What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-04 · 120 added, 181 removed, 158 unchanged (66% of the section changed)

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

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

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.

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;

Risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, include the following:

cyclical changes and specific industry events in the Company’s markets;

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;

the impact of competition on profit margins and the Company’s 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;

the uncertainty of claims resolution with respect to the large power projects in South Africa, as well as claims with respect to, environmental and other contingent liabilities;

the impact of climate change and any legal or regulatory actions taken in response there to;

cyber-security risks;

risks with respect to the protection of intellectual property, including with respect to our digitalization initiatives;

risks with respect to the protection of intellectual property, including with respect to the Company’s 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;

the impact of the COVID-19 pandemic and governmental and other actions taken in response;

domestic economic, political, legal, accounting and business developments adversely affecting the Company’s business, including regulatory changes;

changes in worldwide economic conditions;

uncertainties with respect to our ability to identify acceptable acquisition targets;

uncertainties with respect to the Company’s 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;

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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.

These statements are only predictions and actual events or results may differ materially.

Accordingly, 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.

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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.

The impact of the COVID-19 pandemic on our operating results for the first quarter of 2023 was minimal.

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.

In addition, certain of our businesses experienced supply chain disruptions, as well as labor shortages, while all of our businesses experienced increases in raw material, component, and transportation costs.

The combination of these matters negatively impacted our operating results during the first quarter of 2022, as we experienced lower absorption of manufacturing costs and, in some cases, the negative impact of cost increases on fixed-price customer contracts.

During the first quarter of 2023, we experienced more stable labor and supply chain environments and continue to actively manage these matters.

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 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.

The Russia/Ukraine conflict, and governmental actions implemented in response to the conflict, did not have a significant adverse impact on our operating results during the three months ended April 1, 2023 and April 2, 2022.

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 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.

◦ Enterprise Control Systems Ltd (“ECS”)

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▪ The seller was eligible for additional cash consideration of up to $15.4, 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 (income) expense, net.”

• As of October 1, 2022, the estimated fair value/liability related to the contingent consideration was $0.0.

▪ During the first quarter of 2022, we reduced the estimated fair value/liability by $0.9, with such amount recorded to “Other operating income.”

▪ The financial performance milestones were not achieved and, thus, as of April 1, 2023 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.

▪ 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.

▪ Acquired on March 31, 2022 for cash consideration of $40.4, net of (i) cash acquired of $1.1 and (ii) an adjustment to the purchase price received during the third quarter of 2022 related to acquired working capital of $1.4.

▪ 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 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.

◦ On October 1, 2021, we completed the sale of Transformer Solutions, which is included in discontinued operations for all periods presented.

◦ 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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◦ 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;

▪ 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.

◦ 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.

◦ 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.

◦ We paid $9.0 at the time of 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 results.

◦ See Note 11 to our condensed consolidated financial statements for additional details.

• 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.

◦ We recorded gains of $3.6 and $4.4 during the three months ended April 1, 2023 and April 2, 2022, respectively.

◦ 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 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.

Revenues for the three months ended April 1, 2023 totaled $399.8, compared to $307.1 during the respective period in 2022.

The increase in revenues during the three months ended April 1, 2023, compared to the respective prior-year period, was due primarily to the impact of organic revenue growth within the HVAC and Detection and Measurement reportable segments and, to a much lesser extent, the impact of the ITL acquisition.

The organic revenue growth within the HVAC reportable segment was due to increased sales of cooling and heating products associated with both price and volume increases.

Organic revenue growth within the Detection and Measurement reportable segment was due to the execution of large projects within the communication technologies, transportation and aids to navigation businesses and, to a lesser extent, strong order trends within most of our short-cycle businesses.

During the three months ended April 1, 2023, we generated operating income of $49.8, compared to $11.4 for the respective period in 2022.

The increase in operating income during the three months ended April 1, 2023 was due primarily to higher income for both our HVAC and Detection and Measurement reportable segments and decreases in corporate and intangible amortization expense.

The increase in income for our HVAC reportable segment was primarily due to the organic revenue growth mentioned above and greater absorption of manufacturing costs resulting from higher volumes and more stable labor and supply chain environments.

The increase in income for our Detection and Measurement reportable segment was due

primarily to the organic revenue growth mentioned above.

The decrease in corporate expense was due to higher costs incurred during the first quarter of 2022 related to various strategic and transformational initiatives as well as asbestos matters, partially offset by higher short-term incentive compensation during the first quarter of 2023.

Cash flows from operating activities associated with continuing operations totaled $0.8 for the three months ended April 1, 2023, compared to cash flows used in operating activities of $48.6 during the three months ended April 2, 2022.

The increase in cash flows from operating activities was due primarily to (i) the increase in income during the period discussed above, (ii) a cash payment of $9.0 during the first quarter of 2022 in connection with the transfer of our postretirement life insurance benefit obligation to an insurance carrier (see Note 11 to our condensed consolidated financial statements for additional details), (iii) net payments for asbestos-related matters made prior to the divestiture of our wholly owned subsidiaries that hold asbestos liabilities and certain assets, including related insurance assets, of $8.2, (iv) working capital improvements at certain of our project-related businesses, as cash flows for these businesses are often subject to contract milestones that can impact the timing of cash flows from period to period, and (v) a reduction in the level of elevated purchases of raw materials and components, primarily within our HVAC reportable segment, during the first quarter of 2023 due to a more stable supply chain environment.

RESULTS OF CONTINUING OPERATIONS

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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.

The interim closing dates for the first, second and third quarters of 2023 are April 1, July 1 and September 30, compared to the respective April 2, July 2, and October 1, 2022 dates.

We had one less day in the first quarter of 2023 and will have one more day in the fourth quarter of 2023 than in the respective 2022 periods.

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.

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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 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,

The following table provides selected financial information for the three months ended April 1, 2023 and April 2, 2022, including the reconciliation of organic revenue increase to the net revenue increase:

Three months ended

2023 April 2,

2022 % Change

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Intangible amortization 6.3 9.3 (32.3)

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

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

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

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

Other operating income — (0.9) *

Other income, net 2.5 6.5 (61.5)

Interest expense, net (1.9) (2.3) (17.4)

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

Income from continuing operations before income taxes 50.4 15.6 223.1

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

Income tax provision (11.3) (2.6) 334.6

Income from continuing operations 39.1 13.0 200.8

Components of revenue increase:

Organic 19.2 9.0

Foreign currency (1.1)

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* Not meaningful for comparison purposes.

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.

Revenues — For the three months ended April 1, 2023 , the increase in revenues, compared to the respective period in 2022, was due to the impact of organic revenue growth within the HVAC and Detection and Measurement reportable segments and, to a much lesser extent, the impact of the ITL acquisition.

The organic revenue growth within the HVAC reportable segment was due to increased sales of cooling and heating products associated with both price and volume increases.

Organic revenue growth within the Detection and Measurement reportable segment was due primarily to the execution of large projects within the communication technologies, transportation and aids to navigation businesses and, to a lesser extent, strong order trends within most of our short-cycle businesses.

See “Results of Reportable Segments” for additional details.

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 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 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.

Gross Profit — For the three months ended April 1, 2023, the increase in gross profit and gross profit as a percentage of revenues, compared to the respective period in 2022, was due primarily to the revenue growth mentioned above and greater absorption of manufacturing costs as a result of higher volumes and more stable labor and supply chain environments, particularly within our HVAC reportable segment.

Selling, General and Administrative (“SG&A”) Expense — For the three months ended April 1, 2023, t he increase i n SG&A expense, compared to the respective period in 202 2, was due primarily to (i) increases in sales incentive plan expense driven by the higher revenues mentioned above, (ii) higher employee compensation, inclusive of increases in short-term incentive compensation expense, and (iii) higher travel expense, partially offset by lower corporate expense resulting from higher costs incurred during the first quarter of 2022 related to various strategic and transformational initiatives, as well as expense related to asbestos matters.

Intangible Amortiz ation — For the three months ended April 1, 2023, th e decrease i n intangible amortization, compared to the respective period in 2022, was due to the 2022 period including incremental amortization related to the backlog intangible asset associated with the Cincinnati Fan acquisition.

Other Operating Income — Other operating income for the three months ended April 2, 2022 was due to a reduction in the fair value / liability associated with the contingent consideration related to the ECS acquisition.

Other Income, net — Other income, net, for the three months ended April 1, 2023 was composed primarily of a gain of $3.6 related to a change in the estimated fair value of an equity security that we hold, partially offset by foreign currency transaction losses of $0.6 and pension and postretirement expense of $0.2.

Other income, net, for the three months ended April 2, 2022 was composed primarily of a gain of $4.4 related to a change in the estimated fair value of an equity security that we hold, income associated with a transition services agreement of $0.9, pension and postretirement income of $0.8, and income derived from company owned life insurance policies of $0.7.

Interest Expense, net — Interest expense, net, includes both interest expense and interest income.

The decrease in interest expense, net, during the three months ended April 1, 2023, compared to the respective peri od in 2022, was the result of an increase in interest income associated with higher interest rates on cash balances.

Income Tax Provision — For the three months ended April 1, 2023, we recorded an income tax provision of $11.3 on $50.4 of pre-tax income from continuing operations, resulting in an effective rate of 22.4%.

This compares to an income tax provision for the three months ended April 2, 2022 of $2.6 on $15.6 of pre-tax income from continuing operations, resulting in an effective rate of 16.7%.

The most significant item impacting the income tax provision for the first quarters of 2023 and 2022 was $0.9 and $0.7, respectively, of excess tax benefits resulting from stock-based compensation awards that vested and/or were exercised during the periods.

RESULTS OF REPORTABLE SEGMENTS

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Refer to the explanation of this measure and purpose of use by management under “Results of Continuing Operations—Non-GAAP Measures.”

Presentation of Segment Income — During 2022, we concluded that, although the assessment of our reportable segments was performed using the appropriate measures as defined by the Segment Reporting Topic of the Accounting Standards Codification (“Codification”), the disclosure of operating income for each of our reportable segments (“Segment Income”) was not consistent with these measures or the measures used by our Chief Operating Decision Maker (“CODM”) when evaluating the results of, or allocating resources to, our reportable segments.

We previously disclosed that Segment Income was determined before considering impairment and special charges, long-term incentive compensation, certain other operating income/expense, and other indirect corporate expenses.

Our CODM also excludes the impact of intangible asset amortization, inventory step-up charges, and other acquisition-related costs from Segment Income.

Accordingly, these amounts have now been excluded, for all periods presented, from Segment Income and presented separately in our reconciliation of Segment Income to consolidated operating income within this quarterly report on Form 10-Q.

Refer to Notes 1 and 6 to our condensed consolidated financial statements for additional details.

HVAC Reportable Segment

Three months ended Nine months ended

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

Three months ended

April 1, 2023 April 2, 2022 % Change

Revenues $ 251.6 $ 193.1 30.3

2 unchanged sentences

Components of revenue increase:

Organic 16.3 8.6

Foreign currency (0.6)

Acquisition 11.3 10.2

Net revenue increase 30.3

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.

Revenues — For the three months ended April 1, 2023, the increase in revenues, compared to the respective period in 2022, was due to organic revenue growth driven by increased sales of both cooling and heating products.

The increase in organic revenue was associated with price increases implemented across our cooling and heating businesses as well as volume increases resulting from greater plant throughput and more stable labor and supply chain environments.

Income — For the three months ended April 1, 2023, the increase in income and margin, compared to the respective period in 2022, was due primarily to the organic revenue growth mentioned above and greater absorption of manufacturing costs resulting from the higher volumes and more stable labor and supply chain environments.

Backlog — The segment had backlog of $270.3 and $263.4 as of April 1, 2023 and April 2, 2022, respectively.

Detection and Measurement Reportable Segment

Three months ended Nine months ended

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

Three months ended

April 1, 2023 April 2, 2022 % Change

Revenues $ 148.2 $ 114.0 30.0

2 unchanged sentences

Components of revenue increase:

Organic 24.0 9.6

Foreign currency (1.9)

1 unchanged sentence

Net revenue increase 30.0

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.

Revenues — For the three months ended April 1, 2023, the increase in revenues, compared to the respective period in 2022, was due primarily to organic revenue growth resulting from the execution of large projects within the communication technologies, transportation and aids to navigation businesses and, to a lesser extent, strong order trends within most of our short-cycle businesses.

Income — For the three months ended April 1, 2023, the increase in income and margin, compared to the respective period in 2022, was primarily due to the organic revenue growth mentioned above.

Backlog — The segment had bac klog of $244.7 and $153.1 as of April 1, 2023 and April 2, 2022, respectively.

CORPORATE AND OTHER EXPENSES

Three months ended Nine months ended

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

Three months ended

April 1, 2023 April 2, 2022 % Change

Total consolidated revenues $ 399.8 $ 307.1 30.2

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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 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.

The decrease in corporate expense during the three months ended April 1, 2023, compared to the respective period in 2022, was due primarily to higher costs incurred during the first quarter of 2022 related to various strategic and transformational initiatives as well as asbestos matters, partially offset by higher short-term incentive compensation during the first quarter of 2023.

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 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 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

Listed below are the cash flows from (used in) operating, investing, and financing activities and discontinued operations, as well as the net change in cash and equivalents for the three months ended April 1, 2023 and April 2, 2022.

Three months ended

April 1, 2023 April 2, 2022

Continuing operations:

1 unchanged sentence

Cash flows used in investing activities (3.9) (43.9)

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

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

Cash flows from (used in) financing activities 62.9 (11.0)

Cash flows used in discontinued operations (5.2) (22.9)

Change in cash and equivalents due to changes in foreign currency exchange rates 1.0 (0.1)

Net change in cash and equivalents $ 55.6 $ (126.5)

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.

Change in Cash and Equivalents due to Changes in Foreign Currency Exchange Rate s — Changes in foreign currency exchange rates did not have a significant impact on our cash and equivalents during the first nine months of 2022 and 2021.

Operating Activities — The in crease i n cash flows from operating activities during the three months ended April 1, 2023, compared to the respective period in 2022, was due primarily to (i) the increase in income previously mentioned, (ii) a

cash payment of $9.0 during the first quarter of 2022 in connection with the transfer of our postretirement life insurance benefit obligation to an insurance carrier (see Note 11 to our condensed consolidated financial statements for additional details), (iii) net payments for asbestos-related matters made prior to the divestiture of our wholly owned subsidiaries that hold asbestos liabilities and certain assets, including related insurance assets, of $8.2, (iv) working capital improvements at certain of our project-related businesses, as cash flows for these businesses are often subject to contract milestones that can impact the timing of cash flows from period to period, and (v) a reduction in the level of elevated purchases of raw materials and components, primarily within our HVAC reportable segment, during the first quarter of 2023 due to a more stable supply chain environment.

Investing Activities — Cash flows used in investing activities for the three months ended April 1, 2023 were comprised primarily of capital expenditures of $4.0.

Cash fl ows used in investing activities for the three months ended April 2, 2022 were comprised of cash utilized in the acquisition of ITL of $41.8 and capital expenditures of $2.1.

Financing Activities — Cash flows from financing activities for the three months ended April 1, 2023 were comprised of borrowings under our credit facilities of $67.0 in connection with the T.A.

Morrison & Co.

acquisition, partially offset by minimum withholdings paid on behalf of employees on long-term incentive awards, net of proceeds from options exercised, of $4.1.

Cash flows used in financing activities for the three months ended April 2, 2022 were c omprised of minimum withholdings paid on behalf of employees on long-term incentive awards, net of proceeds from options exercised, of $6.4, net repayments under our various debt instruments of $3.3, and contingent consideration paid of $1.3 related to a prior acquisition.

Discontinued Operations — Cash used in discontinued operations for the three months ended April 1, 2023 relate primarily to disbursements for professional fees incurred in connection with claim activities related to the large power projects in South Africa (see Note 15 to the condensed consolidated financial statements for additional details).

Cash flo ws used in discontinued operations for the three months ended April 2, 2022 relate primarily to (i) disbursements for liabilities retained in connection with dispositions and (ii) a payment of $13.9 to the buyer of Transformer Solutions related to the settlement of the final working capital balances for the business.

Borrowings and Availability

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,

Borrowings — The following summarizes our debt activity (both current and non-current) for the three months ended April 1, 2023.

2022 Borrowings Repayments Other April 1,

Revolving loans (1)

$ — $ 20.0 $ — $ — $ 20.0

Term loan (2)

1 unchanged sentence

Trade receivables financing arrangement (3)

— 47.0 — — 47.0

Other indebtedness (4)

5 unchanged sentences

__________________________

(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.

(1) While not due for repayment until August 2027 under the terms of our senior credit agreement, we classify within current liabilities the portion of the outstanding balance that we believe will be repaid over the next year, with such amount based on an estimate of cash that is expected to be generated over such period.

(2) The term loan is repayable in quarterly installments 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.

Balances are net of unamortized debt issuance costs of $0.7 at April 1, 2023 and December 31, 2022.

(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.

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.

At April 1, 2023, we had $0.9 of available borrowing capacity under this facility after giving effect to outstanding borrowings of $47.0.

(4) Primarily includes balances under a purchase card program of $1.9 and $1.8 and finance lease obligations of $0.7 and $0.7 at April 1, 2023 and December 31, 2022, 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.

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).

At April 1, 2023, we were in compliance with all covenants of our senior credit agreement.

Availability — At April 1, 2023, we had $469.2 of available borrowing capacity under our revolving credit facilities, after giving effect to borrowings under the domestic revolving loan facility of $20.0 and $10.8 reserved for outstanding letters of credit.

In addition, at April 1, 2023, we had $10.7 of available issuance capacity under our foreign credit instrument facilities after giving effect to $14.3 reserve d for outstanding letters of credit.

On April 21, 2023, we entered into an amendment to the agreement governing our senior credit facilities to provide for additional senior secured term loans in the aggregate amount of up to $300.0 (the “Incremental Term Loans”), which are available in up to three drawings (subject to customary conditions) through October 18, 2023.

The proceeds of the Incremental Term Loans will be used to finance, in part, permitted acquisitions, to pay related fees, costs and expenses and for other lawful corporate purposes.

The Incremental Term Loans, if drawn, will mature on August 12, 2027.

We may voluntarily prepay the Incremental Term Loans, in whole or in part, without premium or penalty.

Refer to Note 18 to our condensed consolidated financial statements for additional details of the amendment to provide for the Incremental Term Loans.

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.

1 unchanged sentence

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, insurance recovery assets associated with asbestos product liability matters, and interest rate swap and foreign currency forwards contracts.

These financial instruments, other than trade accounts receivable, are placed with high-quality financial institutions and insurance companies throughout the world.

We periodically evaluate the credit standing of these financial institutions and insurance companies.

Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, and interest rate swap and foreign currency forwards contracts.

These financial instruments, other than trade accounts receivable, are placed with high-quality financial institutions.

We periodically evaluate the credit standing of these financial institutions.

We maintain cash levels in bank accounts that, at times, may exceed federally-insured limits.

2 unchanged sentences

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.

We do not obtain collateral or other security to support financial instruments subject to credit risk, but we do monitor the credit standing of counterparties.

Concentrations of credit risk arising from trade accounts receivable are due to selling to customers in a particular industry.

3 unchanged sentences

Contractual Obligations — There have been no material changes in the amounts of our contractual obligations from those disclosed in our 2022 Annual Report on Form 10-K.

Our total net liabilities for unrecognized tax benefits including

interest were $9.1 as of October 1, 2022.

Our total net liabilities for unrecognized tax benefits including interest were $5.9 as of April 1, 2023.

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 $3.0.

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).

These claims relate to litigation matters (e.g., contracts, intellectual property, and competitive claims), environmental matters, claims with respect to the large power projects in South Africa, product liability matters, 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.

4 unchanged sentences

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.

In addition, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Matters” herein, and “Risk Factors” in our 2022 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

5 unchanged sentences

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