six Months Ended June 30, 2022

Corporate and

United States

Six Months Ended June 30, 2021

Corporate and

United States

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 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 .

The Company expects to recognize revenue on approxim ately 50 % o f the remaining performance obligations over the next 12 m onths .

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.

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

For the three and six months ended June 30, 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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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 March 31, 2022, none of the Company’s contracts contained a significant financing component.

As of June 30, 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 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

The balances of accounts receivable, net of allowances, contract assets and contract liabilities from contracts with customers as of June 30, 2022 and December 31, 2021 are as follows:

Balance as of June 30, 2022

Balance as of December 31, 2021

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

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.

At June 30, 2022 and December 31, 2021, retentions receivable w ere $ 130 an d $ 117 , respectively, while the portions that may not be received within one year were $ 29 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 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:

The following table provides disclosure of goodwill by segment as of June 30, 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 six months ended June 30, 2022 are as follows:

Goodwill as of December 31, 2021

Measurement period adjustments and other (1)

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

Goodwill as of June 30, 2022

(1) Measurement period adjustments and other includes fluctuations due to foreign currency translation and measurement period adjustments recorded during the six months ended June 30, 2022 related to purchase accounting adjustments for acquisitions completed during the previous twelve months (see Note 4 - "Business Combinations").

The Company’s identifiable intangible assets are comprised of the following as of June 30, 2022 and December 31, 2021:

June 30, 2022

Weighted Average

3 unchanged sentences

Customer relationships

Trade names and trademarks

December 31, 2021

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Customer relationships

Amortization expense recognized on identifiable intangible assets are as follows:

Three Months Ended March 31,

Trade names and trademarks

Amortization expense recognized on identifiable intangible assets is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenues

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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 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 March 31, 2022 and December 31, 2021:

Fair Value Measurements at March 31, 2022

Fair Value Measurements at June 30, 2022

Financial assets:

1 unchanged sentence

Cash flow hedges - interest rate swaps

Cash flow hedges - cross currency swaps

Cash flow hedges - cross currency contracts

Net investment hedges

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Derivatives designated as hedge instruments

Cash flow hedges - interest rate swaps

Fair value hedges

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Accordingly, the Company’s derivative instruments are classified as Level 2.

Contingent consideration obligations

The value of the contingent consideration obligations is determined using a probability-weighted discounted cash flow method.

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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:

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

Balance as of December 31, 2021

Adjustments to fair value

Balance as of March 31, 2022

Balance as of June 30, 2022

Number of open contingent consideration arrangements at the end of period

Maximum potential payout at end of period

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

At June 30, 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 months ended March 31, 2022.

The fair value adjustments and the related unobservable inputs were not considered significant for the three and six months ended June 30, 2022.

Fair value estimates

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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.

March 31, 2022

June 30, 2022

December 31, 2021

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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.

2 unchanged sentences

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

Interest rate swaps

The Company manages its fixed and floating rate debt mix using interest rate swaps.

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 condensed consolidated statements of operations.

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

During the second quarter of 2022, the Company entered into an aggr egate $ 400 notional amount of interest rate swaps that exchange a variable rate of interest (LIBOR) for an average fixed rate of interest of approximately 3.46 % ov er the term of the agreements, which mature in January 2028 .

These swaps are forward-starting and are effective commencing January 2023.

As of June 30, 2022, the Company had $ 1,120 notional amount outstanding in swap agreements, which includes the aggregate $ 400 notional amount of forward-starting swaps, and a 5-year $ 720 notional amount interest rate swap with a maturity date of October 2024.

The Company has designated these swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest (LIBOR) payments.

As of June 30, 2022, the weighted average fixed rate of interest on these swaps, excluding the forward-starting swap, was approximately 1.62 %.

Th e effective portion of the after tax fair value gains or losses on these swaps is included as a component of accumulated other comprehensive income (loss) ("AOCI").

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

The fair value of the effective interest rate swaps designated as hedging instruments was an asset of $ 23 and a liability of $ 11 as of June 30, 2022 and December 31, 2021, respectively.

The fair value of the forward-starting interest rate swaps designated as hedging instruments was liability of $ 10 as of June 30, 2022.

The Company recorded interest expense of $ 2 and $ 3 during the three months ended June 30, 2022 and 2021, respectively, and $ 4 and $ 5 of interest expense during the six months ended June 30, 2022 and 2021, respectively, related to interest rate swaps.

Cross currency swaps

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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 settlement or extension of these derivatives will result in reclassifications (from 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.

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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

The Company manages its fixed and floating rate debt mix using interest rate swaps.

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 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.

The total fair value of the cross-currency hedges was an asset of $ 18 and $ 6 as of June 30, 2022 and December 31, 2021, respectively.

The Company recognized income of $ 7 and $ 10 in investment income and other, net, during the three and six months ended June 30, 2022, respectively, and expense of $ 3 and income of less than $ 1 in investment income and other, net, during the three and six months ended June 30, 2021, respectively.

Net investment hedges

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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.

The Company recorded interest income of $ 1 and $ 2 during the three and six months ended June 30, 2022, respectively.

The amount amortized from AOCI into interest expense during the three and six months ended June 30, 2021 was immaterial.

The fair value of the foreign currency swaps designated as net investment hedges was an asset of $ 33 and $ 12 as of June 30, 2022 and December 31, 2021, 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.

To hedge these exposures, during the first quarter of 2022, 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.

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

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

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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.

The fair value of these hedges were an asset of $ 38 and a liability of $ 1 as of June 30, 2022, respectively, and are included in other noncurrent liabilities and other assets.

The Company recognized income of $ 38 and $ 44 in investment income and other, net, during the three and six months ended June 30, 2022, respectively.

Foreign currency contracts

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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 .

The Company recognized income of $ 2 and $ 3 in investment income and other, net, during the three and six months ended June 30, 2022, respectively, and an immaterial amount during the three and six months ended June 30, 2021.

As of June 30, 2022 and December 31, 2021, foreign currency contracts carried immaterial balances within other non current liabilities and other assets.

PROPERTY AND EQUIPMENT, NET

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

The components of property and equipment as of June 30, 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 $ 19 during both the three months ended March 31, 2022 and 2021 .

Depreciation expense related to property and equipment, including finance leases, was $ 19 and $ 20 during the three months ended June 30, 2022 and 2021, respectively, and $ 38 and $ 39 during the six months ended June 30, 2022 and 2021 , respectively.

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.

Under ASC 842, Leases 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.

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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

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Term loan facility

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.

As of June 30, 2022, the Company had $ 1,127 of principal outstanding under the 2019 Term Loan.

During the six months ended June 30, 2022, the Company made payments of $ 13 on the 2019 Term Loan.

As of June 30, 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 $ 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 .

The re maining $ 407 of the 2019 Term Loan balance will bear interest at 4.16 % per annum based on one-month LIBOR plus 250 basis points, but the rate will fluctuate as LIBOR fluctuates .

Refer to Note 9 - "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 Company completed an amendment to its credit agreement during the first quarter of 2022 ("2022 Incremental Amendment") and entered into an incremental $ 1,100 term loan ("2021 Term Loan"), with a maturity date of January 3, 2029 .

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.

The 2021 Term Loan balance will bear interest at 4.42 % per annum based on one-month LIBOR plus 275 basis points, but the rate will fluctuate as LIBOR fluctuates.

During the six months ended June 30, 2022, the Company made paymen ts of $ 15 on the 2021 Term Loan.

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 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.

At June 30, 2022 and December 31, 2021 , the Company had no amounts outstanding under the Revolving Credit Facility, a n d $ 443 and $ 227 was available at June 30, 2022 and December 31, 2021, respectively, after giving effect t o $ 57 an d $ 73 of outstanding letters of credit .

As of June 30, 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.

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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.

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

4.750 % Senior Notes

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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.

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 June 30, 2022 and December 31, 2021.

Other obligations

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:

As of June 30, 2022 and December 31, 2021, the Company had $ 3 a nd $ 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 June 30, 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 71.3 % an d 42.3 % for the three months ended March 31, 2022 and 2021, respectively.

The Company’s quarterly income tax provision (benefit) 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 (benefit) between periods may be impacted by the level and mix of ea rnings and losses by tax jurisdiction, foreign income tax rate differentials and discrete items.

The Company’s effective tax rate was 31.8 % and 28.9 % for the three months ended June 30, 2022 and 2021 , respectively, and ( 11.3 %) an d 17.0 % for the six months ended June 30, 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 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.

Federal income tax rate of 21.0 % for the six months ended June 30, 2022 and 2021 is due to nondeductible permanent items, state taxes, and the reversal of the Company’s indefinite reinvestment assertion.

As of June 30, 2022, the Company’s deferred tax assets included a valuation allowan ce of $ 101 prima rily 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 March 3 1, 2022, the Company had gross federal, state, and foreign net operating loss carryforwards of approximately $ 0 , $ 32 and $ 92 , respe ctively.

As of June 30, 2022, the Company had gross federal, state, and foreign net operating loss carryforwards of approxim ately $ 0 , $ 32 and $ 86 , respectiv ely.

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

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

As of June 30, 2022 and December 31, 2021 , the total gross unrecognized tax benefits were $ 2 and $ 2 , respectively.

The Company had accrued gross interest and penalties as of June 30, 2022 and December 31, 2021 of $ 0 and $ 1 , respectively.

During the three and six months ended June 30, 2022 and 2021 , the Company recognized net interest expense of less than $ 1 for all periods.

If all of the Company’s unrecognized tax benefits as of June 30, 2022 were recogni zed, $ 2 would impact the Company’s effective tax rate.

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

As of June 30, 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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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 $ 24 and $ 23 during the three months ended March 31, 2022 and 2021, respectively .

Total consolidated contributions to multiemployer plans were $ 27 and $ 24 during the three months ended June 30, 2022 and 2021, respectively, and $ 51 an d $ 43 during the six months ended June 30, 2022 and 2021, respectively.

Defined benefit pension plans

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.

Refer to Note 15 - "Pension" for more information on these plans.

Profit sharing plans

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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 recogniz ed $ 2 and $ 3 in expense during the three months ended March 31, 2022 and 2021, respectively.

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

In connection with these plans, the Company recognized $ 4 in expense during both the three months ended June 30, 2022 and 2021 , and $ 6 an d $ 7 in expense during the six months ended June 30, 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”).

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.

The ESPP permits employees of the Company to purchase common stock at a price equal to 85 % of the lesser of (i) the market value of the common stock on the first day of the offering period, or (ii) the market value of the common stock on the purchase date, whichever is lower.

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

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 th e ESPP.

The Company recognized $ 1 of expense during both the three months ended June 30, 2022 and 2021 , and $ 2 of expense during both the six months ended June 30, 2022 and 2021.

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.

As of June 30, 2022, the benefit obligation w as $ 4 .

The PBO discount rate was 3.0 % a t June 30, 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.

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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.

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 (loss), 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.

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

Three Months ended March 31, 2022

Three Months Ended

June 30, 2022

Six Months Ended

June 30, 2022

Interest cost

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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

Three and Six Months Ended June 30, 2022

Benefit Obligation

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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;

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

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

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(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.

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.

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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.

The Company expects to make total contributions of approxim ately $ 33 t o 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.

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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.

In addition, the Company incurred advisory fees of $ 1 during the three months ended June 30, 2022 and 2021 , and $ 2 during the six months ended June 30, 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.

and Viking Global Equities II LP ("Viking Purchasers"), which is the aggregate 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 record ed $ 2 and $ 5 in net revenues for the three and six months ended June 30, 2022, respectively, and as of June 30, 2022 had $ 3 in accounts receivable, net of allowances.

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

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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

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

Environmental and asset retirement obligations

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

1 unchanged sentence

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.

The Company has recorded the fair value associated with the retirement of these 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.

The outstanding liability for these obligations was $ 20 and $ 6 , and was included in other noncurrent liabilities as of June 30, 2022 and December 31, 2021, respectively.

Legal proceedings

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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 Company has 4,000,000 shares of Series A Preferred Stock issued and outstanding as of June 30, 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.

1 unchanged sentence

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.

The Company is authorized to purchase up to an aggregate of $ 250 of shares of the Company’s common stock pursuant to the stock repurchase program ("SRP"), which will expire on February 29, 2024 unless otherwise modified or terminated by the Company's Board of Directors .

The SRP authorizes open market, private, and accelerated share repurchase transactions.

Dur ing the three months ended June 30, 2022, the Company repurchased 681,329 shares of common stock for approxima tely $ 11 .

Dur ing the six months ended June 30, 2022, the Company repurchased 1,212,760 shares of common stock for approxima tely $ 22 .

As of June 30, 2022, the Company had approximat ely $ 228 of authorized repurchases remaining under the SRP.

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.

During the first quarter of 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 classified as redeemable convertible preferred stock 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.

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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.

Series B Preferred Stock 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 and issued $ 11 or 686,455 shares of common stoc k and $ 22 or 1,205,924 s hares of common stock during the three and six months ended June 30, 2022, respectively.

If regular 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

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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.

During the six months ended June 30, 2022, the Company awarded new RSUs, PSUs, and MSUs, detailed below.

Time-Based Restricted Stock Units

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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

During the six months ended June 30, 2022, the Company granted 473,515 RSUs at a weighted average grant-date fair value of $ 19.52 per share.

A total of 207,145 shares vested at a weighted average fair value of $ 13.73 per share during the six months ended June 30, 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.

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

During the six months ended June 30, 2022, the Company 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

During the six months ended June 30, 2022, the Company granted 545,122 PSUs at a weighted-average grant date fair value of $ 20.77 .

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.

During the six months ended June 30, 2022, the Company approved a nd granted 444,926 MSUs with certain share-price targets.

Total MSUs granted during the six months ended June 30, 2022 had a weighted-average grant date fair value of $ 16.31 .

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.

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.

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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 .

The Company recognized compensation expense of $ 4 an d $ 2 d uring the three months ended June 30, 2022 and 2021, respectively, an d $ 7 and $ 4 durin g the six months ended June 30, 2022 and 2021, respectively, for the RSUs, PSUs, and MSUs in total.

Total unrecognized compensation related to unvested RSUs, PSUs and MSUs as of June 30, 2022 was approximat ely $ 34 , w hich is expected to be recognized over a weighted average period of appro ximately 1.0 years, 2.0 years, and 2.7 years, re spectively.

The Company's actual tax benefits realized from the tax deductions related to the vesting of RSUs for the three and six months ended June 30, 2022 was less than $ 1 and $ 2 , respe ctively.

The Company's actual tax benefits realized from the tax deductions related to the vesting of RSUs for the three and six months ended June 30, 2021 was less than $ 1 and $ 1 , respectively .

Earnings (Loss) Per Share

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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 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.

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 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

Six Months Ended

Basic earnings (loss) per common share:

Net income (loss)

Less income attributable to Series A Preferred Stock

Less income attributable to Series B Preferred Stock

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.

Net income (loss) attributable to common shareholders - basic

Weighted average shares outstanding - basic (1)

Income (loss) per common share - basic

Diluted earnings (loss) per common share:

Net income (loss)

Less income attributable to Series A Preferred Stock

Less income attributable to Series B Preferred Stock

Less stock dividend attributable to Series B Preferred Stock

Net income (loss) attributable to common shareholders - diluted

Weighted average shares outstanding - basic

Dilutive securities:

RSUs, PSUs, and stock options (1)

Shares issuable upon conversion of Series B Preferred Stock

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

Weighted average shares outstanding - diluted

Income (loss) per common share - diluted

(1) For all periods presented, 4,000,000 shares of Series A Preferred Stock, 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.

(2) For the three and six months ended June 30, 2021, 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 holders of the Series A Preferred Stock are entitled to receive an annual dividend based on the increase in the market price of the Company’s common stock (the "Annual Dividend Amount").

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.

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

SEgment information

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.

Accordingly, the Company presents financial information for the Safety Services and Specialty Services segments, the two operating segments and also the reportable segments.

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

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Segment EBITDA is calculated in a manner consistent with consolidated EBITDA.

Summarized financial information for the Company’s reportable segments is presented and reconciled to consolidated financial information in the following tables, including a reconciliation of consolidated operating income to EBITDA.

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

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Corporate and

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Capital expenditures

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Corporate and

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Investment income and other, net

Loss on extinguishment of debt

Capital expenditures

Six Months Ended June 30, 2022

Corporate and

EBITDA Reconciliation

Operating income (loss)

Investment income and other, net

Non-service pension benefit

Capital expenditures

Six Months Ended June 30, 2021

Corporate and

EBITDA Reconciliation

Operating income (loss)

Investment income and other, net

Loss on extinguishment of debt

Capital expenditures

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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our expectations regarding future capital expenditures;

our expectations regarding future expenses in connection with our multi-year restructuring program, including those related to workforce reductions;

our expectations regarding future pension contributions;

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;

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refer to APi Group Corporation and its subsidiaries.

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

APG is a global, market-leading business services provider of safety and specialty services in over 500 locations worldwide.

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

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

Restructuring

During the three months ended June 30, 2022, we initiated a multi-year restructuring program to drive efficiencies and synergies and optimize operating margin.

We recorded total restructuring costs of $11 million within the Safety Services segment, of which $2 million was recorded in cost of revenues and $9 million in selling, general, and administrative expenses on the condensed consolidated statements of operations for both the three and six months ended June 30, 2022.

The amounts recognized in the period primarily relate to costs associated with workforce reductions.

As of June 30, 2022, we had $8 million in restructuring liabilities recorded in other accrued liabilities on the condensed consolidated balance sheets for this plan, which we expect to pay within the next six to nine months.

For additional information about our restructuring activity, see Note 5 –

“Restructuring" to our condensed consolidated financial statements included herein.

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 paid an aggregate cash consideration of $2,935 million for the stock purchase of the Chubb fire and security business (the "Chubb 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.

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.

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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.

We have combined the leadership responsibility and full accountability for our Industrial Services and Specialty Services operating segments.

As a result, beginning in 2022, the information for our legacy Industrial Services segment was combined with the legacy Specialty Services segment to form a new operating and reportable segment called Specialty Services.

Accordingly, we present financial information for the Safety Services and Specialty Services segments, our two 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.

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Increased competition for skilled labor resources and higher labor costs can reduce our profitability and impact our ability to deliver timely service to our customers.

In addition, fluctuations in foreign currencies may have an impact on our financial position and results of operations.

However, we believe that our exposure to transactional gains or losses resulting from changes in foreign currencies is limited because our foreign operations primarily invoice and collect receivables in their respective local or functional currencies, and the expenses associated with these transactions are generally contracted and paid for in the same local currencies.

In cases where operational

transactions represent a material currency risk, we enter into cross currency swaps.

Refer to Note 9 - "Derivatives" to our condensed consolidated financial statements included herein for additional information on our hedging activities.

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.

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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.

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

Although the majority of our businesses have largely recovered from the impacts of the COVID-19 pandemic, there remains significant uncertainty about the 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;

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

In addition, the conflict is exacerbating general global inflationary pressures as the longer term interruption in production of goods in Ukraine emerges, which may continue into the future.

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

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Labor intensive contracts usually drive higher margins than those contracts that include material, subcontract, and equipment costs.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses ("SG&A")

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

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Results of Operations

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,

The following is a discussion of our financial condition and results of operations during the three and six months ended June 30, 2022 and the three and six months ended June 30, 2021.

Three months ended June 30, 2022 compared to the three months ended June 30, 2021

Three Months Ended June 30,

($ in millions)

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Interest expense, net

Loss on extinguishment of debt

Non-service pension benefit

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NM = Not meaningful

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%.

Net revenues for the three months ended June 30, 2022 were $1,649 million compared to $978 million for the same period in 2021, an increase of $671 million or 68.6%.

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,

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 June 30, 2022 and 2021, respectively:

Three Months Ended June 30,

($ in millions)

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.

Our gross profit for the three months ended June 30, 2022 was $435 million compared to $232 million for the same period in 2021, an increase of $203 million, or 87.5%.

Gross margin was 26.4%, an increase of 270 basis points compared to prior year, primarily due to acquisitions completed during the previous 12 months within the Safety Services segment, an improved mix of service and inspection revenue, which generates higher margins, 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 three months ended March 31, 2022 and 2021, respectively:

Three Months Ended March 31,

The following table presents operating expenses and operating margin (operating income (loss) as a percentage of net revenues) for the three months ended June 30, 2022 and 2021, respectively:

Three Months Ended June 30,

($ in millions)

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

SG&A expenses as a % of net revenues

SG&A (excluding amortization) (Non-GAAP)

SG&A expenses (excluding amortization) as a % of net revenues

Operating margin

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.

Selling, general, and administrative expenses

Our SG&A expenses for the three months ended June 30, 2022 were $376 million compared to $185 million for the same period in 2021, an increase of $191 million.

SG&A expenses as a percentage of net revenues was 22.8% during the three months ended June 30, 2022 compared to 18.9% 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 $23 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.

Our SG&A expenses excluding amortization for the three months ended June 30, 2022 were $323 million, or 19.6% of net revenues, compared to $155 million, or 15.8% 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.

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Interest expense, net

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.

Interest expense was $28 million and $14 million for the three months ended June 30, 2022 and 2021, respectively.

The increase in interest expense was primarily due to increased debt following the Chubb Acquisition related financing.

Loss on extinguishment of debt

During 2021, we completed a private offering of $350 million aggregate principal amount of senior notes (4.125% Senior Notes).

The proceeds from the offering were used to repay all outstanding indebtedness under the previously outstanding term loan, prepay a portion of the 2019 Term Loan, pay transaction fees and expenses, and fund general corporate purposes.

In connection with the repayment of a previously outstanding term loan and prepayment on a portion of the 2019 Term Loan, we incurred a loss on extinguishment of debt of $9 million related to unamortized debt issuance costs.

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.

The non-service pension benefit was $11 million and $0 million for the three months ended June 30, 2022 and 2021, respectively.

The higher year-on-year benefit in 2022 was solely due to the acquisition of pension plans as part of the Chubb Acquisition during 2022.

Investment income and other, net

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.

Investment income and other, net was $2 million and $6 million for the three months ended June 30, 2022 and 2021, respectively.

The decrease in investment income and other, net was primarily due to the impact of changes in foreign currency rates and fluctuations in the fair value of our derivative instruments.

Income tax provision (benefit)

The income tax expense (benefit) for the three months ended June 30, 2022 was an expense of $14 million compared to $9 million in the same period of the prior year.

This change was driven by higher income before taxes in the three months ended June 30, 2022 compared to the same period in 2021.

The effective tax rate for the three months ended June 30, 2022 was 31.8%, compared to 28.9% in the same period of 2021.

The difference in the effective tax rate was driven by discrete and nondeductible permanent items.

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 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,

federal income tax rate of 21.0% is due to the nondeductible permanent items, state taxes and the reversal of our indefinite reinvestment assertion.

Net income (loss) and EBITDA

The following table presents net income (loss) and EBITDA for the three months ended June 30, 2022 and 2021, respectively:

Three Months Ended June 30,

($ in millions)

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EBITDA as a % of net revenues

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.

Our net income (loss) for the three months ended June 30, 2022 was $30 million compared to $21 million for the same period in 2021, an increase of $9 million.

The 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 integration of recently acquired businesses and increased interest costs associated with newly issued term loan debt.

Net income as a percentage of net revenues for the three months ended June 30, 2022 and June 30, 2021 was 1.8% and 2.1%, respectively.

EBITDA for the three months ended June 30, 2022 was $148 million compared to $96 million for the same period in 2021, an increase of $52 million.

The increase in EBITDA was primarily driven by the factors previously discussed.

See the discussion and reconciliation of our non-U.S.

GAAP financial measures below.

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,

Operating Segment Results for the three months ended June 30, 2022 compared to the three months ended June 30, 2021

Three Months Ended June 30,

($ in millions)

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Operating Income (Loss)

Three Months Ended March 31,

Three Months Ended June 30,

($ in millions)

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Corporate and Eliminations

Three Months Ended March 31,

Three Months Ended June 30,

($ in millions)

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Corporate and Eliminations

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.

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Safety Services

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.

Safety Services net revenues for the three months ended June 30, 2022 increased by $634 million or 123.8% 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 services businesses and increased inspection and service revenue within our Life Safety and HVAC service businesses.

Safety Services operating margin for the three months ended June 30, 2022 and 2021 was approximately 5.5% and 10.2%, respectively.

The decline was primarily the result of increased spending related to the integration of recently acquired businesses, and supply chain disruptions and inflation causing downward pressure on margins, partially offset by an increase in service and inspection revenue.

Safety Services EBITDA as a percentage of net revenues for the three months ended June 30, 2022 and 2021 was approximately 10.6% and 14.3%, respectively.

This decline was primarily related to the factors discussed above.

Specialty Services

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.

Specialty Services net revenues for the three months ended June 30, 2022 increased by $42 million or 8.8% compared to the same period in the prior year.

The increase was primarily driven by increased activity in the infrastructure and utility markets during the three months ended June 30, 2022 compared to the same period in the prior year and general market recoveries driving a rebound 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 goods sold through strategic pricing improvements and contract negotiations, resulting in increased net revenues during the three months ended June 30, 2022 compared to the same period on the prior year.

Specialty Services operating margin for the three months ended June 30, 2022 and 2021 was approximately 6.2% and 5.0%, respectively.

The improvement was primarily driven by higher levels of productivity in the execution of specialty contracting work during the three months ended June 30, 2022 compared to the same period during the prior year.

During the three months ended June 30, 2021, we experienced margin contractions due to lower sales volumes but consistent indirect costs.

Comparatively, during the three months ended June 30, 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.

Specialty Services EBITDA as a percentage of net revenues for the three months ended June 30, 2022 and 2021 was approximately 11.6% and 12.2%, respectively, due to the factors discussed above.

Six months ended June 30, 2022 compared to the six months ended June 30, 2021

Six Months Ended June 30,

($ in millions)

Cost of revenues

Selling, general, and administrative expenses

Operating income (loss)

Interest expense, net

Loss on extinguishment of debt

Non-service pension benefit

Investment income and other, net

Other expense, net

Income (loss) before income taxes

Income tax provision (benefit)

Net income (loss)

NM = Not meaningful

Net revenues for the six months ended June 30, 2022 were $3,120 million compared to $1,781 million for the same period in 2021, an increase of $1,339 million or 75.2%.

The increase in net revenues was primarily attributable to additional revenues contributed by acquisitions completed within the Safety Services segment during the past 12 months.

The increase in net revenues was also due to growth in service and inspection revenue, our ability to pass through inflationary increases in costs through project pricing, and 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 six months ended June 30, 2022 and 2021, respectively:

Six Months Ended June 30,

($ in millions)

Our gross profit for the six months ended June 30, 2022 was $811 million compared to $413 million for the same period in 2021, an increase of $398 million, or 96.4%.

Gross margin was 26.0%, an increase of 280 basis points compared to prior year, primarily due to acquisitions completed within the Safety Services segment during the past 12 months.

Additionally, the increase was driven by an improved mix of service and inspection revenue, which generates higher margins, 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 (loss) as a percentage of net revenues) for the six months ended June 30, 2022 and 2021, respectively:

Six Months Ended June 30,

($ in millions)

Selling, general, and administrative expenses

SG&A expenses as a % of net revenues

SG&A (excluding amortization) (Non-GAAP)

SG&A expenses (excluding amortization) as a % of net revenues

Operating margin

Selling, general, and administrative expenses

Our SG&A expenses for the six months ended June 30, 2022 were $759 million compared to $368 million for the same period in 2021, an increase of $391 million.

SG&A expenses as a percentage of net revenues was 24.3% during the six months ended June 30, 2022 compared to 20.7% for the same period in 2021.

The increase in SG&A expenses was primarily driven by additional SG&A expenses contributed by acquisitions completed in the prior 12 months.

Also driving the increase was higher levels of spending associated with acquisitions, including integration, transition, and reorganization expenses and an increase in amortization expense of $47 million compared to the same period in 2021.

Our SG&A expenses excluding amortization for the six months ended June 30, 2022 were $652 million, or 20.9% of net revenues, compared to $308 million, or 17.3% 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 $55 million and $29 million for the six months ended June 30, 2022 and 2021, respectively.

The increase in interest expense was primarily due to increased debt related to the financing of the Chubb Acquisition.

Loss on extinguishment of debt

During 2021, we completed a private offering of $350 million aggregate principal amount of senior notes (4.125% Senior Notes).

In connection with the repayment of the previously outstanding term loan and prepayment on a portion of the 2019 Term Loan, we incurred a loss on extinguishment of debt of $9 million related to unamortized debt issuance costs, that did not recur in the current period.

Non-service pension benefit

The non-service pension benefit was $22 million and $0 million for the six months ended June 30, 2022 and 2021, respectively.

The higher year-on-year benefit in 2022 was solely due to the acquisition of pension plans as part of the Chubb Acquisition during the six months ended June 30, 2022.

Investment income and other, net

Investment income and other, net was $2 million and $9 million for the six months ended June 30, 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 (benefit)

The income tax expense (benefit) for the six months ended June 30, 2022 was a benefit of $2 million compared to an expense of $3 million in the same period of the prior year.

This change was driven by favorable discrete items in the six months ended June 30, 2022 compared to the same period in 2021.

The effective tax rate for the six months ended June 30, 2022 was (11.3%), compared to 17.0% in the same period of 2021.

The difference in the effective tax rate was driven by discrete and nondeductible permanent items.

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 the reversal of our indefinite reinvestment assertion.

Net income (loss) and EBITDA

The following table presents net income (loss) and EBITDA for the six months ended June 30, 2022 and 2021, respectively:

Six Months Ended June 30,

($ 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 six months ended June 30, 2022 was $23 million compared to $13 million for the same period in 2021, an increase of $10 million.

The improvement is primarily attributable to additional revenue and profit contributed by acquisitions completed in the previous 12 months.

The increase was also driven by an improved mix of service and inspection revenue.

These increases in revenues were partially offset by increased acquisition and integration related expenses, including interest costs associated with newly issued term loan debt used to fund acquisition activity.

Net income as a percentage of net revenues for both the six months ended June 30, 2022 and 2021 was 0.7%.

EBITDA for the six months ended June 30, 2022 was $228 million compared to $147 million for the same period in 2021, an increase of $81 million.

The increase in EBITDA was primarily driven by the factors previously discussed.

See the discussion and reconciliation of our non-U.S.

GAAP financial measures below.

Operating Segment Results for the six months ended June 30, 2022 compared to the six months ended June 30, 2021

Six Months Ended June 30,

($ in millions)

Safety Services

Specialty Services

Corporate and Eliminations

Operating Income (Loss)

Six Months Ended June 30,

($ in millions)

Safety Services

Safety Services operating margin

Specialty Services

Specialty Services operating margin

Corporate and Eliminations

Six Months Ended June 30,

($ in millions)

Safety Services

Safety Services EBITDA as a % of net revenues

Specialty Services

Specialty 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 six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Safety Services

Safety Services net revenues for the six months ended June 30, 2022 increased by $1,242 million or 127.0% compared to the same period in the prior year.

The increase was primarily attributable to additional revenues contributed by acquisitions completed in the past 12 months.

The increase was also driven by general market recoveries in both our Life Safety and HVAC service businesses and increased service and inspection revenue within our Life Safety businesses.

Safety Services operating margin for the six months ended June 30, 2022 and 2021 was approximately 5.7% and 9.9%, respectively.

The decline was primarily the result of increased spending related to the integration of recently acquired businesses.

Additionally, the decline was driven by supply chain disruptions and inflation causing downward pressure on margins, partially offset by an increase in service and inspection revenue.

Safety Services EBITDA as a percentage of net revenues for the six months ended June 30, 2022 and 2021 was approximately 11.0% and 14.1%, respectively.

This decline was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the six months ended June 30, 2022 increased by $110 million or 13.4% compared to the same period in the prior year.

The increase was primarily attributable to increased activity in the specialty contracting markets during the six months ended June 30, 2022 compared to the same period in the prior year.

Additionally, the increase was driven by 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.

We have also been able to offset some of the inflationary increases in cost of revenues through strategic pricing improvements and contract negotiations, resulting in increased net revenues during the six months ended June 30, 2022 compared to the same period on the prior year.

Specialty Services operating margin for the six months ended June 30, 2022 and 2021 was approximately 2.7% and 0.7%, respectively.

The improvement was primarily attributable to higher levels of productivity in the execution of specialty contracting work during the six months ended June 30, 2022 compared to the same period in 2021.

During the six months ended June 30, 2022, margins increased due to growth in sales volumes.

Comparatively, during the six months ended June 30, 2021, we experienced margin contractions as a result of lower sales volumes but consistent indirect costs.

These margin improvements were partially offset by supply chain disruptions and inflationary pressures on margins.

Specialty Services EBITDA as a percentage of net revenues for the six months ended June 30, 2022 and 2021 was approximately 8.6% and 8.8%, 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 Selling, general, and administrative expenses (excluding amortization) and EBITDA (defined below), which are non-U.S.

GAAP with SG&A (excluding amortization) and EBITDA (defined below), which are non-U.S.

GAAP financial measures.

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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.

SG&A expenses (excluding amortization)

SG&A (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,

The following tables present reconciliations of SG&A expenses to SG&A expenses (excluding amortization) for the periods indicated:

Three Months Ended June 30,

($ in millions)

Reported selling, general, and administrative expenses

Adjustments to reconcile to selling, general, and administrative expenses to selling, general, and administrative expenses (excluding amortization)

Reported SG&A expenses

Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization)

Amortization expense

Selling, general, and administrative expenses (excluding amortization)

SG&A expenses (excluding amortization)

Six Months Ended June 30,

($ in millions)

Reported SG&A expenses

Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization)

Amortization expense

SG&A 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.

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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.

GAAP measure provides meaningful information and helps investors understand our financial results and assess our 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,

The following table presents a reconciliation of net income (loss) to EBITDA for the periods indicated:

Three Months Ended June 30,

($ in millions)

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Income tax provision (benefit)

Six Months Ended June 30,

($ in millions)

Reported net income (loss)

Adjustments to reconcile net income (loss) to EBITDA:

Interest expense, net

Income tax provision (benefit)

Liquidity and Capital Resources

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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 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.

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, inflation, and prolonged impacts of COVID-19, over which we have no control.

As of June 30, 2022, we had $773 million of total liquidity, comprising $330 million in cash and cash equivalents and $443 million ($500 million less outstanding letters of credit of approximately $57 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

On January 3, 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 by $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.

During September 2021, we issued 22,716,049 shares of our common stock in a public underwritten offering.

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

We used the net proceeds from this offering for general corporate purposes, which includes items such as other business opportunities, capital expenditures and working capital.

We expect to continue to be able to access the capital markets through equity and debt offerings for liquidity purposes as needed.

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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.

During the three and six months ended June 30, 2022, we repurchased 681,329 and 1,212,760 shares of common stock for approximately $11 million and $22 million, respectively, under this stock repurchase program, leaving approximately $228 million of authorized repurchases.

The following table summarizes net cash flows with respect to our operating, investing and financing activities for the periods indicated:

Three Months Ended March 31,

Six Months Ended June 30,

($ in millions)

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

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

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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.

Net cash provided by (used in) operating activities was $(64) million for the six months ended June 30, 2022 compared to $19 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 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 $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.

During the six months ended June 30, 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 and integration costs.

Further, the increase in the cost of our debt driven by new debt issuances that occurred during the later half of 2021 and the first half of 2022 and a one-time contribution to assumed pension plans of $27 million were factors in our increased use of cash for operating activities during the six months ended June 30, 2022 compared to the same period in the prior year.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities was $(2,903) million for the six months ended June 30, 2022 compared to $(35) million for the same period in 2021.

During the current year, we completed the Chubb Acquisition within our Safety Services segment resulting in the use of $2,875 million for acquisitions during the six months ended June 30, 2022 compared to $12 million for the same period in 2021.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $1,818 million for the six months ended June 30, 2022 compared to $187 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 $31 million on long-term borrowings and $22 million of share repurchases.

In the same period of the prior year, cash provided by financing activities was primarily driven by proceeds of $350 million from the completed offering of the 4.125% Senior Notes and $230 million from the issuance of common stock in connection with the warrant exercises.

These cash inflows were partially offset by payments of $318 million on long term borrowings and $70 million for acquisition-related consideration.

Financing Activities

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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.

2, pursuant to which (1) we incurred a $1,100 million seven-year incremental term loan, (2) the Revolving Credit Facility was upsized by $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%.

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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 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.

Our first lien net leverage ratio as of June 30, 2022 was 2.88:1.00.

As of June 30, 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 $443 million was available after giving effect to $57 million of outstanding letters of credit, which reduces 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.

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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.

We used the net proceeds from the sale of the 4.125% Senior Notes to repay the previously outstanding term loan, prepay a portion of the 2019 Term Loan and for general corporate purposes.

As of June 30, 2022, we had $350 million aggregate principal amount of 4.125% Senior Notes outstanding.

We completed a private offering of $300 million 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.

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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.

As of June 30, 2022, 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.

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 June 30, 2022 and December 31, 2021.

Issuance of Series B Preferred Stock

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Interest rate risk

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.

As of June 30, 2022, our variable interest rate debt was primarily related to our 2019 Term Loan, our 2021 Term Loan, and our Revolving Credit Facility.

As of June 30, 2022, excluding letters of credit outstanding of $57 million, we had no amounts of outstanding revolving loans, $1,127 million outstanding on the 2019 Term Loan, and $1,085 million outstanding on the 2021 Term Loan.

As of June 30, 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.

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.

The remaining $407 million of our 2019 Term Loan balance will bear interest at 4.16% per annum based on one-month LIBOR plus 250 basis points.

The 2021 Term Loan balance will bear interest at 4.42% 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 three months ended March 31, 2022.

The net investment hedge reduces our overall effective interest rate by approximately 24 basis points.

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.

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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.

Revenues generated from foreign operations represented approximately 40% of our consolidated net revenues for both the three and six months ended June 30, 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 three months ended March 31, 2022.

Such transactions were not material to our operations during the six months ended June 30, 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.

Foreign currency translation losses (gains) totaled approximately $166 million and ($4) million for the three months ended June 30, 2022 and 2021, respectively, and $225 million and $0 million for the six months ended June 30, 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.

We seek to manage foreign currency exposure by minimizing our consolidated net assets and liability positions in currencies other than the functional currency of our foreign subsidiaries.

However, we believe that our exposure to transactional gains or losses resulting from fluctuations in foreign currencies is limited because our foreign operations primarily invoice and collect receivables in their respective local or functional currencies, and the expenses associated with these transactions are generally contracted and paid for in the same local currencies.

In order to manage foreign currency risk related to transactions in foreign currencies and the Chubb business intercompany financing structure, we entered into cross-currency swaps to manage the foreign currency risk of certain intercompany loans.

We also occasionally use foreign currency contracts as a way to mitigate foreign currency exposure.

Other market risk

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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