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Business Combinations | 6 Months Ended
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Jun. 30, 2022
Business Combinations [Abstract] |
Business Combinations | NOTE 4. BUSINESS COMBINATIONS The Company continually evaluates potential acquisitions that strategically fit with 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, with limited exceptions as permitted pursuant to U.S. GAAP, as determined based on estimates and assumptions deemed reasonable by the Company. The Company engages third-party valuation specialists to assist with preparation of critical assumptions and calculations of the fair value of acquired tangible and intangible assets in connection with significant acquisitions. The 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. 2022 Chubb Acquisition On January 3, 2022, the Company completed its acquisition of the Chubb fire and security business (the "Chubb Acquisition"). The Chubb fire and security business (the "Chubb business") is a globally recognized fire safety and security services provider, offering customers complete and reliable services from design and installation to monitoring and on-going maintenance and recurring services. The Chubb business is headquartered in the United Kingdom, and has operations in 17 countries, expanding the Company's geographic footprint to a total of approximately 20 countries. The results of the Chubb business are reported within the Company's Safety Services segment. The total net consideration after estimated working capital adjustments was $2,899, which included aggregate cash consideration of $2,935 paid by the Company for the stock purchase of the Chubb business. Cash consideration was funded through a combination of cash on hand and net proceeds from the private placement of Series B Preferred Stock (as defined in Note 16 - "Related-Party Transactions"), the offering of the 4.750% Senior Notes, and the 2021 Term Loan (both defined in Note 12 - "Debt"). Total consideration is still subject to post closing adjustments, which the Company anticipates will be finalized during the fourth quarter of 2022. During the three and six months ended June 30, 2022, the Company incurred transaction costs of $0 and $24, respectively, which were expensed and included as a component of selling, general, and administrative expenses in the condensed consolidated statements of operations. The Chubb Acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). The purchase price has been preliminarily allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon their estimated fair values, with the exception of the following: (1) pre-acquisition contingencies which are recognized and measured in accordance with ASC 450, Contingencies (“ASC 450”) if fair value cannot be determined; (2) deferred income tax assets acquired and liabilities assumed are recognized and measured in accordance with ASC 740, Income Taxes; (3) pensions and other post-retirement benefits other than pensions are recognized and measured in accordance with ASC 715, Compensation – Retirement Benefits; (4) contract assets and liabilities are measured and recognized in accordance with ASC 606, Revenue from Contracts with Customers; and (5) certain lease related assets and liabilities which are measured and recognized in accordance with ASC 842, Leases. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of the Chubb Acquisition:
Cash |  | $ | 60 |
Accounts receivable |  |  | 438 |
Inventories |  |  | 67 |
Contract assets |  |  | 183 |
Other current assets |  |  | 20 |
Property and equipment |  |  | 67 |
Operating lease right of use assets |  |  | 154 |
Pension and post-retirement assets |  |  | 626 |
Other noncurrent assets |  |  | 20 |
Intangible assets |  |  | 1,385 |
Goodwill |  |  | 1,229 |
Accounts payable |  |  | (191 | )
Contract liabilities |  |  | (162 | )
Accrued expenses |  |  | (219 | )
Finance and operating lease liabilities |  |  | (154 | )
Pension and post-retirement obligations |  |  | (75 | )
Deferred tax liabilities |  |  | (465 | )
Other noncurrent liabilities |  |  | (84 | )
Net assets acquired |  | $ | 2,899 |
Since the Chubb Acquisition occurred on January 3, 2022, the Company has not finalized its accounting for any areas of purchase price allocation related to the Chubb Acquisition. The Company anticipates that it will finalize its accounting for the Chubb Acquisition during the fourth quarter of 2022. During the three months ended June 30, 2022, the Company recorded a measurement period adjustments, primarily related to working capital balances, property, leases, and other noncurrent liabilities. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill. The Company has assigned the provisional goodwill of $1,229 to its Safety Services reportable segment (see Note 7 - "Goodwill and Intangibles"). Based on U.S. income tax principles related to acquisitions of non-U.S. entities, the Company does not expect any of the provisional amount of goodwill to be deductible for U.S. income tax purposes. The Company has identified the following significant intangible assets: customer relationships, trade names and trademarks, and contractual backlog. As of the effective date of the Chubb Acquisition, identifiable intangible assets are required to be measured at fair value, and these assets could include assets that are not intended to be used or sold or that are intended to be used in a manner other than their highest and best use. For purposes of these condensed consolidated financial statements, the fair value and weighted-average useful lives of these intangible assets have been estimated using variations of the income approach. Specifically, the excess earnings method was utilized to estimate the fair value of the customer relationships and the contractual backlog. The relief from royalty method was utilized to estimate the fair value of the trade names and trademarks. Significant inputs used to value these intangible assets include projections of future cash flows, long-term growth rates, customer attrition rates, discount rates, royalty rates, and applicable income tax rates. The following table summarizes the preliminary fair value of the identifiable intangible assets:
Customer relationships |  | $ | 825 |
Trade names and trademarks |  |  | 550 |
Contractual backlog |  |  | 10 |
Total intangibles |  | $ | 1,385 |
The estimated useful lives over which the intangible assets will be amortized are as follows: customer relationships (15 years), trade names and trademarks (15 years), and contractual backlog (1 year). The results of operations for the Chubb business are included in the consolidated financial statements of the Company from the date of acquisition. Pro forma consolidated financial information The following pro forma consolidated financial information reflects the results of operations of the Company for the three and six months ended June 30, 2021 as if the Chubb Acquisition and related financing had occurred as of January 1, 2021, after giving effect to certain purchase accounting and financing adjustments. These amounts are based on financial information of the Chubb business and are not necessarily indicative of what the Company’s operating results would have been had the Chubb Acquisition and related financing taken place on January 1, 2021.
|  | Three Months Ended June 30, 2021 |  |  | Six Months Ended June 30, 2021 |
Net revenues |  | $ | 1,532 |  |  | $ | 2,883 |
Net income (loss) |  |  | (12 | ) |  |  | (53 | )
Pro forma financial information is presented as if the operations of Chubb had been included in the consolidated results of the Company since January 1, 2021, and gives effect to transactions that are directly attributable to the Chubb Acquisition and related financing. Adjustments, net of related tax impacts, include: additional depreciation and amortization expense related to the fair value of acquired property and equipment and intangible assets as if such assets were acquired on January 1, 2021; costs related to the fair value step-up of acquired inventory; interest expense under the Company’s 2021 Term Loan and 4.750% Senior Notes (both defined in Note 12 - "Debt") as if the amounts borrowed to partially finance the purchase price were borrowed on January 1, 2021. Total cumulative transaction-related costs of $44 were expensed and have been included as a component of selling, general, and administrative expenses, were reflected as if the transaction occurred as of January 1, 2021. 2021 Acquisitions The Company completed the acquisitions of Premier Fire & Security, Inc. ("Premier Fire") in July 2021, and Northern Air Corporation ("NAC") in November 2021, both included in the Safety Services segment, as well as several other individually immaterial acquisitions. Total purchase consideration for all of the completed acquisitions of $113 consisted of cash paid at closing of $93, gross cash acquired of $7, and accrued consideration of $20. The results of operations of these acquisitions are included in the Company’s condensed consolidated statements of operations from their respective dates of acquisition. The Company has not finalized its accounting for the NAC acquisition. The area of the purchase price allocation that is not yet finalized for the NAC acquisition is the valuation of income tax related matters. During the six months ended June 30, 2022, the Company recorded a measurement period adjustment, primarily related to a reclassification between intangible assets and goodwill for the NAC acquisition. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. Based on preliminary estimates, the total amount of goodwill from the 2021 acquisitions expected to be deductible for tax purposes is $48. See Note 7 – “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:
|  | Premier Fire |  |  | NAC |  |  | Other 2021 Acquisitions |
Cash paid at closing |  | $ | 32 |  |  | $ | 36 |  |  | $ | 25 |
Accrued consideration |  |  | 7 |  |  |  | 4 |  |  |  | 9 |
Total consideration |  | $ | 39 |  |  | $ | 40 |  |  | $ | 34 |
Cash |  | $ | 3 |  |  | $ | 2 |  |  | $ | 2 |
Current assets |  |  | 10 |  |  |  | 22 |  |  |  | 6 |
Property and equipment |  |  | 1 |  |  |  | 2 |  |  |  | 2 |
Intangible assets, net |  |  | 14 |  |  |  | 13 |  |  |  | 11 |
Goodwill |  |  | 17 |  |  |  | 13 |  |  |  | 19 |
Current liabilities |  |  | (6 | ) |  |  | (12 | ) |  |  | (6 | )
Net assets acquired |  | $ | 39 |  |  | $ | 40 |  |  | $ | 34 |
For the three months ended June 30, 2022, net revenues and operating income from the Company's material acquisitions that closed over the previous 12 months was $560 and $4, respectively. For the six months ended June 30, 2022, net revenues and operating income from the material acquisitions that closed over the previous 12 months was $1,103 and $14, respectively. Accrued consideration The Company’s acquisition purchase agreements typically include deferred payment provisions, often to sellers who become employees of the Company or its subsidiaries. The provisions are made up of three general types of arrangements, contingent compensation and contingent consideration (both of which are contingent on the future performance of the acquired entity) and deferred payments related to indemnities. Contingent compensation arrangements are typically contingent on the former owner’s future employment with the Company, and the related amounts are recognized over the required employment period, which is typically three to five years. Contingent consideration arrangements are not contingent on employment and are included as part of purchase consideration at the time of the initial acquisition and are paid over a three to five year period. The liability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a 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 $16 and $12 at June 30, 2022 and December 31, 2021, respectively. The maximum payout of these arrangements upon completion of the future performance periods was $20 and $57, inclusive of the $16 and $12, accrued as of June 30, 2022 and December 31, 2021, respectively. The contingent compensation liability is included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for all periods presented. The Company primarily determines the contingent compensation liability based on forecasted cumulative earnings compared to the cumulative earnings target set forth in the arrangement. Compensation expense associated with these arrangements is recognized ratably over the required employment period. The contingent consideration obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings. For additional considerations regarding the fair value of the Company's contingent consideration liabilities, see Note 8 - "Fair Value of Financial Instruments." The total liability for deferred payments was $15 at both June 30, 2022 and December 31, 2021, and are included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for all periods presented.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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