What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-05-04 · 512 added, 277 removed, 958 unchanged (45% of the section changed)

5 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowances of $ 3 and $ 3 at March 31, 2023

Accounts receivable, net of allowances of $ 4 and $ 3 at June 30, 2023

and December 31, 2022, respectively

26 unchanged sentences

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

800,000 shares issued and outstanding at March 31, 2023 and December 31, 2022;

800,000 shares issued and outstanding at June 30, 2023 and December 31, 2022;

aggregate liquidation preference of $ 840

3 unchanged sentences

4,000,000 shares

issued and outstanding at March 31, 2023 and December 31, 2022

issued and outstanding at June 30, 2023 and December 31, 2022

Common stock;

$ 0.0001 par value, 500,000,000 authorized shares, 235,270,405 shares and 233,403,912

shares issued at March 31, 2023 and December 31, 2022, respectively (excluding

shares issued at June 30, 2023 and December 31, 2022, respectively (excluding

584,584 shares declared for stock dividend at December 31, 2022)

8 unchanged sentences

(In millions, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenues

Selling, general, and administrative expenses

Operating income (loss)

Operating income

Interest expense, net

3 unchanged sentences

Other expense, net

Income (loss) before income taxes

Income before income taxes

Income tax provision (benefit)

Net income (loss)

Net income (loss) attributable to common shareholders:

Net income attributable to common shareholders:

Stock dividend on Series B Preferred Stock

Net income (loss) attributable to common shareholders

Net income (loss) per common share:

Net income attributable to common shareholders

Net income per common share:

Weighted average shares outstanding:

3 unchanged sentences

(In millions)

Three Months Ended March 31,

Net income (loss)

Other comprehensive (loss) income:

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive income (loss):

Fair value change - derivatives, net of tax benefit (expense) of ($ 5 ), ($ 8 ), ($ 2 ), and ($ 11 ), respectively

15 unchanged sentences

Foreign currency translation adjustment

(Gain) loss on dedesignated derivatives amortized from AOCI into income

Series B Preferred Stock dividend

3 unchanged sentences

Balance, March 31, 2023

Fair value change - derivatives

Foreign currency translation adjustment

(Gain) loss on dedesignated derivatives amortized from AOCI into income

Series B Preferred Stock dividend

Share repurchases

Share-based compensation and other, net

Balance, June 30, 2023

Preferred Stock Issued

13 unchanged sentences

Balance, March 31,2022

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

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:

Net income (loss)

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

Adjustments to reconcile net income to net cash provided by operating activities:

Restructuring charges

Deferred taxes

13 unchanged sentences

Other assets and liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

9 unchanged sentences

Proceeds from equity issuances

Payments of acquisition-related consideration

Restricted shares tendered for taxes

33 unchanged sentences

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 ventu res was $ 2 an d less than $ 1 during the three months ended March 31, 2023 and 2022, respectively.

The Company’s share of earnings from the joint ventures was $ 2 and $ 1 during the three months ended June 30, 2023 and 2022 , respectively, and $ 4 and $ 1 during the six months ended June 30, 2023 and 2022, respectively.

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

The investment balance s were $ 6 and $ 4 as of March 31, 2023 and December 31, 2022 , respectively, and are recorded within other assets in the condensed consolidated balance sheets.

The investment balance s were $ 6 and $ 4 a s of June 30, 2023 and December 31, 2022 , respectively, and are recorded within other assets in the condensed consolidated balance sheets.

RECENT ACCOUNTING PRONOUNCEMENTS

4 unchanged sentences

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

As such, the Company makes a preliminary allocation of the purchase price to the tangible assets and identifiable intangible assets acquired and liabilities assumed.

As such, the Company makes a preliminary allocation of the purchase price to the tangible assets, identifiable intangible assets acquired, and liabilities assumed.

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

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

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

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

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

The Company engages third-party valuation specialists to assist with the 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.

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

2023 Acquisitions

On June 30, 2023, the Company completed an acquisition included within the Safety Services segment.

Consideration for the acquisition included cash paid at closing of $ 30 , cash deposited into escrow for future deferred payments of $ 5 , and accrued consideration of $ 3 .

The accounting for this acquisition remains preliminary.

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

2022 Chubb Acquisition

5 unchanged sentences

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

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

entities, none of the total amount of goodwill is deductible for U.S.

income tax purposes.

See Note 6 - "Goodwill and Intangibles" for the goodwill assigned to the Safety Services segment.

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

21 unchanged sentences

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

Contingent compensation arrangements are typically contingent on the former owner’s future employment with the Company, and the related amounts are recognized over the required employment period, which is typically three to five years .

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

The liability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a one to two year period.

The liability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a one to three year period.

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

The total contingent compensation arrangement lia bility was $ 21 and $ 19 at March 31, 2023 and December 31, 2022 , respectively.

The maximum payout of these arrangements upon completion of the future performance periods was $ 31 and $ 25 , inclusive of the $ 21 and $ 19 , accrue d as of March 31, 2023 and December 31, 2022, respectively.

The total contingent compensation arrangement lia bility was $ 5 and $ 19 at June 30, 2023, and December 31, 2022 , respectively.

The maximum payout of these arrangements upon completion of the future performance periods was $ 14 and $ 25 , inclusive of the $ 5 and $ 19 , accrue d as of June 30, 2023, and December 31, 2022, 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 7 - "Fair Value of Financial Instruments."

The total liability for deferred paym ents was $ 11 and $ 9 at March 31, 2023 and December 31, 2022 , respectively, and is included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for all periods presented.

The total liability for deferred paym ents was $ 13 and $ 9 at June 30, 2023 and December 31, 2022 , respectively, and is included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for all periods presented.

Restructuring

1 unchanged sentence

The Chubb restructuring program includes expenses related to workforce reductions, lease termination costs, and other facility rationalization costs through fiscal year 2024.

Since the Chubb Acquisition, the Company has incurred pre-tax restructuring costs within the Safety Services se gment of $ 30 in connection with the Chubb restructuring program.

In total, the Company estimates that it will recognize approximately $ 105 o f restructuring costs related to the Chubb restructuring program by the end of fiscal year 2024.

As of March 31, 2023, the Company ha d $ 17 in restructuring liabilities recorded in other accrued liabilities on the condensed consolidated balance sheets for this plan.

The following table summarizes the Company's restructuring program for the three months ended March 31, 2023:

Three Months Ended

March 31, 2023

Balance as of December 31, 2022

During the six months ended June 30, 2023, the Company incurred pre-tax restructuring costs within the Safety Services segment of $ 4 in con nection with the Chubb restructuring program.

Since the Chubb Acquisition through June 30, 2023, the Company had incurred aggregate restructuring costs of $ 34 .

In total, the Company estimates that it will recognize approximately $ 105 of restructuring costs related to the Chubb restructuring program by the end of fiscal year 2024.

As of June 30, 2023, the Company had $ 15 in restructuring liabilities recorded in other accrued liabilities on the condensed consolidated balance sheets for this plan.

The following table summarizes the Company's restructuring program for the six months ended June 30, 2023 and 2022:

Six Months Ended

June 30, 2023

Six Months Ended

June 30, 2022

Balance at the beginning of the period

Charged to cost of revenues - employee related

1 unchanged sentence

Currency translation adjustment

Balance as of March 31, 2023

Balance at the end of the period

Additionally, the Company incurred $ 3 of related costs as part of the overall Chubb restructuring program, including right of use asset impairment charges related to the abandonment of leases.

Contracts with customers

1 unchanged sentence

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

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

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

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

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 tables provide disclosure of disaggregated net revenues by segment for the three months ended March 31, 2023 and 2022.

During 2023, the Company moved an immaterial business component within the Safety Services segment from the HVAC to Life Safety reporting unit and prior period amounts in this table have been recast to reflect current period presentation.

The following tables provide disclosure of disaggregated net revenues by segment for the three and six months ended June 30, 2023, and 2022.

During 2023, the Company moved an immaterial business component within the Safety Service s segment from the HVAC to the Life Safety reporting unit, and prior period amounts in this table have been recast to reflect the current period presentation.

The Company also recorded an immaterial revision of $ 74 for the three-month period ended June 30, 2022, to reclassify revenues from the Infrastructure/Utility service type to the Specialty Contracting service type within its Specialty Services segment.

The revision of service type revenues did not impact the Specialty Services segment disaggregated revenues for the six months ended June 30, 2022.

Disaggregated net revenues information is as follows:

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Corporate and

3 unchanged sentences

Corporate and Eliminations

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Corporate and

2 unchanged sentences

Corporate and Eliminations

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

Corporate and

Infrastructure/Utility

Specialty Contracting

Corporate and Eliminations

Six Months Ended June 30, 2022

Corporate and

Infrastructure/Utility

Specialty Contracting

Corporate and Eliminations

Three Months Ended June 30, 2023

Corporate and

United States

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Corporate and

United States

For in-process contracts, the aggregate amount of transaction price allocated to the unsatisfied performance obligations at March 31, 2023 was $ 2,606 .

The Company expects to recognize revenue on approximately 89 % of the re maining performance obligations over the next twelve m onths .

Six Months Ended June 30, 2023

Corporate and

United States

Six Months Ended June 30, 2022

Corporate and

United States

For in-process contracts, the aggregate amount of transaction price allocated to the unsatisfied performance obligations at June 30, 2023 was $ 2,401 .

The Company expects to recognize revenue on approximately 88 % of the remaining performance obligations over the next twelve m onths .

Contract assets and liabilities

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, 2023 and December 31, 2022 are as follows:

Balance at March 31, 2023

The balances of accounts receivable, net of allowances, contract assets, and contract liabilities from contracts with customers as of June 30, 2023 and December 31, 2022 are as follows:

Balance at June 30, 2023

Balance at December 31, 2022

1 unchanged sentence

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

At March 31, 2023 and December 31, 2022, retentions receiv able were $ 142 and $ 150 , respectively, while the portions that may not be received within one year were $ 31 and $ 35 , respectively.

At June 30, 2023 and December 31, 2022, retenti ons receivable were $ 140 and $ 150 , respectively, while the portions that may not be received within one year were $ 27 and $ 35 , resp ectively.

GOODWILL AND INTANGIBLES

The following table provides disclosure of goodwill by segment as of March 31, 2023 and December 31, 2022.

The changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2023 are as follows:

The following table provides disclosure of goodwill by segment as of June 30, 2023 and December 31, 2022.

The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2023 are as follows:

Goodwill as of December 31, 2022

Foreign currency translation

Goodwill as of March 31, 2023

The Company’s identifiable intangible assets are comprised of the following as of March 31, 2023 and December 31, 2022:

March 31, 2023

Goodwill as of June 30, 2023

The Company’s identifiable intangible assets are comprised of the following as of June 30, 2023 and December 31, 2022:

June 30, 2023

Weighted Average Remaining Useful Lives

10 unchanged sentences

Amortization expense recognized on identifiable intangible assets is as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenues

16 unchanged sentences

In the condensed consolidated balance sheets, derivative instruments are primarily included in other noncurrent assets and other noncurrent liabilities, and contingent consideration obligations are primarily included in contingent consideration and compensation liabilities.

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, 2023 and December 31, 2022:

Fair Value Measurements at March 31, 2023

Fair Value Measurements at June 30, 2023

Financial assets:

34 unchanged sentences

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, 2023

Six Months Ended,

June 30, 2023

Balance as of December 31, 2022

Adjustments to fair value

Balance as of March 31, 2023

Balance as of June 30, 2023

Number of open contingent consideration arrangements at the end of the period

Maximum potential payout at the end of the period

At March 31, 2023, the remaining open contingent consideration arrangements are set to expire at various dates through 2024.

At June 30, 2023, the remaining open contingent consideration arrangements are set to expire at various dates through 2025.

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, 2023.

The fair value adjustments and the related unobservable inputs were not considered significant for the three and six months ended June 30, 2023.

Fair value estimates

3 unchanged sentences

The inputs used to calculated fair value are considered to be Level 2 inputs under the fair value hierarchy.

During the three months ended March 31, 2023, the Company repaid an aggregate amount of $ 200 , $ 100 to each of the 2019 Term Loan and 2021 Term Loan.

March 31, 2023

During the first quarter of 2023, the Company repaid an aggregate amou nt of $ 200 , $ 100 to ea ch of the 2019 Term Loan and 2021 Term Loan.

June 30, 2023

December 31, 2022

9 unchanged sentences

Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge under ASC 815, Derivatives and Hedging .

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

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

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

4 unchanged sentences

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

These arrangements generally do not call for collateral and no cash collateral had been received or pledged related to the underlying derivatives as of March 31, 2023.

These arrangements do not call for collateral, and no cash collateral had been received or pledged related to the underlying derivatives as of June 30, 2023.

The following table presents the fair value of derivative instruments:

March 31, 2023

June 30, 2023

December 31, 2022

22 unchanged sentences

Location of income (expense)

Three Months Ended March 31,

Three Months Ended June 30,

recognized in income

19 unchanged sentences

Investment income and other, net

Amount of income (expense) recognized in income

Location of income (expense)

Six Months Ended June 30,

recognized in income

Cash flow hedging relationships:

Interest rate swaps

Interest expense, net

Cross currency contracts

Investment income and other, net

Cross currency contracts

Interest expense, net

Foreign currency forward contracts

Investment income and other, net

Fair value hedging relationships:

Cross currency contracts

Investment income and other, net

Cross currency contracts

Interest expense, net

Net investment hedging relationships:

Cross currency contracts

Interest expense, net

Not designated as hedging instruments:

Foreign currency forward contracts

Investment income and other, net

Currency Effects

The income (expense) from derivatives designed to offset foreign currency exposure and recorded in investment income and other, net were offset by foreign currency transaction gains and losses resulting in a net gain (loss) of $ 0 million and ($ 1 ) mill ion for the three months ended March 31, 2023 and 2022, respectively.

The income (expense) from derivatives designed to offset foreign currency exposure and recorded in investment income and other, net were offset by foreign currency transaction gains and losses resulting in a net gai n (loss) of $ 0 million and ($ 1 ) million for the three months ended June 30, 2023 and 2022, respectively, and $ 0 million and ($ 2 ) milli on for the six months ended June 30, 2023 and 2022, respectively.

The following table presents the effect of cash flow and fair value hedge accounting on accumulated other comprehensive income (loss) ("AOCI"):

5 unchanged sentences

AOCI into income

Three Months Ended March 31,

Three Months Ended June 30,

Location of gain (loss) reclassified from

Three Months Ended March 31,

Three Months Ended June 30,

AOCI into income

12 unchanged sentences

Investment income and other, net

Amount of gain (loss)

recognized in other

reclassified from

comprehensive income

AOCI into income

Six Months Ended June 30,

Location of gain (loss) reclassified from

Six Months Ended June 30,

AOCI into income

Cash flow hedging relationships:

Interest rate swaps

Interest expense, net

Cross currency contracts

Investment income and other, net

Forward currency forward contracts

Investment income and other, net

Fair value hedging relationships:

Cross currency contracts

Investment income and other, net

Net investment hedging relationships:

Cross currency contracts

Investment income and other, net

Cash flow hedges

7 unchanged sentences

The present value as of the date of termination of the 2024 Interest Rate Swap is recorded in AOCI on the condensed consolidated balance sheets.

The fair value previously recognized in AOCI related to interest rate movements of the 2024 Interest Rate Swap is being amortized to interest expense on a straight-line basis through October 2024.

As of March 31, 2023, approximately $ 26 of unrealized pre-tax gains remained in AOCI.

During 2022, the Company entered into an aggregate $ 720 notional amount interest rate swap ("2026 Interest Rate Swap") that exchanges a variable rate of interest (LIBOR) for an average fixed rate of interest of approximately 3.64 % over the term of the agreement, which matures in October 2026 .

During the three months ended March 31, 2023, the aggregate $ 400 notional forward-starting swaps ("2028 Interest Rate Swap") the Company entered into during 2022 became effective.

These interest rate swaps exchange a variable rate of interest (LIBOR) for an average fixed rate of interest of approximately 3.46 % over the term of the agreements, which mature in January 2028 .

As of March 31, 2023, the Company had $ 1,120 notional amount outstanding in swap agreements, which includes the aggregate $ 400 notional 2028 Interest Rate Swap, and the $ 720 notional 2026 Interest Rate Swap.

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

As of March 31, 2023, the weighted average fixed rate of interest on these swaps was approximately 3.58 %.

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

The fair value previously recognized in AOCI related to interest rate movements of the 2024 Interest Rate Swap is being amortized to interest expense on a straight-line basis through Octo ber 2024.

As of June 30, 2023, approxi mately $ 22 of unrealized pre-tax gains remained in AOCI.

During 2022, the Company entered into an agg regate $ 720 n otional amount interest rate swap ("2026 Interest Rate Swap"), as amended on May 19, 2023 in connection with the 2019 Term Loan transition to the Secured Overnight Financing Rate ("SOFR").

Refer to Note 10 - "Debt" for additional information.

The 2026 Interest Rate Swap exchanges a variable rate of interest (SOFR) for an average fixed rate of interest of approximately 3.59 % ove r the term of the agreement, which matures in October 2026 .

During the first quarter of 2023, the ag gregate $ 400 notional forward-starting swaps became effective ("2028 Interest Rate Swap"), as amended on May 19, 2023 in connection with the 2021 Term Loan transition to SOFR.

Refer to Note 10 - "Debt" for additional information .

These interest rate swaps exchange a variable rate of interest (SOFR) for an average fixed rate of interest of approximately 3.41 % over the term of the agreements, which mature in January 2028 .

As of June 30, 2023, the Company had $ 1,120 notional amount outstanding in swap agreements, which includes the aggregate $ 400 notional 2028 Interest Rate Swap, and the $ 720 notional 2026 Interest Rate Swap.

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

As of June 30, 2023, the weighted average fixed rate of interest on these swaps was approximately 3.52 %.

Var iations in the assets and liability balances are primarily driven by changes in the applicable forward yield curves related to SOFR.

Cross-currency swaps

26 unchanged sentences

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 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.

Foreign currency contracts

2 unchanged sentences

PROPERTY AND EQUIPMENT, NET

The components of property and equipment as of March 31, 2023 and December 31, 2022 are as follows:

The components of property and equipment as of June 30, 2023, and December 31, 2022 are as follows:

Machinery and equipment

4 unchanged sentences

Property and equipment, net

Depreciation expense related to property and equipment, including finance lea ses, was $ 19 an d $ 19 during the three months ended March 31, 2023 and 2022 , respectively.

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

Depreciation expense related to pro perty and equipment, including finance leases, was $ 19 during the three months ended June 30, 2023 and 2022 , and $ 38 during the six months ended June 30, 2023 and 2022, respectively.

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

Debt obligations consist of the following:

18 unchanged sentences

Term loan facility

As of March 31, 2023, the Comp any had $ 1,027 of p rincipal outstanding under the $ 1,200 term loan (the "2019 Term Loan") with a maturity date of October 1, 2026 .

During the three months ended March 31, 2023, the Company m ade a payment of $ 100 on the 2019 Term Loan.

The interest rate applicable to the 2019 Term Loan is, at the Company's option, either (a) a base rate plus an applicable margin equal to 1.50 % or (b) a Eurocurrency rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50 %.

As of March 31, 2023, the Comp any had $ 985 of pr incipal outstanding under the $ 1,100 term loan (the "2021 Term Loan") with a maturity date of January 3, 2029 .

During the three months ended March 31, 2023, the Company m ade a payment of $ 100 on the 2021 Term Loan.

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 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 %.

The Company amended its credit agreement during the three months ended June 30, 2023, which provided for amended interest rates applicable to the Company's existing 2019 Term Loan and 2021 Term Loan and future borrowings under the revolving credit facility.

In May 2023, the Company entered into an amendment to the credit agreement to replace the London Inter-Bank Offered Rate ("LIBOR") index with Term SOFR.

As of June 30, 2023, the Comp any had $ 1,027 of prin cipal outstanding under the $ 1,200 term loan (the "2019 Term Loan") with a maturity date of October 1, 2026 .

During the six months ended June 30, 2023, the Company m ade a payment of $ 100 on the 2019 Term Loan.

The interest rate applicable to the 2019 Term Loan is, at the Company's option, either (a) a base rate plus an applicable margin equal to 1.50 % or (b) Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50 % plus a credit spread adjustment ("CSA").

As of June 30, 2023, the Comp any had $ 985 of principal outstanding under the $ 1,100 term loan (the "2021 Term Loan") with a maturity date of January 3, 2029 .

During the six months ended June 30, 2023 , the Company made a payment of $ 100 on the 2021 Term Loan.

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) Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.75 % plus a CSA.

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 Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25 % plus a CSA.

Swap activity

As of March 31, 2023 , the Company had a four-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 3.64 % per annum.

Accordingly, the Company's fixed interest rate per annum on the swapped $ 720 notional value of the 2019 Term Lo an is 3.64 % thr ough its maturity.

The re maining $ 307 of th e 2019 Term Loan balance will bear interest based on one-month LIBOR plus 250 basis points, but the rate will fluctuate as LIBOR fluctuates .

During the three months ended March 31, 2023, the Company began a five-year interest rate swap on the 2021 Term Loan exchanging one-month LIBOR for a rate of 3.46 %.

Accordingly, the Company's fixed interest rate per annum on the swapped $ 400 notional value of the 2021 Term Lo an is 3.46 % thr ough its maturity.

The re maining $ 585 of th e 2021 Term Loan balance will bear interest based on one-month LIBOR plus 275 basis points, but the rate will fluctuate as LIBOR fluctuates .

In the three months ended June 30, 2023, the Company amended its existing interest rate swaps in connection with the transition to SOFR for the 2019 Term Loan and 2021 Term Loan.

As of June 30, 2023 , the Company had a four-year interest rate swap with respe ct to $ 720 of notional value of the 2019 Term Loan, exchanging one-month SOFR for a fixed rate of 3.59 % per annum.

Accordingly, the Company's fixed interest rate per annum on the swapped $ 720 notional value of the 2019 Term Loan is 3.59 % through its maturity.

The remaining $ 307 of th e 2019 Term Loan balance will bear interest based on one-month SOFR plus 250 basis points, but the rate will fluctuate as SOFR fluctuates .

During the first quarter of 2023, the Company began a five-year interest rate swap on the 2021 Term Loan exchanging one-month SOFR for a rate of 3.41 %.

Accordingly, the Company's fixed interest r ate per annum on the swapped $ 400 notional value of the 2021 Term Loan is 3.41 % through its maturity.

The remaining $ 585 of the 2 021 Term Loan balance will bear interest based on one-month SOFR plus 275 basis points, but the rate will fluctuate as SOFR fluctuates .

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

At March 31, 2023 and December 31, 2022 , the Company had no amounts outstanding under the Revolving Credit Facility, and $ 446 was available for both March 31, 2023 and December 31, 2022 , after giving effect to $ 54 of outstanding letters of credit for both periods.

As of March 31, 2023 and December 31, 2022, the Company was in compliance with all applicable debt covenants.

As of June 30, 2023 and December 31, 2022 , the Company had no amounts outstanding under the Revolving Credit Facility, and $ 483 and $ 446 was available at June 30, 2023 and December 31, 2022 , respectively, after giving effect to $ 17 and $ 54 of outstanding letters of credit, respectively.

As of June 30, 2023 and December 31, 2022, the Company was in compliance with all applicable debt covenants.

4.125 % Senior Notes

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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 repurchased $ 13 of the 4.125 % Senior Notes in September 2022 and the balance as of March 31, 2023 was $ 337 .

The Company repurchased $ 13 of the 4.125 % Senior Notes in September 2022 and the balance as o f June 30, 2023 was $ 337 .

4.750 % Senior Notes

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The 4.750 % Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Company's subsidia ries.

The Company repurchased $ 23 of the 4.750 % Senior Notes in September 2022 and the balance as of March 31, 2023 was $ 277 .

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 March 31, 2023 and December 31, 2022.

The Company repurchased $ 23 of the 4.750 % Senior Notes in September 2022 and the balance as of June 30, 2023 was $ 277 .

The Company was in compliance with all covenants contained in the indentu res for the 4.125 % Senior Notes and 4.750 % Sen ior Notes as of June 30, 2023, and December 31, 2022.

Other obligations

As of March 31, 2023 and December 31, 2022, the Company had $ 6 and $ 6 in notes outstanding, respectively, for working capital purposes and the acquisition of equipment and vehicles.

As of each of June 30, 2023 and December 31, 2022, the Company had $ 6 in notes outstanding for working capital purposes and the acquisition of equipment and vehicles.

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 ea rnings and losses by tax jurisdiction, foreign income tax rate differentials, and discrete items.

The Company’s effective tax rate was 30.6 % and 71.3 % for the three months ended March 31, 2023 and 2022, respectively.

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

federal income tax rate of 21.0 % f or the three months ended March 31, 2023 and 2022 is due to nondeductible permanent items, state taxes, and the reversal of the Company’s indefinite reinvestment assertion.

As of March 31, 2023, the Company’s deferred tax assets included a valuation allowan ce of $ 101 prima rily related to certain net operating loss, capital loss, and tax credit carryforwards of the Company’s foreign subsidiaries.

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 37.2 % and 31.8 % for the three months ended June 30, 2023 and 2022 , and 35.0 % and ( 11.3 %) for the six months ended June 30, 2023, and 2022, respectively.

Th e difference between the effective tax rate and the statutory U.S.

federal income tax rate of 21.0 % fo r the three and six months ended June 30, 2023 and 2022 is due to nondeductible permanent items, state taxes, and the reversal of the Company’s indefinite reinvestment assertion.

As of June 30, 2023, the Company’s deferred tax assets included a valuation allowan ce of $ 108 prima rily related to certain net operating loss, capital loss, and tax credit carryforwards of the Company’s foreign subsidiaries.

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 31, 2023, the Compa ny had gross federal, state, and foreign net operating loss carryforwards of approximately $ 0 , $ 21 , and $ 105 , respectiv ely.

As of June 30, 2023, the Compa ny had gross federal, state, and foreign net operating loss carryforwards of approximately $ 0 , $ 21 , and $ 105 , respectiv ely.

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

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

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

The Company’s liability for unrecognized tax benefits is recorded within other noncurrent 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, 2023 and December 31, 2022 , the total gross unrecognized tax benefits were $ 7 and $ 8 , respectively.

The Company had accrued gross interest and penalties as of March 31, 2023 and December 31, 2022 of $ 2 and $ 2 , respectively.

During the three months ended March 31, 2023 and 2022 , the Company did no t recognize net interest expense .

If all of the Company’s unrecognized tax benefits as of March 31, 2023 were recog nized, $ 9 would impact the Company’s effective tax rate.

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

As of June 30, 2023, and December 31, 2022 , the total gross unrecognized tax benefits were $ 7 and $ 8 , respectively.

The Company had accrued gross interest and penalties as of each of June 30, 2023 and

December 31, 2022 of $ 2 .

During the three and six months ended June 30, 2023 and 2022, the Company did no t recognize net interest expense .

If all of the Company’s unrecognized tax benefits as of June 30, 2023, were recog nized, $ 8 would impact the Company’s effective tax rate.

The Company does no t expect any unrecognized tax benefits to expire in the next twelve months.

The Company files income tax returns in the U.S.

federal jurisdiction, and various state, local, and foreign jurisdictions.

As of March 31, 2023, 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.

As of June 30, 2023, 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, including an ongoing IRS exam related to the 2019 final S Corporation return.

No adjustments have been proposed and the Company does not expect the results of the audits to have a material impact on the Interim Statements.

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Employee Benefit Plans

Multiemployer pension plans

Certain subsidiaries of the Company contribute amounts to multiemployer pension plans and other multiemployer benefit plans and trusts, which are recorded as a component of employee wages and salaries within costs of revenues on the condensed consolidated statements of operations.

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

Multiemployer plan contribution rates are determined annually and assessed on a pay-as-you-go basis based on union employee payrolls.

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, the number of ongoing projects, and the need for union resources in connection with those projects.

Total consolidated contributions to multiemployer plans were $ 23 and $ 24 during the three months ended March 31, 2023 and 2022, respectively.

Defined benefit pension plans

The Company sponsors 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 and frozen for accrual of future service.

On June 20, 2023, an annuity purchase transaction, commonly known as a “buy-in”, was executed for the two pension plans in the United Kingdom.

Under the terms of the contract, which is issued by a third-party insurance company with no affiliation to the Company, all pension obligations will be funded by the insurer’s annuity payments, but the plans still retain full legal responsibility to pay the benefits to plan participants using the insurance payments.

As the plans maintain full legal responsibility, with the annuity contracts being assets of the plans, settlement accounting has not been applied and the contracts represent a change in investment strategy and not a significant change in the plan structure requiring a remeasurement at the interim date.

Given the funded status of the plans, the Company does not expect any future contributions to be required.

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

Three Months Ended March 31,

Three Months Ended June 30,

Interest cost

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Net periodic pension benefit

Six Months Ended June 30,

Interest cost

Expected return on plan assets

Net periodic pension benefit

Multiemployer pension plans

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

Multiemployer plan contribution rates are determined annually and assessed on a pay-as-you-go basis based on union employee payrolls.

Total consolidated contributions to multiemployer plans were $ 27 and $ 27 during the three months ended June 30, 2023 and 2022 , respectively and $ 50 and $ 51 during the six months ended June 30, 2023 and 2022, respectively.

Profit sharing plans

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The Profit-Sharing Plans provide for annual discretionary contributions in amounts based on a performance grid as determined by the Company’s directors, which may be settled in shares of the Company's common stock or in cash.

In connection with these plans, the Company recognized $ 5 and $ 3 in expense during the three months ended March 31, 2023 and 2022, respectively.

In connection with these plans, the Company recognized $ 5 and $ 4 in expense during the three months ended June 30, 2023 and 2022 , respectively, and $ 10 and $ 6 in expense during the six months ended June 30, 2023 and 2022, respectively.

Employee stock purchase plan

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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.

The Company recognized $ 2 and $ 1 of expense during the three months ended March 31, 2023 and 2022, respectively .

The Company recognized $ 1 of expense during each of the three months ended June 30, 2023 and 2022 , and $ 3 and $ 2 of expense during the six months ended June 30, 2023 and 2022, respectively.

Related-Party Transactions

The Company incurred advisory fees of $ 1 during the three months ended March 31, 2023 and 2022 , payable to Mariposa Capital, LLC, an entity owned by a co-chair of the Company’s Board of Directors.

The Company incurred advisory fees of $ 1 during each of the three months ended June 30, 2023 and 2022 and $ 2 during each of the six months ended June 30, 2023 and 2022, in each case payable to Mariposa Capital, LLC, an entity owned by a co-chair of the Company’s Board of Directors.

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

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and Viking Global Equities II LP ("Viking Purchasers"), which is the aggregate owner of more than 5 % of the Company's outstanding stock.

The Company declared dividends of 124,573 and 129,867 shares of common stock on the Series B Preferred Stock held by the Viking Purchasers during the three months ended March 31, 2023 and 2022, respectively.

The Company has entere d into sales contracts with Royal Oak Enterprises, an entity controlled by a co-chair of the Company's Board of Directors, and recorded $ 2 in net revenues for the three months ended March 31, 2023, respectively, and as of March 31, 2023 had $ 4 in accounts receivable, net of allowances.

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

The Company declared dividends of 109,247 and 171,613 shares of common stock on the Series B Preferred Stock held by the Viking Purchasers during the three months ended June 30, 2023, and 2022, respectively.

The Company declared dividends of 233,820 and 301,480 shares of common stock on the Series B Preferred Stock held by the Viking Purchasers during the six months ended June 30, 2023, and 2022, respectively.

The Company has entere d into sales contracts with Royal Oak Enterprises, an entity controlled by a co-chair of the Company's Board of Directors, and recorded less than $ 1 and $ 2 in net revenues for the three and six months ended June 30, 2023, respectively, and as of June 30, 2023 had $ 2 in accounts receivable , net of allowances.

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

Commitments and contingencies

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

The outstanding liability for these obligations was $ 18 and $ 16 , and was i ncluded in other noncurrent liabilities on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 , respectively.

The outstanding liability for these obligations was $ 18 and $ 16 , and was i ncluded in other noncurrent liabilities on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 , respectively.

SHAREHOLDERS’

2 unchanged sentences

Series A Preferred Stock

The Company has 4,000,000 shares of Series A Preferred Stock issued and outstanding as of March 31, 2023 ("Series A Preferred Stock").

The Company had 4,000,000 shares of Series A Preferred Stock issued and outstanding as of June 30, 2023 ("Series A Preferred Stock").

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

3 unchanged sentences

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

During the three months ended March 31, 2023 and 2022, the Company repurc hased 541,316 and 531,431 shares of common stock for aggregate payments of approximately $ 12 and $ 11 , respectively.

As of March 31, 2023, the Company had appr oximately $ 195 o f authorized repurchases remaining under the SRP.

During the three months ended June 30, 2023 , and 2022, the Company repurchased 428,688 and 681,329 shares of common stock for aggregate payments of approximately $ 11 and $ 11 , respectively.

During the six months ended June 30, 2023 and 2022, the Company repurchased 970,004 and 1,212,760 shares of common stock for approximately $ 23 and $ 22 , respectively.

As of June 30, 2023, the Company had appr oximately $ 184 of authorized repurchases remaining under the SRP.

Redeemable Convertible Preferred Stock

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

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.

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

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The Company declared a Series B Preferred Stock dividend of $ 11 or 584,584 shares of common stock in December 2022 and issued the shares in January 2023.

The Company declared and issued a Series B Preferred Stock dividend of $ 11 or 498,293 shares of common stoc k and $ 11 or 519,469 shar es of common stock during the three months ended March 31, 2023 and 2022, respectively.

The Company declared and issued a Series B Preferred Stock dividend of $ 11 or 436,992 shares of common stock and $ 11 or 686,455 shares of common stock during the three months ended June 30, 2023, and 2022, respectively.

The Company declared and issued a Series B Preferred Stock dividend of $ 22 or 935,285 shares of common stock and $ 22 or 1,205,924 shares of common stock during the six months ended June 30, 2023, and 2022, respectively.

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.

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The dilutive effect of outstanding Series A Preferred Stock, 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, restricted shares, 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.

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 March 31,

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

Three Months Ended June 30,

Six Months Ended June 30,

Basic earnings per common share:

Less income allocable to Series A Preferred Stock

Less income allocable to Series B Preferred Stock

Less stock dividend attributable to Series B Preferred Stock

Net income (loss) attributable to common shareholders

Net income attributable to common shareholders

Weighted average shares outstanding - basic

Income (loss) per common share - basic

Diluted earnings (loss) per common share:

Net income (loss)

Less income attributable to Series A Preferred Stock

Income per common share - basic

Diluted earnings per common share:

Less income allocable to Series A Preferred Stock

Less stock dividend attributable to Series B Preferred Stock

Net income (loss) attributable to common shareholders - diluted

Net income attributable to common shareholders - diluted

Weighted average shares outstanding - basic

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Shares issuable upon conversion of Series B Preferred Shares

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

Weighted average shares outstanding - diluted

Income (loss) per common share - diluted

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, 2023 and 2022, 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, 162,500 stock options to purchase the same number of common shares.

For the three months ended March 31, 2022, 2,378,318 time-based and performance-based restricted stock units.

Income per common share - diluted

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.

For the three months ended June 30, 2023, dilutive securities include common share equivalents which represent the annual dividend, payable in the form of common shares or cash at the Company's sole option, 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 2023, the Annual Dividend Amount was calculated based on the appreciation of the Company’s share price over the highest previously used share price of $ 24.3968 .

SEgment information

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

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

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

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

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

retrofitting and upgrading, pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance to customers within the energy industry.

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

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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 (loss) to EBITDA:

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Corporate and

5 unchanged sentences

Capital expenditures

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Corporate and

4 unchanged sentences

Capital expenditures

Six Months Ended June 30, 2023

Corporate and

EBITDA Reconciliation

Operating income (loss)

Investment income and other, net

Non-service pension benefit

Loss on extinguishment of debt, net

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

The factors identified above are believed to be important factors, but not necessarily all of the important factors, that could cause actual results to differ materially from those expressed in any forward-looking statement made by us.

The factors identified above are believed to be important factors, but not necessarily all of the important factors, which could cause actual results to differ materially from those expressed in any forward-looking statement made by us.

Other factors not discussed herein could also have a material adverse effect on us.

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The Chubb restructuring program includes expenses related to workforce reductions, lease termination costs, and other facility rationalization costs through fiscal year 2024.

Since the Chubb Acquisition, we have incurred pre-tax restructuring costs within the Safety Services segment of $30 million in connection with the Chubb restructuring program.

During the six months ended June 30, 2023, we have incurred pre-tax restructuring costs within the Safety Services segment of $4 million in connection with the Chubb restructuring program.

In total, we estimate that we will recognize approximately $105 million of restructuring costs related to the Chubb restructuring program by the end of fiscal year 2024.

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We have experienced supply chain disruptions, which have negatively impacted the source and supply of materials needed to perform our work.

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

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

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

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

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

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

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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, 2023 and the three months ended March 31, 2022.

Three months ended March 31, 2023 compared to the three months ended March 31, 2022

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, 2023 and the three and six months ended June 30, 2022.

Three months ended June 30, 2023 compared to the three months ended June 30, 2022

Three Months Ended June 30,

($ in millions)

1 unchanged sentence

Selling, general, and administrative expenses

Operating income

Interest expense, net

Non-service pension benefit

Investment income and other, net

Other expense, net

Income before income taxes

Income tax provision

NM = Not meaningful

Net revenues for the three months ended June 30, 2023 were $1,771 million compared to $1,649 million for the same period in 2022, an increase of $122 million or 7.4%.

The increase in net revenues was driven by growth within our Safety Services and Specialty Services segments.

In addition, the increase in net revenues was driven by growth in inspection, service, and monitoring revenue.

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, 2023 and 2022, respectively:

Three Months Ended June 30,

($ in millions)

Our gross profit for the three months ended June 30, 2023 was $496 million compared to $435 million for the same period in 2022, an increase of $61 million, or 14.0%.

Gross margin was 28.0%, an increase of 160 basis points compared to the prior year, primarily due to disciplined project and customer selection in our Safety Services and Specialty Services segments and pricing improvements in our Safety Services segment.

Operating expenses

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended June 30, 2023 and 2022, respectively:

Three Months Ended June 30,

($ in millions)

Selling, general, and administrative expenses

SG&A expenses as a % of net revenues

Operating margin

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

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

Selling, general, and administrative expenses

Our SG&A expenses for the three months ended June 30, 2023 were $389 million compared to $376 million for the same period in 2022, an increase of $13 million.

SG&A expenses as a percentage of net revenues was 22.0% during the three months ended June 30, 2023 compared to 22.8% for the same period in 2022.

The decrease in SG&A expenses as a percentage of net revenues was primarily attributable to lower acquisition and integration related expenses incurred in the three months ended June 30, 2023 compared to the same period in the prior year.

Our SG&A expenses excluding amortization for the three months ended June 30, 2023 were $339 million, or 19.1% of net revenues, compared to $323 million, or 19.6% of net revenues, for the same period of 2022 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 $38 million and $28 million for the three months ended June 30, 2023 and 2022, respectively.

The increase in interest expense was primarily due to higher interest rates on our floating interest rate debt in the current year, partially offset by a decrease in the outstanding principal amounts of our floating rate debt.

Non-service pension benefit

The non-service pension benefit was $3 million and $11 million for the three months ended June 30, 2023 and 2022, respectively.

The change was due to higher interest costs due to higher discount rates and lower expected return on asset benefit compared to the same period of the prior year.

Investment income and other, net

Investment income and other, net was $3 million and $2 million for the three months ended June 30, 2023 and 2022, respectively.

The increase in investment income was primarily due to an increase in earnings from joint ventures.

Income tax provision

The income tax provision for the three months ended June 30, 2023 was $27 million compared to $14 million in the same period of the prior year.

This change was driven by generated income before taxes in the three months ended June 30, 2023 compared to a loss before taxes for the same period in 2022.

The effective tax rate for the three months ended June 30, 2023 was 37.2%, compared to 31.8% in the same period of 2022.

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 and state taxes.

Net income and EBITDA

The following table presents net income and EBITDA for the three months ended June 30, 2023 and 2022, respectively:

Three Months Ended June 30,

($ in millions)

EBITDA (non-GAAP)

Net income as a % of net revenues

EBITDA as a % of net revenues

Our net income for the three months ended June 30, 2023 was $48 million compared to $30 million for the same period in 2022, an increase of $18 million.

The improvement primarily resulted from an increase in inspection, service, and monitoring revenue and disciplined project and customer selection within our Safety Services and Specialty Services segments, and pricing improvements in our Safety Services segment.

The increase was also due to a decrease in operating expenses driven by lower acquisition and integration related expenses.

The net income increase was partially offset by a decrease in the non-service pension benefit compared to the same period in 2022.

Net income as a percentage of net revenues for the three months ended June 30, 2023 and 2022 was 2.7% and 1.8%, respectively.

EBITDA for the three months ended June 30, 2023 was $188 million compared to $148 million for the same period in 2022, an increase of $40 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 June 30, 2023 compared to the three months ended June 30, 2022

Three Months Ended June 30,

($ in millions)

Safety Services

Specialty Services

Corporate and Eliminations

Operating Income (Loss)

Three Months Ended June 30,

($ in millions)

Safety Services

Safety Services operating margin

Specialty Services

Specialty Services operating margin

Corporate and Eliminations

Three 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

NM = Not meaningful

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

Safety Services

Safety Services net revenues for the three months ended June 30, 2023 increased by $79 million or 6.9% compared to the same period in the prior year.

The increase was primarily driven by increased inspection, service, and monitoring revenue.

This increase was also due to continued strength in our end markets and strategic pricing improvements.

Safety Services operating margin for the three months ended June 30, 2023 and 2022 was approximately 8.0% and 5.5%, respectively.

The increase was primarily the result of growth in inspection, service, and monitoring revenue, disciplined project and customer selection, and pricing improvements across the segment.

The increase was also driven by lower acquisition and integration related expenses incurred in the three months ended June 30, 2023 compared to the same period in the prior year.

Safety Services EBITDA as a percentage of net revenues for the three months ended June 30, 2023 and 2022 was approximately 12.2% and 10.6%, respectively.

This increase was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the three months ended June 30, 2023 increased by $37 million or 7.1% compared to the same period in the prior year.

The increase was primarily driven by increased service revenue across the segment during the three months ended June 30, 2023 compared to the same period in the prior year.

Specialty Services operating margin for the three months ended June 30, 2023 and 2022 was approximately 7.4% and 6.2%, respectively.

The increase was primarily the result of disciplined project and customer selection and better leverage of overhead expenses during the three months ended June 30, 2023.

Specialty Services EBITDA as a percentage of net revenues for the three months ended June 30, 2023 and 2022 was approximately 12.4% and 11.6%, respectively, due to the factors discussed above.

Six months ended June 30, 2023 compared to the six months ended June 30, 2022

Six Months Ended June 30,

($ in millions)

Cost of revenues

Selling, general, and administrative expenses

Operating income

Interest expense, net

3 unchanged sentences

Other expense, net

Income (loss) before income taxes

Income before income taxes

Income tax provision (benefit)

Net income (loss)

NM = Not meaningful

Net revenues for the three months ended March 31, 2023 were $1,614 million compared to $1,471 million for the same period in 2022, an increase of $143 million or 9.7%.

The increase in net revenues was primarily driven by growth within our Safety Services and Specialty Services segments.

In addition, the increase in net revenues was driven by growth in inspection, service, and monitoring revenue.

Net revenues for the six months ended June 30, 2023 were $3,385 million compared to $3,120 million for the same period in 2022, an increase of $265 million or 8.5%.

The increase in net revenues occurred in both the Safety Services and Specialty Services segments and was driven by growth in inspection, service, and monitoring revenue.

This increase was partially offset by the impact of foreign currency exchange rates.

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, 2023 and 2022, 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 six months ended June 30, 2023 and 2022, respectively:

Six Months Ended June 30,

($ in millions)

Our gross profit for the three months ended March 31, 2023 was $425 million compared to $376 million for the same period in 2022, an increase of $49 million, or 13.0%.

Gross margin was 26.3%, an increase of 70 basis points compared to prior year, primarily due to disciplined project and customer selection within our Safety Services and Specialty Services segments, as well as an improved mix of inspection, service, and monitoring revenue, which generates higher margins.

Our gross profit for the six months ended June 30, 2023 was $921 million compared to $811 million for the same period in 2022, an increase of $110 million, or 13.6%.

Gross margin was 27.2%, an increase of 120 basis points compared to the prior year, primarily due to disciplined project and customer selection within our Safety Services and Specialty Services segments and pricing improvements, as well as an improved mix of inspection, service, and monitoring revenue, which generates higher margins.

Operating expenses

The following table presents operating expenses and operating margin (operating income (loss) as a percentage of net revenues) for the three months ended March 31, 2023 and 2022, 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 six months ended June 30, 2023 and 2022, respectively:

Six Months Ended June 30,

($ in millions)

Selling, general, and administrative expenses

SG&A expenses as a % of net revenues

SG&A expense as a % of net revenues

Operating margin

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

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

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

Selling, general, and administrative expenses

Our SG&A expenses for the three months ended March 31, 2023 were $352 million compared to $383 million for the same period in 2022, a decrease of $31 million.

SG&A expenses as a percentage of net revenues was 21.8% during the three months ended March 31, 2023 compared to 26.0% for the same period in 2022.

The decrease was driven by lower acquisition and integration related expenses incurred in the three months ended March 31, 2023 compared to the same period in the prior year.

The decrease in the three months ended March 31, 2023 was partially offset by changes in estimates to acquired liabilities.

The decrease in SG&A expenses as a percentage of net revenues was primarily attributable to a higher volume of revenues while operating expenses decreased compared to the same period in the prior year as explained above.

Our SG&A expenses excluding amortization for the three months ended March 31, 2023 were $304 million, or 18.8% of net revenues, compared to $329 million, or 22.4% of net revenues, for the same period of 2022 primarily due to the factors discussed above.

Our SG&A expenses for the six months ended June 30, 2023 were $741 million compared to $759 million for the same period in 2022, a decrease of $18 million.

SG&A expenses as a percentage of net revenues was 21.9% during the six months ended June 30, 2023 compared to 24.3% for the same period in 2022.

The decrease was driven by lower acquisition and integration related expenses incurred in the six months ended June 30, 2023 compared to the same period in the prior year.

The decrease in the six months ended June 30, 2023 was partially offset by changes in estimates to acquired liabilities.

Our SG&A expenses excluding amortization for the six months ended June 30, 2023 were $643 million, or 19.0% of net revenues, compared to $652 million, or 20.9% of net revenues, for the same period of 2022 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 $37 million and $27 million for the three months ended March 31, 2023 and 2022, respectively.

Interest expense was $75 million and $55 million for the six months ended June 30, 2023 and 2022, respectively.

Loss on extinguishment of debt, net

During the three months ended March 31, 2023, we made payments of $100 million and $100 million of the outstanding principal amount of the 2019 Term Loan and 2021 Term Loan, respectively.

During the six months ended June 30, 2023, we made payments of $100 million and $100 million of the outstanding principal amount of the 2019 Term Loan and 2021 Term Loan, respectively.

In connection with the payments, we recognized a net loss on debt extinguishment of $3 million.

Non-service pension benefit

The non-service pension benefit was $3 million and $11 million for the three months ended March 31, 2023 and 2022, respectively.

The non-service pension benefit was $6 million and $22 million for the six months ended June 30, 2023 and 2022, respectively.

The change was due to higher interest costs due to higher discount rates and lower expected return on asset benefit compared to the same period of the prior year.

Investment income and other, net

Investment income and other, net was $2 million and $0 million for the three months ended March 31, 2023 and 2022, respectively.

Investment income and other, net was $5 million and $2 million for the six months ended June 30, 2023 and 2022, respectively.

The increase in investment income was primarily due to an increase in earnings from joint ventures.

Income tax provision (benefit)

The income tax provision for the three months ended March 31, 2023 was $12 million compared to a benefit of $16 million in the same period of the prior year.

This change was driven by generated income before taxes in the three months ended March 31, 2023 compared to a loss before taxes for the same period in 2022, as well as the reversal of the permanent reinvestment assertion, which drove $9 million of the benefit in 2022.

The effective tax rate for the three months ended March 31, 2023 was 30.6%, compared to 71.3% in the same period of 2022.

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

The income tax provision for the six months ended June 30, 2023 was an expense of $39 million compared to a benefit of ($2) million in the same period of the prior year.

This change was driven by generated income before taxes in the six months ended June 30, 2023 compared to a loss before taxes for the same period in 2022, as well as the reversal of the permanent reinvestment assertion, which drove $9 million of the benefit in 2022.

The effective tax rate for the six months ended June 30, 2023 was 35.0%, compared to (11.3%) in the same period of 2022.

The difference in the effective tax rate was driven by discrete and nondeductible permanent items, primarily the reversal of our indefinite reinvestment assertion in 2022.

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 three months ended March 31, 2023 and 2022, respectively:

Three Months Ended March 31,

federal income tax rate of 21.0% is due to the nondeductible permanent items, state taxes, and discrete items.

Net income and EBITDA

The following table presents net income and EBITDA for the six months ended June 30, 2023 and 2022, respectively:

Six Months Ended June 30,

($ in millions)

Net income (loss)

EBITDA (non-GAAP)

Net income (loss) as a % of net revenues

Net income as a % of net revenues

EBITDA as a % of net revenues

NM = Not meaningful

Our net income for the three months ended March 31, 2023 was $26 million compared to a loss of $7 million for the same period in 2022, an increase of $33 million.

The improvement primarily resulted from growth within our Safety Services and Specialty Services segments, disciplined project and customer selection, and an improved mix of inspection, service, and monitoring revenue.

The increase was also due to a higher volume of revenues while operating expenses decreased driven by lower acquisition and integration related expenses.

Net income as a percentage of net revenues for the three months ended March 31, 2023 and 2022 was 1.6% and (0.5)%, respectively.

EBITDA for the three months ended March 31, 2023 was $149 million compared to $80 million for the same period in 2022, an increase of $69 million.

Our net income for the six months ended June 30, 2023 was $74 million compared to $23 million for the same period in 2022, an increase of $51 million.

The improvement primarily resulted from growth in inspection, service, and monitoring revenue and disciplined project and customer selection within our Safety Services and Specialty Services segments and pricing improvements in our Safety Services segment.

The increase was also due to a decrease in operating expenses driven by lower acquisition and integration related expenses.

The net income increase was partially offset by a decrease in the non-service pension benefit compared to the same period in 2022.

Net income as a percentage of net revenues for the six months ended June 30, 2023 and 2022 was 2.2% and 0.7%, respectively.

EBITDA for the six months ended June 30, 2023 was $337 million compared to $228 million for the same period in 2022, an increase of $109 million.

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

1 unchanged sentence

GAAP financial measures below.

Operating Segment Results for the three months ended March 31, 2023 compared to the three months ended March 31, 2022

Three Months Ended March 31,

Operating Segment Results for the six months ended June 30, 2023 compared to the six months ended June 30, 2022

Six Months Ended June 30,

($ in millions)

3 unchanged sentences

Operating Income (Loss)

Three Months Ended March 31,

Six Months Ended June 30,

($ in millions)

4 unchanged sentences

Corporate and Eliminations

Three Months Ended March 31,

Six Months Ended June 30,

($ in millions)

5 unchanged sentences

NM = Not meaningful

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Safety Services

Safety Services net revenues for the three months ended March 31, 2023 increased by $117 million or 10.9% compared to the same period in the prior year.

The increase was primarily driven by increased inspection, service, and monitoring revenue and contract revenue within our Life Safety businesses.

Safety Services net revenues for the six months ended June 30, 2023 increased by $196 million or 8.8% compared to the same period in the prior year.

The increase was driven by both increased inspection, service, and monitoring revenue.

This increase was also due to continued strength in our end markets and strategic pricing improvements.

This increase was partially offset by impacts of foreign currency exchange rates.

Safety Services operating margin for the three months ended March 31, 2023 and 2022 was approximately 8.1% and 5.9%, respectively.

The increase was primarily the result of disciplined project and customer selection in our service business.

The increase was also driven by lower acquisition and integration related expenses incurred in the three months ended March 31, 2023 compared to the same period in the prior year.

Safety Services EBITDA as a percentage of net revenues for the three months ended March 31, 2023 and 2022 was approximately 12.3% and 11.5%, respectively.

This increase was partially offset by the impact of foreign currency exchange rates.

Safety Services operating margin for the six months ended June 30, 2023 and 2022 was approximately 8.0% and 5.7%, respectively.

The increase was primarily the result of disciplined project and customer selection and pricing improvements.

The increase was also driven by lower acquisition and integration related expenses incurred in the six months ended June 30, 2023 compared to the same period in the prior year.

Safety Services EBITDA as a percentage of net revenues for the six months ended June 30, 2023 and 2022 was approximately 12.3% and 11.0%, respectively.

This increase was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the three months ended March 31, 2023 increased by $18 million or 4.4% compared to the same period in the prior year.

The increase was primarily driven by increased activity in the infrastructure and utility markets for emergency service work during the three months ended March 31, 2023 compared to the same period in the prior year.

Specialty Services operating margin for the three months ended March 31, 2023 and 2022 was approximately 0.0% and (1.7)%, respectively.

The increase was primarily the result of disciplined project and customer selection in the infrastructure market during the three months ended March 31, 2023.

This increase was also attributable to a higher volume of projects while certain indirect costs remained consistent with prior periods.

Specialty Services EBITDA as a percentage of net revenues for the three months ended March 31, 2023 and 2022 was approximately 6.3% and 4.9%, respectively, due to the factors discussed above.

Specialty Services net revenues for the six months ended June 30, 2023 increased by $55 million or 5.9% compared to the same period in the prior year.

The increase was primarily driven by increased service revenue across the segment for emergency service work during the six months ended June 30, 2023 compared to the same period in the prior year.

Specialty Services operating margin for the six months ended June 30, 2023 and 2022 was approximately 4.2% and 2.7%, respectively.

The increase was primarily the result of disciplined project and customer selection and better leverage of overhead expenses during the six months ended June 30, 2023.

Specialty Services EBITDA as a percentage of net revenues for the six months ended June 30, 2023 and 2022 was approximately 9.7% and 8.6%, respectively, due to the factors discussed above.

Non-GAAP Financial Measures

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The principal limitation of these non-U.S.

GAAP financial measure is that they exclude significant expenses required by U.S.

GAAP financial measures is that they exclude significant expenses required by U.S.

GAAP to be recorded in our financial statements and may not be comparable to similarly titled measures of other companies due to potential differences in calculation methods.

5 unchanged sentences

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.

SG&A expenses (excluding amortization) is a measure of operating costs used by management to manage the business and its segments.

We believe this non-U.S.

1 unchanged sentence

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

Three Months Ended March 31,

Three Months Ended June 30,

($ in millions)

3 unchanged sentences

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.

4 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

($ in millions)

2 unchanged sentences

Interest expense, net

Income tax provision

Six Months Ended June 30,

($ in millions)

Reported net income

Adjustments to reconcile net income to EBITDA:

Interest expense, net

Income tax provision (benefit)

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from the operating activities of our consolidated subsidiaries, available cash and cash equivalents, our access to our $500 million five-year senior secured revolving credit facility (the "Revolving Credit Facility") and the proceeds from debt offerings.

Our primary sources of liquidity are cash flows from the operating activities of our consolidated subsidiaries, available cash and cash equivalents, access to our $500 million five-year senior secured revolving credit facility (the "Revolving Credit Facility") and the proceeds from debt offerings.

We believe these sources will be sufficient to fund our liquidity requirements for at least the next twelve months.

Although we believe we have sufficient resources to fund our future cash requirements, there are many factors with the potential to influence our cash flow position including weather, seasonality, commodity prices, market conditions, and inflation, over which we have no control.

As of March 31, 2023, we had $809 million of total liquidity, comprising $363 million in cash and cash equivalents and $446 million ($500 million less outstanding letters of credit of approximately $54 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

As of June 30, 2023, we had $851 million of total liquidity, comprising $368 million in cash and cash equivalents and $483 million ($500 million less outstanding letters of credit of approximately $17 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

During 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.

As part of this amendment, we entered into 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.

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

1 unchanged sentence

In 2022, our Board of Directors authorized a stock repurchase program, authorizing the purchase of up to an aggregate of $250 million of common stock through February 2024.

During the three months ended March 31, 2023, we repurchased 541,316 shares of common stock for aggregate payments of approximately $12 million under this stock repurchase program, leaving approximately $195 million of authorized repurchases.

During the three and six months ended June 30, 2023, we repurchased 428,688 and 970,004 shares of common stock for aggregate payments of approximately $11 million and $23 million under this stock repurchase program, respectively, leaving approximately $184 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 used in operating activities

Net cash provided by (used in) operating activities

Net cash used in investing activities

4 unchanged sentences

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

Net Cash Used in Operating Activities

Net cash used in operating activities was $1 million for the three months ended March 31, 2023 compared to $118 million for the same period in 2022.

The decrease in cash used in operating activities is primarily due to an increase in net income in the period.

This decrease in cash used is also driven by lower working capital needs associated with the various services we provided in the three months ended March 31, 2023 compared to the same period of the prior year.

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $73 million for the six months ended June 30, 2023 compared to ($64) million of cash used for the same period in 2022.

The increase in cash provided by operating activities is primarily due to an increase in net income in the period.

This increase in cash provided is also driven by lower working capital needs associated with the various services we provided in the six months ended June 30, 2023 compared to the same period of the prior year.

Cash flow from operations is primarily driven by changes in the mix and timing of demand for our services and working capital needs associated with the various services we provide.

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.

The decrease in cash used in operating activities in the current year is also due to a one-time contribution to an assumed pension plan of $27 million during the three months ended March 31, 2022.

The increase in cash provided by operating activities in the current year is also due to a one-time contribution to an assumed pension plan of $27 million during the six months ended June 30, 2022.

Net Cash Used in Investing Activities

Net cash used in investing activities was $27 million for the three months ended March 31, 2023 compared to $2,884 million for the same period in 2022.

During 2022, we completed the Chubb Acquisition resulting in the use of $2,875 million for acquisitions during the three months ended March 31, 2022 compared to $10 million for the same period in 2023.

Net cash used in investing activities was $82 million for the six months ended June 30, 2023 compared to $2,903 million for the same period in 2022.

During 2022, we completed the Chubb Acquisition resulting in the use of $2,875 million for acquisitions during the six months ended June 30, 2022 compared to $45 million for the same period in 2023.

The decrease in cash used in investing activities in the current year was partially offset by an increase in purchases of property and equipment.

We purchased $21 million and $12 million of property and equipment during the three months ended March 31, 2023 and 2022, respectively.

We purchased $46 million and $34 million of property and equipment during the six months ended June 30, 2023 and 2022, respectively.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $216 million for the three months ended March 31, 2023 compared to $1,831 million provided by financing activities for the same period in 2022.

The decrease in cash provided by financing activities was primarily driven by equity and debt issuances in the three months ended March 31, 2022 related to the Chubb Acquisition.

In the three months ended March 31, 2022, cash provided by financing activities was higher 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.

The decrease in cash provided by financing activities in the three months ended March 31, 2023 was also driven by $202 million of payments on long-term borrowings.

Net cash used in financing activities was ($232) million for the six months ended June 30, 2023 compared to $1,818 million provided by financing activities for the same period in 2022.

The decrease in cash provided by financing activities was primarily driven by equity and debt issuances in the six months ended June 30, 2022 related to the Chubb Acquisition.

In the six months ended June 30, 2022, cash provided by financing activities was higher 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.

The increase in cash used in financing activities in the six months ended June 30, 2023 was also driven by $204 million of payments on long-term borrowings.

Financing Activities

Credit Agreement

We have a Credit Agreement by and among APi Group DE, Inc., our wholly-owned subsidiary, as borrower ("APi Group DE"), APG as a guarantor, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto, and Citibank N.A., as administrative agent and as collateral agent (the “Credit Agreement”) which provides for:

We have entered into a Credit Agreement by and among APi Group DE, Inc., our wholly-owned subsidiary, as borrower ("APi Group DE"), APG as a guarantor, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto, and Citibank N.A., as administrative agent and as collateral agent (the “Credit Agreement”) which provides for:

(1) a term loan facility, pursuant to which we incurred the $1,200 million 2019 Term Loan used to fund a part of the cash portion of the purchase price in the APi Acquisition, and a $1,100 million seven-year incremental term loan ("2021 Term Loan") used to fund a portion of the purchase price in the Chubb acquisition, and (2) a $500 million Revolving Credit Facility of which up to $250 million can be used for the issuance of letters of credit.

The interest rate applicable to the 2019 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.50% or (b) a Eurocurrency rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50%.

The interest rate applicable to the 2019 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.50% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50% plus a credit spread adjustment ("CSA").

Principal payments on the 2019 Term Loan are due in quarterly installments on the last day of each fiscal quarter, unless prepayments are made, for a total annual amount equal to 1.00% of the initial aggregate principal amount of the 2019 Term Loan.

The 2019 Term Loan matures on October 1, 2026.

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%.

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 Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.75% plus a CSA.

Principal payments on the 2021 Term Loan will be made in quarterly installments on the last day of each fiscal quarter, for a total annual amount equal to 1.00% of the initial aggregate principal amount of the 2021 Term Loan.

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The 2021 Term Loan is subject to the same mandatory prepayment provisions as the 2019 Term Loan.

The interest rate applicable to borrowings under the Revolving Credit Facility is, at our option, either (a) 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%.

The interest rate applicable to borrowings under the Revolving Credit Facility is, at our option, either (a) a base rate plus an applicable margin equal to 1.25% or (2) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25% plus a CSA.

The Credit Agreement contains customary representations and warranties, and affirmative and negative covenants, including covenants that, among other things, restrict our, and our restricted subsidiaries’, ability to (i) incur additional indebtedness;

10 unchanged sentences

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, 2023 was 2.26:1.00.

During the three months ended March 31, 2023, we repaid an aggregate amount of $200 million, $100 million to each of the 2019 Term Loan and 2021 Term Loan.

Our first lien net leverage ratio as of June 30, 2023 was 2.14:1.00.

During the six months ended June 30, 2023, we repaid an aggregate amount of $200 million, $100 million to each of the 2019 Term Loan and 2021 Term Loan.

As a result, the 2019 Term Loan and the 2021 Term Loan have remaining principal amounts of $1,027 million and $985 million, respectively.

4 unchanged sentences

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

As of March 31, 2023, we had $337 million aggregate principal amount of 4.125% Senior Notes outstanding.

As of June 30, 2023, we had $337 million aggregate principal amount of 4.125% Senior Notes outstanding.

On October 21, 2021, APi Escrow Corp, a wholly-owned subsidiary of the Company, 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.

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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, 2023, we had $277 million aggregate principal amount of 4.750% Senior Notes outstanding.

As of June 30, 2023, we had $277 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, 2023 and December 31, 2022.

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, 2023 and December 31, 2022.

Issuance of Series B Preferred Stock

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"Leases" in the Annual Report on Form 10-K filed on March 1, 2023.

We have not had material changes to our lease obligations during the three months ended March 31, 2023.

We have not had material changes to our lease obligations during the six months ended June 30, 2023.

Debt –

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Interest rate risk

As of March 31, 2023, our outstanding variable interest rate debt was primarily related to our 2019 Term Loan and our 2021 Term Loan.

As of March 31, 2023, we had $1,027 million outstanding on the 2019 Term Loan and $985 million outstanding on the 2021 Term Loan.

To mitigate increases in variable interest rates, we have a four-year interest rate swap with respect to $720 million of notional value of the 2019 Term Loan, exchanging one-month LIBOR for a rate of 3.64% per annum.

As of June 30, 2023, our outstanding variable interest rate debt was primarily related to our 2019 Term Loan and our 2021 Term Loan.

As of June 30, 2023, we had $1,027 million outstanding on the 2019 Term Loan and $985 million outstanding on the 2021 Term Loan.

This expense will be offset by the amortization through October 2024 of the remaining gain of $22 million recognized from the termination of the previously outstanding $720 million notional amount interest rate swap resulting in an effective rate on the $720 million of notional value of the 2019 Term Loan of 3.92%.

The remaining floating $307 million of our 2019 Term Loan balance will bear interest based on one-month LIBOR plus 250 basis points.

We have five-year interest rate swaps with respect to $400 million of the notional value of the 2021 Term Loan, exchanging one-month LIBOR for a rate an average fixed rate of 3.46%.

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

As of March 31, 2023, excluding letters of credit outstanding of $54 million, we had no amounts of outstanding revolving loans under our Credit Agreement.

A 100-basis point increase in the applicable interest rates under our credit facilities (including the unhedged portions of our 2019 Term Loan and 2021 Term Loan debt) would have increased our interest expense by approximately $4 million for the three months ended March 31, 2023.

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.

The ICE Benchmark Administration intends to cease the publication of U.S.

dollar LIBOR for all tenors (excluding one-week and two-month) on June 30, 2023.

The discontinuation of the one-month LIBOR after 2023 and the replacement with an alternative reference rate, such as the Secured Overnight Financing Rate, may adversely impact interest rates and our interest expense could increase.

The remaining floating $307 million of our 2019 Term Loan balance will bear interest based on one-month SOFR plus 250 basis points.

We have five-year interest rate swaps with respect to $400 million of the notional value of the 2021 Term Loan, exchanging one-month SOFR for a rate an average fixed rate of 3.41%.

The 2021 Term Loan balance will bear interest based on one-month SOFR plus 275 basis points, but the rate will fluctuate as SOFR fluctuates.

As of June 30, 2023, excluding letters of credit outstanding of $17 million, we had no amounts of outstanding revolving loans under our Credit Agreement.

Foreign currency risk

We have operations in over 20 countries globally.

Revenues generated from foreign operations represented approximately 40% of our consolidated net revenues for the three months ended March 31, 2023.

Revenues generated from foreign operations represented approximately 37% and 38% of our consolidated net revenues for the three and six months ended June 30, 2023.

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, 2023.

These foreign currency transaction gains and losses, including hedging impacts, are classified in investment income and other, net, in the condensed consolidated statements of operations and were a gain (loss) of $0 million and ($1) million three months ended March 31, 2023 and 2022, respectively.

Such transactions were not material to our operations during the six months ended June 30, 2023.

These foreign currency transaction gains and losses, including hedging impacts, are classified in investment income and other, net, in the condensed consolidated statements of operations and were a gain (loss) of $0 million and ($1) million for the three months ended June 30, 2023 and 2022, respectively, and $0 million and ($2) million for the six months ended June 30, 2023 and 2022, respectively.

These net foreign currency transaction gains and losses include derivative instruments designed to reduce foreign currency exchange rate risks.

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 gains (losses) totaled approximately $14 million and ($59) million for the three months ended March 31, 2023 and 2022, respectively.

Foreign currency translation gains (losses) totaled approximately $27 million and ($166) million for the three months ended June 30, 2023 and 2022, respectively, and $41 million and ($225) million for the six months ended June 30, 2023 and 2022, respectively.

Our exposure to fluctuations in foreign currency exchange rates may continue to increase in the future if we continue to expand our operations outside of the U.S.

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Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

In addition, we are exposed to various supply chain risks, including market risk of price fluctuations or availability of copper, steel, cable optic fiber and other materials used as components of supplies or materials utilized in our operations.

In addition, we are exposed to various supply chain risks, including the market risk of price fluctuations or availability of copper, steel, cable optic fiber, and other materials used as components of supplies or materials utilized in our operations.

We are also exposed to increases in energy prices, particularly as they relate to gasoline prices for our vehicle fleet.

Disruptions in our supply chain can occur due to market inefficiencies but can also be driven by other events, like cybersecurity breaches, pandemics or similar disruptive events.

Disruptions in our supply

chain can occur due to market inefficiencies but can also be driven by other events, like cybersecurity breaches, pandemics, or similar disruptive events.

While we believe we can increase our contract prices to adjust for some price increases in commodities, there can be no assurance that such price increases, if they were to occur, would be recoverable.

Additionally, some of our fixed price contracts do not allow us to adjust prices and, as a result, increases in material costs could reduce profitability with respect to projects in progress.

Significant declines in market prices for oil and gas and other fuel sources may also impact our operations.

Prolonged periods of low oil and gas prices may result in projects being delayed or cancelled and in a low oil and gas price environment, certain of our businesses could become less profitable or incur losses.

Significant declines in market prices for oil, gas, and other fuel sources may also impact our operations.

Prolonged periods of low oil and gas prices may result in projects being delayed or canceled.

In a low oil and gas price environment, certain of our businesses could become less profitable or incur losses.

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