Table of Contents
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

FORM10-Q

(Mark One)

☒

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

September 30, 2023

or

☐

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to

Commission File Number001-39275

APi Group Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware98-1510303

(State or other jurisdiction of


incorporation or organization)

(I.R.S. Employer


Identification No.)

1100 Old Highway 8 NW

New Brighton, Minnesota

55112
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (651)636-4320

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, par value $0.0001 per shareAPGNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐x No ☒

o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒x No ☐

o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”filer”, “accelerated filer,”filer”, “smaller reporting company,”company”, and “emerging growth company” in Rule12b-2 of the Exchange Act.

Large accelerated filerx☐Accelerated filer☐o
Non-accelerated filero☒Smaller reporting company☐o
Emerging growth company☐o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes ☐o No ☒

x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 169,294,244235,559,170 shares of Common Stockcommon stock as of May 29, 2020.

October 26, 2023.


Table of Contents
TABLE OF CONTENTS

1
3

Item 1. Financial Statements

1
3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

29
38

Item 3. Quantitative and Qualitative Disclosures about Market Risk

41
53

Item 4. Controls and Procedures

41
55

43
57

Item 1A. Risk Factors

43
57

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of EquitySecurities
57
Item 4. Mine Safety Disclosures
57
Item 5. Other Information
57
Item 6. Exhibits

44
58

45
59

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PART I. FINANCIAL INFORMATION

Item

ITEM 1. Financial Statements

FINANCIAL STATEMENTS

APi Group Corporation

Condensed Consolidated Balance Sheets

March 31, 2020 (Successor) (Unaudited)

(In millions, except share and December 31, 2019 (Successor)

(In millions)

(Unaudited)

   March 31,
2020
(Successor)		  December 31,
2019
(Successor)		 

Assets

   

Current assets:

   

Cash and cash equivalents

  $436  $256 

Accounts receivable, net of allowances of $1 and $0 at March 31, 2020 and December 31, 2019, respectively

   662   730 

Inventories

   59   58 

Contract assets

   251   245 

Prepaid expenses and other current assets

   37   33 

Assets held for sale

   5   20 
  

 

 

  

 

 

 

Total current assets

   1,450   1,342 

Property and equipment, net

   397   402 

Operating lease right of use asset

   103   105 

Goodwill

   767   980 

Intangible assets, net

   1,069   1,121 

Preferred tax assets

   64   —   

Other assets

   36   61 
  

 

 

  

 

 

 

Total assets

  $3,886  $4,011 
  

 

 

  

 

 

 

Liabilities and Shareholders’ Equity

   

Current liabilities:

   

Short-term and current portion of long-term debt

  $217  $19 

Accounts payable

   152   156 

Contingent consideration and compensation liabilities

   47   49 

Accrued salaries and wages

   104   149 

Deferred consideration

   35   73 

Other accrued liabilities

   132   157 

Contract liabilities

   205   193 

Operating and finance leases

   27   27 
  

 

 

  

 

 

 

Total current liabilities

   919   823 

Long-term debt, less current portion

   1,167   1,171 

Contingent consideration and compensation liabilities

   22   15 

Operating and finance leases

   93   95 

Deferred tax liabilities

   24   23 

Deferred consideration

   53   78 

Other noncurrent liabilities

   83   49 
  

 

 

  

 

 

 

Total liabilities

   2,361   2,254 

Shareholders’ equity:

   

Preferred shares, no par value; unlimited authorized shares; 4 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

   —     —   

Ordinary shares; no par value, unlimited authorized shares, 169 and 170 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

   —    

Additionalpaid-in capital

   1,880   1,885 

Accumulated deficit

   (325)   (131) 

Accumulated other comprehensive income (loss)

   (30)   3 
  

 

 

  

 

 

 

Total shareholders’ equity

   1,525   1,757 
  

 

 

  

 

 

 

Total liabilities and shareholders’ equity

  $3,886  $4,011 
  

 

 

  

 

 

 

per share data)
September 30,
2023		December 31,
2022
Assets
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, respectively1,280 1,313 
Inventories155 163 
Contract assets530 459 
Prepaid expenses and other current assets226 112 
Total current assets2,652 2,652 
Property and equipment, net377 407 
Operating lease right of use assets227 222 
Goodwill2,404 2,382 
Intangible assets, net1,624 1,784 
Deferred tax assets107 108 
Pension and post-retirement assets407 392 
Other assets151 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 payable431 490 
Contingent consideration and compensation liabilities18 27 
Accrued salaries and wages320 337 
Contract liabilities474 463 
Operating and finance leases72 73 
Other accrued liabilities328 325 
Total current liabilities1,899 1,921 
Long-term debt, less current portion2,342 2,583 
Pension and post-retirement obligations37 40 
Contingent consideration and compensation liabilities10 6 
Operating and finance leases170 166 
Deferred tax liabilities340 340 
Other noncurrent liabilities122 111 
Total liabilities4,920 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 $840797 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 capital2,562 2,558 
Accumulated deficit(36)(164)
Accumulated other comprehensive loss(294)(267)
Total shareholders’ equity2,232 2,127 
Total liabilities, redeemable convertible preferred stock, and shareholders’ equity$7,949 $8,091 

See notes to condensed consolidated financial statements.

1

3

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APi Group Corporation

Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2020 (Successor) and 2019 (Predecessor)

(Unaudited)

(In millions, except per share amounts)

(Unaudited)

   Three months ended
March 31,		 
   2020    2019 
   (Successor)    (Predecessor) 

Net revenues

  $858   $922 

Cost of revenues

   696    759 
  

 

 

   

 

 

 

Gross profit

   162    163 

Selling, general, and administrative expenses

   188    137 

Impairment of goodwill and intangible assets

   208    —   
  

 

 

   

 

 

 

Operating income (loss)

   (234)    26 
  

 

 

   

 

 

 

Interest expense, net

   14    6 

Investment income and other, net

   (3)    (2) 
  

 

 

   

 

 

 

Other expense, net

   11    4 
  

 

 

   

 

 

 

Income (loss) before income tax provision

   (245)    22 

Income tax provision (benefit)

   (51)    1 
  

 

 

   

 

 

 

Net income (loss)

  $(194)   $21 
  

 

 

   

 

 

 

Net loss per ordinary share:

    

Basic

  $(1.14)    n/a 

Diluted

  $(1.14)    n/a 

Weighted average shares outstanding:

    

Basic

   170    n/a 

Diluted

   170    n/a 

Pro forma income information (See Note 2):

    

Historical income before income taxes

   n/a   $22 

Pro forma provision for income taxes

   n/a    6 
    

 

 

 

Pro forma net income

   n/a   $16 
    

 

 

 

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net revenues$1,784 $1,735 $5,169 $4,855 
Cost of revenues1,273 1,295 3,737 3,604 
Gross profit511 440 1,432 1,251 
Selling, general, and administrative expenses407 379 1,148 1,138 
Operating income104 61 284 113 
Interest expense, net37 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, net30 15 97 46 
Income before income taxes74 46 187 67 
Income tax provision20 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 
Diluted0.15 0.06 0.32 0.06 
Weighted average shares outstanding:
Basic235234235233
Diluted270266269266
See notes to condensed consolidated financial statements.

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APi Group Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended March 31, 2020 (Successor) and 2019 (Predecessor)

(Unaudited)

(In millions)

(Unaudited)

   Three months ended March 31, 
   2020     2019 
   (Successor)     (Predecessor) 

Net income (loss)

  $(194)    $21 

Other comprehensive income (loss):

     

Fair value change - derivatives, net of $9 and $0 of tax (expense) benefit, respectively

   (27)     —   

Foreign currency translation adjustment

   (6)     3 
  

 

 

    

 

 

 

Comprehensive income (loss)

  $(227)    $24 
  

 

 

    

 

 

 

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net income$54 $28 $128 $51 
Other comprehensive income (loss):
Fair value change - derivatives, net of tax benefit (expense) of $—, $(16), $(2), and $(27), respectively1 51 7 82 
Foreign currency translation adjustment(63)(86)(22)(311)
Comprehensive income (loss)$(8)$(7)$113 $(178)
See notes to condensed consolidated financial statements.

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APi Group Corporation

Condensed Consolidated Statements of Shareholders’ Equity

Three Months Ended March 31, 2020 (Successor) and 2019 (Predecessor)

(Unaudited)

(In millions, except share amounts)

(Unaudited)

  Successor 
                    Accumulated    
  Preferred Shares Issued  Ordinary Shares Issued  Additional     Other  Total 
  and Outstanding  and Outstanding  Paid-In  Accumulated  Comprehensive  Shareholders’ 
  Shares  Amount  Shares  Amount  Capital  Deficit  Income (Loss)  Equity 

Balance, December 31, 2019

  4,000,000  $—     169,902,260  $—    $1,885  $(131)  $3  $1,757 

Net loss

  —     —     —     —     —     (194)   —     (194) 

Share cancellations

  —     —     (608,016)   —     (6)   —     —     (6) 

Share-based compensation

  —     —     —     —     1   —     —     1 

Fair value change - derivatives

  —     —     —     —     —     —     (27)   (27) 

Foreign currency translation adjustment

  —     —     —     —     —     —     (6)   (6) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, March 31, 2020

  4,000,000  $—     169,294,244  $—    $1,880  $(325)  $(30)  $1,525 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
                                 
     Predecessor 
                 Accumulated  Note    
     Common Stock Issued  Additional     Other  Receivable  Total 
     and Outstanding  Paid-In  Retained  Comprehensive  From  Stockholders’ 
     Shares  Amount  Capital  Earnings  Income (Loss)  Stockholder  Equity 

Balance, December 31, 2018

 

  11,000,000  $—    $—    $663  $(28)  $(2)  $633 

Net income

 

  —     —     —     21   —     —     21 

Distributions and other

 

  —     —     —     (15)   —     —     (15) 

Foreign currency translation adjustment

 

  —     —     —     —     3   —     3 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, March 31, 2019

 

  11,000,000  $—    $—    $669  $(25)  $(2)  $642 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 


Preferred Stock Issued
and Outstanding		Common Stock Issued
and Outstanding		Additional
Paid-In
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Shareholders’
Equity
SharesAmountSharesAmount
Balance, December 31, 20224,000,000$— 233,403,912$— $2,558 $(164)$(267)$2,127 
Net income—— —— — 26 — 26 
Fair value change - derivatives—— —— — — (9)(9)
Foreign currency translation adjustment—— —— — — 14 14 
Gain on dedesignated derivatives amortized from AOCI into income—— —— — — (4)(4)
Series B Preferred Stock dividend—— 1,082,877— — — — — 
Share repurchases—— (541,316)— (12)— — (12)
Profit sharing plan contributions—— 631,194— 14 — — 14 
Share-based compensation and other, net—— 636,233— 9 — — 9 
Balance, March 31, 20234,000,000$— 235,212,900$— $2,569 $(138)$(266)$2,165 
Net income—— —— — 48 — 48 
Fair value change - derivatives—— —— — — 15 15 
Foreign currency translation adjustment—— —— — — 27 27 
Gain on dedesignated derivatives amortized from AOCI into income—— —— — — (4)(4)
Series B Preferred Stock dividend—— 436,992— — — — — 
Share repurchases—— (428,688)— (11)— — (11)
Share-based compensation and other, net—— 49,201— 7 — — 7 
Balance, June 30, 20234,000,000$— 235,270,405$— $2,565 $(90)$(228)$2,247 
Net income—— —— — 54 — 54 
Fair value change - derivatives—— —— — — 1 1 
Foreign currency translation adjustment—— —— — — (63)(63)
Gain on dedesignated derivatives amortized from AOCI into income—— —— — — (4)(4)
Share repurchases—— (656,489)— (18)— — (18)
Share-based compensation and other, net—— 532,119— 15 — — 15 
Balance, September 30, 20234,000,000$— 235,146,035$— $2,562 $(36)$(294)$2,232 
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Preferred Stock Issued
and Outstanding		Common Stock Issued
and Outstanding		Additional
Paid-In
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Shareholders’
Equity
SharesAmountSharesAmount
Balance, December 31, 20214,000,000$— 224,625,193$— $2,560 $(237)$— $2,323 
Net loss—— —— — (7)— (7)
Fair value change - derivatives—— —— — — 9 9 
Foreign currency translation adjustment—— —— — — (59)(59)
Series A Preferred Stock dividend—— 7,539,697— — — — — 
Series B Preferred Stock dividend—— 519,469— — — — — 
Share repurchases—— (531,431)— (11)— — (11)
Profit sharing plan contributions—— 622,655— 15 — — 15 
Share-based compensation and other, net—— 413,029— 8 — — 8 
Balance, March 31, 20224,000,000$— 233,188,612$— $2,572 $(244)$(50)$2,278 
Net income—— —— — 30 — 30 
Fair value change - derivatives—— —— — — 22 22 
Foreign currency translation adjustment—— —— — — (166)(166)
Series B Preferred Stock dividend—— 686,455— — — — — 
Share repurchases—— (681,329)— (11)— — (11)
Share-based compensation and other, net—— 24,584— 3 — — 3 
Balance, June 30, 20224,000,000—233,218,322—2,564(214)(194)2,156
Net income—— —— — 28 — 28 
Fair value change - derivatives—— —— — — 51 51 
Foreign currency translation adjustment—— —— — — (86)(86)
Series B Preferred Stock dividend—— 739,015— — — — — 
Share repurchases—— (738,572)— (11)— — (11)
Share-based compensation and other, net—— 567,370— 12 — — 12 
Balance, September 30, 20224,000,000$— 233,786,135$— $2,565 $(186)$(229)$2,150 
See notes to condensed consolidated financial statements.

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APi Group Corporation

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2020 (Successor) and 2019 (Predecessor)

(Unaudited)

(In millions)

(Unaudited)

   Three months ended March 31, 
   2020     2019 
   (Successor)     (Predecessor) 

Cash flows from operating activities:

     

Net income (loss)

  $(194)    $21 

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

     

Depreciation

   18     16 

Amortization

   52     9 

Impairment of goodwill and intangible assets

   208     —   

Deferred taxes

   (53)     —   

Share-based compensation expense

   1     —   

Other, net

   (2)     (2) 

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

     

Accounts receivable

   63     102 

Contract assets

   (7)     (52) 

Inventories

   (2)     (6) 

Prepaid expenses and other assets

   9     (2) 

Accounts payable

   (4)     (37) 

Accrued liabilities and income taxes payable

   (56)     (24) 

Contract liabilities

   14     (9) 

Other liabilities

   8     9 
  

 

 

    

 

 

 

Net cash provided by operating activities

   55     25 
  

 

 

    

 

 

 

Cash flows from investing activities:

     

Acquisitions, net of cash acquired

   (5)     (1) 

Purchases of property and equipment

   (11)     (22) 

Proceeds from sales of property, equipment and held for sale

   1     2 

Advances on other notes receivable

   —       (4) 

Payments received on other notes receivable

   —       1 

Proceeds from sale of marketable securities, net

   —       2 
  

 

 

    

 

 

 

Net cash used in investing activities

   (15)     (22) 
  

 

 

    

 

 

 

Cash flows from financing activities:

     

Net short-term debt

   200     1 

Proceeds from long-term borrowings

   1     5 

Payments on long-term borrowings

   (6)     (7) 

Payments of acquisition-related consideration

   (56)     —   

Distributions paid

   —       (15) 
  

 

 

    

 

 

 

Net cash provided by (used in) financing activities

   139     (16) 
  

 

 

    

 

 

 

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

   1     —   
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

   180     (13) 

Cash and cash equivalents, beginning of period

   256     54 
  

 

 

    

 

 

 

Cash and cash equivalents, end of period

  $436    $41 
  

 

 

    

 

 

 
     

Supplemental schedule of disclosures of cash flow information:

     

Cash paid for interest

  $13    $6 

Cash paid for income taxes, net of refunds

   8     2 

Nine Months Ended September 30,
20232022
Cash flows from operating activities:
Net income$128 $51 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation59 60 
Amortization167 165 
Restructuring charges, net of cash paid17 12 
Deferred taxes5 (9)
Share-based compensation expense19 14 
Profit-sharing expense14 10 
Non-cash lease expense55 49 
Net periodic pension benefit(9)(32)
Loss (gain) on extinguishment of debt, net3 (5)
Other, net3 13 
Pension contributions(3)(27)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable23 (104)
Contract assets(78)(134)
Inventories2 (25)
Prepaid expenses and other current assets(62)(25)
Accounts payable(47)68 
Accrued liabilities and income taxes payable(27)(6)
Contract liabilities9 46 
Other assets and liabilities(61)(39)
Net cash provided by operating activities217 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 equipment13 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 period607 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 refunds70 24 
Accrued consideration issued in business combinations5 1 
Shares of common stock issued to profit sharing plan14 13 

See notes to condensed consolidated financial statements.

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APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

Note 1.     Nature of Business

APi Group Corporation (the “Company” or “APG”) is a market-leading business services provider of safety, specialty, and industrial services in over 200 locations, primarily in North America. Until its acquisition of APi Group, Inc. (“APi Group”) on October 1, 2019, the Company had neither engaged in any operations nor generated any revenues. (See Note 4 – “Business Combinations”).

Note 2.     Basis

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Presentationbusiness
APi Group Corporation (the “Company” or “APG”) is a global, market-leading business services provider of safety and Significant Accounting Policies

specialty services in over 500 locations worldwide.

Principles of consolidation:consolidation
The accompanying interim unaudited condensed consolidated financial statements (the “Interim Statements”) include the accounts of the Company and of its wholly ownedwholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. These Interim Statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by generally accepted accounting principles generally accepted in the United States of America (U.S. GAAP)(“U.S. GAAP”) for complete financial statements. The unaudited condensed consolidated balance sheetsheets as of December 31, 2019 was2022, were derived from audited financial statements for the year then ended but doesdo not include all of the information and footnotes required by U.S. GAAP with respect to annual financial statements. In the opinion of management, the Interim Statements include all adjustments (including normal recurring accruals) necessary for a fair presentation of the Company’s consolidated financial position, results of operations, and cash flows for the dates and periods presented. It is recommended that these Interim Statements should be read in conjunction with the Company’s audited annual consolidated financial statements and accompanying footnotes thereto for the year ended December 31, 2019.2022. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.

In accounting for

Cash, cash equivalents, and restricted cash
The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Restricted cash is reported as other current assets in the acquisitioncondensed consolidated balance sheets. Restricted cash reflects collateral against certain bank guarantees.
Investments
The Company holds investments in joint ventures, the majority of APi Group (the “APi Acquisition”), APG is considered the acquirer of APi Group for accounting purposes and APi Group is the accounting Predecessor. The Company’s financial statement presentation for the APi Group financial information as of and for the periods presented prior to the APi Acquisition datewhich are labeled “Predecessor”. The Company’s financial statements, including APi Group from the APi Acquisition date, are labeled “Successor”. The merger was accounted for as a business combination usingunder the acquisition method of accounting, and the Successor financial statements reflect a new basis of accounting that is based on the fair value of the net assets acquired. Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions. See Note 4 – “Business Combinations” for a discussion of the fair values of assets and liabilities recorded in connection with the APi Acquisition, which remain preliminary as of March 31, 2020.

As a result of the application of the acquisitionequity method of accounting as of the effective date of the APi Acquisition, the accompanying Interim Statements include a black line division, where applicable, which indicates a differentiation that the Predecessor and Successor reporting entities shown are presented on a different basis and are, therefore, not comparable.

The historical financial information of the Company which was, prior todoes not exercise control over the APi Acquisition, an acquisition vehicle, has not been presented injoint ventures. The Company exercises control over one joint venture that is consolidated into the Company's financial statements as these historical amounts are not considered meaningful. As an acquisition vehicle, the Company retained and invested the proceeds from its initial public offering (the “IPO”) and the funds were used to pay a portion of the cash considerationresults for that joint venture for the APi Acquisition.

Asthree and nine months ended September 30, 2023 were immaterial. The Company’s share of March 31, 2020, the Company had two classes of stock outstanding: ordinary shares, which equate to common shares under U.S. GAAP, and Founder Preferred Shares, which equate to preferred shares under U.S. GAAP. Subsequent to March 31, 2020, the Company changed its jurisdiction of incorporationearnings from the British Virgin Islands to the State of Delaware, which resulted in conversion of ordinary shares

6

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except sharesnon-consolidated joint ventures was $1 and where noted otherwise)

(Unaudited)

and Founder Preferred Shares to shares of common stock and Series A Preferred Stock, respectively (see Note 17 – “Subsequent Events”). The Interim Statements present the ordinary shares and Founder Preferred Shares that were outstanding as of March 31, 2020 and December 31, 2019 prior to the change in the jurisdiction of incorporation and the conversion of such shares.

Unaudited pro forma income information: The unaudited pro forma net income information presented on the face of the unaudited condensed consolidated statements of operations gives effect to the conversion of APi Group to a C corporation. Prior to such conversion, APi Group was a S corporation and generally not subject to federal income taxes within the United States. The pro forma net income presented on the face of the unaudited condensed consolidated statement of operations, therefore, includes an adjustment for income tax expense on the income as if APi Group had been a C corporation for the period from January 1, 2019 through March 31, 2019, at an assumed combined federal, state, local and foreign effective income tax rate of 28.7%.

Use of estimates and risks and uncertainty ofCOVID-19: The Interim Statements are prepared in conformity with U.S. GAAP. Management’s application of U.S. GAAP requires the pervasive use of estimates and assumptions in preparing the unaudited condensed consolidated financial statements. On January 30, 2020, the World Health Organization declared the coronavirus outbreak(COVID-19) a “Public Health Emergency of International Concern” and on March 11, 2020, declaredCOVID-19 a pandemic. Inmid-March 2020, U.S. State Governors, local officials and leaders outside of the U.S. began ordering various“shelter-in-place” orders which have had various impacts on the U.S. and global economies. This has required greater use of estimates and assumptions in the preparation of the Interim Statements, specifically those estimates and assumptions utilized in the Company’s forecasted cash flows that form the basis in developing the fair values utilized in its impairment assessments, annual effective tax rate, and assessment of the realizability of deferred tax assets. This has included assumptions as to the duration and severity of theCOVID-19 pandemic, timing and amount of demand shifts for the Company’s services, labor availability and productivity, supply chain continuity, required remedial measures, and timing as to a return to normalcy.

As theCOVID-19 pandemic continues to evolve, the Company believes the extent of the impact to its businesses, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of theCOVID-19 pandemic, the pandemic’s impact on the U.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic. Those primary drivers are beyond the Company’s knowledge and control, and as a result, at this time the Company is unable to predict the cumulative impact, both in terms of severity and duration, thatCOVID-19 will have on its businesses, operating results, cash flows and financial condition, but it could be material if the current circumstances continue to exist for a prolonged period of time. Although we have made our best estimates based upon current information, actual results could materially differ from the estimates and assumptions developed by management. If so, the Company may be subject to future incremental impairment charges as well as changes to recorded reserves and valuations.

7

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

Goodwill impairment: Goodwill represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses. Goodwill is not amortized but instead is annually tested for impairment, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. The Company has recorded goodwill in connection with its historical acquisitions of businesses. Upon acquisition, these businesses were either combined into one of the existing components or managed on a stand-alone basis as an individual component.

The components are aligned to one of the Company’s three reportable segments, Safety Services, Specialty Services, or Industrial Services. Goodwill is required to be evaluated for impairment at the reporting unit level, which represents the operating segment level or one level below the operating segment level for which discrete financial information is available.

Management identifies its reporting units by assessing whether components have discrete financial information available, engage in business activities, and have a segment manager regularly review the component’s operating results. If two or more components are deemed economically similar, those components are aggregated into one reporting unit when performing the annual goodwill impairment test.

The Company performs its annual goodwill impairment assessment on October 1 each fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit. Additionally, a significant change in business climate, a loss of a significant customer, increased competition, a sustained decrease in share price, or a decrease in estimated fair value below book value may trigger the need for interim impairment testing of goodwill associated with one or more reporting units.

While the Company’s services have largely been deemed essential, the Company did experience negative impacts on its operations in the latter part of March as the shelter-in-place orders began. The impact of COVID-19 has negatively impacted the Company’s operations, suppliers and other vendors, and customer base. In addition to the impacts of COVID-19, the Company was also impacted by a significant decline in demand and volatility in oil prices as some of the Company’s services involve work within the oil and gas industry. As a result, during the first quarter of 2020, the Company concluded that an impairment triggering event had occurred for all of its reporting units and performed impairment tests for its goodwill and recoverability tests for its long-lived assets, which primarily include finite-lived intangible assets, property and equipment and right of use lease assets. As a result of the impairment testing performed in connection with the triggering event, the Company determined that certain of its goodwill and intangible assets were impaired as the preliminary carrying values exceeded fair values. The Company recorded an aggregate non-cash charge$2 during the three months ended March 31, 2020 in connection with these impairments. See Note 7 – “GoodwillSeptember 30, 2023 and Intangibles” for further information.

As a result of2022, respectively, and $5 and $3 during the impairment triggering eventnine months ended September 30, 2023 and the Company performed an impairment test for its goodwill at all reporting units.2022, respectively. The Company performed a quantitative test comparing the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss isearnings are recorded as a reduction to goodwill with a corresponding change to earningswithin investment income and other, net in the period the goodwill is determined to be impaired. Any goodwill impairment is limited to the total amountcondensed consolidated statements of goodwill allocated to that reporting unit. Asoperations. The investment balances were $6 and $4 as of MarchSeptember 30, 2023 and December 31, 2020, the Company had not finalized its purchase price allocation for the APi Acquisition (See Note 4 – “Business Combinations”). The carrying value of each reporting unit used2022, respectively, and are recorded within other assets in the impairment test was based on preliminary values from the APi Acquisition. The Company anticipates it will finalize its accounting for the APi Acquisition during the third quarter of 2020, which will lead to changes in the carrying value of each reporting unit and may change the corresponding impairment charge recognized in each reporting unit.

The Company determines the fair value of its reporting units using a combination of the income approach (discounted cash flow method) and market approach (guideline transaction method and guideline public company method). Management weighs each of the methods applied to determine the fair value of its reporting units.

Under the discounted cash flow method, the Company determines fair value based on the estimated future cash flows for each reporting unit, discounted to present value using a risk-adjusted industry weighted-average cost of capital, which reflects the overall level of inherent risk for each reporting unit and the rate of return an outside investor would expect to earn. Cash flow projections are derived from budgeted amounts (typically aone-year model) and subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur from a market participant’s standpoint. All cash flow projections by reporting unit are evaluated by management. A terminal value is derived by capitalizing free cash flow into perpetuity. The capitalization rate is derived from the weighted-average cost of capital and the estimated long-term growth rate for each reporting unit.

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condensed consolidated balance sheets.

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

Under the guideline transaction and guideline public company methods, the Company determines the estimated fair value for each of its reporting units by applying transaction multiples and public company multiples, respectively, to each reporting unit’s applicable earnings measure. The transaction multiples are based on observed purchase transactions for similar businesses adjusted for size, diversification and risk. The public company multiples are based on peer group multiples adjusted for size, growth, risk and margin.

Impairment of long-lived assets excluding goodwill: The Company periodically reviews the carrying amount of its long-lived asset groups, including property and equipment and other identifiable intangibles subject to amortization, when events or changes in circumstances indicate the carrying value may not be recoverable. If facts and circumstances support the possibility of impairment, the Company will compare the carrying value of the asset or asset group with the undiscounted future cash flows related to the asset or asset group. If the carrying value of the asset or asset group is greater than its undiscounted cash flows, the resulting impairment will be determined as the difference between the carrying value and the fair value, where fair value is determined for the carrying amount of the specific asset groups based on discounted future cash flows or appraisal of the asset groups.

As noted above in “Use of estimates and risks and uncertainty ofCOVID-19”, during the first quarter of 2020, the Company concluded that an impairment triggering event had occurred. The Company reviewed its long-lived assets for impairment and recorded a $5 impairment charge related to the intangible assets that were part of a business classified as held for sale at March 31, 2020. The impairment was measured under the market multiple approach, utilizing estimates of market multiples from the eventual sale of the business based on information obtained as part of the marketing process. The carrying value used in the impairment test was based on preliminary values from the APi Acquisition. The Company anticipates it will finalize its purchase price allocation for the APi Acquisition during the third quarter of 2020, which will lead to changes in the carrying value and may change the corresponding impairment charge.

Note 3.     Recent accounting pronouncements

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
See the recent accounting pronouncements discussion below for information pertaining to the effects of recently adopted and other recent accounting pronouncements as updated from the discussion in the Company’s 20192022 audited consolidated financial statements included in the Registration StatementCompany’s Annual Report on FormS-4 effective May 10-K filed on March 1, 2020.

Accounting standards issued and adopted:

2023.


In August 2018,2023, the FASBFinancial Accounting Standards Board ("FASB") issued ASUNo. 2018-13,Fair Value 2023-05, Business Combinations— Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The ASU removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The ASU, which requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments or changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted this guidance as of January 1, 2020, which did not havethat a material impact on its consolidated financial position, results of operations, cash flows, or disclosures.

In June 2016, the FASB issued ASUNo. 2016-13,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to replace the incurred loss model for financial assets measured at amortized cost and require entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. For trade and other receivables, contract assets, loans and other financial

9

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

instruments, the Company will be required to usejoint venture apply a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The Company adopted this guidance as of January 1, 2020, which did not have a material impact on its consolidated financial statements as credit losses are not expected to be significant based on historical trends, the financial condition of our customers and external factors. Management actively monitors the economic environment, including any potential effects from theCOVID-19 pandemic, on the Company’s customers and its financial assets.

Accounting standards issued but not yet adopted:

In January 2020, the FASB issued ASU2020-01,Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU2020-01”)to clarify the interaction in accounting for equity securities under Topic 321, investments accounted for under the equity methodnew basis of accounting in Topic 323upon formation. As a result, a newly formed joint venture would initially measure its assets and the accounting for certain forward contracts and purchased options accounted for under Topic 815.liabilities at fair value. ASU2020-01 2023-05 is effective for fiscal years, and for interim periods within those fiscal years, beginningjoint ventures with a formation date on or after December 15, 2020,January 1, 2025, with early

9
Table of Contents
adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.

statements, but does not expect the impact to be material.


In December 2019,October 2023, the FASB issued ASU2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU2019-12”), which eliminates certain exceptions 2023-06, Disclosure Improvements: Codification Amendments in Response to the existing guidance for income taxes related toSEC’s Disclosure Update and Simplification Initiative, which incorporates certain SEC disclosure requirements into the approach for intra-period tax allocations,FASB Accounting Standards Codification. This update will improve disclosure and presentation requirements of a variety of topics and align the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU also simplifies the accounting for income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or ratesrequirements in the effective tax rate computation,FASB codification with the recognition of franchise tax and the evaluation of astep-up in the tax basis of goodwill, among other clarifications. ASU2019-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.SEC’s regulations. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.

statements, but does not expect the impact to be material.

Note 4.     Business Combinations

On September 2, 2019, the

NOTE 3. BUSINESS COMBINATIONS
The Company (then known as J2 Acquisition Limited) entered into an agreement (the “Purchase Agreement”) to acquire all of the issued and outstanding capital stock of APi Group (the “APi Acquisition”), a market-leading business services provider of safety, specialty, and industrial services in over 200 locations, primarily in North America. In accordanceregularly evaluates potential acquisitions that strategically fit with the terms of the Purchase Agreement, on October 1, 2019, the Company completed the APi Acquisition and obtained control of APi Group and, concurrently, changedCompany’s existing portfolio or expand the Company’s name to APi Group Corporation.

The aggregate purchase price consideration transferred to the shareholders of APi Group (the “Sellers”) totaled $2,991, which included: i) a cash payment made at closing of $2,565, net of cash acquired; ii) deferred purchase consideration with an estimated fair value of $135; and iii) 28,373,000 ordinary shares of the Company with a value of $291. The Company funded the cash portion of the purchase price with a combination of cash on hand, a $1,200 term loan underportfolio into a new term loan facility (see Note 11 – “Debt”) and approximately $207 of proceeds from a warrant exercise.

The deferred purchase price consideration is an estimate of future payments to be made to the Sellers pursuant to the terms of the Purchase Agreement upon final determination of certain income tax related matters. Prior to the APi Acquisition, APi Group was structured for United States (“US”) income tax purposes as a “flow through entity”. Pursuant to the terms of the Purchase Agreement, the Company agreed to pay to the Sellers the following amounts: i) up to $130 related to an Internal Revenue Code (“IRC”) Section 338(h)(10) election made by the Sellers; ii) up to $22.5 for IRC Section 965 taxes incurred by the Sellers and; iii) an amount sufficient to cover the Sellers’ state and federal tax liabilities for 2019. These deferred paymentsattractive business area. Acquisitions are expected to be paid to the Sellers over the course of approximately 18 months from the APi Acquisition date. A final determination of the amounts of deferred purchase consideration due to the sellers will not be determined until such time that the Company files its final 2019 tax return. The

10

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

Company expects to file its final 2019 tax returns no later than the fourth quarter of 2020. The fair value of the deferred purchase consideration is based on management’s estimated amounts and timing of future payments, discounted utilizing rates ranging from 2.6% to 2.8% to reflect market participant assumptions. The discount rate utilized was a risk-free rate selected based on the nearest risk-free rate term associated with the payments of the deferred purchase consideration, with a credit risk premium applied as the payments are not risk-free. During the three months ended March 31, 2020, the Company recorded measurement period adjustments related to revising the estimate of deferred consideration, which reduced the purchase price by $12.

The estimated fair value of the Company’s capital stock issued as purchase consideration was determined in accordance with ASC 820,Fair Value Measurement (“ASC 820”).

The APi Acquisition was accounted for as a business combinationcombinations using the acquisition method of accounting in accordance with ASC 805,Business Combinations(“ASC 805”). Theaccounting. As such, the Company makes a preliminary allocation of the purchase price has been preliminarily allocated to the tangible assets, and 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. The purchase price is allocated to acquired assets and liabilities assumed based upon their estimated fair values, with limited exceptions as permitted pursuant to U.S. GAAP, as determined based on estimates and assumptions deemed reasonable by the exceptionCompany. The Company engages third-party valuation specialists to assist with the preparation of critical assumptions and calculations of the following: i)pre-acquisition contingencies which are recognized and measured in accordance with ASC 450,Contingencies (“ASC 450”) if fair value cannot be determined; ii) indemnificationof acquired tangible and intangible assets which are recognized and recorded in accordanceconnection with ASC 805 consistent with that used to measure the liabilities to which they relate, subject to any contractual limitations; iii) deferred income tax assets acquired and liabilities assumed which are recognized and measured in accordance with ASC 740,Income Taxes; iv) certain lease related assets and liabilities which are measured and recognized in accordance with ASC 842,Leases and; v) assets held for sale which are measured in accordance with ASC 360,Impairment or Disposal of Long-Live Assets. The Company has not finalized its accounting for the APi Acquisition as this transaction occurred during the fourth quarter of 2019. The areas of the purchase price allocation that are not yet finalized are primarily related to the valuation of: i) property and equipment; ii) intangible assets; iii) lease-related assets and liabilities; iv) indemnification assets and; v)pre-acquisition contingencies. Additionally, the purchase price allocation is provisional for incometax-related matters and a final determination of deferred purchase consideration. The Company anticipates it will finalize its accounting for the APi Acquisition, including the allocation of goodwill to reporting units, during the third quarter of 2020.

significant acquisitions. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed has beenis recorded as goodwill. The APi Acquisition resulted in recorded goodwill as a result of a higher consideration multiple paid relativeGoodwill is attributable to prior similar acquisitions driven by maturity and qualitythe workforce of the acquired businesses, the complementary strategic fit and resulting synergies these businesses bring to existing operations, and industry, including workforce,the opportunities in new markets expected to be achieved from the expanded platform.

2023 Acquisitions
The Company completed an acquisition included within the Safety Services segment on June 30, 2023 ("Acquisition A23"). Consideration for Acquisition A23 included cash paid at closing of $30, cash deposited into escrow for future deferred payments of $5, and howaccrued consideration of $3. The results of operations of this acquisition are included in the Company’s condensed consolidated statements of operations from the date of acquisition.
During the nine months ended September 30, 2023, the Company expects to leverage this business withincompleted four individually immaterial acquisitions for aggregate consideration transferred of $24, made up of cash paid at closing of $22 and accrued consideration of $2. The results of operations of these acquisitions are included in the public capital markets to create additional value for its shareholders. Company’s condensed consolidated statement of operations from their respective dates of acquisition and were not material.
The Company has assignednot finalized its accounting for the provisional goodwillacquisitions and will make appropriate adjustments to its reportable segments as follows: i) Safety Services—$633; ii) Specialty Services—$286; iii) Industrial Services—$50. Under the termspurchase price allocation prior to completion of the Purchase Agreement,measurement periods, as required. Based on preliminary estimates, the Sellers made a Section 338(h)(10) election under the US IRC. Accordingly,total amount of goodwill attributable to the US operating subsidiaries and thestep-up to fair value allocated to US domiciled property and equipment and intangible assets reflected in the acquisition date balance sheet arefrom acquisitions expected to be deductible for US income tax purposes. The provisional amount of goodwill that is expected to be deductible for US income tax purposes is $917.

Prior to the APi Acquisition, one of the APi Group subsidiaries was the subject of a class action lawsuit in which the plaintiffs claim the Subsidiary owed unpaid overtime wages stemming from its alleged misclassification of employees as exempt fromtime-and-a-half pay under the Fair Labor Standards Act (FLSA). During September 2019, prior to the APi Acquisition, a tentative settlement was reached under which the Subsidiary agreed to pay approximately $20 to the participants in the class action. Accordingly, pursuant to ASC 805, a liability for thispre-acquisition contingency was recognized. This matter was included as a specifically identified indemnification matter in the Purchase Agreement, for which the Company recognized an indemnification asset in purchase accounting, as the amount is deemed realizable based on the contractual nature of this item. During the quarter ended March 31, 2020, the indemnified matter was funded by the former stockholders.

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$38.

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

The following table summarizes the preliminary fair value of consideration transferred and the preliminary estimated fair values of the assets acquired and liabilities assumed at the datedates of acquisition:

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Table of Contents
Acquisition A23Other 2023 acquisitions
Cash paid at closing$30 $22 
Cash deposited into escrow5 — 
Accrued consideration3 2 
Total net consideration$38 $24 
Accounts receivable$8 $— 
Contract assets1 — 
Intangible assets13 5 
Goodwill20 19 
Accounts payable(1)— 
Contract liabilities(3)— 
Net assets acquired$38 $24 
2022 Chubb Acquisition
During 2022, the Company completed its acquisition of the APi Acquisition:

Cash paid at closing

  $2,703 

Deferred consideration

   135 

Share consideration—28,373,000 APG ordinary shares

   291 
  

 

 

 

Total consideration

  $3,129 
  

 

 

 
  

Cash

  $138 

Accounts receivable

   770 

Contract assets

   350 

Other current assets

   182 

Property and equipment

   416 

Finance and operating lease right of use assets

   102 

Other noncurrent assets

   72 

Assets held for sale

   14 

Intangibles

   1,182 

Goodwill

   969 

Accounts payable

   (188) 

Contract liabilities

   (206) 

Accrued expenses

   (392) 

Other current liabilities

   (57) 

Operating lease liability

   (101) 

Finance lease liability

   (18) 

Deferred tax liability

   (25) 

Other noncurrent liabilities

   (79) 
  

 

 

 

Net assets aquired

  $3,129 
  

 

 

 

Chubb fire and security business (the "Chubb Acquisition"). The fair valueChubb fire and security business (the "Chubb business" or "Chubb") is a globally recognized fire safety and security services provider, offering customers complete and reliable services from design and installation to monitoring and on-going maintenance and recurring services. The Chubb business is headquartered in the United Kingdom, and has operations in 17 countries, expanding the Company's geographic footprint to a total of over 20 countries. The results of the acquired trade accounts receivables approximatesChubb business are reported within the carrying valueCompany's Safety Services segment.

Based on U.S. income tax principles related to acquisitions of trade accounts receivables due to the short-term naturenon-U.S. entities, none of the expected timeframe to collect the amounts due to the Company and the contractual cash flows, which are expected to be collected related to these receivables.

As parttotal amount of the purchase price allocation, the Company determined the identifiable intangible assets were: i) customer relationships; ii) tradenames and trademarks and; iii) contractual backlog. The fair value of the intangible assets was estimated using variations of thegoodwill is deductible for U.S. income approach. Specifically, the excess earnings method was utilized to estimate the fair value of the customer relationships and the contractual backlog and the relief from royalty method was utilized to estimate the fair value of the tradenames and trademarks. The customer relationships intangible asset pertains to APi Group’snon-contractual relationships with its customers. Tradenames and trademarks relate to the individual acquired subsidiaries’ names and overall consolidated group name and related industry recognition. Contractual backlog represents the expected remaining cash flows to be received undernon-cancellable customer contracts, which are anticipated to be completed within the next 15 months. The cash flow projections were discounted using rates ranging from 15.7% to 17.5%. The cash flows were based on estimates used to price the transaction, including market participant considerations, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital.

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tax purposes.

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

The following table summarizes the preliminaryfinal fair valuevalues of the identifiable intangible assets:

Contractual backlog

  $112 

Customer relationships

   762 

Tradenames and trademarks

   308 
  

 

 

 

Total intangibles

  $1,182 
  

 

 

 

The estimated useful lives over whichassets acquired and liabilities assumed at the intangible assets will be amortized are as follows: contractual backlog (15 months), customer relationships (8 years), and tradenames and trademarks (15 years).

Pursuant to the termsdate of the Purchase Agreement, approximately $2Chubb Acquisition:

Cash paid at closing$2,935 
Working capital and net indebtedness adjustment(42)
Total net consideration$2,893 
Cash$60 
Accounts receivable426 
Inventories68 
Contract assets183 
Other current assets25 
Property and equipment73 
Operating lease right of use assets146 
Pension and post-retirement assets626 
Other noncurrent assets8 
Intangible assets1,200 
Goodwill1,367 
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 
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Table of cashContents
Accrued consideration and $18 of share consideration (1,746,342 ordinary shares) were placed into escrow. As of March 31, 2020, 608,016 shares had been released from escrow.
The cash escrow and share consideration escrow represent escrow accounts established for consideration adjustments that may be requiredCompany’s acquisition purchase agreements typically include deferred payment provisions, often to be made by the employee stock ownership plan (“ESOP”). The share consideration placed in escrow is specifically related to any indemnification matters, including certain specifically identified indemnification matters in the Purchase Agreement (the “Indemnity Escrow Account”) related topre-acquisition asserted claims and litigation. The Indemnity Escrow Account will remain in place until the later of March 31, 2021 or the receipt of the Final Determination Letter (as defined in the Purchase Agreement) in relation to the termination of the ESOP, to the extent there are no submitted but unsettled indemnification claims at that date. Prior to the APi Acquisition, the ESOP held an approximately 36% ownership interest in APi Group. Pursuant to the terms of the Purchase Agreement, the Purchase Agreement contains an indemnification cap of $45. For any indemnification claims that are identified, thepro-rata portion that relates to the ESOP shareholders of APi Group will be paid from the Indemnity Escrow Account up to $18. For any indemnification claims that are identified, thepro-rata portion that relates to thenon-ESOP shareholders of APi Group will require settlement directly from those former shareholders.

The following unaudited pro forma consolidated financial information reflects the results of operationssellers who become employees of the Company for the three months ended March 31, 2019 as if the APi Acquisition and related financing had occurred as of January 1, 2018, after giving effect to certain purchase accounting and financing adjustments. These amounts are based on financial information of APi Group and are not necessarily indicative of what Company’s operating results would have been had the acquisition and related financing taken place on January 1, 2018.

   Three Months
Ended
March 31, 2019
(Predecessor)		 

Net revenue

  $922 

Net loss

   (10) 

Pro forma financial information is presented as if the operations of APi Group had been included in the consolidated results of the Company since January 1, 2018 and gives effect to transactions that are directly attributable to the APi Acquisition and related financing. Successor and Predecessor periods have been combined in the pro forma financial information for the three months ended March 31, 2019 with pro forma adjustments to adjust for the different basis in accounting between the Successor and the Predecessor. Adjustments include: additional depreciation and amortization expense related to the fair value of acquired property and equipment and intangible assets as if such assets were acquired on January 1, 2018; interest expense under the Company’s $1,200 term loan under a new term loan facility as if the amount borrowed to partially finance the purchase price was borrowed on January 1, 2018; and adjustments for interest and investment income on cash and cash equivalents and investments in marketable securities held by the Company for the three months ended March 31, 2019 related to

13

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

the IPO proceeds generated and invested until the completion of the APi Acquisition as the pro forma financial statements assume that the IPO financing occurred on January 1, 2018 and the proceeds were used to complete the APi Acquisition concurrently. Further adjustments assume income taxes for the Predecessor periods based on a blended US federal and state statutory tax rate.

The purchase agreements related to APi Group’s previously completed acquisitions typically included deferred payment provisions to the former owners, who became employees of APi Group.or its subsidiaries. The provisions are made up of twothree general types of arrangements, bothcontingent compensation and contingent consideration (both of which are contingent on the future performance of the acquired entity; contingententity) and deferred payments related to indemnities. Contingent compensation and contingent consideration. Compensation arrangements are alsotypically contingent on the former owner’s future employment with APi Group. The expensethe Company, and the related to contingent compensation arrangements isamounts are recognized over the required employment period, which is typically threeone to fivefour years. Contingent consideration arrangements are not contingent on employment and are included as part of purchase consideration at the time of the initial acquisition. Both the compensation-typeacquisition and contingent consideration arrangements are typically paid over a three-one to five-yearfour year period.

The totalliability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a one to three year period. Deferred payments are not contingent compensation arrangement liability assumed as part of the APi Acquisition was $27. on any future performance or employment obligations and can be offset for working capital true-ups, and representations and warranty items.

The total contingent compensation arrangement liability was $34$7 and $30$19 at March 31, 2020September 30, 2023, and December 31, 2019,2022, respectively. The maximum payout of these arrangements upon completion of the future performance periods is $102was $15 and $99,$25, inclusive of the $34$7 and $30$19, accrued as of March 31, 2020September 30, 2023, and December 31, 2019,2022, respectively. The contingent compensation liability is included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for all periods presented. Compensation expense is recognizedThe Company primarily determines the contingent compensation liability based on the individual arrangement’s portion of theforecasted cumulative earnings achieved compared to the cumulative earnings target set forth in the arrangement in conjunctionarrangement. Compensation expense associated with the portion ofthese arrangements is recognized ratably over the required employment period that has passed compared to what is remaining.

period.

The total accrued contingent consideration obligation assumed as partobligations are measured at fair value each reporting period and changes in estimates of the APi Acquisition was $8 which is includedfair value are recognized in other accrued and other noncurrent liabilities as of October 1, 2019.

Theearnings. For additional considerations regarding the fair value of the Company's contingent consideration obligations assumed related to APi Group’s previously completed acquisitions is determined using a probability-weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., potential payment amounts, length of measurement periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows and a discount rate. There are no elements of contingent consideration related to the APi Acquisition, other than those liabilities, assumed related to APi Group’s previously completed acquisitions. Seesee Note 8 – “Fair- "Fair Value of Financial Instruments”Instruments."

The total liability for further information regarding thedeferred payments was $14 and $9 at September 30, 2023 and December 31, 2022, respectively, and is included in contingent consideration liabilities.

In conjunction withand compensation liabilities in the APi Acquisition, the Company acquired certain assets that qualified as heldcondensed consolidated balance sheets for sale. Accordingly, these assets were recognized by the Company in purchase accounting at fair value less the cost to sell and totaled $14. All of these assets were sold by the Company as of March 31, 2020.

Note 5.     Divestitures and Held for Sale

all periods presented.

NOTE 4. ASSETS HELD FOR SALE

During the fourth quarter 2019,three months ended September 30, 2023, the Company determined its intent to sell or otherwise discontinue operations of two subsidiariesan infrastructure/utility operating company in its IndustrialSpecialty Services segment (the "Operating Company"), and classified the net book value of those companiesthe Operating Company as held for sale in the condensed consolidated balance sheet.sheets. As of March 31, 2020,September 30, 2023, the Operating Company has completed the divestiture of one of the subsidiaries and the other subsidiary remains classified as held for sale. The sale was completedPursuant to the authoritative literature, the Company evaluated the recoverability of the carrying value of the assets and liabilities held for $10, for whichsale. During the three months ended September 30, 2023, the Company recorded a note receivable within prepaid expensean impairment charge of $13 in selling, general, and other current assets onadministrative expenses in the condensed consolidated balance sheet. The divestiture resulted in no gain or loss on sale.

14

APi Group Corporation

Notesstatements of operations related to Condensed Consolidated Financial Statements

(Amounts in millions, except sharesimpairment of goodwill, intangible assets, and where noted otherwise)

(Unaudited)

other assets.

The following table presents information related to the major classes of assets recorded in prepaid expenses and other current assets and liabilities recorded in other accrued liabilities that were classified as assets held for sale in the condensed consolidated balance sheets:

   March 31,
2020
(Successor)		   December 31,
2019
(Successor)		 

Property and equipment, net

  $—     $9 

Goodwill

   —      1 

Intangible assets, net(1)

   5    10 
  

 

 

   

 

 

 

Total assets held for sale

  $5   $20 
  

 

 

   

 

 

 

(1)

During the three months ended March 31, 2020, the Company recorded an impairment

September 30, 2023
Accounts receivable$14 
Inventories2 
Contract assets6 
Property and equipment, net27 
Operating lease right of $5 on the intangibleuse assets of a subsidiary2 
Accounts payable(8)
Other current liabilities(3)
Noncurrent operating and finance leases(3)
Total assets and liabilities held for sale as a result of the triggering events associated with theCOVID-19 pandemic.

$37 

Note

On October 3, 2023, the Company entered into a definitive agreement to sell the Operating Company for $37. The sale is expected to close before December 31, 2023.
12
Table of Contents
NOTE 5. RESTRUCTURING
During 2022, the Company announced its multi-year Chubb restructuring program designed to drive efficiencies and synergies and optimize operating margin. The Chubb restructuring program includes expenses related to workforce reductions, lease termination costs, and other facility rationalization costs through fiscal year 2024.
During the nine months ended September 30, 2023, the Company incurred pre-tax restructuring costs within the Safety Services segment of $21 in connection with the Chubb restructuring program. Since the Chubb Acquisition, the Company has incurred aggregate restructuring costs of $51. As of September 30, 2023, the Company had $23 in restructuring liabilities recorded in other accrued liabilities on the condensed consolidated balance sheets for this plan.
In total, the Company estimates that it will recognize approximately $105 of restructuring costs related to the Chubb restructuring program by the end of fiscal year 2024.

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.
The following table summarizes the Company's restructuring program for the nine months ended September 30, 2023 and 2022:
Employee termination benefitsProgram related costsAsset write-downsTotal
December 31, 2022$22 $— $— $22 
Charges21 1 4 26 
Payments(18)— — (18)
Reversals(1)— — (1)
Currency translation adjustment(1)— — (1)
September 30, 2023$23 $1 $4 $28 
Employee termination benefitsProgram related costsAsset write-downsTotal
December 31, 2021$— $— $— $— 
Charges18 — — 18 
Payments(6)— — (6)
Currency translation adjustment(1)— — (1)
September 30, 2022$11 $— $— $11 
NOTE 6. Revenue

Under ASC 606,Revenue from NET REVENUES

Contracts with Customers (“ASC 606”), revenue is recognized when, or as, control of promised goods and services is transferred to customers and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Revenue is primarily recognized by the Company over time utilizing thecost-to-cost measure of progress, consistent with the Company’s previous revenue recognition practices. Revenue recognized at a point in time relates primarily to distribution contracts and was not material for the three months ended March 31, 2020 (Successor) and 2019 (Predecessor), respectively.

Contracts with customers:

The Company derives revenuenet revenues primarily from Safety Services, Specialty Services and Industrial Services contracts with a duration of less than one week to three years with(with the majority of contracts with durations of less than six months,months), which are subject to multiple pricing options, including fixed price, unit price, time and materials,material, or cost plus a markup. Net revenues are primarily recognized by the Company over time utilizing the cost-to-cost measure of progress. Net revenues recognized at a point in time primarily relate to distribution contracts and short-term time and material contracts. The Company also enters into fixed-price service contracts related to monitoring, maintenance, and inspection of safety systems. The Company may utilize subcontractors in the fulfillment of its performance obligations. When doing so, the Company is considered the principal in these transactions and revenue is recognized on a gross basis.

Revenue for fixed price agreements is generally recognized over time using thecost-to-cost method of accounting, which measures progress based on the cost incurred to total expected cost in satisfying its performance obligation. Thecost-to-cost method is used as it best depicts the continuous transfer of control of goods or services to the customer. Costs incurred include direct materials, labor and subcontract costs, and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. These contract costs are included in the results of operations under cost of revenues. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed.

Revenue from time and material contracts is recognized as the services are provided and is equal to the sum of the contract costs incurred plus an agreed upon markup. Revenue earned from distribution contracts is recognized upon shipment or performance of the service.

The cost estimation process for recognizing revenue over time under thecost-to-cost method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and the Company’s profit recognition. Changes in these factors could result in cumulative revisions to revenue in the period in which the revisions are determined, which could materially affect the Company’s consolidated results of operations for that period. Provisions for estimated losses on uncompleted contracts are recorded in the period in which such estimated losses are determined.

15

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

The Company disaggregates its revenuenet 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 September 30, 2023, and 2022. During 2023, the Company moved an immaterial business component within the Safety

13
Table of Contents
Services segment from the HVAC to the Life Safety reporting unit, and prior period amounts in this table have been recast to reflect the current period presentation. Disaggregated revenuenet revenues information is as follows:

   Three Months Ended March 31, 2020 (Successor) 
   Safety   Specialty   Industrial   Corporate and    
   Services   Services   Services   Eliminations  Consolidated 

Life safety

  $343   $—     $—     $—    $343 

Mechanical

   81    —      —      —     81 

Infrastructure/Utility

   —      170    —      —     170 

Fabrication

   —      38    —      —     38 

Specialty contracting

   —      92    —      —     92 

Transmission

   —      —      93    —     93 

Civil

   —      —      7    —     7 

Inspection

   —      —      37    —     37 

Corporate and eliminations

   —      —      —      (3)   (3) 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net revenues

  $424   $300   $137   $(3)  $858 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 
                         
   Three Months Ended March 31, 2019 (Predecessor) 
   Safety   Specialty   Industrial   Corporate and    
   Services   Services   Services   Eliminations  Consolidated 

Life safety

  $334   $—     $—     $—    $334 

Mechanical

   92    —      —      —     92 

Infrastructure/Utility

   —      160    —      —     160 

Fabrication

   —      41    —      —     41 

Specialty contracting

   —      85    —      —     85 

Transmission

   —      —      151    —     151 

Civil

   —      —      2    —     2 

Inspection

   —      —      60    —     60 

Corporate and eliminations

   —      —      —      (3)   (3) 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net revenues

  $426   $286   $213   $(3)  $922 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 
   Three Months Ended March 31, 2020 (Successor) 
   Safety   Specialty   Industrial   Corporate and    
   Services   Services   Services   Eliminations  Consolidated 

United States

  $376   $300   $131   $(3)  $804 

Canada and United Kingdom

   48    —      6    —     54 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net revenues

  $424   $300   $137   $(3)  $858 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 
                         
   Three Months Ended March 31, 2019 (Predecessor) 
   Safety   Specialty   Industrial   Corporate and    
   Services   Services   Services   Eliminations  Consolidated 

United States

  $374   $286   $186   $(3)  $843 

Canada and United Kingdom

   52    —      27    —     79 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net revenues

  $426   $286   $213   $(3)  $922 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

16

Three Months Ended September 30, 2023
Safety
Services		Specialty
Services		Consolidated
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
Services		Specialty
Services		Consolidated
Life Safety$1,021 $— $1,021 
HVAC133 — 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
Services		Specialty
Services		Consolidated
Life Safety$3,250 $— $3,250 
HVAC383 — 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
Services		Specialty
Services		Consolidated
Life Safety$3,003 $— $3,003 
HVAC371 — 371 
Infrastructure/Utility— 849 849 
Fabrication— 194 194 
Specialty Contracting— 477 477 
Corporate and Eliminations— — (39)
Net revenues$3,374 $1,520 $4,855 
14

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

The Company’s

Table of Contents
Three Months Ended September 30, 2023
Safety
Services		Specialty
Services		Corporate and
Eliminations		Consolidated
United States$595 $559 $(2)$1,152 
France140 — — 140 
Other482 10 — 492 
Net revenues$1,217 $569 $(2)$1,784 
Three Months Ended September 30, 2022
Safety
Services		Specialty
Services		Corporate and
Eliminations		Consolidated
United States$568 $565 $(9)$1,124 
France125 — — 125 
Other461 25 — 486 
Net revenues$1,154 $590 $(9)$1,735 
Nine Months Ended September 30, 2023
Safety
Services		Specialty
Services		Corporate and
Eliminations		Consolidated
United States$1,738 $1,525 $(18)$3,245 
France446 — — 446 
Other1,449 29 — 1,478 
Net revenues$3,633 $1,554 $(18)$5,169 
Nine Months Ended September 30, 2022
Safety
Services		Specialty
Services		Corporate and
Eliminations		Consolidated
United States$1,576 $1,481 $(39)$3,018 
France417 — — 417 
Other1,381 39 — 1,420 
Net revenues$3,374 $1,520 $(39)$4,855 
For in-process contracts, with its customers generally require significant services to integrate complex activities and equipment into a single deliverable, and are therefore generally accounted for as a single performance obligation to provide a single contracted service for the duration of the project. For contracts with multiple performance obligations, the transaction price of a contract is allocated to each performance obligation and recognized as revenue when or as the performance obligation is satisfied using the estimated stand-alone selling price of each distinct good or service. The stand-alone selling price is estimated using the expected cost plus a margin approach for each performance obligation. The aggregate amount of transaction price allocated to the unsatisfied performance obligations that are unsatisfied as of March 31, 2020,at September 30, 2023 was $1,433.

When more than one contract is entered into with a customer$2,732. The Company expects to recognize revenue on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as one, or more than one, performance obligation. This evaluation requires significant judgment and is based on the facts and circumstancesapproximately 87% of the various contracts.

Contracts are often modified through change orders to account for changes in the scope and price of the goods or services being provided. Although the Company evaluates each change order to determine whether such modification creates a separate performance obligation, the majority of change orders are for goods or services that are not distinct within the context of the original contract and, therefore, are not treated as separateremaining performance obligations but rather as a modification ofover the existing contract and performance obligation.

Variable consideration: Transaction prices for customer contracts may include variable consideration, which comprises items such as early completion bonuses and liquidated damages provisions. Management estimates variable consideration for a performance obligation utilizing estimation methods that are believed to best predict the amount of consideration to which the Company will be entitled. Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Changes in the estimates of transaction prices are recognized in revenue on a cumulativecatch-up basis in the period in which the revisions to the estimates are made. Such changes in estimates may also result in the reversal of previously recognized revenue if the ultimate outcome differs from the Company’s previous estimate. For the three months ended March 31, 2020 (Successor) and 2019 (Predecessor), the Company did not recognize significant revenue associated with the final settlement of contract value for any projects that were completed in prior periods. In addition, for the three months ended March 31, 2020 (Successor) and 2019 (Predecessor), there were no significant reversals of revenue recognized associated with the revision of transaction prices. The Company typically does not incur any returns, refunds or similar obligations after the completion of the performance obligation since any deficiencies are corrected during the course of performance.

next twelve months.

Contract assets and liabilities: The Company typically invoices customers with payment terms of net due in 30 days. It is also common for the contract in the industry to specify that a general contractor is not required to submit payments to a subcontractor until it has received those funds from the owner or funding source. In most instances, the Company receives payment of invoices between 30 to 90 days of the date of the invoice.

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

Contract assets include unbilled amounts from the Company’s projects when revenues recognized under thecost-to-cost measure of progress exceed the amounts invoiced to the Company’s customers, as the amounts cannot be billed under the terms of the Company’s contracts. In addition, many of the Company’s time and materials arrangements are billed in arrears pursuant to contract terms, resulting in contract assets being recorded, as revenue is recognized in advance of billings.

17

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

The Company utilizes the practical expedient under ASC 606 and does not adjust for a significant financing component if the time between payment and the transfer of the related good or service is expected to be one year or less. The Company’s revenue arrangements are typically accounted for under such expedient as payments are within one year of performance for the Company’s services. As of March 31, 2020, none of the Company’s contracts contained a significant financing component. Contract liabilities from the Company’s construction contracts arise when amounts invoiced to the Company’s customers exceed revenues recognized under thecost-to-cost measure of progress. Contract liabilities also include advance payments from the Company’s customers on certain contracts. Contract liabilities decrease as the Company recognizes revenue from the satisfaction of the related performance obligation. Contact assets and liabilities are classified as current in the condensed consolidated balance sheets as all amounts are expected to be relieved within one year.

The opening and closing balances of accounts receivable, net of allowances, contract assets, and contract liabilities from contracts with customers as of March 31, 2020September 30, 2023 and December 31, 20192022 are as follows:

   March 31,   December 31,  December 31, 
   2020   2019  2018 
   (Successor)   (Successor)  (Predecessor) 

Accounts receivable, net of allowances

  $662   $730  $765 

Contract assets

   251    245   240 

Contract liabilities

   205    193   203 

Accounts
receivable,
net of
allowances		Contract
assets		Contract
liabilities
Balance at September 30, 2023$1,280 $530 $474 
Balance at December 31, 20221,313 459 463 
The Company did not recognize significant revenuerevenues associated with the final settlement of contract value for any projects that were completed in prior periods. In accordance with industry practice, accounts receivable includes retentions receivable, a portion of which may not be received within one year. At March 31, 2020September 30, 2023 and December 31, 2019,2022, retentions receivable were $116$159 and $133,$150, respectively, while the portions that may not be received within one year were $24$27 and $28,$35, respectively. There were no other significant changes due to business acquisitions or significant changes in estimates
15
Table of contract progress or transaction price. There was no significant impairment of contract assets recognized during the period.

Costs to obtain or fulfill a contract: The Company generally does not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. The Company may incur certain fulfilment costs such as initial design or mobilization costs which are capitalized if: (i) they relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. Such costs, which are amortized over the life of the respective project, were not material for any period presented. The Company generally does not incur any significant costs related to obtaining a contract with a customer.

18

Contents

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

Note

NOTE 7. GOODWILL AND INTANGIBLES
Goodwill
The following table provides disclosure of goodwill by segment as of September 30, 2023 and Intangibles

Goodwill:December 31, 2022. The changes in the preliminary carrying amount of goodwill by reportable segment for the nine months ended September 30, 2023 are as follows:

Safety
Services		Specialty
Services		Total
Goodwill
Goodwill as of December 31, 2022$2,201 $181 $2,382 
Acquisitions39 — 39 
Impairment of goodwill (1)
— (4)(4)
Foreign currency translation(13)— (13)
Goodwill as of September 30, 2023$2,227 $177 $2,404 
(1)    During the three months ended March 31, 2020 are as follows (amounts primarily represent the preliminary estimate of goodwill attributable to the APi Acquisition):

   Safety   Specialty   Industrial   Total 
   Services   Services   Services   Goodwill 

Goodwill as of December 31, 2019

  $639   $290   $51   $980 

Acquisitions

   —      2    —      2 

Impairments(1)

   (34)    (120)    (49)    (203) 

Measurement period adjustments

   (6)    (4)    (2)    (12) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill as of March 31, 2020

  $599   $168   $—     $767 
  

 

 

   

 

 

   

 

 

   

 

 

 

(1) During the first quarter of 2020,September 30, 2023, the Company concluded that a triggering event had occurreddetermined its intent to sell the Operating Company (see Note 4 – “Assets Held for all of its reporting units (See Note 2 – “Basis of Presentation and Significant Accounting Policies”Sale”). Pursuant to the authoritative literature, the Company performed an impairment testevaluated the recoverability of the carrying value of the assets and liabilities held for sale and recorded ana goodwill impairment charge of $203 to reflect the impairment of its goodwill. $4.

Intangibles
The impairment charge of $34 recorded within the Safety Services segment was recorded within the Mechanical reporting unit. The impairment charge of $120 recorded within the Specialty Services segment was recorded within the Infrastructure/Utility reporting unit, Fabrication reporting unit and Specialty Contracting reporting unit for $80, $17 and $23, respectively. The impairment charge of $49 recorded within the Industrial Services segment was recorded within the Transmission reporting unit and Civil reporting unit for $45 and $4, respectively. The impairment charge was recorded based on preliminary estimates of each reporting unit’s carrying values, and may change in future periods as the accounting for the APi Acquisition is finalized (See Note 2 – “Basis of Presentation and Significant Accounting Policies”).

Intangibles: The Company has the followingCompany’s identifiable intangible assets are comprised of the following as of March 31, 2020September 30, 2023 and December 31, 2019 (amounts primarily represent the preliminary estimate2022:

September 30, 2023
Weighted Average Remaining
Useful Lives
(in Years)		Gross
Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount
Amortized intangibles:
Contractual backlog0.3$154 $(146)$8 
Customer relationships9.51,513 (477)1,036 
Trade names and trademarks12.4702 (122)580 
Total$2,369 $(745)$1,624 
16
Table of intangibles attributable to the APi Acquisition):

   March 31, 2020 
   Weighted-Average   Gross         
   Useful Lives   Carrying   Accumulated   Net Carrying 
   (Years)   Amount   Amortization   Amount 

Amortized intangibles:

        

Backlog intangibles

   1   $112   $(45)   $67 

Customer relationships

   8    755    (48)    707 

Trade names

   15    305    (10)    295 
    

 

 

   

 

 

   

 

 

 

Total

    $1,172   $(103)   $1,069 
    

 

 

   

 

 

   

 

 

 
   December 31, 2019 
   Weighted-Average   Gross         
   Useful Lives   Carrying   Accumulated   Net Carrying 
   (Years)   Amount   Amortization   Amount 

Amortized intangibles:

        

Backlog intangibles

   1   $112   $(22)   $90 

Customer relationships

   8    755    (24)    731 

Trade names

   15    305    (5)    300 
    

 

 

   

 

 

   

 

 

 

Total

    $1,172   $(51)   $1,121 
    

 

 

   

 

 

   

 

 

 

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Contents

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

December 31, 2022
Weighted Average Remaining
Useful Lives
(in Years)		Gross
Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount
Amortized intangibles:
Contractual backlog0.9$153 $(126)$27 
Customer relationships10.01,508 (367)1,141 
Trade names and trademarks13.2704 (88)616 
Total$2,365 $(581)$1,784 


Amortization expense recognized on intangibles wasidentifiable intangible assets is as follows:

   Three Months Ended March 31, 
   2020
(Successor)		       2019
(Predecessor)		 

Cost of revenues

  $22     $—   

Selling, general, and administrative expense

   30      9 
  

 

 

     

 

 

 

Total intangible asset amortization expense

  $52     $9 
  

 

 

     

 

 

 
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Cost of revenues$7 $15 $20 $22 
Selling, general, and administrative expenses49 36 147 143 
Total intangible asset amortization expense$56 $51 $167 $165 

Note

NOTE 8. Fair Value of Financial Instruments

FAIR VALUE OF FINANCIAL INSTRUMENTS

U.S. GAAP defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Management considers debt to approximate fair value. The authoritative guidance discusses valuation techniques such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:

Level 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 reporting entity’s own assumptions.

Level 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.
Recurring Fair Value Measurements:fair value measurements
The Company’s financial assets and liabilities adjusted(adjusted to fair value at least annuallyquarterly) are derivative instruments and contingent consideration whichobligations. In the condensed consolidated balance sheets, derivative instruments are primarily included in other noncurrent assets and other noncurrent liabilities, and contingent consideration obligations are primarily included in contingent consideration and compensation liabilities.

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The following tables summarize the fair values and levels within the fair value hierarchy in which the measurements fall for assets and liabilities measured on a recurring basis as of March 31, 2020September 30, 2023 and December 31, 2019:

   Fair Value Measurements at March 31, 2020 
   Level 1   Level 2   Level 3   Total 

Derivatives

  $—     $(36)   $—     $(36) 

Contingent consideration obligations

   —      —      (9)    (9) 
  

 

 

   

 

 

   

 

 

   

 

 

 
  $—     $(36)   $(9)   $(45) 
  

 

 

   

 

 

   

 

 

   

 

 

 
   Fair Value Measurements at December 31, 2019 
   Level 1   Level 2   Level 3   Total 

Derivatives

  $—     $—     $—     $—   

Contingent consideration obligations

   —      —      (7)    (7) 
  

 

 

   

 

 

   

 

 

   

 

 

 
  $—     $—     $(7)   $(7) 
  

 

 

   

 

 

   

 

 

   

 

 

 

2022:

Fair Value Measurements at September 30, 2023
Financial assets:Level 1Level 2Level 3Total
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)$(7)
Fair Value Measurements at December 31, 2022
Financial assets:Level 1Level 2Level 3Total
Derivatives designated as hedge instruments
Cash flow hedges - interest rate swaps$— $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 Company determines the fair value of its interest rate swaps (“Derivatives”)derivative instruments designated as hedge instruments using standard pricing models and market-based assumptions for all inputs such as yield curves and quoted spot and forward exchange rates. Accordingly, the Company’s derivative instruments are classified as Level 2.

20

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

Contingent consideration obligations

The value of the contingent consideration obligations is determined using a probability-weighted discounted cash flow method. This fair value measurement is based on unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g.,
18
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potential payment amounts, length of measurement periods, manner of calculating any amounts due, etc.)due) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows, and a discount rate. Depending on the contractual terms of the purchase agreement, the probabilityprobabilities of achieving future cash flows or earnings generally represent the only significant unobservable inputs. The contingent consideration obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings.

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

   Three
Months
Ended
March 31,
2020		 

Balances at beginning of period

  $7 

Acquisitions

   —   

Issuances

   —   

Settlements

   —   

Adjustments to fair value

   2 
  

 

 

 

Balance at end of period

  $9 
  

 

 

 

Number of open contingent consideration arrangements at the end of period

   6 

Maximum potential payout at end of period

  $11 

Nine Months Ended,
September 30, 2023
Balance as of December 31, 2022$4 
Issuances3 
Settlements(1)
Adjustments to fair value— 
Balance as of September 30, 2023$6 
Number of open contingent consideration arrangements at the end of the period2 
Maximum potential payout at the end of the period$6 
At March 31, 2020,September 30, 2023, the remaining open contingent consideration arrangements are set to expire at various dates through March 2023.2025. 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, 2020.

September 30, 2023.

Fair value estimates
The following table presents the carrying amount and fair value of the Company’s term loans and senior notes (instruments defined in Note 9.     Derivatives

From time11 – “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 time,calculated fair value are considered to be Level 2 inputs under the fair value hierarchy. During the first quarter of 2023, the Company (Successor) enters into derivative transactionsrepaid an aggregate amount of $200, $100 to hedge its exposures toeach of the 2019 Term Loan and 2021 Term Loan.


September 30, 2023December 31, 2022
Carrying ValueFair ValueCarrying ValueFair Value
2019 Term Loan$1,027 $1,027 $1,127 $1,120 
2021 Term Loan985 986 1,085 1,075 
4.125% Senior Notes337 285 337 284 
4.750% Senior Notes277 242 277 243 

See Note 19 - "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.
NOTE 9. DERIVATIVES
The Company uses foreign currency forward contracts, cross-currency swaps, and interest rate fluctuations.swap agreements to manage risks associated with foreign currency exchange rates, net investments in foreign operations, and interest rates. The Company does not hold derivative financial instruments of a speculative nature or for trading purposes. The Company records derivatives as assets and liabilities on the condensed consolidated balance sheets at fair value. Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge under ASC 815, Derivatives and Hedging. Cash flows from derivatives are classified in the condensed consolidated statements of cash flows in the same category as the cash flows from 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.
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The Company is exposed to credit risk in the event of nonperformance of counterparties for foreign currency forward exchange contracts, cross currency swaps, and interest rate swap agreements. The Company monitors its exposure to credit risk by using credit approvals and credit limits and by selecting major global banks and financial institutions as counterparties. The Company does not enter into derivative transactions for trading purposes. purposes, and is not party to any derivatives that require collateral to be posted prior to settlement.
Certain of the Company’s derivative transactions are subject to master netting arrangements that allow the Company to net settle contracts with the same counterparties. These arrangements do not call for collateral, and no cash collateral had been received or pledged related to the underlying derivatives as of September 30, 2023.
The following table presents the fair value of derivative instruments:
September 30, 2023December 31, 2022
Outstanding Gross
Notional Amount		Other AssetsOther
Noncurrent liabilities		Outstanding Gross
Notional Amount		Other AssetsOther
Noncurrent liabilities
Derivatives designated as hedging instruments:
Cash flow hedges:     
Interest rate swaps$1,120 $36 $— $1,120 $14 $— 
Cross currency contracts120 15 — 120 17 — 
Foreign currency forward contracts2 — — — — — 
Fair value hedges:     
Cross currency contracts721 47 — 721 50 — 
Net investment hedges:     
Cross currency contracts230 27 — 230 32 — 
Total derivatives designated as hedging instruments2,193 125 — 2,191 113 — 
Derivatives not designated as hedging instruments:
Foreign currency forward contracts103 1 (1)118 — — 
Total derivatives not designated as hedging instruments103 1 (1)118 — — 
Total derivatives$2,296 $126 $(1)$2,309 $113 $— 
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The following table presents the after tax effect of derivatives on the condensed consolidated statements of operations:
Amount of income (expense) recognized in income
DerivativesLocation of income (expense)
recognized in income		Three Months Ended September 30,
20232022
Cash flow hedging relationships:
Interest rate swapsInterest expense, net$8 $1 
Cross currency contractsInvestment income and other, net3 7 
Cross currency contractsInterest expense, net1 1 
Foreign currency forward contractsInvestment income and other, net— — 
Fair value hedging relationships:
Cross currency contractsInvestment income and other, net22 49 
Cross currency contractsInterest expense, net1 1 
Net investment hedging relationships:
Cross currency contractsInterest expense, net1 1 
Not designated as hedging instruments:
Foreign currency forward contractsInvestment income and other, net— 2 
Amount of income (expense) recognized in income
DerivativesLocation of income (expense)
recognized in income		Nine Months Ended September 30,
20232022
Cash flow hedging relationships:
Interest rate swapsInterest expense, net$23 $(3)
Cross currency contractsInvestment income and other, net1 15 
Cross currency contractsInterest expense, net2 2 
Foreign currency forward contractsInvestment income and other, net— — 
Fair value hedging relationships:
Cross currency contractsInvestment income and other, net1 92 
Cross currency contractsInterest expense, net2 3 
Net investment hedging relationships:
Cross currency contractsInterest expense, net3 3 
Not designated as hedging instruments:
Foreign currency forward contractsInvestment income and other, net— 5 
Currency Effects
The income (expense) from derivatives designed to offset foreign currency exposure and recorded in investment income and other, net were offset by foreign currency transaction gains and losses resulting in a net gain (loss) of $0 for both the three months ended September 30, 2023 and 2022, and $0 and $(2) for the nine months ended September 30, 2023 and 2022, respectively.
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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)
recognized in other
comprehensive income		Location of gain (loss) reclassified from
AOCI into income		Amount of gain (loss)
reclassified from
AOCI into income
Three Months Ended September 30,Three Months Ended September 30,
Derivatives2023202220232022
Cash flow hedging relationships:
Interest rate swaps$8 $35 Interest expense, net$4 $1 
Cross currency contracts(2)— Investment income and other, net3 7 
Forward currency forward contracts— — Investment income and other, net— — 
Fair value hedging relationships:
Cross currency contracts(7)6 Investment income and other, net23 51 
Net investment hedging relationships:
Cross currency contracts2 10 Interest expense, net(1)(1)
Amount of gain (loss)
recognized in other
comprehensive income		Location of gain (loss) reclassified from
AOCI into income		Amount of gain (loss)
reclassified from
AOCI into income
Nine Months Ended September 30,Nine Months Ended September 30,
Derivatives2023202220232022
Cash flow hedging relationships:
Interest rate swaps$16 $54 Interest expense, net$12 $1 
Cross currency contracts(3)3 Investment income and other, net1 15 
Forward currency forward contracts— — Investment income and other, net— — 
Fair value hedging relationships:
Cross currency contracts(3)1 Investment income and other, net1 94 
Net investment hedging relationships:
Cross currency contracts(3)25 Interest expense, net— (1)
Cash flow hedges
For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized in current earnings.
Interest rate swaps
The Company manages its fixed and floating rate debt mix using interest rate swaps. InterestThe Company uses interest rate swap contracts are used by the Company to separate interest rate risk management from the debt funding decision. The cash paid and received from the settlementCompany elected a method that does not require continuous evaluation of interest rate swaps is included in interest expense in the consolidated statement of operations.

At March 31, 2020,hedge effectiveness.

During 2022, the Company had aterminated the previously outstanding $720 notional amount interest rate swap that fixes LIBOR at 1.62%with a maturity date in October 2024 ("2024 Interest Rate Swap"). ThisThe 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 September 30, 2023, approximately $18 of unrealized pre-tax gains remained in AOCI.
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During 2022, the Company entered into an aggregate $720 notional amount interest rate swap is("2026 Interest Rate Swap"), 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 (SOFR) for an average fixed rate of interest of approximately 3.59% over the term of the agreement, which matures in October 2026.
During the first quarter of 2023, the aggregate $400 notional forward-starting swaps became effective ("2028 Interest Rate Swap"), as amended on May 19, 2023 in connection with the transition to SOFR. Refer to Note 11 - "Debt" for additional information. These interest rate swaps exchange a variable rate of interest (SOFR) for an average fixed rate of interest of approximately 3.41% over the term of the agreements, which mature in January 2028.
As of September 30, 2023, the Company had $1,120 notional amount outstanding in swap agreements, which includes the aggregate $400 notional 2028 Interest Rate Swap, and the $720 notional 2026 Interest Rate Swap. The Company has designated these swaps as a cash flow hedgehedges of the interest rate risk attributable to the Company’s forecasted variable interest (SOFR) payments and has maturity dates through October 2024. The effective portionfor its SOFR based term loans of $2,012. As of September 30, 2023, theafter-tax fair value unrealized gains or losses weighted average fixed rate of interest on this swap is included as a component of accumulated other comprehensive income (loss).

The fair value of the interest rate swap designated as an effective hedgethese swaps was a liability of $36 and an asset of less than $1 as of March 31, 2020 and December 31, 2019, respectively. The increaseapproximately 3.52%. Variations in the

21

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares assets and where noted otherwise)

(Unaudited)

liability wasbalances are primarily driven by changes in the applicable LIBOR rate which was 0.99% at March 31, 2020 comparedforward yield curves related to 1.76% at December 31, 2019. SOFR.

Cross-currency swaps
The Company enters into cross-currency exchange contracts utilized to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies 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 not a party to any derivatives that require collateraldetermined to be posted priorno longer effective as a hedge, the Company discontinues hedge accounting prospectively.
During 2021, the Company entered into two cross-currency swaps designated as cash flow hedges with gross notional U.S. dollar equivalent amounts of $26 and $94 with maturity dates of September 2027 and 2030, respectively.
Foreign currency forward contracts
The Company utilizes foreign currency forward contracts to settlement.

hedge the effect of foreign currency exchange rate fluctuations on forecasted foreign currency transactions, including inventory purchases and intercompany charges and other payments. These forward contracts are designated as cash flow hedges. The changes in fair value of these contracts are recorded in other comprehensive income until the hedged items affect earnings, at which time the hedge gain or loss is reclassified into current earnings.
The Company periodically assesses whether its currency exchange contracts are effective, and when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively.
Fair value hedges
The Company has certain intercompany loans subject to changes in foreign currency exchange rates. To hedge these exposures, during 2022, the Company entered into three cross-currency swaps each with maturity dates of January 2027. These contracts are designated as fair value hedges with gross notional U.S. dollar equivalents of $271, $241, and $209 in GBP, CAD, and EUR, respectively. The Company measures the effectiveness of fair value hedges of anticipated transactions on a spot-to-spot basis. 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.
Net investment hedges
The Company has net investments in foreign subsidiaries subject to changes in foreign currency exchange rates. During 2021, the Company entered into a $230 notional foreign currency swap designated as a net investment hedge for a portion of the Company’s net investments in Euro-denominated subsidiaries. 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.
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During 2021, the Company amended the critical terms of the foreign currency swap by extending the maturity date and modifying the U.S. dollar and Euro coupons. The amended swap was redesignated as a net investment hedge as a result of the amendment, recorded at fair value with changes recorded in AOCI, and the initial net investment hedge was dedesignated. The amended net investment hedge reduces the Company’s interest expense by approximately $3 annually and reduces its overall effective interest rate by approximately 24 basis points and will mature in July 2029.
The fair value previously recognized in AOCI related to interest rate movements of the dedesignated swap is being amortized to interest expense on a straight-line basis through the third quarter of 2029.
Foreign currency contracts
The Company uses foreign currency forward contracts to mitigate the foreign currency exposure of certain foreign currency transactions. Fair market value gains or losses on foreign currency forward contracts not designated as hedging instruments were included in the results of operations and are classified in investment income and other, net in the condensed consolidated statements of operations.

Note

NOTE 10. Property and Equipment, Net

PROPERTY AND EQUIPMENT, NET

The components of property and equipment at March 31, 2020as of September 30, 2023, and December 31, 20192022 are as follows:

   Estimated
Useful Lives
(In Years)		   March 31,
2020		   December 31,
2019		 

Land

   N/A   $20   $19 

Building

   40    64    66 

Machinery and equipment

   3–15    179    174 

Autos and trucks

   5    73    67 

Office equipment

   3–7    67    66 

Leasehold improvements

   2–10    28    28 
    

 

 

   

 

 

 

Total cost

     431    420 

Accumulated depreciation

     (34)    (18) 
    

 

 

   

 

 

 

Property and equipment, net

    $397   $402 
    

 

 

   

 

 

 

Estimated
Useful Lives
(In Years)		September 30,
2023		December 31,
2022
LandN/A$26 $30 
Building3983 98 
Machinery and equipment1-20268 313 
Autos and trucks4-10112 116 
Office equipment5-786 35 
Leasehold improvements1-1533 33 
Total cost608 625 
Accumulated depreciation(231)(218)
Property and equipment, net$377 $407 
Depreciation expense related to property and equipment, including capitalfinance leases, was $18$21 and $16 for$22 during the three months ended March 31, 2020 (Successor)September 30, 2023 and 2019 (Predecessor), respectively,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 unaudited condensed consolidated statements of operations.

Note

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NOTE 11. Debt

DEBT

Debt obligations consist of the following:

Description

  Maturity Date   March 31,
2020		   December 31,
2019		 

Term Loan Facility

      

Term Loan

   October 1, 2026   $1,197   $1,200 

Revolving Credit Facility

   October 1, 2024    200    —   

Other Obligations

     10    14 
    

 

 

   

 

 

 

Total debt obligations

     1,407    1,214 

Less unamortized deferred financing costs

     (23)    (24) 
    

 

 

   

 

 

 

Total debt, net of deferred financing costs

     1,384    1,190 

Less current portion of long-term debt

     (217)    (19) 
    

 

 

   

 

 

 

Long-term debt

    $1,167   $1,171 
    

 

 

   

 

 

 

Maturity DateSeptember 30,
2023		December 31,
2022
Term loan facility
2019 Term LoanOctober 1, 2026$1,027 $1,127 
2021 Term LoanJanuary 3, 2029985 1,085 
Revolving Credit FacilityOctober 1, 2026— — 
Senior notes
4.125% Senior NotesJuly 15, 2029337 337 
4.750% Senior NotesOctober 15, 2029277 277 
Other obligations6 6 
Total debt obligations2,632 2,832 
Less: unamortized deferred financing costs(34)(43)
Total debt, net of deferred financing costs2,598 2,789 
Less: short-term and current portion of long-term debt(256)(206)
Long-term debt, less current portion$2,342 $2,583 
Term loan facility
The Company amended its credit agreement during the second quarter of 2023, which provided for amended interest rates applicable to the Company's existing term loans and future borrowings under the revolving credit facility. In May 2023, the Company entered into an amendment to the credit agreement to replace the London Inter-Bank Offered Rate ("LIBOR") index with Term SOFR.
As of March 31, 2020, there was $1,197September 30, 2023, the Company had $1,027 of principal outstanding under the $1,200 term loan (the "2019 Term Loan") with a maturity date of October 1, 2026. During the nine months ended September 30, 2023, the Company made a payment of $100 on the 2019 Term Loan. The interest rate applicable to the 2019 Term Loan bearingis, at the Company's option, either (a) a base rate plus an applicable margin equal to 1.50% or (b) Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50% plus a credit spread adjustment ("CSA").
As of September 30, 2023, the Company had $985 of principal outstanding under the $1,100 term loan (the "2021 Term Loan") with a maturity date of January 3, 2029. During the nine months ended September 30, 2023, the Company made a payment of $100 on the 2021 Term Loan. The interest of 3.49% per annum based onone-month LIBORrate applicable to the 2021 Term Loan is, at the Company's option, either (1) a base rate plus 250 basis points.

an applicable margin equal to 1.75% or (2) Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.75% plus a CSA.

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

See Note 19 - "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.
Swap activity
In the three months ended September 30, 2023, the Company amended its existing interest rate swaps in connection with the transition to SOFR for the term loans.
As of September 30, 2023, the Company had a four-year interest rate swap with respect to $720 of notional value, exchanging one-month SOFR for a fixed rate of 3.59% per annum, and a five-year interest rate swap, which started in the first quarter of 2023, exchanging one-month SOFR for a rate of 3.41%. Accordingly, the Company's fixed interest rate per annum on the Revolving Credit Facility was 4.56%first swapped $400 notional value of the term loans is 3.41% and the second swapped $720 notional value of
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the term loans is 3.59% through their maturity. The remaining $892 of the term loans balance will bear interest based on one-month SOFR plus CSA plus 250 basis points or SOFR plus CSA plus 275 basis points, but the rate will fluctuate as SOFR fluctuates. Refer to Note 9 - "Derivatives" for additional information.
As of March 31, 2020.

22

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

During March 2020, the Company drew $200 on its Revolving Credit Facility, which was subsequently paid down during April 2020. At March 31, 2020September 30, 2023 and December 31, 2019,2022, the Company had $200 and $0 outstanding under this Revolving Credit Facility, respectively, and $33 and $235 was available at March 31, 2020 and December 31, 2019, respectively, after giving effect to $67 and $65 of outstanding letters of credit.

As of March 31, 2020 and December 31, 2019, the Company was in compliance with the applicable debt covenants contained in the Credit Agreement.

One of the Company’s Canadian operations has a $20 unsecuredline-of-credit agreement with a variable-interest rate based upon the prime rate. The Company had no amounts outstanding under the line of credit as of March 31, 2020Revolving Credit Facility, and $484 and $446 was available at September 30, 2023 and December 31, 2019.

2022, respectively, after giving effect to $16 and $54 of outstanding letters of credit, respectively.

As of March 31, 2020,September 30, 2023 and December 31, 2019,2022, the Company was in compliance with all applicable debt covenants.
Senior notes
4.125% Senior Notes
During 2021, the Company completed a private offering of $350 aggregate principal amount of 4.125% Senior Notes (the “4.125% Senior Notes”) issued under an indenture dated June 22, 2021. The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Company’s subsidiaries. The Company repurchased $13 of the 4.125% Senior Notes in September 2022 and the balance as of September 30, 2023 was $337.
4.750% Senior Notes
During 2021, the Company completed a private offering of $300 aggregate principal amount of 4.750% Senior Notes due 2029 (the "4.750% Senior Notes") issued under an indenture dated October 21, 2021, as supplemented by a supplemental indenture dated January 3, 2022. The 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 of the 4.750% Senior Notes in September 2022 and the balance as of September 30, 2023 was $277.
The Company was in compliance with all covenants contained in the indentures for the 4.125% Senior Notes and 4.750% Senior Notes as of September 30, 2023, and December 31, 2022.
Other obligations
As of each of September 30, 2023 and December 31, 2022, the Company had $10 and $14$6 in notes outstanding for working capital purposes and the acquisition of equipment and vehicles, respectively.

Notevehicles.

NOTE 12. Income Taxes

Historically, APi Group has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code for federal tax purposes. As a result, APi Group’s income was not subject to U.S. federal income taxes or state income taxes in those states where the S Corporation status is recognized. In Predecessor periods, no provision or liability for federal or state income tax has been provided in its consolidated financial statements except for those taxing jurisdictions where the S Corporation status is not recognized. In connection with the APi Acquisition, APi Group’s S Corporation status was terminated and APG will be treated as a C Corporation under Subchapter C of the Internal Revenue Code and will be part of the consolidated tax group of the Company. The termination of the “S” Corporation election has had a material impact on the Company’s results of operations, financial condition, and cash flows as reflected in the March 31, 2020 consolidated financial statements. The effective tax rate has increased, and net income has decreased as compared to the Company’s “S” Corporation tax years, since the Company is now subject to U.S. federal and state corporate income taxes in addition to foreign corporate income taxes on its earnings.

INCOME TAXES

The Company’s quarterly income tax provision is measured using an estimate of its consolidated annual effective tax rate, adjusted in the current period for discrete income tax items, within the periods presented. The comparison of the Company’s income tax provision between periods may be impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate differentials, and discrete items. The Company’s effective tax rate was 20.9%25.5% and 6.0%40.5% for the three months ended March 31, 2020September 30, 2023 and 2019,2022, and 31.3% and 24.2% for the nine months ended September 30, 2023, and 2022, respectively. The most significant item contributing to the change in the effective tax rate relate to the Company’s change in “S” Corporation to “C” Corporation status. The difference between the effective tax rate and the statutory U.S. Federalfederal income tax rate of 21.0% for the quarterthree and nine months ended March 31, 2020September 30, 2023 and 2022 is due to an asset impairment charge benefit offsettingnondeductible permanent items, state taxes, and taxes on foreign earnings in jurisdictions that have higher tax rates.

rates, and the reversal of the Company’s indefinite reinvestment assertion.

As of March 31, 2020,September 30, 2023, the Company’s deferred tax assets included a valuation allowance of $1$105 primarily related to certain deferrednet operating loss, capital loss, and tax assetscredit carryforwards of the Company’s foreign subsidiaries. The factors used to assess the likelihood of realization were the past performance of the related entities, forecasts of future taxable income, future reversals of existing taxable temporary differences, and available tax planning strategies that could be implemented to realize the deferred tax assets. The ability or failure to achieve the forecasted taxable income in these entities could affect the ultimate realization of deferred tax assets.

As of MarchSeptember 30, 2020,2023, the Company had gross federal, state, and foreign net operating loss carryforwards of approximately $248, $0, $21, and $8,$104, respectively. The federalstate net operating losses have carrybackcarryforward periods of five to twenty
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years that can offset 100% of taxable income for periodsand begin to expire in which the Company was a “C” Corporation and can be carried forward indefinitely. The

23

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

carryforwards will be able to offset 80% of future taxable income for years beginning after 2020.2027. The foreign net operating losses have carryback periods of three years, carryforward periods of twenty years, or are indefinite, and begin to expire in 2034.

2036.

The Company’s liability for unrecognized tax benefits is recorded within othernon-current noncurrent liabilities in the condensed consolidated balance sheets and recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes in the income statement.condensed consolidated statements of operations. As of March 31, 2020September 30, 2023, and December 31, 2019,2022, the total gross unrecognized tax benefits were $3$6 and $4,$8, respectively. The Company had accrued gross interest and penalties as of March 31, 2020each of September 30, 2023 and December 31, 20192022 of $1 and $1, respectively.$2. During the periodsthree and nine months ended March 31, 2020September 30, 2023 and March 31, 2019,2022, the Company recognizeddid not recognize net interest expense of $0 and $0, respectively.

expense.

If all of the Company’s unrecognized tax benefits as of March 31, 2020September 30, 2023, were recognized, the entire balance$8 would impact the Company’s effective tax rate. WeThe Company does not expect for $2 ofany unrecognized tax benefits to expire in the next twelve months due to lapses in the statute of limitations.

months.

The Company files income tax returns in the U.S. federal jurisdiction, and various state, local, and foreign jurisdictions. For periods endedAs of September 30, 2019 (predecessor) and prior, the Company, including its domestic subsidiaries, filed state income tax returns for those states that do not recognize Subchapter S corporations. As of March 31, 2020,2023, with few exceptions, neither the Company ornor its subsidiaries are no longer subject to examination prior to tax year 2014. The U.S. federal jurisdiction is underThere are various other audits in state and foreign jurisdictions, including an ongoing IRS exam forrelated to the period ended December 31, 2017.2019 final S Corporation return. No adjustments have been proposed and the Company does not expect the results of the auditaudits to have a material impact on the consolidated financial statements.

Interim Statements.

On March 27, 2020,August 16, 2022, the Coronavirus Aid, Relief, and Economic Security (CARES)U.S. government enacted the Inflation Reduction Act was signed into law making severalof 2022, which includes changes to the Internal Revenue Code. The CARES Act, among other things, permits Net Operating Loss (“NOL“) carryovers to offset 100% ofU.S. corporate income tax system, including a 15% minimum tax based on “adjusted financial statement income” for certain large corporations which is effective for taxable income for tax years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019,after December 31, 2022, and 2020 to be carried back to each of the five precedinga 1% excise tax years to generate a refund of previously paid income taxes. The CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. The CARES Act also accelerates the refund of AMT credits that were previously accumulated. Theshare repurchases after December 31, 2022. While these tax law changes in the CARES Act didare not expected to have a material impactadverse effect on the Company’s incomeCompany'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 provision.

rate. The Company will continue to evaluate the impact of the Inflation Reduction Act as further information becomes available.

Note

NOTE 13. Employee Benefit Plans

CertainEMPLOYEE BENEFIT PLANS

Defined benefit pension plans
The Company sponsors both funded and unfunded foreign defined benefit pension plans that cover a portion of the Company’sCompany's employees, and the largest plans are closed to new participants and frozen for accrual of future service.
During the second quarter of 2023, an annuity purchase transaction, commonly known as a “buy-in”, was executed for the two pension plans in the United Kingdom. Under the terms of the contract, which is issued by a third-party insurance company with no affiliation to the Company, all pension obligations will be funded by the insurer’s annuity payments, but the plans still retain full legal responsibility to pay the benefits to plan participants using the insurance payments. As the plans maintain full legal responsibility, with the annuity contracts being assets of the plans, settlement accounting has not been applied and the contracts represent a change in investment strategy and not a significant change in the plan structure requiring a remeasurement at the interim date. Given the funded status of the plans, the Company does not expect any future contributions to be required.
The components of the net periodic pension benefit for the defined benefit pension plans are as follows:
Three Months Ended September 30,
20232022
Service cost$1 $3 
Interest cost16 7 
Expected return on plan assets(19)(18)
Net periodic pension benefit$(2)$(8)
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Nine Months Ended September 30,
20232022
Service cost$3 $9 
Interest cost47 24 
Expected return on plan assets(56)(56)
Net periodic pension benefit$(6)$(23)
Multiemployer pension plans
Certain subsidiaries including certain subsidiaries in Canada,of the Company contribute amounts to multiemployer pension plans and other multiemployer benefit plans and trusts, (“MEPPs”), which are recorded as a component of employee wages and salaries within costs of revenue.revenues on the condensed consolidated statements of operations. Contributions are generally based on fixed amounts per hour per employee for employees covered under these plans. Multiemployer plan contribution rates are determined annually and assessed on a“pay-as-you-go” pay-as-you-go basis based on union employee payrolls. Union payrolls cannot be determined for future periods because the number of union employees employed at a given time and the plans in which they participate vary depending upon the location, andthe number of ongoing projects, and the need for union resources in connection with those projects. Total consolidated contributions to multiemployer plans were $25 and the related number of employees covered by these plans, including with respect to the Company’s Canadian operations, were $21 and $20$26 during the three months ended March 31, 2020September 30, 2023 and 2019,2022, respectively, and $75 and $77 during the nine months ended September 30, 2023 and 2022, respectively.

Note 14.     Related-Party Transactions and Investments

Profit sharing plans
The Company (Successor) paidhas a quarterly management feetrustee-administered profit-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-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 $4 and $4 in expense during the three months ended September 30, 2023 and 2022, respectively, and $14 and $10 in expense during the nine months ended September 30, 2023 and 2022, respectively.
Employee stock purchase plan
Most of the Company’s employees in the U.S. and Canada, including named executive officers, are eligible to participate in the Company’s Employee Stock Purchase Plan (the “ESPP”). Sales of shares of the Company’s common stock under the ESPP are generally made pursuant to offerings that are intended to satisfy the requirements of Section 423 of the Internal Revenue Code. The ESPP permits employees of the Company to purchase common stock at a price equal to 85% of the lesser of (i) the market value of the common stock on the first day of the offering period, or (ii) the market value of the common stock on the purchase date, whichever is lower. Participants are subject to eligibility requirements and may not purchase more than 500 shares in any offering period or more than ten thousand dollars of common stock in a year under the ESPP. The Company recognized $1 of expense during each of the three months ended September 30, 2023 and 2022 and $4 and $3 of expense during the nine months ended September 30, 2023 and 2022, respectively.
NOTE 14. RELATED-PARTY TRANSACTIONS
The Company incurred advisory fees of $1 during each of the three months ended 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 Sir Martin E. Franklin.

24

APi Group Corporation

Notesa 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 Condensed Consolidated Financial Statements

(AmountsMariposa Acquisition IV, LLC, a related entity that is controlled by a co-chair of the Company's Board of Directors.

During 2022, the Company issued and sold 800,000 shares of the Company’s 5.5% Series B Redeemable Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”) for an aggregate purchase price of $800. Of the 800,000 shares issued and sold, 200,000 shares were sold to Viking Global Equities Master Ltd. and Viking Global Equities II LP ("Viking Purchasers"), which is the aggregate owner of more than 5% of the Company's outstanding stock. The Company declared dividends of 103,283 and 184,754 shares of common stock on the Series B Preferred Stock held by the Viking Purchasers during the three months ended September 30, 2023, and 2022, respectively. The Company declared
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dividends of 337,103 and 486,234 shares of common stock on the Series B Preferred Stock held by the Viking Purchasers during the nine months ended September 30, 2023, and 2022, respectively.
The Company has entered into sales contracts with Royal Oak Enterprises, an entity controlled by a co-chair of the Company's Board of Directors, and recorded $1 and $3 in millions, exceptnet revenues for the three and nine months ended September 30, 2023, respectively.
From time to time, the Company also enters other immaterial related-party transactions.
NOTE 15. COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation matters and is subject to claims from time to time from customers and various government entities. While it is not feasible to determine the outcome of any of these uncertainties, it is the opinion of management that their outcomes will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
Environmental obligations
The Company's operations are subject to environmental regulation by various authorities. The Company has accrued for the costs of environmental remediation activities, including but not limited to, investigatory, remediation, operating and maintenance costs, and performance guarantees, and periodically reassess these amounts. Management believes that the likelihood of incurring losses materially in excess of the amounts accrued is remote.
The outstanding liability for these obligations was $17 and $16, and was included in other noncurrent liabilities on the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively.
NOTE 16. SHAREHOLDERS’ EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
Shareholders' equity
Series A Preferred Stock
The Company had 4,000,000 shares of Series A Preferred Stock issued and where noted otherwise)

(Unaudited)

Note 15.     Earnings (Loss) Per Share

outstanding as of 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-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.

Stock Repurchases
The Company is authorized to purchase up to an aggregate of $250 of shares of the Company’s common stock pursuant to the stock repurchase program ("SRP"), which will expire on February 29, 2024, unless otherwise modified or terminated by the Company's Board of Directors. The SRP authorizes open market, private, and accelerated share repurchase transactions. During the three months ended September 30, 2023, and 2022, the Company repurchased 656,489 and 738,572 shares of common stock for aggregate payments of approximately $18 and $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 September 30, 2023, the Company had approximately $166 of authorized repurchases remaining under the SRP.
Redeemable Convertible Preferred Stock
Series B Preferred Stock
During 2022, the Company authorized, issued, and sold, for an aggregate purchase price of $800, 800,000 shares of the Company’s 5.5% Series B Preferred Stock, par value $0.0001 per share. The holders of the Series B Preferred Stock are entitled to dividends at the rate of 5.5% per annum, payable in cash or the Company’s common stock, at the Company's election. The Series B Preferred Stock ranks senior to the Company's common stock and Series A Preferred Stock with
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respect to dividend rights and rights upon voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Company. The Series B Preferred Stock is classified as redeemable convertible preferred stock on the condensed consolidated balance sheets due to a provision that a change in control or de-listing of the Company could require the Company to redeem the Series B Preferred Stock for cash at the election of the holder.
The Series B Preferred Stock is convertible, at the holder’s option, into shares of the Company’s common stock at a conversion price equal to $24.60 per share, subject to certain customary adjustments. The holders of Series B Preferred Stock have certain other rights including voting rights on an as converted basis, certain pre-emptive rights on private equity offerings by the Company, certain registration rights, and, in the case of certain holders, certain director designation rights, as provided in the certificate of designation governing the Series B Preferred Stock.
The Company may, at its option, effect conversion of the outstanding shares of Series B Preferred Stock to common stock, but only if the volume-weighted average price of the Company's common stock exceeds $36.90 per share for 15 consecutive trading days.
Dividends
The holders of Series B Preferred Stock are entitled to receive cumulative dividends at a rate of 5.5% as and when declared by the Board of Directors, prior and in preference to any declaration or payment of any dividend on the Company's common stock and Series A Preferred Stock. Series B Preferred Stock dividends are cumulative and accrued quarterly, in cash or in common stock, based on an annual 5.5% dividend rate. The Company declared a Series B Preferred Stock dividend of $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, or 739,015 shares of common stock, during the three months ended 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 17. EARNINGS PER SHARE
Net income is allocated between the Company’s ordinarycommon shares and other participating securities based on their participation rights. The FounderSeries A Preferred SharesStock and Series B Preferred Stock represent participating securities. Earnings attributable to FounderSeries A Preferred SharesStock and Series B Preferred Stock are not included in earnings attributable to ordinarycommon shares in calculating earnings per ordinarycommon share (the “two class method”)two-class method). For periods of net loss, there is no impact from thetwo-class method on earnings (loss) per common share (“EPS”) as net loss is allocated to ordinarycommon shares because FounderSeries A Preferred SharesStock and Series B Preferred Stock shares are not contractually obligated to share the loss.

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The following table sets forth the computation of earnings (loss) per ordinary shareEPS using thetwo-class method. The dilutive effect of outstanding FounderSeries A Preferred SharesStock, Series B Preferred Stock, the Series A Preferred Stock dividend, and restricted stock units (“RSUs”) issued by the CompanySeries B Preferred Stock dividend is reflected in diluted EPS using theif-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 FounderSeries A Preferred Shares, RSUs, warrantsStock, Series B Preferred Stock, restricted and performance shares, and stock options are anti-dilutive. (amounts(Amounts in millions, except share and per share amounts):

   Three Months
Ended
March 31,
2020		 

Numerator:

  

Net loss

  $(194) 

Adjustment for vested participating Founder Preferred shares

   —   
  

 

 

 

Net loss attributable to ordinary shares

  $(194) 
  

 

 

 

Denominator:

  

Weighted average shares outstanding - basic

   169,822,082 

Dilutive securities(1)

   —   
  

 

 

 

Weighted average shares outstanding - diluted

   169,822,082 
  

 

 

 

Basic and diluted loss per ordinary share

  $(1.14) 

Ordinary shares issuable upon conversion of Founder Preferred Shares

   4,000,000 

(1)

There are 4,000,000 Founder Preferred Shares, 1,441,546 RSUs, 162,500 stock options to purchase the same number of ordinary shares, and 64,546,077 warrants exercisable to purchase ordinary shares on a 3:1 basis (21,515,359 ordinary share equivalents) that represent potentially dilutive securities that are excluded as their effect would be anti-dilutive.

Predecessor

The Company has notamounts.)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
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 - basic235,418,566233,605,429234,996,055232,982,467
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 - basic235,418,566233,605,429234,996,055232,982,467
Dilutive securities: (1)
Restricted stock units, warrants, and stock options420,465336,325308,745357,350
Shares issuable upon conversion of Series B Preferred Shares32,520,00032,520,00032,520,00032,520,000
Shares issuable pursuant to the Series A Preferred Stock dividend (2)
1,679,291—1,099,296—
Weighted average shares outstanding - diluted270,038,322266,461,754268,924,096265,859,817
Income per common share - diluted$0.15 $0.06 $0.32 $0.06 
1.For all periods presented, Predecessor earnings per member unit information because it is not meaningful or comparable4,000,000 shares of Series A Preferred Stock, which are convertible to the required Successor EPS information presented above,same number of common shares, have been excluded from the calculation of diluted shares, as well astheir inclusion would be anti-dilutive.
2.For the factthree and nine months ended September 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 Predecessor units were not publicly traded.

Series A Preferred Shares would be entitled to receive assuming that the volume weighted average price of the Company’s common shares for the last ten trading days of the period would be the same average price during the last ten trading days of the calendar year. The holders of the Series A Preferred Stock are entitled to receive an annual dividend based on the increase in the market price of the Company’s common stock (the "Annual Dividend Amount"). The Annual Dividend Amount is equal to 20% of the increase in the volume-weighted average market price per share of the Company’s common shares for the last ten trading days of the calendar year, multiplied by 141,194,638 shares. During 2023, the Annual Dividend Amount was calculated based on the appreciation of the Company’s share price over the highest previously used share price of $24.3968.
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Note 16.     Segment Information

NOTE 18. SEGMENT INFORMATION
The Company manages its operations under threetwo operating segments which represent the Company’s threetwo reportable segments: Safety Services and Specialty Services,Services. This structure is generally focused on various businesses related to contracting services and Industrial Services. Themaintenance of industrial and commercial facilities. Both reportable segments derive their revenuerevenues from installation, inspection, maintenance, service and repair, retrofitting and upgrading, engineering and design, distribution, fabrication, and various types of service and contracts, primarilyother services in the United States as well as Canada and the United Kingdom.

over 20 countries.

The Safety Services segment focuses onend-to-end integrated occupancy systems (fire protection services,solutions, HVAC, and entry systems), including design, installation, inspection, and service of these integrated systems. This segment also provides mission critical services, including life safety, emergency communication systems and specialized mechanical services. The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high-tech, industrial residential, medical andspecial-hazard settings.

25

APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

special-hazard settings.

The Specialty Services segment provides utilitya variety of infrastructure services and specialized industrial plant services, includingwhich include maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer, telecom and broadbandtelecommunications infrastructure. Customers within this segment vary from publicThis segment’s services include engineering and private utilities, communications, industrial plantsdesign, fabrication, installation, maintenance service and governmental agencies throughout the United States.

The Industrial Services segment provides a variety of specialty contracting servicesrepair, retrofitting and solutions to the energy industry focused on transmission and distribution. Services within this segment include oil and gasupgrading, pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance.

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.

The accounting policies of the reportable segments are the same as those described in Note 21 – “Basis of Presentation and Significant Accounting Policies”.Policies.” All intercompany transactions and balances are eliminated in consolidation. Intercompany revenuerevenues and costs between entities within a reportable segment are eliminated to arrive at segment totals and eliminations between segments are separately presented. Corporate results include amounts related to corporate functions such as administrative costs, professional fees, acquisition-related transaction costs (exclusive of acquisition integration costs, which are included within the segment results of the acquired businesses), and other discrete items.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. As appropriate, the Company supplements the reporting of consolidated financial information determined in accordance with U.S. GAAP with certainnon-U.S. GAAP financial measures, including EBITDA. The Company believes thesenon-U.S. GAAP measures provide meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. The Company uses EBITDA to evaluate its performance, both internally and as compared with its peers because it excludes certain items that may not be indicative of the Company’s core operating results for its reportable segments. Segment EBITDA is calculated in a manner consistent with consolidated EBITDA.

Summarized financial information for the Company’s reportable segments areis presented and reconciled to consolidated financial information in the following tables, including a reconciliation of consolidated operating income (loss) to EBITDA. The tables below may contain slight summation differences due to rounding:

   Three Months Ended March 31, 2020 (Successor) 
   Safety
Services		  Specialty
Services		  Industrial
Services		  Corporate and
Eliminations		  Consolidated 

Net revenues

  $424  $300  $137  $(3)  $858 

EBITDA Reconciliation

      

Operating loss

  $(10)  $(136)  $(58)  $(30)  $(234) 

Plus:

      

Investment income and other, net

   1   2   —     —     3 

Depreciation

   3   8   4   3   18 

Amortization

   24   18   9   1   52 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

EBITDA

  $18  $(108)  $(45)  $(26)  $(161) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

  $1,721  $1,160  $441  $564  $3,886 

Capital expenditures

   1   6   4   —     11 

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EBITDA:

Three Months Ended September 30, 2023
Safety
Services		Specialty
Services		Corporate and
Eliminations		Consolidated
Net revenues$1,217 $569 $(2)$1,784 
EBITDA Reconciliation   
Operating income (loss)$98 $43 $(37)$104 
Plus:   
Investment income and other, net2 1 1 4 
Non-service pension benefit3 — — 3 
Depreciation8 13 — 21 
Amortization42 13 1 56 
EBITDA$153 $70 $(35)$188 
Total assets$5,983 $1,315 $651 $7,949 
Capital expenditures5 10 3 18 
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APi Group Corporation

Notes to Condensed Consolidated Financial Statements

(Amounts in millions, except shares and where noted otherwise)

(Unaudited)

   Three Months Ended March 31, 2019 (Predecessor) 
   Safety
Services		   Specialty
Services		   Industrial
Services		  Corporate and
Eliminations		  Consolidated 

Net revenues

  $426   $286   $213  $(3)  $922 

EBITDA Reconciliation

        

Operating income (loss)

  $52   $—     $(9)  $(17)  $26 

Plus:

        

Investment income and other, net

   —      1    —     1   2 

Depreciation

   1    8    4   3   16 

Amortization

   2    5    2   —     9 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

EBITDA

  $55   $14   $(3)  $(13)  $53 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total assets

  $780   $813   $356  $116  $2,065 

Capital expenditures

   4    11    7   —     22 
Table of Contents
Three Months Ended September 30, 2022
Safety
Services		Specialty
Services		Corporate and
Eliminations		Consolidated
Net revenues$1,154 $590 $(9)$1,735 
EBITDA Reconciliation
Operating income (loss)$60 $45 $(44)$61 
Plus:   
Investment income and other, net1 2 — 3 
Non-service pension benefit10 — — 10 
Gain on extinguishment of debt, net— — 5 5 
Depreciation8 12 2 22 
Amortization37 14 — 51 
EBITDA$116 $73 $(37)$152 
Total assets$5,879 $1,357 $705 $7,941 
Capital expenditures5 16 5 26 
Nine Months Ended September 30, 2023
Safety
Services		Specialty
Services		Corporate and
Eliminations		Consolidated
Net revenues$3,633 $1,554 $(18)$5,169 
EBITDA Reconciliation
Operating income (loss)$292 $84 $(92)$284 
Plus:
Investment income and other, net2 6 1 9 
Non-service pension benefit9 — — 9 
Loss on extinguishment of debt, net— — (3)(3)
Depreciation21 37 1 59 
Amortization125 39 3 167 
EBITDA$449 $166 $(90)$525 
Total assets$5,983 $1,315 $651 $7,949 
Capital expenditures19 41 4 64 
Nine Months Ended September 30, 2022
Safety
Services		Specialty
Services		Corporate and
Eliminations		Consolidated
Net revenues$3,374 $1,520 $(39)$4,855 
EBITDA Reconciliation
Operating income (loss)$186 $70 $(143)$113 
Plus:
Investment income and other, net2 5 (2)5 
Non-service pension benefit32 — — 32 
Gain on extinguishment of debt, net— — 5 5 
Depreciation20 35 5 60 
Amortization120 43 2 165 
EBITDA$360 $153 $(133)$380 
Total assets$5,879 $1,357 $705 $7,941 
Capital expenditures16 37 7 60 

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Note 17.     Subsequent Events

NOTE 19. SUBSEQUENT EVENTS

On April 28, 2020,October 3, 2023, the Company changedentered into a definitive agreement to sell an infrastructure/utility operating company in its jurisdictionSpecialty Services segment, for $37. The sale is expected to close before December 31, 2023. Refer to Note 4 - "Assets Held for Sale" for additional information.

On October 11, 2023, the Company completed repricing of incorporation fromits 2019 Term Loan and 2021 Term Loan. The repricing reduces the British Virgin Islandsapplicable margin on all outstanding amounts by 25 basis points. Additionally, $422 of the 2019 Term Loan was extended to the State2021 Term Loan and assumed all the same terms as the repriced 2021 Term Loan. The Company made a repayment of Delaware (“$100 on the Domestication”). The business, and assets and liabilities2019 Term Loan concurrent with the close of this transaction. Following the repricing transaction, the Company has $505 outstanding on 2019 Term Loan and its subsidiaries were$1,407 outstanding on the same immediately after the Domestication as they were immediately prior to the Domestication. As a result2021 Term Loan.

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Table of the Domestication, ordinary shares and Founder Preferred Shares were converted to shares of common stock and Series A Preferred Stock, respectively. Each holder of a warrant, option or restricted stock unit became a holder of a warrant, option or restricted stock unit of the domesticated Company. The number of shares outstanding did not change as a result of the Domestication, and the proportional equity interest of each shareholder remained the same.

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Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). These forward-looking statements are based on beliefs and assumptions as of the date such statements are made and are subject to risks and uncertainties. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “expect,” “anticipate,” “project,” “will,” “should,” “believe,” “intend,” “plan,” “estimate,” “potential,” “target,” “would,”“expect”, “anticipate”, “project”, “will”, “should”, “believe”, “intend”, “plan”, “estimate”, “potential”, “target”, “would”, and similar expressions, although not all forward-looking statements contain these identifying terms.

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

•our beliefs and expectations regarding our business strategies and competitive strengths;

•our beliefs regarding procurement challenges and the impactnature of theCOVID-19 pandemicour contractual arrangements and renewal rates and their impact on our business, includingfuture financial results;
•our beliefs regarding our acquisition platform and ability to execute on and successfully integrate strategic acquisitions;
•our beliefs regarding the future demand for our services, the seasonal and cyclical volatility of our business, financial condition, results of operations, and future financial results, the precautionary measures we are taking in response to the pandemic and the impact of those measures on our business and future financial results;

cash flows;

•our beliefs regarding the recurring and repeat nature of our business;

our expectations regarding industry trendsbusiness, customers and theirrevenues, and its impact on our business,cash flows and organic growth opportunities and our ability to capitalize onbelief that it helps mitigate the opportunities presented in the markets we serve;

impact of economic downturns;

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

•our beliefs regarding our customer relationships;

relationships and plans to grow existing business and expand service offerings;

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

•our expectations regarding the cost of compliance with laws and regulations;
•our expectations regarding labor matters;
•our beliefs regarding market risk, including our exposure to foreign currency fluctuations, and our ability to mitigate that risk;
•our expectations and beliefs regarding accounting and tax matters;
•our beliefs regarding the effectiveness of the steps taken to remediate previously reported material weaknesses in our internal control over financial reporting and

the timing of remediation;

•our expectations regarding future capital expenditures;

•our expectations regarding future expenses in connection with our multi-year restructuring program, including those related to workforce reductions;
•our expectations regarding future pension contributions;
•our expectations regarding the acquisition (the "Chubb Acquisition") of the Chubb fire and security business (the "Chubb business" or "Chubb"), including the operational challenges and the expected benefits of the acquisition and future growth, expansion, cross-selling and other value creation opportunities; and
•our beliefs regarding the sufficiency of our current sources of liquidity to fund our future liquidity requirements, our expectations regarding the types of future liquidity requirements and our expectations regarding the availability of future sources of liquidity.

These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this quarterly report and in our Annual Report on FormS-4, effective as of May 10-K, filed on March 1, 2020,2023, including those described under “Cautionary Note Regarding Forward-LookingForward Looking Statements” and “Risk Factors” in such FormS-4,
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10-K, and other filings we make with the SEC. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this quarterly report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Important factors that may materially affect the forward-looking statements include the following:

the impact of theCOVID-19 pandemic on our business, markets, supply chain, customers and workforce, on the credit and financial markets, and on the global economy generally;

•adverse developments in the credit markets that could adversely affect funding of construction projects;

•exposure to global economic, political and legal risks related to our international operations, including geopolitical instability;

•the ability and willingness of customers to invest in infrastructure projects;

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

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

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

•the impact of our regional, decentralized business model on our ability to execute on our business strategies and operate our business successfully;

•our ability to compete successfully in the industries and markets we serve;

28

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

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

•the impact of inflation;

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

•the inherently dangerous nature of the services we provide and the risks of potential liability;

•the impact of customer consolidation;

•the loss of the services of key senior management personnel and the availability of skilled personnel;

•the seasonality of our business and the impact of weather conditions;

•the variability of our operating results between periods and the resulting difficulty in forecasting future operating results;

•litigation that results from our business, including costs related to any damages we may be required to pay as a result of general liability or workmanship claims brought againstby our customers;

•the impact of health, safety, and environmental laws and regulations, and the costs associated with compliance with such laws and regulations;

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

•our expectations regarding the acquisition of the Chubb business, including the expected benefits of the acquisition and

future value creation opportunities; and

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

The factors identified above are believed to be important factors, but not necessarily all of the important factors, thatwhich 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 that 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.

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All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this quarterly report and hereafter in our other SEC filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

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Item

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) section should be read in conjunction with the Interim Statementsinterim unaudited condensed consolidated financial statements (the "Interim Statements") and related notes included in this quarterly report, and the Consolidated Financial Statements,Company's 2023 audited annual consolidated financial statements, the related notes thereto and under the “APG Management’sheading "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” sectionOperations" and other disclosures contained in our Registration StatementAnnual Report on FormS-4 effective May 1, 2020 (the “FormS-4”), 10-K, including financial results for the year ended December 31, 2019.2022. 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-LookingForward Looking Statements” section of this quarterly report.

We prepare our financial statements in accordance with generally accepted accounting principles generally accepted in the United States of America (“U.S. GAAP”). To supplement our financial results presented in accordance with U.S. GAAP in this Management’s Discussion and Analysis of Financial Condition and Results of OperationsMD&A section, we present EBITDA, which is anon-U.S. GAAP financial measure, to assist readers

29

in understanding our performance and provide an additional perspective on trends and underlying operating results on aperiod-to-period comparable basis.Non-U.S. GAAP financial measures either exclude or include amounts that are not reflected in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Where anon-U.S. GAAP financial measure is used, we have provided the most directly comparable measure calculated and presented in accordance with U.S. GAAP, a reconciliation to the U.S. GAAP measure and a discussion of the reasons why management believes this information is useful to it and may be useful to investors.

Unless the context otherwise requires, all references in this section to “APG”, the “Company”, “we”, “us”, “our”, and “Successor”“our” refer to APi Group Corporation and its subsidiaries for all periods subsequent to the APi Acquisition (as defined below). All references in this quarterly report on Form10-Q to our “Predecessor” refer to APi Group Inc., (“APi Group”) and its subsidiaries for all periods prior to the APi Acquisition.

subsidiaries.

Overview

We were incorporated with limited liability under the laws of the British Virgin Islands under the BVI Companies Act on September 18, 2017 under the name J2 Acquisition Limited. We were originally formed for the purpose of acquiringare a target company or business. On October 10, 2017, we raised gross proceeds of approximately $1.25 billion in connection with our initial public offering in the United Kingdom. On October 1, 2019, we completed our acquisition of APi Group (the “APi Acquisition”) and changed our name to APi Group Corporation in connection with the APi Acquisition. With over 90 years of history operating from over 200 locations, APi Group is a market leadingglobal, market-leading business services provider of safety and specialty and industrial services operating primarily in the United States, as well as in Canada and the United Kingdom with consolidated net revenues of approximately $985 million for the Successor in 2019, $3.1 billion for the Predecessor in 2019, and approximately $3.7 billion for the Predecessor in 2018. APi Group provides a variety of specialty contracting services, including engineering and design, fabrication, installation, inspection, maintenance, service and repair, and retrofitting and upgrading. APi providesover 500 locations worldwide. We provide statutorily mandated and other contracted services to a strong base of long-standing customers across industries. We also have an experienced management team and a strongwinning leadership development culture.

culture driven by entrepreneurial business leaders that deliver innovative solutions to our customers.

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

•

Safety Services – A leading provider of safety services in North America, focusing onend-to-end integrated occupancy systems (fire protection solutions, HVAC and entry systems), including design, installation, inspection and service of these integrated systems. This segment also provides mission critical services, including life safety, emergency communication systems and specialized mechanical services. The work performed within this segment spans across industries and facilities and includes commercial, industrial, residential, medical andspecial-hazard settings.

•

Specialty Services – A leading provider of diversified, single-source infrastructure and specialty contractor solutions, focusing on infrastructure services and specialized industrial plant solutions, including maintenance and repair of water, sewer and telecom infrastructure. The customers in this segment vary from public and private utilities, communications, industrial plants and governmental agencies throughout the United States.

•

Industrial Services – A leading provider of a variety of specialty contracting services to the energy industry focused on transmission and distribution. This segment’s services include oil and gas pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance.

30

•Safety Services – A leading provider of safety services in North America, Asia Pacific, and Europe, focusing on end-to-end integrated occupancy systems (fire protection solutions, Heating, Ventilation, and Air Conditioning (“HVAC”) and entry systems), including design, installation, inspection and service of these integrated systems. The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high-tech, industrial and special-hazard settings.

•Specialty Services – A leading provider of a variety of infrastructure services and specialized industrial plant services, which include maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer and telecommunications infrastructure. Our services include engineering and design, fabrication, installation, maintenance service and repair, 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.
We focus on growing our recurring revenuerevenues and repeat business from our diversified long-standing customers across a variety of end markets, which we believe provides us with stable cash flows and a platform for organic growth. MaintenanceWe believe maintenance and service revenues are generally more predictable through contractual arrangements with typical terms ranging from days to three years, with the majority having short durations of less than six months, and are often recurring due to consistent renewal rates and long-standing customer relationships.

For financial information about our operating segments, see Note 1618 – “Segment Information” to our condensed consolidated financial statements included herein.

Prior

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RECENT DEVELOPMENTS AND CERTAIN FACTORS AND TRENDS AFFECTING OUR RESULTS OF OPERATIONS
Restructuring
During 2022, we announced our multi-year Chubb restructuring program designed to drive efficiencies and synergies and optimize operating margin. The Chubb restructuring program includes expenses related to workforce reductions, lease termination costs, and other facility rationalization costs through fiscal year 2024.
During the nine months ended September 30, 2023, we have incurred pre-tax restructuring costs within the Safety Services segment of $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 APi Acquisition,Chubb restructuring program by the end of fiscal year 2024.
For additional information about our restructuring activity, see Note 5 – “Restructuring" to our condensed consolidated financial statements included herein.
Assets held for sale
During the three months ended September 30, 2023, we had no revenuedetermined our intent to sell an infrastructure/utility operating company in our Specialty Services segment (the "Operating Company"). We classified the net book value of the Operating Company as held for sale in the condensed consolidated balance sheets with the assets recorded in prepaid expenses and other current assets and liabilities recorded in other accrued liabilities. As of September 30, 2023, the Operating Company remains classified as held for sale. Pursuant to the authoritative literature, we evaluated the recoverability of the carrying value of the assets and liabilities held for sale. During the three months ended September 30, 2023, we recorded an impairment charge of $13 million.
Economic, Industry and Market Factors
We closely monitor the effects of general changes in economic and market conditions on our customers. General economic and market conditions can negatively affect demand for our customers’ products and services, which can affect their planned capital and maintenance budgets in certain end markets. Market, regulatory, and industry factors could affect demand for our services. Availability of transportation and transmission capacity and fluctuations in market prices for energy and other fuel sources can also affect demand for our services for pipeline and power generation construction services. These fluctuations, as well as the highly competitive nature of our industries, have resulted and may continue to result, in lower proposals and lower profit on the services we provide. In the face of increased pricing pressure on key materials, such as steel, or other market developments, we strive to maintain our profit margins through productivity improvements, cost reduction programs, pricing adjustments, and business streamlining efforts. Increased competition for skilled labor resources and higher labor costs can reduce our profitability and impact our ability to deliver timely service to our customers. We have experienced supply chain disruptions, which have negatively impacted the source and supply of materials needed to perform our work. In addition, fluctuations in foreign currencies may have an impact on our financial position and the results of operations. However, we believe that our exposure to transactional gains or losses resulting from changes in foreign currencies is limited because our foreign operations other thanprimarily invoice and collect receivables in their respective local or functional currencies, and the active solicitation of a target businessexpenses associated with which to complete a business combination. We generated small amounts ofnon-operating incomethese transactions are generally contracted and paid for in the formsame local currencies. In cases where operational transactions represent a material currency risk, we generally enter into cross-currency swaps. Refer to Note 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 unrealized and realized gains on marketable securities and interest income on cashoperations, liquidity, and cash equivalents. We relied upon the proceedsflows, and we may be unable to fully mitigate, or benefit from the initial public offering to fund our limited acquisition-related operations prior to the closing of the APi Acquisition. The historical financial information prior to the APi Acquisition has not been discussed below as these historical amounts are not considered meaningful.

such changes.

Effect of Seasonality and Cyclical Nature of Business

Our revenuenet revenues and results of operations can be subject to variability stemming from seasonal and other variations. TheseSeasonal variations arecan be influenced by weather conditions impacting customer spending patterns, biddingcontract award seasons, and project schedules, holidays andas well as the timing in particular,of holidays. Consequently, net revenues for large,non-recurring projects. Typically, our revenue is lowest at the beginning of the year and during the winter months in North Americabusinesses are typically lower during the first quarter because cold, snowy or wetdue to the prevalence of unfavorable weather conditions within our North American operations, which can cause project delays. Revenue is generally higher during the summerdelays and fall months during the third and fourth quarters, due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate. Continued cold and wet weather can often affect second quarter productivity. In the fourth quarter, many projects tend to be completed by customers seeking to spend their capital budgets before the end of the year, which generally has a positive effect on our revenue. However, the holiday season and inclement weather can cause delays, which can reduce revenue and increase costs on affected projects. The effects of theCOVID-19 pandemic could also result in greater seasonal and cyclical volatility than would otherwise exist under normal conditions.

Additionally, the industries we serve can be cyclical. Fluctuations inend-user demand, within those industries, or in the supply of services within those industries, can affect demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations or unanticipated changes in project schedules in connection with large projects can create fluctuations in revenue.

Recent Developments

Impairmentnet revenues.

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Table of Goodwill and Intangibles

During the first quarter of 2020, we concluded that a triggering event had occurred for all of our reporting units as a result of theCOVID-19 global pandemic and we recorded total non-cash charges of $208 million to reflect the impairment of our goodwill and intangible assets as preliminary carrying values exceeded fair value. Pursuant to the authoritative literature, we performed impairment tests and determined that, as a result of the impact ofCOVID-19, which has negatively impacted our operations, suppliers and other vendors, customer base, the demand for work within the oil and gas industry as a result of the volatility in oil prices and other factors outside of the control of management, certain of our goodwill and intangible assets were impaired. Specifically, we determined the goodwill associated with our Mechanical, Infrastructure/Utility, Fabrication, Specialty Contracting, Transmission and Civil reporting units were impaired by $34 million, $80 million, $17 million, $23 million, $45 million and $4 million, respectively. We also determined that intangible assets of a business classified as held for sale were impaired by $5 million.

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Contents

The circumstances and global disruption caused byCOVID-19 has affected, and we believe it will continue to affect, our businesses, operating results, cash flows and financial condition, however the scope and duration of the impact is highly uncertain. In addition, some of the inherent estimates and assumptions used in determining the fair value of our reporting units are outside the control of management, including interest rates, cost of capital, tax rates, industry growth, credit ratings, foreign exchange rates, and labor inflation. Given the uncertainty of these factors, as well as the inherent difficulty in predicting the severity and duration of theCOVID-19 global pandemic and associated recovery and the uncertainties regarding the potential financial impact on our business and the overall economy, there can be no assurance that our estimates and assumptions made for purposes of the goodwill impairment testing performed during the first quarter of 2020 will prove to be accurate predictions of the impact in future periods.

While we believe we have made reasonable estimates and assumptions to calculate the fair values of our reporting units which were based on facts and circumstances known at such time, it is possible that existing or new events may result in forecasted cash flows, revenue and earnings that differ from those that formed the basis of our estimates and assumptions. For each of our reporting units, particularly if the global pandemic caused byCOVID-19 continues to persist for an extended period of time, a reporting unit’s actual results could be materially different from our estimates and assumptions used to calculate fair value. If so, we may be required to recognize material impairments to goodwill or other long-lived assets. We will continue to monitor our reporting units for any triggering events or other signs of impairment. We may be required to perform additional impairment testing based on further deterioration of the global economic environment, continued disruptions to our businesses, further declines in operating results of our reporting units and/or tradenames, sustained deterioration of our market capitalization, and other factors, which could result in additional impairment charges in the future. Although we cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or if economic activity experiences a sustained deterioration from current levels, it is reasonably likely we will be required to record additional impairment charges in the future.

As of March 31, 2020, there was one reporting unit, Life Safety, with fair value exceeding its carrying value by less than 10%. Since the goodwill balances for each reporting unit are still preliminary, pending finalizing purchase price allocation from the APi Acquisition, it is possible the Life Safety reporting unit may experience an impairment charge even if there are no changes to the aforementioned discount rates. Based on a sensitivity analysis, a 10% increase in the carrying value of the Life Safety reporting unit would have resulted in an impairment charge of $27 million.

See Note 2 – “Basis of Presentation and Significant Accounting Policies” and Note 7 – “Goodwill and Intangibles” of the Interim Statements for additional information.

Credit Facilities

In late March 2020, we drew down $200 million under our $300 million Revolving Credit Facility. As of March 31, 2020, $33 million was available after giving effect to $67 million of outstanding letters of credit, which reduce availability. We were in compliance with all covenants contained in the Credit Agreement as of March 31, 2020. During April 2020, we repaid the $200 million of borrowings on the Revolving Credit Facility.

Income Taxes

The three months ended March 31, 2020 were also impacted by certain discrete ornon-recurring tax items. The income tax benefit of $51 for the three months ended March 31, 2020 was primarily due to impairment of goodwill and intangible assets. The tax law changes in the CARES Act had an impact of $0 on the Company’s income tax provision.

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COVID-19 Update

We continue to monitor the short- and long-term impacts ofCOVID-19, a global pandemic that has caused a significant slowdown in the global economy beginning in March 2020. While we had some slowdown impact in March, the impacts ofCOVID-19 were not seen as significant at that time. During the three months ended March 31, 2020, we continued to provide services to our customers and saw a relatively minor impact to our business. To date, the services we provide have been deemed to be essential in most instances. However, as theCOVID-19 situation has evolved in April and May, we have seen various disruptions in our work due to the domino effects of the various local, state and national jurisdictional“shelter-in-place” orders, including but not limited to the impact on our efficiency to perform our work while adhering to physical distancing protocols demanded byCOVID-19, customers deferring inspection and service projects, and temporary shutdowns of active projects as they work throughCOVID-19 related matters. Due to the statutory nature of much of our work and the long-term investments being made across the public and private utility sector, to date we have not experienced significant cancellations. However, we are experiencing delays in certain projects and disruptions to the flow of our work to meetCOVID-19 working protocols. We are actively quoting new work for customers such as schools, universities, hotels, casinos and other customers that may be temporarily operating at less than capacity or closed. Should the macro economy continue to be negatively impacted by theCOVID-19 pandemic, it is possible that some projects could be delayed indefinitely or cancelled, or that we are not successful in accelerating inspection and service projects.

As we have monitored our activity in April and May 2020, revenue period over period has been impacted by the level ofshelter-in-place orders and outbreaks ofCOVID-19, which for certain larger projects, caused customers to temporarily halt work to put inCOVID-19 working protocols. Subsequent to March 31, 2020, all of our segments have seen volume declines. Recently we are seeing indications of stabilizing and some volume improvements off previous lows as our teams and customers are adapting to working in theCOVID-19 environment and with the easing of someshelter-in-place orders. There can be no assurance that this will continue in a positive manner.

To date, we have been able to source the supply and materials needed for our business with minimal disruptions. However, the continued impact ofCOVID-19 on our vendors is evolving and could make it difficult to obtain needed materials.

We have also implemented a preemptive cost reduction plan, which we expect will save both expense and cash in 2020 if market conditions require us to maintain them throughout the rest of the year.

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

Recent Accounting Pronouncements

A summary of recent accounting pronouncements is included in Note 32 – “Recent Accounting Pronouncements” to our Interim Statementscondensed consolidated financial statements included in this quarterly report.

Description of Key Line Items

herein.

DESCRIPTION OF KEY LINE ITEMS
Net Revenues

Revenue isrevenues

Net revenues are generated from the sale of various types of contracted services, fabrication and distribution. We derive revenuenet revenues primarily from construction services under contractual arrangements with

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durations ranging from days to three years, with the majority having durations of less than six months, and which may provide the customer with pricing options that include a combination of fixed, unit, or time and materialsmaterial pricing. RevenueNet revenues for fixed price agreements isare generally recognized over time using thecost-to-cost method of accounting which measures progress based on the cost incurred to total expected cost in satisfying our performance obligation.

Revenue

Net revenues from time and material contracts isare recognized as the services are provided. RevenueNet revenues earned isare based on total contract costs incurred plus an agreed-uponagreed upon markup. RevenueNet revenues for these cost-plus contracts isare recognized over time on an input basis as labor hours are incurred, materials are utilized, and services are performed. RevenueNet revenues from wholesale or retail unit sales isare recognized at apoint-in-time upon shipment.

Cost of Revenues

revenues

Cost of revenues consists of direct labor, materials, subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed.

Gross Profit

profit

Our gross profit is influenced by direct labor, materials, and subcontract costs. Our profit margins are also influenced by raw material costs, contract mix, weather, and proper coordination with contract providers. Labor intensiveLabor-intensive contracts usually drive higher margins than those contracts that include material, subcontract, and equipment costs.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses consist primarily of personnel, facility leases, advertising and marketing expenses, administrative expenses associated with accounting, finance, legal, information systems, leadership development, human resources and risk management and overhead associated with these functions. ("SG&A")
Selling expenses consist primarily of compensation and associated costs for sales and marketing personnel, costs of advertising, trade shows, and corporate marketing. General and administrative expense consistsexpenses consist primarily of compensation and associated costs for executive management, personnel, facility leases, administrative expenses associated with accounting, finance, legal, information systems, leadership development, human resources, risk management, and otheroverhead associated with these functions. General and administrative personnel, facility leases,expenses also include outside professional fees and other corporate expenses.

Amortization of Intangible Assets

intangible assets

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

Impairment There is a portion of Goodwill, Intangibles and Long-Lived Assets

Goodwill is tested for impairment annually, or more frequently as events and circumstances change. Expenses for impairment chargesamortization expense related to the write-down of goodwill balances and identifiablebacklog intangible assets balances are recorded toreflected in cost of revenues in the extent theircondensed consolidated statements of operations.

Loss on extinguishment of debt, net
Loss on extinguishment of debt, net reflects the difference between the repurchase price and carrying values exceed their estimated fair values. Expenses for impairment chargesamount of debt at the time of extinguishment.
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Non-service pension benefit
Non-service pension benefit reflects the sum of the components of pension expense not related to the write-downservice cost, i.e. interest cost, expected return on assets, and amortizations of other long-lived assets (which includes amortizable intangibles) are recorded when triggering events indicate their carrying values may exceed their estimated fair values.

Critical Accounting Policiesprior service costs and Estimates

actuarial gains and losses.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For information regarding our Critical Accounting Policies, see the “Critical Accounting Policies” section of the “APG Management’s“Management’s Discussion and Analysis of Financial Condition and Results of

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Operations” in our Annual Report on FormS-4. Additionally, see 10-K for the “Use of estimates and risks and uncertainty ofCOVID-19” section of Note 2 – “Basis of Presentation and Significant Accounting Policies” to the Interim Statements for a discussion about the impact of theCOVID-19 pandemic on asset impairment.

Results of Operations

fiscal year ended December 31, 2022.

RESULTS OF OPERATIONS
The following is a discussion of our financial condition and results of operations during the three and nine months ended March 31, 2020 (the “Successor Period”)September 30, 2023 and the three and nine months ended September 30, 2022.
Three months ended September 30, 2023 compared to the three months ended March 31, 2019 (the “Predecessor Period”). We did not own APi Group for the Predecessor period. Consequently, these results may not be indicative of the results that we would expect to recognize for future periods.

Three Months Ended March 31, 2020 (Successor) compared to Three Months Ended March 31, 2019 (Predecessor)

   Three Months Ended March 31,         
   2020   2019   Change 

($ in millions)

  (Successor)   (Predecessor)   $           %     

Net revenues

  $858   $922   $(64)    (6.9)% 

Cost of revenues

   696    759    (63)    (8.3)% 
  

 

 

   

 

 

   

 

 

   

Gross profit

   162    163    (1)    (0.6)% 

Selling, general, and administrative expenses

   188    137    51    37.2% 

Impairment of goodwill, intangibles and long-lived assets

   208    —      208��   NM 
  

 

 

   

 

 

   

 

 

   

Operating income (loss)

   (234)    26    (260)    NM 
  

 

 

   

 

 

   

 

 

   

Interest expense, net

   14    6    8    133.3% 

Investment income and other, net

   (3)    (2)    (1)    50.0% 
  

 

 

   

 

 

   

 

 

   

Other expense, net

   11    4    7    175.0% 
  

 

 

   

 

 

   

 

 

   

Income (loss) before income taxes

   (245)    22    (267)    NM 

Income tax provision (benefit)

   (51)    1    (54)    NM 
  

 

 

   

 

 

   

 

 

   

Net income (loss)

  $(194)   $21   $(215)    NM 
  

 

 

   

 

 

   

 

 

   

NM = Not meaningful

September 30, 2022

Three Months Ended September 30,Change
($ in millions)20232022$%
Net revenues$1,784 $1,735 $49 2.8 %
Cost of revenues1,273 1,295 (22)(1.7)%
Gross profit511 440 71 16.1 %
Selling, general, and administrative expenses407 379 28 7.4 %
Operating income104 61 43 70.5 %
Interest expense, net37 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, net30 15 15 100.0 %
Income before income taxes74 46 28 60.9 %
Income tax provision20 18 2 11.1 %
Net income$54 $28 $26 92.9 %
Net revenues

Net revenues for the three months ended March 31, 2020September 30, 2023 were $858$1,784 million compared to $922$1,735 million for the same period in 2019, a decrease2022, an increase of $64$49 million or 6.9%2.8%. The decreaseincrease in net revenues was primarily attributable to a decrease in volume of projects in the Industrial Services segment of $76 million due to more focused project selection during the current year. This was partially offset by the Specialty Services segment, which increased revenues by $14 million, and consistent performanceoccurred in the Safety Services segment, despite the impact ofCOVID-19 during the first quarter of 2020.

driven by growth in inspection, service, and monitoring revenue.

Gross profit

The following table presents our gross profit (net revenues less cost of revenues), and gross profit margin (gross profit as a percentage of net revenues) for APG for the three months ended March 31, 2020 (Successor)September 30, 2023 and 2019 (Predecessor),2022, respectively:

   Three Months Ended March 31,        
   2020  2019  Change 

($ in millions)

  (Successor)  (Predecessor)  $           %     

Gross profit

  $162  $163  $(1)    (0.6)% 

Gross profit margin

   18.9%   17.7%    

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Three Months Ended September 30,Change
($ in millions)20232022$%
Gross profit$511 $440 $71 16.1 %
Gross margin28.6 %25.4 %

Our gross profit for the three months ended March 31, 2020September 30, 2023 was $162$511 million compared to $163$440 million for the same period in 2019, a decrease2022, an increase of $1$71 million, or 0.6%16.1%. Gross margin was 28.6%, an increase of 320 basis points compared to the prior year period, primarily due to disciplined project and customer selection, and pricing improvements in
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our Safety Services and Specialty Services segments, as well as an improved mix of inspection, service, and monitoring revenue, which generates higher margins.
Operating expenses
The decreasefollowing table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended September 30, 2023 and 2022, respectively:
Three Months Ended September 30,Change
($ in millions)20232022$%
Selling, general, and administrative expenses$407 $379 $28 7.4 %
SG&A expenses as a % of net revenues22.8 %21.8 %
Operating margin5.8 %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 %
Selling, general, and administrative expenses
Our SG&A expenses for the three months ended September 30, 2023 were $407 million compared to $379 million for the same period in gross profit2022, an increase of $28 million. SG&A expenses as a percentage of net revenues was 22.8% during the three months ended September 30, 2023 compared to 21.8% for the same period in 2022. The increase in SG&A expenses was primarily attributable to $22an impairment charge of $13 million recognized in cost of revenues from the amortization of backlog assets related to purchase accounting,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 three months ended September 30, 2023 compared to the same period in 2022 and better leverage of SG&A expenses across a growing revenue base, partially offset by investments to support growth in our Safety Services segment. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.
Interest expense, net
Interest expense was $37 million and $33 million for the three months ended 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 more favorable contract mix with a greater percentagedecrease in the outstanding principal amounts of our revenuesfloating rate debt.
Gain on extinguishment of debt, net

During 2022, we repurchased $13 million and $23 million of the outstanding principal amount of the 4.125% Senior Notes and 4.750% Senior Notes, respectively. In connection with the repurchases, we recognized a net gain on debt extinguishment of $5 million.
Non-service pension benefit
The non-service pension benefit was $3 million and $10 million for the three months ended 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.
Investment income and other, net
Investment income and other, net was $4 million and $3 million for the three months ended September 30, 2023 and 2022, respectively. The increase in 2020 cominginvestment income was primarily due to an increase in other miscellaneous income.
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Income tax provision
The income tax provision for the three months ended September 30, 2023 was $20 million compared to $18 million for the three months ended September 30, 2022. This change was driven by increased generated income before taxes in the three months ended September 30, 2023 compared to the same period in 2022. The effective tax rate for the three months ended September 30, 2023 was 25.5%, compared to 40.5% in the same period of 2022. The difference in the effective tax rate was driven by discrete and nondeductible permanent items. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% is due to the nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, and state taxes.
Net income and EBITDA
The following table presents net income and EBITDA for the three months ended September 30, 2023 and 2022, respectively:
Three Months Ended September 30,Change
($ in millions)20232022$%
Net income$54 $28 $26 92.9 %
EBITDA (non-GAAP)188 152 36 23.7 %
Net income as a % of net revenues3.0 %1.6 %
EBITDA as a % of net revenues10.5 %8.8 %
Our net income for the three months ended September 30, 2023 was $54 million compared to $28 million for the same period in 2022, an increase of $26 million. The improvement primarily resulted from disciplined project and customer selection, pricing improvements within our higher margin segment, Safety Services and improved gross profitSpecialty Services segments, and an increase in inspection, service, and monitoring revenue. The net income increase was partially offset by an impairment charge of $13 million related to assets held for sale. Net income as a percentage of net revenues for the three months ended September 30, 2023 and 2022 was 3.0% and 1.6%, respectively. EBITDA for the three months ended September 30, 2023 was $188 million compared to $152 million for the same period in 2022, an increase of $36 million. The increase in EBITDA was primarily driven by the factors previously discussed. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.
Operating Segment Results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022
Net Revenues
Three Months Ended September 30,Change
($ in millions)20232022$%
Safety Services$1,217 $1,154 $63 5.5 %
Specialty Services569 590 (21)(3.6)%
Corporate and Eliminations(2)(9)NMNM
$1,784 $1,735 $49 2.8 %
Operating Income (Loss)
Three Months Ended September 30,Change
($ in millions)20232022$%
Safety Services$98 $60 $38 63.3 %
Safety Services operating margin8.1 %5.2 %
Specialty Services$43 $45 $(2)(4.4 %)
Specialty Services operating margin7.6 %7.6 %
Corporate and Eliminations$(37)$(44)NMNM
$104 $61 $43 70.5 %
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EBITDA
Three Months Ended September 30,Change
($ in millions)20232022$%
Safety Services$153 $116 $37 31.9 %
Safety Services EBITDA as a % of net revenues12.6 %10.1 %
Specialty Services$70 $73 $(3)(4.1 %)
Specialty Services EBITDA as a % of net revenues12.3 %12.4 %
Corporate and Eliminations$(35)$(37)NMNM
$188 $152 $36 23.7 %
NM = Not meaningful
The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.
Safety Services
Safety Services net revenues for the three months ended September 30, 2023 increased by $63 million or 5.5% compared to the same period in 2022. The increase was primarily driven by increased inspection, service, and monitoring revenue. This increase was also due to continued strength in our end markets and strategic pricing improvements.
Safety Services operating margin for the three months ended September 30, 2023 and 2022 was approximately 8.1% and 5.2%, respectively. The increase was primarily the result of growth in inspection, service, and monitoring revenue, disciplined project and customer selection, and pricing improvements across the segment. The increase was also driven by lower acquisition and integration related expenses incurred in the Industrialthree months ended September 30, 2023 compared to the same period in 2022. Safety Services segmentEBITDA as a percentage of 715 basis pointsnet revenues for the three months ended September 30, 2023 and 2022 was approximately 12.6% and 10.1%, respectively. This increase was primarily related to the factors discussed above.
Specialty Services
Specialty Services net revenues for the three months ended September 30, 2023 decreased by $21 million or 3.6% compared to the same period in 2022. The decrease was primarily due to improvedcontinued disciplined customer and project selection conditions and execution. This resultedcustomer project delays in a higher gross profit margin of 18.9%the fabrication business, partially offset by strong growth in 2020 versus 17.7%the service business during the three months ended September 30, 2023 compared to the same period in 2019. The gross profit2022.
Specialty Services operating margin was negatively impacted by 2.5%approximately 7.6% for each of the three months ended September 30, 2023 and 2022. The consistency in operating margin despite lower revenues was primarily the result of disciplined project and customer selection offsetting lower volume leverage during the three months ended September 30, 2023. Specialty Services EBITDA as a percentage of net revenues for the three months ended September 30, 2023 and 2022 was approximately 12.3% and 12.4%, respectively, due to the $22factors discussed above.
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Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
Nine Months Ended September 30,Change
($ in millions)20232022$%
Net revenues$5,169 $4,855 $314 6.5 %
Cost of revenues3,737 3,604 133 3.7 %
Gross profit1,432 1,251 181 14.5 %
Selling, general, and administrative expenses1,148 1,138 10 0.9 %
Operating income284 113 171 151.3 %
Interest expense, net112 88 24 27.3 %
Loss (gain) on extinguishment of debt, net3 (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, net97 46 51 110.9 %
Income before income taxes187 67 120 179.1 %
Income tax provision59 16 43 268.8 %
Net income$128 $51 $77 151.0 %

Net revenues
Net revenues for the nine months ended September 30, 2023 were $5,169 million backlog amortization.    

compared to $4,855 million for the same period in 2022, an increase of $314 million or 6.5%. The increase in net revenues occurred in both the Safety Services and Specialty Services segments and was driven by growth in inspection, service, and monitoring revenue.

Gross profit
The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the nine months ended September 30, 2023 and 2022, respectively:
Nine Months Ended September 30,Change
($ in millions)20232022$%
Gross profit$1,432 $1,251 $181 14.5 %
Gross margin27.7 %25.8 %
Our gross profit for the nine months ended September 30, 2023 was $1,432 million compared to $1,251 million for the same period in 2022, an increase of $181 million, or 14.5%. Gross margin was 27.7%, an increase of 190 basis points compared to the prior year period, primarily due to disciplined project and customer selection within our Safety Services and Specialty Services segments and pricing improvements, as well as an improved mix of inspection, service, and monitoring revenue, which generates higher margins.
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Operating expenses

The following table presents operating expenses and operating margin (operating income (loss) as a percentage of net revenues) for APG for the threenine months ended March 31, 2020 (Successor)September 30, 2023 and 2019 (Predecessor),2022, respectively:

   Three Months Ended March 31,        
   2020  2019  Change 

($ in millions)

  (Successor)  (Predecessor)  $           %     

Selling, general, and administrative expenses

  $188  $137  $51    37.2% 

Impairment of goodwill, intangibles and long-lived assets

   208   —     208    NM 
  

 

 

  

 

 

  

 

 

   

Total operating expenses

  $396  $137  $259    189.1% 
  

 

 

  

 

 

  

 

 

   

Operating expenses as a percentage of net revenues

   46.2%   14.9%    

Operating margin

   (27.3%)   2.8%    

Nine Months Ended September 30,Change
($ in millions)20232022$%
Selling, general, and administrative expenses$1,148 $1,138 $10 0.9 %
SG&A expense as a % of net revenues22.2 %23.4 %
Operating margin5.5 %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 revenues19.1 %20.5 %
Selling, general, and administrative expenses
Our operatingSG&A expenses for the threenine months ended March 31, 2020September 30, 2023 were $396$1,148 million compared to $137$1,138 million for the same period in 2019,2022, an increase of $259$10 million. OperatingSG&A expenses as a percentage of net revenues were 46.2% for 2020was 22.2% during the nine months ended September 30, 2023 compared to 14.9%23.4% for 2019.the same period in 2022. The increasedecrease in operating expenses is primarily attributableas a percentage of net revenues was driven by lower acquisition and integration related expenses incurred, better leverage of SG&A expenses across a growing revenue base, and changes in estimates to impairment charges of $208 million, intangible asset amortization expense, which increased $21 million overacquired liabilities in the nine months ended September 30, 2023 compared to the same period in the prior year, increasespartially offset by an impairment charge of $17$13 million due to business growth focused on compensation and additional resources to drive our organic growth strategy, unabsorbed overhead costs of $3 million, and non-cash share-based compensation of $1 million. Additionally, we incurred $6 million of non-recurring business process transformation and public company registration, listing and compliance costs of $6 million, and corporate costs related to being a public company of $3 million.

Operating incomeassets held for sale and EBITDA

   Three Months Ended March 31,         
   2020   2019   Change 

($ in millions)

  (Successor)   (Predecessor)   $           %     

Operating income (loss)

  $(234)   $26   $(260)    NM 

EBITDA

   (161)    53    (214)    (403.8)% 

investments to support growth in our Safety Services segment. Our operating lossSG&A expenses excluding amortization and impairment for the threenine months ended March 31, 2020 was $234September 30, 2023 were $988 million, compared to income of $26 million for the same period in 2020, a decrease of $260 million. Operating margin decreased to approximately (27.3)% in 2020 from 2.8% in 2019. The decrease was primarily attributable to impairment expense of $208 million, increased expenses related to intangible asset amortization expense, which increased $43 million over the prior year, and other increases in operating expenses discussed above. EBITDA as a percentageor 19.1% of net revenues, decreased to (18.8)% in 2020 from 5.7% in 2019. The decrease was primarily driven by the increased operating expenses discussed above.

Interest expense, net

Interest expense was $14 million for the three months ended March 31, 2020 compared to $6$995 million, or 20.5% of net revenues, for the same period of 2022 primarily due to the prior year.factors discussed above. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.

Interest expense, net
Interest expense was $112 million and $88 million for the nine months ended September 30, 2023 and 2022, respectively. The $8 million 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.
Loss on extinguishment of debt, net
During the nine months ended September 30, 2023, we made payments of $100 million and $100 million of the outstanding principal amount of the 2019 Term Loan and 2021 Term Loan, respectively. In connection with the payments, we recognized a net loss on debt extinguishment of $3 million.
Non-service pension benefit
The non-service pension benefit was $9 million and $32 million for the nine months ended 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.
Investment income and other, net
Investment income and other, net was $9 million and $5 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in investment income was primarily due to an increase in average outstanding borrowings and higher average borrowing costs reflecting the APi Acquisition in which APi Group’s previous debt totaling $595 million asearnings from joint ventures.
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Table of March 31, 2019, was settled and replaced by our Credit Facilities that include the issuance of a $1.2 billion Term Loan.

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Income tax provision

The income tax provision for the nine months ended September 30, 2023 was an expense of $59 million compared to $16 million in the same period of 2022. This change was driven by increased generated income before taxes in the nine months ended September 30, 2023 compared to the same period of the prior year, and the reversal of the permanent reinvestment assertion, which was $9 million of benefit in 2022. The effective tax rate for the threenine months ended March 31, 2020September 30, 2023 was 20.9%31.3%, aftercompared to 24.2% in the same period of 2022. The difference in the effective tax rate was driven by discrete and non-recurringnondeductible permanent items, primarily the reversal of our indefinite reinvestment assertion in 2022. The difference between the effective tax items. Therate and the statutory U.S. federal income tax benefitrate of 21.0% is due to the nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, state taxes, and discrete items.
Net income and EBITDA
The following table presents net income and EBITDA for the nine months ended September 30, 2023 and 2022, respectively:
Nine Months Ended September 30,Change
($ in millions)20232022$%
Net income$128 $51 $77 151.0 %
EBITDA (non-GAAP)525 380 145 38.2 %
Net income as a % of net revenues2.5 %1.1 %
EBITDA as a % of net revenues10.2 %7.8 %
Our net income for the nine months ended September 30, 2023 was $128 million compared to $51 million for the threesame period in 2022, an increase of $77 million. The improvement primarily resulted from disciplined project and customer selection, pricing improvements within our Safety Services and Specialty Services segments, and growth in inspection, service, and monitoring revenue. The increase was also due to a decrease in operating expenses driven by lower acquisition and integration related expenses. The increase in net income was partially offset by an impairment charge of $13 million related to assets held for sale. Net income as a percentage of net revenues for the nine months ended March 31, 2020September 30, 2023 and 2022 was 2.5% and 1.1%, respectively. EBITDA for the nine months ended September 30, 2023 was $525 million compared to $380 million for the same period in 2022, an increase of $145 million. The increase in EBITDA was primarily driven by the factors previously discussed. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.
Operating Segment Results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
Net Revenues
Nine Months Ended September 30,Change
($ in millions)20232022$%
Safety Services$3,633 $3,374 $259 7.7 %
Specialty Services1,554 1,520 34 2.2 %
Corporate and Eliminations(18)(39)NMNM
$5,169 $4,855 $314 6.5 %
Operating Income (Loss)
Nine Months Ended September 30,Change
($ in millions)20232022$%
Safety Services$292 $186 $106 57.0 %
Safety Services operating margin8.0 %5.5 %
Specialty Services$84 $70 $14 20.0 %
Specialty Services operating margin5.4 %4.6 %
Corporate and Eliminations$(92)$(143)NMNM
$284 $113 $171 151.3 %
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EBITDA
Nine Months Ended September 30,Change
($ in millions)20232022$%
Safety Services$449 $360 $89 24.7 %
Safety Services EBITDA as a % of net revenues12.4 %10.7 %
Specialty Services$166 $153 $13 8.5 %
Specialty Services EBITDA as a % of net revenues10.7 %10.1 %
Corporate and Eliminations$(90)$(133)NMNM
$525 $380 $145 38.2 %
NM = Not meaningful
The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
Safety Services
Safety Services net revenues for the nine months ended September 30, 2023 increased by $259 million or 7.7% compared to the same period in 2022. The increase was driven by increased inspection, service, and monitoring revenue. This increase was also due to continued strength in our end markets and strategic pricing improvements.
Safety Services operating margin for the nine months ended September 30, 2023 and 2022 was approximately 8.0% and 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 impairment of goodwill and intangible assets.factors discussed above.
Specialty Services
Specialty Services net revenues for the nine months ended September 30, 2023 increased by $34 million or 2.2% compared to the same period in 2022. The tax law changesincrease was primarily driven by an increase in service revenue in the CARES Act had an immaterial impact on the Company’s income tax provisioninfrastructure, utility, and specialty contracting markets during the threenine months ended March 31, 2020.

September 30, 2023 compared to the same period in 2022.

Specialty Services operating margin for the nine months ended September 30, 2023 and 2022 was approximately 5.4% and 4.6%, respectively. The increase was primarily the result of disciplined project and customer selection during the nine months ended September 30, 2023. Specialty Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2023 and 2022 was approximately 10.7% and 10.1%, respectively, due to the factors discussed above.
Non-GAAP Financial Measures (Unaudited)

We supplement our reporting of consolidated financial information determined in accordance with U.S. GAAP with earnings before interest, taxes, depreciationSG&A expenses (excluding amortization and amortization (“EBITDA”)impairment) and EBITDA (defined below), which is aare non-U.S. GAAP financial measure. Management believes this measure provides meaningful information and helps investors understand our financial results and assess our prospects for future performance.measures. We use EBITDAthese non-U.S. GAAP financial measures to evaluate our performance, both internally and as compared with our peers because it excludesthey exclude certain items that may not be indicative of our core operating results.

This Management believes these measures are useful to investors since they (a) permit investors to view our performance using the same tools that management uses to evaluate our past performance, reportable business segments, and prospects for future performance, (b) permit investors to compare us with our peers, and (c) in the case of EBITDA, determines certain elements of management’s incentive compensation.

These non-U.S. GAAP financial measure,measures, however, hashave limitations as an analytical tooltools and should not be considered in isolation from, a substitute for, or superior to, the related financial information that we report in accordance with U.S. GAAP. The principal limitation of thisthese non-U.S. GAAP financial measuremeasures is that it excludesthey exclude significant expenses that are required by U.S. GAAP to be recorded in our financial statements and may not be comparable to similarly titled measures of other companies due to potential differences in calculation methods. In addition, this measure isthese measures are subject to inherent
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limitations as it reflectsthey reflect the exercise of judgment by management about which items are excluded or included in determining thisnon- U.S.these non-U.S. GAAP financial measure.measures. Investors are encouraged to review the reconciliationfollowing reconciliations of thisthese non-U.S. GAAP financial measuremeasures to itsthe most comparable U.S. GAAP financial measure included in this quarterly reportmeasures and not to rely on any single financial measure to evaluate our business.

SG&A expenses (excluding amortization and impairment)
SG&A expenses (excluding 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.
The following tables present reconciliations of SG&A expenses to SG&A expenses (excluding amortization and impairment) for the periods indicated:
Three Months Ended September 30,
($ in millions)20232022
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)20232022
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 
EBITDA
Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. We supplement the reporting of our consolidated financial information with EBITDA. We believe this non-U.S. GAAP measure provides meaningful information and helps investors understand our financial results and assess our prospects for future performance. Consolidated EBITDA is calculated in a manner consistent with segment EBITDA, which is a measure of segment profitability.
The following table presents a reconciliation of net income (loss) to EBITDA for the periods indicated:

   Three Months Ended March 31, 

($ in millions)

  2020
(Successor)		   2019
(Predecessor)		 

Reported net income (loss)

  $(194)   $21 

Adjustments to reconcile net income (loss) to EBITDA:

    

Interest expense, net

   14    6 

Income tax provision (benefit)

   (51)    1 

Depreciation

   18    16 

Amortization

   52    9 
  

 

 

   

 

 

 

EBITDA

  $(161)   $53 
  

 

 

   

 

 

 

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Three Months Ended September 30,
($ in millions)20232022
Reported net income$54 $28 
Adjustments to reconcile net income to EBITDA:
Interest expense, net37 33 
Income tax provision20 18 
Depreciation21 22 
Amortization56 51 
EBITDA$188 $152 
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Operating Segment Results for the Three Months Ended March 31, 2020 (Successor) versus Three Months Ended March 31, 2019 (Predecessor)

   Net Revenues 
   Three Months Ended March 31,     
   2020   2019   Change 

($ in millions)

  (Successor)   (Predecessor)   $           %     

Safety Services

  $424   $426   $(2)    (0.5)% 

Specialty Services

   300    286    14    4.9% 

Industrial Services

   137    213    (76)    (35.7)% 

Corporate and Eliminations

   (3)    (3)    —      0.0% 
  

 

 

   

 

 

   

 

 

   
  $858   $922   $(64)    (6.9)% 
  

 

 

   

 

 

   

 

 

   
   Operating Income (loss) 
   Three Months Ended March 31,     
   2020   2019   Change 

($ in millions)

  (Successor)   (Predecessor)   $           %     

Safety Services

  $(10)   $52   $(62)    (119.2)% 

Specialty Services

   (136)    —      (136)    NM 

Industrial Services

   (58)    (9)    (49)    NM 

Corporate and Eliminations

   (30)    (17)    (13)    76.5% 
  

 

 

   

 

 

   

 

 

   
  $(234)   $26   $(260)    NM 
  

 

 

   

 

 

   

 

 

   
   EBITDA 
   Three Months Ended March 31,     
   2020   2019   Change 

($ in millions)

  (Successor)   (Predecessor)   $           %     

Safety Services

  $18   $55   $(37)    (67.3)% 

Specialty Services

   (108)    14    (122)    NM 

Industrial Services

   (45)    (3)    (42)    NM 

Corporate and Eliminations

   (26)    (13)    (13)    100.0% 
  

 

 

   

 

 

   

 

 

   
  $(161)   $53   $(214)    NM 
  

 

 

   

 

 

   

 

 

   

The following discussion breaks down the net revenues, operating income and EBITDA by operating segment for the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

Safety Services

Safety Services net revenues for the three months ended March 31, 2020 decreased by $2 million, or 0.5% compared to the same period in the prior year. This is due to timing

Table of larger contract revenues during the year-over-year period, combined with some impact ofCOVID-19 andshelter-in-place orders during the last half of March.

Safety Services operating margin for the three months ended March 31, 2020 and 2019 was approximately (2.4)% and 12.2%, respectively. The decrease was primarily driven by impairment charges of $34 million and intangible asset amortization expense, which was $22 million higher for the three months ended March 31, 2020 compared to the same period in the prior year as a result of the APi Acquisition and the step up in fair values for intangible assets. Safety Services EBITDA as a percentage of net revenues for the three months ended March 31, 2020 and 2019 was approximately 4.2% and 12.9%, respectively. The decrease was primarily driven by impairment charges.

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Specialty Services

Specialty Services net revenues for the three months ended March 31, 2020 increased by $14 million, or 4.9% compared to the same period in the prior year. Segment revenue growth was primarily driven by increased demand from our customers and timing of projects, slightly offset by negative impacts of COVID-19 during the last half of March.

Specialty Services operating margin for the three months ended March 31, 2020 and 2019 was approximately (45.3)% and 0.0%, respectively. The decrease was primarily driven by impairment charges of $120 million, and intangible asset amortization expense, which was $13 million higher for the three months ended March 31, 2020 compared to the same period in the prior year as a result of the APi Acquisition and the step up in fair values for intangible assets and contract mix. Specialty Services EBITDA as a percentage of net revenues for the three months ended March 31, 2020 and 2019 was approximately (36.0)% and 4.9%, respectively. The decrease was primarily driven by impairment charges.

Industrial Services

Industrial Services net revenues for the three months ended March 31, 2020 decreased by $76 million, or 35.7% compared to the same period in the prior year. This decrease was primarily due to decreased volume of projects as a result of our focus on project selection and reduced market demand in our Canadian operations.

Industrial Services operating margin for the three months ended March 31, 2020 and 2019 was approximately (42.3)% and (4.2)%, respectively. The decline was primarily driven by impairment charges of $49 million, and intangible asset amortization expense, which was $7 million higher for the three months ended March 31, 2020 compared to the same period in the prior year as a result of the APi Acquisition and the step up in fair values for intangible assets. This was partially offset by productivity increases due to better project selection and jobsite conditions. Industrial Services EBITDA as a percentage of net revenues, was (32.8)% and (1.4)% for the three months ended March 31, 2020 and 2019, respectively. The decrease was primarily driven by impairment charges, partially offset by contract selection, productivity and favorable jobsite conditions.

Liquidity and Capital Resources

Nine Months Ended September 30,
($ in millions)20232022
Reported net income$128 $51 
Adjustments to reconcile net income to EBITDA:
Interest expense, net112 88 
Income tax provision59 16 
Depreciation59 60 
Amortization167 165 
EBITDA$525 $380 

LIQUIDITY AND CAPITAL RESOURCES
Overview

Our primary sources of liquidity are cash flows from the operating activities of our consolidated subsidiaries, available cash and cash equivalents, and our access to our Revolving$500 million five-year senior secured revolving credit facility (the "Revolving Credit Facility.Facility") and the proceeds from debt offerings. We believe that these sources will be sufficient to fund our liquidity requirements for at least the next twelve months. As of March 31, 2020, we had $499 million of total liquidity, comprising $436 million in cash and cash equivalents and $33 million ($100 million less outstanding letters of credit of approximately $67 million) of available borrowings under our Revolving Credit Facility.

Given the uncertainties regarding theCOVID-19 global pandemic and in preparation for its potential unforeseen impacts, in late March 2020, we drew down $200 million under our Revolving Credit Facility. As of March 31, 2020, we had $1.2 billion of indebtedness outstanding under the Term Loan, and $200 million outstanding under the $300 million Revolving Credit Facility. As of March 31, 2020, $33 million was available after giving effect to $67 million of outstanding letters of credit, which reduce availability. Subsequently, in April 2020, we repaid the full amount borrowed on the Revolving Credit Facility.

We also expect to continue to raise cash through equity and debt offerings when capital market conditions are favorable and other sources of liquidity are not sufficient. Our principal liquidity requirements have been, and we expect will be, any contingent consideration due to selling shareholders, including tax payments in connection therewith, for working capital and general corporate purposes,

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including capital expenditures and debt service, as well as to identify, execute and integrate strategic acquisitions and business transformation. Our capital expenditures were approximately $11 and $22 million in the three months ended March 31, 2020 and 2019, respectively.

Including our current assessment of the potential effects of theCOVID-19 pandemic on our results of operations, we anticipate that funds generated from operations, available borrowings under our Credit Facility and our cash balances will be sufficient to meet our working capital requirements, anticipated capital expenditures, debt service obligations, insurance and performance collateral requirements, letter of credit needs,earn-out obligations, required income tax payments, acquisition and other investment funding requirements, share repurchase activity and other liquidity needs for at least the next twelve months.

Credit Facilities

We have a credit agreement which provides for (1) a term loan facility, pursuant to which we incurred a $1.2 billion Term Loan, which we used to fund a part of the cash portion of the purchase price in the APi Acquisition and (2) a $300 million Revolving Credit Facility of which up to $150 million can be used for the issuance of letters of credit.

Although we believe we have sufficient resources to fund our future cash requirements, there are many factors with the potential to influence our cash flow position including weather, seasonality, commodity prices, market conditions, and prolonged impacts ofCOVID-19 andshelter-in-place governmental action,inflation, over which we have no control.

Effective October 1, 2019,

As of September 30, 2023, we had $945 million of total liquidity, comprising $461 million in cash and cash equivalents and $484 million ($500 million less outstanding letters of credit of approximately $16 million, which reduce availability) of available borrowings under our Revolving Credit Facility.
During 2022, we issued and sold 800,000 shares of Series B Preferred Stock (defined below) for an aggregate purchase price of $800 million, and entered into an amendment to our credit agreement. As part of this amendment, we entered into a $720$1,100 million seven-year incremental term loan ("2021 Term Loan"), the Revolving Credit Facility was upsized by $200 million to $500 million, the maturity date of the Revolving Credit Facility was extended five years, and the letter of credit sublimit was increased by $100 million to $250 million.
We expect to continue to be able to access the capital markets through equity and debt offerings for liquidity purposes as needed. Our principal liquidity requirements have been, and we expect will continue to be, for working capital and general corporate purposes, including capital expenditures and debt service, any accrued consideration and compensation due to selling shareholders, including tax payments in connection therewith, as well as to identify, execute, and integrate strategic acquisitions and business transformation transactions or initiatives.
In 2022, our Board of Directors authorized a stock repurchase program, authorizing the purchase of up to an aggregate of $250 million of notional value5-year interest rate swap, exchangingone-month LIBORcommon stock through February 2024. During the three and nine months ended September 30, 2023, we repurchased 656,489 and 1,626,493 shares of common stock for a fixed rateaggregate payments of 1.62% per annum. Accordingly, our fixed interest rate per annum on the swapped $720approximately $18 million and $41 million under this stock repurchase program, respectively, leaving approximately $166 million of Term Debt is 4.12%.

Oneauthorized repurchases.

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Table of APi Group’s Canadian subsidiaries had a $20 million unsecured line of credit agreementContents
Cash Flows
The following table summarizes net cash flows with a variable interest rate based uponrespect to our operating, investing and financing activities for the prime rate. APi Group had no amounts outstanding under the line of credit at March 31, 2020.

We were in compliance with all covenants contained in the Credit Agreement as of December 31, 2019 and March 31, 2020.    

Cash Flows

   Three Months Ended March 31, 
   2020   2019 

($ in millions)

  (Successor)   (Predecessor) 

Net cash provided by operating activities

  $55   $25 

Net cash used in investing activities

   (15)    (22) 

Net cash provided by (used in) financing activities

   139    (16) 

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

   1    —   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

  $180   $(13) 
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

  $436   $41 

periods indicated:

Nine Months Ended September 30,
($ in millions)20232022
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 
Net Cash Provided by Operating Activities

Net cash provided by operating activities was $55$217 million for the threenine months ended March 31, 2020September 30, 2023 compared to $25$82 million of cash used for the same period in 2019.2022. The increase in cash provided by operating activities is primarily due to an increase in net income in the period. This increase in cash provided is also driven by lower working capital needs associated with the various services we provided in the nine months ended September 30, 2023 compared to the same period of the prior year. Cash flow from operations is primarily influenceddriven 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 increase in cash flows provided by operating activities in 2020 comparedthe current year is also due to a one-time contribution to an assumed pension plan of $27 million during the same period in 2019 was primarily driven by changes in working capital levels.

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nine months ended September 30, 2022.

Net Cash Used in Investing Activities

Net cash used in investing activities was $15$108 million for the threenine months ended March 31, 2020September 30, 2023 compared to $22$2,931 million for the same period in 2019. The decrease2022. During 2022, we completed the Chubb Acquisition resulting in cash used in investing activities was attributed to reduction in purchasesthe use of property and equipment$2,881 million for acquisitions during the current year.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $139 million for threenine months ended March 31, 2020September 30, 2022 compared to net cash used in financing activities of $16$57 million for the same period in 2019.2023.

Net Cash (Used in) Provided by Financing Activities
Net cash used in financing activities was $(253) million for the nine months ended September 30, 2023 compared to $1,773 million provided by financing activities for the same period in 2022. The increasedecrease in cash provided by financing activities was primarily driven by equity and debt issuances in the nine months ended September 30, 2022 related to the Chubb Acquisition. In the nine months ended September 30, 2022, cash provided by financing activities was higher due to $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 increase in cash used in financing activities in the nine months ended September 30, 2023 was also driven by $206 million of payments on long-term borrowings.
Financing Activities
Credit Agreement
We have entered into a Credit Agreement by and among APi Group DE, Inc., our borrowingwholly-owned subsidiary, as borrower ("APi Group DE"), APG as a guarantor, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto, and Citibank N.A., as administrative agent and as collateral agent (the “Credit Agreement”) which provides for: (1) a term loan facility, pursuant to which we incurred the $1,200 million 2019 Term Loan used to fund a part of $200the cash portion of the purchase price in the APi Acquisition, and a $1,100 million seven-year incremental term loan ("2021 Term Loan") used to fund a portion of the purchase price in the Chubb acquisition, and (2) a $500 million Revolving Credit Facility of which up to $250 million can be used for the issuance of letters of credit.
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On October 11, 2023, we completed repricing of our 2019 Term Loan and 2021 Term Loan. The repricing reduces the applicable margin on all outstanding amounts by 25 basis points. Additionally, $422 million of the 2019 Term Loan was extended to the 2021 Term Loan and assumed all the same terms as the repriced 2021 Term Loan. We made a repayment of $100 million on the 2019 Term Loan concurrent with the close of this transaction. Following the repricing transaction, we have $505 million outstanding on 2019 Term Loan and $1,407 million outstanding on the 2021 Term Loan.
Following the debt repricing transaction, the amended interest rate applicable to the 2019 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.25% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 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.
Following the debt repricing transaction, the amended interest rate applicable to the 2021 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.50% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50% plus a 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.
The interest rate applicable to borrowings under the Revolving Credit Facility during March 2020 dueis, at our option, either (a) a base rate plus an applicable margin equal to 1.25% or (2) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25% plus a CSA.
The Credit Agreement contains customary representations and warranties, and affirmative and negative covenants, including covenants that, among other things, restrict our, and our restricted subsidiaries’, ability to (i) incur additional indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make loans and investments; (v) sell, transfer and otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into transactions with affiliates; (viii) enter into agreements restricting subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all assets. The Credit Agreement also contains customary events of default. Furthermore, with respect to the uncertaintyrevolving credit facility, we must maintain a first lien net leverage ratio that does not exceed (i) 4.00 to 1.00 for each fiscal quarter ending in 2021, and unforeseen potential consequences associated(ii) 3.75 to 1.00 for each fiscal quarter ending thereafter, if on the last day of any fiscal quarter the outstanding amount of all revolving loans and letter of credit obligations (excluding undrawn letters of credit up to $40 million) under the Credit Agreement is greater than 30% of the total revolving credit commitments thereunder subject to a right of cure. Our first lien net leverage ratio as of September 30, 2023 was 1.92:1.00.
During the nine months ended 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 had 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 theCOVID-19 pandemic, 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 $484 million was available after giving effect to $16 million of outstanding letters of credit, which reduces availability.
Senior Notes
On June 22, 2021, APi Group DE completed a private offering of $350 million aggregate principal amount of 4.125% Senior Notes due 2029 (the “4.125% Senior Notes”), issued under an indenture, dated June 22, 2021. The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain of our subsidiaries. The 4.125% Senior Notes will mature on July 15, 2029, unless redeemed earlier, and bear interest at a rate of 4.125% per year until maturity, payable semi-annually in arrears. We used the net proceeds from the sale of the 4.125% Senior Notes to repay a previously outstanding term loan, prepay a portion of the 2019 Term Loan and for general corporate purposes. As of September 30, 2023, we subsequently repaidhad $337 million aggregate principal amount of 4.125% Senior Notes outstanding.
On October 21, 2021, APi Escrow Corp, a wholly-owned subsidiary of the Company, completed a private offering of $300 million aggregate principal amount of 4.750% Senior Notes due 2029 (the “4.750% Senior Notes”) issued under an indenture dated October 21, 2021, as supplemented by a supplemental indenture dated January 3, 2022. The 4.750% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain of our subsidiaries. The 4.750% Senior Notes will mature on October 15, 2029, unless earlier redeemed, and bear interest at a rate of 4.750% per year until
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maturity, payable semi-annually in April 2020.

Off-Balance Sheet Financing Arrangements

arrears. We have no obligations, assets or liabilities which would be consideredoff-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referredused the net proceeds from the sale of the 4.750% Senior Notes to as variable interest entities, which would have been establishedfinance a portion of the consideration for the purposeChubb Acquisition. As of facilitatingoff-balance sheet arrangements.

September 30, 2023, we had $277 million aggregate principal amount of 4.750% Senior Notes outstanding.

Debt Covenants
We were in compliance with all covenants contained in the indentures governing the 4.125% Senior Notes and 4.750% Senior Notes and Credit Agreement as of September 30, 2023 and December 31, 2022.
Issuance of Series B Preferred Stock
During 2022, we issued and sold 800,000 shares of our 5.5% Series B Redeemable Convertible Preferred Stock, par value $0.0001 per share (the "Series B Preferred Stock"), for an aggregate purchase price of $800 million, pursuant to securities purchase agreements entered into on July 26, 2021 with certain investors. The net proceeds from the Series B Preferred Stock issuance were used to fund a portion of the consideration for the Chubb Acquisition.
The holders of the Series B Preferred Stock are entitled to dividends at the rate of 5.5% per annum, payable in cash or common stock, at our election. The Series B Preferred Stock ranks senior to our common stock and Series A Preferred Stock with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution, or winding up of our affairs.
The Series B Preferred Stock is convertible, at the holder’s option, into shares of our common stock at a conversion price equal to $24.60 per share, subject to certain customary adjustments. The holders of Series B Preferred Stock have certain other rights including voting rights on an as-converted basis, certain pre-emptive rights on our private equity offerings, certain registration rights, and, in the case of certain holders, certain director designation rights, as provided in the certificate of designation governing the Series B Preferred Stock.
We may, at our option, effect conversion of the outstanding shares of Series B Preferred Stock to common stock, but only if the volume-weighted average price of our common stock exceeds $36.90 per share for 15 consecutive trading days.
Material Cash Requirements from Known Contractual and Other Obligations
Our material cash requirements from known contractual and other obligations primarily relate to the following, for which information on both a short-term and long-term basis is provided in the indicated notes to the Interim Statements and expected to be satisfied using cash generated from operations:
•Operating and Finance Leases – See Note 11 – "Leases" in the Annual Report on Form 10-K filed on March 1, 2023. We have not entered into anyoff-balance sheet financing arrangements, established any special purpose entities, guaranteed anyhad material changes to our lease obligations during the nine months ended September 30, 2023.
•Debt – See Note 11 – "Debt" for future principal payments and interest rates on our debt or commitmentsinstruments.
•Tax Obligations – See Note 12 – "Income Taxes."
•Pension obligations – See Note 13 – "Employee Benefit Plans."
We make investments in our properties and equipment to enable continued expansion and effective performance of other entities, or entered into anynon-financial agreement involving assets.

our business. Our capital expenditures are expected to be approximately 1.5% of annual net revenues.

Item

ITEM 3. QuantitativeQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
As of September 30, 2023, our outstanding variable interest rate debt was primarily related to our 2019 Term Loan and Qualitative Disclosures about Market Risk

Thereour 2021 Term Loan. As of 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 been no material changes$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, exchanging one-month SOFR for a rate of 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. In

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addition, interest expense will be offset by the amortization through October 2024 of the remaining gain of $18 million recognized from the informationtermination of the previously reportedoutstanding $720 million notional amount interest rate swap. After the repricing transaction, the remaining floating rate portfolio will bear interest based on one-month SOFR plus CSA plus 225 basis points or one-month SOFR plus CSA plus 250 basis points. As of September 30, 2023, excluding letters of credit outstanding of $16 million, we had no amounts of outstanding revolving loans under our Credit Agreement.
Foreign currency risk
We have operations in over 20 countries globally. Revenues generated from foreign operations represented approximately 35% and 37% of our consolidated net revenues for the three and nine months ended 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 nine months ended 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 for both the three months ended 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 $(63) million and $(86) million for the three months ended September 30, 2023 and 2022, respectively, and $(22) million and $(311) million for the nine months ended September 30, 2023 and 2022, respectively.
Our exposure to fluctuations in foreign currency exchange rates may continue to increase in the future if we continue to expand our operations outside of the U.S. We seek to manage foreign currency exposure by minimizing our consolidated net assets and liability positions in currencies other than the functional currency of our foreign subsidiaries. However, we believe that our exposure to transactional gains or losses resulting from fluctuations in foreign currencies is limited because our foreign operations primarily invoice and collect receivables in their respective local or functional currencies, and the expenses associated with these transactions are generally contracted and paid for in the same local currencies. In order to manage foreign currency risk related to transactions in foreign currencies and the Chubb business intercompany financing structure, we entered into cross-currency swaps to manage the foreign currency risk of certain intercompany loans. We also occasionally use foreign currency contracts as a way to mitigate foreign currency exposure.
Other market risk
We are also exposed to market risks impacting our customer base due to the potential related impact on accounts receivable or contract assets on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions. We continually monitor the creditworthiness of our customers and maintain ongoing discussions with customers regarding contract status with respect to change orders and billing terms. Therefore, management believes it takes appropriate action to manage market and other risks, but there is no assurance management will be able to reasonably identify all risks with respect to the collectability of these assets. See also “Revenue Recognition from Contracts with Customers” under the heading “APG Management’s"Item 7. Management's Discussion and Analysis of Financial Condition—QualitativeCondition and Quantitative Disclosures about Market Risk”Results of Operations - Critical Accounting Estimates" in our Annual Report on FormS-4.

10-K for the fiscal year ended December 31, 2022.
In addition, we are exposed to various supply chain risks, including the market risk of price fluctuations or availability of copper, steel, cable optic fiber, and other materials used as components of supplies or materials utilized in our operations. We are also exposed to increases in energy prices, particularly as they relate to gasoline prices for our vehicle fleet. Disruptions in our supply chain can occur due to market inefficiencies but can also be driven by other events, like cybersecurity breaches, pandemics, or similar disruptive events. While we believe we can increase our contract prices to adjust for some price increases in commodities, there can be no assurance that such price increases, if they were to occur, would be recoverable. Additionally, some of our fixed price contracts do not allow us to adjust prices and, as a result, increases in material costs could reduce profitability with respect to projects in progress.
Significant declines in market prices for oil, gas, and other fuel sources may also impact our operations. Prolonged periods of low oil and gas prices may result in projects being delayed or canceled. In a low oil and gas price environment, certain of our businesses could become less profitable or incur losses.
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Item

ITEM 4. Controls and Procedures

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information which is required to be disclosed by the us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As required by Rule13a-15(b) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (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 at March 31, 2020,as of September 30, 2023 due to the material weaknessweaknesses in internal control over financial reporting described below, which waswere previously disclosed in the “Risk Factors” sectionItem 9A. “Controls and Procedures” of our FormS-4.

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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim consolidated financial statements will not be prevented or detectedAnnual Report on a timely basis.

As indicated above, control deficiencies in our internal control over financial reporting have been identified which constitute material weaknesses relating to inadequate design and implementation of:

information technology general controls that preventForm 10-K for the information systems from providing complete and accurate information consistent with financial reporting objectives and current needs;

internal controls over the preparation of the financial statements, including the insufficient review and oversight over financial reporting, journal entries along with related file documentation;

internal controls to identify and manage segregation of certain accounting duties;

internal controls over estimated costs of completion on contracts where revenue is recognized over time; and

management review controls over projected financial information used in fair value financial models used for purchase accounting and intangible asset valuations.

Management is in the process of developing a remediation plan. The material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. We will monitor the effectiveness of our remediation plans and will make changes management determines to be appropriate.

Changes in Internal Control Over Financial Reporting

We are developing a remediation plan to remediate the material weaknesses relating to our internal control over financial reporting, as described above. Except as otherwise described herein, there were no material changes to our internal control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) that occurred during the quarteryear ended MarchDecember 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls and Procedures

2022.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. However, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all errorerrors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our companyCompany have been detected.

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Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a‑15(f) and 15d-15(f) under the Exchange Act. Under the supervision of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of 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 September 30, 2023 due to the material weaknesses in internal control over financial reporting identified and further described below.
A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We continue to have previously identified control deficiencies that are not remediated as of 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 September 30, 2023.
Ongoing Remediation Plan
Management has undertaken various steps to continue remediating such control deficiencies and has seen improved results versus December 31, 2022. Steps taken by us during the three months ended September 30, 2023 include the following:
•Performed weekly and monthly monitoring of privileged access activity;
•Conducted training with operating company personnel related to required level of documentation and proper review of estimates related to revenue recognition; and
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•Performed corporate level review of high risk contracts and their related revenue recognition documentation.
We plan to continue our efforts to strengthen our internal control over financial reporting and are committed to ensuring that such controls are operating effectively. We are implementing process and control improvements to address the above material weakness as follows:
•Continue to conduct ongoing 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; and
•Conduct 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.
As anticipated, a remediation effort of this magnitude takes multiple years to complete and we have made significant progress with the Company’s multi-year remediation plans. Based on this progress, management believes full remediation of current material weaknesses can be achieved by 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.
The material weaknesses in our internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls will be met, and no evaluation of controls can provide absolute assurance that all control deficiencies or material weaknesses have been or will be detected. There is no assurance that the remediation will be fully effective. As described above, these material weaknesses have not been remediated as of the filing date of this quarterly report. If these remediation efforts do not prove effective and control deficiencies and material weaknesses persist or occur in the future, the accuracy and timing of our financial reporting may be adversely affected.
Changes in Internal Control over Financial Reporting
We are executing our remediation plans to remediate the material weaknesses relating to our internal control over financial reporting, as described above. Other than changes described above, there have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION

Item

ITEM 1A. Risk Factors

The following disclosures update certain risk factors previously disclosed in our FormS-4. Other than as set forth below, there wereRISK FACTORS

There have been no material changes to theour risk factors disclosedcontained in the section entitled “Risk Factors”Part I, Item 1A. "Risk Factors" of our FormS-4.

10-K for the year ended December 31, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The impactfollowing table provides information about the Company's purchase of equity securities during the three months ended September 30, 2023:
During the Three Months Ended September 30, 2023Total Number of Shares Purchased (1)Average Price Paid Per ShareTotal Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs		Maximum 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, 2023656,48928.00 656,489166 
September 1, 2023 - September 30, 2023——— 
Total656,489$28.00 656,489$166 
(1)During 2022, we announced that our Board of Directors authorized a stock repurchase program (“SRP”) to purchase up to an aggregate of $250 million of shares of our common stock. Acquisitions pursuant to the SRP may be made from time to time through a combination of open market repurchases in compliance with Rule 10b-18 under the Exchange Act, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions, at our discretion, as permitted by securities laws and other legal requirements. In connection with the SRP, we may enter into Rule 10b5-1 trading plans which would generally permit us to repurchase shares at times when it might otherwise be prevented from doing so under the securities laws. The SRP will expire on February 29, 2024 unless otherwise modified or earlier terminated by our Board of Directors at any time in its sole discretion.
ITEM 4. MINE SAFETY DISCLOSURES
Information regarding mine safety violations and other regulatory matters required by Section 1503(a) of the coronavirus(COVID-19) pandemicDodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this quarterly report.
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2023, no director or similar global health concerns, could lead to project delays or cancellations, could adversely affect our ability to timely complete projects and source the supplies we need, and may impact labor availability and productivity, and could result in impairment risks, each of which could adversely impact our business, financial condition and results of operations.

The coronavirus outbreak in China in December 2019 and the subsequent spreadofficer of the virus throughout the world has resultedCompany adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in widespread infections and fatalities. Governments in affected countries, including the United States, have launched measures to combat the spreadItem 408(a) ofCOVID-19, including travel bans, quarantines and lock-downs Regulation S-K.

57
Table of affected areas that include closures ofnon-essential businesses. We rely on the availability of our skilled workforce and third-party contractors to meet contractual milestones and timely complete projects. If theCOVID-19 pandemic or similar outbreak were to require us to discontinue operations, or to cause shortages of our workforce or third-party contractors, it could result in cancellations or deferrals of project work, which could lead to a decline in revenue and an increase in costs. In addition, such outbreak may impact the availability of the commodities, supplies and materials needed for projects, and we may experience difficulties obtaining such commodities, supplies and materials from suppliers or vendors whose supply chains are impacted by the outbreak. If we are unable to source the essential commodities, supplies and materials in adequate quantities, at acceptable prices and in a timely manner, our business, financial condition and results of operations could be adversely affected. Similarly, our customers may be impacted by theCOVID-19 pandemic, which could cause them to cancel or defer project work, which could have a negative impact on our business.

In addition, our results of operations are materially affected by conditions in the credit and financial markets and the economy generally. Global credit and financial markets have experienced extreme volatility and disruptions as a result of theCOVID-19 pandemic including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that deterioration in credit and financial markets and confidence in economic conditions will not occur or be sustained as a result of theCOVID-19 pandemic. Any protracted economic disruption or recession could lead customers to delay or cancel projects, which would negatively impact our revenues, earnings and financial condition. In addition, our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure by us or our customers to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon current or expected projects.

Our collective bargaining agreements generally require us to participate with other companies in multiemployer pension plans. Our future contribution obligations and potential withdrawal liability exposure with respect to these plans could increase significantly based on the investment and actuarial performance of those plans, the insolvency of other companies that contribute to those plans and other factors, which could be negatively impacted as a result of the unfavorable and uncertain economic and financial market conditions resulting from the ongoingCOVID-19 pandemic and related issues.

Furthermore, some of the inherent estimates and assumptions used in determining the fair value of our reporting units are outside the control of management, including interest rates, cost of capital, tax rates, industry growth, credit ratings, foreign exchange rates, and labor inflation. As a result of the impact ofCOVID-19 which has negatively impacted our operations, suppliers and other vendors, customer base, and other factors outside of the control of management, in the first quarter of 2020 we determined that certain of our goodwill and intangible assets were impaired as the preliminary carrying values exceeded fair value and we recorded anon-cash charge of approximately $208 million. Given the uncertainty of

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these factors, as well as the inherent difficulty in predicting the severity and duration of theCOVID-19 global pandemic and associated recovery and the uncertainties regarding the potential financial impact on our business and the overall economy, there can be no assurance that our estimates and assumptions made for purposes of the goodwill testing performed during the first quarter of 2020 will prove to be accurate predictions of the impact in future periods. While we believe we have made reasonable estimates and assumptions to calculate the fair values of our reporting units which were based on facts and circumstances known at such time, it is possible that existing or new events may result in forecasted cash flows, revenue and earnings that differ from those that formed the basis of our estimates and assumptions, which could be materially different from our estimates and assumptions. If so, we may be required to record additional impairment charges in the future, which could be material.

The circumstances and global disruption caused byCOVID-19 has affected, and we believe will continue to affect, our businesses, operating results, cash flows and financial condition, however the scope and duration of the impact is highly uncertain. The full extent to which theCOVID-19 pandemic impacts our business, markets, supply chain, customers and workforce will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of theCOVID-19 pandemic and the actions to treat or contain it or to otherwise limit its impact, among others.

Item

ITEM 6. Exhibits

EXHIBITS
Exhibit No.Description of Exhibits

Exhibit10.25

Description 4, dated October 11, 2023, among APi DE, Inc., APi Group Corporation, the subsidiary guarantors from time to time party thereto, the lenders and letter of Exhibits

credit issuers from time to time party thereto, and Citibank, N.A. as administrative agent and collateral agent.
31.1*
31.2*
32.1**
32.2**
101.INS*95.1*XBRL Instance Document.
101.SCH*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).

*

Filed herewith

**

Furnished herewith

44

*Filed herewith
**Furnished herewith
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.

APi GROUP CORPORATION
November 2, 2023/s/ Russell A. Becker
Russell A. Becker
Chief Executive Officer
(Duly Authorized Officer)
JuneNovember 2, 20202023

/s/ Russell Becker

Kevin S. Krumm
Russell BeckerKevin S. Krumm
Chief ExecutiveFinancial Officer
(Duly Authorized Officer)
June 2, 2020

/s/ Thomas Lydon

Thomas Lydon
Chief Financial Officer
(Principal Financial Officer)

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