UNITED STATES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 98-1510303 (State or other jurisdiction of (I.R.S. Employer 55112 (Address of principal executive offices) (Zip Code) Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.0001 per share APG New York Stock Exchange o o Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o Emerging growth company o o March 31, December 31, Assets Current assets: Cash and cash equivalents $ 363 $ 605 Accounts receivable, net of allowances of $3 and $3 at March 31, 2023 1,221 1,313 Inventories 163 163 Contract assets 490 459 Prepaid expenses and other current assets 127 112 Total current assets 2,364 2,652 Property and equipment, net 412 407 Operating lease right of use assets 209 222 Goodwill 2,405 2,382 Intangible assets, net 1,734 1,784 Deferred tax assets 111 108 Pension and post-retirement assets 404 392 Other assets 127 144 Total assets $ 7,766 $ 8,091 Liabilities, Redeemable Convertible Preferred Stock, and Shareholders’ Equity Current liabilities: Short-term and current portion of long-term debt $ 6 $ 206 Accounts payable 442 490 Contingent consideration and compensation liabilities 32 27 Accrued salaries and wages 244 337 Contract liabilities 469 463 Operating and finance leases 72 73 Other accrued liabilities 284 325 Total current liabilities 1,549 1,921 Long-term debt, less current portion 2,588 2,583 Pension and post-retirement obligations 38 40 Contingent consideration and compensation liabilities 4 6 Operating and finance leases 155 166 Deferred tax liabilities 344 340 Other noncurrent liabilities 126 111 Total liabilities 4,804 5,167 Commitments and contingencies (Note 14) 5.5% Series B Redeemable Convertible Preferred Stock, $0.0001 par value, 800,000 authorized shares, 797 797 Shareholders’ equity: Series A Preferred Stock, $0.0001 par value; 7,000,000 authorized shares; 4,000,000 shares — — Common stock; $0.0001 par value, 500,000,000 authorized shares, 235,212,900 shares and 233,403,912 — — Additional paid-in capital 2,569 2,558 Accumulated deficit (138 ) (164 ) Accumulated other comprehensive loss (266 ) (267 ) Total shareholders’ equity 2,165 2,127 Total liabilities, redeemable convertible preferred stock, and shareholders’ equity $ 7,766 $ 8,091 Three Months Ended March 31, 2023 2022 Net revenues $ 1,614 $ 1,471 Cost of revenues 1,189 1,095 Gross profit 425 376 Selling, general, and administrative expenses 352 383 Operating income (loss) 73 (7 ) Interest expense, net 37 27 Loss on extinguishment of debt, net 3 — Non-service pension benefit (3 ) (11 ) Investment income and other, net (2 ) — Other expense, net 35 16 Income (loss) before income taxes 38 (23 ) Income tax provision (benefit) 12 (16 ) Net income (loss) $ 26 $ (7 ) Net income (loss) attributable to common shareholders: Stock dividend on Series B Preferred Stock (11 ) (11 ) Net income (loss) attributable to common shareholders $ 15 $ (18 ) Net income (loss) per common share: Basic $ 0.05 $ (0.08 ) Diluted 0.05 (0.08 ) Weighted average shares outstanding: Basic 234 232 Diluted 267 232 Three Months Ended March 31, 2023 2022 Net income (loss) $ 26 $ (7 ) Other comprehensive (loss) income: Fair value change - derivatives, net of tax benefit (expense) of $3, and ($3), respectively (13 ) 9 Foreign currency translation adjustment 14 (59 ) Comprehensive income (loss) $ 27 $ (57 ) Preferred Stock Issued Common Stock Issued Additional Accumulated Accumulated Total Shares Amount Shares Amount Capital Deficit Loss Equity Balance, December 31, 2022 4,000,000 $ — 233,403,912 $ — $ 2,558 $ (164 ) $ (267 ) $ 2,127 Net income — — — — — 26 — 26 Fair value change - derivatives — — — — — — (13 ) (13 ) Foreign currency translation adjustment — — — — — — 14 14 Series B Preferred Stock dividend — — 1,082,877 — — — — — Share repurchases — — (541,316 ) — (12 ) — — (12 ) Profit sharing plan contributions — — 631,194 — 14 — — 14 Share-based compensation and other, net — — 636,233 — 9 — — 9 Balance, March 31, 2023 4,000,000 $ — 235,212,900 $ — $ 2,569 $ (138 ) $ (266 ) $ 2,165 Preferred Stock Issued Common Stock Issued Additional Accumulated Accumulated Total Shares Amount Shares Amount Capital Deficit Loss Equity Balance, December 31, 2021 4,000,000 $ — 224,625,193 $ — $ 2,560 $ (237 ) $ — $ 2,323 Net loss — — — — — (7 ) — (7 ) Fair value change - derivatives — — — — — — 9 9 Foreign currency translation adjustment — — — — — — (59 ) (59 ) Series A Preferred Stock dividend — — 7,539,697 — — — — — Series B Preferred Stock dividend — — 519,469 — — — — — Share repurchases — — (531,431 ) — (11 ) — — (11 ) Profit sharing plan contributions — — 622,655 — 15 — — 15 Share-based compensation and other, net — — 413,029 — 8 — — 8 Balance, March 31, 2022 4,000,000 $ — 233,188,612 $ — $ 2,572 $ (244 ) $ (50 ) $ 2,278 Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net income (loss) $ 26 $ (7 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 19 19 Amortization 55 57 Deferred taxes — (10 ) Share-based compensation expense 5 3 Profit-sharing expense 5 3 Non-cash lease expense 18 16 Net periodic pension benefit (3 ) (11 ) Loss on extinguishment of debt, net 3 — Other, net (4 ) 5 Pension contributions (1 ) (27 ) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable 96 60 Contract assets (30 ) (55 ) Inventories — (9 ) Prepaid expenses and other current assets (15 ) (31 ) Accounts payable (47 ) (32 ) Accrued liabilities and income taxes payable (112 ) (96 ) Contract liabilities 5 20 Other assets and liabilities (21 ) (23 ) Net cash used in operating activities (1 ) (118 ) Cash flows from investing activities: Acquisitions, net of cash acquired (10 ) (2,875 ) Purchases of property and equipment (21 ) (12 ) Proceeds from sales of property, equipment, and businesses 4 3 Net cash used in investing activities (27 ) (2,884 ) Cash flows from financing activities: Proceeds from long-term borrowings — 1,101 Payments on long-term borrowings (202 ) (30 ) Payments of debt issuance costs — (25 ) Repurchases of common stock (12 ) (11 ) Proceeds from equity issuances — 797 Restricted shares tendered for taxes (2 ) (1 ) Net cash (used in) provided by financing activities (216 ) 1,831 Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash 2 (2 ) Net decrease in cash, cash equivalents, and restricted cash (242 ) (1,173 ) Cash, cash equivalents, and restricted cash, beginning of period 607 1,491 Cash, cash equivalents, and restricted cash, end of period $ 365 $ 318 Supplemental cash flow disclosures: Cash paid for interest $ 27 $ 24 Cash paid for income taxes, net of refunds 19 8 Accrued consideration issued in business combinations 1 — Shares of common stock issued to profit sharing plan 14 15 Nature of business Principles of consolidation Cash, cash equivalents, and restricted cash Investments The following table summarizes the final fair values of the assets acquired and liabilities assumed at the date of the Chubb Acquisition: Cash paid at closing $ 2,935 Working capital and net indebtedness adjustment (42 ) Total net consideration $ 2,893 Cash $ 60 Accounts receivable 426 Inventories 68 Contract assets 183 Other current assets 25 Property and equipment 73 Operating lease right of use assets 146 Pension and post-retirement assets 626 Other noncurrent assets 8 Intangible assets 1,200 Goodwill 1,367 Accounts payable (192 ) Contract liabilities (162 ) Accrued expenses (255 ) Finance and operating lease liabilities (148 ) Pension and post-retirement obligations (56 ) Deferred tax liabilities (383 ) Other noncurrent liabilities (93 ) Net assets acquired $ 2,893 For the restructuring program, employee-related costs consist of termination benefits provided to employees who have been involuntarily terminated and voluntary early retirement benefits. Program related costs include costs incurred as a direct result of the restructuring program such as consulting fees and facility relocation costs. Three Months Ended Balance as of December 31, 2022 $ 22 Charged to cost of revenues - employee related — Charged to selling, general, and administrative expenses - employee related — Payments (5 ) Currency translation adjustment — Balance as of March 31, 2023 $ 17 The Company disaggregates its net revenues primarily by segment, service type, and country from which revenues are invoiced, as the nature, timing, and uncertainty of cash flows are relatively consistent within each of these categories. The following tables provide disclosure of disaggregated net revenues by segment for the three and nine months ended Three Months Ended March 31, 2023 Safety Specialty Corporate and Consolidated Life Safety $ 1,068 $ — $ — $ 1,068 Heating, Ventilation, and Air Conditioning ("HVAC") 123 — — 123 Infrastructure/Utility — 240 — 240 Fabrication — 55 — 55 Specialty Contracting — 135 — 135 Corporate and Eliminations — — (7 ) (7 ) Net revenues $ 1,191 $ 430 $ (7 ) $ 1,614 Three Months Ended March 31, 2022 Safety Specialty Corporate and Consolidated Life Safety $ 963 $ — $ — $ 963 HVAC 111 — — 111 Infrastructure/Utility — 142 — 142 Fabrication — 54 — 54 Specialty Contracting — 216 — 216 Corporate and Eliminations — — (15 ) (15 ) Net revenues $ 1,074 $ 412 $ (15 ) $ 1,471 Three Months Ended March 31, 2023 Safety Specialty Corporate and Consolidated United States $ 560 $ 417 $ (7 ) $ 970 France 156 — — 156 Other 475 13 — 488 Net revenues $ 1,191 $ 430 $ (7 ) $ 1,614 Three Months Ended March 31, 2022 Safety Specialty Corporate and Consolidated United States $ 474 $ 409 $ (15 ) $ 868 France 148 — — 148 Other 452 3 — 455 Net revenues $ 1,074 $ 412 $ (15 ) $ 1,471 months. Accounts Contract Contract Balance at March 31, 2023 $ 1,221 $ 490 $ 469 Balance at December 31, 2022 1,313 459 463 The following table provides disclosure of goodwill by segment as of Safety Specialty Total Goodwill as of December 31, 2022 2,201 181 2,382 Acquisitions 11 — 11 Foreign currency translation 12 — 12 Goodwill as of March 31, 2023 $ 2,224 $ 181 $ 2,405 Intangibles March 31, 2023 Weighted Average Remaining Useful Lives Gross Accumulated Net Carrying Amortized intangibles: Contractual backlog 0.7 $ 153 $ (133 ) $ 20 Customer relationships 9.9 1,512 (404 ) 1,108 Trade names and trademarks 12.9 706 (100 ) 606 Total $ 2,371 $ (637 ) $ 1,734 December 31, 2022 Weighted Average Remaining Useful Lives Gross Accumulated Net Carrying Amortized intangibles: Contractual backlog 0.9 $ 153 $ (126 ) $ 27 Customer relationships 10.0 1,508 (367 ) 1,141 Trade names and trademarks 13.2 704 (88 ) 616 Total $ 2,365 $ (581 ) $ 1,784 Three Months Ended March 31, 2023 2022 Cost of revenues $ 7 $ 3 Selling, general, and administrative expenses 48 54 Total intangible asset amortization expense $ 55 $ 57 Observable inputs such as quoted prices for identical assets or liabilities in active markets. Unobservable inputs that reflect the Company's own assumptions. 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 Fair Value Measurements at March 31, 2023 Financial assets: Level 1 Level 2 Level 3 Total Derivatives designated as hedge instruments Cash flow hedges - interest rate swaps $ — $ 2 $ — $ 2 Cash flow hedges - cross currency contracts — 17 — 17 Cash flow hedges - foreign currency forward contracts — — — — Net investment hedges - cross currency contracts — 30 — 30 Fair value hedges - cross currency contracts — 42 — 42 Derivatives not designated as hedge instruments Foreign currency forward contracts — — — — Total $ — $ 91 $ — $ 91 Financial liabilities: Derivatives not designated as hedge instruments Foreign currency forward contracts — — — — Contingent consideration obligations — — (4 ) (4 ) Total $ — $ — $ (4 ) $ (4 ) Fair Value Measurements at December 31, 2022 Financial assets: Level 1 Level 2 Level 3 Total Derivatives designated as hedge instruments Cash flow hedges - interest rate swaps $ — $ 14 $ — $ 14 Cash flow hedges - cross currency contracts — 17 — 17 Cash flow hedges - foreign currency forward contracts — — — — Net investment hedges - cross currency contracts — 32 — 32 Fair value hedges - cross currency contracts — 50 — 50 Derivatives not designated as hedge instruments Foreign currency forward contracts — — — — Total $ — $ 113 $ — $ 113 Financial liabilities: Derivatives not designated as hedge instruments Foreign currency forward contracts — — — — Contingent consideration obligations — — (4 ) (4 ) Total $ — $ — $ (4 ) $ (4 ) 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 Balance as of December 31, 2022 $ 4 Issuances — Settlements — Adjustments to fair value — Balance as of March 31, 2023 $ 4 Number of open contingent consideration arrangements at the end of the period 3 Maximum potential payout at the end of the period $ 4 The following table presents the carrying amount and fair value of the Company’s term loans and senior notes (instruments defined in Note March 31, 2023 December 31, 2022 Carrying Value Fair Value Carrying Value Fair Value 2019 Term Loan $ 1,027 $ 1,025 $ 1,127 $ 1,120 2021 Term Loan 985 983 1,085 1,075 4.125% Senior Notes 337 289 337 284 4.750% Senior Notes 277 245 277 243 The following table presents the fair value of derivative instruments: March 31, 2023 December 31, 2022 Outstanding Gross Other Outstanding Gross Other Notional Amount Other Assets Noncurrent liabilities Notional Amount Other Assets Noncurrent liabilities Derivatives designated as hedging instruments: Cash flow hedges: Interest rate swaps $ 1,120 $ 2 $ — $ 1,120 $ 14 $ — Cross currency contracts 120 17 — 120 17 — Foreign currency forward contracts 12 — — — — — Fair value hedges: Cross currency contracts 721 42 — 721 50 — Net investment hedges: Cross currency contracts 230 30 — 230 32 — Total derivatives designated as hedging instruments $ 2,203 $ 91 $ — $ 2,191 $ 113 $ — Derivatives not designated as hedging instruments: Foreign currency forward contracts 104 — — 118 — — Total derivatives not designated as hedging instruments $ 104 $ — $ — $ 118 $ — $ — Total derivatives $ 2,307 $ 91 $ — $ 2,309 $ 113 $ — Amount of income (expense) recognized in income Location of income (expense) Three Months Ended March 31, Derivatives recognized in income 2023 2022 Cash flow hedging relationships: Interest rate swaps Interest expense, net $ 2 $ (3 ) Cross currency contracts Investment income and other, net (1 ) 3 Cross currency contracts Interest expense, net 1 — Foreign currency forward contracts Investment income and other, net — — Fair value hedging relationships: Cross currency contracts Investment income and other, net (8 ) 6 Cross currency contracts Interest expense, net 1 — Net investment hedging relationships: Cross currency contracts Interest expense, net 1 1 Not designated as hedging instruments: Foreign currency forward contracts Investment income and other, net — 1 The following table presents the effect of cash flow and fair value hedge accounting on accumulated other comprehensive income (loss) ("AOCI"): Amount of gain (loss) Amount of gain (loss) recognized in other reclassified from comprehensive income AOCI into income Three Months Ended March 31, Location of gain (loss) reclassified from Three Months Ended March 31, Derivatives 2023 2022 AOCI into income 2023 2022 Cash flow hedging relationships: Interest rate swaps $ (13 ) $ 20 Interest expense, net $ (4 ) $ — Cross currency contracts 1 (1 ) Investment income and other, net 1 (3 ) Forward currency forward contracts — — Investment income and other, net — — Fair value hedging relationships: Cross currency contracts $ — $ (12 ) Investment income and other, net $ 7 $ (6 ) Net investment hedging relationships: Cross currency contracts $ (1 ) $ 3 Investment income and other, net $ (3 ) $ 1 2026. 2028. SOFR. The components of property and equipment as of Estimated March 31, December 31, Land N/A $ 31 $ 30 Building 39 98 98 Machinery and equipment 1-20 325 313 Autos and trucks 4-10 118 116 Office equipment 3-7 52 35 Leasehold improvements 1-15 33 33 Total cost 657 625 Accumulated depreciation (245 ) (218 ) Property and equipment, net $ 412 $ 407 Debt obligations consist of the following: Maturity Date March 31, December 31, Term loan facility 2019 Term Loan October 1, 2026 $ 1,027 $ 1,127 2021 Term Loan January 3, 2029 985 1,085 Revolving Credit Facility October 1, 2026 — — Senior notes 4.125% Senior Notes July 15, 2029 337 337 4.750% Senior Notes October 15, 2029 277 277 Other obligations 6 6 Total debt obligations 2,632 2,832 Less: unamortized deferred financing costs (38 ) (43 ) Total debt, net of deferred financing costs 2,594 2,789 Less: short-term and current portion of long-term debt (6 ) (206 ) Long-term debt, less current portion $ 2,588 $ 2,583 2.75% plus a CSA. - "Subsequent Events” for a discussion of the October 2023 repricing of the 2019 Term Loan and 2021 Term Loan, extension of the 2019 Term Loan, and partial repayment of the 2019 Term Loan. respectively. $277. 2036. 2022, respectively. Three Months Ended March 31, 2023 2022 Service cost $ 1 $ 2 Interest cost 15 9 Expected return on plan assets (18 ) (20 ) Net periodic pension benefit $ (2 ) $ (9 ) Profit sharing plans respectively. 15. COMMITMENTS AND CONTINGENCIES AND REDEEMABLE CONVERTIBLE PREFERRED STOCK Repurchases The following table sets forth the computation of EPS using the two-class method. 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. (Amounts in millions, except share and per share amounts.) Three Months Ended March 31, 2023 2022 Basic earnings (loss) per common share: Net income (loss) $ 26 $ (7 ) Less income attributable to Series A Preferred Stock (1 ) — Less income attributable to Series B Preferred Stock (2 ) — Less stock dividend attributable to Series B Preferred Stock (11 ) (11 ) Net income (loss) attributable to common shareholders $ 12 $ (18 ) Weighted average shares outstanding - basic 234,386,758 232,237,099 Income (loss) per common share - basic $ 0.05 $ (0.08 ) Diluted earnings (loss) per common share: Net income (loss) $ 26 $ (7 ) Less income attributable to Series A Preferred Stock (1 ) — Less stock dividend attributable to Series B Preferred Stock (11 ) (11 ) Net income (loss) attributable to common shareholders - diluted $ 14 $ (18 ) Weighted average shares outstanding - basic 234,386,758 232,237,099 Dilutive securities: (1) Restricted stock units, warrants, and stock options 265,515 — Shares issuable upon conversion of Series B Preferred Shares 32,520,000 — Weighted average shares outstanding - diluted 267,172,273 232,237,099 Income (loss) per common share - diluted $ 0.05 $ (0.08 ) 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 Safety Specialty Corporate and Consolidated Net revenues $ 1,191 $ 430 $ (7 ) $ 1,614 EBITDA Reconciliation Operating income (loss) $ 96 $ — $ (23 ) $ 73 Plus: Investment income and other, net — 2 — 2 Non-service pension benefit 3 — — 3 Loss on extinguishment of debt, net — — (3 ) (3 ) Depreciation 6 12 1 19 Amortization 41 13 1 55 EBITDA $ 146 $ 27 $ (24 ) $ 149 Total assets $ 6,001 $ 1,247 $ 518 $ 7,766 Capital expenditures 5 15 1 21 Three Months Ended March 31, 2022 Safety Specialty Corporate and Consolidated Net revenues $ 1,074 $ 412 $ (15 ) $ 1,471 EBITDA Reconciliation Operating income (loss) $ 63 $ (7 ) $ (63 ) $ (7 ) Plus: Investment income and other, net — 1 (1 ) $ — Non-service pension benefit 11 — — $ 11 Depreciation 7 12 — $ 19 Amortization 42 14 1 $ 57 EBITDA $ 123 $ 20 $ (63 ) $ 80 Total assets $ 6,423 $ 1,254 $ 465 $ 8,142 Capital expenditures 6 6 — 12 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ECENT D EVELOPMENTS A CERTAIN FACTORS AND TRENDS AFFECTING OUR RESULTS OF OPERATIONS O F K LINE ITEMS A CCOUNTING P AND ESTIMATES F OPERATIONS Three Months Ended March 31, Change ($ in millions) 2023 2022 $ % Net revenues $ 1,614 $ 1,471 $ 143 9.7 % Cost of revenues 1,189 1,095 94 8.6 % Gross profit 425 376 49 13.0 % Selling, general, and administrative expenses 352 383 (31 ) (8.1 )% Operating income (loss) 73 (7 ) 80 NM Interest expense, net 37 27 10 37.0 % Loss on extinguishment of debt, net 3 — 3 NM Non-service pension benefit (3 ) (11 ) (8 ) (72.7 )% Investment income and other, net (2 ) — (2 ) NM Other expense, net 35 16 19 118.8 % Income (loss) before income taxes 38 (23 ) 61 NM Income tax provision (benefit) 12 (16 ) 28 NM Net income (loss) $ 26 $ (7 ) $ 33 NM Three Months Ended March 31, Change ($ in millions) 2023 2022 $ % Gross profit $ 425 $ 376 $ 49 13.0 % Gross margin 26.3 % 25.6 % Three Months Ended March 31, Change ($ in millions) 2023 2022 $ % Selling, general, and administrative expenses $ 352 $ 383 $ (31 ) (8.1 )% SG&A expenses as a % of net revenues 21.8 % 26.0 % Operating margin 4.5 % (0.5 )% SG&A expenses (excluding amortization) (Non-GAAP) $ 304 $ 329 $ (25 ) (7.6 )% SG&A expenses (excluding amortization) as a % of net revenues (Non-GAAP) 18.8 % 22.4 % taxes. Three Months Ended March 31, Change ($ in millions) 2023 2022 $ % Net income (loss) $ 26 $ (7 ) $ 33 NM EBITDA (non-GAAP) 149 80 69 86.3 % Net income (loss) as a % of net revenues 1.6 % (0.5 )% EBITDA as a % of net revenues 9.2 % 5.4 % Net Revenues Three Months Ended March 31, Change ($ in millions) 2023 2022 $ % Safety Services $ 1,191 $ 1,074 $ 117 10.9 % Specialty Services 430 412 18 4.4 % Corporate and Eliminations (7 ) (15 ) NM NM $ 1,614 $ 1,471 $ 143 9.7 % Operating Income (Loss) Three Months Ended March 31, Change ($ in millions) 2023 2022 $ % Safety Services $ 96 $ 63 $ 33 52.4 % Safety Services operating margin 8.1 % 5.9 % Specialty Services $ — $ (7 ) $ 7 100.0 % Specialty Services operating margin 0.0 % (1.7 )% Corporate and Eliminations $ (23 ) $ (63 ) NM NM $ 73 $ (7 ) $ 80 NM EBITDA Three Months Ended March 31, Change ($ in millions) 2023 2022 $ % Safety Services $ 146 $ 123 $ 23 18.7 % Safety Services EBITDA as a % of net revenues 12.3 % 11.5 % Specialty Services $ 27 $ 20 $ 7 35.0 % Specialty Services EBITDA as a % of net revenues 6.3 % 4.9 % Corporate and Eliminations $ (24 ) $ (63 ) NM NM $ 149 $ 80 $ 69 86.3 % amortization and impairment) Three Months Ended March 31, ($ in millions) 2023 2022 Reported SG&A expenses $ 352 $ 383 Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization) Amortization expense (48 ) (54 ) SG&A expenses (excluding amortization) $ 304 $ 329 Three Months Ended March 31, ($ in millions) 2023 2022 Reported net income (loss) $ 26 $ (7 ) Adjustments to reconcile net income (loss) to EBITDA: Interest expense, net 37 27 Income tax provision (benefit) 12 (16 ) Depreciation 19 19 Amortization 55 57 EBITDA $ 149 $ 80 ND C R ESOURCES Three Months Ended March 31, ($ in millions) 2023 2022 Net cash used in operating activities $ (1 ) $ (118 ) Net cash used in investing activities (27 ) (2,884 ) Net cash (used in) provided by financing activities (216 ) 1,831 Effect of foreign currency exchange rate change on cash, cash equivalents, 2 (2 ) Net decrease in cash, cash equivalents, and restricted cash $ (242 ) $ (1,173 ) Cash, cash equivalents, and restricted cash, end of period $ 365 $ 318 plus a CSA. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK CONTROLS AND PROCEDURES RISK FACTORS AND ISSUER PURCHASES OF EQUITY SECURITIES During the Three Months Ended March 31, 2023 Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) January 1, 2023 - January 31, 2023 32,754 $ 18.73 32,754 $ 205 February 1, 2023 - February 28, 2023 — — — — March 1, 2023 - March 31, 2023 508,562 21.63 508,562 195 Total 541,316 $ 21.45 541,316 $ 195 MINE SAFETY DISCLOSURES EXHIBITS 31.1* 31.2* 32.1** 32.2** 95.1* 101.INS* Inline XBRL Instance Document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). APi GROUP CORPORATION /s/ Russell A. Becker Russell A. Becker Chief Executive Officer (Duly Authorized Officer) /s/ Kevin S. Krumm Kevin S. Krumm Chief Financial Officer (Principal Financial Officer)☒xMarch 31, September 30, 2023☐o
incorporation or organization)
Identification No.), Minnesota(651) (651) 636-4320Yesx ☒ No ☐Yesx ☒ No ☐☒☐☐☐☐☐☐o No ☒x235,212,900235,559,170 shares of common stock as of April 27,October 26, 2023.TABLE OF CONTENTS33304243454545454647September 30,
2023December 31,
2022Assets Current assets: Cash and cash equivalents $ 461 $ 605 Accounts receivable, net of allowances of $4 and $3 at September 30, 2023 and December 31, 2022, respectively 1,280 1,313 Inventories 155 163 Contract assets 530 459 Prepaid expenses and other current assets 226 112 Total current assets 2,652 2,652 Property and equipment, net 377 407 Operating lease right of use assets 227 222 Goodwill 2,404 2,382 Intangible assets, net 1,624 1,784 Deferred tax assets 107 108 Pension and post-retirement assets 407 392 Other assets 151 144 Total assets $ 7,949 $ 8,091 Liabilities, Redeemable Convertible Preferred Stock, and Shareholders’ Equity Current liabilities: Short-term and current portion of long-term debt $ 256 $ 206 Accounts payable 431 490 Contingent consideration and compensation liabilities 18 27 Accrued salaries and wages 320 337 Contract liabilities 474 463 Operating and finance leases 72 73 Other accrued liabilities 328 325 Total current liabilities 1,899 1,921 Long-term debt, less current portion 2,342 2,583 Pension and post-retirement obligations 37 40 Contingent consideration and compensation liabilities 10 6 Operating and finance leases 170 166 Deferred tax liabilities 340 340 Other noncurrent liabilities 122 111 Total liabilities 4,920 5,167 Commitments and contingencies (Note 15) 5.5% Series B Redeemable Convertible Preferred Stock, $0.0001 par value, 800,000 authorized shares, 800,000 shares issued and outstanding at September 30, 2023 and December 31, 2022; aggregate liquidation preference of $840 797 797 Shareholders’ equity: Series A Preferred Stock, $0.0001 par value; 7,000,000 authorized shares; 4,000,000 shares issued and outstanding at September 30, 2023 and December 31, 2022 — — Common stock; $0.0001 par value, 500,000,000 authorized shares, 235,146,035 shares and 233,403,912 shares issued at September 30, 2023 and December 31, 2022, respectively (excluding 413,135 and 584,584 shares declared for stock dividend at September 30, 2023 and December 31, 2022, respectively) — — Additional paid-in capital 2,562 2,558 Accumulated deficit (36) (164) Accumulated other comprehensive loss (294) (267) Total shareholders’ equity 2,232 2,127 Total liabilities, redeemable convertible preferred stock, and shareholders’ equity $ 7,949 $ 8,091
2023
2022
and December 31, 2022, respectively
800,000 shares issued and outstanding at March 31, 2023 and December 31, 2022;
aggregate liquidation preference of $840
issued and outstanding at March 31, 2023 and December 31, 2022
shares issued at March 31, 2023 and December 31, 2022, respectively (excluding
584,584 shares declared for stock dividend at December 31, 2022)3Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net revenues $ 1,784 $ 1,735 $ 5,169 $ 4,855 Cost of revenues 1,273 1,295 3,737 3,604 Gross profit 511 440 1,432 1,251 Selling, general, and administrative expenses 407 379 1,148 1,138 Operating income 104 61 284 113 Interest expense, net 37 33 112 88 (Gain) loss on extinguishment of debt, net — (5) 3 (5) Non-service pension benefit (3) (10) (9) (32) Investment income and other, net (4) (3) (9) (5) Other expense, net 30 15 97 46 Income before income taxes 74 46 187 67 Income tax provision 20 18 59 16 Net income $ 54 $ 28 $ 128 $ 51 Net income attributable to common shareholders: Stock dividend on Series B Preferred Stock (11) (11) (33) (33) Net income attributable to common shareholders $ 43 $ 17 $ 95 $ 18 Net income per common share: Basic $ 0.15 $ 0.06 $ 0.32 $ 0.06 Diluted 0.15 0.06 0.32 0.06 Weighted average shares outstanding: Basic 235 234 235 233 Diluted 270 266 269 266 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 54 $ 28 $ 128 $ 51 Other comprehensive income (loss): Fair value change - derivatives, net of tax benefit (expense) of $—, $(16), $(2), and $(27), respectively 1 51 7 82 Foreign currency translation adjustment (63) (86) (22) (311) Comprehensive income (loss) $ (8) $ (7) $ 113 $ (178) Preferred Stock Issued
and OutstandingCommon Stock Issued
and OutstandingAdditional
Paid-In
CapitalAccumulated
DeficitAccumulated
Other
Comprehensive
LossTotal
Shareholders’
EquityShares Amount Shares Amount Balance, December 31, 2022 4,000,000 $ — 233,403,912 $ — $ 2,558 $ (164) $ (267) $ 2,127 Net income — — — — — 26 — 26 Fair value change - derivatives — — — — — — (9) (9) Foreign currency translation adjustment — — — — — — 14 14 Gain on dedesignated derivatives amortized from AOCI into income — — — — — — (4) (4) Series B Preferred Stock dividend — — 1,082,877 — — — — — Share repurchases — — (541,316) — (12) — — (12) Profit sharing plan contributions — — 631,194 — 14 — — 14 Share-based compensation and other, net — — 636,233 — 9 — — 9 Balance, March 31, 2023 4,000,000 $ — 235,212,900 $ — $ 2,569 $ (138) $ (266) $ 2,165 Net income — — — — — 48 — 48 Fair value change - derivatives — — — — — — 15 15 Foreign currency translation adjustment — — — — — — 27 27 Gain on dedesignated derivatives amortized from AOCI into income — — — — — — (4) (4) Series B Preferred Stock dividend — — 436,992 — — — — — Share repurchases — — (428,688) — (11) — — (11) Share-based compensation and other, net — — 49,201 — 7 — — 7 Balance, June 30, 2023 4,000,000 $ — 235,270,405 $ — $ 2,565 $ (90) $ (228) $ 2,247 Net income — — — — — 54 — 54 Fair value change - derivatives — — — — — — 1 1 Foreign currency translation adjustment — — — — — — (63) (63) Gain on dedesignated derivatives amortized from AOCI into income — — — — — — (4) (4) Share repurchases — — (656,489) — (18) — — (18) Share-based compensation and other, net — — 532,119 — 15 — — 15 Balance, September 30, 2023 4,000,000 $ — 235,146,035 $ — $ 2,562 $ (36) $ (294) $ 2,232
and Outstanding
and Outstanding
Paid-In
Other
Comprehensive
Shareholders’
and Outstanding
and Outstanding
Paid-In
Other
Comprehensive
Shareholders’Preferred Stock Issued
and OutstandingCommon Stock Issued
and OutstandingAdditional
Paid-In
CapitalAccumulated
DeficitAccumulated
Other
Comprehensive
LossTotal
Shareholders’
EquityShares Amount Shares Amount Balance, December 31, 2021 4,000,000 $ — 224,625,193 $ — $ 2,560 $ (237) $ — $ 2,323 Net loss — — — — — (7) — (7) Fair value change - derivatives — — — — — — 9 9 Foreign currency translation adjustment — — — — — — (59) (59) Series A Preferred Stock dividend — — 7,539,697 — — — — — Series B Preferred Stock dividend — — 519,469 — — — — — Share repurchases — — (531,431) — (11) — — (11) Profit sharing plan contributions — — 622,655 — 15 — — 15 Share-based compensation and other, net — — 413,029 — 8 — — 8 Balance, March 31, 2022 4,000,000 $ — 233,188,612 $ — $ 2,572 $ (244) $ (50) $ 2,278 Net income — — — — — 30 — 30 Fair value change - derivatives — — — — — — 22 22 Foreign currency translation adjustment — — — — — — (166) (166) Series B Preferred Stock dividend — — 686,455 — — — — — Share repurchases — — (681,329) — (11) — — (11) Share-based compensation and other, net — — 24,584 — 3 — — 3 Balance, June 30, 2022 4,000,000 — 233,218,322 — 2,564 (214) (194) 2,156 Net income — — — — — 28 — 28 Fair value change - derivatives — — — — — — 51 51 Foreign currency translation adjustment — — — — — — (86) (86) Series B Preferred Stock dividend — — 739,015 — — — — — Share repurchases — — (738,572) — (11) — — (11) Share-based compensation and other, net — — 567,370 — 12 — — 12 Balance, September 30, 2022 4,000,000 $ — 233,786,135 $ — $ 2,565 $ (186) $ (229) $ 2,150 Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income $ 128 $ 51 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 59 60 Amortization 167 165 Restructuring charges, net of cash paid 17 12 Deferred taxes 5 (9) Share-based compensation expense 19 14 Profit-sharing expense 14 10 Non-cash lease expense 55 49 Net periodic pension benefit (9) (32) Loss (gain) on extinguishment of debt, net 3 (5) Other, net 3 13 Pension contributions (3) (27) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable 23 (104) Contract assets (78) (134) Inventories 2 (25) Prepaid expenses and other current assets (62) (25) Accounts payable (47) 68 Accrued liabilities and income taxes payable (27) (6) Contract liabilities 9 46 Other assets and liabilities (61) (39) Net cash provided by operating activities 217 82 Cash flows from investing activities: Acquisitions, net of cash acquired (57) (2,881) Purchases of property and equipment (64) (60) Proceeds from sales of property and equipment 13 10 Net cash used in investing activities (108) (2,931) Cash flows from financing activities: Proceeds from long-term borrowings — 1,104 Payments on long-term borrowings (206) (33) Repurchases of long-term borrowings — (30) Payments of debt issuance costs — (25) Repurchases of common stock (41) (33) Proceeds from equity issuances — 797 Payments of acquisition-related consideration (4) (6) Restricted shares tendered for taxes (2) (1) Net cash (used in) provided by financing activities (253) 1,773 Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash (1) (17) Net decrease in cash, cash equivalents, and restricted cash (145) (1,093) Cash, cash equivalents, and restricted cash, beginning of period 607 1,491 Cash, cash equivalents, and restricted cash, end of period $ 462 $ 398 Supplemental cash flow disclosures: Cash paid for interest $ 119 $ 81 Cash paid for income taxes, net of refunds 70 24 Accrued consideration issued in business combinations 5 1 Shares of common stock issued to profit sharing plan 14 13 $2$1 and less than $1$2 during the three months ended March 31,September 30, 2023 and 2022, respectively, and $5 and $3 during the nine months ended September 30, 2023 and 2022, respectively. The earnings are recorded within investment income and other, net in the condensed consolidated statements of operations. The investment balances were $6$6 and $4$4 as of March 31,September 30, 2023 and December 31, 2022, respectively, and are recorded within other assets in the condensed consolidated balance sheets.The Company has not adopted any additional accounting pronouncements since the 2022 audited annual consolidated financial statements. Company's Form 10-K filed on March 1, 2023discussion below for information pertaining to the effects of recently adopted and other recent accounting pronouncements.pronouncements as updated from the discussion in the Company’s 2022 audited consolidated financial statements included in the Company’s Annual Report on Form 10-K filed on March 1, 2023.8and 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. PurchaseThe 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 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.Acquisition A23 Other 2023 acquisitions Cash paid at closing $ 30 $ 22 Cash deposited into escrow 5 — Accrued consideration 3 2 Total net consideration $ 38 $ 24 Accounts receivable $ 8 $ — Contract assets 1 — Intangible assets 13 5 Goodwill 20 19 Accounts payable (1) — Contract liabilities (3) — Net assets acquired $ 38 $ 24 the Company does not expect anynone of the total amount of goodwill to beis deductible for U.S. income tax purposes. See Note 6 - "Goodwill and Intangibles" for the goodwill assigned to the Safety Services segment.Cash paid at closing $ 2,935 Working capital and net indebtedness adjustment (42) Total net consideration $ 2,893 Cash $ 60 Accounts receivable 426 Inventories 68 Contract assets 183 Other current assets 25 Property and equipment 73 Operating lease right of use assets 146 Pension and post-retirement assets 626 Other noncurrent assets 8 Intangible assets 1,200 Goodwill 1,367 Accounts payable (192) Contract liabilities (162) Accrued expenses (255) Finance and operating lease liabilities (148) Pension and post-retirement obligations (56) Deferred tax liabilities (383) Other noncurrent liabilities (93) Net assets acquired $ 2,893 9three to five years.four 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 onethree to fivefour 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 twothree 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.$21$7 and $19$19 at March 31,September 30, 2023, and December 31, 2022, respectively. The maximum payout of these arrangements upon completion of the future performance periods was $31$15 and $25,$25, inclusive of the $21$7 and $19,$19, accrued as of March 31,September 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. The Company primarily determines the contingent compensation liability based on forecasted cumulative earnings compared to the cumulative earnings target set forth in the arrangement. Compensation expense associated with these arrangements is recognized ratably over the required employment period.78 - "Fair Value of Financial Instruments."$11$14 and $9$9 at March 31,September 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.RestructuringASSETS HELD FOR SALESeptember 30, 2023 Accounts receivable $ 14 Inventories 2 Contract assets 6 Property and equipment, net 27 Operating lease right of use assets 2 Accounts payable (8) Other current liabilities (3) Noncurrent operating and finance leases (3) Total assets and liabilities held for sale $ 37 SinceChubb Acquisition,nine months ended September 30, 2023, the Company has incurred pre-tax restructuring costs within the Safety Services segment of $30$21 in connection with the Chubb restructuring program. In total,Since the Chubb Acquisition, the Company estimates that it will recognize approximately $105 ofhas incurred aggregate restructuring costs related to the Chubb restructuring program by the end of fiscal year 2024.$51. As of March 31,September 30, 2023, the Company had $17$23 in restructuring liabilities recorded in other accrued liabilities on the condensed consolidated balance sheets for this plan.threenine months ended March 31, 2023:September 30, 2023 and 2022:
March 31, 2023Employee termination benefits Program related costs Asset write-downs Total December 31, 2022 $ 22 $ — $ — $ 22 Charges 21 1 4 26 Payments (18) — — (18) Reversals (1) — — (1) Currency translation adjustment (1) — — (1) September 30, 2023 $ 23 $ 1 $ 4 $ 28 10Employee termination benefits Program related costs Asset write-downs Total December 31, 2021 $ — $ — $ — $ — Charges 18 — — 18 Payments (6) — — (6) Currency translation adjustment (1) — — (1) September 30, 2022 $ 11 $ — $ — $ 11 5.6. NET REVENUESmaterialsmaterial contracts. The Company also enters into fixed pricefixed-price service contracts related to monitoring, maintenance, and inspection of safety systems.March 31,September 30, 2023, and 2022. During 2023, the Company moved an immaterial business component within the SafetyThree Months Ended September 30, 2023 Safety
ServicesSpecialty
ServicesConsolidated Life Safety $ 1,084 $ — $ 1,084 Heating, Ventilation, and Air Conditioning ("HVAC") 133 — 133 Infrastructure/Utility — 360 360 Fabrication — 42 42 Specialty Contracting — 167 167 Corporate and Eliminations — — (2) Net revenues $ 1,217 $ 569 $ 1,784 Three Months Ended September 30, 2022 Safety
ServicesSpecialty
ServicesConsolidated Life Safety $ 1,021 $ — $ 1,021 HVAC 133 — 133 Infrastructure/Utility — 341 341 Fabrication — 87 87 Specialty Contracting — 162 162 Corporate and Eliminations — — (9) Net revenues $ 1,154 $ 590 $ 1,735 Nine Months Ended September 30, 2023 Safety
ServicesSpecialty
ServicesConsolidated Life Safety $ 3,250 $ — $ 3,250 HVAC 383 — 383 Infrastructure/Utility — 907 907 Fabrication — 155 155 Specialty Contracting — 492 492 Corporate and Eliminations — — (18) Net revenues $ 3,633 $ 1,554 $ 5,169 Nine Months Ended September 30, 2022 Safety
ServicesSpecialty
ServicesConsolidated Life Safety $ 3,003 $ — $ 3,003 HVAC 371 — 371 Infrastructure/Utility — 849 849 Fabrication — 194 194 Specialty Contracting — 477 477 Corporate and Eliminations — — (39) Net revenues $ 3,374 $ 1,520 $ 4,855
Services
Services
Eliminations
Services
Services
Eliminations
Services
Services
Eliminations
Services
Services
Eliminations11Three Months Ended September 30, 2023 Safety
ServicesSpecialty
ServicesCorporate and
EliminationsConsolidated United States $ 595 $ 559 $ (2) $ 1,152 France 140 — — 140 Other 482 10 — 492 Net revenues $ 1,217 $ 569 $ (2) $ 1,784 Three Months Ended September 30, 2022 Safety
ServicesSpecialty
ServicesCorporate and
EliminationsConsolidated United States $ 568 $ 565 $ (9) $ 1,124 France 125 — — 125 Other 461 25 — 486 Net revenues $ 1,154 $ 590 $ (9) $ 1,735 Nine Months Ended September 30, 2023 Safety
ServicesSpecialty
ServicesCorporate and
EliminationsConsolidated United States $ 1,738 $ 1,525 $ (18) $ 3,245 France 446 — — 446 Other 1,449 29 — 1,478 Net revenues $ 3,633 $ 1,554 $ (18) $ 5,169 Nine Months Ended September 30, 2022 Safety
ServicesSpecialty
ServicesCorporate and
EliminationsConsolidated United States $ 1,576 $ 1,481 $ (39) $ 3,018 France 417 — — 417 Other 1,381 39 — 1,420 Net revenues $ 3,374 $ 1,520 $ (39) $ 4,855 March 31,September 30, 2023 was $2,606.$2,732. The Company expects to recognize revenue on approximately 89%87% of the remaining performance obligations over the next twelve months.March 31,September 30, 2023 and December 31, 2022 are as follows:
receivable,
net of
allowances
assets
liabilitiesAccounts
receivable,
net of
allowancesContract
assetsContract
liabilitiesBalance at September 30, 2023 Balance at September 30, 2023 $ 1,280 $ 530 $ 474 Balance at December 31, 2022 1,313 459 463 March 31,September 30, 2023 and December 31, 2022, retentions receivable were $142$159 and $150,$150, respectively, while the portions that may not be received within one year were $31$27 and $35,$35, respectively.6.7. GOODWILL AND INTANGIBLESMarch 31,September 30, 2023 and December 31, 2022. The changes in the carrying amount of goodwill by reportable segment for the threenine months ended March 31,September 30, 2023 are as follows:Safety
ServicesSpecialty
ServicesTotal
GoodwillGoodwill as of December 31, 2022 $ 2,201 $ 181 $ 2,382 Acquisitions 39 — 39 — (4) (4) Foreign currency translation (13) — (13) Goodwill as of September 30, 2023 $ 2,227 $ 177 $ 2,404
Services
Services
Goodwill12Intangibles(1) During the three months ended September 30, 2023, the Company determined its intent to sell the Operating Company (see Note 4 – “Assets Held for Sale”). Pursuant to the authoritative literature, the Company evaluated the recoverability of the carrying value of the assets and liabilities held for sale and recorded a goodwill impairment charge of $4.March 31,September 30, 2023 and December 31, 2022:
(in Years)
Carrying
Amount
Amortization
Amount
(in Years)
Carrying
Amount
Amortization
AmountSeptember 30, 2023 Weighted Average Remaining
Useful Lives
(in Years)Gross
Carrying
AmountAccumulated
AmortizationNet Carrying
AmountAmortized intangibles: Contractual backlog 0.3 $ 154 $ (146) $ 8 Customer relationships 9.5 1,513 (477) 1,036 Trade names and trademarks 12.4 702 (122) 580 Total $ 2,369 $ (745) $ 1,624 December 31, 2022 Weighted Average Remaining
Useful Lives
(in Years)Gross
Carrying
AmountAccumulated
AmortizationNet Carrying
AmountAmortized intangibles: Contractual backlog 0.9 $ 153 $ (126) $ 27 Customer relationships 10.0 1,508 (367) 1,141 Trade names and trademarks 13.2 704 (88) 616 Total $ 2,365 $ (581) $ 1,784 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Cost of revenues $ 7 $ 15 $ 20 $ 22 Selling, general, and administrative expenses 49 36 147 143 Total intangible asset amortization expense $ 56 $ 51 $ 167 $ 165 7.8. FAIR VALUE OF FINANCIAL INSTRUMENTSLevel 1:Observable inputs such as quoted prices for identical assets or liabilities in active markets.Level 2:Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.Level 3:Unobservable inputs that reflect the Company's own assumptions.13Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.March 31,September 30, 2023 and December 31, 2022:Fair Value Measurements at September 30, 2023 Financial assets: Level 1 Level 2 Level 3 Total Derivatives designated as hedge instruments Cash flow hedges - interest rate swaps $ — $ 36 $ — $ 36 Cash flow hedges - cross currency contracts — 15 — 15 Cash flow hedges - foreign currency forward contracts — — — — Net investment hedges - cross currency contracts — 27 — 27 Fair value hedges - cross currency contracts — 47 — 47 Derivatives not designated as hedge instruments Foreign currency forward contracts — 1 — 1 Total $ — $ 126 $ — $ 126 Financial liabilities: Derivatives not designated as hedge instruments Foreign currency forward contracts — (1) — (1) Contingent consideration obligations — — (6) (6) Total $ — $ (1) $ (6) $ (7) Fair Value Measurements at December 31, 2022 Financial assets: Level 1 Level 2 Level 3 Total Derivatives designated as hedge instruments Cash flow hedges - interest rate swaps $ — $ 14 $ — $ 14 Cash flow hedges - cross currency contracts — 17 — 17 Cash flow hedges - foreign currency forward contracts — — — — Net investment hedges - cross currency contracts — 32 — 32 Fair value hedges - cross currency contracts — 50 — 50 Derivatives not designated as hedge instruments Foreign currency forward contracts — — — — Total $ — $ 113 $ — $ 113 Financial liabilities: Derivatives not designated as hedge instruments Foreign currency forward contracts — — — — Contingent consideration obligations — — (4) (4) Total $ — $ — $ (4) $ (4) 14
March 31, 2023Nine Months Ended,
September 30, 2023Balance as of December 31, 2022 $ 4 Issuances 3 Settlements (1) Adjustments to fair value — Balance as of September 30, 2023 $ 6 Number of open contingent consideration arrangements at the end of the period 2 Maximum potential payout at the end of the period $ 6 March 31,September 30, 2023, the remaining open contingent consideration arrangements are set to expire at various dates through 2024.2025. 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 and nine months ended March 31,September 30, 2023.1011 – “Debt”), including current portions and excluding unamortized debt issuance costs. The fair values are estimated by discounting future cash flows at current interest rates for borrowing arrangements with similar terms and conditions. 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,first quarter of 2023, the Company repaid an aggregate amount of $200, $100$200, $100 to each of the 2019 Term Loan and 2021 Term Loan.September 30, 2023 December 31, 2022 Carrying Value Fair Value Carrying Value Fair Value 2019 Term Loan $ 1,027 $ 1,027 $ 1,127 $ 1,120 2021 Term Loan 985 986 1,085 1,075 4.125% Senior Notes 337 285 337 284 4.750% Senior Notes 277 242 277 243 8.9. DERIVATIVESthe items subject to designated hedge or undesignated (economic) hedge relationships. The Company evaluates hedge effectiveness at inception and on an ongoing basis. If a derivative is no longer expected to be effective, hedge accounting is discontinued.generally do not call for collateral, and no cash collateral had been received or pledged related to the underlying derivatives as of March 31,September 30, 2023.September 30, 2023 December 31, 2022 Outstanding Gross
Notional AmountOther Assets Other
Noncurrent liabilitiesOutstanding Gross
Notional AmountOther Assets Other
Noncurrent liabilitiesDerivatives designated as hedging instruments: Cash flow hedges: Interest rate swaps $ 1,120 $ 36 $ — $ 1,120 $ 14 $ — Cross currency contracts 120 15 — 120 17 — Foreign currency forward contracts 2 — — — — — Fair value hedges: Cross currency contracts 721 47 — 721 50 — Net investment hedges: Cross currency contracts 230 27 — 230 32 — Total derivatives designated as hedging instruments 2,193 125 — 2,191 113 — Derivatives not designated as hedging instruments: Foreign currency forward contracts 103 1 (1) 118 — — Total derivatives not designated as hedging instruments 103 1 (1) 118 — — Total derivatives $ 2,296 $ 126 $ (1) $ 2,309 $ 113 $ — Amount of income (expense) recognized in income Derivatives Location of income (expense)
recognized in incomeThree Months Ended September 30, 2023 2022 Cash flow hedging relationships: Interest rate swaps Interest expense, net $ 8 $ 1 Cross currency contracts Investment income and other, net 3 7 Cross currency contracts Interest expense, net 1 1 Foreign currency forward contracts Investment income and other, net — — Fair value hedging relationships: Cross currency contracts Investment income and other, net 22 49 Cross currency contracts Interest expense, net 1 1 Net investment hedging relationships: Cross currency contracts Interest expense, net 1 1 Not designated as hedging instruments: Foreign currency forward contracts Investment income and other, net — 2 Amount of income (expense) recognized in income Derivatives Location of income (expense)
recognized in incomeNine Months Ended September 30, 2023 2022 Cash flow hedging relationships: Interest rate swaps Interest expense, net $ 23 $ (3) Cross currency contracts Investment income and other, net 1 15 Cross currency contracts Interest expense, net 2 2 Foreign currency forward contracts Investment income and other, net — — Fair value hedging relationships: Cross currency contracts Investment income and other, net 1 92 Cross currency contracts Interest expense, net 2 3 Net investment hedging relationships: Cross currency contracts Interest expense, net 3 3 Not designated as hedging instruments: Foreign currency forward contracts Investment income and other, net — 5 16$0 million and ($1) million$0 for both the three months ended March 31,September 30, 2023 and 2022, and $0 and $(2) for the nine months ended September 30, 2023 and 2022, respectively.Amount of gain (loss)
recognized in other
comprehensive incomeLocation of gain (loss) reclassified from
AOCI into incomeAmount of gain (loss)
reclassified from
AOCI into incomeThree Months Ended September 30, Three Months Ended September 30, Derivatives 2023 2022 2023 2022 Cash flow hedging relationships: Interest rate swaps $ 8 $ 35 Interest expense, net $ 4 $ 1 Cross currency contracts (2) — Investment income and other, net 3 7 Forward currency forward contracts — — Investment income and other, net — — Fair value hedging relationships: Cross currency contracts (7) 6 Investment income and other, net 23 51 Net investment hedging relationships: Cross currency contracts 2 10 Interest expense, net (1) (1) Amount of gain (loss)
recognized in other
comprehensive incomeLocation of gain (loss) reclassified from
AOCI into incomeAmount of gain (loss)
reclassified from
AOCI into incomeNine Months Ended September 30, Nine Months Ended September 30, Derivatives 2023 2022 2023 2022 Cash flow hedging relationships: Interest rate swaps $ 16 $ 54 Interest expense, net $ 12 $ 1 Cross currency contracts (3) 3 Investment income and other, net 1 15 Forward currency forward contracts — — Investment income and other, net — — Fair value hedging relationships: Cross currency contracts (3) 1 Investment income and other, net 1 94 Net investment hedging relationships: Cross currency contracts (3) 25 Interest expense, net — (1) $720$720 notional amount interest rate swap with a maturity date in October 2024 ("2024 Interest Rate Swap"). 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,September 30, 2023, approximately $26$18 of unrealized pre-tax gains remained in AOCI.$720$720 notional amount interest rate swap ("2026 Interest Rate Swap") that, as amended on May 19, 2023 in connection with the transition to the Secured Overnight Financing Rate ("SOFR"). Refer to Note 11 - "Debt" for additional information. The 2026 Interest Rate Swap exchanges a variable rate of interest (LIBOR)(SOFR) for an average fixed rate of interest of approximately 3.64%3.59% over the term of the agreement, which matures in October 2026.three months ended March 31,first quarter of 2023, the aggregate $400$400 notional forward-starting swaps became effective ("2028 Interest Rate Swap"), as amended on May 19, 2023 in connection with the Company entered into during 2022 became effective.transition to SOFR. Refer to Note 11 - "Debt" for additional information. These interest rate swaps exchange a variable rate of interest (LIBOR)(SOFR) for an average fixed rate of interest of approximately 3.46%3.41% over the term of the agreements, which mature in January 2028.March 31,September 30, 2023, the Company had $1,120$1,120 notional amount outstanding in swap agreements, which includes the aggregate $400$400 notional 2028 Interest Rate Swap, and the $720$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.(SOFR) payments for its SOFR based term loans of $2,012. As of March 31,September 30, 2023, the weighted average fixed rate of interest on these swaps was approximately 3.58%3.52%. Variations in the assets and liability balances are primarily driven by changes in the applicable forward yield curves related to LIBOR.17cross currencycross-currency exchange contracts utilized to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies and to hedge exposures of certain intercompany loans subject to changes in foreign currency exchange rates. The Company periodically assesses whether its currency exchange contracts are effective, and when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively.$26$26 and $94$94 with maturity dates of September 2027 and 2030, respectively.cross currencycross-currency swaps each with maturity dates of January 2027. These contracts are designated as fair value hedges with gross notional U.S. dollar equivalents of $271, $241,$271, $241, and $209$209 in GBP, CAD, and EUR, respectively. The Company measures the effectiveness of fair value hedges of anticipated transactions on a spot-to-spot basis. Accordingly, the spot-to-spot change in the derivative fair values are recorded in the condensed consolidated statements of operations and perfectly offset the spot-to-spot change in the underlying intercompany loans, and as such, these hedges are deemed highly effective. The excluded component of the fair values of these derivatives is reported in AOCI within shareholders’ equity in the condensed consolidated balance sheets. Any cash flows associated with these instruments are included in operating activities in the condensed consolidated statements of cash flows.$230$230 notional foreign currency swap designated as a net investment hedge for a portion of the Company’s net investments in Euro-denominated subsidiaries. Gains and losses resulting from a change in fair value of the net investment hedge are offset by gains and losses on the underlying foreign currency exposure and are included in AOCI in the condensed consolidated balance sheets.$3$3 annually and reduces its overall effective interest rate by approximately 24 basis points and will mature in July 2029.189.10. PROPERTY AND EQUIPMENT, NETMarch 31,September 30, 2023, and December 31, 2022 are as follows:
Useful Lives
(In Years)
2023
2022Estimated
Useful Lives
(In Years)September 30,
2023December 31,
2022Land N/A $ 26 $ 30 Building 39 83 98 Machinery and equipment 1-20 268 313 Autos and trucks 4-10 112 116 Office equipment 5-7 86 35 Leasehold improvements 1-15 33 33 Total cost 608 625 Accumulated depreciation (231) (218) Property and equipment, net $ 377 $ 407 $19$21 and $19$22 during the three months ended March 31,September 30, 2023 and 2022, and $59 and $60 during the nine months ended September 30, 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.10.11. DEBT
2023
2022Maturity Date September 30,
2023December 31,
2022Term loan facility 2019 Term Loan October 1, 2026 $ 1,027 $ 1,127 2021 Term Loan January 3, 2029 985 1,085 Revolving Credit Facility October 1, 2026 — — Senior notes 4.125% Senior Notes July 15, 2029 337 337 4.750% Senior Notes October 15, 2029 277 277 Other obligations 6 6 Total debt obligations 2,632 2,832 Less: unamortized deferred financing costs (34) (43) Total debt, net of deferred financing costs 2,598 2,789 Less: short-term and current portion of long-term debt (256) (206) Long-term debt, less current portion $ 2,342 $ 2,583 March 31,September 30, 2023, the Company had $1,027$1,027 of principal outstanding under the $1,200$1,200 term loan (the "2019 Term Loan") with a maturity date of October 1, 2026.2026. During the threenine months ended March 31,September 30, 2023, the Company made a payment of $100$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%1.50% or (b) a EurocurrencyTerm SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50%2.50% plus a credit spread adjustment ("CSA").March 31,September 30, 2023, the Company had $985$985 of principal outstanding under the $1,100$1,100 term loan (the "2021 Term Loan") with a maturity date of January 3, 2029.2029. During the threenine months ended March 31,September 30, 2023, the Company made a payment of $100$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%1.75% or (2) Stock EurocurrencyTerm SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.75%.$500$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%1.25%, or (2) a EurocurrencyTerm SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25% plus a CSA.2.25%.March 31,September 30, 2023, the Company had a four-year interest rate swap with respect to $720$720 of notional value, of the 2019 Term Loan, exchanging one-month LIBORSOFR for a fixed rate of 3.64% per annum. Accordingly, the Company's fixed interest rate3.59% per annum, on the swapped $720 notional value of the 2019 Term Loan is 3.64% through its maturity. The remaining $307 of the 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 beganand a five-year interest rate swap, onwhich started in the 2021 Term Loanfirst quarter of 2023, exchanging one-month LIBORSOFR for a rate of 3.46%3.41%. Accordingly, the Company's fixed interest rate per annum on the first swapped $400$400 notional value of the 2021 Term Loanterm loans is 3.41% and the second swapped $720 notional value ofitstheir maturity. The remaining $585$892 of the 2021 Term Loanterm loans balance will bear interest based on one-month LIBORSOFR plus CSA plus 250 basis points or SOFR plus CSA plus 275 basis points, but the rate will fluctuate as LIBOR fluctuates.SOFR fluctuates. Refer to Note 89 - "Derivatives" for additional information.At March 31,$446$484 and $446 was available for both March 31,at September 30, 2023 and December 31, 2022, respectively, after giving effect to $54$16 and $54 of outstanding letters of credit, for both periods.March 31,September 30, 2023 and December 31, 2022, the Company was in compliance with all applicable debt covenants.4.125%$350$350 aggregate principal amount of 4.125%4.125% Senior Notes (the “4.125%“4.125% Senior Notes”) issued under an indenture dated June 22, 2021. The 4.125%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$13 of the 4.125%4.125% Senior Notes in September 2022 and the balance as of March 31,September 30, 2023 was $337.4.750%$337.$300$300 aggregate principal amount of 4.750%4.750% Senior Notes due 2029 (the "4.750%"4.750% Senior Notes") issued under an indenture dated October 21, 2021, as supplemented by a supplemental indenture dated January 3, 2022. The 4.750%4.750% 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 $23$23 of the 4.750%4.750% Senior Notes in September 2022 and the balance as of March 31,September 30, 2023 was $277.4.125%4.125% Senior Notes and 4.750%4.750% Senior Notes as of March 31,September 30, 2023, and December 31, 2022.March 31,each of September 30, 2023 and December 31, 2022, the Company had $6 and $6$6 in notes outstanding respectively, for working capital purposes and the acquisition of equipment and vehicles.Note 11. Income Taxes30.6%25.5% and 71.3%40.5% for the three months ended March 31,September 30, 2023 and 2022, and 31.3% and 24.2% for the nine months ended September 30, 2023, and 2022, respectively. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0%21.0% for the three and nine months ended March 31,September 30, 2023 and 2022 is due to nondeductible permanent items, state taxes, taxes on foreign earnings in jurisdictions that have higher tax rates, and the reversal of the Company’s indefinite reinvestment assertion.20March 31,September 30, 2023, the Company’s deferred tax assets included a valuation allowance of $101$105 primarily 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.March 31,September 30, 2023, the Company had gross federal, state, and foreign net operating loss carryforwards of approximately $0, $21,$0, $21, and $105,$104, respectively. The state net operating losses have carryforward periods of five to twentytwenty Table of Contents2027.2027. 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.March 31,September 30, 2023, and December 31, 2022, the total gross unrecognized tax benefits were $7$6 and $8,$8, respectively. The Company had accrued gross interest and penalties as of March 31,each of September 30, 2023 and December 31, 2022 of $2 and $2, respectively.$2. During the three and nine months ended March 31,September 30, 2023 and 2022, the Company did notnot recognize net interest expense.March 31,September 30, 2023, were recognized, $9$8 would impact the Company’s effective tax rate. The Company expects $1 ofdoes not expect any unrecognized tax benefits to expire in the next twelve months.March 31,September 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.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.15%15% minimum tax based on “adjusted financial statement income” for certain large corporations which is effective for taxable years beginning after December 31, 2022, and a 1%1% excise tax on share repurchases after December 31, 2022. While these tax law changes are not expected to have a material adverse effect on the Company's results of operations going forward, it is unclear how this legislation will be implemented by the U.S. Department of Treasury and what, if any, impact it will have on the Company's effective tax rate. The Company will continue to evaluate the impact of the Inflation Reduction Act as further information becomes available.Three Months Ended September 30, 2023 2022 Service cost $ 1 $ 3 Interest cost 16 7 Expected return on plan assets (19) (18) Net periodic pension benefit $ (2) $ (8) Note 12. Employee Benefit PlansTable of ContentsNine Months Ended September 30, 2023 2022 Service cost $ 3 $ 9 Interest cost 47 24 Expected return on plan assets (56) (56) Net periodic pension benefit $ (6) $ (23) $23$25 and $24$26 during the three months ended March 31,September 30, 2023 and 2022, respectively.Defined benefit pension plansThe Company sponsors both fundedrespectively, and unfunded foreign defined benefit pension plans that cover a portion of$75 and $77 during the Company's employees,nine months ended September 30, 2023 and the largest plans are closed to new participants and frozen for accrual of future service.21The components of the net periodic pension benefit for the defined benefit pension plans are as follows:profit sharingprofit-sharing retirement plan covering substantially all of the Company's employees in the U.S. not covered by collective bargaining agreements and a profit sharing plan for employees in Canada (collectively, “Profit Sharing Plans”). The Profit SharingProfit-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$4 and $3$4 in expense during the three months ended March 31,September 30, 2023 and 2022, respectively, and $14 and $10 in expense during the nine months ended September 30, 2023 and 2022, respectively.85%85% of the lesser of (i) the market value of the common stock on the first day of the offering period, or (ii) the market value of the common stock on the purchase date, whichever is lower. Participants are subject to eligibility requirements and may not purchase more than 500 shares in any offering period or more than ten thousand dollars of common stock in a year under the ESPP. The Company recognized $2$1 of expense during each of the three months ended September 30, 2023 and $12022 and $4 and $3 of expense during the threenine months ended March 31,September 30, 2023 and 2022, respectively.Note 13. Related-Party Transactions$1$1 during each of the three months ended March 31,September 30, 2023 and 2022 and $3 during each of the nine months ended September 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. The Company issued 7,539,697 shares in January 2022 to Mariposa Acquisition IV, LLC, a related entity that is controlled by a co-chair of the Company's Board of Directors.5.5%5.5% Series B Redeemable Convertible Preferred Stock, par value $0.0001$0.0001 per share (the “Series B Preferred Stock”) for an aggregate purchase price of $800.$800. Of the 800,000 shares issued and sold, 200,000 shares were sold to Viking Global Equities Master Ltd. and Viking Global Equities II LP ("Viking Purchasers"), which is the aggregate owner of more than 5%5% of the Company's outstanding stock. The Company declared dividends of 124,573103,283 and 129,867184,754 shares of common stock on the Series B Preferred Stock held by the Viking Purchasers during the three months ended March 31,September 30, 2023, and 2022, respectively. The Company declared$2$1 and $3 in net revenues for the three and nine months ended March 31,September 30, 2023, respectively, and as of March 31, 2023 had $4 in accounts receivable, net of allowances.into other immaterial related-party transactions.14. Commitments and contingencies22$18$17 and $16,$16, and was included in other noncurrent liabilities on the condensed consolidated balance sheets as of March 31,September 30, 2023 and December 31, 2022, respectively.15.16. SHAREHOLDERS’ EQUITY and REdeemable convertible preferred stockhas had 4,000,000 shares of Series A Preferred Stock issued and outstanding as of March 31,September 30, 2023 ("Series A Preferred Stock"). The Series A Preferred Stock will be automatically converted into shares of common stock on a one-for-oneone-for-one basis on the last day of 2026. The holders of the Series A Preferred Stock are entitled to receive an annual dividend in the form of common stock or cash, at the Company’s sole option, based on the increase in the market price of the Company’s common stock.repurchases$250$250 of shares of the Company’s common stock pursuant to the stock repurchase program ("SRP"), which will expire on February 29, 2024, unless otherwise modified or terminated by the Company's Board of Directors. The SRP authorizes open market, private, and accelerated share repurchase transactions. During the three months ended March 31,September 30, 2023, and 2022, the Company repurchased 541,316656,489 and 531,431738,572 shares of common stock for aggregate payments of approximately $12$18 and $11,$11, respectively. During the nine months ended September 30, 2023 and 2022, the Company repurchased 1,626,493 and 1,951,332 shares of common stock for approximately $41 and $33, respectively. As of March 31,September 30, 2023, the Company had approximately $195$166 of authorized repurchases remaining under the SRP.$800, $800, 800,000 shares of the Company’s 5.5%5.5% Series B Preferred Stock, par value $0.0001$0.0001 per share. The holders of the Series B Preferred Stock are entitled to dividends at the rate of 5.5%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 the 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.$24.60$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.$36.90$36.90 per share for 15 consecutive trading days.235.5%5.5% as and when declared by the Board of Directors, prior and in preference to any declaration or payment of any dividend on the Company's common stock and Series A Preferred Stock. Series B Preferred Stock dividends are cumulative and accrued quarterly, in cash or in common stock, based on an annual 5.5%5.5% dividend rate. The Company declared a Series B Preferred Stock dividend of $11$11, or 584,584 shares of common stock, in December 2022 and issued the shares in January 2023. The Company declared a Series B Preferred Stock dividend of $11, or 413,135 shares of common stock, and $11, or 739,015 shares of common stock, during the three months ended September 30, 2023, and 2022, respectively. The Company declared and issued a Series B Preferred Stock dividend of $11$11, or 498,293 shares of common stock and $11 or 519,469739,015 shares of common stock, during the three months ended March 31,September 30, 2022. The Company declared and issued a Series B Preferred Stock dividend of $22, or 935,285 shares of common stock, and $33, or 1,944,939 shares of common stock, during the nine months ended September 30, 2023, and 2022, respectively. If regular dividends are to be paid in shares of common stock, then each holder shall be entitled to receive such number of whole shares of common stock as is determined by dividing the pro rata amount of regular dividends to which a holder is entitled by the average price per share of common stock over the dividend determination period from dividend notice until the payment date.Note 16. Earnings Per ShareThree Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Basic earnings per common share: Net income $ 54 $ 28 $ 128 $ 51 Less income allocable to Series A Preferred Stock (4) (2) (10) (2) Less income allocable to Series B Preferred Stock (4) (2) (10) (2) Less stock dividend attributable to Series B Preferred Stock (11) (11) (33) (33) Net income attributable to common shareholders $ 35 $ 13 $ 75 $ 14 Weighted average shares outstanding - basic 235,418,566 233,605,429 234,996,055 232,982,467 Income per common share - basic $ 0.15 $ 0.06 $ 0.32 $ 0.06 Diluted earnings per common share: Net income $ 54 $ 28 $ 128 $ 51 Less income allocable to Series A Preferred Stock (4) (2) (10) (2) Less stock dividend attributable to Series B Preferred Stock (11) (11) (33) (33) Net income attributable to common shareholders - diluted $ 39 $ 15 $ 85 $ 16 Weighted average shares outstanding - basic 235,418,566 233,605,429 234,996,055 232,982,467 Restricted stock units, warrants, and stock options 420,465 336,325 308,745 357,350 Shares issuable upon conversion of Series B Preferred Shares 32,520,000 32,520,000 32,520,000 32,520,000 1,679,291 — 1,099,296 — Weighted average shares outstanding - diluted 270,038,322 266,461,754 268,924,096 265,859,817 Income per common share - diluted $ 0.15 $ 0.06 $ 0.32 $ 0.06 The following items were excluded from the calculation of diluted shares as their inclusion would be anti-dilutive:a.the three months ended March 31, 2023 and 2022, all periods presented, 4,000,000 shares of Series A Preferred Stock, which are convertible to the same number of common shares.shares, have been excluded from the calculation of diluted shares, as their inclusion would be anti-dilutive.b.2.March 31, 2022, 800,000September 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 BA Preferred Stock which are convertibleentitled to 32,520,000receive 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 $24.3968.24c.For the three months ended March 2022, 162,500 stock options to purchase the same number of common shares.d.For the three months ended March 31, 2022, 2,378,318 time-based and performance-based restricted stock units.Note 17. SEgment informationhigh tech,high-tech, industrial and special-hazard settings.includesinclude 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.
Services
Services
Eliminations25
Services
Services
EliminationsThree Months Ended September 30, 2023 Safety
ServicesSpecialty
ServicesCorporate and
EliminationsConsolidated Net revenues $ 1,217 $ 569 $ (2) $ 1,784 EBITDA Reconciliation Operating income (loss) $ 98 $ 43 $ (37) $ 104 Plus: Investment income and other, net 2 1 1 4 Non-service pension benefit 3 — — 3 Depreciation 8 13 — 21 Amortization 42 13 1 56 EBITDA $ 153 $ 70 $ (35) $ 188 Total assets $ 5,983 $ 1,315 $ 651 $ 7,949 Capital expenditures 5 10 3 18 Three Months Ended September 30, 2022 Safety
ServicesSpecialty
ServicesCorporate and
EliminationsConsolidated Net revenues $ 1,154 $ 590 $ (9) $ 1,735 EBITDA Reconciliation Operating income (loss) $ 60 $ 45 $ (44) $ 61 Plus: Investment income and other, net 1 2 — 3 Non-service pension benefit 10 — — 10 Gain on extinguishment of debt, net — — 5 5 Depreciation 8 12 2 22 Amortization 37 14 — 51 EBITDA $ 116 $ 73 $ (37) $ 152 Total assets $ 5,879 $ 1,357 $ 705 $ 7,941 Capital expenditures 5 16 5 26 Nine Months Ended September 30, 2023 Safety
ServicesSpecialty
ServicesCorporate and
EliminationsConsolidated Net revenues $ 3,633 $ 1,554 $ (18) $ 5,169 EBITDA Reconciliation Operating income (loss) $ 292 $ 84 $ (92) $ 284 Plus: Investment income and other, net 2 6 1 9 Non-service pension benefit 9 — — 9 Loss on extinguishment of debt, net — — (3) (3) Depreciation 21 37 1 59 Amortization 125 39 3 167 EBITDA $ 449 $ 166 $ (90) $ 525 Total assets $ 5,983 $ 1,315 $ 651 $ 7,949 Capital expenditures 19 41 4 64 Nine Months Ended September 30, 2022 Safety
ServicesSpecialty
ServicesCorporate and
EliminationsConsolidated Net revenues $ 3,374 $ 1,520 $ (39) $ 4,855 EBITDA Reconciliation Operating income (loss) $ 186 $ 70 $ (143) $ 113 Plus: Investment income and other, net 2 5 (2) 5 Non-service pension benefit 32 — — 32 Gain on extinguishment of debt, net — — 5 5 Depreciation 20 35 5 60 Amortization 120 43 2 165 EBITDA $ 360 $ 153 $ (133) $ 380 Total assets $ 5,879 $ 1,357 $ 705 $ 7,941 Capital expenditures 16 37 7 60 262728thatwhich 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. You should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. These forward-looking statements speak only as of the date of this quarterly report. We assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future, except as required by applicable law.ItemManagement’s Discussion and Analysis of Financial Condition and Results of Operations20222023 audited annual consolidated financial statements, the related notes thereto and under the heading "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other disclosures contained in our Annual Report on Form 10-K, including financial results for the year ended December 31, 2022. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under the “Cautionary Note Regarding Forward Looking Statements” section of this quarterly report.high tech,high-tech, industrial and special-hazard settings.1718 – “Segment Information” to our condensed consolidated financial statements included herein.30RRecent Developments and Certain Factors and Trends Affecting our Results of OperationsNDSinceChubb Acquisition,nine months ended September 30, 2023, we have incurred pre-tax restructuring costs within the Safety Services segment of $30$21 million in connection with the Chubb restructuring program. In total, we estimate that we will recognize approximately $105 million of restructuring costs related to the Chubb restructuring program by the end of fiscal year 2024.45 – “Restructuring" to our condensed consolidated financial statements included herein.8 -9 – "Derivatives" to our condensed consolidated financial statements included in this quarterly report for additional information on our hedging activities. While we actively monitor economic, industry, and market factors that could affect our business, we cannot predict the effect that changes in such factors may have on our future results of operations, liquidity, and cash flows, and we may be unable to fully mitigate, or benefit from such changes.31ESCRIPTIONDescription of Key Line ItemsEYLabor intensiveLabor-intensive contracts usually drive higher margins than those contracts that include material, subcontract, and equipment costs.and risk management, and overhead associated with these functions. General and administrative expenses also include outside professional fees and other corporate expenses.32Critical Accounting Policies and EstimatesOLICIESResults of Operations OMarch 31,September 30, 2023 and the three and nine months ended March 31,September 30, 2022.March 31,September 30, 2023 compared to the three months ended March 31,September 30, 2022NM = Not meaningfulThree Months Ended September 30, Change ($ in millions) 2023 2022 $ % Net revenues $ 1,784 $ 1,735 $ 49 2.8 % Cost of revenues 1,273 1,295 (22) (1.7) % Gross profit 511 440 71 16.1 % Selling, general, and administrative expenses 407 379 28 7.4 % Operating income 104 61 43 70.5 % Interest expense, net 37 33 4 12.1 % Gain on extinguishment of debt, net — (5) 5 (100.0) % Non-service pension benefit (3) (10) 7 (70.0) % Investment income and other, net (4) (3) (1) 33.3 % Other expense, net 30 15 15 100.0 % Income before income taxes 74 46 28 60.9 % Income tax provision 20 18 2 11.1 % Net income $ 54 $ 28 $ 26 92.9 % March 31,September 30, 2023 were $1,614$1,784 million compared to $1,471$1,735 million for the same period in 2022, an increase of $143$49 million or 9.7%2.8%. The increase in net revenues was primarily driven by growth within ouroccurred in the Safety Services and Specialty Services segments. In addition, the increase in net revenues wassegment, driven by growth in inspection, service, and monitoring revenue. This increase was partially offset by the impact of foreign currency exchange rates.March 31,September 30, 2023 and 2022, respectively:Three Months Ended September 30, Change ($ in millions) 2023 2022 $ % Gross profit $ 511 $ 440 $ 71 16.1 % Gross margin 28.6 % 25.4 % March 31,September 30, 2023 was $425$511 million compared to $376$440 million for the same period in 2022, an increase of $49$71 million, or 13.0%16.1%. Gross margin was 26.3%28.6%, an increase of 70320 basis points compared to the prior year period, primarily due to disciplined project and customer selection, within and pricing improvements in33(loss) as a percentage of net revenues) for the three months ended March 31,September 30, 2023 and 2022, respectively:Three Months Ended September 30, Change ($ in millions) 2023 2022 $ % Selling, general, and administrative expenses $ 407 $ 379 $ 28 7.4 % SG&A expenses as a % of net revenues 22.8 % 21.8 % Operating margin 5.8 % 3.5 % SG&A expenses (excluding amortization and impairment) (Non-GAAP) $ 345 $ 343 $ 2 0.6 % SG&A expenses (excluding amortization and impairment) as a % of net revenues (Non-GAAP) 19.3 % 19.8 % March 31,September 30, 2023 were $352$407 million compared to $383$379 million for the same period in 2022, a decreasean increase of $31$28 million. SG&A expenses as a percentage of net revenues was 21.8%22.8% during the three months ended March 31,September 30, 2023 compared to 26.0%21.8% for the same period in 2022. The increase in SG&A expenses was primarily attributable to an impairment charge of $13 million related to assets held for sale and increased amortization expense in the three months ended September 30, 2023 compared to 2022. Our SG&A expenses excluding amortization and impairment for the three months ended September 30, 2023 were $345 million, or 19.3% of net revenues, compared to $343 million, or 19.8% of net revenues, for the same period of 2022. The decrease in SG&A expenses excluding amortization and impairment as a percentage of net revenues was driven by lower acquisition and integration related expenses incurred in the three months ended March 31,September 30, 2023 compared to the same period in the prior year. The decrease in the three months ended March 31, 2023 was2022 and better leverage of SG&A expenses across a growing revenue base, partially offset by changesinvestments to support growth 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 Safety Services segment. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.$27$33 million for the three months ended March 31,September 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.Lossthe three months ended March 31, 2023,2022, we made payments of $100repurchased $13 million and $100$23 million of the outstanding principal amount of the 2019 Term Loan4.125% Senior Notes and 2021 Term Loan,4.750% Senior Notes, respectively. In connection with the payments,repurchases, we recognized a net lossgain on debt extinguishment of $3$5 million.$11$10 million for the three months ended March 31,September 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.$2$4 million and $0$3 million for the three months ended March 31,September 30, 2023 and 2022, respectively. The increase in investment income was primarily due to an increase in earnings from joint ventures.other miscellaneous income. (benefit)March 31,September 30, 2023 was $12$20 million compared to a benefit of $16$18 million infor the same period of the prior year.three months ended September 30, 2022. This change was driven by increased generated income before taxes in the three months ended March 31,September 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 $9 million of the benefit in 2022. The effective tax rate for the three months ended March 31,September 30, 2023 was 30.6%25.5%, compared to 71.3%40.5% in the same period of 2022. The difference in the effective tax rate was driven by discrete and nondeductible permanent items. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% is due to the nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, and state taxes, and the reversal of our indefinite reinvestment assertion.(loss) and EBITDA (loss) and EBITDA for the three months ended March 31,September 30, 2023 and 2022, respectively:NM = Not meaningfulThree Months Ended September 30, Change ($ in millions) 2023 2022 $ % Net income $ 54 $ 28 $ 26 92.9 % EBITDA (non-GAAP) 188 152 36 23.7 % Net income as a % of net revenues 3.0 % 1.6 % EBITDA as a % of net revenues 10.5 % 8.8 % March 31,September 30, 2023 was $26$54 million compared to a loss of $7$28 million for the same period in 2022, an increase of $33$26 million. The improvement primarily resulted from growthdisciplined project and customer selection, pricing improvements within our Safety Services and Specialty Services segments, disciplined project and customer selection, and an improved mix ofincrease in inspection, service, and monitoring revenue. The net income increase was also duepartially offset by an impairment charge of $13 million related to a higher volume of revenues while operating expenses decreased driven by lower acquisition and integration related expenses.assets held for sale. Net income as a percentage of net revenues for the three months ended March 31,September 30, 2023 and 2022 was 1.6%3.0% and (0.5)%1.6%, respectively. EBITDA for the three months ended March 31,September 30, 2023 was $149$188 million compared to $80$152 million for the same period in 2022, an increase of $69$36 million. The increase in EBITDA was primarily driven by the factors previously discussed. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.March 31,September 30, 2023 compared to the three months ended March 31,September 30, 2022Net Revenues Three Months Ended September 30, Change ($ in millions) 2023 2022 $ % Safety Services $ 1,217 $ 1,154 $ 63 5.5 % Specialty Services 569 590 (21) (3.6) % Corporate and Eliminations (2) (9) NM NM $ 1,784 $ 1,735 $ 49 2.8 % Operating Income (Loss) Three Months Ended September 30, Change ($ in millions) 2023 2022 $ % Safety Services $ 98 $ 60 $ 38 63.3 % Safety Services operating margin 8.1 % 5.2 % Specialty Services $ 43 $ 45 $ (2) (4.4 %) Specialty Services operating margin 7.6 % 7.6 % Corporate and Eliminations $ (37) $ (44) NM NM $ 104 $ 61 $ 43 70.5 % 35EBITDA Three Months Ended September 30, Change ($ in millions) 2023 2022 $ % Safety Services $ 153 $ 116 $ 37 31.9 % Safety Services EBITDA as a % of net revenues 12.6 % 10.1 % Specialty Services $ 70 $ 73 $ (3) (4.1 %) Specialty Services EBITDA as a % of net revenues 12.3 % 12.4 % Corporate and Eliminations $ (35) $ (37) NM NM $ 188 $ 152 $ 36 23.7 % March 31,September 30, 2023 compared to the three months ended March 31,September 30, 2022.March 31,September 30, 2023 increased by $117$63 million or 10.9%5.5% compared to the same period in the prior year.2022. The increase was primarily driven by increased inspection, service, and monitoring revenue and contract revenue within our Life Safety businesses.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.March 31,September 30, 2023 and 2022 was approximately 8.1% and 5.9%5.2%, respectively. The increase was primarily the result of growth in inspection, service, and monitoring revenue, disciplined project and customer selection, in our service business.and pricing improvements across the segment. The increase was also driven by lower acquisition and integration related expenses incurred in the three months ended March 31,September 30, 2023 compared to the same period in the prior year.2022. Safety Services EBITDA as a percentage of net revenues for the three months ended March 31,September 30, 2023 and 2022 was approximately 12.3%12.6% and 11.5%10.1%, respectively. This increase was primarily related to the factors discussed above.March 31,September 30, 2023 increaseddecreased by $18$21 million or 4.4%3.6% compared to the same period in the prior year.2022. The increasedecrease was primarily driven by increased activitydue to continued disciplined customer and project selection and customer project delays in the infrastructure and utility markets for emergencyfabrication business, partially offset by strong growth in the service workbusiness during the three months ended March 31,September 30, 2023 compared to the same period in 2022.Nine Months Ended September 30, Change ($ in millions) 2023 2022 $ % Net revenues $ 5,169 $ 4,855 $ 314 6.5 % Cost of revenues 3,737 3,604 133 3.7 % Gross profit 1,432 1,251 181 14.5 % Selling, general, and administrative expenses 1,148 1,138 10 0.9 % Operating income 284 113 171 151.3 % Interest expense, net 112 88 24 27.3 % Loss (gain) on extinguishment of debt, net 3 (5) 8 (160.0) % Non-service pension benefit (9) (32) 23 (71.9) % Investment income and other, net (9) (5) (4) 80.0 % Other expense, net 97 46 51 110.9 % Income before income taxes 187 67 120 179.1 % Income tax provision 59 16 43 268.8 % Net income $ 128 $ 51 $ 77 151.0 % Nine Months Ended September 30, Change ($ in millions) 2023 2022 $ % Gross profit $ 1,432 $ 1,251 $ 181 14.5 % Gross margin 27.7 % 25.8 % Nine Months Ended September 30, Change ($ in millions) 2023 2022 $ % Selling, general, and administrative expenses $ 1,148 $ 1,138 $ 10 0.9 % SG&A expense as a % of net revenues 22.2 % 23.4 % Operating margin 5.5 % 2.3 % SG&A expenses (excluding amortization and impairment) (Non-GAAP) $ 988 $ 995 $ (7) (0.7 %) SG&A expenses (excluding amortization and impairment) as a % of net revenues 19.1 % 20.5 % Nine Months Ended September 30, Change ($ in millions) 2023 2022 $ % Net income $ 128 $ 51 $ 77 151.0 % EBITDA (non-GAAP) 525 380 145 38.2 % Net income as a % of net revenues 2.5 % 1.1 % EBITDA as a % of net revenues 10.2 % 7.8 % Net Revenues Nine Months Ended September 30, Change ($ in millions) 2023 2022 $ % Safety Services $ 3,633 $ 3,374 $ 259 7.7 % Specialty Services 1,554 1,520 34 2.2 % Corporate and Eliminations (18) (39) NM NM $ 5,169 $ 4,855 $ 314 6.5 % Operating Income (Loss) Nine Months Ended September 30, Change ($ in millions) 2023 2022 $ % Safety Services $ 292 $ 186 $ 106 57.0 % Safety Services operating margin 8.0 % 5.5 % Specialty Services $ 84 $ 70 $ 14 20.0 % Specialty Services operating margin 5.4 % 4.6 % Corporate and Eliminations $ (92) $ (143) NM NM $ 284 $ 113 $ 171 151.3 % SpecialtyTable of ContentsEBITDA Nine Months Ended September 30, Change ($ in millions) 2023 2022 $ % Safety Services $ 449 $ 360 $ 89 24.7 % Safety Services EBITDA as a % of net revenues 12.4 % 10.7 % Specialty Services $ 166 $ 153 $ 13 8.5 % Specialty Services EBITDA as a % of net revenues 10.7 % 10.1 % Corporate and Eliminations $ (90) $ (133) NM NM $ 525 $ 380 $ 145 38.2 % threenine months ended March 31,September 30, 2023 and 2022 was approximately 0.0%8.0% and (1.7)%5.5%, respectively. The increase was primarily the result of disciplined project and customer selection, pricing improvements, and improved mix of inspection, service, and monitoring revenue, which generates higher margins. The increase was also driven by lower acquisition and integration related expenses incurred in the nine months ended September 30, 2023 compared to the same period in 2022. Safety Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2023 and 2022 was approximately 12.4% and 10.7%, respectively. This increase was primarily related to the factors discussed above.marketutility, and specialty contracting markets during the threenine months ended March 31, 2023. ThisSeptember 30, 2023 compared to the same period in 2022.also attributable to a higher volumeprimarily the result of projects while certain indirect costs remained consistent with prior periods.disciplined project and customer selection during the nine months ended September 30, 2023. Specialty Services EBITDA as a percentage of net revenues for the threenine months ended March 31,September 30, 2023 and 2022 was approximately 6.3%10.7% and 4.9%10.1%, respectively, due to the factors discussed above.amortization)amortization and impairment) and EBITDA (defined below), which are non-U.S. GAAP financial measures. We use these non-U.S. GAAP financial measures to evaluate our performance, both internally and as compared with our peers because they exclude certain items that may not be indicative of our core operating results. Management believes these measures are useful to investors since they (a) permit investors to view our performance using the same tools that management uses to evaluate our past performance, reportable business segments, and prospects for future performance, (b) permit investors to compare us with our peers, and (c) in the case of EBITDA, determines certain elements of management’s incentive compensation.36measuremeasures is that they exclude significant expenses required by U.S. GAAP to be recorded in our financial statements and may not be comparable to similarly titled measures of other companies due to potential differences in calculation methods. In addition, these measures are subject to inherentamortization)amortization)amortization and impairment) is a measure of operating costs used by management to manage the business and its segments. We believe this non-U.S. GAAP measure provides meaningful information and helps investors understand our core selling, general, and administrative expenses excluding acquisition-related amortization expense and impairment charges to better enable investors to understand our financial results and assess our prospects for future performance.amortization)amortization and impairment) for the periods indicated:Three Months Ended September 30, ($ in millions) 2023 2022 Reported SG&A expenses $ 407 $ 379 Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization and impairment) Amortization expense (49) (36) Impairment of goodwill, intangibles, and other assets (13) — SG&A expenses (excluding amortization and impairment) $ 345 $ 343 Nine Months Ended September 30, ($ in millions) 2023 2022 Reported SG&A expenses $ 1,148 $ 1,138 Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization and impairment) Amortization expense (147) (143) Impairment of goodwill, intangibles, and other assets (13) — SG&A expenses (excluding amortization and impairment) $ 988 $ 995 (loss) to EBITDA for the periods indicated:Three Months Ended September 30, ($ in millions) 2023 2022 Reported net income $ 54 $ 28 Adjustments to reconcile net income to EBITDA: Interest expense, net 37 33 Income tax provision 20 18 Depreciation 21 22 Amortization 56 51 EBITDA $ 188 $ 152 Nine Months Ended September 30, ($ in millions) 2023 2022 Reported net income $ 128 $ 51 Adjustments to reconcile net income to EBITDA: Interest expense, net 112 88 Income tax provision 59 16 Depreciation 59 60 Amortization 167 165 EBITDA $ 525 $ 380 37APITALLiquidity and Capital Resources our 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.March 31,September 30, 2023, we had $809$945 million of total liquidity, comprising $363$461 million in cash and cash equivalents and $446$484 million ($500 million less outstanding letters of credit of approximately $54$16 million, which reduce availability) of available borrowings under our Revolving Credit Facility.incurredentered 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.March 31,September 30, 2023, we repurchased 541,316656,489 and 1,626,493 shares of common stock for aggregate payments of approximately $12$18 million and $41 million under this stock repurchase program, respectively, leaving approximately $195$166 million of authorized repurchases.
and restricted cash38Nine Months Ended September 30, ($ in millions) 2023 2022 Net cash provided by operating activities $ 217 $ 82 Net cash used in investing activities (108) (2,931) Net cash (used in) provided by financing activities (253) 1,773 Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash (1) (17) Net decrease in cash, cash equivalents, and restricted cash $ (145) $ (1,093) Cash, cash equivalents, and restricted cash, end of period $ 462 $ 398 Used inProvided by Operating Activitiesused inprovided by operating activities was $1$217 million for the threenine months ended March 31,September 30, 2023 compared to $118$82 million of cash used for the same period in 2022. The decreaseincrease in cash used inprovided by operating activities is primarily due to an increase in net income in the period. This decreaseincrease in cash usedprovided is also driven by lower working capital needs associated with the various services we provided in the threenine months ended March 31,September 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 decreaseincrease in cash used inprovided 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 threenine months ended March 31,September 30, 2022.$27$108 million for the threenine months ended March 31,September 30, 2023 compared to $2,884$2,931 million for the same period in 2022. During 2022, we completed the Chubb Acquisition resulting in the use of $2,875$2,881 million for acquisitions during the threenine months ended March 31,September 30, 2022 compared to $10$57 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.$216$(253) million for the threenine months ended March 31,September 30, 2023 compared to $1,831$1,773 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 threenine months ended March 31,September 30, 2022 related to the Chubb Acquisition. In the threenine months ended March 31,September 30, 2022, cash provided by financing activities was higher due to $1,101$1,104 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 decreaseincrease in cash provided byused in financing activities in the threenine months ended March 31,September 30, 2023 was also driven by $202$206 million of payments on long-term borrowings.1.50%1.25% or (b) a EurocurrencyTerm SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50%2.25% 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.The1.75%1.50% or (b) a EurocurrencyTerm SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.75%.2.50% 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. The 2021 Term Loan matures on January 3, 2029. The 2021 Term Loan is subject to the same mandatory prepayment provisions as the 2019 Term Loan.39EurocurrencyTerm SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25%.March 31,September 30, 2023 was 2.26:1.92:1.00.threenine months ended March 31,September 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, as of September 30, 2023, the 2019 Term Loan and the 2021 Term Loan havehad remaining principal amounts of $1,027 million and $985 million, respectively. On October 11, 2023, we made a repayment of $100 million on the 2019 Term Loan concurrent with the close of the repricing transaction. Following the repricing transaction, we have $505 million outstanding on 2019 Term Loan and $1,407 million outstanding on the 2021 Term Loan. We had no amounts outstanding under the Revolving Credit Facility, under which $446$484 million was available after giving effect to $54$16 million of outstanding letters of credit, which reduces availability.March 31,September 30, 2023, we had $337 million aggregate principal amount of 4.125% Senior Notes outstanding.March 31,September 30, 2023, we had $277 million aggregate principal amount of 4.750% Senior Notes outstanding.March 31,September 30, 2023 and December 31, 2022.40threenine months ended March 31,September 30, 2023.1011 – "Debt" for future principal payments and interest rates on our debt instruments.1112 – "Income Taxes."1213 – "Employee Benefit Plans."41ItemQuantitative and Qualitative Disclosures about Market RiskMarch 31,September 30, 2023, our outstanding variable interest rate debt was primarily related to our 2019 Term Loan and our 2021 Term Loan. As of March 31,September 30, 2023, we had $1,027 million outstanding on the 2019 Term Loan and $985 million outstanding on the 2021 Term Loan. On October 11, 2023, we made a repayment of $100 million on the 2019 Term Loan concurrent with the close of the repricing transaction. Following the repricing transaction, we have $505 million outstanding on 2019 Term Loan and $1,407 million outstanding on the 2021 Term Loan. To mitigate increases in variable interest rates, we have a $720 million four-year interest rate swap, with respect to $720 million of notional value of the 2019 Term Loan, exchanging one-month LIBORSOFR for a rate of 3.64%3.59% per annum and a $400 million five-year interest rate swap exchanging one-month SOFR for a rate of 3.41% per annum. ThisIn$26$18 million recognized from the termination of the previously outstanding $720 million notional amount interest rate swap resulting in an effective rate onswap. After the $720 million of notional value ofrepricing transaction, the 2019 Term Loan of 3.97%. The remaining floating $307 million of our 2019 Term Loan balancerate portfolio will bear interest based on one-month LIBORSOFR plus CSA plus 225 basis points or one-month SOFR plus CSA 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,September 30, 2023, excluding letters of credit outstanding of $54$16 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.40%35% and 37% of our consolidated net revenues for the three and nine months ended March 31,September 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 threenine months ended March 31,September 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) millionfor both the three months ended March 31,September 30, 2023 and 2022, and $0 million and $(2) million for the nine months ended September 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. dollars. Foreign currency translation gains (losses) totaled approximately $14$(63) million and ($59)$(86) million for the three months ended March 31,September 30, 2023 and 2022, respectively, and $(22) million and $(311) million for the nine months ended September 30, 2023 and 2022, respectively.42 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 incanceled. In a low oil and gas price environment, certain of our businesses could become less profitable or incur losses.ItemControls and Procedures(as(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective as of March 31,September 30, 2023 due to the material weaknesses in internal control over financial reporting described below, which were previously disclosed in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2022.43March 31,September 30, 2023 based on the guidelines established in Internal Control — Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of March 31,September 30, 2023 due to the material weaknesses in internal control over financial reporting identified and further described below.March 31,September 30, 2023 related to user access controls related to an information technology system which resulted from insufficient risk assessment and ineffective operation of process level controls over revenue recognition, which resulted from insufficient training. As a result of the user access control deficiencies, process level controls at certain entities that use information from the affected system cannot be relied upon. These control deficiencies constitute material weaknesses in our internal control over financial reporting as of March 31,September 30, 2023.March 31,September 30, 2023 include the following:•Reduced privileged access to those accounts necessary to carry on system activities; andEstablishedPerformed weekly and monthly monitoring of privileged access activity.activity;We willContinue to conduct additionalongoing training with control owners and reviewers within operations and finance with a specific focus on sufficient documentation and evidence in the execution of the controls; andWe will conductConduct an evaluation of information technology general controls ("ITGCs") and related policies, with a focus on risk assessment procedures and controls related to access to information technology ("IT") systems and implement an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes.year end.year-end. In addition, under the direction of the Audit Committee of the Board of Directors, we will continue to review and make necessary changes to the overall design of the Company’s internal control environment, as well as to refine policies and procedures to improve the overall effectiveness of internal control over financial reporting of the Company.March 31,September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.ItemRisk factorsItemAND USE OF PROCEEDS,March 31,September 30, 2023:
Purchased as Part of
Publicly Announced
Plans or ProgramsDuring the Three Months Ended September 30, 2023 Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or ProgramsMaximum Approximate Dollar Value of
Shares that May Yet Be Purchased Under
the Plans or Programs (in millions)July 1, 2023 - July 31, 2023 — $ — — $ — August 1, 2023 - August 31, 2023 656,489 28.00 656,489 166 September 1, 2023 - September 30, 2023 — — — Total 656,489 $ 28.00 656,489 $ 166 ItemMine Safety DisclosuresItemExhibitsExhibit No. Description of Exhibits Exhibit No.10.25May 4,November 2, 2023May 4,November 2, 202347