What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 136 added, 97 removed, 203 unchanged (53% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations (in millions)

Management’s Discussion and Analysis of Financial Condition and Results of Operations (in millions, except share data)

FORWARD-LOOKING STATEMENTS

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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;

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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;

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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.

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 nine months 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 a significant adverse impact to our operating results.

OTHER SIGNIFICANT MATTERS

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▪ 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.

▪ During the third quarter of 2021, we agreed to a final adjustment of 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.

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▪ 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 seller was eligible for additional cash consideration of up to $13.5, 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.

• As of October 1, 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.

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▪ Acquired on March 31, 2022 for cash consideration of $41.8, net of cash acquired of $1.1.

▪ During the third quarter of 2022, we agreed to a final adjustment of the purchase price, related to acquired working capital, resulting in the receipt of $1.4 of cash during the quarter.

▪ Post-acquisition operating results of ITL are included within our Detection and Measurement reportable segment.

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(“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.”

◦ On October 1, 2021, we completed the sale for net cash proceeds of $620.6 and recorded a gain during the third quarter of 2021 of $355.0 to “Gain (loss) on disposition of discontinued operations, net of tax.”

◦ During the fourth quarter of 2021, we increased the gain by $27.2, with the additional gain related primarily to the utilization of income tax benefits associated with liquidating certain recently acquired entities.

◦ 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.

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Plan who were employees of Transformer Solutions elected to receive lump-sum payments from the U.S.

◦ 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.

◦ The extent of these lump-sum payments, combined with other lump-sum payments that were made by the U.S.

Plan during the first nine months of 2022, required us to record settlement and actuarial losses of $2.4 and $6.2 during the three and nine months ended October 1, 2022, respectively.

◦ 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.

• Repurchases of Common Stock — During the second quarter of 2022, we repurchased 706,827 shares of our common stock for $33.7.

• Changes in Estimated Fair Value of an Equity Security

◦ We recorded losses of $7.4 and $3.0, respectively, for the three and nine months ended October 1, 2022.

◦ See Note 17 to our condensed consolidated financial statements for additional details.

• Charge for Asbestos-Related Matter

• During the third quarter of 2022, we received a ruling from a North Carolina trial court that certain excess insurance carriers associated with our asbestos product liability matters are not required to cover the costs of defending suits that are dismissed without an indemnity payment.

• As a result of this ruling, we recorded charges of $21.7 during the quarter, with $16.5 ref lected in “Income from continuing operations before income taxes” and the remainder in “Income (loss) on disposition of discontinued operations, net of tax.”

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.

Revenues for the three and nine months ended October 1, 2022 totaled $370.5 and $1,031.6, respectively, compared to $285.7 and $869.5 during the respective periods in 2021.

The increase in revenues during the three and nine months ended October 1, 2022, compared to the respective prior-year periods, was due to organic revenue growth within our HVAC and Detection and Measurement reportable segments and the impact of the Cincinnati Fan, Sealite, ECS and ITL acquisitions.

The increase in organic revenue within the HVAC reportable segment was driven by increased sales of heating and cooling products, associated primarily with price increases and, to a lesser extent, volume increases.

Organic growth within the Detection and Measurement reportable segment was due to continued strong order trends for our short-cycled businesses and execution of large projects within the fare collection, communication technologies and obstruction lighting businesses.

During the three and nine months ended October 1, 2022, we generated operating income of $37.3 and $75.9, respectively, compared to $17.7 and $59.8 for the respective periods in 2021.

The increase in operating income during the three months ended October 1, 2022, compared to the respective period in 2021, was due primarily to an increase in income within our HVAC and Detection and Measurement reportable segments associated with the increase in revenue noted above.

This increase in operating income was partially offset by higher corporate expense associated with investments in various strategic and transformational initiatives.

The increase in operating income during the nine months ended October 1, 2022, compared to the respective period in 2021, was due primarily to the revenue increases noted above, offset by (i) lower absorption of manufacturing costs within the HVAC reportable segment during the first half of 2022 associated with supply chain delays and labor shortages and (ii) an increase in corporate expense associated with increased investments in various strategic and transformational initiatives.

Cash flows used in operating activities associated with continuing operations totaled $89.4 for the nine months ended October 1, 2022, compared to cash flows from operating activities of $95.6 during the nine months ended October 2, 2021.

The decrease in cash flows from operating activities was due primarily to (i) income tax payments, net of refunds, of $55.7 (compared to income tax refunds, net, of $13.7 during the nine months ended October 2, 2021), with a significant portion of the 2022 payments related to the gain on sale of Transformer Solutions;

(ii) elevated purchases of inventory components in order to manage the potential risk associated with the current supply chain environment;

(iii) decreases in cash flows at certain of our project-related businesses, as cash receipts for these businesses are often subject to contractual milestones that can impact cash receipts from period to period;

(iv) net payments for asbestos-related matters of $15.5 (compared to net recoveries of $4.7 during the nine months ended October 2, 2021);

and (v) cash payments of $10.0 in connection with the transfer of our postretirement life insurance benefit obligation to an insurance carrier.

RESULTS OF CONTINUING OPERATIONS

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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.

It is not practicable to estimate the impact of the one less day on our consolidated operating results for the nine months ended October 1, 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

buying habits are driven largely by seasonal weather patterns.

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.

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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

2021 % Change July 2,

The following table provides selected financial information for the three and nine months ended October 1, 2022 and October 2, 2021, including the reconciliation of organic revenue increase to the net revenue increase:

Three months ended Nine months ended

2022 October 2,

2021 % Change October 1,

2022 October 2,

2021 % Change

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Intangible amortization 6.7 5.5 21.8 23.1 16.0 44.4

Impairment of goodwill and intangible assets — 24.3 * — 24.3 *

Special charges, net — (0.1) * 0.1 0.7 *

Other operating expense, net 1.9 2.7 * 1.0 2.7 *

Other operating (income) expense, net — (24.3) * 1.0 (21.6) *

Other income (expense), net (24.6) 3.8 * (19.8) 17.6 *

Interest expense, net (1.6) (3.4) (52.9) (5.9) (10.7) (44.9)

Loss on amendment/refinancing of senior credit agreement (1.1) — * (1.1) (0.2) *

Income from continuing operations before income taxes 10.0 18.1 (44.8) 49.1 66.5 (26.2)

Income tax provision (4.4) (2.4) 83.3 (7.0) (7.7) (9.1)

Income tax (provision) benefit 2.5 (4.2) * (4.5) (11.9) (62.2)

Income from continuing operations 12.5 13.9 (10.1) 44.6 54.6 (18.3)

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* 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.

Revenues — For the three and nine months ended October 1, 2022, the increase in revenues, compared to the respective periods in 2021, was due to organic revenue growth within our HVAC and Detection and Measurement reportable segments and the impact of the Cincinnati Fan, Sealite, ECS and ITL acquisitions.

See “Results of Reportable Segments” for additional details.

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.

Gross Profit — For the three months ended October 1, 2022, the increase in gross profit, compared to the respective period in 2021, was due primarily to the increase in revenues noted above.

Gross profit and gross profit as a percentage of revenues, compared to the respective period in 2021, were favorably impacted by (i) greater absorption of manufacturing costs due to improved productivity at certain businesses within the HVAC reportable segment and (ii) a favorable sales mix, as the revenue increase for the third quarter of 2022 was weighted towards high-margin products within our Detection and Measurement reportable segment.

For the nine months ended October 1, 2022, the increase in gross profit and gross profit as a percentage of revenues, compared to the respective period in 2021, was due primarily to the increase in revenues noted above.

S elling, General and Administrative (“SG&A”) Expense — For the three and nine months ended October 1, 2022, the increase in SG&A expense, compared to the respective periods in 202 1, was due primarily to the incremental SG&A resulting from the acquisitions noted above, higher corporate expense associated with increased investments in various strategic and transformational initiatives, and higher travel expenses due to the easing of COVID-19 pandemic restrictions in 2022.

Intangible Amortiz ation — For the three and nine months ended October 1, 2022, th e increase in i ntangible amortization, compared to the respective periods in 2021, was due to amortization related to the Cincinnati Fan and ITL acquisitions.

Impairment of Goodwill and Intangible Assets — Due to the lack of achievement of certain operational and financial milestones, along with lower than anticipated future cash flows, associated with our ULC acquisition, we tested ULC's goodwill and indefinite-lived intangible assets for impairment during the quarter ended October 2, 2021.

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 during the quarter ended October 2, 2021, with $23.3 related to goodwill and the remainder to trademarks.

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.

See Note 7 to our condensed consolidated financial statements for the details of actions taken in the first nine months of 2022 and 2021.

Other Operating (Income) Expense, net — Other operating expense, net, for the nine months ended October 1, 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 of $1.3.

During the three and nine months ended October 2, 2021, due to the lack of achievement of certain operational and financial milestones associated with the ULC acquisition mentioned above, we concluded the seller of ULC was not entitled to any additional cash consideration (potentially up to $45.0).

At the time of the acquisition, we recorded a liability of $24.3 related to the contingent consideration, which was reversed to earnings during the quarter ended October 2, 2021.

Other operating income, net for the nine months ended October 2, 2021 also included charges of $2.7 related to a revision to recorded assets for asbestos-related claims.

Other Income (Expense), net — Other expense, net, for the three months ended October 1, 2022 was comprised primarily of (i) $16.5 of asbestos-related charges, (ii) a loss of $7.4 related to changes in the estimated fair value of an equity security we hold, (iii) pension and postretirement expense of $2.0 (inclusive of settlement and actuarial losses of $2.4), and (iv) environmental remediation charges of $1.1, partially offset by income of $1.3 derived from company-owned life insurance policies and $0.6 associated with a transition services agreement.

Other income, net, for the three months ended October 2, 2021 was comprised primarily of a gain of $1.6 related to changes in the estimated fair value of an equity security we hold, and pension and postretirement income of $1.6.

Other expense, net, for the nine months ended October 1, 2022 was comprised primarily of $16.5 of asbestos-related charges, a loss of $3.0 related to a change in the estimated fair value of an equity security that we hold, pension and postretirement expense (inclusive of actuarial and settlement losses of $6.2) of $ 3.9 , and environmental remediation charges of $1.1, partially offset by income of $2.0 d erived from company-owned life insurance policies and $2.4 associated with a transition services agreement.

Other income, net, for the nine months ended October 2, 2021 was comprised primarily of gains of $9.0 related to changes in the estimated fair value of an equity 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 parent company guarantees and bank surety bonds liability that were outstanding in connection with the 2016 sale of Balcke Dürr.

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.

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.

The decrease in interest expense, net, during the three and nine months ended October 1, 2022, compared to the respective periods in 2021, was primarily the result of lower average debt balances and increased interest rates on cash balances during the 2022 periods.

Loss on Amendment/Refinancing of Senior Credit Agreement — During the third quarter of 2022, we amended our senior credit agreement.

In connection with the amendment, we recorded a charge $1.1, which consisted of the write-off of a portion of the unamortized deferred financing costs related to our senior credit facilities ($0.7) and certain expenses incurred in connection with the amendment ($0.4).

During 2021, we reduced the issuance capacity of our then-existing foreign credit instrument facilities resulting in a charge of $0.2 associated with the write-off of unamortized deferred financing costs.

Income Tax (Provision) Benefit — For the three months ended October 1, 2022, we recorded an income tax benefit of $2.5 on $10.0 of pre-tax income from continuing operations, resulting in an effective rate of (25.0)%.

This compares to an income tax provision for the three months ended October 2, 2021 of $4.2 on $18.1 of pre-tax income from continuing operations, resulting in an effective rate of 23.2%.

The most significant item impacting the income tax benefit for the third quarter of 2022 was a tax benefit of $4.2 related to the release of valuation allowances recognized against certain deferred tax assets, as we now expect to be able to realize such deferred tax assets due to the recent Holding Company Reorganization (see Note 1 to our condensed consolidated financial statements).

The most significant item impacting the income tax provision for the third quarter of 2021 was $0.7 of expense related to the revaluation of certain deferred tax liabilities due to an enacted tax rate increase.

For the nine months ended October 1, 2022, we recorded an income tax provision of $4.5 on $49.1 of pre-tax income from continuing operations, resulting in an effective rate of 9.2%.

This compares to an income tax provision for the nine months ended October 2, 2021 of $11.9 on $66.5 of pre-tax income from continuing operations, resulting in an effective rate of 17.9%.

The most significant items impacting the income tax provision during the first nine months of 2022 were (i) the $4.2 tax benefit noted above related to the release of valuation allowances resulting from the Holding Company Reorganization, (ii) $0.7 of excess tax benefits associated with stock-based compensation awards that vested and/or were exercised during the period, and (iii) $0.7 tax benefits related to revisions to liabilities for uncertain tax positions.

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.

RESULTS OF REPORTABLE SEGMENTS

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HVAC Reportable Segment

Three months ended Six months ended

July 2, 2022 July 3, 2021 % Change July 2, 2022 July 3, 2021 % Change

Three months ended Nine months ended

October 1, 2022 October 2, 2021 % Change October 1, 2022 October 2, 2021 % Change

Revenues $ 227.8 $ 179.3 27.0 $ 639.6 $ 540.3 18.4

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Net revenue increase 27.0 18.4

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.

Revenues — For the three and nine months ended October 1, 2022, the increase in revenues, compared to the respective periods in 2021, was due primarily to an increase in organic revenues within our heating business and, to a lesser extent, within our cooling business and the impact of the acquisition of Cincinnati Fan.

The increase in organic revenue was due primarily to increased pricing and, to a lesser extent, volume increases.

Income — For the three months ended October 1, 2022, the increase in income and margin, compared to the respective period in 2021, was due primarily to the increase in revenues noted above and greater absorption of manufacturing costs at certain of the segment’s businesses due to improved productivity during the quarter, partially offset by an increase in amortization expense of $1.6 resulting from the Cincinnati Fan acquisition.

For the nine months ended October 1, 2022, the increase in income, compared to the respective period in 2021, was due primarily to the increase in revenue noted above, while the decline in margin was due primarily to lower absorption of manufacturing costs during the first half of 2022 due to supply chain delays and labor shortages and an increase in amortization expense of $8.3 associated with the Cincinnati Fan acquisition.

Backlog — The segment had backlog of $287.7 and $204.0 as of October 1, 2022 and October 2, 2021, respectively.

Backlog associated with Cincinnati Fan totaled $34.1 as of October 1, 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

Three months ended Nine months ended

October 1, 2022 October 2, 2021 % Change October 1, 2022 October 2, 2021 % Change

Revenues $ 142.7 $ 106.4 34.1 $ 392.0 $ 329.2 19.1

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Net revenue increase 34.1 19.1

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 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.

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.

Revenues — For the three and nine months ended October 1, 2022, the increase in revenues, compared to the respective periods in 2021, was due primarily to organic growth across all product lines and the impact of the acquisitions of Sealite, ECS, and ITL.

The organic growth was driven by continued strong order trends for our short-cycled businesses and execution of large projects within our fare collection, communication technologies and obstruction lighting businesses.

Income — For the three and nine months ended October 1, 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 $275.1 and $176.5 as of October 1, 2022 and October 2, 2021, respectively.

Backlog associated with ITL totaled $0.4 as of October 1, 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

Three months ended Nine months ended

October 1, 2022 October 2, 2021 % Change October 1, 2022 October 2, 2021 % Change

Total consolidated revenues $ 370.5 $ 285.7 29.7 $ 1,031.6 $ 869.5 18.6

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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.

The increase in corporate expense during the three and nine months ended October 1, 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.

For the three and nine months ended October 1, 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 and third quarters 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

Listed below are the cash flows from (used in) operating, investing, and financing activities of continuing operations and cash flows from (used in) discontinued operations, as well as the net change in cash and equivalents for the nine months ended October 1, 2022 and October 2, 2021.

Nine months ended

October 1, 2022 October 2, 2021

Continuing operations:

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Cash flows used in investing activities (45.4) (119.3)

Cash flows from (used in) financing activities (46.7) 1.3

Cash flows used in financing activities (41.2) (166.5)

Cash flows from (used in) discontinued operations (34.0) 675.8

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Net change in cash and equivalents $ (208.7) $ 491.8

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

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.

Operating Activities — T he decrease in cash flows from operating activities of continuing operations during the nine months ended October 1, 2022, compared to the respective period i n 2021, was due primarily to (i) income tax payments, net of refunds, of $55.7 (compared to income tax refunds, net of $13.7 during the nine months ended October 2, 2021), with a significant portion of the 2022 payments related to the gain on sale of Transformer Solutions;

(ii) elevated purchases of inventory components in order to manage the potential risk associated with the current supply chain environment;

(iii) decreases in cash flows at certain of our project-related businesses, as cash receipts for these businesses are often subject to contract milestones that can impact the timing of cash flows from period to period;

(iv) net payments for asbestos-related claims of $15.5 (compared to net recoveries of $4.7 during the nine months ended October 2, 2021);

and (v) cash payments of $10.0 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 of continuing operations for the nine months ended October 1, 2022 were comprised of cash utilized in the acquisition of ITL of $41.8 and capital expenditures of $10.0, partially offset by proceeds from company-owned life insurance policies of $4.6 and $1.8 received upon agreement with sellers on acquired working capital balances associated with the Cincinnati Fan and ITL acquisitions.

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 life insurance policies of $8.2.

Financing Activities — Cash flows used in financing activities of continuing operations for the nine months ended October 1, 2022 were comprised of repurchases of common stock of $33.7, minimum tax withholdings paid on behalf of employees on net-share settlements of long-term incentive awards, net of proceeds from options exercised, of $4.9, and contingent consideration paid of $1.3 related to a prior acquisition.

Additionally, prior to the August 12, 2022 execution of our Amended and Restated Credit Agreement (the “Credit Agreement”), we made scheduled repayments under our then-existing term loan of $6.3 and in connection with entering the Credit Agreement, we received $245.0 under our new term loan and (i) repaid the remaining balance under the then-existing term loan of $237.4 and (ii) paid fees in connection with the refinancing of $1.9.

Net repayments under our various other debt instruments totaled $0.7.

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 tax withholdings paid on behalf of employees on net-share settlements of long-term incentive awards, net of proceeds from options exercised, of $3.7.

Discontinued Operations — Cash flo ws used in discontinued operat ions for the nine months ended October 1, 2022 related 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 to the condensed consolidated financial statements for additional details), (ii) disbursements related to asbestos product liability matters, (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, and (iv) disbursements for liabilities retained in connection with dispositions, including fees associated with the sale of Transformer Solutions.

These disbursements were partially offset by proceeds from options exercised of $1.0.

Cash flows from discontinued operations for the nine months ended October 2, 2021 included 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 included cash flows from operations generated by Transformers Solutions, partially offset by cash disbursements related to liabilities retained in connection with dispositions.

Borrowings and Availability

Borrowings — The following summarizes our debt activity (both current and non-current) for the six months ended July 2, 2022.

2021 Borrowings Repayments Other July 2,

Borrowings — The following summarizes our debt activity (both current and non-current) for the nine months ended October 1, 2022.

2021 Borrowings Repayments Other October 1,

Revolving loans $ — $ — $ — $ — $ —

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___________________________

(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.

(1) As noted below, we amended our senior credit agreement on August 12, 2022.

The amendment made available a new term loan facility in the amount of $245.0, the proceeds of which were primarily used to prepay the remaining balance of $237.4 under the then-existing term loan facility.

(2) The term loan is repayable in quarterly installments equal to 0.625% of the initial term loan balance of $245.0, beginning in December 2023 and in each of the first three quarters of 2024, and 1.25% during the fourth quarter of 2024, all quarters of 2025 and 2026, and the first two quarters of 2027.

The remaining balance is payable in full on August 12, 2027.

Balances are net of unamortized debt issuance costs of $0.7 and $1.0 at October 1, 2022 and December 31, 2021, 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.

(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.

At October 1, 2022, we had $30.3 of available borrowing capacity under this facility.

(4) Primarily includes balances under a purchase card program of $1.9 and $2.2 and finance lease obligations of $0.7 and $1.1 at October 1, 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.

Senior Credit Facilities

On August 12, 2022, we entered into the Credit Agreement to, among other things, extend the term of the facilities under the Credit Agreement and provide for committed senior secured financing with an aggregate amount of $770.0.

See Note 12 to the condensed consolidated financial statements for a further description of the Credit Agreement, which is incorporated by reference.

Availability — At October 1, 2022, we had $489.0 of available borrowing capacity under our revolving credit facilities, after giving effect to $11.0 reserved for letters of credit.

In addition, at October 1, 2022, we had $12.2 of available issuance capacity under our foreign credit instrument facilities after giving effect to $12.8 reserved for outstanding letters of credit.

At October 1, 2022, we were in compliance with all covenants of the Credit Agreement.

In connection with the August 2022 amendment of the Credit Agreement, we recorded charges of $1.1 to “Loss on amendment/refinancing of senior credit agreement” related to the write-off of unamortized deferred financing costs ($0.7) and certain expenses incurred in connection with the amendment ($0.4).

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.

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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.

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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.

Our total net liabilities for unrecognized tax benefits including

interest were $9.1 as of October 1, 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis