SPX Technologies, Inc. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (in millions) FORWARD-LOOKING STATEMENTS Some of the statements in this document and any documents incorporated by reference, including any statements as to operational and financial projections, constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our businesses’ or our industries’ actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements may address our plans, our strategies, our prospects, changes and trends in our business and the markets in which we operate under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) or in other sections of this document. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential” or “continue” or the negative of those terms or other comparable terminology. 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 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 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; 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 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; the impact of retained liabilities of disposed businesses; potential labor disputes; and extreme weather conditions and natural and other disasters. These statements are only predictions 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. All the forward-looking statements are qualified in their entirety by reference to the factors discussed under the heading “Risk Factors” in our 2022 Annual Report on Form 10-K, in any subsequent filing with the U.S. Securities and Exchange Commission, as well as in any documents incorporated by reference that describe risks, uncertainties and other factors that could cause results to differ materially from those projected in these forward-looking statements. We caution you that these risk factors may not be exhaustive. We operate in a continually changing business environment and frequently enter into new businesses and product lines. We cannot predict these new risk factors, and we cannot assess the impact, if any, of these new risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, you should not rely on forward-looking statements as a prediction of actual results. We disclaim any responsibility to update or publicly revise any forward-looking statements to reflect events or circumstances that arise after the date of this document. COVID-19 PANDEMIC, SUPPLY CHAIN DISRUPTIONS, LABOR SHORTAGES, AND COST INCREASES The impact of the COVID-19 pandemic on our operating results 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, 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, did not have a significant adverse impact on our operating results during the three months ended April 1, 2023 and April 2, 2022. We are 28 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 ◦ Enterprise Control Systems Ltd (“ECS”) ▪ Acquired on August 2, 2021 for cash consideration of $39.4, net of cash acquired of $5.1 . ▪ The seller was eligible for additional cash consideration of up to $15.4, upon achievement of certain financial performance milestones. ▪ 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. ◦ International Tower Lighting, LLC (“ITL”) ▪ 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. • Disposition of SPX Transformer Solutions, Inc. (“Transformer Solutions”) ◦ 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. • Transfer of Postretirement Life Insurance Benefit Obligation ◦ On February 17, 2022, we transferred our obligation for life insurance benefits under our postretirement benefit plans to an insurance carrier for total cash consideration of $10.0. ◦ We paid $9.0 at the time of transfer and 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. • Changes in Estimated Fair Value of an Equity Security ◦ 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. OVERVIEW OF OPERATING RESULTS 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 29 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 The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements contained in our 2022 Annual Report on Form 10-K. Interim results are not necessarily indicative of results for the full year. We establish actual interim closing dates using a fiscal calendar, which requires our businesses to close their books on the Saturday closest to the end of the first calendar quarter, with the first, 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 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. Cyclicality of End Markets, Seasonality and Competition — The financial results of our businesses closely follow changes in the industries in which they operate and end markets in which they serve. In addition, certain of our businesses have seasonal fluctuations. For example, our heating businesses tend to be stronger in the third and fourth quarters, as customer buying habits are driven largely by seasonal weather patterns. In aggregate, our businesses tend to be stronger in the second half of the year. Although our businesses operate in highly competitive markets, our competitive position cannot be determined accurately in the aggregate or by segment since none of our competitors offer all the same product lines or serve all the same markets as we do. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups, competition comes from numerous concerns, both large and small. The principal methods of competition are service, product performance, technical innovation and price. These methods vary with the type of product sold. We believe we compete effectively on the basis of each of these factors. Non-GAAP Measures — Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations and acquisitions/divestitures. We believe this metric is a useful financial measure for investors in evaluating our operating performance for the periods presented as, when considered in conjunction with our revenues, it presents a useful tool to evaluate our ongoing operations and provides investors with a tool they can use to evaluate our management of assets held from period to period. In addition, organic revenue growth (decline) is one of the factors we use in internal evaluations of the overall performance of our business. This metric, however, is not a measure of financial performance under accounting principles generally accepted in the United States (“GAAP”), should not be considered a substitute for net revenue growth (decline) as determined in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. 30 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 April 1, 2023 April 2, 2022 % Change Revenues $ 399.8 $ 307.1 30.2 Gross profit 149.9 104.0 44.1 % of revenues 37.5 % 33.9 % Selling, general and administrative expense 93.8 84.2 11.4 % of revenues 23.5 % 27.4 % Intangible amortization 6.3 9.3 (32.3) Other operating income — (0.9) * Other income, net 2.5 6.5 (61.5) Interest expense, net (1.9) (2.3) (17.4) Income from continuing operations before income taxes 50.4 15.6 223.1 Income tax provision (11.3) (2.6) 334.6 Income from continuing operations 39.1 13.0 200.8 Components of revenue increase: Organic 30.6 Foreign currency (1.1) Acquisitions 0.7 Net revenue increase 30.2 _________________________________ * Not meaningful for comparison purposes. 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 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. 31 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 The following information should be read in conjunction with our condensed consolidated financial statements and related notes. These results exclude the operating results of discontinued operations for all periods presented. See Note 6 to our condensed consolidated financial statements for a description of our reportable segments. Non-GAAP Measures — Throughout the following discussion of segment results, we use “organic revenue” growth (decline) to facilitate explanation of the operating performance of our segments. Organic revenue growth (decline) is a non-GAAP financial measure and is not a substitute for revenue growth (decline). Refer to the explanation of this measure and purpose of use by management under “Results of Continuing Operations—Non-GAAP Measures.” 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 April 1, 2023 April 2, 2022 % Change Revenues $ 251.6 $ 193.1 30.3 Income 47.7 20.6 131.6 % of revenues 19.0 % 10.7 % Components of revenue increase: Organic 30.9 Foreign currency (0.6) Net revenue increase 30.3 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. 32 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 April 1, 2023 April 2, 2022 % Change Revenues $ 148.2 $ 114.0 30.0 Income 26.7 19.0 40.5 % of revenues 18.0 % 16.7 % Components of revenue increase: Organic 30.1 Foreign currency (1.9) Acquisitions 1.8 Net revenue increase 30.0 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 April 1, 2023 April 2, 2022 % Change Total consolidated revenues $ 399.8 $ 307.1 30.2 Corporate expense 14.6 16.6 (12.0) % of revenues 3.7 % 5.4 % Long-term incentive compensation expense 3.1 3.1 — Corporate Expense — Corporate expense generally relates to the cost of our Charlotte, North Carolina corporate headquarters. 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. LIQUIDITY AND FINANCIAL CONDITION Listed below are the cash flows from (used in) operating, investing, and financing activities and discontinued operations, as well as the net change in cash and equivalents for the three months ended April 1, 2023 and April 2, 2022. Three months ended April 1, 2023 April 2, 2022 Continuing operations: Cash flows from (used in) operating activities $ 0.8 $ (48.6) Cash flows used in investing activities (3.9) (43.9) 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 — 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 33 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. Inc. 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. 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 quarter of 2023 and 2022. Borrowings and Availability Borrowings — The following summarizes our debt activity (both current and non-current) for the three months ended April 1, 2023. December 31, 2022 Borrowings Repayments Other April 1, 2023 Revolving loans (1) $ — $ 20.0 $ — $ — $ 20.0 Term loan (2) 244.3 — — — 244.3 Trade receivables financing arrangement (3) — 47.0 — — 47.0 Other indebtedness (4) 2.5 0.1 (0.1) 0.1 2.6 Total debt 246.8 $ 67.1 $ (0.1) $ 0.1 313.9 Less: short-term debt 1.8 68.9 Less: current maturities of long-term debt 2.0 3.5 Total long-term debt $ 243.0 $ 241.5 __________________________ (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 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 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 34 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 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. We expect that we will continue to access these markets as appropriate to maintain liquidity and to provide sources of funds for general corporate purposes, acquisitions or to refinance existing debt. Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, 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. We have not experienced, and believe we are not exposed to, significant risk of loss in these accounts. We have credit loss exposure in the event of nonperformance by counterparties to the above financial instruments, but have no other off-balance-sheet credit risk of accounting loss. We anticipate, however, that counterparties will be able to fully satisfy their obligations under the contracts. We do not obtain collateral or other security to support financial instruments subject to credit risk, 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. Credit risks are mitigated by performing ongoing credit evaluations of our customers’ financial conditions and obtaining collateral, advance payments, or other security when appropriate. No one customer, or group of customers that to our knowledge are under common control, accounted for more than 10 % of our revenues for any period presented. Other Matters Contractual Obligations — There have been no material changes in the amounts of our contractual obligations from those disclosed in our 2022 Annual Report on Form 10-K. 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), 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. We accrue for these contingencies when we believe a liability is probable and can be reasonably estimated. As events change and resolutions occur, these accruals may be adjusted and could differ materially from amounts originally estimated. See Note 15 to the condensed consolidated financial statements for a further discussion of contingencies and other matters. 35 Our Certificate of Incorporation provides that we shall indemnify our officers and directors to the fullest extent permitted by the Delaware General Corporation Law for any personal liability in connection with their employment or service with us. While we maintain insurance for this type of liability, the liability could exceed the amount of the insurance coverage. In addition, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Matters” 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 The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. The accounting policies that we believe are most critical to the portrayal of our financial condition and results of operations, and that require our most difficult, subjective or complex judgments in estimating the effect of inherent uncertainties are discussed in our 2022 Annual Report on Form 10-K , the discussion within which is incorporated herein by reference . We have affected no material change in either our critical accounting policies or use of estimates since the filing of our 2022 Annual Report on Form 10-K. 36 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Management does not believe our exposure to market risk has significantly changed since December 31, 2022 and does not believe that such risks will result in significant adverse impacts to our financial condition, results of operations or cash flows.