UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
TABLE OF CONTENTS
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3 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APi Group Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(In millions, except per share data)
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June 30, 2021 |
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December 31, 2020 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowances of $ and December 31, 2020 |
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Inventories |
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Contract assets |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right of use assets |
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Goodwill |
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Intangible assets, net |
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Deferred tax assets |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Short-term and current portion of long-term debt |
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$ |
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$ |
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Accounts payable |
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Contingent consideration and compensation liabilities |
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Accrued salaries and wages |
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Deferred consideration |
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— |
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Other accrued liabilities |
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Contract liabilities |
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Operating and finance leases |
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Total current liabilities |
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Long-term debt, less current portion |
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Contingent consideration and compensation liabilities |
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Operating and finance leases |
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Deferred tax liabilities |
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Other noncurrent liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Preferred Shares, $ |
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Common shares, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See notes to condensed consolidated financial statements.
3
APi Group Corporation
Condensed Consolidated Statements of Operations (Unaudited)
(In millions, except per share amounts)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Selling, general, and administrative expenses |
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Impairment of goodwill and intangible assets |
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— |
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— |
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— |
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Operating income (loss) |
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( |
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Interest expense, net |
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Loss on extinguishment of debt |
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— |
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— |
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Investment income and other, net |
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( |
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( |
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( |
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( |
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Other expense, net |
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Income (loss) before income taxes |
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( |
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Income tax provision (benefit) |
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( |
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( |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
( |
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Net income (loss) per common share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
( |
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Diluted |
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$ |
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$ |
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$ |
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$ |
( |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See notes to condensed consolidated financial statements.
4
APi Group Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In millions)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
( |
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Other comprehensive income (loss): |
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Fair value change - derivatives, net of tax (expense) benefit of ($ |
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( |
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( |
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Foreign currency translation adjustment |
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— |
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— |
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Comprehensive income (loss) |
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$ |
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$ |
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$ |
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$ |
( |
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See notes to condensed consolidated financial statements.
5
APi Group Corporation
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
(In millions, except share amounts)
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Preferred Shares Issued and Outstanding |
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Common Shares Issued and Outstanding |
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Additional Paid-In |
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Accumulated |
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Accumulated Other Comprehensive |
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Total Shareholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance, December 31, 2020 |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Fair value change - derivatives |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Preferred Share dividend |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Warrants exercised |
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— |
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— |
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— |
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— |
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— |
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Profit sharing plan contributions |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation and other, net |
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— |
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— |
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— |
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— |
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— |
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Balance, March 31, 2021 |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Fair value change - derivatives |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation and other, net |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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Balance, June 30, 2021 |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Preferred Shares Issued and Outstanding |
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Common Shares Issued and Outstanding |
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Additional Paid-In |
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Accumulated |
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Accumulated Other Comprehensive |
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Total Shareholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance, December 31, 2019 |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Fair value change - derivatives |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Share cancellations |
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— |
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— |
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( |
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— |
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( |
) |
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— |
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— |
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( |
) |
Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance, March 31, 2020 |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Fair value change - derivatives |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
|
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( |
) |
Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance, June 30, 2020 |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
|
|
See notes to condensed consolidated financial statements.
6
APi Group Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
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Six Months Ended June 30, |
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2021 |
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2020 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
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$ |
( |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation |
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Amortization |
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Impairment of goodwill and intangible assets |
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— |
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Deferred taxes |
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( |
) |
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( |
) |
Share-based compensation expense |
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Profit-sharing expense |
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Non-cash lease expense |
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Loss on extinguishment of debt |
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— |
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Other, net |
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Changes in operating assets and liabilities, net of effects of business acquisitions: |
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Accounts receivable |
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( |
) |
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Contract assets |
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( |
) |
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( |
) |
Inventories |
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( |
) |
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( |
) |
Prepaid expenses and other current assets |
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( |
) |
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( |
) |
Accounts payable |
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— |
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Accrued liabilities and income taxes payable |
|
|
( |
) |
|
|
|
|
Contract liabilities |
|
|
|
|
|
|
|
|
Other assets and liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sales of property, equipment, held for sale assets, and businesses |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings |
|
|
|
|
|
|
|
|
Payments on long-term borrowings |
|
|
( |
) |
|
|
( |
) |
Payments of debt issuance costs |
|
|
( |
) |
|
|
— |
|
Proceeds from warrant exercises |
|
|
|
|
|
|
— |
|
Payments of acquisition-related consideration |
|
|
( |
) |
|
|
( |
) |
Restricted shares tendered for taxes |
|
|
( |
) |
|
|
— |
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
( |
) |
Effect of foreign currency exchange rate change on cash and cash equivalents |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
|
|
|
$ |
|
|
Supplemental cash flow disclosures: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
|
|
|
$ |
|
|
Cash paid for income taxes, net of refunds |
|
|
|
|
|
|
|
|
Accrued contingent consideration issued in business combinations |
|
|
|
|
|
|
|
|
Shares issued to profit sharing plan |
|
|
|
|
|
|
— |
|
See notes to condensed consolidated financial statements.
7
APi Group Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in millions, except shares and where noted otherwise)
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
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying interim unaudited condensed consolidated financial statements (the “Interim Statements”) include the accounts of the Company and of its wholly-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 in the United States of America (“U.S. GAAP”) for complete financial statements. The unaudited condensed consolidated balance sheet as of December 31, 2020 was derived from audited financial statements for the year then ended but does not include all of the information and footnotes required by U.S. 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 be read in conjunction with the Company’s audited annual consolidated financial statements and accompanying footnotes thereto for the year ended December 31, 2020. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand and highly liquid investments that have a maturity of three months or less when purchased. Restricted cash reflects collateral against certain bank guarantees. Restricted cash is reported as prepaid expenses and other current assets and other assets in the unaudited condensed consolidated balance sheets.
Investments
The Company holds investments in joint ventures which are accounted for under the equity method of accounting as the Company does not exercise control over the joint ventures. The Company’s share of earnings from the joint ventures was $
NOTE 3. 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 2020 audited consolidated financial statements included in the Company’s Form 10-K filed on March 24, 2021.
Accounting Standards Issued and Adopted:
In January 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU 2020-01”) to clarify the interaction in accounting for equity securities under Topic 321, investments accounted for under the equity method of accounting in Topic 323, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU on
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions to the existing guidance for income taxes related to the approach for intra-period tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside
8
basis differences. This ASU also simplifies the accounting for income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or rates in the effective tax rate computation, the recognition of franchise tax, and the evaluation of a step-up in the tax basis of goodwill, among other clarifications. ASU 2019-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU on
NOTE 4. BUSINESS COMBINATIONS
The Company continually evaluates potential acquisitions that strategically fit within the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. Acquisitions are accounted for as business combinations using the acquisition method of accounting. As such, the Company makes a preliminary allocation of the purchase price to the tangible assets and identifiable intangible assets acquired and liabilities assumed. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Purchase price is allocated to acquired assets and liabilities assumed based upon their estimated fair values as determined based on estimates and assumptions deemed reasonable by the Company. The Company engages third-party valuation specialists to assist with preparation of critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Goodwill is attributable to the workforce of the acquired businesses, the complementary strategic fit and resulting synergies these businesses bring to existing operations, and the opportunities in new markets expected to be achieved from the expanded platform.
2021 Acquisitions
During the first six months of 2021, the Company completed several individually immaterial acquisitions for consideration transferred of $
2020 Acquisitions
During 2020, the Company completed the acquisition of SK FireSafety (“SKG”) within the Safety Services segment and a number of other immaterial acquisitions for consideration transferred of $
SKG is a European market-leading provider of commercial safety services with operations primarily in the Netherlands, Belgium, Sweden, Norway, and the United Kingdom. On October 1, 2020, the Company completed the SKG Acquisition and acquired all of the outstanding stock. Through the acquisition of SKG, APG established a European platform for international organic and acquisition expansion. The other acquisitions were primarily in the Safety Services segment and based in the United States.
The Company has not finalized its accounting for all 2020 acquisitions that occurred during the fourth quarter of 2020. The areas of the purchase price allocation not yet finalized are primarily related to SKG and include the valuation of intangible assets and goodwill and income tax related matters. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. During Q2 2021, we recorded a measurement period adjustment, primarily related to intangible assets and goodwill, for which the resulting impact to amortization expense was immaterial. Based on preliminary estimates, the total amount of goodwill from the 2020 acquisitions expected to be deductible for tax purposes is $
9
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the dates of acquisition:
Cash paid at closing |
|
$ |
|
|
Deferred consideration |
|
|
|
|
Total consideration |
|
$ |
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
Other current assets |
|
|
|
|
Property and equipment |
|
|
|
|
Customer relationships |
|
|
|
|
Trade names and trademarks |
|
|
|
|
Contractual backlog |
|
|
|
|
Goodwill |
|
|
|
|
Other noncurrent assets |
|
|
|
|
Current liabilities |
|
|
( |
) |
Noncurrent liabilities |
|
|
( |
) |
Net assets acquired |
|
$ |
|
|
The Company’s acquisition purchase agreements typically include deferred payment provisions, often to sellers who become employees of the Company. The provisions are made up of three general types of arrangements- contingent compensation and contingent consideration (both of which are contingent on the future performance of the acquired entity) and deferred payments related to indemnities. Contingent compensation arrangements are contingent on the former owner’s future employment with the Company, and the related amounts are recognized over the required employment period, which is typically
The total contingent compensation arrangement liability was $
The total liability for deferred payments was $
NOTE 5. REVENUE
Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when or as control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Revenue is primarily recognized by the Company over time utilizing the cost-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 and six months ended June 30, 2021 and 2020, respectively.
10
Contracts with Customers
The Company derives revenue primarily from Safety Services, Specialty Services and Industrial Services contracts with a duration of less than one week to three years (with the majority of contracts with durations of less than six months) which are subject to multiple pricing options, including fixed price, unit price, time and material, or cost plus a markup. The Company 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 the cost-to-cost method of accounting, which measures progress based on the cost incurred relative to total expected cost in satisfying the performance obligation. The cost-to-cost method is used as it best depicts the continuous transfer of control of goods or services to the customer. 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 the cost-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.
The Company disaggregates its revenue primarily by segment, service type, and country from which revenue is invoiced, as the nature, timing and uncertainty of cash flows are relatively consistent within each of these categories. Disaggregated revenue information is as follows:
|
|
Three Months Ended June 30, 2021 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
Life Safety |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Heating, Ventilation and Air Conditioning ("HVAC") |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Infrastructure/Utility |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Fabrication |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Specialty Contracting |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Transmission |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Civil |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Corporate and Eliminations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Three Months Ended June 30, 2020 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
Life Safety |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
HVAC |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Infrastructure/Utility |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Fabrication |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Specialty Contracting |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Transmission |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Civil |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Inspection |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Corporate and Eliminations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
11
|
|
Six Months Ended June 30, 2021 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
Life Safety |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
HVAC |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Infrastructure/Utility |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Fabrication |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Specialty Contracting |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Transmission |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Civil |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Corporate and Eliminations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Six Months Ended June 30, 2020 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
Life Safety |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
HVAC |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Infrastructure/Utility |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Fabrication |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Specialty Contracting |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Transmission |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Civil |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Inspection |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Corporate and Eliminations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Three Months Ended June 30, 2021 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
United States |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Canada and Europe |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Three Months Ended June 30, 2020 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
United States |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Canada and Europe |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Six Months Ended June 30, 2021 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
United States |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Canada and Europe |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Six Months Ended June 30, 2020 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
United States |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Canada and Europe |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
The Company’s contracts with its customers generally require significant services to integrate complex activities and equipment into a single deliverable and are, therefore, generally accounted for as a single performance obligation to provide a single contracted service
12
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 performance obligations that are unsatisfied as of June 30, 2021, was $
When more than one contract is entered into with a customer on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as one, or more than one, performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances 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 not distinct within the context of the original contract and, therefore, not treated as separate performance obligations but rather as a modification of 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 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 cumulative catch-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 and six months ended June 30, 2021 and 2020, 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.
Contract Assets and Liabilities
The Company typically invoices customers with payment terms of net due in
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from the Company’s projects when revenue is recognized under the cost-to-cost measure of progress and exceeds the amounts invoiced to the Company’s customers, as the amounts cannot be billed under the terms of the Company’s contracts. In addition, many of the Company’s time and material arrangements are billed in arrears pursuant to contract terms, resulting in contract assets being recorded as revenue is recognized in advance of billings.
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 June 30, 2021, none of the Company’s contracts contained a significant financing component. Contract liabilities from the Company’s contracts arise when amounts invoiced to the Company’s customers exceed revenues recognized under the cost-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. Contract assets and liabilities are classified as current in the unaudited condensed consolidated balance sheets as all amounts are expected to be relieved within one year.
13
The opening and closing balances of accounts receivable, net of allowances, contract assets and contract liabilities from contracts with customers as of June 30, 2021 and December 31, 2020 are as follows:
|
|
Accounts receivable, net of allowances |
|
|
Contract Assets |
|
|
Contract Liabilities |
|
|||
Balance as of June 30, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Balance as of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
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 accordance with industry practice, accounts receivable includes retentions receivable, a portion of which may not be received within one year. At June 30, 2021 and December 31, 2020, retentions receivable were $
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 revenues generated under the contract. Such costs, which are amortized over the life of the respective project, were not material for any period presented.
NOTE 6. GOODWILL AND INTANGIBLES
Goodwill
The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2021 are as follows:
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Total Goodwill |
|
||||
Goodwill as of December 31, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Measurement period adjustments and other (1) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Goodwill as of June 30, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
Measurement period adjustments related to the purchase accounting for SKG and finalization of certain immaterial acquisitions in 2020 (see Note 4 – “Business Combinations”). Other includes fluctuations due to foreign currency translation. |
As of June 30, 2021, the Company has recorded accumulated goodwill impairment charges of $
During 2020, while the Company’s services were largely deemed essential under various governmental orders, the Company did experience negative impacts from COVID-19 on its operations including impacts from the Company’s suppliers, other vendors, and customer base. In addition to the impacts of COVID-19, the Company was also impacted by a significant decline in demand and volatility in oil prices as some of the Company’s services involve work within the energy industry. As a result of these factors and the significant decline in the Company’s market capitalization during the first quarter 2020, the Company concluded an impairment triggering event had occurred for all of its reporting units and performed impairment tests for its goodwill and recoverability tests for its long-lived assets, which primarily include finite-lived intangible assets, property and equipment and right of use lease assets. During the first quarter of 2020, based on preliminary carrying values from the October 1, 2019 acquisition of APi Group, Inc. (“APi Acquisition”), the Company determined goodwill was impaired as the preliminary carrying values of some reporting units exceeded fair values. The Company recorded an impairment charge to goodwill of $
14
Intangibles
The Company’s identifiable intangible assets are comprised of the following as of June 30, 2021 and December 31, 2020:
|
|
June 30, 2021 |
|
|||||||||||||
|
|
Weighted Average Remaining Useful Lives (in Years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
||||
Amortized intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual backlog |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Customer relationships |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Trade names |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
December 31, 2020 |
|
|||||||||||||
|
|
Weighted Average Remaining Useful Lives (in Years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
||||
Amortized intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual backlog |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Customer relationships |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Trade names |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Amortization expense recognized on identifiable intangible assets are as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||
|
|
2021 |
|
|
|
2020 |
|
|
2021 |
|
|
|
2020 |
|
||||
Cost of revenues |
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
Selling, general, and administrative expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible asset amortization expense |
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
During the first quarter 2020, the Company concluded an impairment triggering event had occurred. The Company reviewed its long-lived assets for impairment and recorded a $
During the year ended December 31, 2020, the Company finalized the fair value of goodwill and intangible assets related to the APi Acquisition. The measurement period adjustments recorded during the year ended December 31, 2020 resulted in a cumulative reversal to amortization expense that had been recorded earlier in the year. If the final intangible assets fair values had been known at the date of the APi Acquisition, amortization expense would have decreased by $
NOTE 7. 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. 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. |
15
|
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. |
Recurring Fair Value Measurements
The Company’s financial assets and liabilities (adjusted to fair value at least quarterly) are derivative instruments which are primarily included in other noncurrent liabilities and contingent consideration which is primarily included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets.
The following tables summarize the fair values and levels within the fair value hierarchy in which the measurements fall for assets and liabilities measured on a recurring basis as of June 30, 2021 and December 31, 2020:
|
|
Fair Value Measurements at June 30, 2021 |
|
|||||||||||||
Assets (Liabilities) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Derivatives designated as effective hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
Cross currency swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net investment hedges |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Contingent consideration obligations |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Fair Value Measurements at December 31, 2020 |
|
|||||||||||||
Assets (Liabilities) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Derivatives designated as effective hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
Derivatives not designated as effective hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Contingent consideration obligations |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The Company determines the fair value of its interest rate swaps (“Derivatives”) 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.
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., potential payment amounts, length of measurement periods, manner of calculating any amounts due) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows, and a discount rate. Depending on the contractual terms of the purchase agreement, the probability of achieving future cash flows or earnings generally represent the only significant unobservable inputs. The contingent consideration obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings.
16
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:
|
|
Six Months Ended June 30, 2021 |
|
|
Balance as of December 31, 2020 |
|
$ |
|
|
Issuances |
|
|
|
|
Settlements |
|
|
( |
) |
Adjustments to fair value |
|
|
|
|
Balance as of June 30, 2021 |
|
$ |
|
|
Number of open contingent consideration arrangements at the end of period |
|
|
|
|
Maximum potential payout at end of period |
|
$ |
|
|
At June 30, 2021, the remaining open contingent consideration arrangements are set to expire at various dates through 2024. 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 six months ended June 30, 2021.
Fair Value Estimates
The following table presents the carrying amount and fair value of the Company’s non-variable interest rate debt (“Senior Notes,” as defined in Note 10 – “Debt”), including current portion and excluding unamortized debt issuance costs, which is estimated by discounting future cash flows at currently available rates for borrowing arrangements with similar terms and conditions, which are considered to be Level 2 inputs under the fair value hierarchy. The carrying values of variable interest rate long-term debt, including current portions, approximate their fair values because of the variable interest rates of these instruments, which generally are reset monthly.
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||||||||||
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
||||
Senior Notes |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
NOTE 8. DERIVATIVES
From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate and foreign currency rate fluctuations. The Company does not enter into derivative transactions for trading purposes.
Interest Rate Swaps
The Company manages its fixed and floating rate debt mix using interest rate swaps. Interest rate swap contracts are used by the Company to separate interest rate risk management from the debt funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense in the unaudited condensed consolidated statement of operations.
At June 30, 2021, the Company had a $
The fair value of the interest rate swap designated as an effective hedge was a liability of $
Foreign Currency Contracts
The Company used foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions. At June 30, 2021, the Company had
17
The Company recognized income of $
As of December 31, 2020, foreign currency contracts carried a liability balance of $
Cash Flow Hedging
Currency exchange contracts utilized to maintain the functional currency value of expected financial transactions denominated in foreign currencies are designated as cash flow hedges. Gains and losses related to changes in the market value of these contracts are reported as a component of accumulated other comprehensive income (loss) (“AOCI”) within shareholders’ equity in the unaudited condensed consolidated balance sheets and reclassified to earnings in the same line item in the unaudited condensed consolidated statements of operations and in the same period as the recognition of the underlying hedged transaction. The Company periodically assesses whether its currency exchange contracts are effective, and when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively.
During the first quarter of 2021, the Company entered into cross-currency swaps with gross notional U.S. dollar equivalent amount of $
Net Investment Hedge
The Company has net investments in foreign subsidiaries subject to changes in foreign currency exchange rates. During the first quarter 2021, the Company entered into a $
NOTE 9. PROPERTY AND EQUIPMENT, NET
The components of property and equipment as of June 30, 2021 and December 31, 2020 are as follows:
|
|
Estimated Useful Lives (In Years) |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
Land |
|
N/A |
|
$ |
|
|
|
$ |
|
|
Building |
|
|
|
|
|
|
|
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
|
Autos and trucks |
|
|
|
|
|
|
|
|
|
|
Office equipment |
|
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
|
|
Total cost |
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
|
|
$ |
|
|
|
$ |
|
|
Depreciation expense related to property and equipment, including finance leases, was $
During the second quarter of 2020, the Company finalized the fair values of property and equipment acquired in the APi Acquisition. These measurement period adjustments resulted in a cumulative adjustment to depreciation expense. If the property and equipment fair values had been known at the date of the APi Acquisition, depreciation expense would have increased by $
18
NOTE 10. DEBT
Debt obligations consist of the following:
|
|
Maturity Date |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
Term Loan Facility |
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility |
|
|
|
$ |
— |
|
|
$ |
— |
|
2019 Term Loan |
|
|
|
|
|
|
|
|
|
|
2020 Term Loan |
|
|
|
|
— |
|
|
|
|
|
Senior Notes |
|
|
|
|
|
|
|
|
— |
|
Other Obligations |
|
|
|
|
|
|
|
|
|
|
Total debt obligations |
|
|
|
|
|
|
|
|
|
|
Less: unamortized deferred financing costs |
|
|
|
|
( |
) |
|
|
( |
) |
Total debt, net of deferred financing costs |
|
|
|
|
|
|
|
|
|
|
Less: short-term and current portion of long-term debt |
|
|
|
|
( |
) |
|
|
( |
) |
Long-term debt |
|
|
|
$ |
|
|
|
$ |
|
|
During the second quarter of 2021, APi Group DE, Inc, a wholly-owned subsidiary, completed a private offering of $
The Senior Notes contain customary terms and provisions (including representations, covenants, and conditions). Certain covenants, among other things, restrict the Company's and its subsidiaries' ability to incur indebtedness, grant liens, make investments and sell assets. The Senior Notes also contain customary events of default, covenants, and representations and warranties. Financial covenants include: a senior secured leverage ratio no greater than
As of June 30, 2021, there was $
The interest rate applicable to borrowings under the $
At June 30, 2021 and December 31, 2020, the Company had
As of June 30, 2021 and December 31, 2020, the Company was in compliance with all applicable debt covenants.
As of June 30, 2021 and December 31, 2020, the Company had $
Note 11. 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
19
As of June 30, 2021, the Company’s deferred tax assets included a valuation allowance of $
As of June 30, 2021, the Company had gross federal, state and foreign net operating loss carryforwards of approximately $
The Company’s liability for unrecognized tax benefits is recorded within other noncurrent liabilities in the unaudited 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. As of June 30, 2021 and December 31, 2020, the total gross unrecognized tax benefits were $
If all of the Company’s unrecognized tax benefits as of June 30, 2021 were recognized, $
As of June 30, 2021, with few immaterial exceptions, neither the Company nor its subsidiaries are subject to examination prior to tax year 2014. The U.S. federal jurisdiction exam for the period ended December 31, 2017 is expected to close in the third quarter and is not expected to have a material impact on the consolidated financial statements. There are various other audits in state and foreign jurisdictions. No adjustments have been proposed and the Company does not expect the results of the audits to have a material impact on the consolidated financial statements.
On December 27, 2020, the Consolidated Appropriations Act was signed into law, which included a temporary provision that allows for a
Note 12. Employee Benefit Plans
Certain Company subsidiaries, including certain subsidiaries in Canada, contribute amounts to multiemployer pension plans and other multiemployer benefit plans and trusts, which are recorded as a component of employee wages and salaries within costs of revenue. Contributions are generally based on fixed amounts per hour per employee for employees covered under these plans. Multiemployer plan contribution rates are determined annually and assessed on a pay-as-you-go basis based on union employee payrolls. Union payrolls cannot be determined for future periods because the number of union employees employed at a given time, and the plans in which they participate, vary depending upon the location and number of ongoing projects and the need for union resources in connection with those projects. Total consolidated contributions to multiemployer plans were $
The Company also has a trustee-administered profit sharing retirement plan covering substantially all employees not covered by collective bargaining agreements and also adopted a profit sharing plan for employees in Canada (collectively, “Profit Sharing Plans”). The Profit Sharing Plans provide for annual discretionary contributions in amounts based on a performance grid as determined by the Company’s directors. The Company recognized $
Effective January 1, 2021, most of the Company’s employees in the U.S and Canada, including named executive officers, are eligible to participate in the Company’s Employee Stock Purchase Plan (the “ESPP”). 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
20
Note 13. Related-Party Transactions
An annual dividend for Preferred Shares was declared as of December 31, 2020 and settled in shares during January 2021. The Company issued
From time to time the Company also enters into other immaterial related party transactions.
Note 14. Earnings (Loss) Per Share
Net income is allocated between the Company’s common shares and other participating securities based on their participation rights. The Preferred Shares represent participating securities. Earnings attributable to Preferred Shares are not included in earnings attributable to common shares in calculating earnings per common share (the two-class method). For periods of net loss, there is no impact from the two-class method on earnings (loss) per share (“EPS”) as net loss is allocated to common shares because Preferred Shares are not contractually obligated to share the loss.
21
The following table sets forth the computation of earnings (loss) per common share using the two-class method. The dilutive effect of outstanding Preferred Shares and the Preferred Share dividend is reflected in diluted EPS using the if-converted method, and warrants, options, and restricted and performance shares are reflected using the treasury stock method. For periods of net loss, basic and diluted EPS are the same, as the assumed exercise of Preferred Shares, restricted and performance shares, warrants and stock options are anti-dilutive (amounts in millions, except share and per share amounts):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Basic earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
Less income attributable to Preferred Shares |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
Net income (loss) attributable to common shareholders - basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
Less income attributable to Preferred Shares |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
Net income (loss) attributable to common shareholders - diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs, warrants and stock options (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Shares issuable pursuant to the annual Preferred Share dividend (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Weighted average shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
(1) |
For all periods presented, |
|
(2) |
For the three and six months ended June 30, 2021, and the three months ended June 30, 2020, dilutive securities include common share equivalents which represent the annual dividend, payable in common shares, that Preferred Shares would be entitled to receive assuming that the volume weighted average price of the Company’s common shares for the last ten trading days of the period would be the same average price during the last ten trading days of the calendar year. The annual dividend amount is equal to |
Note 15. Segment Information
The Company manages its operations under
The Safety Services segment focusing on end-to-end integrated occupancy systems (fire protection solutions, HVAC and entry systems), including design, installation, inspection and service of these integrated systems. The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high tech, industrial and special-hazard settings.
22
The Specialty Services segment provides a variety of infrastructure services and specialized industrial plant services, which includes maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer and telecommunications infrastructure. This segment’s services include engineering and design, fabrication, installation, maintenance service and repair, and retrofitting and upgrading. Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants and governmental agencies throughout the United States.
The Industrial Services segment provides a variety of services to the energy industry focused on transmission and distribution. This segment’s services include pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance
The accounting policies of the reportable segments are the same as those described in Note 2 – “Basis of Presentation and Significant Accounting Policies.” All intercompany transactions and balances are eliminated in consolidation. Intercompany revenues 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 certain non-U.S. GAAP financial measures, including EBITDA. The Company believes these non-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 is presented and reconciled to consolidated financial information in the following tables, including a reconciliation of consolidated operating income to EBITDA. The tables below may contain slight summation differences due to rounding:
|
|
Three Months Ended June 30, 2021 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
EBITDA Reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
EBITDA |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Three Months Ended June 30, 2020 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
EBITDA Reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and other, net |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Capital expenditures |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Six Months Ended June 30, 2021 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
EBITDA Reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Six Months Ended June 30, 2020 |
|
|||||||||||||||||
|
|
Safety Services |
|
|
Specialty Services |
|
|
Industrial Services |
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
|||||
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
EBITDA Reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and other, net |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 16. SUBSEQUENT EVENTS
During July 2021, the Company completed an acquisition within the Safety Services segment for a purchase price of $
On July 27, 2021, the Company announced it has entered into a definitive agreement to acquire the Chubb Limited (“Chubb”) fire and security business from Carrier Global Corporation for an enterprise value of $
24
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains “forward-looking statements”. 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”, 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 expectations regarding the impact of the COVID-19 pandemic on our business, including the seasonal and cyclical volatility of our business, and future financial results; |
|
• |
our beliefs regarding the recurring and repeat nature of our business and its impact on our cash flows and organic growth opportunities; |
|
• |
our expectations regarding industry trends and their impact on our business, and our ability to capitalize on the opportunities presented in the markets we serve; |
|
• |
our intent to continue to grow our business, both organically and through acquisitions, and our beliefs regarding the impact of our business strategies on our growth; |
|
• |
our beliefs regarding our customer relationships; |
|
• |
our beliefs regarding market risk and our ability to mitigate that risk; |
|
• |
our expectations and beliefs regarding accounting and tax matters; |
|
• |
our expectations regarding future capital expenditures; |
|
• |
our expectations regarding the pending acquisition of the Chubb fire and security business, including the timing for closing and the sources of financing for the consideration; 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 Form 10-K, filed on March 24, 2021, including those described under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in such Form 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 the COVID-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; |
|
• |
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 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; |
|
• |
our ability to properly manage and accurately estimate costs associated with specific customer projects, in particular for arrangements with fixed price terms; |
25
|
• |
increases in the cost, or reductions in the supply, of the materials we use in our business and for which we bear the risk of such increases; |
|
• |
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; |
|
• |
the impact of the COVID-19 pandemic on our accounting estimates and assumptions; |
|
• |
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 by 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 ability to successfully complete the pending acquisition of the Chubb fire and security business, including obtaining the necessary regulatory approvals and financing for the consideration; and |
|
• |
our compliance with certain financial maintenance covenants in our credit agreement and the effect on our liquidity of any failure to comply with such covenants. |
The factors identified above are believed to be important factors, but not necessarily all of the important factors, that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Other factors not discussed herein could also have a material adverse effect on us. You should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. These forward-looking statements speak only as of the date of this quarterly report. We assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future, except as required by applicable law.
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.
26
Item 2. 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 Statements and related notes included in this quarterly report, and the Consolidated Financial Statements, related notes and the MD&A section and other disclosures contained in our Annual Report on Form 10-K, including financial results for the year ended December 31, 2020. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under the “Cautionary Note Regarding Forward-Looking Statements” section of this quarterly report.
We prepare our financial statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). To supplement our financial results presented in accordance with U.S. GAAP in this MD&A section, we present EBITDA, which is a non-U.S. GAAP financial measure, to assist readers in understanding our performance and provide an additional perspective on trends and underlying operating results on a period-to-period comparable basis. Non-U.S. GAAP financial measures either exclude or include amounts not reflected in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Where a non-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”, and “our” refer to APi Group Corporation and its subsidiaries.
Overview
APG is a market-leading business services provider of safety, specialty and industrial services in over 200 locations, primarily in North America and with an expanding platform in Europe. We provide statutorily mandated and other contracted services to a strong base of long-standing customers across industries. We have a winning leadership culture driven by entrepreneurial business leaders to deliver innovative solutions for our customers.
We operate our business under three primary operating segments which are also our reportable segments:
|
• |
Safety Services – A leading provider of safety services in North America and Europe, focusing on end-to-end integrated occupancy systems (fire protection solutions, Heating, Ventilation, and Air Conditioning (“HVAC”) and entry systems), including design, installation, inspection and service of these integrated systems. 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, and retrofitting and upgrading. Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants and governmental agencies throughout the United States. |
|
• |
Industrial Services – A leading provider of a variety of services to the energy industry focused on transmission and distribution. This segment’s services include pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance. |
We focus on growing our recurring revenue and repeat business from our diversified long-standing customers across a variety of end markets, which we believe provides us with stable cash flows and a platform for organic growth. Maintenance and service revenues are generally more predictable through contractual arrangements with typical terms ranging from days to three years, with the majority having durations of less than six months and are often recurring due to consistent renewal rates and long-standing customer relationships.
For financial information about our operating segments, see Note 15 – “Segment Information” to our unaudited condensed consolidated financial statements included herein.
27
Certain Factors and Trends Affecting our Results of Operations
Effect of Seasonality and Cyclical Nature of Business
Our net revenues and results of operations can be subject to seasonal and other variations. These variations are influenced by weather and include impacts of customer spending patterns, bidding seasons, project schedules, holidays and timing, in particular, for large, non-recurring projects. Typically, our net revenues are lowest in the first quarter during the winter months in North America because cold, snowy or wet conditions can cause project delays. Continued cold and wet weather can often affect second quarter productivity. Net revenues are generally higher during the summer and fall months during the third and early fourth quarter, due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate. In the fourth quarter, many projects tend to be completed by customers seeking to spend their capital budgets before the end of the year, which generally has a positive effect on our net revenues. However, the holiday season and inclement weather can cause delays, which can reduce net revenues and increase costs on affected projects.
Additionally, the industries we serve can be cyclical. Fluctuations in end-user demand within those industries, or in the supply of services within those industries, can affect demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations or unanticipated changes in project schedules in connection with large projects can create fluctuations in net revenues.
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, including: (i) changes to customers’ capital spending plans; (ii) mergers and acquisitions among the customers we serve; (iii) new or changing regulatory requirements or other governmental policy changes or uncertainty; (iv) economic, market or political developments; (v) changes in technology, tax and other incentives; and (vi) access to capital for customers in the industries we serve. 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, can result, and has resulted, 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. While we actively monitor economic, industry and market factors that could affect our business, we cannot predict the effect that changes in such factors may have on our future consolidated results of operations, liquidity and cash flows, and we may be unable to fully mitigate, or benefit from, such changes.
Recent Developments
Acquisitions
During the first six months of 2021 we completed several individually immaterial acquisitions for aggregate consideration of $13 million, made up of cash paid at closing of $12 million and accrued consideration of $1 million. The results of operations of these acquisitions are included in our unaudited condensed consolidated statement of operations from their respective dates of acquisition and were not material. See Note 4 – “Business Combinations” for further details.
On July 27, 2021, we announced we have entered into a definitive agreement to acquire the Chubb Limited (“Chubb”) fire and security business from Carrier Global Corporation for an enterprise value of $3,100 million, which is comprised of $2,900 million cash and approximately $200 million of assumed liabilities, and other adjustments. The transaction is expected to be funded through a combination of cash on hand, perpetual preferred equity financing, and debt and is expected to close around year-end 2021.
COVID-19 Update
We continue to monitor short and long-term impacts of COVID-19, a global pandemic that has caused a significant slowdown in the global economy beginning in March 2020 and continues to impact the global economy as countries experience surges of COVID-19. To date, the services we provide have been deemed to be essential in most instances under various governmental orders. However, as the COVID-19 situation has continued to evolve, we have seen impacts on our work due to the domino effects of various local, state and national governmental orders, including but not limited to, reduced efficiency in performing our work while adhering to physical distancing protocols demanded by COVID-19, customers deferring inspection and service projects, and temporary shutdowns of active projects as customers work through COVID-19 related matters. As a result, we are experiencing delays in certain projects and disruptions to the flow of our work to meet COVID-19 working protocols. Although we are actively quoting new work for customers, should the macro economy continue to be negatively impacted by the COVID-19 pandemic or worsen due to surges in cases, it is possible additional projects could be delayed indefinitely or cancelled, or that we may not be allowed access to our customers’ facilities to perform inspection and service projects. In addition, the effects of the COVID-19 pandemic have resulted and could continue to result in greater seasonal and cyclical volatility than would otherwise exist under normal conditions.
28
New or renewed shelter-in-place orders, closures or other mitigation efforts, and outbreaks in jurisdictions in which we operate or at our project or work sites, could have a material negative impact on our net revenues and earnings. If a large number of our employees who are located in a particular jurisdiction or are working on a project or work site are exposed to or infected with COVID-19 and we are unable to hire qualified personnel due to labor shortages and other impacts of the COVID-19 outbreak, we may be required to delay projects or the provision of our services for a period of time. This could negatively impact our net revenues, have a material adverse impact on our operating results, and cause harm to our reputation.
Generally, during the latter half of 2020 and continuing into first half of 2021, we saw indications of stabilizing and some volume improvements as our teams and customers adapted to working in the COVID-19 environment and with the easing of some shelter-in-place orders as vaccination rates improve. There can be no assurance that this trend, which would allow us to recover prior year volume levels, will continue in a positive manner.
We have begun to experience supply chain disruptions, which are negatively impacting the source and supply of materials needed for our business. The continued impact of COVID-19 on our vendors is evolving and could continue to make it difficult to obtain needed materials and at reasonable prices. We also implemented a preemptive cost reduction plan, which saved both expense and cash in 2020. As COVID-19 restrictions were easing and volumes were increasing from earlier lows, the majority of these cost reductions were reinstated in the fourth quarter of 2020.
The United States Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency has warned that cybercriminals will take advantage of the uncertainty created by COVID-19 and federal and state mandated quarantines to launch cybersecurity attacks. The risks could include more frequent malicious cybersecurity and fraudulent activities, as well as schemes which attempt to take advantage of employees’ use of various technologies to enable remote work activities. We believe the COVID-19 outbreak has incrementally increased our cyber risk profile, but we are unable to predict the extent or impacts of those risks at this time. A significant disruption in our information technology systems, unauthorized access to or loss of confidential information, or legal claims resulting from violation of privacy laws could each have a material adverse effect on our business.
While we cannot estimate the duration or future negative financial impact of the COVID-19 pandemic on our business, we are currently experiencing some negative impact, which we expect to continue in the future.
In prior economic downturns, the impact on our business has generally lagged against the impact of other industries. We have no way of knowing if the economic crisis caused by COVID-19 will impact us similarly to past economic downturns.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements is included in Note 3 – “Recent Accounting Pronouncements” to our unaudited condensed consolidated financial statements included herein.
Description of Key Line Items
Net Revenues
Revenue is generated from the sale of various types of contracted services, fabrication and distribution. We derive revenue primarily from services under contractual arrangements with 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 material pricing. Revenue for fixed price agreements is generally recognized over time using the cost-to-cost method of accounting which measures progress based on the cost incurred to total expected cost in satisfying our performance obligation.
Revenue from time and material contracts is recognized as the services are provided. Revenue earned is based on total contract costs incurred plus an agreed upon markup. Revenue for these cost-plus contracts is recognized over time on an input basis as labor hours are incurred, materials are utilized, and services are performed. Revenue from wholesale or retail unit sales is recognized at a point-in-time upon shipment.
Cost of 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.
29
Gross 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 intensive contracts usually drive higher margins than those contracts that include material, subcontract and equipment costs.
Selling, General and Administrative Expenses
Selling expenses consist primarily of compensation and associated costs for sales and marketing personnel, costs of advertising, trade shows and corporate marketing. General and administrative expense consists primarily of compensation and associated costs for executive management, personnel, facility leases, outside professional fees and other corporate expenses.
Amortization of Intangible Assets
Amortization expense reflects the charges incurred to amortize our finite-lived identifiable intangible assets, such as customer relationships, which are amortized over their estimated useful lives. There is a portion of amortization expense related to the backlog of intangible assets reflected in cost of revenues in the unaudited condensed consolidated statement of operations.
Impairment of Goodwill and Intangible Assets
Goodwill is tested for impairment annually, or more frequently as events and circumstances change. Expenses for impairment charges related to the write-down of goodwill balances and identifiable intangible assets balances are recorded to the extent their carrying values exceed their estimated fair values. Expenses for impairment charges related to the write-down of other long-lived assets (which includes amortizable intangibles) are recorded when triggering events indicate their carrying values may exceed their estimated fair values.
Critical Accounting Policies and Estimates
For information regarding our Critical Accounting Policies, see the “Critical Accounting Policies” section of the “APG Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K.
Results of Operations
The following is a discussion of our financial condition and results of operations during the three and six months ended June 30, 2021 and the three and six months ended June 30, 2020.
Three months ended June 30, 2021 compared to the three months ended June 30, 2020
|
|
Three Months Ended June 30, |
|
|
Change |
|
|||||||||||
($ in millions) |
|
2021 |
|
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Net revenues |
|
$ |
978 |
|
|
|
$ |
889 |
|
|
$ |
89 |
|
|
|
10.0 |
% |
Cost of revenues |
|
|
746 |
|
|
|
|
715 |
|
|
|
31 |
|
|
|
4.3 |
% |
Gross profit |
|
|
232 |
|
|
|
|
174 |
|
|
|
58 |
|
|
|
33.3 |
% |
Selling, general, and administrative expenses |
|
|
185 |
|
|
|
|
147 |
|
|
|
38 |
|
|
|
25.9 |
% |
Operating income |
|
|
47 |
|
|
|
|
27 |
|
|
|
20 |
|
|
|
74.1 |
% |
Interest expense, net |
|
|
14 |
|
|
|
|
14 |
|
|
|
— |
|
|
|
— |
|
Loss on extinguishment of debt |
|
|
9 |
|
|
|
|
— |
|
|
|
9 |
|
|
NM |
|
|
Investment income and other, net |
|
|
(6 |
) |
|
|
|
(11 |
) |
|
|
5 |
|
|
|
45.5 |
% |
Other expense, net |
|
|
17 |
|
|
|
|
3 |
|
|
|
14 |
|
|
|
466.7 |
% |
Income before income taxes |
|
|
30 |
|
|
|
|
24 |
|
|
|
6 |
|
|
|
25.0 |
% |
Income tax provision (benefit) |
|
|
9 |
|
|
|
|
(12 |
) |
|
|
21 |
|
|
|
175.0 |
% |
Net income |
|
$ |
21 |
|
|
|
$ |
36 |
|
|
$ |
(15 |
) |
|
|
(41.7 |
)% |
NM = Not meaningful
30
Net revenues
Net revenues for the three months ended June 30, 2021 were $978 million compared to $889 million for the same period in 2020, an increase of $89 million or 10.0%. The increase in net revenues was primarily driven by significant increases in both the Safety and Specialty Services segments resulting from general market recoveries. In the second quarter of 2020, both segments experienced poor market conditions resulting from the negative impact of the COVID-19 pandemic. In addition, the Safety Services segment also benefited from additional revenues from acquisitions completed in the previous 12 months. These increases were partially offset by a decline in the Industrial Services segment, which was impacted by the sale of two businesses that accounted for $40 million in revenue during the second quarter of 2020 and difficult market conditions.
Gross profit
The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the three months ended June 30, 2021 and 2020, respectively:
|
|
Three Months Ended June 30, |
|
|
Change |
|
|||||||||||
($ in millions) |
|
2021 |
|
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Gross profit |
|
$ |
232 |
|
|
|
$ |
174 |
|
|
$ |
58 |
|
|
|
33.3 |
% |
Gross margin |
|
|
23.7 |
% |
|
|
|
19.6 |
% |
|
|
|
|
|
|
|
|
Our gross profit for the three months ended June 30, 2021 was $232 million compared to $174 million for the same period in 2020, an increase of $58 million, or 33.3%. Gross margin was 23.7%, an increase of 410 basis points compared to prior year, primarily due to a $21 million decrease in backlog amortization expense, which positively impacted the rate by 210 basis points. Also driving the improvement was a favorable mix from higher volumes in more profitable segments. Additionally, we divested two lower margin businesses during 2020 in our Industrial Services segment which contributed 80 basis points to the improvement. These increases were partially offset by project delays due to supply chain disruptions and downward pressure on margins caused by the impact of inflation, which we have not been able to fully recover in the short term.
Operating expenses
The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended June 30, 2021 and 2020, respectively:
|
|
Three Months Ended June 30, |
|
|
Change |
|
|||||||||||
($ in millions) |
|
2021 |
|
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Selling, general, and administrative expenses (excluding amortization expense) |
|
$ |
155 |
|
|
|
$ |
119 |
|
|
$ |
36 |
|
|
|
30.3 |
% |
Amortization expense |
|
|
30 |
|
|
|
|
28 |
|
|
|
2 |
|
|
|
7.1 |
% |
Total operating expenses |
|
$ |
185 |
|
|
|
$ |
147 |
|
|
$ |
38 |
|
|
|
25.9 |
% |
Operating expenses as a percentage of net revenues |
|
|
18.9 |
% |
|
|
|
16.5 |
% |
|
|
|
|
|
|
|
|
Operating margin |
|
|
4.8 |
% |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
Our operating expenses for the three months ended June 30, 2021 were $185 million compared to $147 million for the same period in 2020, an increase of $38 million. Operating expenses as a percentage of net revenues were 18.9% for 2021 compared to 16.5% for 2020. In the second quarter of 2020, we took various actions in response to the COVID-19 pandemic which resulted in lowering operating expenses as a percentage of net revenues. This included implementing a preemptive cost reduction plan to lower expenses throughout 2020. However, as COVID-19 restrictions began to ease and volumes increased, we restored many of these costs in fourth quarter of 2020, resulting in an increase in operating expenses as a percentage of net revenues. Also driving the increase was higher levels of spending related to business process transformation projects, including system and process development costs and expenses associated with the implementation of compliance programs related to the Sarbanes-Oxley Act of 2002 during the second quarter of 2021.
Interest expense, net
Interest expense was $14 million for both the three months ended June 30, 2021 and 2020.
31
Loss on Extinguishment of Debt
During the second quarter of 2021 we completed a private offering of $350 million aggregate principal amount of senior notes. The proceeds from the offering were used to repay all outstanding indebtedness under the 2020 Term Loan, prepay a portion of the 2019 Term Loan, pay for transaction fees and expenses, and fund general corporate purposes. In connection with the repayment of the 2020 Term Loan and prepayment on a portion of the 2019 Term Loan, the Company incurred a loss on extinguishment of debt of $9 million related to unamortized debt issuance costs.
Income tax provision (benefit)
The income tax expense (benefit) for the three months ended June 30, 2021 was expense of $9 million compared to a benefit of $(12) million in the same period of the prior year. This change was driven by the fact that we had earned income for the first six months of 2021, compared to a loss position for the first six months of 2020 due to an impairment charge. The effective tax rate for the three months ended June 30, 2021 was 28.9%, compared to (49.0)% in the same period of 2020. The difference in the effective tax rate was driven by discrete and nondeductible permanent items which have a greater impact on the effective tax rate when income or losses are smaller. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% is due to the nondeductible permanent items, state taxes, and foreign earnings in jurisdictions that have higher tax rates.
Net income and EBITDA
The following table presents net income and EBITDA for the three months ended June 30, 2021 and 2020, respectively:
|
|
Three Months Ended June 30, |
|
|
Change |
|
||||||||||
($ in millions) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Net income |
|
$ |
21 |
|
|
$ |
36 |
|
|
$ |
(15 |
) |
|
|
(41.7 |
)% |
EBITDA |
|
|
96 |
|
|
|
112 |
|
|
|
(16 |
) |
|
|
(14.3 |
)% |
Net income as a % of Net Revenues |
|
|
2.1 |
% |
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
EBITDA as % of Net Revenues |
|
|
9.8 |
% |
|
|
12.6 |
% |
|
|
|
|
|
|
|
|
Our net income for the three months ended June 30, 2021 was $21 million compared to $36 million for the same period in 2020, a reduction of $15 million. Net income as a percentage of net revenues for the three months ended June 30, 2021 was 2.1% compared to 4.0% for the same period in 2020. The decline in net income and in EBITDA resulted from a $9 million loss on extinguishment of debt recognized in the second quarter of 2021, higher spending related to business process transformation projects to enhance systems and implement compliance programs related to Sarbanes-Oxley Act of 2002, and COVID-19 relief payments that were received by our Canadian subsidiaries during the second quarter of 2020 that did not repeat in the second quarter of 2021. Also driving the decline was the impact of supply chain disruptions and downward pressure on margins caused by inflation. These items were partially offset by improved profitability in the Safety Services segment.
Operating Segment Results for the three months ended June 30, 2021 versus the three months ended June 30, 2020
|
|
Net Revenues |
|
|||||||||||||
|
|
Three Months Ended June 30, |
|
|
Change |
|
||||||||||
($ in millions) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Safety Services |
|
$ |
512 |
|
|
$ |
371 |
|
|
$ |
141 |
|
|
|
38.0 |
% |
Specialty Services |
|
|
415 |
|
|
|
349 |
|
|
|
66 |
|
|
|
18.9 |
% |
Industrial Services |
|
|
68 |
|
|
|
173 |
|
|
|
(105 |
) |
|
|
(60.7 |
)% |
Corporate and Eliminations |
|
|
(17 |
) |
|
|
(4 |
) |
|
|
(13 |
) |
|
|
(325.0 |
)% |
|
|
$ |
978 |
|
|
$ |
889 |
|
|
$ |
89 |
|
|
|
10.0 |
% |
32
|
|
Operating Income (Loss) |
|
|||||||||||||
|
|
Three Months Ended June 30, |
|
|
Change |
|
||||||||||
($ in millions) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Safety Services |
|
$ |
52 |
|
|
$ |
22 |
|
|
$ |
30 |
|
|
|
136.4 |
% |
Safety Services operating margin |
|
|
10.2 |
% |
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
Specialty Services |
|
|
32 |
|
|
|
22 |
|
|
|
10 |
|
|
|
45.5 |
% |
Specialty Services operating margin |
|
|
7.7 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
Industrial Services |
|
|
(8 |
) |
|
|
4 |
|
|
|
(12 |
) |
|
|
(300.0 |
)% |
Industrial Services operating margin |
|
|
(11.8 |
)% |
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
Corporate and Eliminations |
|
|
(29 |
) |
|
|
(21 |
) |
|
|
(8 |
) |
|
|
(38.1 |
)% |
|
|
$ |
47 |
|
|
$ |
27 |
|
|
$ |
20 |
|
|
|
74.1 |
% |
|
|
EBITDA |
|
|||||||||||||
|
|
Three Months Ended June 30, |
|
|
Change |
|
||||||||||
($ in millions) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Safety Services |
|
$ |
73 |
|
|
$ |
49 |
|
|
$ |
24 |
|
|
|
49.0 |
% |
Safety Services EBITDA as a % of net revenues |
|
|
14.3 |
% |
|
|
13.2 |
% |
|
|
|
|
|
|
|
|
Specialty Services |
|
|
55 |
|
|
|
62 |
|
|
|
(7 |
) |
|
|
(11.3 |
)% |
Specialty Services EBITDA as a % of net revenues |
|
|
13.3 |
% |
|
|
17.8 |
% |
|
|
|
|
|
|
|
|
Industrial Services |
|
|
3 |
|
|
|
21 |
|
|
|
(18 |
) |
|
|
(85.7 |
)% |
Industrial Services EBITDA as a % of net revenues |
|
|
4.4 |
% |
|
|
12.1 |
% |
|
|
|
|
|
|
|
|
Corporate and Eliminations |
|
|
(35 |
) |
|
|
(20 |
) |
|
|
(15 |
) |
|
|
(75.0 |
)% |
|
|
$ |
96 |
|
|
$ |
112 |
|
|
$ |
(16 |
) |
|
|
(14.3 |
)% |
The following discussion breaks down the net revenues, operating income (loss) and EBITDA by operating segment for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
Safety Services
Safety Services net revenues for the three months ended June 30, 2021 increased by $141 million or 38.0% compared to the same period in the prior year. This improvement was primarily driven by the general market recovery as compared to the poor market conditions in the second quarter of 2020, which was negatively impacted by the COVID-19 pandemic. We experienced continued growth in inspection and service revenues, driving specific improvements in both our Life Safety and HVAC service businesses. The segment also benefited from additional net revenues contributed by acquisitions completed in the prior 12 months.
Safety Services operating margin for the three months ended June 30, 2021 and 2020 was approximately 10.2% and 5.9%, respectively. The improvement was primarily driven by higher volumes and leveraging operating expenses to improve profitability, shift to more inspection and service work generating a favorable project mix, and a $6 million decrease in amortization expense. Safety Services EBITDA as a percentage of net revenues for the three months ended June 30, 2021 and 2020 was approximately 14.3% and 13.2%, respectively. This improvement is primarily related to the higher volume and improved operating profitability described above.
Specialty Services
Specialty Services net revenues for the three months ended June 30, 2021 increased by $66 million or 18.9% compared to the same period in the prior year. The increase was primarily driven by higher demand and timing for fabrication and specialty contracting services during the second quarter of 2021, resulting from general improvements in market conditions compared to the prior year, which was negatively impacted by the COVID-19 pandemic. These increases were partially offset by lower volumes in infrastructure and certain utility businesses.
Specialty Services operating margin for the three months ended June 30, 2021 and 2020 was approximately 7.7% and 6.3%, respectively. The improvement was the result of increased volume, improvements in general market conditions compared to the second quarter of 2020 and decreased amortization expense of $6 million. These increases were partially offset by the downward pressure on margins caused by the impact of inflation and supply chain disruptions, which we have not been able to fully recover in the short term. Our Specialty Services EBITDA as a percentage of net revenues for the three months ended June 30, 2021 and 2020 was approximately 13.3% and 17.8%, respectively, due to the factors discussed above and decreased income from joint venture investments of $4 million.
33
Industrial Services
Industrial Services net revenues for the three months ended June 30, 2021 decreased by $105 million or (60.7)% compared to the same period in the prior year. The sale of two Industrial Services businesses accounted for $40 million of the decline. Also driving the decline was the suppression of demand for our services due to decisions by our customers to delay and suspend projects, strategic focus on improving margin resulting from disciplined project and customer selection, and difficult market conditions.
Industrial Services operating margin for the three months ended June 30, 2021 and 2020 was approximately (11.8)% and 2.3%, respectively. The decline was primarily driven by a lower volume of projects and was partially offset by a decline in amortization expense of $6 million. Industrial Services EBITDA as a percentage of net revenues was 4.4% and 12.1% for the three months ended June 30, 2021 and 2020, respectively, driven by the impacts of lower volumes described above.
Six months ended June 30, 2021 compared to the six months ended June 30, 2020
|
|
Six Months Ended June 30, |
|
|
Change |
|
|||||||||||
($ in millions) |
|
2021 |
|
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Net revenues |
|
$ |
1,781 |
|
|
|
$ |
1,747 |
|
|
$ |
34 |
|
|
|
1.9 |
% |
Cost of revenues |
|
|
1,368 |
|
|
|
|
1,411 |
|
|
|
(43 |
) |
|
|
(3.0 |
)% |
Gross profit |
|
|
413 |
|
|
|
|
336 |
|
|
|
77 |
|
|
|
22.9 |
% |
Selling, general, and administrative expenses |
|
|
368 |
|
|
|
|
335 |
|
|
|
33 |
|
|
|
9.9 |
% |
Impairment of goodwill and intangible assets |
|
|
— |
|
|
|
|
208 |
|
|
|
(208 |
) |
|
NM |
|
|
Operating income (loss) |
|
|
45 |
|
|
|
|
(207 |
) |
|
|
252 |
|
|
|
121.7 |
% |
Interest expense, net |
|
|
29 |
|
|
|
|
28 |
|
|
|
1 |
|
|
|
3.6 |
% |
Loss on debt extinguishment |
|
|
9 |
|
|
|
|
— |
|
|
|
9 |
|
|
NM |
|
|
Investment income and other, net |
|
|
(9 |
) |
|
|
|
(14 |
) |
|
|
5 |
|
|
|
35.7 |
% |
Other expense, net |
|
|
29 |
|
|
|
|
14 |
|
|
|
15 |
|
|
|
107.1 |
% |
Income (loss) before income taxes |
|
|
16 |
|
|
|
|
(221 |
) |
|
|
237 |
|
|
|
107.2 |
% |
Income tax provision (benefit) |
|
|
3 |
|
|
|
|
(63 |
) |
|
|
66 |
|
|
|
104.8 |
% |
Net income (loss) |
|
$ |
13 |
|
|
|
$ |
(158 |
) |
|
$ |
171 |
|
|
|
108.2 |
% |
NM = Not meaningful
Net revenues
Net revenues for the six months ended June 30, 2021 and 2020 were $1,781 million compared to $1,747 million for the same period in 2020, an increase of $34 million or 1.9%. The increase in net revenues was primarily driven by significant increases in both the Safety and Specialty Services segments resulting from general market recoveries. During 2020, both segments were negatively impacted by poor market conditions resulting from the COVID-19 pandemic. Additionally, during 2021, the Safety Services segment benefited from additional revenues from acquisitions completed in the previous 12 months. These increases were partially offset by a decline in the Industrial Services segment, which was impacted by the sale of two businesses that accounted for $78 million in revenue during the six months ended June 30, 2020 and continues to be negatively impacted by decisions by our customers to delay and suspend projects during the six months ended June 30, 2021.
Gross profit
The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the six months ended June 30, 2021 and 2020, respectively:
|
|
Six Months Ended June 30, |
|
|
Change |
|
|||||||||||
($ in millions) |
|
2021 |
|
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Gross profit |
|
$ |
413 |
|
|
|
$ |
336 |
|
|
$ |
77 |
|
|
|
22.9 |
% |
Gross margin |
|
|
23.2 |
% |
|
|
|
19.2 |
% |
|
|
|
|
|
|
|
|
Our gross profit for the six months ended June 30, 2021 was $413 million, compared to $336 million for the same period in 2020, an increase of $77 million or 22.9%. Gross margin was 23.2%, an increase of 400 basis points compared to prior year primarily due to a $42 million decrease in backlog amortization expense, which positively impacted the rate by 240 basis points. We also divested two lower margin businesses during 2020 in our Industrial Services segment, which contributed 90 basis points to the improvement. In addition, higher volumes in more profitable segments and disciplined project and customer selection drove higher gross margins. These increases were partially offset by project delays, jobsite conditions and suppression of demand in the energy industry.
34
Operating expenses
The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the six months ended June 30, 2021 and 2020, respectively:
|
|
Six Months Ended June 30, |
|
|
Change |
|
|||||||||||
($ in millions) |
|
2021 |
|
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Selling, general, and administrative expenses (excluding amortization expense) |
|
$ |
308 |
|
|
|
$ |
277 |
|
|
$ |
31 |
|
|
|
11.2 |
% |
Amortization expense |
|
|
60 |
|
|
|
|
58 |
|
|
|
2 |
|
|
|
3.4 |
% |
Impairment of goodwill and intangible assets |
|
|
— |
|
|
|
|
208 |
|
|
|
(208 |
) |
|
NM |
|
|
Total operating expenses |
|
$ |
368 |
|
|
|
$ |
543 |
|
|
$ |
(175 |
) |
|
|
(32.2 |
)% |
Operating expenses as a percentage of net revenues |
|
|
20.7 |
% |
|
|
|
31.1 |
% |
|
|
|
|
|
|
|
|
Operating margin |
|
|
2.5 |
% |
|
|
|
(11.8 |
)% |
|
|
|
|
|
|
|
|
Our operating expenses for the six months ended June 30, 2021 were $368 million, compared to $543 million for the same period in 2020, a decrease of $175 million. Operating expenses as a percentage of net revenues were 20.7% for 2021 compared to 31.1% for 2020, improving primarily due to the $208 million impairment charge related to goodwill and intangible assets recorded in the first quarter of 2020 that did not repeat during 2021. This decline was offset by an increase of 11.2% in selling, general, and administrative expenses (excluding amortization) due to higher spending related to business process transformation projects to enhance systems and implement compliance programs related to Sarbanes-Oxley Act of 2002 and the preemptive cost reduction plan we implemented in the second quarter of 2020 to reduce expenses in response to the COVID-19 pandemic. As COVID-19 restrictions began to ease, we restored many of these costs in the fourth quarter of 2020, resulting in an increase in selling, general, and administrative expenses.
Interest expense, net
Interest expense was $29 million for the six months ended June 30, 2021 which is slightly higher than $28 million for the same period of the prior year.
Income tax provision (benefit)
The income tax expense (benefit) for the six months ended June 30, 2021 was expense of $3 million compared to a benefit of $(63) million in the same period of the prior year. This change was driven by the fact that we had earned income for the first six months of 2021, compared to being in a loss position in the first six months of 2020 due to an impairment charge. The effective tax rate for the six months ended June 30, 2021 was 17.0% compared to (28.5)% in the same period of 2020. The difference in the effective tax rate was driven by discrete and nondeductible permanent items, which have a greater impact on the effective tax rate when income or losses are smaller. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% is due to the nondeductible permanent items, state taxes and foreign earnings in jurisdictions that have higher tax rates.
Net income (loss) and EBITDA
The following table presents net income and EBITDA for the six months ended June 30, 2021 and 2020, respectively:
|
|
Six Months Ended June 30, |
|
|
Change |
|
||||||||||
($ in millions) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Net income (loss) |
|
$ |
13 |
|
|
$ |
(158 |
) |
|
$ |
171 |
|
|
|
108.2 |
% |
EBITDA |
|
|
147 |
|
|
|
(49 |
) |
|
|
196 |
|
|
|
400.0 |
% |
Net income (loss) as a % of Net Revenues |
|
|
0.7 |
% |
|
|
(9.0 |
)% |
|
|
|
|
|
|
|
|
EBITDA as % of Net Revenue |
|
|
8.3 |
% |
|
|
(2.8 |
)% |
|
|
|
|
|
|
|
|
Our net income (loss) for the six months ended June 30, 2020 was $13 million compared to $(158) million for the same period in 2020, an improvement of $171 million. Net income (loss) as a percentage of net revenues for the six months ended June 30, 2020 was 0.7% compared to (9.0)% for the same period in 2020. The change was principally from an impairment charge that occurred in the first quarter of 2020 related to goodwill and intangible assets of $208 million that did not recur, an improved gross margin rate and lower operating expenses (discussed above). EBITDA as a percentage of net revenues for the six months ended June 30, 2020 was 8.3% compared to (2.8)% for the same period in 2020. Improvements in EBITDA were primarily a result of the non-recurrence of the impairment charge of $208 million recorded in the first quarter of 2020 and an improved gross margin rate. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.
35
Operating Segment Results for the six months ended June 30, 2021 versus the six months ended June 30, 2020
|
|
Net Revenues |
|
|||||||||||||
|
|
Six Months Ended June 30, |
|
|
Change |
|
||||||||||
($ in millions) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Safety Services |
|
$ |
978 |
|
|
$ |
795 |
|
|
$ |
183 |
|
|
|
23.0 |
% |
Specialty Services |
|
|
736 |
|
|
|
649 |
|
|
|
87 |
|
|
|
13.4 |
% |
Industrial Services |
|
|
93 |
|
|
|
310 |
|
|
|
(217 |
) |
|
|
(70.0 |
)% |
Corporate and Eliminations |
|
|
(26 |
) |
|
|
(7 |
) |
|
|
(19 |
) |
|
|
(271.4 |
)% |
|
|
$ |
1,781 |
|
|
$ |
1,747 |
|
|
$ |
34 |
|
|
|
1.9 |
% |
|
|
Operating Income (Loss) |
|
|||||||||||||
|
|
Six Months Ended June 30, |
|
|
Change |
|
||||||||||
($ in millions) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Safety Services |
|
$ |
97 |
|
|
$ |
12 |
|
|
$ |
85 |
|
|
|
708.3 |
% |
Safety Services operating margin |
|
|
9.9 |
% |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
Specialty Services |
|
|
29 |
|
|
|
(114 |
) |
|
|
143 |
|
|
|
125.4 |
% |
Specialty Services operating margin |
|
|
3.9 |
% |
|
|
(17.6 |
)% |
|
|
|
|
|
|
|
|
Industrial Services |
|
|
(23 |
) |
|
|
(54 |
) |
|
|
31 |
|
|
|
57.4 |
% |
Industrial Services operating margin |
|
|
(24.7 |
)% |
|
|
(17.4 |
)% |
|
|
|
|
|
|
|
|
Corporate and Eliminations |
|
|
(58 |
) |
|
|
(51 |
) |
|
|
(7 |
) |
|
|
(13.7 |
)% |
|
|
$ |
45 |
|
|
$ |
(207 |
) |
|
$ |
252 |
|
|
|
121.5 |
% |
|
|
EBITDA |
|
|||||||||||||
|
|
Six Months Ended June 30, |
|
|
Change |
|
||||||||||
($ in millions) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Safety Services |
|
$ |
138 |
|
|
$ |
67 |
|
|
$ |
71 |
|
|
|
106.0 |
% |
Safety Services EBITDA as a % of net revenues |
|
|
14.1 |
% |
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
Specialty Services |
|
|
75 |
|
|
|
(46 |
) |
|
|
121 |
|
|
|
263.0 |
% |
Specialty Services EBITDA as a % of net revenues |
|
|
10.2 |
% |
|
|
(7.1 |
)% |
|
|
|
|
|
|
|
|
Industrial Services |
|
|
(3 |
) |
|
|
(24 |
) |
|
|
21 |
|
|
|
87.5 |
% |
Industrial Services EBITDA as a % of net revenues |
|
|
(3.2 |
)% |
|
|
(7.7 |
)% |
|
|
|
|
|
|
|
|
Corporate and Eliminations |
|
|
(63 |
) |
|
|
(46 |
) |
|
|
(17 |
) |
|
|
(37.0 |
)% |
|
|
$ |
147 |
|
|
$ |
(49 |
) |
|
$ |
196 |
|
|
|
399.5 |
% |
The following discussion breaks down the net revenues, operating income and EBITDA by operating segment for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Safety Services
Safety Services net revenues for the six months ended June 30, 2021 increased by $183 million or 23.0% compared to the same period in the prior year. This increase is primarily driven by 2020 acquisitions and higher volumes from increased demand for our HVAC and Life Safety Services.
Safety Services operating margin for the six months ended June 30, 2021 and 2020 was approximately 9.9% and 1.5%, respectively. The improvement was primarily driven by an impairment charge of $34 million recorded in the first quarter of 2020 that did not recur. In addition, the improvement was driven by favorable contract mix which shifted to more inspection and service work, disciplined project and customer selection, and a decrease in amortization expense of $15 million. Safety Services EBITDA as a percentage of net revenues for the six months ended June 30, 2021 and 2020 was approximately 14.1% and 8.4%, respectively. This improvement is primarily related improved project mix and impairment charges recorded in the first quarter of 2020 that did not recur.
Specialty Services
Specialty Services net revenues for the six months ended June 30, 2021 increased by $87 million or 13.4% compared to the same period in the prior year. The increase was primarily driven by demand and timing for our fabrication and specialty contracting services during the six months ended June 30, 2021. These increases were partially offset by project deferrals and jobsite disruptions driven by unfavorable weather conditions in the first quarter of 2021.
36
Specialty Services operating margin for the six months ended June 30, 2021 and 2020 was approximately 3.9% and (17.6)%, respectively. The improvement was the result of an impairment charge of $120 million recorded in the first quarter of 2020 that did not recur, and decreased amortization expense of $13 million. Our Specialty Services EBITDA as a percentage of net revenues for the six months ended June 30, 2021 and 2020 was approximately 10.2% and (7.1)%, respectively. This improvement is primarily related to the impairment charge recorded in the first quarter of 2020 that did not recur, partially offset by a decrease in income from joint venture investments of $5 million.
Industrial Services
Industrial Services net revenues for the six months ended June 30, 2021 decreased by $217 million or (70.0)% compared to the same period in the prior year. The sale of two Industrial Services businesses accounted for $78 million of the decline. The revenue decline was also impacted by a suppression of demand for our services due to general market weakness, our strategic focus on improving margin resulting from disciplined project and customer selection, and a general slowing in the energy industry.
Industrial Services operating margin for the six months ended June 30, 2021 and 2020 was approximately (24.7)% and (17.4)%, respectively. The decline was primarily driven by a lower volume of projects while certain indirect costs for leases and equipment remained consistent with prior periods, partially offset by an impairment charge of $49 million recorded in the first quarter of 2020 that did not recur and decreased amortization expense of $11 million. Industrial Services EBITDA as a percentage of net revenues was (3.2)% and (7.7)% for the six months ended June 30, 2021 and 2020, respectively. This improvement is primarily related to the impairment charge of $49 million in 2020 that did not recur, partially offset by impacts of lower volumes described above.
Non-GAAP Financial Measures (Unaudited)
We supplement our reporting of consolidated financial information determined in accordance with U.S. GAAP with EBITDA (defined below), which is a non-U.S. GAAP financial measure. We use EBITDA to evaluate our performance, both internally and as compared with our peers, because it excludes certain items that may not be indicative of our core operating results. Management believes this measure is useful to investors since it (a) permits investors to view the Company’s performance using the same tools that management uses to evaluate the Company’s past performance, reportable business segments and prospects for future performance, (b) permits investors to compare the Company with its peers and (c) determines certain elements of management’s incentive compensation. Specifically, earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. The Company supplements the reporting of its consolidated financial information with EBITDA. The Company believes this non-U.S. GAAP measure provides meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. Consolidated EBITDA is calculated in a manner consistent with segment EBITDA, which is a measure of segment profitability.
This non-U.S. GAAP financial measure, however, has limitations as an analytical tool and should not be considered in isolation from, a substitute for, or superior to, the related financial information that we report in accordance with U.S. GAAP. The principal limitation of this non-U.S. GAAP financial measure is that it excludes 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 is subject to inherent limitations as it reflects the exercise of judgment by management about which items are excluded or included in determining this non-U.S. GAAP financial measure. Investors are encouraged to review the following reconciliation of this non-U.S. GAAP financial measure to its most comparable U.S. GAAP financial measure and not to rely on any single financial measure to evaluate our business.
The following table presents a reconciliation of net income to EBITDA for the periods indicated:
|
|
Three Months Ended June 30, |
|
|||||
($ in millions) |
|
2021 |
|
|
2020 |
|
||
Reported net income |
|
$ |
21 |
|
|
$ |
36 |
|
Adjustments to reconcile net income to EBITDA: |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
14 |
|
|
|
14 |
|
Income tax provision (benefit) |
|
|
9 |
|
|
|
(12 |
) |
Depreciation |
|
|
20 |
|
|
|
23 |
|
Amortization |
|
|
32 |
|
|
|
51 |
|
EBITDA |
|
$ |
96 |
|
|
$ |
112 |
|
37
|
|
Six Months Ended June 30, |
|
|||||
($ in millions) |
|
2021 |
|
|
2020 |
|
||
Reported net income (loss) |
|
$ |
13 |
|
|
$ |
(158 |
) |
Adjustments to reconcile net income (loss) to EBITDA: |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
29 |
|
|
|
28 |
|
Income tax provision (benefit) |
|
|
3 |
|
|
|
(63 |
) |
Depreciation |
|
|
39 |
|
|
|
41 |
|
Amortization |
|
|
63 |
|
|
|
103 |
|
EBITDA |
|
$ |
147 |
|
|
$ |
(49 |
) |
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 Credit Facility. We believe these sources will be sufficient to fund our liquidity requirements for at least the next twelve months. Although we believe we have sufficient resources to fund our future cash requirements, there are many factors with the potential to influence our cash flow position including weather, seasonality, commodity prices, market conditions, and prolonged impacts of COVID-19 and shelter-in-place governmental action, over which we have no control. As of June 30, 2021, we had $913 million of total liquidity, comprising $686 million in cash and cash equivalents and $227 million ($300 million less outstanding letters of credit of approximately $73 million, which reduce availability) of available borrowings under our Revolving Credit Facility. During the six months ended June 30, 2021, we received approximately $230 million of cash proceeds from the exercise of approximately 60 million outstanding warrants, resulting in the issuance of approximately 20 million shares of common stock.
During the second quarter of 2021, we completed a private offering of $350 million aggregate principal amount of 4.125% Senior Notes due 2029 (the “Senior Notes”). The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain of our existing and future domestic subsidiaries. The proceeds from the sale of the Senior Notes were used to repay all outstanding indebtedness under the term loan incurred on October 22, 2020 (the “2020 Term Loan”), prepay a portion of the term loan incurred on October 1, 2019 (the “2019 Term Loan”), pay for transaction fees and expenses, and fund general corporate purposes. In connection with the repayment of the 2020 Term Loan and partial repayment on the 2019 Term Loan, we incurred a loss on debt extinguishment of $9 million related to unamortized debt issuance costs, which was recorded within loss on debt extinguishment in the unaudited condensed consolidated statements of operations.
We expect to continue to be able to access the capital markets through equity and debt offerings for liquidity purposes as needed. Our principal liquidity requirements have been, and we expect will be, any accrued consideration due to selling shareholders, including tax payments in connection therewith, for working capital and general corporate purposes, including capital expenditures and debt service, as well as to identify, execute and integrate strategic acquisitions and business transformation. We expect to fund the acquisition of the Chubb fire and security business, anticipated to close around year-end 2021, through a combination of cash on hand, perpetual preferred equity financing, and debt financing.
Our capital expenditures were approximately $34 million and $17 million in the six months ended June 30, 2021 and 2020, respectively. The increase in capital spending is due to the reduction in capital expenditures that occurred in 2020 as a result of COVID-19, and as we return to a more normalized level of spending, capital spending has increased in the current period, and is expected to be less than 2% of net revenues annually.
In December 2020, our Board of Directors authorized a share repurchase program, authorizing the purchase of up to an aggregate of $100 million of shares of common stock. There were no stock repurchases during the six months ended June 30, 2021 under the share repurchase program and approximately $70 million of repurchases remained authorized.
38
Cash Flows
The following table summarizes net cash flows with respect to our operating, investing and financing activities for the periods indicated:
|
|
Six Months Ended June 30, |
|
|||||
($ in millions) |
|
2021 |
|
|
2020 |
|
||
Net cash provided by operating activities |
|
$ |
19 |
|
|
$ |
232 |
|
Net cash used in investing activities |
|
|
(35 |
) |
|
|
(16 |
) |
Net cash provided by financing activities |
|
|
187 |
|
|
|
(96 |
) |
Effect of foreign currency exchange rate change on cash and cash equivalents |
|
|
3 |
|
|
|
1 |
|
Net increase in cash and cash equivalents |
|
$ |
174 |
|
|
$ |
121 |
|
Cash, cash equivalents, and restricted cash at the end of the period |
|
$ |
689 |
|
|
$ |
377 |
|
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $19 million for the six months ended June 30, 2021 compared to $232 million for the same period in 2020. Cash flow from operations is primarily driven by changes in the mix and timing of demand for our services and working capital needs associated with the various services we provide. Working capital is primarily affected by changes in total accounts receivable, accounts payable, accrued expenses, and contract assets and contract liabilities, all of which tend to be related and are affected by changes in the timing and volume of work performed. During 2020, the decline in volume of business due to the COVID-19 pandemic drove a significant decrease in our working capital, which generated substantial operating cash flows. During the first six months of 2021, we have begun to recover from the impacts of COVID-19 and the volume of business has expanded, driving higher working capital requirements and leading to lower operating cash flows. This is in line with historical period increases in working capital during the first six months as we move through a typical business cycle.
Net Cash Used in Investing Activities
Net cash used in investing activities was $35 million for the six months ended June 30, 2021 compared to $16 million for the same period in 2020. The increase in cash used in investing activities was attributable to an increase in purchases of property and equipment during the current period as we return to more normalized levels of spending after management enacted reductions to capital expenditures in response to COVID-19 during the prior year.
Net Cash Provided by Financing Activities
Net cash provided by (used in) financing activities was $187 million for the six months ended June 30, 2021 compared to a usage of $(96) million for the same period in 2020. The increase in cash provided by financing activities was primarily due to $230 million of proceeds from the issuance of common shares in connection with the warrant exercises which occurred during the first quarter of 2021 and net proceeds from long-term debt of $32 million, which were partially offset by payments made on acquisition-related consideration.
Credit Facilities
During the second quarter of 2021, we completed a private offering of $350 million aggregate principal amount of Senior Notes, issued under an indenture, dated June 22, 2021 (the “Indenture”). The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain existing and future domestic subsidiaries. We used the net proceeds from the sale of the Senior Notes to repay the $250 million 2020 Term Loan, prepay a portion of the 2019 Term Loan and for general corporate purposes. As of June 30, 2021, we had $350 million aggregate principal amount of Senior Notes outstanding.
The Indenture contains customary terms and provisions (including representations, covenants, and conditions). Certain covenants, among other things, restrict our ability to incur indebtedness, grant liens, make investments and sell assets. The Indenture also contains customary events of default, covenants and representations and warranties. Financial covenants include: a senior secured leverage ratio no greater than 3.5 to 1.0, a total net leverage ratio of 3.0 to 1.0, and a fixed charge coverage ratio of 2.0 to 1.0.
The Senior Notes will mature on July 15, 2029, unless redeemed earlier, and bear interest at a rate of 4.125% per year until maturity. Interest will be payable in cash, semi-annually in arrears, on January 15 and July 15 of each year, beginning on January 15, 2022. The Senior Notes are subject to redemption in whole or in part at any time on or after July 15, 2024 at the redemption prices set forth in the Indenture. In addition, before July 15, 2024, up to 35% of the aggregate principal amount of the Senior Notes may be redeemed with the net proceeds of certain equity offerings at the redemption price set forth in the Indenture, subject to certain conditions. Further, all or a portion of the Senior Notes may be redeemed at any time prior to July 15, 2024 at a price equal to 100% of the principal amount, plus a “make-whole” premium and accrued interest, if any, to the date of redemption.
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As of June 30, 2021, we have a credit agreement (the “Credit Agreement”) which provides for: (1) a term loan facility, pursuant to which we incurred the $1,200 million 2019 Term Loan used to fund a part of the cash portion of the purchase price in the APi Acquisition, and (2) a $300 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”) of which up to $150 million can be used for the issuance of letters of credit. As of June 30, 2021, we had $1,140 million of indebtedness outstanding on the 2019 Term Loan and had no amounts outstanding under the Revolving Credit Facility, under which $227 million was available after giving effect to $73 million of outstanding letters of credit, which reduce availability.
One of our Canadian subsidiaries had a $20 million unsecured line of credit agreement with a variable interest rate based upon the prime rate. This line of credit was closed during the first quarter of 2021.
The Credit Agreement contains customary affirmative and negative covenants, including limitations on additional indebtedness, dividends and other distributions, entry into new lines of business, use of loan proceeds, capital expenditures, restricted payments, restrictions on liens on assets, transactions with affiliates, and dispositions. To the extent total outstanding borrowings under the Revolving Credit Facility (excluding undrawn letters of credit up to $40 million) is greater than 30% of the total commitment amount of the Revolving Credit Facility, our first lien net leverage ratio shall not exceed: (i) 4.50 to 1.00 for each fiscal quarter ending in 2020; (ii) 4.00 to 1.00 for each fiscal quarter ending in 2021; and (iii) 3.75 to 1.00 for each fiscal quarter ending thereafter. Our first lien net leverage ratio as of June 30, 2021 was 1.13:1.00.
We were in compliance with all covenants contained in the Indenture and Credit Agreement as of June 30, 2021 and, in the case of the Credit Agreement, as of December 31, 2020.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As of June 30, 2021, our variable interest rate debt was primarily related to our $1,200 million 2019 Term Loan and the $300 million Revolving Credit Facility. As of June 30, 2021, excluding letters of credit outstanding of $73 million, we had no amounts of outstanding revolving loans and $1,140 million outstanding on the 2019 Term Loan. As of June 30, 2021, we had a 5-year interest rate swap with respect to $720 million of notional value of the 2019 Term Loan, exchanging one-month LIBOR for a fixed rate of 1.62% per annum. Accordingly, our fixed interest rate per annum on the swapped $720 million notional value of the 2019 Term Loan is 4.12% through its maturity. The remaining $420 million of our 2019 Term Loan balance is bearing interest at 2.59% per annum based on one-month LIBOR plus 250 basis points. Additionally, during the first quarter of 2021, we entered into a cross currency interest rate swap with a notional value of $230 million. The swap reduces our interest expense by approximately $3 million annually and reduces our overall effective interest rate by approximately 20 basis points. A 100-basis point increase in the applicable interest rates under our credit facilities (including the unhedged portion of our 2019 Term Loan debt) would have increased our interest expense by approximately $3 million for the six months ended June 30, 2021.
While we cannot predict our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, we continue to evaluate our financial position on an ongoing basis. In addition, there is currently uncertainty about whether LIBOR will continue to exist after 2021. The ICE Benchmark Administration intends to cease the publication of U.S. dollar LIBOR as follows: the 1 week and 2 month tenors on December 31, 2021 and all other tenors on June 30, 2023. The discontinuation of LIBOR after 2021 and the replacement with an alternative reference rate may adversely impact interest rates and our interest expense could increase.
Foreign Currency Risk
Our foreign operations are primarily in Canada and Europe. Revenues generated from foreign operations represented approximately 10% of our consolidated net revenues for the six months ended June 30, 2021. 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 six months ended June 30, 2021. Translation gains or losses, which are recorded in accumulated other comprehensive loss in the unaudited condensed consolidated balance sheets, result from translation of the assets and liabilities of our foreign subsidiaries into U.S. dollars. Foreign currency translation losses (gains) totaled approximately $(4) million and $(6) million for the three months ended June 30, 2021 and 2020, respectively, and $0 million for the six months ended June 30, 2021, and 2020.
Our exposure to fluctuations in foreign currency exchange rates has increased as a result of the SKG Acquisition and will continue to increase in the future if we continue to expand our operations outside of the United States. We seek to manage foreign currency exposure by minimizing our consolidated net asset and liability positions in currencies other than the functional currency, which exposure was not significant to our consolidated financial position as of June 30, 2021.
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 Critical Accounting Policies section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
In addition, we are exposed to various supply chain risks, including market risk of price fluctuations or availability of copper, steel, cable optic fiber and other materials used as components of supplies or materials utilized in our operations. 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, our fixed price contracts do not allow us to adjust prices and, as a result, increases in material costs could reduce profitability with respect to projects in progress.
Significant declines in market prices for oil and gas and other fuel sources may also impact our operations. Prolonged periods of low oil and gas prices may result in projects being delayed or cancelled and in a low oil and gas price environment, certain of our businesses could become less profitable or incur losses.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports 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 disclosures. 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 Rule 13a-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 of the end of the period covered by this annual report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures are not effective at June 30, 2021 due to the material weakness in internal control over financial reporting described below, which was previously disclosed in Item 9A. “Controls and Procedures” of our Form 10-K for the year ended December 31, 2020.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility a material misstatement of annual or interim consolidated financial statements will not be prevented or detected 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:
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information technology general controls that prevent the information systems from providing complete and accurate information consistent with financial reporting objectives and current needs; |
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internal controls over the preparation of the financial statements, including the insufficient review and oversight over financial reporting, journal entries and related file documentation; |
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internal controls to identify and manage segregation of certain accounting duties; |
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internal controls over estimated costs of completion on contracts where revenue is recognized over time; and |
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management review controls over projected financial information used in fair value financial models used for purchase accounting and intangible asset valuations |
Management has undertaken various steps to begin remediating such control deficiencies. 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. Steps taken by management include the following:
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development of an Internal Audit team responsible for a detailed work plan to assess and document the adequacy of internal control over financial reporting, continued steps to improve control processes as appropriate, validation through testing that controls are functioning as documented, and implementation of a continuous reporting and improvement process for internal control over financial reporting; |
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adding new members to our accounting and finance team with the appropriate qualified experience in financial reporting, consolidations, technical accounting, and application of U.S. GAAP; |
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engaging a third-party firm to assist us in implementing a global consolidation and planning system; |
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implementing new controls over revenue recognition for both contracts that are recognized over time and time and material contracts; |
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identifying and mitigating segregation of duties concerns within various accounting areas; and |
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implementing new controls and changes to our procedures and processes in our financial consolidation and reporting processes. |
We plan to continue our efforts to improve, design and implement integrated processes to enhance our internal control over financial reporting, including:
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implementing changes to our accounting systems, new controls, procedures and processes in our financial statement close process and, importantly, adding new members to our accounting and finance team with the appropriate qualified experience in financial reporting, consolidations, tax, technical accounting, internal audit and internal controls; |
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adding further qualified resources to tax, financial planning and analysis, and internal audit teams as we further enhance our internal control structure; and |
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providing training and education programs for financial personnel responsible for the performance of newly implemented processes and controls. |
Changes in Internal Control Over Financial Reporting
We are executing our plan to remediate the material weaknesses relating to our internal control over financial reporting, as described above. This plan includes a detailed risk and controls assessment, detailed flowcharts, key process walkthroughs, and documentation, training, and execution of determined key controls. Except as otherwise described herein, there were no material changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2021 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
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 our disclosure controls and procedures will prevent or detect all error 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 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 company have been detected.
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PART II. OTHER INFORMATION
Item 1A. Risk Factors
In addition to the risk factors disclosed in the section entitled “Risk Factors” of our Form 10-K, we have identified the following risks related to the Chubb acquisition:
Our ability to complete the acquisition of Chubb is subject to various closing conditions, including the receipt of consents and approvals from governmental authorities, which may impose conditions that could adversely affect us or cause the acquisition not to be completed.
On July 26, 2021, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Carrier Global Corporation (“Carrier”), Carrier Investments UK Limited and Chubb Limited (“Chubb”). Pursuant to the Purchase Agreement, on the terms and subject to the conditions therein, we agreed to acquire the Chubb fire and security business through the acquisition of Chubb (the “Acquisition”). The Acquisition is subject to a number of conditions to closing as specified in the Purchase Agreement. These closing conditions include, among others, the receipt of certain regulatory approvals pursuant to any Competition and Foreign Investment Laws (as defined in the Purchase Agreement). No assurance can be given that the required governmental and regulatory consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all required consents and approvals are obtained and the required conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents and approvals. Any delay in completing the Acquisition could cause us not to realize, or to be delayed in realizing, some or all of the benefits that we and Chubb expect to achieve if the Acquisition is successfully completed within its expected time frame.
Additionally, either we or Carrier may terminate the Purchase Agreement under certain circumstances, including, among other reasons, if the Acquisition is not completed by July 26, 2022 (which date may be extended under certain circumstances).
We can provide no assurance that the various closing conditions will be satisfied and that the necessary approvals will be obtained, or that any required conditions will not materially adversely affect us following the Acquisition. In addition, we can provide no assurance that these conditions will not result in the abandonment or delay of the Acquisition. The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations and the trading price of our common stock.
The termination of the Purchase Agreement could negatively impact our business.
If the Acquisition is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the expected benefits of having completed the Acquisition, we would be subject to a number of risks, including the following:
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we may experience negative reactions from the financial markets, including negative impacts on our stock price; |
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we may experience negative reactions from our customers, suppliers, distributors and employees; |
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we will be required to pay our costs relating to the Acquisition, such as financial advisory, legal, financing and accounting costs and associated fees and expenses, whether or not the Acquisition is completed; |
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we could be subject to time-consuming and costly litigation related to the Acquisition; and |
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matters relating to the Acquisition (including integration planning) require substantial commitments of time and resources by our management, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial to our business. |
We will incur significant acquisition-related costs in connection with the Acquisition, and we could incur substantial expenses related to the integration of Chubb.
We have incurred and expect to incur a number of non-recurring costs associated with the integration of Chubb into our business, as well as transaction fees and other costs related to the Acquisition. These costs and expenses include fees paid to financial, legal and accounting advisors, facilities and systems consolidation costs, severance and other potential employment-related costs, including severance payments that may be made to certain Chubb employees, filing fees, printing expenses and other related charges. We will need to pay some of these costs regardless of whether the Acquisition is completed.
Item 4. Mine Safety Disclosures
Information regarding mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-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.
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Item 6. Exhibits
Exhibit No. |
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Description of Exhibits |
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10.20* |
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31.1* |
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31.2* |
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32.1** |
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95.1* |
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101.INS* |
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XBRL Instance Document. |
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101.SCH* |
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XBRL Taxonomy Extension Schema Document. |
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101.DEF* |
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XBRL Taxonomy Extension Definition Linkbase Document. |
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101.CAL* |
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XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.LAB* |
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XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* |
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XBRL Taxonomy Extension Presentation Linkbase Document. |
* |
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.
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APi GROUP CORPORATION |
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August 11, 2021 |
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/s/ Russell A. Becker |
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Russell A. Becker |
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Chief Executive Officer |
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(Duly Authorized Officer) |
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August 11, 2021 |
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/s/ Thomas A. Lydon |
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Thomas A. Lydon |
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Chief Financial Officer |
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(Principal Financial Officer) |
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Exhibit 10.20
APi Group DE, Inc.
$350,000,000
4.125% Senior Notes due 2029
Purchase Agreement
June 15, 2021
Citigroup Global Markets Inc.
As Representative of the Initial Purchasers
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
APi Group DE, Inc., a corporation organized under the laws of Delaware (the “Company”), proposes, upon the terms and conditions set forth in this agreement (this “Agreement”), to issue and sell to the several parties named in Schedule I hereto (the “Initial Purchasers”), for whom you (the “Representative”) is acting as representative, $350,000,000 principal amount of its 4.125% Senior Notes due 2029 (the “Notes”). The Securities (as defined below) are to be issued under an indenture (the “Indenture”), to be dated as of the Closing Date, among the Company, the Guarantors (as defined below) and Computershare Trust Company, N.A., as trustee (the “Trustee”). To the extent there are no additional parties listed on Schedule I other than you, the term Representative as used herein shall mean you as the Initial Purchasers, and the terms Representative and Initial Purchasers shall mean either the singular or plural as the context requires. The use of the neuter in this Agreement shall include the feminine and masculine wherever appropriate.
The sale of the Securities to the Initial Purchasers will be made without registration of the Securities under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”) in reliance upon exemptions from the registration requirements of the Securities Act.
The payment of principal of, premium, if any, and interest on the Notes will be fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally by (i) APi Group Corporation, a Delaware corporation and the direct parent of the Company (“Holdings”), (ii) the other entities listed on the signature pages hereof as “Guarantors” and (iii) any subsidiary of Holdings formed or acquired after the Closing Date that executes an additional guarantee in accordance with the terms of the Indenture, and their respective successors and assigns (collectively, the “Guarantors”), pursuant to their guarantees (the “Guarantees”). The Notes and the Guarantees are herein collectively referred to as the “Securities.”
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4841-0022-4238 v2
US-DOCS\124281900.10
In connection with the sale of the Securities, the Company has prepared a preliminary offering memorandum, dated June 14, 2021 (as amended or supplemented at the date thereof, including any and all exhibits thereto and any information incorporated by reference therein, the “Preliminary Memorandum”), and a final offering memorandum, dated June 15, 2021 (as amended or supplemented at the Execution Time, including any and all exhibits thereto and any information incorporated by reference therein, the “Final Memorandum”). Each of the Preliminary Memorandum and the Final Memorandum sets forth certain information concerning the Company and the Securities. The Company hereby confirms that it has authorized the use of the Disclosure Package, the Preliminary Memorandum and the Final Memorandum, and any amendment or supplement thereto, in connection with the offer and sale of the Securities by the Initial Purchasers. Unless stated to the contrary, any references herein to the terms “amend”, “amendment” or “supplement” with respect to the Disclosure Package, the Preliminary Memorandum and the Final Memorandum shall be deemed to refer to and include any information filed under the Exchange Act (as defined below) subsequent to the Execution Time that is incorporated by reference therein.
As used in this Agreement, the “Disclosure Package” shall mean (i) the Preliminary Memorandum, as amended or supplemented at the date and time that this Agreement is executed and delivered by the parties hereto (the “Execution Time”), (ii) the final term sheet prepared pursuant to Section 5(b) hereto and in the form attached as Schedule II hereto and (iii) any writings in addition to the Preliminary Memorandum that the parties expressly agree in writing to treat as part of the Disclosure Package (“Issuer Written Information”).
1.Representations and Warranties. Each of the Company, Holdings and the Guarantors represents and warrants to, and agrees with, each Initial Purchaser as set forth below in this Section 1.
(a)The Preliminary Memorandum, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. At the Execution Time and on the Closing Date, the Final Memorandum did not and will not (and any amendment or supplement thereto, at the date thereof and at the Closing Date will not) contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty as to the information contained in or omitted from the Preliminary Memorandum or the Final Memorandum, or any amendment or supplement thereto, in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Initial Purchasers through the Representative specifically for inclusion therein, it being understood and agreed that the only such information furnished by or on behalf of any Initial Purchaser consists of the information described as such in Section 8(b) hereof.
(b)As of the Execution Time, (i) the Disclosure Package and (ii) each electronic road show made to prospective investors of the Company, when taken together as a whole with the Disclosure Package, (c) any other General Solicitation by the Company, its affiliates (“Affiliates”), as such term is defined in Rule 501(b) of Regulation D under the Securities Act (“Regulation D”), or any person acting on its or their behalf, does not contain any untrue
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statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Disclosure Package based upon and in conformity with written information furnished to the Company by or on behalf of any Initial Purchaser through the Representative specifically for use therein, it being understood and agreed that the only such information furnished by or on behalf of any Initial Purchaser consists of the information described as such in Section 8(b) hereof.
(c)None of the Company, its Affiliates, or any person acting on its or their behalf has, directly or indirectly, made offers or sales of any security, or solicited offers to buy, any security under circumstances that would require the registration of the Securities under the Securities Act.
(d)None of the Company, its Affiliates, or any person acting on its or their behalf has: (i) engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) (each, a “General Solicitation”) in connection with any offer or sale of the Securities, other than any General Solicitation in respect of which the Representative has given their prior written consent; provided that the prior written consent of the Representative shall be deemed to have been given in respect of the General Solicitation included in Schedule III hereto or (ii) engaged in any directed selling efforts (within the meaning of Regulation S under the Securities Act (“Regulation S”)) with respect to the Securities; and each of the Company, its Affiliates and each person acting on its or their behalf has complied with the offering restrictions requirement of Regulation S.
(e)The Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the Securities Act.
(f)The documents incorporated or deemed to be incorporated by reference in the Preliminary Memorandum and the Final Memorandum at the time they were filed with the Securities and Exchange Commission (the “Commission”) conformed (and to the extent they are incorporated by reference into the Final Memorandum will conform) in all material respects to the applicable reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”).
(g)Assuming the accuracy of representations and warranties in Section 4(b), no registration under the Securities Act of the Securities is required for the offer and sale of the Securities to or by the Initial Purchasers in the manner contemplated herein, in the Disclosure Package and the Final Memorandum.
(h)None of the Company, Holdings or any Guarantor is, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Disclosure Package and the Final Memorandum will be, an “investment company” as defined in the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder (the “Investment Company Act”).
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(i)None of the Company, Holdings or any Guarantor has paid or agreed to pay to any person any compensation for soliciting another to purchase any securities of the Company, Holdings or any Guarantor (except as contemplated in this Agreement).
(j)None of the Company, Holdings or any Guarantor has taken, directly or indirectly, any action designed to or that has constituted or that would reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company, Holdings or any Guarantor in connection with the offering of the Securities.
(k)Each of Holdings, the Company and their respective subsidiaries has been duly organized, is validly existing and in good standing as a corporation, partnership or limited liability company under the laws of their respective jurisdiction of organization and is duly qualified to do business and in good standing as a foreign corporation or other business entity in each jurisdiction in which its ownership or lease or property or the conduct of its businesses requires such qualification, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the condition (financial or otherwise), results of operations, stockholders’ equity, properties or business of Holdings, the Company and their respective subsidiaries taken as a whole (a “Material Adverse Effect”). Each of Holdings, the Company and their respective subsidiaries has all power and authority to hold its properties and to conduct the businesses in which it is engaged.
(l)Each of Holdings and the Company has an authorized capitalization as set forth in each of the Disclosure Package and the Final Memorandum, and all of the issued shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable, conform to the description thereof contained or incorporated by reference in the Disclosure Package and the Final Memorandum and were issued in compliance with federal and state securities laws and not in violation of any preemptive right, resale right, right of first refusal or similar right. All the outstanding shares of capital stock or ownership interests of each subsidiary of Holdings (other than the Company) have been duly authorized and validly issued and are fully paid and nonassessable and are free and clear of all liens, encumbrances, equities or claims, except as otherwise set forth in the Disclosure Package and the Final Memorandum and except for such liens, encumbrances, equities or claims as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, all outstanding shares of capital stock or ownership interests of the subsidiaries are owned by Holdings either directly or through wholly owned subsidiaries free and clear of any security interest, claim, lien or encumbrance.
(m) The statements in the Preliminary Memorandum and the Final Memorandum under the heading “Description of Notes” insofar as they purport to constitute a summary of the terms of the Notes and the Guarantees and “Certain Material U.S. Federal Income Tax Considerations” and “Description of Other Indebtedness” insofar as they purport to summarize the provisions of the laws and documents referred to therein, are accurate summaries in all material respects.
(n)This Agreement has been duly authorized, executed and delivered by each of Holdings, the Company and the Guarantors; the Indenture has been duly authorized by each of
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Holdings, the Company and the Guarantors and, assuming due authorization, execution and delivery thereof by the Trustee, when executed and delivered by the each of Holdings, the Company and the Guarantors, will constitute a legal, valid, binding instrument enforceable against each of Holdings, the Company and the Guarantors in accordance with its terms (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors’ rights generally from time to time in effect and to general principles of equity); and the Securities have been duly authorized by Holdings, the Company and the Guarantors, respectively, and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers, will have been duly executed and delivered by each of Holdings, the Company and the Guarantors and will constitute the legal, valid and binding obligations of the Company entitled to the benefits of the Indenture (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors’ rights generally from time to time in effect and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(o)No consent, approval, authorization, filing with or order of any court or governmental agency or body having jurisdiction over Holdings, the Company, the Guarantors or any of their respective subsidiaries or any of their properties or assets is required in connection with the issue and sale of the Notes and the Guarantees, the execution, delivery and performance by Holdings, the Company and the Guarantors of the Notes, the Guarantees, the Indenture and this Agreement, the application of the proceeds from the sale of the Notes as described under “Use of Proceeds” in each of the Disclosure Package and the Final Memorandum and the consummation of the transactions contemplated hereby, except for such consents, approvals, authorizations, filings, orders, registrations or qualifications as may be required under applicable state or foreign securities or blue sky laws in connection with the purchase and distribution of the Notes by the Initial Purchasers.
(p)None of the execution and delivery of this Agreement or the Indenture, the issuance and sale of the Securities, or the consummation of any other of the transactions herein or therein contemplated, or the fulfillment of the terms hereof or thereof will, (i) result in the violation of the charter or by-laws or comparable constituting documents of Holdings or any of its subsidiaries; (ii) conflict with, result in a breach or violation of any of the terms or provisions of, or impose any lien, charge or encumbrance upon any property or assets of Holdings or any of its subsidiaries pursuant to the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which Holdings or any of its subsidiaries is a party or bound or to which its or their property is subject; or (iii) result in the violation of any statute, law, rule, regulation, judgment, order or decree applicable to Holdings on any of its subsidiaries of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over Holdings or any of its subsidiaries or any of its or their properties except, with respect to clauses (ii) and (iii), conflicts, violations, breaches, liens, charges or encumbrances that would not reasonably be expected to have a Material Adverse Effect, or have a material adverse effect upon the transactions contemplated herein or any Initial Purchaser subject to, in the case of the foregoing clause (ii), the receipt of any consents, approvals, authorizations, orders, registrations, filings or qualifications which shall have been obtained or made prior to the Closing Date.
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(q)The consolidated historical financial statements and schedules of Holdings and its consolidated subsidiaries included or incorporated by reference in the Disclosure Package and the Final Memorandum present fairly in all material respects the financial condition, results of operations and cash flows of Holdings as of the dates and for the periods indicated comply as to form in all material respects with the applicable accounting requirements of Regulation S-X (as defined below) and have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis throughout the periods involved (except as otherwise noted therein); the selected financial data set forth under the caption “Summary Financial Data” in the Preliminary Memorandum and the Final Memorandum fairly present in all material respects, on the basis stated in the Preliminary Memorandum and the Final Memorandum, the information included or incorporated by reference therein.
(r)No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving Holdings or any of its subsidiaries or its or their property is pending or, to the knowledge of Holdings or the Company, threatened that (i) would reasonably be expected to have a material adverse effect on the performance of this Agreement, the Indenture or the consummation of any of the transactions contemplated hereby or thereby or (ii) would reasonably be expected to have a Material Adverse Effect.
(s)Each of Holdings and its subsidiaries owns or leases all such properties as are necessary to the conduct of its operations as presently conducted.
(t)Neither Holdings nor any of its subsidiaries (i) is in violation of any provision of its charter or bylaws or comparable constituting documents; (ii) is in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant, condition or other obligation contained in the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject; or (iii) is in violation of any statute, law, rule, regulation, judgment, order or decree applicable to Holdings or any of its subsidiaries of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over Holdings or such subsidiary or any of its properties, as applicable, except in the case of clauses (ii) and (iii), to the extent any such conflict, breach, violation or default would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(u)KPMG LLP, who have certified certain financial statements of Holdings and its consolidated subsidiaries and delivered their report with respect to the audited consolidated financial statements and schedules included or incorporated by reference in the Disclosure Package and the Final Memorandum, are independent public accountants with respect to the Company in accordance with local accounting rules and within the meaning of the Securities Act.
(v)There are no stamp or other issuance or transfer taxes or duties or other similar fees or charges required to be paid by any of Holdings, the Company or the Guarantors in connection with the execution and delivery of this Agreement by Holdings, the Company and the Guarantors or the issuance, sale or initial resale of the Securities.
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(w)Each of Holdings, the Company and the Guarantors has filed all applicable tax returns that are required to be filed required to be filed through the date hereof, subject to permitted extensions and has paid all taxes required to be paid by it, except where such failure to file or pay would not reasonably be expected to have a Material Adverse Effect, and no tax deficiency has been determined adversely to Holdings, the Company, the Guarantors or any of their respective subsidiaries, nor do Holdings, the Company or any Guarantor have any knowledge of any tax deficiencies that have been, or would reasonably be expected to be asserted against Holdings, the Company, the Guarantors and each of their respective subsidiaries, that would, in the aggregate, reasonably be expected to have a Material Adverse Effect.
(x)No labor problem or dispute with the employees of Holdings or any of its subsidiaries exists or, or to the knowledge of Holdings, the Company or any Guarantor, is threatened or imminent, and each of Holdings, the Company and the Guarantors is not aware of any imminent labor disturbance by the employees of any of its or its subsidiaries’ principal suppliers, contractors or customers, except as would not reasonably be expected to have a Material Adverse Effect.
(y)No subsidiary of Holdings is currently prohibited, directly or indirectly, from paying any dividends to either Holdings or the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to either Holdings or the Company any loans or advances to such subsidiary from either Holdings or the Company or from transferring any of such subsidiary’s property or assets to Holdings or any other subsidiary of Holdings, except as described in the in the Disclosure Package and the Final Memorandum.
(z)Holdings and each of its subsidiaries are insured by insurers of recognized financial responsibility (except with respect to liabilities which Holdings self-insures) against such losses and risks and in such amounts as Holdings, the Company and each Guarantor believes, is adequate for the conduct of their respective businesses and the value of their respective properties and as, to Holdings’, the Company’s or any Guarantor’s knowledge, is customary for companies engaged in similar businesses in similar industries. All policies of insurance and fidelity or surety bonds insuring Holdings or any of its subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect; Holdings and its subsidiaries are in compliance with the terms of such policies and instruments in all material respects; and neither Holdings or any subsidiary has received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance. There are no claims by Holdings or any of its subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; neither Holdings nor any of its subsidiaries has been refused any insurance coverage sought or applied for; and neither Holdings nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not reasonably be expected to have a Material Adverse Effect.
(aa)Holdings and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by all applicable authorities (“Permits”) required to conduct their respective businesses under applicable law in the manner described in the Disclosure Package
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and the Final Memorandum except for any of the foregoing which, if not obtained, would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. Holdings and each of its subsidiaries have fulfilled and performed all of its obligations with respect to the Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other impairment of the rights of the holder or any such Permits, except for any of the foregoing that would not reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its subsidiaries has received any notice of any revocation or modification of any material Permits or has any reason to believe that any material Permits will not be renewed in the ordinary course.
(bb)Holdings and each of its subsidiaries maintain a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that complies with the requirements of the Exchange Act and that has been designed by, or under the supervision of, Holdings’ principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Except as otherwise set forth or incorporated by reference in the Disclosure Package and the Final Memorandum, Holdings maintains internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of Holdings’ financial statements in conformity with accounting principles generally accepted in the United States and to maintain accountability for its assets, (iii) access to Holdings’ assets is permitted only in accordance with management’s general or specific authorization, (iv) the recorded accountability for Holdings’ assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences and (v) the interactive data in eXtensible Business Reporting Language included or incorporated by reference in the Disclosure Package and the Final Memorandum fairly present the information called for in all material respects and are prepared in accordance with the Commission’s rules and guidelines applicable thereto. Except as otherwise set forth or incorporated by reference in the Disclosure Package and the Final Memorandum, as of the date of the most recent balance sheet of Holdings and its consolidated subsidiaries reviewed or audited by KPMG LLP and the audit committee of the board of directors of Holdings, Holdings and its subsidiaries are not aware of any material weakness in their internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act).
(cc)(i) Holdings and its subsidiaries maintain “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) under the Exchange Act), (ii) such disclosure controls and procedures are designed to ensure the information required to be disclosed by Holdings and its subsidiaries in the reports they file or submit under the Exchange Act is accumulated and communicated to management of Holdings and its subsidiaries, including their respective principal executive officers and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure to be made, and (iii) such disclosure controls and procedures are effective in all material respects to perform the functions for which they were established, except in the case of clauses (i), (ii) or (iii), as otherwise set forth or incorporated by reference in the Disclosure Package and the Final Memorandum.
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(dd)Holdings and its subsidiaries (i) are in compliance with any and all applicable laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”) applicable to such entity; (ii) have received and are in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) have not received notice of any actual or potential liability under any Environmental Law, except in the case of clauses (i), (ii) or (iii) where such non-compliance with Environmental Laws, failure to receive required permits, licenses or other approvals, or liability would not, individually or in the aggregate, have a Material Adverse Effect. To the knowledge of Holdings, the Company and the Guarantors, neither Holdings nor any of its subsidiaries has been named as a “potentially responsible party” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, except where such designation would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(ee) In the ordinary course of its business, Holdings, the Company and the Guarantors periodically review the effect of Environmental Laws on the business, operations and properties of Holdings and its subsidiaries, in the course of which they identify and evaluate associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws, or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties); on the basis of such review, Holdings, the Company and the Guarantors have reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a Material Adverse Effect.
(ff)The minimum funding standard under Section 302 of the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (“ERISA”), has been satisfied by each “pension plan” (as defined in Section 3(2) of ERISA) which has been established or maintained by Holdings, any of its subsidiaries and/or any entity which would be treated as a single employer with Holdings or any of its subsidiaries under Section 414 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the “Code”) or a part of a controlled group within the meaning of Section 4001(a)(14) of ERISA (a “Controlled Group Member”); and the trust forming part of each such plan which is intended to be qualified under Section 401 of the Code is so qualified; each of Holdings, its subsidiaries and each Controlled Group Member has fulfilled its obligations, if any, under Section 515 of ERISA; neither Holdings nor any of its subsidiaries maintains or is required to contribute to a “welfare plan” (as defined in Section 3(1) of ERISA) which provides retiree or other post-employment welfare benefits or insurance coverage (other than “continuation coverage” (as defined in Section 602 of ERISA)); each pension plan and welfare plan established or maintained by Holdings and/or one or more of its subsidiaries is in compliance in all material respects with the currently applicable provisions of ERISA and the Code; and neither Holdings, any of its subsidiaries or Controlled Group Members has incurred or could reasonably be expected to incur any withdrawal liability under Section 4201 of ERISA, any liability under Section 4062, 4063, or 4064 of ERISA, or any other liability under Title IV of ERISA except for any of the foregoing that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
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(gg)The subsidiaries listed on Annex A attached hereto are the only “significant subsidiaries” of Holdings (as defined in Rule 1-02 of Regulation S-X under the Securities Act (“Regulation S-X”)).
(hh)To the extent that information is required to be publicly disclosed under the U.K. Financial Services Authority’s Price Stabilising Rules (the “Stabilizing Rules”) before stabilizing transactions can be undertaken in compliance with the safe harbor provided under such Stabilizing Rules, such information has been adequately publicly disclosed (within the meaning of the Stabilizing Rules).
(ii)The operations of Holdings and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements and the money laundering statutes and, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving Holdings or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of Holdings, the Company and the Guarantors, threatened.
(jj)Neither Holdings nor any of its subsidiaries nor, to the knowledge of Holdings, the Company and the Guarantors, any director, officer, agent, employee or affiliate of Holdings or any of its subsidiaries (i) is, or is controlled or 50% or more owned in the aggregate by or is acting on behalf of, one or more individuals or entities that are currently the subject of any sanctions administered or enforced by the United States (including any administered or enforced by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State or the Bureau of Industry and Security of the U.S. Department of Commerce), the United Nations Security Council, the European Union, a member state of the European Union (including sanctions administered or enforced by Her Majesty’s Treasury of the United Kingdom) or other relevant sanctions authority (collectively, “Sanctions” and such persons, “Sanctioned Persons” and each such person, a “Sanctioned Person”), (ii) is located, organized or resident in a country or territory that is, or whose government is, the subject of Sanctions that broadly prohibit dealings with that country or territory (collectively, “Sanctioned Countries” and each, a “Sanctioned Country”) or (iii) will, directly or indirectly, use the proceeds of this offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other individual or entity in any manner that would result in a violation of any Sanctions by, or could result in the imposition of Sanctions against, any individual or entity (including any individual or entity participating in the offering, whether as underwriter, advisor, investor or otherwise).
(kk)None of Holdings, the Company, the Guarantors nor any of their respective subsidiaries has knowingly engaged in for the past five years, are not now knowingly engaged in, and will not engage in, any dealings or transactions with any individual or entity, or in any country or territory, that at the time of the dealing or transaction is or was the subject or target of Sanctions or in violation of such Sanctions.
(ll)There is and has been no failure on the part of Holdings and any of Holdings’ directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-
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Oxley Act of 2002 and the rules and regulations promulgated in connection therewith (the “Sarbanes-Oxley Act”), including Section 402 relating to loans and Sections 302 and 906 relating to certifications.
(mm)Neither Holdings nor any of its subsidiaries nor, to the knowledge of Holdings, the Company and the Guarantors, any director, officer, agent, employee, Affiliate or other person acting on behalf of Holdings or any of its subsidiaries is aware of or has taken any action, directly or indirectly, that could result in a violation or a sanction for violation by such persons of the Foreign Corrupt Practices Act of 1977 or the U.K. Bribery Act 2010, each as may be amended, or similar law of any other relevant jurisdiction, or the rules or regulations thereunder; and Holdings and its subsidiaries have instituted and maintain policies and procedures to reasonably ensure compliance therewith. No part of the proceeds of the offering will be used, directly or indirectly, in violation of the Foreign Corrupt Practices Act of 1977 or the U.K. Bribery Act 2010, each as may be amended, or similar law of any other relevant jurisdiction, or the rules or regulations thereunder.
(nn)Holdings and its subsidiaries own, possess, license or have other rights to use on reasonable terms, all patents, trade and service marks, trade names, copyrights, domain names (in each case including all registrations and applications to register same), inventions, trade secrets, technology, know-how, and other intellectual property, (collectively, the “Intellectual Property”) necessary for the conduct of the business of Holdings, the Company and the Guarantors as now conducted or as proposed in the Preliminary Memorandum and the Final Memorandum to be conducted. (i) Each of Holdings, the Company and the Guarantors owns, or has rights to use under license, all such Intellectual Property free and clear in all material respects of all adverse claims, liens or other encumbrances; (ii) to the knowledge of Holdings, the Company and the Guarantors, there is no material infringement by third parties of any such Intellectual Property; (iii) there is no pending or, to the knowledge of Holdings, the Company and the Guarantors, threatened action, suit, proceeding or claim by any third party challenging Holdings’ or its subsidiaries’ rights in or to any such Intellectual Property, and none of Holdings, the Company and the Guarantors is unaware of any facts which would form a reasonable basis for any such claim; (iv) there is no pending or, to the knowledge of Holdings, the Company and the Guarantors, threatened action, suit, proceeding or claim by any third party challenging the validity, scope or enforceability of any such Intellectual Property, and each of Holdings, the Company and the Guarantors is unaware of any facts that would form a reasonable basis for any such claim; (v) there is no pending or, to the knowledge of Holdings, the Company and the Guarantors, threatened action, suit, proceeding or claim by any third party that Holdings or any subsidiary infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of any third party, and each of Holdings, the Company and the Guarantors is unaware of any other fact which would form a reasonable basis for any such claim; and (vi) to the knowledge of Holdings, the Company and the Guarantors, there is no valid and subsisting patent or published patent application that would preclude any of Holdings, the Company or any Guarantor, in any material respect, from practicing any such Intellectual Property, except for any of the foregoing that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(oo)Except as would not reasonably be expected to result in a Material Adverse Effect, Holdings, the Company, the Guarantors and their respective subsidiaries’
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computer and information technology equipment hardware, software, websites, systems and networks (collectively, “IT Systems”) are adequate for, and operate and perform in all material respects as required in connection with the operation of the business as currently conducted. Holdings, the Company, the Guarantors and their respective subsidiaries have implemented and maintained commercially reasonable controls, policies, procedures and safeguards to protect their material confidential information and the integrity, security, continuous operation and redundancy of the IT Systems and data used in connection with their businesses. There has been no security breach of, or other unauthorized access to or compromise of the IT Systems or such data, except for those that would not reasonably be expected to result in a Material Adverse Effect or have been remedied without material cost or liability or the duty to notify any persons or entities, nor any incidents that are currently under internal review or investigations, except for those that would not reasonably be expected to result in a Material Adverse Effect.
Any certificate signed by any officer of the Company and delivered to the Representative or counsel for the Initial Purchasers in connection with the offering of the Securities shall be deemed a representation and warranty by the Company, as to matters covered thereby, to each Initial Purchaser.
2.Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, each of Holdings, the Company and the Guarantors agrees to sell to each Initial Purchaser, and each Initial Purchaser agrees, severally and not jointly, to purchase from Holdings, the Company and the Guarantors, at a purchase price of 99.0% of the principal amount thereof, plus accrued interest, if any, from June 22, 2021 to the Closing Date, the principal amount of Securities set forth opposite such Initial Purchaser’s name in Schedule I hereto. Neither the Company nor the Guarantors shall be obligated to deliver any of the Securities to be delivered hereunder except upon payment for all of the Securities to be purchased as provided herein.
3.Delivery and Payment. Delivery of and payment for the Securities shall be made at 10:00 A.M., New York City time, on June 22, 2021, or at such time on such later date not more than three Business Days after the foregoing date as the Representative shall designate, which date and time may be postponed by agreement between the Representative and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Securities being herein called the “Closing Date”). As used herein, “Business Day” shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in The City of New York. Delivery of the Securities shall be made to the Representative for the respective accounts of the several Initial Purchasers against payment by the several Initial Purchasers through the Representative of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to the account specified by the Company. Delivery of the Securities shall be made through the facilities of The Depository Trust Company unless the Representative shall otherwise instruct.
4.Offering by Initial Purchasers. (a) Each Initial Purchaser acknowledges that the Securities have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons,
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except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
(a)Each Initial Purchaser, severally and not jointly, represents and warrants to and agrees with the Company that:
(i)it has not offered or sold, and will not offer or sell, any Securities within the United States or to, or for the account or benefit of, U.S. persons (x) as part of their distribution at any time or (y) otherwise until 40 days after the later of the commencement of the offering and the date of the closing of the offering except:
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in the case of sales to those it reasonably believes to be “qualified institutional buyers” as permitted by Rule 144A under the Securities Act or |
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in accordance with Rule 903 of Regulation S; |
(ii)neither it nor any person acting on its behalf has made or will make offers or sales of the Securities in the United States by means of General Solicitation, other than any General Solicitation included in Schedule III hereto;
(iii)in connection with each sale pursuant to Section 4(b)(i)(A), it has taken or will take reasonable steps to ensure that the purchaser of such Securities is aware that such sale may be made in reliance on Rule 144A;
(iv)neither it, nor any of its Affiliates nor any person acting on its or their behalf has engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities;
(v)it is an “accredited investor” (as defined in Rule 501(a) of Regulation D);
(vi)it has complied and will comply with the offering restrictions requirement of Regulation S;
(vii)at or prior to the confirmation of sale of Securities (other than a sale of Securities pursuant to Section 4(b)(i)(A) of this Agreement), it shall have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the distribution compliance period (within the meaning of Regulation S) a confirmation or notice to substantially the following effect:
“The Securities covered hereby have not been registered under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”) and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40
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days after the later of the commencement of the offering and the date of closing of the offering, except in either case in accordance with Regulation S or Rule 144A under the Securities Act. Additional restrictions on the offer and sale of the Securities are described in the offering memorandum for the Securities. Terms used in this paragraph have the meanings given to them by Regulation S.”;
(viii)it acknowledges that additional restrictions on the offer and sale of the Securities are described in the Disclosure Package and the Final Memorandum;
(ix)it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of any Securities, in circumstances in which Section 21(1) of the FSMA does not apply to the Company;
(x)it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; and
(xi)in relation to each Member State of the European Economic Area (each, a “Member State”), with effect from and including the date on which the Prospectus Directive is implemented in that Member State (the “Relevant Implementation Date”), it has not made and will not make an offer to the public of any Securities which are the subject of the offering contemplated by this Agreement in that Member State, except that it is permitted to have made and may make an offer to the public in that Member State of any Securities at any time with effect from and including the Relevant Implementation Date under the following exemptions under the Prospectus Directive, if they have been implemented in that Member State:
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to legal entities which are |
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qualified investors as defined in the Prospectus Directive; |
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to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the Representative for any such offer; |
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in any other circumstances falling within Article 3(2) of the Prospectus Directive; |
provided that no such offer of Securities shall require the Company or any Initial Purchaser to publish a prospectus pursuant to Article 3 of the
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Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. For the purposes of this provision, the expression an “offer to the public” in relation to any Securities in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Securities to be offered so as to enable an investor to decide to purchase any Securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in each Member State.
Each of the Initial Purchasers understands that Holdings, the Company and the Guarantors and, for purposes of the opinions to be delivered to the Initial Purchasers pursuant to Section 6(a) and 6(b) hereof, counsel to Holdings, counsel to the Company, counsel to the Guarantors and counsel to the Initial Purchasers, will rely upon the accuracy and truth of the foregoing representations, warranties and agreements, and the Initial Purchasers hereby consent to such reliance.
5.Agreements. Each of Holdings, the Company and the Guarantors agrees with each Initial Purchaser that:
(a)The Company will furnish to each Initial Purchaser and to counsel for the Initial Purchasers, without charge, during the period referred to in Section 5(c) below, as many copies of the materials contained in the Disclosure Package and the Final Memorandum and any amendments and supplements thereto as they may reasonably request.
(b)The Company will prepare a final term sheet, containing solely a description of final terms of the Securities and the offering thereof, in the form approved by you and attached as Schedule II hereto.
(c)The Company will not amend or supplement the Disclosure Package or the Final Memorandum other than by filing documents under the Exchange Act that are incorporated by reference therein, without the prior written consent of the Representative; provided, however, that prior to the completion of the distribution of the Securities by the Initial Purchasers (as determined by the Initial Purchasers), the Company will not file any document under the Exchange Act that is incorporated by reference in the Disclosure Package or the Final Memorandum unless, prior to such proposed filing, the Company has furnished the Representative with a copy of such document for their review and the Representative has not reasonably objected to the filing of such document provided, that this clause shall not apply to any filing by Holdings of any Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K with respect to matters unrelated to the Notes or the offering. The Company will promptly advise the Representative when any document filed under the Exchange Act that is incorporated by reference in the Disclosure Package or the Final Memorandum shall have been filed with the Commission (as defined below).
(d)If at any time prior to the completion of the sale of the Securities by the Initial Purchasers (as determined by the Representative), any event occurs as a result of which the
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Disclosure Package, any General Solicitation, or the Final Memorandum, as then amended or supplemented, would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made or the circumstances then prevailing, not misleading, or if it should be necessary to amend or supplement the Disclosure Package or the Final Memorandum to comply with applicable law, Holdings the Company and the Guarantors will promptly (i) notify the Representative of any such event; (ii) subject to the requirements of Section 5(c), prepare an amendment or supplement that will correct such statement or omission or effect such compliance; and (iii) supply any supplemented or amended Disclosure Package or Final Memorandum to the several Initial Purchasers and counsel for the Initial Purchasers without charge in such quantities as they may reasonably request.
(e)Without the prior written consent of the Representative, the Company has not given and will not give to any prospective purchaser of the Securities any written information concerning the offering of the Securities other than materials contained in the Disclosure Package, the Final Memorandum or any other offering materials prepared by or with the prior written consent of the Representative.
(f)The Company will arrange, if necessary, for the qualification of the Securities for sale by the Initial Purchasers under the laws of such jurisdictions as the Representative may designate (including Japan and certain provinces of Canada) and will maintain such qualifications in effect so long as required for the sale of the Securities; provided that in connection therewith neither Holdings, the Company or any of the Guarantors shall be required to (i) qualify as foreign corporations or other business entity, as applicable, in any jurisdiction in which they would not otherwise be required to so qualify, (ii) file a general consent to service of process in any such jurisdiction, or (iii) subject themselves to taxation in any jurisdiction in which they would not otherwise be subject. The Company will promptly advise the Representative of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose.
(g)The Company will not, and will not permit any of its Affiliates to, resell any Securities that have been acquired by any of them.
(h)None of the Company, its Affiliates, or any person acting on its or their behalf (provided that the Company makes no representation with respect to the Securities Actions of the Initial Purchasers and any of their Affiliates) will, directly or indirectly, make offers or sales of any security, or solicit offers to buy any security, under circumstances that would require the registration of the Securities under the Securities Act.
(i)None of the Company, its Affiliates, or any person acting on its or their behalf will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities; and each of them will comply with the offering restrictions requirement of Regulation S.
(j)None of the Company, its Affiliates, or any person acting on its or their behalf will engage in any General Solicitation, other than any General Solicitation in respect of which
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the Representative has given their prior written consent; provided that the prior written consent of the Representative shall be deemed to have been given in respect of the General Solicitation included in Schedule III hereto.
(k)For so long as any of the Securities are outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, the Company or Holdings, as applicable, during any period in which it is not subject to and in compliance with Section 13 or 15(d) of the Exchange Act or it is not exempt from such reporting requirements pursuant to and in compliance with Rule 12g3-2(b) under the Exchange Act, will provide to each holder of such restricted securities and to each prospective purchaser (as designated by such holder) of such restricted securities, upon the request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Securities Act. This covenant is intended to be for the benefit of the holders, and the prospective purchasers designated by such holders, from time to time of such restricted securities.
(l)Each of Holdings, the Company and the Guarantors will cooperate with the Representative and use its commercially reasonable efforts to permit the Securities to be eligible for clearance and settlement through The Depository Trust Company.
(m)Each of the Securities will bear, to the extent applicable, the legend contained in “Transfer Restrictions” in the Preliminary Memorandum and the Final Offering Memorandum for the time period and upon the other terms stated therein.
(n)The Company will not for a period of 60 days following the Execution Time, without the prior written consent of Citigroup Global Markets Inc. (“Citigroup”) offer, sell, contract to sell, pledge, otherwise dispose of, or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Company or any Affiliate of the Company or any person in privity with the Company or any Affiliate of the Company), directly or indirectly, or announce the offering, of any debt securities issued or guaranteed by the Company (other than the Securities).
(o)The Company will not take, directly or indirectly, any action designed to, or that has constituted or that might reasonably be expected to, cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of Holdings or the Company to facilitate the sale or resale of the Securities.
(p)Holdings or the Company will, for a period of twelve months following the Execution Time, furnish to the Representative (i) all reports or other communications (financial or other) generally made available to its shareholders, and deliver such reports and communications to the Representative as soon as they are available, unless such documents are furnished to or filed with the Commission or any securities exchange on which any class of securities of Holdings or the Company is listed and generally made available to the public and (ii) such additional information concerning the business and financial condition of Holdings as the Representative may from time to time reasonably request (such statements to be on a consolidated basis to the extent the accounts of Holdings and its subsidiaries are consolidated in reports furnished to its shareholders).
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(q)Each of Holdings, the Company and the Guarantors will comply with all applicable securities and other laws, rules and regulations, including, without limitation, the Sarbanes-Oxley Act, and use its commercially reasonable efforts to cause the directors and officers of Holdings, the Company and the Guarantors, in their capacities as such, to comply with such laws, rules and regulations, including, without limitation, the provisions of the Sarbanes-Oxley Act.
(r)Each of Holdings, the Company and the Guarantors, jointly and severally, agrees to pay the costs and expenses relating to the following matters: (i) the preparation of the Indenture and the issuance of the Securities and the fees of the Trustee; (ii) the preparation, printing or reproduction of the materials contained in the Disclosure Package and the Final Memorandum and each amendment or supplement to either of them; (iii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the materials contained in the Disclosure Package and the Final Memorandum, and all amendments or supplements to either of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Securities; (iv) the issuance and delivery of the Securities; (v) any stamp or transfer taxes in connection with the original issuance, sale and initial resale of the Securities; (vi) the printing (or reproduction) and delivery of this Agreement, any blue sky memorandum and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Securities; (vii) any registration or qualification of the Securities for offer and sale under the securities or blue sky laws of the several states, Japan, the provinces of Canada and any other jurisdictions specified pursuant to Section 5(e) (including filing fees and the reasonable fees and expenses of counsel for the Initial Purchasers relating to such registration and qualification); (vii) the transportation and other expenses incurred by or on behalf of representatives of Holdings, the Company or the Guarantors in connection with presentations to prospective purchasers of the Securities; (ix) the fees and expenses of Holdings’ accountants and the fees and expenses of counsel (including local and special counsel) for Holdings, the Company and the Guarantors; and (x) all other costs and expenses incident to the performance by Holdings, the Company and the Guarantors of their respective obligations hereunder.
6.Conditions to the Obligations of the Initial Purchasers. The respective obligations of the Initial Purchasers to purchase the Securities shall be subject to the accuracy of the representations and warranties of Holdings, the Company and the Guarantors, as applicable, contained herein at the Execution Time and the Closing Date, to the accuracy of the statements of Holdings, the Company and the Guarantors made in any certificates pursuant to the provisions hereof, to the performance by Holdings, the Company and the Guarantors of their respective obligations hereunder and to the following additional conditions:
(a)(i) The Company shall have requested and caused Kane Kessler, P.C., counsel for the Company, to furnish to the Representative its opinion, dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative.
(ii) The Company shall have requested and caused each of the local and tax counsel to the Company listed on Schedule IV hereto to furnish to the Representative its opinion, |
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dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative. |
(b)The Representative shall have received from Latham & Watkins LLP, counsel for the Initial Purchasers, such opinion or opinions, dated the Closing Date and addressed to the Representative, with respect to the issuance and sale of the Securities, the Indenture, the Disclosure Package, the Final Memorandum (as amended or supplemented at the Closing Date) and other related matters as the Representative may reasonably require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.
(c)Holdings, the Company and each Guarantor shall have furnished to the Representative a certificate signed by the Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer, Senior Vice President, Vice President, General Partner, Authorized Member or other officer reasonably satisfactory to the Initial Purchasers, of Holdings, the Company and each Guarantor, dated the Closing Date, to the effect that the signer of such certificate have carefully examined the Disclosure Package and the Final Memorandum and any supplements or amendments thereto, and this Agreement and that:
(i)the representations and warranties of Holdings, the Company and the Guarantors in this Agreement are true and correct on and as of the Closing Date with the same effect as if made on the Closing Date, and each of Holdings, the Company and the Guarantors has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and
(ii)since the date of the most recent financial statements included or incorporated by reference in the Disclosure Package and the Final Memorandum (exclusive of any amendment or supplement thereto), there has been no material adverse change in the condition (financial or otherwise), earnings, business or properties of Holdings and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Disclosure Package and the Final Memorandum (exclusive of any amendment or supplement thereto).
(d)At the Execution Time and at the Closing Date, the Company shall have requested and caused KPMG LLP to furnish to the Representative letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Representative and confirming that they are independent accountants within the meaning of the Exchange Act and the applicable published rules and regulations thereunder.
(e)Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Disclosure Package (exclusive of any amendment or supplement thereto) and the Final Memorandum (exclusive of any amendment or supplement thereto), there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (d) of this Section 6; or (ii) any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), earnings, business or properties of
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the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, the effect of which, in any case referred to in clause (i) or (ii) above, is, in the sole judgment of the Representative, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated in the Disclosure Package and the Final Memorandum (exclusive of any amendment or supplement thereto).
(f)The Securities shall be eligible for clearance and settlement through The Depository Trust Company.
(g)Subsequent to the Execution Time, there shall not have been any decrease in the rating of the Company by any “nationally recognized statistical rating organization” (as defined for purposes of Rule 3(a)(62) under the Exchange Act) or any public announcement by such organization that it has under surveillance or review, with possible negative implications, its rating of any of the Company’s debt securities.
(h)Prior to the Closing Date, the Company shall have furnished to the Representative such further information, certificates and documents as the Representative may reasonably request.
If any of the conditions specified in this Section 6 shall not have been fulfilled when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be reasonably satisfactory in form and substance to the Representative and counsel for the Initial Purchasers, this Agreement and all obligations of the Initial Purchasers hereunder may be cancelled at, or at any time prior to, the Closing Date by the Representative. Notice of such cancellation shall be given to the Company in writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 will be delivered at the office of counsel for the Initial Purchasers, at 1271 Avenue of the Americas, New York, New York 10020, Attention: Erika Weinberg or by email to Erika.Weinberg@lw.com, on the Closing Date.
7.Reimbursement of Expenses. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Initial Purchasers set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Initial Purchasers, the Company will reimburse the Initial Purchasers severally through Citigroup on demand for all reasonable and documented out of pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities.
8.Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each Initial Purchaser, the directors, officers, employees, Affiliates and agents of each Initial Purchaser and each person who controls any Initial Purchaser within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all
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losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or other U.S. federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities or actions in respect thereof arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Memorandum, the Final Memorandum, any Issuer Written Information, any General Solicitation, or any other written information used by or on behalf of the Company in connection with the offer or sale of the Securities, or in any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal fees or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the Preliminary Memorandum, the Final Memorandum, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Initial Purchaser through the Representative specifically for inclusion therein. This indemnity agreement will be in addition to any liability that the Company may otherwise have.
(a)Each Initial Purchaser severally, and not jointly, agrees to indemnify and hold harmless the Company, Holdings, and each of the Guarantors, each of their respective directors, each of their respective officers, and each person who controls the Company, Holdings, and/or any Guarantor, within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity to each Initial Purchaser, but only with reference to written information relating to such Initial Purchaser furnished to the Company by or on behalf of such Initial Purchaser through the Representative specifically for inclusion in the Preliminary Memorandum or the Final Memorandum (or in any amendment or supplement thereto). This indemnity agreement will be in addition to any liability that any Initial Purchaser may otherwise have. The Company acknowledges that the statements set forth in the ninth paragraph related to stabilization, syndicate covering transactions and penalty bids under the heading “Plan of Distribution” in the Preliminary Memorandum and the Final Memorandum constitute the only information furnished in writing by or on behalf of the Initial Purchasers for inclusion in the Preliminary Memorandum or the Final Memorandum or in any amendment or supplement thereto.
(b)Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above except to the extent it is materially prejudiced by such failure (through the forfeiture by the indemnifying party of substantial rights and defenses) and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel (including local counsel) of the indemnifying party’s choice at the indemnifying party’s expense to represent the
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indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel, other than local counsel if not appointed by the indemnifying party, retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party’s election to appoint counsel (including local counsel) to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent: (i) includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
(c)In the event that the indemnity provided in paragraph (a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Initial Purchasers severally agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending any loss, claim, damage, liability or action) (collectively “Losses”) to which the Company and one or more of the Initial Purchasers may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by the Initial Purchasers on the other from the offering of the Securities. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company and the Initial Purchasers severally shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Initial Purchasers on the other in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by it, and benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions. Relative fault shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Company on the one hand or the Initial Purchasers on the other, the intent of the parties and their relative knowledge, access to
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information and opportunity to correct or prevent such untrue statement or omission. The Company and the Initial Purchasers agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), in no event shall any Initial Purchaser be required to contribute any amount in excess of the amount by which the total purchase discounts and commissions received by such Initial Purchaser with respect to the offering of the Securities exceeds the amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls an Initial Purchaser within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee, Affiliate and agent of an Initial Purchaser shall have the same rights to contribution as such Initial Purchaser, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act and each officer and director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d).
9.Default by an Initial Purchaser. If any one or more Initial Purchasers shall fail to purchase and pay for any of the Securities agreed to be purchased by such Initial Purchaser or Initial Purchasers hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Initial Purchasers shall be obligated severally to take up and pay for (in the respective proportions which the principal amount of Securities set forth opposite their names in Schedule I hereto bears to the aggregate principal amount of Securities set forth opposite the names of all the remaining Initial Purchasers) the Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase; provided, however, that in the event that the aggregate principal amount of Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase shall exceed 10% of the aggregate principal amount of Securities set forth in Schedule I hereto, the remaining Initial Purchasers shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Initial Purchasers do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Initial Purchaser or the Company. In the event of a default by any Initial Purchaser as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding five Business Days, as the Representative shall determine in order that the required changes in the Final Memorandum or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Initial Purchaser of its liability, if any, to the Company or any nondefaulting Initial Purchaser for damages occasioned by its default hereunder.
10.Termination. This Agreement shall be subject to termination in the absolute discretion of the Representative, by notice given to the Company prior to delivery of and payment for the Securities, if at any time prior to such time (i) trading in securities generally on the New York Stock Exchange shall have been suspended or limited or minimum prices shall have been established on such exchange; (ii) a banking moratorium shall have been declared either by U.S. federal or New York State authorities; (iii) there shall have occurred a material
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disruption in commercial banking or securities settlement or clearance services; or (iv) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representative, impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated in the Disclosure Package and the Final Memorandum (exclusive of any amendment or supplement thereto).
11.Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Initial Purchasers or the Company or any of the indemnified persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement.
12.Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Representative, will be mailed, delivered, telefaxed or e-mailed to the Citigroup General Counsel (fax no.: 1(646) 291-1469; email: justin.s.tichauer@citi.com) and confirmed to Citigroup at 388 Greenwich Street, New York, New York 10013, Attention: General Counsel; or, if sent to the Holdings or the Company, will be mailed, delivered or e-mailed to Andrea Fike, Esq., General Counsel and Secretary, 1100 Old Highway Eight NW, New Brighton, MN 55112, (e-mail at Andrea.Fike@apigroupinc.us) (with a copy mailed or e-mailed to Kane Kessler, P.C. (600 Third Avenue, 35th Floor, New York, New York 10016. Attention Robert L. Lawrence, Esq. at rlawrence@kanekessler.com and Mitchell D. Hollander, Esq. at mhollander@kanekessler.com).
13.Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the indemnified persons referred to in Section 8 hereof and their respective successors, and, except as expressly set forth in Section 5(k) hereof, no other person will have any right or obligation hereunder.
14.Recognition of the U.S. Special Resolution Regimes. (a) In the event that any Initial Purchaser that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Initial Purchaser of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.
(b) In the event that any Initial Purchaser that is a Covered Entity or a BHC Act Affiliate of such Initial Purchaser becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Initial Purchaser are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.
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As used in this Section 15, “BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k); “Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b), (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b) or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b); “Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable; and “U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.
15.Integration. This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company and the Initial Purchasers, or any of them, with respect to the subject matter hereof.
16.Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
17.Waiver of Jury Trial. The Company hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
18.No Fiduciary Duty. The Company hereby acknowledges that (a) the purchase and sale of the Securities pursuant to this Agreement is an arm’s-length commercial transaction between the Company, on the one hand, and the Initial Purchasers and any Affiliate through which it may be acting, on the other, (b) the Initial Purchasers are acting as principal and not as an agent or fiduciary of the Company and (c) the Company’s engagement of the Initial Purchasers in connection with the offering and the process leading up to the offering is as independent contractors and not in any other capacity. Furthermore, the Company agrees that it is solely responsible for making its own judgments in connection with the offering (irrespective of whether any of the Initial Purchasers has advised or is currently advising the Company on related or other matters). The Company agrees that they will not claim that the Initial Purchasers have rendered advisory services of any nature or respect, or owe an agency, fiduciary or similar duty to the Company, in connection with such transaction or the process leading thereto.
19.Waiver of Tax Confidentiality. Notwithstanding anything herein to the contrary, purchasers of the Securities (and each employee, representative or other agent of a purchaser) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of any transaction contemplated herein and all materials of any kind (including opinions or other tax analyses) that are provided to the purchasers of the Securities relating to such U.S. tax treatment and U.S tax structure, other than any information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws.
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20.Electronic Signatures. Any signature to this Agreement may be delivered by facsimile, electronic mail (including pdf) or any electronic signature complying with the U.S. federal ESIGN Act of 2000 or the New York Electronic Signature and Records Act or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes to the fullest extent permitted by applicable law. For the avoidance of doubt, the foregoing also applies to any amendment, extension or renewal of this Agreement.
21.Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.
22.Headings. The section headings used herein are for convenience only and shall not affect the construction hereof.
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If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement between the Company and the several Initial Purchasers.
Very truly yours,
APi Group DE, Inc.
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Name: |
Thomas A. Lydon |
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Title: |
Chief Financial Officer |
APi Group Corporation
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Name: |
Thomas A. Lydon |
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Title: |
Chief Financial Officer |
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(Signature Page to Purchase Agreement)
A.P.I. Garage Door, Inc.
A.P.I. Inc.
American Fire Protection Group, Inc.
APi Acquisition IV, Inc.
APi Acquisition V, Inc.
APi Group Headquarters, LLC
APi Group, Inc.
APi National Service Group, Inc.
APi Real Estate, LLC
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ICS, Inc.
International Fire Protection, Inc.
Jomax Construction Company, Inc.
LeJeune Steel Company
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Mid-Ohio Pipeline Company, Inc.
Mid-Ohio Pipeline Services, LLC
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Nexus Alarm and Suppression, Inc. |
Northland Constructors of Duluth, Inc.
NYCO, Inc.
Security Fire Protection Company, Inc.
Sprinkler Acquisition, LLC
Tessier’s Inc.
The Jamar Company
United Piping, Inc.
United States Alliance Fire Protection, Inc.
Viking Automatic Sprinkler Company
Western States Fire Protection Company
By: |
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Name: |
Thomas A. Lydon |
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Title: |
Chief Financial Officer |
Grunau Company, Inc.
By: |
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Name: |
Thomas A. Lydon |
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Title: |
Assistant Treasurer |
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(Signature Page to Purchase Agreement)
Cream Ridge Construction Co., Inc.
J. Fletcher Creamer & Son, Inc.
By: |
|
|
|
Name: |
Thomas A. Lydon |
|
Title: |
Assistant Secretary |
T.Texas Sprinkler, LP
|
By: |
Sprinkler Acquisition, LLC, General Partner |
By: |
|
|
|
Name: |
Thomas A. Lydon |
|
Title: |
Chief Financial Officer |
MMC Holdings, LLC
By: |
|
|
|
Name: |
Chad Nelson |
|
Title: |
Chief Manager |
MP Technologies, LLC
Technologies Inc.
By: |
|
|
|
Name: |
Lawrence Pribyl |
|
Title: |
President |
MP Mobile Solutions, LLC
MP Nexlevel of California, Inc.
MP Nexlevel, LLC
Nexlevel Inc.
TL Nexlevel Companies, LLC
TLR Consulting, Inc.
Wright Service Center, LLC
By: |
|
|
|
Name: |
Robbi Pribyl |
|
Title: |
President |
|
|
|
(Signature Page to Purchase Agreement)
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
For themselves and the other several
Initial Purchasers named in
Schedule I to the foregoing Agreement.
Citigroup Global Markets Inc.
By: |
|
|
|
Name: |
|
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Title: |
|
|
|
|
(Signature Page to Purchase Agreement)
Exhibit 31.1
CERTIFICATION
I, Russell A. Becker, Chief Executive Officer, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of APi Group Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
[Omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a).] |
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 11, 2021 |
By: |
|
/s/ Russell A. Becker |
|
Name: |
|
Russell A. Becker |
|
Title: |
|
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Thomas A. Lydon, Chief Financial Officer, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of APi Group Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
[Omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a).] |
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 11, 2021 |
By: |
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/s/ Thomas A. Lydon |
|
Name: |
|
Thomas A. Lydon |
|
Title: |
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of APi Group Corporation (the “Company”) for the quarterly period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Russell Becker, as Chief Executive Officer, and Thomas Lydon, as Chief Financial Officer, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
1. |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 11, 2021 |
By: |
|
/s/ Russell A. Becker |
|
Name: |
|
Russell A. Becker |
|
Title: |
|
Chief Executive Officer |
|
|
||
Date: August 11, 2021 |
By: |
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/s/ Thomas A. Lydon |
|
Name: |
|
Thomas A. Lydon |
|
Title: |
|
Chief Financial Officer |
Exhibit 95.1
MINE SAFETY DISCLOSURES
The following disclosures are provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) and Item 104 of Regulation S-K, which requires certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).
Mine Safety Information
Whenever the Federal Mine Safety and Health Administration (“MSHA”) believes a violation of the Mine Act, any health or safety standard or any regulation has occurred, it may issue a citation which describes the alleged violation and fixes a time within which the U.S. mining operator must abate the alleged violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until the alleged hazards are corrected. When MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay. Citations and orders can be contested and appealed, and as part of that process, may be reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the mine as well as by the MSHA inspector(s) assigned.
The following table includes information required by the Act for the quarter ended June 30, 2021.
APi Construction
Three Months Ended June 30, 2021 |
||||||||||||
Operation / MSHA Identification Number |
Section 104 S&S Citations (#) |
Section 104(b) Orders (#) |
Section 104(d) Citations and Orders (#) |
Section 110(b)(2) Violations (#) |
Section 107(a) Orders (#) |
Total Dollar Value of MSHA Assessments Proposed ($) |
Mining-Related Fatalities (#) |
Received Notice of Pattern of Violations Under Section 104(c) (Yes/No) |
Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No) |
Legal Actions Initiated During Period (#) |
Legal Actions Resolved During Period (#) |
Legal Actions Pending as of the End of the Period (#) |
Tilden Mine/2000422 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Solvay Soda Ash/4801295 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Davis Ulmer Sprinkler Company
Three Months Ended June 30, 2021 |
||||||||||||
Operation / MSHA Identification Number |
Section 104 S&S Citations (#) |
Section 104(b) Orders (#) |
Section 104(d) Citations and Orders (#) |
Section 110(b)(2) Violations (#) |
Section 107(a) Orders (#) |
Total Dollar Value of MSHA Assessments Proposed ($) |
Mining-Related Fatalities (#) |
Received Notice of Pattern of Violations Under Section 104(c) (Yes/No) |
Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No) |
Legal Actions Initiated During Period (#) |
Legal Actions Resolved During Period (#) |
Legal Actions Pending as of the End of the Period (#) |
US Salt – Watkins Glen |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Cargill – Watkins Glen |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Cargill - Lansing |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
The Jamar Company
Three Months Ended June 30, 2021 |
||||||||||||
Operation / MSHA Identification Number |
Section 104 S&S Citations (#) |
Section 104(b) Orders (#) |
Section 104(d) Citations and Orders (#) |
Section 110(b)(2) Violations (#) |
Section 107(a) Orders (#) |
Total Dollar Value of MSHA Assessments Proposed ($) |
Mining-Related Fatalities (#) |
Received Notice of Pattern of Violations Under Section 104(c) (Yes/No) |
Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No) |
Legal Actions Initiated During Period (#) |
Legal Actions Resolved During Period (#) |
Legal Actions Pending as of the End of the Period (#) |
Keetac/ 2103352 |
1 |
0 |
0 |
0 |
0 |
0 |
0 |
No
|
No |
0 |
0 |
0 |
Northland Constructors
Three Months Ended June 30, 2021 |
||||||||||||
Operation / MSHA Identification Number |
Section 104 S&S Citations (#) |
Section 104(b) Orders (#) |
Section 104(d) Citations and Orders (#) |
Section 110(b)(2) Violations (#) |
Section 107(a) Orders (#) |
Total Dollar Value of MSHA Assessments Proposed ($) |
Mining-Related Fatalities (#) |
Received Notice of Pattern of Violations Under Section 104(c) (Yes/No) |
Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No) |
Legal Actions Initiated During Period (#) |
Legal Actions Resolved During Period (#) |
Legal Actions Pending as of the End of the Period (#) |
HP 400/2101302 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Omnicone/2102782 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Sparkle Wash/2103460 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Argo/2103719 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Grayhawk HP400/2103843 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Rental/2103893 |
1 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
C2027 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Viking Automatic Sprinkler
Three Months Ended June 30, 2021 |
||||||||||||
Operation / MSHA Identification Number |
Section 104 S&S Citations (#) |
Section 104(b) Orders (#) |
Section 104(d) Citations and Orders (#) |
Section 110(b)(2) Violations (#) |
Section 107(a) Orders (#) |
Total Dollar Value of MSHA Assessments Proposed ($) |
Mining-Related Fatalities (#) |
Received Notice of Pattern of Violations Under Section 104(c) (Yes/No) |
Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No) |
Legal Actions Initiated During Period (#) |
Legal Actions Resolved During Period (#) |
Legal Actions Pending as of the End of the Period (#) |
US Steel – MinnTac |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
US Steel – KeeTac |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
|
|
|
Cleveland Cliffs – Eveleth pit and Forbes Pellet Plant |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Cleveland Cliffs – NorthShore Mining, Silver Bay Pellet Plant and Babbitt pit |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
ArcelorMittal Minorca Mine – pit/ plant |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Cleveland Cliffs – Hibbing Taconite |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Western States Fire Protection
Three Months Ended June 30, 2021 |
||||||||||||
Operation / MSHA Identification Number |
Section 104 S&S Citations (#) |
Section 104(b) Orders (#) |
Section 104(d) Citations and Orders (#) |
Section 110(b)(2) Violations (#) |
Section 107(a) Orders (#) |
Total Dollar Value of MSHA Assessments Proposed ($) |
Mining-Related Fatalities (#) |
Received Notice of Pattern of Violations Under Section 104(c) (Yes/No) |
Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No) |
Legal Actions Initiated During Period (#) |
Legal Actions Resolved During Period (#) |
Legal Actions Pending as of the End of the Period (#) |
Pend Oreille Mine/4500366 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Freeport-McMoRan Morenci Inc./0200024 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Jun. 30, 2021 |
|
Statement Of Financial Position [Abstract] | ||
Accounts receivable net of allowances | $ 4 | $ 4 |
Preferred stock no par value | $ 0.0001 | $ 0.0001 |
Preferred Shares authorized | 7,000,000 | 7,000,000 |
Preferred Shares issued | 4,000,000 | 4,000,000 |
Preferred Shares outstanding | 4,000,000 | 4,000,000 |
Common stock no par value | $ 0.0001 | $ 0.0001 |
Common shares authorized | 500,000,000 | 500,000,000 |
Common shares issued | 168,000,000 | 201,000,000 |
Dividends declared in common shares | 12,000,000 |
Condensed Consolidated Statements of Operations - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
Income Statement [Abstract] | ||||
Net revenues | $ 978 | $ 889 | $ 1,781 | $ 1,747 |
Cost of revenues | 746 | 715 | 1,368 | 1,411 |
Gross profit | 232 | 174 | 413 | 336 |
Selling, general, and administrative expenses | 185 | 147 | 368 | 335 |
Impairment of goodwill and intangible assets | 208 | |||
Operating income (loss) | 47 | 27 | 45 | (207) |
Interest expense, net | 14 | 14 | 29 | 28 |
Loss on extinguishment of debt | 9 | 9 | ||
Investment income and other, net | (6) | (11) | (9) | (14) |
Other expense, net | 17 | 3 | 29 | 14 |
Income (loss) before income taxes | 30 | 24 | 16 | (221) |
Income tax provision (benefit) | 9 | (12) | 3 | (63) |
Net income (loss) | $ 21 | $ 36 | $ 13 | $ (158) |
Net income (loss) per common share: | ||||
Basic | $ 0.09 | $ 0.18 | $ 0.06 | $ (0.93) |
Diluted | $ 0.09 | $ 0.17 | $ 0.06 | $ (0.93) |
Weighted average shares outstanding: | ||||
Basic | 201,281,939 | 169,294,244 | 196,782,691 | 169,558,163 |
Diluted | 206,378,439 | 176,259,228 | 202,495,186 | 169,558,163 |
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
Statement Of Income And Comprehensive Income [Abstract] | ||||
Net income (loss) | $ 21 | $ 36 | $ 13 | $ (158) |
Other comprehensive income (loss): | ||||
Fair value change - derivatives, net of tax (expense) benefit of ($3), $1, ($3), and $10, respectively | 9 | (3) | 8 | (30) |
Foreign currency translation adjustment | 4 | 6 | ||
Comprehensive income (loss) | $ 34 | $ 39 | $ 21 | $ (188) |
Condensed Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
Statement Of Income And Comprehensive Income [Abstract] | ||||
Tax (expense) benefit | $ (3) | $ 1 | $ (3) | $ 10 |
Nature of Business |
6 Months Ended |
---|---|
Jun. 30, 2021 | |
Organization Consolidation And Presentation Of Financial Statements [Abstract] | |
Nature of Business |
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 and Europe. |
Basis of Presentation and Significant Accounting Policies |
6 Months Ended |
---|---|
Jun. 30, 2021 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Significant Accounting Policies |
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The accompanying interim unaudited condensed consolidated financial statements (the “Interim Statements”) include the accounts of the Company and of its wholly-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 in the United States of America (“U.S. GAAP”) for complete financial statements. The unaudited condensed consolidated balance sheet as of December 31, 2020 was derived from audited financial statements for the year then ended but does not include all of the information and footnotes required by U.S. 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 be read in conjunction with the Company’s audited annual consolidated financial statements and accompanying footnotes thereto for the year ended December 31, 2020. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.
Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include cash on hand and highly liquid investments that have a maturity of three months or less when purchased. Restricted cash reflects collateral against certain bank guarantees. Restricted cash is reported as prepaid expenses and other current assets and other assets in the unaudited condensed consolidated balance sheets. Investments The Company holds investments in joint ventures which are accounted for under the equity method of accounting as the Company does not exercise control over the joint ventures. The Company’s share of earnings from the joint ventures was $1 and $5 during the three months ended June 30, 2021 and 2020, respectively, and $2 and $7 during the six months ended June 30, 2021 and 2020, respectively. The earnings are recorded within investment income and other, net in the unaudited condensed consolidated statements of operations. The investment balances were $8 and $9 as of June 30, 2021 and December 31, 2020, respectively, and are recorded within other assets in the unaudited condensed consolidated balance sheets. |
Recent Accounting Pronouncements |
6 Months Ended |
---|---|
Jun. 30, 2021 | |
New Accounting Pronouncements And Changes In Accounting Principles [Abstract] | |
Recent Accounting Pronouncements |
NOTE 3. 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 2020 audited consolidated financial statements included in the Company’s Form 10-K filed on March 24, 2021. Accounting Standards Issued and Adopted: In January 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU 2020-01”) to clarify the interaction in accounting for equity securities under Topic 321, investments accounted for under the equity method of accounting in Topic 323, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU on January 1, 2021 and it did not have a material impact on its consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions to the existing guidance for income taxes related to the approach for intra-period tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU also simplifies the accounting for income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or rates in the effective tax rate computation, the recognition of franchise tax, and the evaluation of a step-up in the tax basis of goodwill, among other clarifications. ASU 2019-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU on January 1, 2021 and it had no impact on its consolidated financial statements. |
Business Combinations |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations |
NOTE 4. BUSINESS COMBINATIONS The Company continually evaluates potential acquisitions that strategically fit within the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. Acquisitions are accounted for as business combinations using the acquisition method of accounting. As such, the Company makes a preliminary allocation of the purchase price to the tangible assets and identifiable intangible assets acquired and liabilities assumed. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Purchase price is allocated to acquired assets and liabilities assumed based upon their estimated fair values as determined based on estimates and assumptions deemed reasonable by the Company. The Company engages third-party valuation specialists to assist with preparation of critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Goodwill is attributable to the workforce of the acquired businesses, the complementary strategic fit and resulting synergies these businesses bring to existing operations, and the opportunities in new markets expected to be achieved from the expanded platform. 2021 Acquisitions During the first six months of 2021, the Company completed several individually immaterial acquisitions for consideration transferred of $13, made up of cash paid at closing of $12 and accrued consideration of $1. The results of operations of these acquisitions are included in the Company’s unaudited condensed consolidated statement of operations from their respective dates of acquisition and were not material. 2020 Acquisitions During 2020, the Company completed the acquisition of SK FireSafety (“SKG”) within the Safety Services segment and a number of other immaterial acquisitions for consideration transferred of $324, which includes a cash payment made at closing of $319, net of cash acquired, and $5 of accrued consideration that may be paid out in 1-2 years. SKG is a European market-leading provider of commercial safety services with operations primarily in the Netherlands, Belgium, Sweden, Norway, and the United Kingdom. On October 1, 2020, the Company completed the SKG Acquisition and acquired all of the outstanding stock. Through the acquisition of SKG, APG established a European platform for international organic and acquisition expansion. The other acquisitions were primarily in the Safety Services segment and based in the United States. The Company has not finalized its accounting for all 2020 acquisitions that occurred during the fourth quarter of 2020. The areas of the purchase price allocation not yet finalized are primarily related to SKG and include the valuation of intangible assets and goodwill and income tax related matters. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. During Q2 2021, we recorded a measurement period adjustment, primarily related to intangible assets and goodwill, for which the resulting impact to amortization expense was immaterial. Based on preliminary estimates, the total amount of goodwill from the 2020 acquisitions expected to be deductible for tax purposes is $20. See Note 6 – “Goodwill and Intangibles” for the provisional goodwill assigned to each segment.
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the dates of acquisition:
The Company’s acquisition purchase agreements typically include deferred payment provisions, often to sellers who become employees of the Company. The provisions are made up of three general types of arrangements- contingent compensation and contingent consideration (both of which are contingent on the future performance of the acquired entity) and deferred payments related to indemnities. Contingent compensation arrangements are contingent on the former owner’s future employment with the Company, and the related amounts are recognized over the required employment period, which is typically three to five years. Contingent consideration arrangements are not contingent on employment and are included as part of purchase consideration at the time of the initial acquisition and are paid over a three to five year period. The liability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a twelve to twenty-four month period. Deferred payments are not contingent on any future performance or employment obligations and can be offset for working capital true-ups, and representations and warranty items. The total contingent compensation arrangement liability was $15 and $39 at June 30, 2021 and December 31, 2020, respectively. The maximum payout of these arrangements upon completion of the future performance periods was $46 and $85, inclusive of the $15 and $39, accrued as of June 30, 2021 and December 31, 2020, respectively. The contingent compensation liability is included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets for all periods presented. The Company primarily determines the contingent compensation liability based on forecasted cumulative earnings compared to the cumulative earnings target set forth in the arrangement. For one of the Company’s contingent compensation arrangements, the liability is determined based on the Monte Carlo Simulation method. Compensation expense associated with these arrangements is recognized ratably over the required employment period. The total liability for deferred payments was $11 and $16 at June 30, 2021 and December 31, 2020, respectively, and are included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets for all periods presented. |
Revenue |
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Revenues [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue |
NOTE 5. REVENUE Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when or as control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Revenue is primarily recognized by the Company over time utilizing the cost-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 and six months ended June 30, 2021 and 2020, respectively. Contracts with Customers The Company derives revenue primarily from Safety Services, Specialty Services and Industrial Services contracts with a duration of less than one week to three years (with the majority of contracts with durations of less than six months) which are subject to multiple pricing options, including fixed price, unit price, time and material, or cost plus a markup. The Company 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 the cost-to-cost method of accounting, which measures progress based on the cost incurred relative to total expected cost in satisfying the performance obligation. The cost-to-cost method is used as it best depicts the continuous transfer of control of goods or services to the customer. 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 the cost-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. The Company disaggregates its revenue primarily by segment, service type, and country from which revenue is invoiced, as the nature, timing and uncertainty of cash flows are relatively consistent within each of these categories. Disaggregated revenue information is as follows:
The Company’s contracts with its customers generally require significant services to integrate complex activities and equipment into a single deliverable and are, therefore, generally accounted for as a single performance obligation to provide a single contracted service for the duration of the project. 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 performance obligations that are unsatisfied as of June 30, 2021, was $1,251. When more than one contract is entered into with a customer on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as one, or more than one, performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances 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 not distinct within the context of the original contract and, therefore, not treated as separate performance obligations but rather as a modification of 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 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 cumulative catch-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 and six months ended June 30, 2021 and 2020, 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. Contract Assets and Liabilities The Company typically invoices customers with payment terms of net due in 30 days. It is also common for contracts in the Company’s industries to specify a general contractor is not required to submit payments to a subcontractor until it has received those funds from the owner or funding source. In most instances, the Company receives payment of invoices between 30 to 90 days of the date of the invoice. The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from the Company’s projects when revenue is recognized under the cost-to-cost measure of progress and exceeds the amounts invoiced to the Company’s customers, as the amounts cannot be billed under the terms of the Company’s contracts. In addition, many of the Company’s time and material arrangements are billed in arrears pursuant to contract terms, resulting in contract assets being recorded as revenue is recognized in advance of billings. 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 June 30, 2021, none of the Company’s contracts contained a significant financing component. Contract liabilities from the Company’s contracts arise when amounts invoiced to the Company’s customers exceed revenues recognized under the cost-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. Contract assets and liabilities are classified as current in the unaudited condensed consolidated balance sheets as all amounts are expected to be relieved within one year. The opening and closing balances of accounts receivable, net of allowances, contract assets and contract liabilities from contracts with customers as of June 30, 2021 and December 31, 2020 are as follows:
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 accordance with industry practice, accounts receivable includes retentions receivable, a portion of which may not be received within one year. At June 30, 2021 and December 31, 2020, retentions receivable were $112 and $122, respectively, while the portions that may not be received within one year were $20 and $26, respectively. There were no other significant changes due to business acquisitions or significant changes in estimates of contract progress or transaction price. There were no significant impairments 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 revenues generated under the contract. Such costs, which are amortized over the life of the respective project, were not material for any period presented. |
Goodwill and Intangibles |
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Goodwill And Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangibles |
NOTE 6. GOODWILL AND INTANGIBLES Goodwill The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2021 are as follows:
As of June 30, 2021, the Company has recorded accumulated goodwill impairment charges of $193, including $83 in the Safety Services segment, $52 in the Specialty Services segment, and $58 in the Industrial Services segment. During 2020, while the Company’s services were largely deemed essential under various governmental orders, the Company did experience negative impacts from COVID-19 on its operations including impacts from the Company’s suppliers, other vendors, and customer base. In addition to the impacts of COVID-19, the Company was also impacted by a significant decline in demand and volatility in oil prices as some of the Company’s services involve work within the energy industry. As a result of these factors and the significant decline in the Company’s market capitalization during the first quarter 2020, the Company concluded an impairment triggering event had occurred for all of its reporting units and performed impairment tests for its goodwill and recoverability tests for its long-lived assets, which primarily include finite-lived intangible assets, property and equipment and right of use lease assets. During the first quarter of 2020, based on preliminary carrying values from the October 1, 2019 acquisition of APi Group, Inc. (“APi Acquisition”), the Company determined goodwill was impaired as the preliminary carrying values of some reporting units exceeded fair values. The Company recorded an impairment charge to goodwill of $203 based on preliminary carrying values. During the third quarter of 2020 when purchase accounting was finalized, the impairment charge was finalized at $197. Intangibles The Company’s identifiable intangible assets are comprised of the following as of June 30, 2021 and December 31, 2020:
Amortization expense recognized on identifiable intangible assets are as follows:
During the first quarter 2020, the Company concluded an impairment triggering event had occurred. The Company reviewed its long-lived assets for impairment and recorded a $5 preliminary impairment charge related to the intangible assets that were part of a business classified as held for sale. The impairment was based on preliminary carrying values from the APi Acquisition which were later finalized in the third quarter of 2020, and as a result the final impairment charge related to intangible assets was adjusted to $0. During the year ended December 31, 2020, the Company finalized the fair value of goodwill and intangible assets related to the APi Acquisition. The measurement period adjustments recorded during the year ended December 31, 2020 resulted in a cumulative reversal to amortization expense that had been recorded earlier in the year. If the final intangible assets fair values had been known at the date of the APi Acquisition, amortization expense would have decreased by $5 and $10 for the three and six months ended June 30, 2020, to $46 and $93, respectively. |
Fair Value of Financial Instruments |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments |
NOTE 7. 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. 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:
Recurring Fair Value Measurements The Company’s financial assets and liabilities (adjusted to fair value at least quarterly) are derivative instruments which are primarily included in other noncurrent liabilities and contingent consideration which is primarily included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets. The following tables summarize the fair values and levels within the fair value hierarchy in which the measurements fall for assets and liabilities measured on a recurring basis as of June 30, 2021 and December 31, 2020:
The Company determines the fair value of its interest rate swaps (“Derivatives”) 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. 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., potential payment amounts, length of measurement periods, manner of calculating any amounts due) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows, and a discount rate. Depending on the contractual terms of the purchase agreement, the probability of achieving future cash flows or earnings generally represent the only significant unobservable inputs. 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:
At June 30, 2021, the remaining open contingent consideration arrangements are set to expire at various dates through 2024. 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 six months ended June 30, 2021. Fair Value Estimates The following table presents the carrying amount and fair value of the Company’s non-variable interest rate debt (“Senior Notes,” as defined in Note 10 – “Debt”), including current portion and excluding unamortized debt issuance costs, which is estimated by discounting future cash flows at currently available rates for borrowing arrangements with similar terms and conditions, which are considered to be Level 2 inputs under the fair value hierarchy. The carrying values of variable interest rate long-term debt, including current portions, approximate their fair values because of the variable interest rates of these instruments, which generally are reset monthly.
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Derivatives |
6 Months Ended |
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Jun. 30, 2021 | |
Derivative Instruments And Hedging Activities Disclosure [Abstract] | |
Derivatives |
NOTE 8. DERIVATIVES From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate and foreign currency rate fluctuations. The Company does not enter into derivative transactions for trading purposes. Interest Rate Swaps The Company manages its fixed and floating rate debt mix using interest rate swaps. Interest rate swap contracts are used by the Company to separate interest rate risk management from the debt funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense in the unaudited condensed consolidated statement of operations. At June 30, 2021, the Company had a $720 notional amount interest rate swap that fixes the London Interbank Offering Rate (“LIBOR”) at 1.62%. This interest rate swap is designated as a cash flow hedge of the interest rate risk attributable to the Company’s forecasted variable interest payments and has a maturity date of October 2024. The fair value of the interest rate swap designated as an effective hedge was a liability of $24 as of June 30, 2021 and a liability of $35 as of December 31, 2020. The decrease in the liability was primarily driven by changes in the applicable forward yield curves related to the LIBOR. The Company is not party to any derivatives that require collateral to be posted prior to settlement. Foreign Currency Contracts The Company used foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions. At June 30, 2021, the Company had no foreign currency contracts outstanding that are not designated as effective hedges for accounting purposes. Fair market value gains or losses on foreign currency contracts not designated as hedges were included in the results of operations and are classified in other (income) expense, net in the unaudited condensed consolidated statement of operations. The Company recognized income of $0 and $1 in other (income) expense, net, during the three and six months ended June 30, 2021, respectively, and $0 during the three and six months ended June 30, 2020 related to derivatives that are not designated as hedging instruments. As of December 31, 2020, foreign currency contracts carried a liability balance of $9 and an asset balance of less than $1. Cash Flow Hedging Currency exchange contracts utilized to maintain the functional currency value of expected financial transactions denominated in foreign currencies are designated as cash flow hedges. Gains and losses related to changes in the market value of these contracts are reported as a component of accumulated other comprehensive income (loss) (“AOCI”) within shareholders’ equity in the unaudited condensed consolidated balance sheets and reclassified to earnings in the same line item in the unaudited condensed consolidated statements of operations and in the same period as the recognition of the underlying hedged transaction. The Company periodically assesses whether its currency exchange contracts are effective, and when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively. During the first quarter of 2021, the Company entered into cross-currency swaps with gross notional U.S. dollar equivalent amount of $120. The fair value of the cross-currency swaps was a liability of less than $1 as of June 30, 2021. Net Investment Hedge The Company has net investments in foreign subsidiaries subject to changes in foreign currency exchange rates. During the first quarter 2021, the Company entered into a $230 notional cross 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 included in AOCI in the unaudited condensed consolidated balance sheets. The fair value of the net investment hedge was an asset of $1 as of June 30, 2021. |
Property and Equipment, Net |
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Property Plant And Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, Net |
NOTE 9. PROPERTY AND EQUIPMENT, NET The components of property and equipment as of June 30, 2021 and December 31, 2020 are as follows:
Depreciation expense related to property and equipment, including finance leases, was $20 and $23 during the three months ended June 30, 2021 and 2020, respectively, and $39 and $41 during the six months ended June 30, 2021 and 2020, respectively. Depreciation expense is included within cost of revenues and selling, general and administrative expenses in the unaudited condensed consolidated statements of operations. During the second quarter of 2020, the Company finalized the fair values of property and equipment acquired in the APi Acquisition. These measurement period adjustments resulted in a cumulative adjustment to depreciation expense. If the property and equipment fair values had been known at the date of the APi Acquisition, depreciation expense would have increased by $2 to $43 for the six months ended June 30, 2020. |
Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt |
NOTE 10. DEBT Debt obligations consist of the following:
During the second quarter of 2021, APi Group DE, Inc, a wholly-owned subsidiary, completed a private offering of $350 aggregate principal amount of 4.125% Senior Notes (“Senior Notes”) issued under an indenture dated June 22, 2021 (the “Indenture”). The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Company’s existing and future domestic subsidiaries. The Company used the net proceeds from the sale of the Senior Notes to repay the $250 million 2020 Term Loan, prepay a portion of the 2019 Term Loan and fund general corporate purposes. In connection with the repayment of the 2020 Term Loan and prepayment on the 2019 Term Loan, the Company incurred a loss on debt extinguishment of $9 related to unamortized debt issuance costs, which was recorded within loss on debt extinguishment in the unaudited condensed consolidated statements of operations. The Senior Notes contain customary terms and provisions (including representations, covenants, and conditions). Certain covenants, among other things, restrict the Company's and its subsidiaries' ability to incur indebtedness, grant liens, make investments and sell assets. The Senior Notes also contain customary events of default, covenants, and representations and warranties. Financial covenants include: a senior secured leverage ratio no greater than 3.5 to 1.0, a total net leverage ratio of 3.0 to 1.0, and a fixed charge coverage ratio of 2.0 to 1.0. As of June 30, 2021, there was $1,140 of principal outstanding under the 2019 Term Loan. As of June 30, 2021, the Company had a 5-year interest rate swap with respect to $720 of notional value of the 2019 Term Loan, exchanging one-month LIBOR for a fixed rate of 1.62% per annum. Accordingly, the Company’s fixed interest rate per annum on the swapped $720 notional value of the 2019 Term Loan is 4.12% through its maturity. The remaining $420 of the 2019 Term Loan balance is bearing interest at 2.59% per annum based on one-month LIBOR plus 250 basis points. In addition, during the first quarter 2021, the Company entered into a cross currency interest rate swap with a notional value of $230. The swap reduces the Company’s interest expense by approximately $3 annually and reduces its overall effective interest rate by approximately 20 basis points. The interest rate applicable to borrowings under the $300 senior secured revolving credit facility (the “Revolving Credit Facility”) is, at the Company’s option, either (1) a base rate plus an applicable margin equal to 1.25%, or (2) a Eurocurrency rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25%.At June 30, 2021 and December 31, 2020, the Company had no amounts outstanding under the Revolving Credit Facility, and $227 and $230 was available at June 30, 2021 and December 31, 2020, respectively, after giving effect to $73 and $70 of outstanding letters of credit. As of June 30, 2021 and December 31, 2020, the Company was in compliance with all applicable debt covenants. As of June 30, 2021 and December 31, 2020, the Company had $2 and $5 in notes outstanding, respectively, for the acquisition of equipment and vehicles. |
Income Taxes |
6 Months Ended |
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Jun. 30, 2021 | |
Income Tax Disclosure [Abstract] | |
Income Taxes |
Note 11. 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 28.9% and (49.0)% for the three months ended June 30, 2021 and 2020, respectively, and 17.0% and 28.5% for the six months ended June 30, 2021 and 2020, respectively. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% for the six months ended June 30, 2021 is due to nondeductible permanent items, state taxes, and taxes on foreign earnings in jurisdictions that have higher tax rates. As of June 30, 2021, the Company’s deferred tax assets included a valuation allowance of $4 primarily related to certain deferred tax assets of the Company’s foreign subsidiaries and a capital loss carryforward in the U.S. 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 June 30, 2021, the Company had gross federal, state and foreign net operating loss carryforwards of approximately $0, $15 and $9, respectively. The state net operating losses have carryforward periods of five to twenty years and begin to expire in 2024. The foreign net operating losses generally have carryback periods of three years, carryforward periods of twenty years, or are indefinite and begin to expire in 2034. The Company’s liability for unrecognized tax benefits is recorded within other noncurrent liabilities in the unaudited 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. As of June 30, 2021 and December 31, 2020, the total gross unrecognized tax benefits were $3 and $2, respectively. The Company had accrued gross interest and penalties as of June 30, 2021 and December 31, 2020 of $1 and $1, respectively. During the three and six months ended June 30, 2021 and 2020, the Company recognized net interest expense of $0 for all periods. If all of the Company’s unrecognized tax benefits as of June 30, 2021 were recognized, $2 would impact the Company’s effective tax rate. The Company expects $1 of unrecognized tax benefits to expire in the next twelve months due to lapses in the statute of limitations. As of June 30, 2021, with few immaterial exceptions, neither the Company nor its subsidiaries are subject to examination prior to tax year 2014. The U.S. federal jurisdiction exam for the period ended December 31, 2017 is expected to close in the third quarter and is not expected to have a material impact on the consolidated financial statements. There are various other audits in state and foreign jurisdictions. No adjustments have been proposed and the Company does not expect the results of the audits to have a material impact on the consolidated financial statements. On December 27, 2020, the Consolidated Appropriations Act was signed into law, which included a temporary provision that allows for a 100 percent deduction for business meals expenses purchased from a restaurant between December 31, 2020, and January 1, 2023. The tax law changes in the Consolidated Appropriations Act did not have a material impact on the Company’s quarterly income tax provision. |
Employee Benefit Plans |
6 Months Ended |
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Jun. 30, 2021 | |
Compensation And Retirement Disclosure [Abstract] | |
Employee Benefit Plans |
Note 12. Employee Benefit Plans Certain Company subsidiaries, including certain subsidiaries in Canada, contribute amounts to multiemployer pension plans and other multiemployer benefit plans and trusts, which are recorded as a component of employee wages and salaries within costs of revenue. Contributions are generally based on fixed amounts per hour per employee for employees covered under these plans. Multiemployer plan contribution rates are determined annually and assessed on a pay-as-you-go basis based on union employee payrolls. Union payrolls cannot be determined for future periods because the number of union employees employed at a given time, and the plans in which they participate, vary depending upon the location and number of ongoing projects and the need for union resources in connection with those projects. Total consolidated contributions to multiemployer plans were $24 and $19 during the three months ended June 30, 2021 and 2020, respectively and $43 and $40 during the six months ended June 30, 2021 and 2020, respectively. The Company also has a trustee-administered profit sharing retirement plan covering substantially all employees not covered by collective bargaining agreements and also adopted a profit sharing plan for employees in Canada (collectively, “Profit Sharing Plans”). The Profit Sharing Plans provide for annual discretionary contributions in amounts based on a performance grid as determined by the Company’s directors. The Company recognized $4 and $3 in expense during the three months ended June 30, 2021 and 2020, respectively and $7 and $6 in expense during the six months ended June 30, 2021 and 2020, respectively, in connection with these plans. |
Related-Party Transactions |
6 Months Ended |
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Jun. 30, 2021 | |
Related Party Transactions [Abstract] | |
Related-Party Transactions |
Note 13. Related-Party Transactions An annual dividend for Preferred Shares was declared as of December 31, 2020 and settled in shares during January 2021. The Company issued 12.4 million shares to Mariposa Acquisition IV, LLC, a related entity that is controlled by the co-chairperson of the Company’s Board of Directors. In addition, the Company incurred advisory fees of $1 during both the three months ended June 30, 2021 and 2020, respectively, and $2 during both the six months ended June 30, 2021 and 2020, payable to Mariposa Capital, LLC, an entity owned by the co-chairperson of the Company’s Board of Directors. From time to time the Company also enters into other immaterial related party transactions. |
Earnings (Loss) Per Share |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (Loss) Per Share |
Note 14. Earnings (Loss) Per Share Net income is allocated between the Company’s common shares and other participating securities based on their participation rights. The Preferred Shares represent participating securities. Earnings attributable to Preferred Shares are not included in earnings attributable to common shares in calculating earnings per common share (the two-class method). For periods of net loss, there is no impact from the two-class method on earnings (loss) per share (“EPS”) as net loss is allocated to common shares because Preferred Shares are not contractually obligated to share the loss. The following table sets forth the computation of earnings (loss) per common share using the two-class method. The dilutive effect of outstanding Preferred Shares and the Preferred Share dividend is reflected in diluted EPS using the if-converted method, and warrants, options, and restricted and performance shares are reflected using the treasury stock method. For periods of net loss, basic and diluted EPS are the same, as the assumed exercise of Preferred Shares, restricted and performance shares, warrants and stock options are anti-dilutive (amounts in millions, except share and per share amounts):
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information |
Note 15. Segment Information The Company manages its operations under three operating segments which represent the Company’s three reportable segments: Safety Services, Specialty Services, and Industrial Services. This structure is generally focused on various businesses related to contracting services and maintenance of industrial and commercial facilities. All three reportable segments derive their revenue from installation, inspection, maintenance, service and repair, retrofitting and upgrading, engineering and design, distribution, fabrication, and various types of other services primarily in the United States as well as Canada and Europe. The Safety Services segment focusing on end-to-end integrated occupancy systems (fire protection solutions, HVAC and entry systems), including design, installation, inspection and service of these integrated systems. The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high tech, industrial and special-hazard settings. The Specialty Services segment provides a variety of infrastructure services and specialized industrial plant services, which includes maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer and telecommunications infrastructure. This segment’s services include engineering and design, fabrication, installation, maintenance service and repair, and retrofitting and upgrading. Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants and governmental agencies throughout the United States. The Industrial Services segment provides a variety of services to the energy industry focused on transmission and distribution. This segment’s services include pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance The accounting policies of the reportable segments are the same as those described in Note 2 – “Basis of Presentation and Significant Accounting Policies.” All intercompany transactions and balances are eliminated in consolidation. Intercompany revenues 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 certain non-U.S. GAAP financial measures, including EBITDA. The Company believes these non-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 is presented and reconciled to consolidated financial information in the following tables, including a reconciliation of consolidated operating income to EBITDA. The tables below may contain slight summation differences due to rounding:
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Subsequent Events |
6 Months Ended |
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Jun. 30, 2021 | |
Subsequent Events [Abstract] | |
Subsequent Events |
Note 16. SUBSEQUENT EVENTS During July 2021, the Company completed an acquisition within the Safety Services segment for a purchase price of $34, primarily made up of cash paid at closing, and also closed several other individually immaterial acquisitions. On July 27, 2021, the Company announced it has entered into a definitive agreement to acquire the Chubb Limited (“Chubb”) fire and security business from Carrier Global Corporation for an enterprise value of $3,100, which is comprised of $2,900 cash and approximately $200 of assumed liabilities, and other adjustments. The transaction is expected to be funded through a combination of cash on hand, perpetual preferred equity financing, and debt, and is expected to close around year-end 2021. |
Basis of Presentation and Significant Accounting Policies (Policies) |
6 Months Ended |
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Jun. 30, 2021 | |
Accounting Policies [Abstract] | |
Principles of consolidation |
Principles of consolidation The accompanying interim unaudited condensed consolidated financial statements (the “Interim Statements”) include the accounts of the Company and of its wholly-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 in the United States of America (“U.S. GAAP”) for complete financial statements. The unaudited condensed consolidated balance sheet as of December 31, 2020 was derived from audited financial statements for the year then ended but does not include all of the information and footnotes required by U.S. 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 be read in conjunction with the Company’s audited annual consolidated financial statements and accompanying footnotes thereto for the year ended December 31, 2020. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period. |
Cash, Cash Equivalents and Restricted Cash |
Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include cash on hand and highly liquid investments that have a maturity of three months or less when purchased. Restricted cash reflects collateral against certain bank guarantees. Restricted cash is reported as prepaid expenses and other current assets and other assets in the unaudited condensed consolidated balance sheets. |
Investments |
Investments The Company holds investments in joint ventures which are accounted for under the equity method of accounting as the Company does not exercise control over the joint ventures. The Company’s share of earnings from the joint ventures was $1 and $5 during the three months ended June 30, 2021 and 2020, respectively, and $2 and $7 during the six months ended June 30, 2021 and 2020, respectively. The earnings are recorded within investment income and other, net in the unaudited condensed consolidated statements of operations. The investment balances were $8 and $9 as of June 30, 2021 and December 31, 2020, respectively, and are recorded within other assets in the unaudited condensed consolidated balance sheets. |
Business Combinations (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Preliminary Fair Value of Consideration Transferred and the Preliminary Estimated Fair Values of the Assets Acquired and Liabilities Assumed |
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the dates of acquisition:
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Revenue (Tables) |
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Revenues [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Disaggregated Revenue |
The Company disaggregates its revenue primarily by segment, service type, and country from which revenue is invoiced, as the nature, timing and uncertainty of cash flows are relatively consistent within each of these categories. Disaggregated revenue information is as follows:
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Summary of Accounts Receivable, Net of Allowances, Contract Assets and Contract Liabilities from Contracts with Customer |
The opening and closing balances of accounts receivable, net of allowances, contract assets and contract liabilities from contracts with customers as of June 30, 2021 and December 31, 2020 are as follows:
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Goodwill and Intangibles (Tables) |
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Goodwill And Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Changes In Carrying Amounts of Goodwill By Reportable Segments |
The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2021 are as follows:
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Summary of Identifiable Intangible Assets |
The Company’s identifiable intangible assets are comprised of the following as of June 30, 2021 and December 31, 2020:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Amortization Expense Recognized on Identifiable Intangible Assets |
Amortization expense recognized on identifiable intangible assets are as follows:
|
Fair Value of Financial Instruments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Fair Value Measurement Assets And Liabilities Measured On Recurring Basis |
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 June 30, 2021 and December 31, 2020:
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Summary of Reconciliation of Fair Value of Contingent Consideration Obligations |
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:
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Summary of Carrying And Fair Value Of Non-Variable Interest Rate Debt |
The following table presents the carrying amount and fair value of the Company’s non-variable interest rate debt (“Senior Notes,” as defined in Note 10 – “Debt”), including current portion and excluding unamortized debt issuance costs, which is estimated by discounting future cash flows at currently available rates for borrowing arrangements with similar terms and conditions, which are considered to be Level 2 inputs under the fair value hierarchy. The carrying values of variable interest rate long-term debt, including current portions, approximate their fair values because of the variable interest rates of these instruments, which generally are reset monthly.
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Property and Equipment, Net (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property Plant And Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Components of Property and Equipment |
The components of property and equipment as of June 30, 2021 and December 31, 2020 are as follows:
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Debt (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Debt Obligations |
Debt obligations consist of the following:
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Earnings (Loss) Per Share (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Computation Earnings (Loss) Per Common Share Using Two Class Method |
The following table sets forth the computation of earnings (loss) per common share using the two-class method. The dilutive effect of outstanding Preferred Shares and the Preferred Share dividend is reflected in diluted EPS using the if-converted method, and warrants, options, and restricted and performance shares are reflected using the treasury stock method. For periods of net loss, basic and diluted EPS are the same, as the assumed exercise of Preferred Shares, restricted and performance shares, warrants and stock options are anti-dilutive (amounts in millions, except share and per share amounts):
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Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Reconciliation Operating Income to EBITDA |
Summarized financial information for the Company’s reportable segments is presented and reconciled to consolidated financial information in the following tables, including a reconciliation of consolidated operating income to EBITDA. The tables below may contain slight summation differences due to rounding:
|
Nature of Business - Additional Information (Detail) |
Jun. 30, 2021
Location
|
---|---|
Organization Consolidation And Presentation Of Financial Statements [Abstract] | |
Number of locations | 200 |
Basis of Presentation and Significant Accounting Policies - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jun. 30, 2021 |
Mar. 31, 2021 |
Jun. 30, 2020 |
Mar. 31, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
Dec. 31, 2020 |
|
Earnings | $ 21 | $ (8) | $ 36 | $ (194) | $ 13 | $ (158) | |
Joint Ventures [Member] | Other Assets [Member] | |||||||
Investment balance | 8 | 8 | $ 9 | ||||
Joint Ventures [Member] | Investment Income and Other, Net [Member] | |||||||
Earnings | $ 1 | $ 5 | $ 2 | $ 7 |
Business Combinations - Summary of Preliminary Fair Value of Consideration of Assets Acquired and Liabilities Assumed (Detail) $ in Millions |
12 Months Ended |
---|---|
Dec. 31, 2020
USD ($)
| |
Business Acquisition [Line Items] | |
Cash paid at closing | $ 329 |
Deferred consideration | 5 |
Total consideration | 334 |
Cash | 10 |
Other current assets | 76 |
Property and equipment | 12 |
Goodwill | 215 |
Other noncurrent assets | 14 |
Current liabilities | (54) |
Noncurrent liabilities | (38) |
Net assets acquired | 334 |
Customer Relationships [Member] | |
Business Acquisition [Line Items] | |
Intangible assets other then goodwill | 82 |
Trade names and Trademarks [Member] | |
Business Acquisition [Line Items] | |
Intangible assets other then goodwill | 16 |
Contractual Backlog [Member] | |
Business Acquisition [Line Items] | |
Intangible assets other then goodwill | $ 1 |
Revenue - Additional Information (Detail) - USD ($) |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2021 |
Dec. 31, 2020 |
|
Aggregate amount of transaction price allocated to unsatisfied performance obligation | $ 1,251,000,000 | |
Customers with payment terms | 30 days | |
Retentions receivable | $ 112,000,000 | $ 122,000,000 |
Retentions receivable within one year | 20,000,000 | $ 26,000,000 |
Impairment of contract assets | $ 0 | |
Minimum [Member] | ||
Payment of invoices | 30 days | |
Maximum [Member] | ||
Payment of invoices | 90 days |
Revenue - Summary of Accounts Receivable, Net of Allowances, Contract Assets and Contract Liabilities from Contracts with Customer (Detail) - USD ($) $ in Millions |
Jun. 30, 2021 |
Dec. 31, 2020 |
---|---|---|
Revenues [Abstract] | ||
Accounts receivable, net of allowances | $ 664 | $ 639 |
Contract assets | 184 | 142 |
Contract liabilities | $ 232 | $ 219 |
Goodwill and Intangibles - Summary of Changes In Carrying Amounts of Goodwill By Reportable Segments (Detail) $ in Millions |
6 Months Ended |
---|---|
Jun. 30, 2021
USD ($)
| |
Goodwill [LineItems] | |
Beginning Balance | $ 1,082 |
Acquisitions | 12 |
Measurement period adjustments and other | (15) |
Ending Balance | 1,079 |
Safety Services [Member] | |
Goodwill [LineItems] | |
Beginning Balance | 906 |
Acquisitions | 7 |
Measurement period adjustments and other | (14) |
Ending Balance | 899 |
Specialty Services [Member] | |
Goodwill [LineItems] | |
Beginning Balance | 172 |
Acquisitions | 5 |
Measurement period adjustments and other | (1) |
Ending Balance | 176 |
Industrial Services [Member] | |
Goodwill [LineItems] | |
Beginning Balance | 4 |
Ending Balance | $ 4 |
Goodwill and Intangibles - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2021 |
Sep. 30, 2020 |
Jun. 30, 2020 |
Mar. 31, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
Goodwill [LineItems] | ||||||
Goodwill, impairment loss | $ 193 | |||||
Amortization expense | $ 32 | $ 51 | 63 | $ 103 | ||
APi Acquisition [Member] | ||||||
Goodwill [LineItems] | ||||||
Goodwill impairment charges | $ 197 | $ 203 | ||||
Intangible assets impairment charges | $ 0 | $ 5 | ||||
Adjustment of cumulative amortization expense reversed | 5 | 10 | ||||
Amortization expense | $ 46 | $ 93 | ||||
Safety Services [Member] | ||||||
Goodwill [LineItems] | ||||||
Goodwill, impairment loss | 83 | |||||
Specialty Services [Member] | ||||||
Goodwill [LineItems] | ||||||
Goodwill, impairment loss | 52 | |||||
Industrial Services [Member] | ||||||
Goodwill [LineItems] | ||||||
Goodwill, impairment loss | $ 58 |
Goodwill and Intangibles - Summary of Amortization Expense Recognized on Identifiable Intangible Assets (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
Finite-Lived Intangible Assets [Line Items] | ||||
Total intangible asset amortization expense | $ 32 | $ 51 | $ 63 | $ 103 |
Cost of Revenues [Member] | ||||
Finite-Lived Intangible Assets [Line Items] | ||||
Total intangible asset amortization expense | 2 | 23 | 3 | 45 |
Selling, General and Administrative Expenses [Member] | ||||
Finite-Lived Intangible Assets [Line Items] | ||||
Total intangible asset amortization expense | $ 30 | $ 28 | $ 60 | $ 58 |
Fair Value of Financial Instruments - Summary of Reconciliation of Fair Value of Contingent Consideration Obligations (Detail) $ in Millions |
6 Months Ended |
---|---|
Jun. 30, 2021
USD ($)
Arrangement
| |
Fair Value Assets And Liabilities Measured On Recurring Basis Unobservable Input Reconciliation [Abstract] | |
Balances at beginning of period | $ 7 |
Issuances | |
Settlements | (6) |
Adjustments to fair value | |
Balance at end of period | $ 1 |
Number of open contingent consideration arrangements at the end of period | Arrangement | 2 |
Maximum potential payout at end of period | $ 2 |
Fair Value of Financial Instruments - Summary of Carrying And Fair Value Of Non-Variable Interest Rate Debt (Detail) - Senior Notes [Member] - Fair Value, Inputs, Level 2 [Member] - Non-Variable Interest Rate Debt [Member] $ in Millions |
Jun. 30, 2021
USD ($)
|
---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Non-Variable Interest Rate Debt, Carrying Value | $ 350 |
Non-Variable Interest Rate Debt, Fair Value | $ 348 |
Property and Equipment, Net - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
Property, Plant and Equipment [Line Items] | ||||
Depreciation | $ 20 | $ 23 | $ 39 | $ 41 |
APi Acquisition [Member] | ||||
Property, Plant and Equipment [Line Items] | ||||
Depreciation | 43 | |||
Depreciation expense would have been higher , if fair value known at business acquisition amount | $ 2 |
Employee Benefit Plans - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
ESPP [Member] | ||||
Multiemployer Plans [Line Items] | ||||
Share-based compensation arrangement by share-based payment award, purchase price of common stock, percent | 85.00% | |||
Maximum number of shares purchased in offering period | 500 | |||
Maximum value of common stock purchased during period under ESPP | $ 10,000 | |||
Expense related to ESPP | $ 1 | 2 | ||
Multiemployer Pension And Other Multiemployer Benefit Plans And Trusts [Member] | ||||
Multiemployer Plans [Line Items] | ||||
Multiemployer Plan Contributions | 24 | $ 19 | 43 | $ 40 |
Profit Sharing Plan [Member] | ||||
Multiemployer Plans [Line Items] | ||||
Expense recognized | $ 4 | $ 3 | $ 7 | $ 6 |
Related-Party Transactions - Additional Information (Detail) - USD ($) shares in Millions, $ in Millions |
1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|---|
Jan. 31, 2021 |
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
Dec. 31, 2020 |
|
Related Party Transaction [Line Items] | ||||||
Dividends declared in common shares | 12.0 | |||||
Mariposa Acquisition I V L L C [Member] | ||||||
Related Party Transaction [Line Items] | ||||||
Advisory service fees payable | $ 1 | $ 1 | $ 2 | $ 2 | ||
Preferred Stock [Member] | Mariposa Acquisition I V L L C [Member] | ||||||
Related Party Transaction [Line Items] | ||||||
Dividends declared in common shares | 12.4 |
Earnings (Loss) Per Share - Summary of Computation Earnings (Loss) Per Common Share Using Two Class Method (Detail) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2021 |
Mar. 31, 2021 |
Jun. 30, 2020 |
Mar. 31, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
Basic earnings (loss) per common share: | ||||||
Net income (loss) | $ 21 | $ (8) | $ 36 | $ (194) | $ 13 | $ (158) |
Less income attributable to Preferred Shares | (3) | (6) | (2) | |||
Net income (loss) attributable to common shareholders - basic | $ 18 | $ 30 | $ 11 | $ (158) | ||
Weighted average shares outstanding - basic | 201,281,939 | 169,294,244 | 196,782,691 | 169,558,163 | ||
Basic earnings (loss) per common share | $ 0.09 | $ 0.18 | $ 0.06 | $ (0.93) | ||
Diluted earnings (loss) per common share: | ||||||
Net income (loss) | $ 21 | $ (8) | $ 36 | $ (194) | $ 13 | $ (158) |
Less income attributable to Preferred Shares | (3) | (6) | (2) | |||
Net income (loss) attributable to common shareholders - diluted | $ 18 | $ 30 | $ 11 | $ (158) | ||
Weighted average shares outstanding - basic | 201,281,939 | 169,294,244 | 196,782,691 | 169,558,163 | ||
Dilutive securities: | ||||||
RSUs, warrants and stock options | 660,735 | 483,162 | 2,302,651 | |||
Shares issuable pursuant to the annual Preferred Share dividend | 4,435,765 | 6,481,822 | 3,409,844 | |||
Weighted average shares outstanding - diluted | 206,378,439 | 176,259,228 | 202,495,186 | 169,558,163 | ||
Diluted earnings (loss) per common share | $ 0.09 | $ 0.17 | $ 0.06 | $ (0.93) |
Segment Information - Additional Information (Detail) |
6 Months Ended |
---|---|
Jun. 30, 2021
Segment
| |
Segment Reporting [Abstract] | |
Number of operating segments | 3 |
Number of reportable segments | 3 |
Subsequent Events - Additional Information (Detail) - Subsequent Event [Member] - USD ($) $ in Millions |
1 Months Ended | |
---|---|---|
Jul. 27, 2021 |
Jul. 31, 2021 |
|
Safety Services [Member] | ||
Subsequent Event [Line Items] | ||
Purchase price value | $ 34 | |
Chubb Limited (“Chubb”) Fire and Security Business [Member] | ||
Subsequent Event [Line Items] | ||
Purchase price value | $ 3,100 | |
Cash acquired | 2,900 | |
Assumed liabilities, and other adjustments | $ 200 |
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