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 the impact of the COVID-19 pandemic and governmental and other actions taken in response; the uncertainty of claims resolution with respect to the large power projects in South Africa, as well as claims with respect to asbestos, environmental and other contingent liabilities; cyclical changes and specific industry events in our markets; economic impacts from continued or escalating geopolitical tensions; changes in anticipated capital investment and maintenance expenditures by customers; availability, limitations or cost increases of raw materials and/or commodities that cannot be recovered in product pricing; the impact of competition on profit margins and our ability to maintain or increase market share; inadequate performance by third-party suppliers and subcontractors for outsourced products, components and services and other supply-chain risks; cyber-security risks; risks with respect to the protection of intellectual property, including with respect to our digitalization initiatives; the impact of overruns, inflation and the incurrence of delays with respect to long-term fixed-price contracts; defects or errors in current or planned products; domestic economic, political, legal, accounting and business developments adversely affecting our business, including regulatory changes; changes in worldwide economic conditions; uncertainties with respect to our ability to identify acceptable acquisition targets; uncertainties surrounding timing and successful completion of any announced acquisition or disposition transactions, including with respect to integrating acquisitions and achieving cost savings or other benefits from acquisitions; the impact of retained liabilities of disposed businesses; potential labor disputes; and extreme weather conditions and natural and other disasters. 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 2021 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, LABOR SHORTAGES, AND COST INCREASES The impact of the COVID-19 pandemic on our operating results was relatively minimal throughout 2021. However, during January 2022, there was an increase in COVID-19 cases at certain of our manufacturing facilities, which resulted in a high-level of absenteeism at such facilities during the month. In addition, since the second half of 2021, certain of our businesses have experienced supply chain disruptions, as well as labor shortages, while all of our businesses have experienced increases in raw material, component, and transportation costs. The combination of these matters negatively impacted our operating results during the first quarter of 2022, as we experienced lower absorption of manufacturing costs and, in some cases, the negative impact of cost increases on fixed-price customer contracts. We are actively managing these matters and we expect the potential impacts will diminish as we progress through 2022. POTENTIAL IMPACTS OF RUSSIA/UKRAINE CONFLICT The Russia/Ukraine conflict did not have a significant impact on our operating results during the three months ended April 2, 2022. We are monitoring the availability of certain raw materials that are supplied by these countries. However, at this time, we do not expect the potential impact to be material to our operating results. 30 OTHER SIGNIFICANT MATTERS • Acquisitions ◦ Sealite Pty Ltd and Affiliated Entities (“Sealite”) ▪ Acquired on April 19, 2021 for cash consideration of $80.3 , net of cash acquired of $2.3 . ▪ Post-acquisition operating results of Sealite are included within our Detection and Measurement reportable segment. ◦ Enterprise Control Systems Ltd (“ECS”) ▪ Acquired on August 2, 2021 for cash consideration of $39.4, net of cash acquired of $5.1 . ▪ The seller is eligible for additional cash consideration of up to $16.4, upon achievement of certain financial performance milestones. • The estimated fair value of such contingent consideration was $8.2 as of the date of the acquisition. • During the fourth quarter of 2021, we concluded that the probability of achieving the above financial performance milestones had lessened due to a delay in the execution of certain large orders, resulting in a reduction of the estimated fair value/liability of $6.7. • During the first quarter of 2022, we further reduced the estimated fair value/liability by $0.9, with such amount recorded to “Other operating income” during the quarter. • As of April 2, 2022, the estimated fair value/liability related to the contingent consideration was $0.6. ▪ Post-acquisition operating results of ECS are included within our Detection and Measurement reportable segment. ◦ Cincinnati Fan & Ventilator Co., Inc. (“Cincinnati Fan”) ▪ Acquired on December 15, 2021 for cash consideration of $145.2, net of cash acquired of $2.5. ▪ Post-acquisition operating results of Cincinnati Fan are included within our HVAC reportable segment. ◦ International Tower Lighting, LLC (“ITL”) ▪ Acquired on March 31, 2022 for cash consideration of $41.8, net of cash acquired of $1.1. ▪ Post-acquisition operating results of ITL are included within our Detection and Measurement reportable segment. • Disposition of SPX Transformer Solutions, Inc. (“Transformer Solutions”) ◦ On October 1, 2021, we completed the sale for net cash proceeds of $620.6 and recorded a gain of $382.2 to “ Gain (loss) on disposition of discontinued operations, net of tax.” ◦ During the first quarter of 2022, we paid $13.9 to the buyer of Transformer Solutions related primarily to the settlement of the final working capital balances of the business. • Transfer of Postretirement Life Insurance Benefit Obligation ◦ On February 17, 2022, we transferred our obligation for life insurance benefits under our postretirement benefit plans to an insurance carrier for total cash consideration of $10.0. ◦ We paid $9.0 at the time of transfer and expect to pay the remainder in the second quarter of 2022. ◦ In connection with the transfer, we: ▪ Recorded a net charge of $0.3 within our first quarter 2022 operating results; and ▪ Have eliminated the (i) third-party cost and (ii) internal resource requirements associated with administering these benefits. ◦ See Note 11 to our condensed consolidated financial statements for additional details. OVERVIEW OF OPERATING RESULTS Revenues for the three months ended April 2, 2022 totaled $307.1, compared to $287.2 during the respective period in 2021. The increase in revenues during the three months ended April 2, 2022, compared to the respective prior-year period, was due primarily to the impact of the Cincinnati Fan, Sealite, and ECS acquisitions, partially offset by a decrease in organic revenue. The decrease in organic revenue was due primarily to lower sales of communication technologies products, as the extent of such sales can fluctuate materially from period to period. During the three months ended April 2, 2022, we generated operating income of $11.4, compared to $25.0 for the respective period in 2021. The decrease in operating income during the three months ended April 2, 2022 was due primarily to 31 a decrease in profitability for both our HVAC and Detection and Measurement reportable segments. The decrease in profitability for our HVAC reportable segment was due primarily to an increase in amortization expense of $4.7 associated with the acquisition of Cincinnati Fan and lower absorption of manufacturing costs resulting from (i) a high-level of absenteeism during January 2022 caused by an increase in COVID-19 cases, (ii) supply chain delays, and (iii) labor shortages. The decrease in profitability for our Detection and Measurement reportable segment was due primarily to lower sales of communication technologies products, as these sales typically generate high profit margins. Cash flows used in operating activities associated with continuing operations totaled $48.6 for the three months ended April 2, 2022, compared to cash flows from operating activities of $23.1 during the three months ended April 3, 2021. The decrease in cash flows from operating activities was due primarily to (i) decreases in cash flows at certain of our project-related businesses during the first quarter of 2022, as cash receipts for these project-related businesses are often subject to contract milestones that can impact the timing of cash flows from period to period, (ii) elevated purchases of raw materials and components during the first quarter of 2022 in order to manage the potential risk associated with the current supply chain environment, and (iii) a cash payment of $9.0 during the first quarter of 2022 in connection with the transfer of our postretirement life insurance benefit obligation to an insurance carrier (see Note 11 to our condensed consolidated financial statements for additional details). 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 2021 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 2022 are April 2, July 2 and October 1, compared to the respective April 3, July 3, and October 2, 2021 dates. We had one less day in the first quarter of 2022 and will have one more day in the fourth quarter of 2022 than in the respective 2021 periods. 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. 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 and acquisitions/divestitures. 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. 32 The following table provides selected financial information for the three months ended April 2, 2022 and April 3, 2021, including the reconciliation of organic revenue decrease to the net revenue increase: Three months ended April 2, 2022 April 3, 2021 % Change Revenues $ 307.1 $ 287.2 6.9 Gross profit 104.0 104.4 (0.4) % of revenues 33.9 % 36.4 % Selling, general and administrative expense 84.2 75.2 12.0 % of revenues 27.4 % 26.2 % Intangible amortization 9.3 4.0 132.5 Special charges, net — 0.2 * Other operating income (0.9) — * Other income, net 6.5 7.4 (12.2) Interest expense, net (2.3) (4.1) (43.9) Income from continuing operations before income taxes 15.6 28.3 (44.9) Income tax provision (2.6) (5.3) (50.9) Income from continuing operations 13.0 23.0 (43.5) Components of revenue increase: Organic (2.5) Foreign currency (0.5) Acquisitions 9.9 Net revenue increase 6.9 _________________________________ * Not meaningful for comparison purposes. Revenues — For the three months ended April 2, 2022, the increase in revenues, compared to the respective period in 2021, was due primarily to the impact of the acquisitions of Cincinnati Fan, Sealite, and ECS, partially offset by a decrease in organic revenue. The decrease in organic revenue was due primarily to lower sales of communication technologies products, as the extent of such sales can fluctuate materially from period to period. See “Results of Reportable Segments” for additional details. Gross Profit — For the three months ended April 2, 2022, the decrease in gross profit and gross profit as a percentage of revenues, compared to the respective period in 2021, was due primarily to lower absorption of manufacturing costs within our HVAC reportable segment resulting from (i) a high-level of absenteeism during January 2022 caused by an increase of COVID-19 cases, (ii) supply chain delays, and (iii) labor shortages. In addition, gross profit and gross profit as a percentage of revenues were negatively impacted by the lower sales of communication technologies products during the three months ended April 2, 2022, as these sales typically generate high profit margins. The impact of the above items on gross profit, for the three months ended April 2, 2022, was offset partially by the incremental gross profit associated with the above acquisitions. Selling, General and Administrative (“SG&A”) Expense — For the three months ended April 2, 2022, the increase i n SG&A expense, compared to the respective period in 2021, was due primarily to the incremental SG&A resulting from the acquisitions noted above. Intangible Amortiz ation — For the three months ended April 2, 2022, th e increase i n intangible amortization, compared to the respective period in 2021, was due to the incremental amortization 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 three months of 2021. Other Operating Income — Other operating income for the three months ended April 2, 2022 related to a reduction in the fair value / liability associated with the contingent consideration related to the ECS acquisition. 33 Other Income, net — Other income, net, for the three months ended April 2, 2022 was composed primarily of a gain of $4.4 related to a change in the estimated fair value of an equity security that we hold, income associated with a transition services agreement of $0.9, pension and postretirement income of $0.8, and income derived from company owned life insurance policies of $0.7. Other income, net, for the three months ended April 3, 2021 was composed primarily of a gain of $5.2 related to a change in the estimated fair value of an equity security that we hold, income of $1.7 related to a reduction of the parent company guarantees and bank surety bonds liability that were outstanding in connection with the 2016 sale of Balcke Dürr, and pension and postretirement income of $1.6, partially offset by foreign currency transaction losses of $0.7. Interest Expense, net — Interest expense, net, includes both interest expense and interest income. Th e decrease i n interest expense, net, during the three months ended April 2, 2022, compared to the respective peri od in 2021, was the result of a lower average effective interest rate and lower average debt balances during the 2022 period. Income Tax Provision — For the three months ended April 2, 2022, we recorded an income tax provision of $2.6 on $15.6 of pre-tax income from continuing operations, resulting in an effective rate of 16.7%. This compares to an income tax provision for the three months ended April 3, 2021 of $5.3 on $28.3 of pre-tax income from continuing operations, resulting in an effective rate of 18.7%. The most significant item impacting the income tax provision for the first quarters of 2022 and 2021 was $0.7 and $0.9, respectively, of excess tax benefits resulting from stock-based compensation awards that vested and/or were exercised during the periods. RESULTS OF REPORTABLE SEGMENTS 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. 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 April 2, 2022 April 3, 2021 % Change Revenues $ 193.1 $ 175.6 10.0 Income 15.2 22.3 (31.8) % of revenues 7.9 % 12.7 % Components of revenue increase: Organic 0.4 Foreign currency — Acquisition 9.6 Net revenue increase 10.0 Revenues — For the three months ended April 2, 2022, the increase in revenues, compared to the respective period in 2021, was due primarily to the impact of the acquisition of Cincinnati Fan, and to a much lesser extent, organic revenue growth. The increase in organic revenue was due to higher sales of boiler products during the quarter, resulting primarily from price increases. Income — For the three months ended April 2, 2022, the decrease in income and margin, compared to the respective period in 2021, was due primarily to amortization expense of $4.7 resulting from the Cincinnati Fan acquisition and lower absorption of manufacturing costs associated with (i) absenteeism during January 2022 related to the impact of the COVID-19 pandemic, (ii) supply chain delays, and (iii) labor shortages. Backlog — The segment had backlog of $263.4 and $168.4 as of April 2, 2022 and April 3, 2021, respectively. Backlog associated with Cincinnati Fan totaled $30.0 as of April 2, 2022. 34 Detection and Measurement Reportable Segment Three months ended April 2, 2022 April 3, 2021 % Change Revenues $ 114.0 $ 111.6 2.2 Income 15.0 20.0 (25.0) % of revenues 13.2 % 17.9 % Components of revenue increase: Organic (7.0) Foreign currency (1.1) Acquisitions 10.3 Net revenue increase 2.2 Revenues — For the three months ended April 2, 2022, the increase in revenues, compared to the respective period in 2021, was due primarily to the impact of the acquisitions of Sealite and ECS, partially offset by a decrease in organic revenue. The decrease in organic revenue was due primarily to lower sales of communication technologies products, as the extent of such sales can fluctuate materially from period to period. Income — For the three months ended April 2, 2022, the decrease in income and margin, compared to the respective period in 2021, was due primarily to lower sales of communication technologies products, as these sales typically generate high profit margins. Backlog — The segment had bac klog of $153.1 and $109.0 as of April 2, 2022 and April 3, 2021, respectively. Backlog associated with Sealite and ECS totaled $46.8 as of April 2, 2022. CORPORATE AND OTHER EXPENSES Three months ended April 2, 2022 April 3, 2021 % Change Total consolidated revenues $ 307.1 $ 287.2 6.9 Corporate expense 16.6 14.4 15.3 % of revenues 5.4 % 5.0 % Long-term incentive compensation expense 3.1 2.7 14.8 Corporate Expense — Corporate expense generally relates to the cost of our Charlotte, North Carolina corporate headquarters. The increase in corporate expense during the three months ended April 2, 2022, compared to the respective period in 2021, was due primarily to increased investments in various strategic initiatives and an increase in travel expense, partially offset by lower 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 April 2, 2022, the increase in long-term incentive compensation expense, compared to the respective period in 2021, was due primarily to a reduction in long-term incentive compensation during the three months ended April 3, 2021 associated with revisions to/finalization of the liability associated with the 2018 long-term cash awards that vested during such period. See Note 14 to our condensed consolidated financial statements for additional details. 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 three months ended April 2, 2022 and April 3, 2021. Three months ended April 2, 2022 April 3, 2021 Continuing operations: Cash flows from (used in) operating activities $ (48.6) $ 23.1 Cash flows from (used in) investing activities (43.9) 1.3 Cash flows used in financing activities (11.0) (25.2) Cash flows from (used in) discontinued operations (22.9) 36.3 Change in cash and equivalents due to changes in foreign currency exchange rates (0.1) 3.1 Net change in cash and equivalents $ (126.5) $ 38.6 35 Operating Activities — The decrease i n cash flows from operating activities during the three months ended April 2, 2022, compared to the respective period in 2021, was due primarily to (i) decreases in cash flows at certain of our project-related businesses during the first quarter of 2022, as cash receipts for these project-related businesses are often subject to contract milestones that can impact the timing of cash flows from period to period, (ii) elevated purchases of raw materials and components during the first quarter of 2022 in order to manage the potential risk associated with the current supply chain environment, and (iii) a cash payment of $9.0 during the first quarter of 2022 in connection with the transfer of our postretirement life insurance benefit obligation to an insurance carrier (see Note 11 to our condensed consolidated financial statements for additional details). Investing Activities — Cash fl ows used in investing activities for the three months ended April 2, 2022 were comprised of cash utilized in the acquisition of ITL of $41.8 and capital expenditures of $2.1. Cash flows from investing activities for the three months ended April 3, 2021 were comprised of proceeds from company-owned life insurance policies of $3.5, partially offset by capital expenditures of $2.2. Financing Activities — Cash flows used in financing activities for the three months ended April 2, 2022 were c omprised of minimum withholdings paid on behalf of employees on long-term incentive awards, net of proceeds from options exercised, of $6.4, net repayments under our various debt instruments of $3.3, and contingent consideration paid of $1.3 related to a prior acquisition. Cash used in financing activities for the three months ended April 3, 2021 were comprised of net repayments under our various debt instruments of $21.4 and minimum withholdings paid on behalf of employees on long-term incentive awards, net of proceeds from options exercised, of $3.8. Discontinued Operations — Cash flo ws used in discontinued operations for the three months ended April 2, 2022 relate primarily to (i) disbursements for liabilities retained in connection with dispositions and (ii) a payment of $13.9 to the buyer of Transformer Solutions related to the settlement of the final working capital balances for the business. Cash flows from discontinued operations for the three months ended April 3, 2021 related primarily to net cash generated from the operations of Transformer Solutions, partially offset by disbursements for liabilities retained in connection with dispositions. In addition, cash flows from discontinued operations during the first quarter of 2021 included cash receipts of $15.3 related to claims matters in South Africa. 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 three months of 2022 and 2021. Borrowings and Availability Borrowings — The following summarizes our debt activity (both current and non-current) for the three months ended April 2, 2022. December 31, 2021 Borrowings Repayments Other April 2, 2022 Revolving loans $ — $ — $ — $ — $ — Term loan (1) 242.7 — (3.1) — 239.6 Trade receivables financing arrangement (2) — — — — — Other indebtedness (3) 3.3 — (0.2) — 3.1 Total debt 246.0 $ — $ (3.3) $ — 242.7 Less: short-term debt 2.2 2.0 Less: current maturities of long-term debt 13.0 13.0 Total long-term debt $ 230.8 $ 227.7 ___________________________ (1) The term loan is repayable in quarterly installments equal to 1.25% of the initial term loan balance of $250.0, 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 $ 1.0 at April 2, 2022 and December 31, 2021. (2) 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. (3) Primarily includes balances under a purchase card program of $2.0 and $2.2 and finance lease obligations of $1.1 and $1.1 at April 2, 2022 and December 31, 2021, 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 36 At April 2, 2022, we were in compliance with all covenants of our senior credit agreement. Availability — At April 2, 2022, we had $438.2 of available borrowing capacity under our revolving credit facilities, after giving effect to $11.8 reserved for letters of credit. In addition, at April 2, 2022, we had $28.9 of available issuance capacity under our foreign credit instrument facilities after giving effect to $26.1 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 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 2021 Annual Report on Form 10-K. Our total net liabilities for unrecognized tax benefits including interest were $9.8 as of April 2, 2022. 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 to $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, claims with respect to the large power projects in South Africa, 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 2021 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. 37 Critical Accounting Policies and Use of Estimates 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 2021 Annual Report on Form 10-K , the discussion within which is incorporated herein by reference . We have affected no material change in either our critical accounting policies or use of estimates since the filing of our 2021 Annual Report on Form 10-K. 38 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Management does not believe our exposure to market risk has significantly changed since December 31, 2021 and does not believe that such risks will result in significant adverse impacts to our financial condition, results of operations or cash flows.