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”) and Section 27A of the Securities Act of 1933, as amended. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our businesses’ or our industries’ actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements may address our plans, our strategies, our prospects, changes and trends in our business and the markets in which we operate under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) or in other sections of this document. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential” or “continue” or the negative of those terms or other comparable terminology. Particular risks and uncertainties 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 our markets; changes in anticipated capital investment and maintenance expenditures by customers; changes in economic conditions in relevant global and North American markets, including as a result of the imposition, or threat of imposition, of tariffs, such as the significant tariffs announced by the U.S. government in 2025, including the broad tariffs announced in April 2025, and retaliatory tariffs announced in response thereto and other trade barriers or geopolitical conflicts; availability, limitations or cost increases of raw materials and/or commodities, including as a result of new or increased tariffs, as well as the potential impact of retaliatory tariffs and other penalties that cannot be recovered in product pricing; the impact of competition on profit margins and our ability to maintain or increase market share; inadequate performance by third-party suppliers and subcontractors for outsourced products, components and services and other supply-chain risks; the uncertainty of claims resolution with respect to environmental and other contingent liabilities; the impact of climate change and any legal or regulatory actions taken in response thereto; cyber-security risks; risks with respect to the protection of intellectual property, including with respect to our digitalization initiatives; the impact of overruns, inflation and the incurrence of delays with respect to long-term fixed-price contracts; defects or errors in current or planned products; the impact of pandemics and governmental and other actions taken in response; domestic economic, political, legal, accounting and business developments adversely affecting our business, including regulatory changes; uncertainties with respect to our ability to identify acceptable acquisition targets; uncertainties surrounding timing and successful completion of acquisition or disposition transactions, including with respect to integrating acquisitions and achieving cost savings, synergistic sales or other benefits from acquisitions, including from the acquisition of Sigma & Omega; the impact of retained liabilities of disposed businesses; potential labor disputes; and extreme weather conditions and natural and other disasters. These and other risks and uncertainties are further discussed in other sections of this document. These statements are only predictions. Actual events or results may differ materially because of market conditions in our industries or other factors, and forward-looking statements should not be relied upon as a prediction of actual results. In addition, management’s estimates of future operating results are based on our current complement of businesses, which is subject to change as management selects strategic markets. All the forward-looking statements are qualified in their entirety by reference to the factors discussed under the heading “Risk Factors” in our 2024 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, except to the extent we are legally required to update or publicly revise any forward-looking statements to reflect events or circumstances that arise after the date of this document. IMPACTS OF TARIFFS AND OTHER COST INCREASES On April 2, 2025, the U.S. government announced, and subsequently amended, significant additional tariffs on goods imported to the U.S. In response, certain governments, including China and Canada, announced significant retaliatory tariffs on goods imported from the U.S. We continue to analyze the impact of these tariffs, and any reciprocal tariffs, on our business. While we do not expect these new tariffs to have a direct material impact on our results of operations in fiscal year 2025, we are unable to determine the full extent or duration at this time, as well as the impact of such tariffs on general economic conditions in relevant global and North American markets. We believe that our diverse set of businesses, along with our strong balance sheet and available liquidity, position us well to manage the direct adverse impacts of the tariffs. We have taken actions to manage near-term costs and cash flows, and implemented actions to address potential material sourcing challenges we could 30 face over the near-term. Lastly, we will continue to assess the actual and expected impacts of the tariffs and the need for further actions. POTENTIAL IMPACTS OF GEOPOLITICAL CONFLICTS Ongoing geopolitical conflicts, and governmental actions implemented in response to these conflicts, did not have a significant adverse impact on our operating results during the three months ended March 29, 2025 and March 30, 2024. We are monitoring the availability of certain raw materials that are supplied by businesses in the countries impacted by these conflicts. However, at this time, we do not expect the potential impact to be material to our operating results. These conflicts have created additional demand for certain products within our communication technologies business. The longer-term impact of these global events on our business is currently unknown due to the uncertainty around their duration and broader impact. OTHER SIGNIFICANT MATTERS • Acquisitions ◦ Ingénia Technologies Inc. (“Ingénia”) ▪ Acquired on February 7, 2024 for cash consideration of $292.0, net of (i) an adjustment to the purchase price of $2.1 received during the third quarter of 2024 related to acquired working capital and (ii) cash acquired of $1.5. ▪ Post-acquisition operating results of Ingénia are included within our HVAC reportable segment. ◦ Kranze Technology Solutions, Inc. (“KTS”) ▪ Acquired on January 27, 2025 for cash consideration of $342.4, inclusive of amounts related to future service obligations of certain existing employees of $ 46.5 . ▪ The purchase price is subject to adjustment based upon the final settlement of working capital and cash as of the date of acquisition. ▪ Post-acquisition operating results of KTS are included within our Detection and Measurement reportable segment. ▪ See Note 3 to our condensed consolidated financial statements for additional details. • Changes in Estimated Fair Value of an Equity Security ◦ We recorded a ga in of $4.5 and a loss of $4.2 during the three months ended March 29, 2025 and March 30, 2024, respectively. ◦ See Note 17 to our condensed consolidated financial statements for additional details. OVERVIEW OF OPERATING RESULTS Revenues for the three months ended March 29, 2025 totaled $482.6, compared to $465.2 during the respective period in 2024. The increase in revenues during the three months ended March 29, 2025, compared to the respective prior-year period, was due primarily to (i) inorganic revenue growth resulting from the Ingénia and KTS acquisitions (within the HVAC and Detection and Measurement reportable segments, respectively) and (ii) organic revenue growth within the HVAC reportable segment, partially offset by an organic revenue decline within the Detection and Measurement reportable segment. The organic revenue growth within the HVAC reportable segment was due primarily to higher volumes of heating products associated with unseasonably warm winter conditions prevalent in the relevant end markets during the first quarter of 2024. The organic revenue decline within the Detection and Measurement reportable segment was due primarily to lower volumes within (i) our aids to navigation project business, and (ii) our inspection and rehabilitation business due primarily to the timing of shipments of inspection products. These declines were partially offset by higher project volumes within our communication technologies business . Volumes within our project businesses, primarily within our communication technologies, aids to navigation, and transportation systems businesses, can vary from period to period based on the timing of project execution. During the three months ended March 29, 2025, we generated operating income of $ 66.6 , compared to $64.6 for the r espective period in 2024. The increase in operating income during the three months ended March 29, 2025 was due primarily to higher income from our HVAC and Detection and Measurement reportable segments of $10.7, collectively, partially offset by increases in intangible asset amortization expense of $4.9 and acquisition-related costs of $3.8, primarily related to the KTS and Ingénia acquisitions. The increase in income for our HVAC reportable segment was primarily due to the revenue growth mentioned above. The increase in income for our Detection and Measurement reportable segment was due primarily to (i) favorable product mix, primarily within our communication technologies business, and (ii) the acquisition of KTS. These increases were partially offset by the impact of the organic revenue decline mentioned above. Cash flows used in operating activities associated with continuing operations totaled $10.4 for the three months ended March 29, 2025, compared to cash flows from operating activities of $10.7 during the three months ended March 30, 2024. The 31 decrease in cash flows from operating activities was due primarily to amounts paid into an escrow account in connection with the KTS acquisition related to future service obligations of certain employees totaling $ 46.5 as required by the acquisition agreement, partially offset by (i) the increase in income, exclusive of the non-cash expenses incurred during the respective periods, discussed above and (ii) a payment, during the three months ended March 28, 2024, related to the resolution of a dispute with a former representative at one of our businesses within the Detection and Measurement reportable segment of $9.0. 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 2024 Annual Report on Form 10-K. Interim results are not necessarily indicative of results for the full year. We establish actual interim closing dates using a fiscal calendar, which requires our businesses to close their books on the Saturday closest to the end of the first calendar quarter, with the second and third quarters being 91 days in length. Our fourth quarter ends on December 31. The interim closing dates for the first, second and third quarters of 2025 are March 29, June 28, and September 27, compared to the respective March 30, June 29, and September 28, 2024 dates. We had two less days in the first quarter of 2025 and will have one more day in the fourth quarter of 2025 than in the respective 2024 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. 32 The following table provides selected financial information for the three months ended March 29, 2025 and March 30, 2024: Three months ended March 29, 2025 March 30, 2024 % Change Revenues $ 482.6 $ 465.2 3.7 Gross profit 195.9 182.9 7.1 % of revenues 40.6 % 39.3 % Selling, general and administrative expense 109.5 102.9 6.4 % of revenues 22.7 % 22.1 % Intangible amortization 19.7 14.8 33.1 Special charges, net 0.1 0.6 * Other income (expense), net 2.7 (4.0) * Interest expense, net (11.4) (9.5) 20.0 Income from continuing operations before income taxes 57.9 51.1 13.3 Income tax provision (6.2) (1.9) 226.3 Income from continuing operations 51.7 49.2 5.1 Components of revenue increase: Organic 0.4 Foreign currency (0.4) Acquisitions 3.7 Net revenue increase 3.7 _________________________________ * Not meaningful for comparison purposes. Revenues — For the three months ended March 29, 2025 , the increase in revenues, compared to the respective period in 2024, was due primarily to (i) inorganic revenue growth resulting from the Ingénia and KTS acquisitions (within the HVAC and Detection and Measurement reportable segments, respectively) and (ii) organic revenue growth within the HVAC reportable segment, partially offset by an organic revenue decline within the Detection and Measurement reportable segment. The organic revenue growth within the HVAC reportable segment was due primarily to higher volumes of heating products associated with unseasonably warm winter conditions prevalent in the relevant end markets during the first quarter of 2024 . The organic revenue decline within the Detection and Measurement reportable segment was due primarily to lower volumes within (i) our aids to navigation project business, and (ii) our inspection and rehabilitation business due primarily to the timing of shipments of inspection products. These declines were partially offset by higher project volumes within our communication technologies business. Volumes within our project businesses, primarily within our communication technologies, aids to navigation, and transportation systems businesses, can vary from period to period based on the timing of project execution. See “Results of Reportable Segments” for additional details. Gross Profit — For the three months ended March 29, 2025, the increase in gross profit and gross profit as a percentage of revenues, compared to the respective period in 2024, was due primarily to (i) favorable product mix, primarily within our communication technologies business, and (ii) the impact of the inorganic revenue growth mentioned above. Selling, General and Administrative (“SG&A”) Expense — For the three mont hs ended March 29, 2025, the increase in SG&A expense, compared to the respective period in 2024, was due primarily to (i) higher acquisition and integration-related costs of $4.2, and (ii) incremental SG&A resulting from the acquisitions of KTS and Ingénia of $1.5. Intangible Amortiz ation — For the three months ended March 29, 2025, the increase in intangible asset amortization expense, compared to the respective period in 2024, was primarily related to incremental amortization associated with (i) backlog from the KTS acquisition and (ii) other intangible assets associated with the acquisitions of KTS and Ingénia. Special Charges, net — Special charges, net for the three months ended March 29, 2025 related primarily t o severance costs associated with restructuring actions. See Note 7 to our condensed consolidated financial statements for additional details. 33 Other Income (Expense), net — Other income, net, for the three months ended March 29, 2025 was composed primarily of a gain of $4.5 related to a change in the estimated fair value of an equity security that we hold and $1.7 of income derived from company-owned life insurance (“COLI”) policies, partially offset by environmental remediation charges of $1.2, pension and postretirement expense of $1.4 (including net settlement and actuarial losses of $0.8), foreign currency transaction losses of $0.5 and losses on disposal of property, plant and equipment of $0.4. Other expense, net, for the three months ended March 30, 2024 was composed primarily of a loss of $4.2 related to a change in the estimated fair value of an equity security that we hold, environmental remediation charges of $0.8, and pension and postretirement expense of $0.4, partially offset by income of $0.9 derived from COLI policies and foreign currency transaction gains of $0.5. Interest Expense, net — Interest expense, net, includes both interest expense and interest incom e. T he increase in interest expense, net, during the three months ended March 29, 2025, compared to the respective period in 2024, was the result of higher average debt balances. The higher average debt balances primarily resulted from borrowings associated with the KTS acquisition. Refer to Note 12 to the condensed consolidated financial statements for additional details. Income Tax Provision — For the three months ended March 29, 2025, we recorded an income tax provision of $6.2 on $57.9 of pre-tax income from continuing operations, resulting in an effective rate of 10.7%. This compares to an income tax provision for the three months ended March 30, 2024 of $1.9 on $51.1 of pre-tax income from continuing operations, resulting in an effective rate of 3.7%. The most significant item impacting the income tax provision for the first quarters of 2025 and 2024 was $8.5 and $10.9, respectively, of excess tax benefits resulting from stock-based compensation awards that vested and/or were exercised during the periods. RESULTS OF REPORTABLE SEGMENTS The following information should be read in conjunction with our condensed consolidated financial statements and related notes. These results exclude the operating results of discontinued operations for all periods presented. See Note 6 to our condensed consolidated financial statements for a description of our reportable segments. HVAC Reportable Segment Three months ended March 29, 2025 March 30, 2024 % Change Revenues $ 323.0 $ 302.4 6.8 Income 73.9 68.4 8.0 % of revenues 22.9 % 22.6 % Components of revenue increase: Organic 4.4 Foreign currency (0.5) Acquisitions 2.9 Net revenue increase 6.8 Revenues — For the three months ended March 29, 2025, the increase in r evenues, compared to the respective period in 2024, was due primarily t o organic revenue growth and inorganic revenue growth resulting from the Ingénia acquisition. The organic revenue growth was due primarily to higher volumes of heating products associated with unseasonably warm winter conditions prevalent in the relevant end markets during the first quarter of 2024 . Income — For the three months ended March 29, 2025, the increase in income and margin, compared to the respective period in 2024, was due primarily to the revenue growth mentioned above. Backlog — The segment had backlog of $451.3 and $461.9 as of March 29, 2025 and March 30, 2024, respectively. 34 Detection and Measurement Reportable Segment Three months ended March 29, 2025 March 30, 2024 % Change Revenues $ 159.6 $ 162.8 (2.0) Income 36.6 31.4 16.6 % of revenues 22.9 % 19.3 % Components of revenue decline: Organic (6.9) Foreign currency (0.3) Acquisitions 5.2 Net revenue decline (2.0) Revenues — For the three months ended March 29, 2025, the d ecrease in revenues, compared to the respective period in 2024, was due primarily to lower volumes within (i) our aids to navigation project business, and (ii) our inspection and rehabilitation business due primarily to the timing of shipments of inspection products. These declines were partially offset by higher project volumes within our communication technologies business and inorganic revenue growth resulting from the KTS acquisition. Volumes within our project businesses, primarily within our communication technologies, aids to navigation, and transportation systems businesses, can vary from period to period based on the timing of project execution. Income — For the three months ended March 29, 2025, the increase in income and margin, compared to the respective period in 2024, was primarily due to (i) favorable mix, primarily within our communication technologies business, and (ii) the acquisition of KTS. These increases were partially offset by the impact of the organic revenue decline mentioned above. Backlog — The segment had bac klog of $345.5 and $206.5 as of March 29, 2025 and March 30, 2024, respectively. Backlog associated with the KTS acquisition totaled $48.6 as of March 29, 2025. CORPORATE AND OTHER EXPENSES Three months ended March 29, 2025 March 30, 2024 % Change Total consolidated revenues $ 482.6 $ 465.2 3.7 Corporate expense 14.0 13.9 0.7 % of revenues 2.9 % 3.0 % Long-term incentive compensation expense 3.7 3.3 12.1 Corporate Expense — Corporate expense generally relates to the personnel and general operating costs of our corporate headquarters in Charlotte, North Carolina. Long-Term Incentive Compensation Expense — Long-term incentive compensation expense represents our consolidated expense, which we do not allocate for segment reporting purposes. The increase in long-term incentive compensation expense in 2025, compared to 2024, was due primarily to (i) an increase in the fair value of performance-based share awards resulting from plan design changes affected beginning in 2024, which increased the maximum potential payout range from 150% to 200% of target, and (ii) the accumulation of awards related to recent changes in certain key management positions. See Note 14 to our condensed consolidated financial statements for further details on our long-term incentive compensation plans. 35 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 March 29, 2025 and March 30, 2024. Three months ended March 29, 2025 March 30, 2024 Continuing operations: Cash flows from (used in) operating activities $ (10.4) $ 10.7 Cash flows used in investing activities (306.6) (303.9) Cash flows from financing activities 335.7 292.7 Cash flows used in discontinued operations (0.5) (0.2) Change in cash and equivalents due to changes in foreign currency exchange rates 2.6 1.3 Net change in cash and equivalents $ 20.8 $ 0.6 Operating Activities — The decrease in cash flows during the three months ended March 29, 2025, compared to the respective period in 2024, was due primarily to amounts paid into an escrow account in connection with the KTS acquisition related to future service obligations of certain employees of $ 46.5, partially offset by (i) the increase in income, exclusive of the non-cash expenses incurred during the respective periods, discussed previously and (ii) a payment, during the three months ended March 30, 2024, related to the resolution of a dispute with a former representative at one of our businesses within the Detection and Measurement reportable segment of $9.0. Investing Activities — Cash flows used in investing activities for the three months ended March 29, 2025 were comprised primarily of net cash utilized in acquisitions, including KTS, of $304.1 and capital expenditures of $5.5 partially offset by net proceeds from COLI policies of $3.0. Cash flows used in investing activities for the three months ended March 30, 2024 were comprised primarily of net cash utilized in the acquisition of Ingénia of $294.1 and capital expenditures of $9.9. Financing Activities — Cash flows from financing activities for the three months ended March 29, 2025 were comprised o f net borrowings under our credit facilities and trade receivables financing arrangement of $295.0 and $50.0, respectively, primarily in connection with the KTS acquisition and net borrowings under our other various debt instruments of $0.5. These net borrowings were partially offset by minimum tax withholdings paid on behalf of employees related to long-term incentive awards, net of proceeds from options exercised, of $9.8. Cash flows from financing activities for the three months ended March 30, 2024 were comprised of net borrowings under our credit facilities and trade receivables financing arrangement of $278.0 and $18.0, respectively, primarily in connection with the Ingénia acquisition. T hese net borrowings were partially offset by minimum tax withholdings paid on behalf of employees related to long-term incentive awards, net of proceeds from options exercised, of $3.0 and net repayments under our other various debt instruments of $0.3. Discontinued Operations — Cash used in discontinued operations for the three months ended March 29, 2025 relate primarily to disbursements for costs incurred to support our wound-down DBT Technologies (PTY) LTD (“DBT”) subsidiary through actions associated with the liquidation of a subcontractor. Cash used in discontinued operations for the three months ended March 30, 2024 relate primarily to disbursements for liabilities retained in connection with previous 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 quarters of 2025 and 2024. 36 Borrowings and Availability Borrowings — The following summarizes our debt activity (both current and non-current) for the three months ended March 29, 2025. December 31, 2024 Borrowings Repayments Other (5) March 29, 2025 Revolving loans (1) $ 80.0 $ 393.0 $ (98.0) $ — $ 375.0 Term loans (2) 523.4 — — 0.1 523.5 Trade receivables financing arrangement (3) 9.0 135.0 (85.0) — 59.0 Other indebtedness (4) 2.3 0.6 (0.1) — 2.8 Total debt 614.7 $ 528.6 $ (183.1) $ 0.1 960.3 Less: short-term debt 10.1 60.7 Less: current maturities of long-term debt 27.6 27.6 Total long-term debt $ 577.0 $ 872.0 __________________________ (1) The revolving credit facility extends through August 2027 under the terms of our senior credit agreement and is primarily used to provide liquidity for funding acquisitions, including related fees and expenses, and was utilized as the primary funding mechanism for the KTS acquisition. (2) The term loans are repayable in quarterly installments equal to 1.25% of the initial term loan balances of $545.0, in all quarters of 2025 and 2026, and the first two quarters of 2027. The remaining balances are payable in full on August 12, 2027. Balances are net of unamortized debt issuance costs of $1.1 and $1.2 at March 29, 2025 and December 31, 2024, respectively. (3) Under this arrangement, we can borrow, on a continuous basis, up to $100.0, as available. Borrowings under this arrangement are collateralized by eligible trade receivables of certain of our businesses. At March 29, 2025, we had $9.3 of available borrowing capacity under this facility after giving effect to outstanding borrowings of $59.0 . (4) Primarily includes balances under a purchase card program of $1.7 and $1.1 and finance lease obligations of $1.1 and $1.2 at March 29, 2025 and December 31, 2024, 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. (5) “Other” includes the impact of amortization of debt issuance costs associated with the term loans. At March 29, 2025, we were in compliance with all covenants of our senior credit agreement. Availability — At March 29, 2025, we had $614.0 of available borrowing capacity under our revolving credit facilities, after giving effect to borrowings under the domestic revolving loan facility of $375.0 and $11.0 reserved for outstanding letters of credit. In addition, at March 29, 2025, we had $12.8 of available issuance capacity under our foreign credit instrument facilities after giving effect to $12.2 reserved for outstanding letters of credit. Financing instruments may be used from time to time including, but not limited to, public and private debt and equity offerings, operating leases, finance leases and securitizations. We expect that we will continue to access these markets as appropriate to maintain liquidity and to provide sources of funds for general corporate purposes, acquisitions or to refinance existing debt. We have investments in COLI policies, which are recorded at their cash surrender value of $36.3 and $36.2 at March 29, 2025 and December 31, 2024, respectively. We have the ability to borrow against a portion of our investment in the COLI policies as an additional source of liquidity. The amounts borrowed totaled $39.0 a t March 29, 2025 and December 31, 2024 and incur interest at a rate of 5.3%. After such borrowings, minimal capacity to borrow against the policies remains. See Note 12 to the consolidated financial statements for additional information. Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, COLI policies, and interest rate swap and foreign currency forward 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 37 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 — Other than the borrowings under our revolving loan facility in connection with the KTS acquisition discussed above and further borrowings under that facility to fund, together with available cash, the acquisition on April 15, 2025 of Sigma & Omega, as described in Note 18 to our condensed consolidated financial statements, there have been no material changes in the amounts of our contractual obligations from those disclosed in our 2024 Annual Report on Form 10-K. Our total net liabilities for unrecognized tax benefits including interest were $4.5 as of March 29, 2025. Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we do not believe that within the next 12 months our previously unrecognized tax benefits will decrease by a material amount. 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 for contingent consideration on prior acquisitions, 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. 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 2024 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 2024 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 2024 Annual Report on Form 10-K. 38 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Management does not believe our exposure to market risk has significantly changed since December 31, 2024 and does not believe that such risks will result in significant adverse impacts to our financial condition, results of operations or cash flows.