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. In addition, statements with respect to our intention to implement a reorganization of our corporate legal structure described in Note 18 (the "Transaction"), the timing thereof and its anticipated impacts are forward-looking statements. 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; uncertainties with respect to the completion of the Transaction, which may be delayed or not completed as anticipated, as well as the expected benefits of the Transaction (if it is completed); 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 half of 2022, particularly 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 continue to diminish as we progress through 2022. 33 POTENTIAL IMPACTS OF RUSSIA/UKRAINE CONFLICT The Russia/Ukraine conflict, and governmental actions implemented in response to the conflict, have not had a significant adverse impact on our operating results during the first half of 2022. We are monitoring the availability of certain raw materials that are supplied by businesses in these countries. However, at this time, we do not expect the potential impact to be material to our operating results. OTHER SIGNIFICANT MATTERS • Acquisitions ◦ Sealite Pty Ltd and Affiliated Entities (“Sealite”) ▪ Acquired on April 19, 2021 for cash consideration of $81.6 , net of cash acquired of $2.3 . ▪ During the third quarter of 2021, we agreed to a final adjustment to the purchase price, related to acquired working capital, resulting in our receipt of $1.3 of cash during the quarter. ▪ 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 and second quarters of 2022, we further reduced the estimated fair value/liability by $0.9 and $0.4, respectively, with such amounts recorded to “Other operating expense, net.” • As of July 2, 2022, the estimated fair value/liability related to the contingent consideration was $0.0. ▪ 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. ▪ During the second quarter of 2022, we agreed to a final adjustment to the purchase price, related to acquired working capital, resulting in our receipt of $0.4 of cash during the quarter. ▪ 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 the transfer and an additional $1.0 during 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 34 ▪ 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. • Settlement and Actuarial Losses - U.S. Pension Plan (“U.S. Plan”) ◦ In connection with the sale of Transformer Solutions, a significant number of participants of the U.S. Plan who were employees of Transformer Solutions elected to receive lump-sum payments from the U.S. Plan. ◦ The extent of these lump-sum payments, combined with other lump-sum payments during the first half of 2022, required us to record settlement and actuarial losses totaling $3.8 associated with the U.S. Plan during the second quarter of 2022. ◦ See Note 11 to our condensed consolidated financial statements for additional details. • Repurchases of Common Stock — During the second quarter of 2022, we repurchased approximately 0.7 shares of our common stock for $33.7. OVERVIEW OF OPERATING RESULTS Revenues for the three and six months ended July 2, 2022 totaled $354.0 and $661.1, respectively, compared to $296.6 and $583.8 during the respective periods in 2021. The increase in revenues during the three and six months ended July 2, 2022, compared to the respective prior-year periods, was due primarily to the impact of the Cincinnati Fan, Sealite, ECS and ITL acquisitions, as well as an increase in organic revenue. The increase in organic revenue was due primarily to an increase in sales of heating products, associated with both price and volume increases, and an increase in sales for the majority of the product lines within the Detection and Measurement reportable segment. During the three and six months ended July 2, 2022, we generated operating income of $27.2 and $38.6, respectively, compared to $17.1 and $42.1 for the respective periods in 2021. The increase in operating income during the three months ended July 2, 2022, compared to the respective period in 2021, was due primarily to an increase in income within our Detection and Measurement reportable segment associated with the increase in revenue noted above. The decrease in operating income during the six months ended July 2, 2022, compared to the respective period in 2021, was due primarily to an increase in corporate expense associated with increased investments in various strategic and transformational initiatives and a decrease in income within our HVAC reportable segment resulting from additional amortization expense associated with the Cincinnati Fan acquisition and lower absorption of manufacturing costs associated with (i) supply chain delays and (ii) labor shortages. These decreases in operating income were offset partially by the increase in income within our Detection and Measurement reportable segment noted above. Cash flows used in operating activities associated with continuing operations totaled $83.5 for the six months ended July 2, 2022, compared to cash flows from operating activities of $39.6 during the six months ended July 3, 2021. The decrease in cash flows from operating activities was due primarily to (i) income tax payments of $48.8 during the first half of 2022, with a significant portion of these payments related to the gain on sale of Transformer Solutions, (ii) decreases in cash flows at certain of our project-related businesses during the first half 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, (iii) elevated purchases of inventory components during the first half of 2022 in order to manage the potential risk associated with the current supply chain environment, and (iv) cash payments of $10.0 during the first half of 2022 in connection with the transfer of our postretirement life insurance benefit obligation to an insurance carrier. 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. It is not practicable to estimate the impact of the one less day on our consolidated operating results for the six months ended July 2, 2022, when compared to the consolidated operating results for the 2021 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 35 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. The following table provides selected financial information for the three and six months ended July 2, 2022 and July 3, 2021, including the reconciliation of organic revenue increase to the net revenue increase: Three months ended Six months ended July 2, 2022 July 3, 2021 % Change July 2, 2022 July 3, 2021 % Change Revenues $ 354.0 $ 296.6 19.4 $ 661.1 $ 583.8 13.2 Gross profit 124.6 102.3 21.8 228.6 206.7 10.6 % of revenues 35.2 % 34.5 % 34.6 % 35.4 % Selling, general and administrative expense 88.3 75.4 17.1 172.5 150.6 14.5 % of revenues 24.9 % 25.4 % 26.1 % 25.8 % Intangible amortization 7.1 6.5 9.2 16.4 10.5 56.2 Special charges, net 0.1 0.6 * 0.1 0.8 * Other operating expense, net 1.9 2.7 * 1.0 2.7 * Other income (expense), net (1.7) 6.4 (126.6) 4.8 13.8 (65.2) Interest expense, net (2.0) (3.4) (41.2) (4.3) (7.5) (42.7) Income from continuing operations before income taxes 23.5 20.1 16.9 39.1 48.4 (19.2) Income tax provision (4.4) (2.4) 83.3 (7.0) (7.7) (9.1) Income from continuing operations 19.1 17.7 7.9 32.1 40.7 (21.1) Components of revenue increase: Organic 10.2 4.0 Foreign currency (1.6) (1.1) Acquisitions 10.8 10.3 Net revenue increase 19.4 13.2 _________________________________ * Not meaningful for comparison purposes. Revenues — For the three and six months ended July 2, 2022, the increase in revenues, compared to the respective periods in 2021, was due primarily to the impact of the acquisitions of Cincinnati Fan, Sealite, ECS and ITL, as well as an increase in organic revenue. The increase in organic revenue was due primarily to an increase in sales of heating products, associated with both price and volume increases, and an increase in sales for the majority of the product lines within the Detection and Measurement reportable segment. See “Results of Reportable Segments” for additional details. 36 Gross Profit — For the three and six months ended July 2, 2022, the increase in gross profit, compared to the respective periods in 2021, was due primarily to the increase in revenues noted above. For the three months ended July 2, 2022, the increase in gross profit as a percentage of revenues, compared to the respective period in 2021, was due primarily to a more favorable sales mix in the second quarter of 2022, as the year-over-year increase in revenues was weighted towards high-margin products within our Detection and Measurement reportable segment. For the six months ended July 2, 2022, the decrease in 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 associated with (i) supply chain delays and (ii) labor shortages. S elling, General and Administrative (“SG&A”) Expense — For the three and six months ended July 2, 2022, the increase in SG&A expense, compared to the respective periods in 2021, was due primarily to the incremental SG&A resulting from the acquisitions noted above and, to a lesser extent, an increase in corporate expense associated with increased investments in various strategic and transformational initiatives. Intangible Amortiz ation — For the three and six months ended July 2, 2022, th e increase in i ntangible amortization, compared to the respective periods in 2021, was due to amortization related to the Cincinnati Fan acquisition. Special Charges, net — Special charges, net, relate 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 six months of 2022 and 2021. Other Operating Expense, net — Other operating expense, net, for the three and six months ended July 2, 2022 related to asbestos-related charges of $2.3, partially offset by a reduction in the fair value/liability associated with the contingent consideration related to the ECS acquisition ($0.4 and $1.3 during the three and six months ended July 2, 2022, respectively). Other operating expense for the three and six months ended July 3, 2021 related to a revision to recorded assets for asbestos-related claims. Other Income (Expense), net — Other expense, net, for the three months ended July 2, 2022 was comprised primarily of pension and postretirement expense of $2.7 (inclusive of settlement and actuarial losses of $2.3 and $1.5, respectively), partially offset by income of $0.9 associated with a transition services agreement. Other income, net, for the three months ended July 3, 2021 was composed primarily of income derived from company-owned life insurance policies of $2.7, a gain of $2.2 related to changes in the estimated fair value of an equity owned security we hold, and pension and postretirement income of $1.6. Other income, net, for the six months ended July 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 $1.8, and income derived from company owned life insurance policies of $0.7, partially offset by pension and postretirement expense (inclusive of the losses mentioned above) of $1.9. Other income, net, for the six months ended July 3, 2021 was composed primarily of gains of $7.4 related to changes in the estimated fair value of an equity security we hold, pension and postretirement income of $3.2, income derived from company-owned life insurance policies of $2.7, and 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, partially offset by foreign currency transaction losses. Interest Expense, net — Interest expense, net, includes both interest e xpense and interest income. The decrease in interest expense, net, during the three and six months ended July 2, 2022, compared to the respective periods in 2021, was the result of a lower average effective interest rate and lower average debt balances during the 2022 periods. Income Tax Provision — For the three months ended July 2, 2022, we recorded an income tax provision of $4.4 on $23.5 of pre-tax income from continuing operations, resulting in an effective rate of 18.7%. This compares to an income tax provision for the three months ended July 3, 2021 of $2.4 on $20.1 of pre-tax income from continuing operations, resulting in an effective rate of 11.9%. The most significant item impacting the income tax provision for the second quarters of 2022 and 2021 was $0.7 and $2.2 of tax benefits, respectively, related to revisions to liabilities for uncertain tax positions. In addition, the tax provision for the second quarter of 2021 included interest associated with various refund claims. 37 For the six months ended July 2, 2022, we recorded an income tax provision of $7.0 on $39.1 of pre-tax income from continuing operations, resulting in effective rate of 17.9%. This compares to an income tax provision for the six months ended July 3, 2021 of $7.7 on $48.4 of pre-tax income from continuing operations, resulting in an effective rate of 15.9%. The most significant items impacting the income tax provision for the first half of 2022 and 2021 were (i) $0.7 and $1.0, respectively, of excess tax benefits associated with stock-based compensation awards that vested and/or were exercised during the periods and (ii) the $0.7 and $2.2, respectively, of the tax benefits noted above that were recorded in the second quarter of 2022 and 2021. 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 Six months ended July 2, 2022 July 3, 2021 % Change July 2, 2022 July 3, 2021 % Change Revenues $ 218.7 $ 185.4 18.0 $ 411.8 $ 361.0 14.1 Income 25.6 25.9 (1.2) $ 40.8 48.2 (15.4) % of revenues 11.7 % 14.0 % 9.9 % 13.4 % Components of revenue increase: Organic 8.9 4.8 Foreign currency (0.7) (0.4) Acquisition 9.8 9.7 Net revenue increase 18.0 14.1 Revenues — For the three and six months ended July 2, 2022, the increase in revenues, compared to the respective periods in 2021, was due primarily to the impact of the acquisition of Cincinnati Fan and an increase in organic revenue. The increase in organic revenue was due primarily to an increase in sales of heating products associated with both price and volume increases. Income — For the three and six months ended July 2, 2022, the decrease in income and margin, compared to the respective periods in 2021, was due primarily to amortization expense of $2.1 and $6.8, respectively, resulting from the Cincinnati Fan acquisition. In addition, income and margin for the three and six months ended July 2, 2022 was negatively impacted by lower absorption of manufacturing costs associated with (i) supply chain delays and (ii) labor shortages. Backlog — The segment had backlog of $321.6 and $190.7 as of July 2, 2022 and July 3, 2021, respectively. Backlog associated with Cincinnati Fan totaled $34.9 as of July 2, 2022. Detection and Measurement Reportable Segment Three months ended Six months ended July 2, 2022 July 3, 2021 % Change July 2, 2022 July 3, 2021 % Change Revenues $ 135.3 $ 111.2 21.7 $ 249.3 $ 222.8 11.9 Income 22.5 11.4 97.4 37.5 31.4 19.4 % of revenues 16.6 % 10.3 % 15.0 % 14.1 % Components of revenue increase: Organic 12.4 2.6 Foreign currency (3.2) (2.1) Acquisitions 12.5 11.4 Net revenue increase 21.7 11.9 Revenues — For the three and six months ended July 2, 2022, the increase in revenues, compared to the respective periods in 2021, was due primarily to the impact of the acquisitions of Sealite, ECS, and ITL, as well as an increase in organic revenue. During the three months ended July 2, 2022, the segment experienced organic revenue growth across all of its product lines, while the organic revenue growth during the six months ended July 2, 2022 was due to increased sales of obstruction lighting, bus fare collection, and location and inspection products. 38 Income — For the three and six months ended July 2, 2022, the increase in income and margin, compared to the respective periods in 2021, was due primarily to the increase in revenues noted above. Backlog — The segment had bac klog of $195.6 and $141.9 as of July 2, 2022 and July 3, 2021, respectively. Backlog associated with ECS and ITL totaled $18.7 as of July 2, 2022. CORPORATE AND OTHER EXPENSES Three months ended Six months ended July 2, 2022 July 3, 2021 % Change July 2, 2022 July 3, 2021 % Change Total consolidated revenues $ 354.0 $ 296.6 19.4 $ 661.1 $ 583.8 13.2 Corporate expense 16.4 13.6 20.6 33.0 28.0 17.9 % of revenues 4.6 % 4.6 % 5.0 % 4.8 % Long-term incentive compensation expense 2.5 3.3 (24.2) 5.6 6.0 (6.7) Corporate Expense — Corporate expense generally relates to the cost of our Charlotte, North Carolina corporate headquarters. The increase in corporate expense during the three and six months ended July 2, 2022, compared to the respective periods in 2021, was due primarily to increased investments in various strategic and transformational initiatives. 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 and six months ended July 2, 2022, the decrease in long-term incentive compensation expense, compared to the respective periods in 2021, was due to the impact of forfeitures resulting from various participant resignations during the second quarter of 2022. 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 six months ended July 2, 2022 and July 3, 2021. Six months ended July 2, 2022 July 3, 2021 Continuing operations: Cash flows from (used in) operating activities $ (83.5) $ 39.6 Cash flows used in investing activities (45.8) (82.2) Cash flows from (used in) financing activities (46.7) 1.3 Cash flows from (used in) discontinued operations (26.6) 37.7 Change in cash and equivalents due to changes in foreign currency exchange rates 1.8 4.4 Net change in cash and equivalents $ (200.8) $ 0.8 Operating Activities — Th e decrease in cash flows from operating activities during the six months ended July 2, 2022, compared to the respective period in 2021, was due primar ily to (i) income tax payments of $48.8 during the first half of 2022, with a significant portion of these payments related to the gain on sale of Transformer Solutions, (ii) decreases in cash flows at certain of our project-related businesses during the first half 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, (iii) elevated purchases of inventory components during the first half of 2022 in order to manage the potential risk associated with the current supply chain environment, and (iv) cash payments of $10.0 during the first half of 2022 in connection with the transfer of our postretirement life insurance benefit obligation to an insurance carrier. Investing Activities — Cash fl ows used in investing activities for the six months ended July 2, 2022 were comprised of cash utilized in the acquisition of ITL of $41.8 and capital expenditures of $6.0, partially offset by proceeds from company-owned life insurance policies of $1.6 and $0.4 received upon agreement with the seller on acquired working capital balances associated with Cincinnati Fan. Cash flows used in investing activities for the six months ended July 3, 2021 were comprised of cash utilized in the acquisition of Sealite of $81.6 and capital expenditures of $4.2, partially offset by proceeds from company-owned life insurance policies of $3.9. Financing Activities — Cash flows used in financing activities for the six months ended July 2, 2022 were comprised of repurchases of common stock of $33.7, net repayments under our various debt instruments of $6.5, minimum withholdings 39 paid on behalf of employees on long-term incentive awards, net of proceeds from options exercised, of $5.2, and contingent consideration paid of $1.3 related to a prior acquisition. Cash flows from financing activities for the six months ended July 3, 2021 were comprised of net borrowings under our various debt instruments of $5.1, partially offset by 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 operat ions for the six months ended July 2, 2022 relate primarily to (i) disbursements for professional fees incurred in connection with the claims activities related to the large power projects in South Africa (see Note 15 for additional details), (ii) disbursements for liabilities retained in connection with dispositions, and (iii) 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 six months ended July 3, 2021 related primarily to 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 six months of 2022 and 2021. Borrowings and Availability Borrowings — The following summarizes our debt activity (both current and non-current) for the six months ended July 2, 2022. December 31, 2021 Borrowings Repayments Other July 2, 2022 Revolving loans $ — $ — $ — $ — $ — Term loan (1) 242.7 — (6.3) 0.1 236.5 Trade receivables financing arrangement (2) — — — — — Other indebtedness (3) 3.3 0.1 (0.3) — 3.1 Total debt 246.0 $ 0.1 $ (6.6) $ 0.1 239.6 Less: short-term debt 2.2 2.1 Less: current maturities of long-term debt 13.0 13.0 Total long-term debt $ 230.8 $ 224.5 ___________________________ (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 $ 0.9 and $1.0 at July 2, 2022 and December 31, 2021, respectively. (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 $2.1 and $2.2 and finance lease obligations of $1.0 and $1.1 at July 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 debt. At July 2, 2022, we were in compliance with all covenants of our senior credit agreement. Availability — At July 2, 2022, we had $439.0 of available borrowing capacity under our revolving credit facilities, after giving effect to $11.0 reserved for letters of credit. In addition, at July 2, 2022, we had $43.3 of available issuance capacity under our foreign credit instrument facilities after giving effect to $11.7 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 40 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 $9.1 as of July 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), including claims with respect to the large power projects in South Africa, 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 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. 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. 41 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.