SPX Technologies, Inc. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (in millions) FORWARD-LOOKING STATEMENTS Some of the statements in this document and any documents incorporated by reference, including any statements as to operational and financial projections, constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our businesses’ or our industries’ actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements may address our plans, our strategies, our prospects, changes and trends in our business and the markets in which we operate under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) or in other sections of this document. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential” or “continue” or the negative of those terms or other comparable terminology. Particular risks and uncertainties facing us include economic, business and other risks stemming from our internal operations, legal and regulatory risks, and uncertainties with respect to costs of raw materials, pricing pressures, pension funding requirements, integration of acquisitions, and changes in the economy, as well as the impacts of the coronavirus disease (the “COVID-19 pandemic”) and governmental responses to stem further outbreaks of the COVID-19 pandemic, which is further discussed below and in other sections of this document. These statements are only predictions. Actual events or results may differ materially because of market conditions in our industries or other factors, and forward-looking statements should not be relied upon as a prediction of actual results. In addition, management’s estimates of future operating results are based on our current complement of businesses, which is subject to change as management selects strategic markets. All the forward-looking statements are qualified in their entirety by reference to the factors discussed under the heading “Risk Factors” in our 2020 Annual Report on Form 10-K, in any subsequent filing with the U.S. Securities and Exchange Commission, as well as in any documents incorporated by reference that describe risks, uncertainties and other factors that could cause results to differ materially from those projected in these forward-looking statements. We caution you that these risk factors may not be exhaustive. We operate in a continually changing business environment and frequently enter into new businesses and product lines. We cannot predict these new risk factors, and we cannot assess the impact, if any, of these new risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, you should not rely on forward-looking statements as a prediction of actual results. We disclaim any responsibility to update or publicly revise any forward-looking statements to reflect events or circumstances that arise after the date of this document. COVID-19 PANDEMIC, SUPPLY CHAIN DISRUPTIONS, AND OTHER ECONOMIC FACTORS The COVID-19 pandemic had an adverse impact on our consolidated results of operations in the first half of 2020, with diminishing impacts during the second half of 2020 and during the first nine months of 2021. During the third quarter of 2021, certain of our businesses began to experience disruptions in the supply chain, which has negatively impacted their production of goods and, thus, resulted in lower absorption of manufacturing costs and delays in shipments to customers during the quarter. Our businesses are also experiencing increased costs for certain components, commodities, and services and, in some cases, labor shortages. We are taking actions to manage any additional costs and other potential impacts of these matters. We will continue to assess the actual and expected impacts and the need for further actions. OTHER SIGNIFICANT MATTERS • Acquisitions ◦ ULC Robotics (“ULC”) ▪ Acquired on September 2, 2020 for cash proceeds of $89.2, net of cash acquired of $4.0. ▪ Revenues for the twelve months prior to the date of acquisition totaled approximately $40.0. ▪ Post-acquisition operating results are included within the Detection and Measurement reportable segment. ▪ The seller was eligible for additional cash consideration of up to $45.0, upon achievement of certain operating and financial performance milestones. ▪ Contingent Consideration • During the third quarter of 2021, we concluded that the operating and financial milestones associated with the contingent consideration would not be achieved. • As a result, we reversed the related liability of $ 24.3, with the offset to “Other operating (income) expense.” 32 • See Note 1 to our condensed consolidated financial statements for additional details. ▪ Indefinite-Lived Intangible Assets and Goodwill • We also concluded that the lack of achievement of the above milestones, along with lower than anticipated future cash flows, are indicators of potential impairment related to ULC’s indefinite-lived intangible assets and goodwill. • As such, we tested ULC’s indefinite-lived intangible assets and goodwill for impairment during the quarter. • Based on such testing, we determined that the carrying value of ULC’s net assets exceeded the implied fair value of the business. • As a result, we recorded an impairment charge of $24.3 to “Other operating (income) expense,” with $23.3 related to goodwill and the remainder to trademarks. • See Note 9 to our condensed consolidated financial statements for additional details. ◦ Sensors & Software, Inc. (“Sensors & Software”) ▪ Acquired on November 11, 2020 for cash proceeds of $15.5, net of cash acquired of $0.3. ▪ Revenues for the twelve months prior to the date of acquisition totaled approximately $7.0. ▪ Post-acquisition operating results are included within the Detection and Measurement reportable segment. ▪ The seller is eligible for additional cash consideration of up to $3.9, upon achievement of certain financial performance milestones. ◦ Sealite Pty Ltd and Affiliated Entities (“Sealite”) ▪ Acquired on April 19, 2021 for cash proceeds of $80.3 , net of cash acquired of $2.3 . ▪ Revenues for the twelve months prior to the date of acquisition totaled approximately $ 33.0 . ▪ Post-acquisition operating results are included within the Detection and Measurement reportable segment. ◦ Enterprise Control Systems Ltd (“ECS”) ▪ Acquired on August 2, 2021 for cash proceeds of $39.4, net of cash acquired of $5.1 . ▪ Revenues for the twelve months prior to the date of acquisition totaled approximately $ 10.9 . ▪ Post-acquisition operating results are included within the Detection and Measurement reportable segment. ▪ The seller is eligible for additional cash consideration of up to $16.8 , upon achievement of certain financial performance milestones. • Disposition of SPX Transformer Solutions, Inc. (“Transformer Solutions”) ◦ On June 8, 2021, we signed a definitive agreement to sell Transformer Solutions for cash proceeds of $645.0. ◦ Transformer Solutions has been included in discontinued operations for all periods presented. ◦ On October 1, 2021, we completed the sale for net cash proceeds of $620.6 and recorded a gain of $357.7 to “ Gain (loss) on disposition of discontinued operations, net of tax.” • Change in Segment Reporting Structure ◦ In connection with the disposition of Transformer Solutions and its classification as a discontinued operation, we have eliminated the Engineered Solutions reportable segment. ◦ The remaining operations of the former Engineered Solutions reportable segment have been reflected within our HVAC reportable segment for all periods presented. • Large Power Projects in South Africa ◦ On February 22, 2021 and April 28, 2021, our South African subsidiary, DBT, received favorable rulings from dispute adjudication panels. ▪ In connection with the rulings, DBT received South African Rand 126.6 (or $ 8.6 at the time of payment ) and South African Rand 82.0 (or $ 6.0 at the time of payment ), respectively. ▪ As the rulings are subject to further arbitration, such amounts have not been reflected in our condensed consolidated statements of operations. ▪ On July 5, 2021, DBT received notice from MHI of its intent to seek final and binding arbitration in the Kusile matter. ◦ In May 2021 , and in connection with certain claims made against DBT, MHI made a demand and received payment of South African Rand 178.7 (or $12.5 at the time of payment) on bonds issued by a bank. 33 ▪ Under the terms of the bonds and our senior credit agreement, we were required to fund the above payment. ▪ DBT denies liability for these claims and, thus, fully intends to seek, and believes it is legally entitled to, reimbursement of the South African Rand 178.7 . ▪ As such, the amount has been reflected as a non-current asset in our condensed consolidated balance sheet as of October 2, 2021. ◦ On June 4, 2021, DBT received a revised version of an interim claim from MHI that was provided on February 26, 2019. DBT has numerous defenses and, thus, does not believe it has a probable liability associated with these claimed damages. ◦ See Note 15 to our condensed consolidated financial statements for additional details. • Cash Receipts in the Third Quarter of 2021 ◦ Received federal income tax refunds of $22.4. ◦ Received insurance proceeds of $15.0 associated with the settlement of an asbestos insurance coverage matter. OVERVIEW OF OPERATING RESULTS Revenues for the three and nine months ended October 2, 2021 totaled $285.8 and $870.4, respectively, compared to $268.3 and $783.1 during the respective periods in 2020. The increase in revenues during the three and nine months ended October 2, 2021, compared to the respective prior-year periods, was due primarily to the impact of the ULC, Sensors & Software, Sealite and ECS acquisitions and an increase in organic revenue . The increase in organic revenue was due primarily to higher sales of heating and underground pipe and locator products, partially offset by lower sales of bus fare collection systems. During the first half of 2020, sales of heating and underground pipe and locator products were impacted negatively by the COVID-19 pandemic. The decline in sales of bus fare collection systems was due primarily to the timing of large projects, as the extent of such projects can fluctuate from period to period. During the three and nine months ended October 2, 2021, we generated operating income of $11.8 and $44.7, respectively, compared to $20.4 and $54.0 for the respective periods in 2020. The decrease in operating income during the three months ended October 2, 2021, compared to the respective prior-year period, was due primarily to additional amortization expense and one-time costs (e.g., charges for inventory adjusted to fair value at the acquisition date) associated with recent acquisitions and lower absorption of manufacturing costs at certain of our businesses due to disruptions in their supply chain. The decrease in operating income during the nine months ended October 2, 2021, compared to the respective prior-year period, was due primarily to higher corporate expense related to increased investments in continuous improvement and other strategic initiatives and an increase in incentive compensation expense. Cash flows from operating activities associated with continuing operations totaled $94.0 for the nine months ended October 2, 2021, compared to cash flows from operating activities of $11.0 during the nine months ended September 26, 2020. The increase in cash flows from operating activities was due primarily to improved cash flows within our heating and underground pipe and locator businesses associated with improved profitability and decreases in working capital , as well as third quarter 2021 cash receipts related to federal tax refunds of $22.4 and insurance proceeds of $15.0 associated with the settlement of an asbestos insurance coverage matter. RESULTS OF CONTINUING OPERATIONS The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements contained in our 2020 Annual Report on Form 10-K. Interim results are not necessarily indicative of results for the full year. We establish actual interim closing dates using a fiscal calendar, which requires our businesses to close their books on the Saturday closest to the end of the first calendar quarter, with the second and third quarters being 91 days in length. Our fourth quarter ends on December 31. The interim closing dates for the first, second and third quarters of 2021 are April 3, July 3 and October 2, compared to the respective March 28, June 27 and September 26, 2020 dates. We had five more days in the first quarter of 2021 and will have six fewer days in the fourth quarter of 2021 than in the respective 2020 periods. It is not practicable to estimate the impact of the five additional days on our consolidated operating results for the nine months ended October 2, 2021, when compared to the consolidated operating results for the 2020 respective period. Cyclicality of End Markets, Seasonality and Competition — The financial results of our businesses closely follow changes in the industries in which they operate and end markets in which they serve. In addition, certain of our businesses have seasonal fluctuations. For example, our heating businesses tend to be stronger in the third and fourth quarters, as customer buying habits are driven largely by seasonal weather patterns. In aggregate, our businesses tend to be stronger in the second half of the year. 34 Although our businesses operate in highly competitive markets, our competitive position cannot be determined accurately in the aggregate or by segment since none of our competitors offer all the same product lines or serve all the same markets as we do. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups, competition comes from numerous concerns, both large and small. The principal methods of competition are service, product performance, technical innovation and price. These methods vary with the type of product sold. We believe we compete effectively on the basis of each of these factors. Non-GAAP Measures — Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations, acquisitions/divestiture s, and the impact of a reduction in revenue during the second quarter of 2021 associated with the settlement of claims on a legacy dry cooling project. We believe this metric is a useful financial measure for investors in evaluating our operating performance for the periods presented as, when considered in conjunction with our revenues, it presents a useful tool to evaluate our ongoing operations and provides investors with a tool they can use to evaluate our management of assets held from period to period. In addition, organic revenue growth (decline) is one of the factors we use in internal evaluations of the overall performance of our business. This metric, however, is not a measure of financial performance under accounting principles generally accepted in the United States (“GAAP”), should not be considered a substitute for net revenue growth (decline) as determined in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. The following table provides selected financial information for the three and nine months ended October 2, 2021 and September 26, 2020, respectively, including the reconciliation of organic revenue increase to the net revenue increase : Three months ended Nine months ended October 2, 2021 September 26, 2020 % Change October 2, 2021 September 26, 2020 % Change Revenues $ 285.8 $ 268.3 6.5 $ 870.4 $ 783.1 11.1 Gross profit 94.0 91.7 2.5 300.0 269.7 11.2 % of revenues 32.9 % 34.2 % 34.5 % 34.4 % Selling, general and administrative expense 76.2 67.7 12.6 234.7 206.2 13.8 % of revenues 26.7 % 25.2 % 27.0 % 26.3 % Intangible amortization 5.5 3.3 66.7 16.0 8.3 92.8 Special charges, net 0.5 0.3 66.7 1.9 1.6 18.8 Other operating (income) expense — — * 2.7 (0.4) * Other income, net 2.9 2.7 7.4 17.2 8.5 102.4 Interest expense, net (3.3) (4.4) (25.0) (10.7) (13.8) (22.5) Income from continuing operations before income taxes 11.4 18.7 (39.0) 51.2 48.7 5.1 Income tax provision (3.7) (3.1) 19.4 (9.8) (8.4) 16.7 Income from continuing operations 7.7 15.6 (50.6) 41.4 40.3 2.7 Components of revenue increase: Organic 0.7 5.4 Foreign currency 0.7 1.0 Acquisitions 5.1 5.3 Settlement of legacy dry cooling contract — (0.6) Net revenue increase 6.5 11.1 _________________________________ * Not meaningful for comparison purposes. Revenues — For the three months ended October 2, 2021, the increase in revenues, compared to the respective period in 2020, was due primarily to the impact of the acquisitions of Sealite, ULC, Sensors and Software, and ECS and, to a lesser extent, an increase in organic revenue and the favorable impact of foreign currency exchange rates. The increase in organic revenue was due to higher sales of cooling products in the Americas region, as well as higher sales of underground pipe and locator, communication technologies, and obstruction lighting products. These increases in organic revenue were partially offset by lower sales of cooling products in the EMEA region and bus fare collection systems. For the nine months ended October 2, 2021, the increase in revenues, compared to the respective period in 2020, was primarily due to an increase in organic revenue and the impact of the acquisitions noted above. The increase in organic revenue was due primarily to higher sales of heating and underground pipe and locator products, partially offset by lower sales of bus fare collection systems. During the first half of 35 2020, sales of heating and underground pipe and locator products were impacted negatively by the COVID-19 pandemic. The decline in sales of bus fare collection systems was due primarily to the timing of large projects, as the extent of such projects can fluctuate from period-to-period. See “Results of Reportable Segments and Other Operating Segment” for additional details. Gross Profit — For the three and nine months ended October 2, 2021, the increase in gross profit, compared to the respective periods in 2020, was due primarily to the increase in revenues noted above. The decrease in gross profit as a percentage of revenues during the three months ended October 2, 2021, compared to the respective period in 2020, was due primarily to lower absorption of manufacturing costs at the HVAC segment’s heating businesses associated with disruptions in the supply chain. Selling, General and Administrative (“SG&A”) Expense — For the three and nine months ended October 2, 2021, the increase in SG&A expense, compared to the respective periods in 2020, was due primarily to the incremental SG&A resulting from the acquisitions noted above. In addition, SG&A expense during the nine months ended October 2, 2021 was impacted by an increase in corporate expense associated with additional investments in connection with continuous improvement and other strategic initiatives and an increase in incentive compensation. Intangible Amortiz ation — For the three and nine months ended October 2, 2021, the increase in intangible amortization, compared to the respective periods in 2020, was due to the incremental amortization of $2.2 and $7.8, respectively, related to the acquisitions noted above. Special Charges, net — Special charges, net, related primarily to restructuring initiatives to consolidate manufacturing, distribution, sales and administrative facilities, reduce workforce and rationalize certain product lines. See Note 7 to our condensed consolidated financial statements for the details of actions taken in the first nine months of 2021 and 2020. Other Operating (Income) Expense — Other operating expense for the nine months ended October 2, 2021 related to revisions to recorded assets for asbestos-related claims. Other operating income for the nine months ended September 26, 2020 related to revisions to estimates of certain liabilities retained in connection with the 2016 sale of the dry cooling business. Other Income, net — Other income, net, for the three months ended October 2, 2021 was composed primarily of a gain of $1.6 related to a change in the estimated fair value of an equity security that we hold, a gain of $0.4 related to the sale of a trading security, and pension and postretirement income of $ 1.6, partially offset by foreign currency transaction losses of $ 0.8. Other income, net, for the three months ended September 26, 2020 was composed primarily of a gain of $2.1 related to a change in the estimated fair value of an equity security that we hold and pension and postretirement income of $0.9, partially offset by foreign currency transaction losses of $0.3. Other income, net, for the nine months ended October 2, 2021 was composed primarily of a gain of $9.0 related to a change in the estimated fair value of an equity that security we hold, pension and postretirement income of $ 4.8, income derived from company-owned life insurance policies of $ 2.7 , and income of $ 1.7 related to a reduction of the liability associated with the parent company guarantees and bank surety bonds that were outstanding in connection with the 2016 sale of Balcke Dürr, partially offset by foreign currency transaction losses of $1.1. Other income, net, for the nine months ended September 26, 2020 was composed primarily of a gain of $7.4 related to a change in the estimated fair value of an equity security that we hold and pension and postretirement income of $2.9. Interest Expense, net — Interest expense, net, includes both interest expense and interest income. The decrease in interest expense, net, during the three and nine months ended October 2, 2021, compared to the respective periods in 2020, was the result of a lower average effective interest rate and lower average debt balances during 2021. Income Tax Provision — For the three months ended October 2, 2021, we recorded an income tax pro vision of $3.7 on $11.4 of pre-tax income from continuing operations, resulting in an effective rate of 32.5%. This compares t o an income tax provision for the three months ended September 26, 2020 of $3.1 on $18.7 of pre-tax income from continuing operations, resulting in an effective rate of 16.6% . The most significant item impacting the income tax provision for the third quarter of 2021 was $0.7 of expense related to th e revaluation of certain deferred tax liabilities due to an enacted tax rate increase. The most significant item impacting the income tax provision for the third quarter of 2020 was $1.2 of tax benefits related to our U.S. tax credits and incentives. 36 For the nine months ended October 2, 2021, we recorded an income tax provision o f $9.8 on $51.2 of pre-tax income from continuing operations, resulting in an effective rate of 19.1% . This compares to an income tax provision for the nine months ended September 26, 2020 of $8.4 on $48.7 of pre-tax income from continuing operations, resulting in an effective rate of 17.2% . The most significant items impacting the income tax provision for the first nine months of 2021 were (i) a benefit of $2.2 related to the resolution of certain liabilities for uncertain tax positions and interest associated with various refund claims and (ii) $1.0 of excess tax benefits associated with stock-based compensation awards that vested and/or were exercised during the period, partially offset by (iii) $1.3 of expense related to the revaluation of deferred tax liabilities due to an enacted tax rate increase. The most significant items impacting the income tax provision for the first nine months of 2020 were (i) $1.5 of excess tax benefits resulting from stock-based compensation awards that vested and/or were exercised during the period, (ii) the $1.2 of tax benefits associated with U.S. tax credits and incentives noted above, and (iii) $0.5 of tax benefits associated with statute expirations in certain jurisdictions during the second quarter of 2020. RESULTS OF REPORTABLE SEGMENTS AND OTHER OPERATING SEGMENT The following information should be read in conjunction with our condensed consolidated financial statements and related notes. These results exclude the operating results of discontinued operations for all periods presented. See Note 6 to our condensed consolidated financial statements for a description of our reportable segments and other operating segment. Non-GAAP Measures — Throughout the following discussion of segment results, we use “organic revenue” growth (decline) to facilitate explanation of the operating performance of our segments. Organic revenue growth (decline) is a non-GAAP financial measure and is not a substitute for revenue growth (decline). Refer to the explanation of this measure and purpose of use by management under “Results of Continuing Operations—Non-GAAP Measures.” HVAC Reportable Segment Three months ended Nine months ended October 2, 2021 September 26, 2020 % Change October 2, 2021 September 26, 2020 % Change Revenues $ 179.3 $ 182.6 (1.8) $ 540.3 $ 510.6 5.8 Income 21.4 26.8 (20.1) 69.1 64.1 7.8 % of revenues 11.9 % 14.7 % 12.8 % 12.6 % Components of revenue increase (decrease): Organic (2.4) 6.0 Foreign currency 0.6 0.7 Settlement of legacy dry cooling contract — (0.9) Net revenue increase (decrease) (1.8) 5.8 Revenues — F or the three months ended October 2, 2021, the decrease in revenues, compared to the respective period in 2020, was due to a net decline in organic revenue related primarily to the segment’s cooling business in the EMEA region, as this business had some large projects that contributed significant revenue to the segment’s results in the third quarter of 2020. Despite a significant increase in orders during the third quarter of 2021, organic revenue for the segment’s heating businesses was relatively flat during the quarter as production and shipments for the businesses were negatively impacted by disruptions in the supply chain. For the nine months ended October 2, 2021, the increase in revenues, compared to the respective period in 2020, was due primarily to an increase in organic revenue for the segment’s heating businesses. Sales of heating products during the first half of 2020 were impacted negatively by (i) a warmer than normal winter and (ii) the COVID-19 pandemic. In addition, and as indicated above, sales for the segment’s heating businesses during the third quarter of 2021 were negatively impacted by disruptions in the supply chain. Income — For the three months ended October 2, 2021, the decrease in income and margin, compared to the respective period in 2020, was due primarily to the revenue decline noted above and a decline in manufacturing cost absorption at the segment’s heating businesses associated with disruptions in the supply chain. For the nine months ended October 2, 2021, the increase in income and margin, compared to the respective period in 2020, was due primarily to the increase in revenues noted above. Backlog — The segment had backlog of $204.0 and $182.6 as of October 2, 2021 and September 26, 2020, respectively. 37 Detection and Measurement Reportable Segment Three months ended Nine months ended October 2, 2021 September 26, 2020 % Change October 2, 2021 September 26, 2020 % Change Revenues $ 106.4 $ 85.2 24.9 $ 329.2 $ 269.2 22.3 Income 9.9 14.2 (30.3) 41.3 48.4 (14.7) % of revenues 9.3 % 16.7 % 12.5 % 18.0 % Components of revenue increase: Organic 7.6 5.2 Foreign currency 1.1 1.6 Acquisitions 16.2 15.5 Net revenue increase 24.9 22.3 Revenues — For the three and nine months ended October 2, 2021, the increase in revenues, compared to the respective periods in 2020, was due primarily to the impact of the acquisitions of ECS, Sealite, ULC, and Sensors and Software and, to a lesser extent, organic revenue growth and the impact foreign currency exchange rates. The increase in organic revenue was primarily the result of higher sales of underground pipe and locator products and, to a lesser extent, higher sales of communication technologies and obstruction lighting products. These increases in organic revenue were offset partially by lower sales of bus fare collection systems. During the first half of 2020, sales of underground pipe and locator products were impacted negatively by the COVID-19 pandemic, while the decline in in sales of bus fare collection systems in the current-year period was due primarily to the timing of large projects, as extent of such projects can fluctuate from period to period. Income — For the three and nine months ended October 2, 2021, the decrease in income and margin, compared to the respective periods in 2020, was due primarily to increased amortization expense, as well as inventory step-up charges ($0.7 and $2.3 during the three and nine months ended October 2, 2021), associated with the acquisitions noted above, partially offset by the income associated with the increases in revenue noted above. Backlog — The segment had bac klog of $176.5 and $89.5 as of October 2, 2021 and September 26, 2020, respectively. Aggregate backlog related to Sensors and Software, Sealite and ECS, businesses acquired after September 26, 2020, totaled $50.2 as of October 2 , 2021. Other Three months ended Nine months ended October 2, 2021 September 26, 2020 % Change October 2, 2021 September 26, 2020 % Change Revenues $ 0.1 $ 0.5 * $ 0.9 $ 3.3 * Loss (4.1) (5.3) * (12.6) (13.9) * % of revenues * * * * _________________________________ * Not meaningful for comparison purposes. Revenues — For the three and nine months ended October 2, 2021, the decrease in revenues, compared to the respective periods in 2020, was due to lower sales related to the large power projects in South Africa, as these projects are in the latter stages of completion. Loss — For the three and nine months ended October 2, 2021, the loss decreased, compared to the respective periods in 2020, as a result of the wind-down activities noted above for the large power projects in South Africa. The losses for all periods presented relate primarily to legal costs associated with the claims matters for the large power projects in South Africa. Backlog — The operating segment had a backlog of $2.9 and $3.9 as of October 2, 2021 and September 26, 2020, respectively. 38 CORPORATE AND OTHER EXPENSES Three months ended Nine months ended October 2, 2021 September 26, 2020 % Change October 2, 2021 September 26, 2020 % Change Total consolidated revenues $ 285.8 $ 268.3 6.5 $ 870.4 $ 783.1 11.1 Corporate expense 11.5 11.8 (2.5) 39.0 33.8 15.4 % of revenues 4.0 % 4.4 % 4.5 % 4.3 % Long-term incentive compensation expense 3.4 3.2 6.3 9.5 9.6 (1.0) Corporate Expense — Corporate expense generally relates to the cost of our Charlotte, North Carolina corporate headquarters. The increase in corporate expense during the nine months ended October 2, 2021, compared to the respective periods in 2020, was due primarily to increased investments in continuous improvement and other strategic initiatives and an increase in incentive compensation expense. Long-Term Incentive Compensation Expense — Long-term incentive compensation expense represents our consolidated expense, which we do not allocate for segment reporting purposes. For the three months ended October 2, 2021, the increase in long-term incentive compensation expense, compared to the respective period in 2020, was due to a higher amount award forfeitures during the 2020 period. The decrease in long-term incentive compensation during the nine months ended October 2, 2021, compared to the respective period in 2020, was due to revisions to/finalization of the liability associated with the 2018 long-term cash awards during the first quarter of 2021, partially offset by the impact of a lower amount of award forfeitures during 2021. See Note 14 to our condensed consolidated financial statements for additional details. 39 LIQUIDITY AND FINANCIAL CONDITION Listed below are the cash flows from (used in) operating, investing, and financing activities and discontinued operations, as well as the net change in cash and equivalents for the nine months ended October 2, 2021 and September 26, 2020. Nine months ended October 2, 2021 September 26, 2020 Continuing operations: Cash flows from operating activities $ 94.0 $ 11.0 Cash flows used in investing activities (119.3) (99.3) Cash flows from (used in) financing activities (166.8) 64.5 Cash flows from discontinued operations 677.7 42.9 Change in cash and equivalents due to changes in foreign currency exchange rates 6.2 (3.1) Net change in cash and equivalents $ 491.8 $ 16.0 Operating Activities — The increase in cash flows from operating activities during the nine months ended October 2, 2021, compared to the respective period in 2020, was due primarily to improved cash flows within our underground pipe and locator and heating businesses associated with improved profitability and decreases in working capital, as well as third quarter 2021 cash receipts related to federal tax refunds of $22.4 and insurance proceeds of $15.0 associated with the settlement of an asbestos insurance coverage matter. Investing Activities — Cash flows used in investing activities for the nine months ended October 2, 2021 were comprised primarily of cash utilized in the acquisitions of Sealite and ECS of $80.3 and $39.4, respectively, and capital expenditures of $7.5 , partially offset by proceeds from company-owned insurance policies of $8.2. Cash flows used in investing activities for the nine months ended September 26, 2020 were comprised of cash utilized for the acquisition of ULC of $87.9 and capital expenditures of $12.5, partially offset by proceeds from company-owned life insurance policies of $1.1. Financing Activities — Cash flows used in financing activities for the nine months ended October 2, 2021 were comprised of net repayments under our various debt instruments of $162.8 and minimum withholdings paid on behalf of employees on long-term incentive awards, net of proceeds from options exercised, of $4.0. Cash flows from financing activities for the nine months ended September 26, 2020 were comprised of net borrowings under our various debt instruments of $67.8, with such net borrowings resulting primarily from borrowings utilized to fund the ULC acquisition. The impact of these net borrowings was partially offset by (i) minimum withholdings paid on behalf of employees on long-term incentive awards, net of proceeds from options exercised, of $1.8 and (ii) $1.5 related to contingent consideration paid in connection with the SGS acquisition. Discontinued Operations — Cash flo ws from discontinued operations for the nine months ended October 2, 2021 include proceeds received in connection with the sale of Transformers Solutions of $620.6. In addition, cash flows from discontinued operations for the nine months ended October 2, 2021 and September 26, 2020 include cash flows from operations generated by Transformers Solutions, partially offset by cash disbursements related to liabilities retained in connection with dispositions. Change in Cash and Equivalents due to Changes in Foreign Currency Exchange Rate s — Changes in foreign currency exchange rates did not have a significant impact on our cash and equivalents during the first nine months of 2021 and 2020. 40 Borrowings and Availability Borrowings — The following summarizes our debt activity (both current and non-current) for the nine months ended October 2, 2021. December 31, 2020 Borrowings Repayments Other (5) October 2, 2021 Revolving loans (1) $ 129.8 $ 209.1 $ (338.9) $ — $ — Term loan (2) 248.6 — (4.7) 0.3 244.2 Trade receivables financing arrangement (3) 28.0 179.0 (207.0) — — Other indebtedness (4) 6.0 0.6 (0.9) (2.3) 3.4 Total debt 412.4 $ 388.7 $ (551.5) $ (2.0) 247.6 Less: short-term debt 101.2 2.3 Less: current maturities of long-term debt 7.2 11.4 Total long-term debt $ 304.0 $ 233.9 ___________________________ (1) While not due for repayment until December 2024 under the terms of our senior credit agreement, we classify within current liabilities the portion of the outstanding balance that we believe will be repaid over the next year, with such amount based on an estimate of cash that is expected to be generated over such period. (2) The term loan is repayable in quarterly installments beginning in the first quarter of 2021, with the quarterly installments equal to 0.625% of the initial term loan balance of $250.0 during 2021, 1.25% in each of the four quarters of 2022 and 2023, and 1.25% during the first three quarters of 2024. The remaining balance is payable in full on December 17, 2024. Balances are net of unamortized debt issuance costs of $1.1 and $1.4 at October 2, 2021 and December 31, 2020, respectively. (3) Under this arrangement, we can borrow, on a continuous basis, up to $50.0, as available. Borrowings under this arrangement are collateralized by eligible trade receivables of certain of our businesses. (4) Primarily includes balances under a purchase card program of $2.3 and $1.7 and finance lease obligations of $1.1 and $2.6 at October 2, 2021 and December 31, 2020, respectively. The purchase card program allows for payment beyond the normal payment terms for goods and services acquired under the program. As this arrangement extends the payment of these purchases beyond their normal payment terms through third-party lending institutions, we have classified these amounts as short-term debt. (5) “Other” primarily includes debt assumed, foreign currency translation on any debt instruments denominated in currencies other than the U.S. dollar, and the impact of amortization of debt issuance costs associated with the term loan. At October 2, 2021, we were in compliance with all covenants of our senior credit agreement. Availability — At October 2, 2021, we had $437.8 of available borrowing capacity under our revolving credit facilities, after giving effect to $12.2 reserved for domestic letters of credit. During the second quarter of 2021, we reduced the available issuance capacity under our foreign credit instrument facilities from $100.0 to $55.0. At October 2, 2021, we had $31.2 of available issuance capacity under our foreign credit instrument facilities after giving effect to $23.8 reserved for outstanding letters of credit. Financing instruments may be used from time to time including, but not limited to, public and private debt and equity offerings, operating leases, finance leases and securitizations. We expect that we will continue to access these markets as appropriate to maintain liquidity and to provide sources of funds for general corporate purposes, acquisitions or to refinance existing debt. Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, insurance recovery assets associated with asbestos product liability matters, and interest rate swap and foreign currency forwards contracts. These financial instruments, other than trade accounts receivable, are placed with high-quality financial institutions and insurance companies throughout the world. We periodically evaluate the credit standing of these financial institutions and insurance companies. We maintain cash levels in bank accounts that, at times, may exceed federally-insured limits. We have not experienced, and believe we are not exposed to, significant risk of loss in these accounts. We have credit loss exposure in the event of nonperformance by counterparties to the above financial instruments, but have no other off-balance-sheet credit risk of accounting loss. We anticipate, however, that counterparties will be able to fully 41 satisfy their obligations under the contracts. We do not obtain collateral or other security to support financial instruments subject to credit risk. Concentrations of credit risk arising from trade accounts receivable are due to selling to customers in a particular industry. Credit risks are mitigated by performing ongoing credit evaluations of our customers’ financial conditions and obtaining collateral, advance payments, or other security when appropriate. No one customer, or group of customers that to our knowledge are under common control, accounted for more than 10 % of our revenues for any period presented. Other Matters Contractual Obligations — There have been no material changes in the amounts of our contractual obligations from those disclosed in our 2020 Annual Report on Form 10-K. Our total net liabilities for unrecognized tax benefits including interest were $8.9 as of October 2, 2021. Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by up t o $5.0. Contingencies and Other Matters — Numerous claims, complaints and proceedings arising in the ordinary course of business have been asserted or are pending against us or certain of our subsidiaries (collectively, “claims”). These claims relate to litigation matters (e.g., contracts, intellectual property, and competitive claims), environmental matters, product liability matters (predominately associated with alleged exposure to asbestos-containing materials), and other risk management matters (e.g., general liability, automobile, and workers’ compensation claims). Additionally, we may become subject to other claims of which we are currently unaware, which may be significant, or the claims of which we are aware may result in our incurring significantly greater loss than we anticipate. We accrue for these contingencies when we believe a liability is probable and can be reasonably estimated. As events change and resolutions occur, these accruals may be adjusted and could differ materially from amounts originally estimated. See Note 15 to the condensed consolidated financial statements for a further discussion of contingencies and other matters. Our Certificate of Incorporation provides that we shall indemnify our officers and directors to the fullest extent permitted by the Delaware General Corporation Law for any personal liability in connection with their employment or service with us. While we maintain insurance for this type of liability, the liability could exceed the amount of the insurance coverage. In addition, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Matters” and “Risk Factors” in our 2020 Annual Report on Form 10-K, as well as similar sections in any future filings for an understanding of the risks, uncertainties, and trends facing our businesses. Critical Accounting Policies and Use of Estimates General — The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. The accounting policies that we believe are most critical to the portrayal of our financial condition and results of operations, and that require our most difficult, subjective or complex judgments in estimating the effect of inherent uncertainties are discussed in our 2020 Annual Report on Form 10-K . We have affected no material change in either our critical accounting policies or use of estimates since the filing of our 2020 Annual Report on Form 10-K. 42 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Management does not believe our exposure to market risk has significantly changed since December 31, 2020 and does not believe that such risks will result in significant adverse impacts to our financial condition, results of operations or cash flows.