nVent Electric plc
Annual Report on Form 10-K
For the Year Ended December 31, 20182021
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PART I
ITEM 1. BUSINESS
nVent Electric plc is a leading global provider of electrical connection and protection solutions. We believe our inventive electrical solutions enable safer systems and ensure a more secure world. We design, manufacture, market, install and service high performance products and solutions that connect and protect some of the world’s most sensitive equipment, buildings and critical processes. We offer a comprehensive range of enclosures, electrical connections and fastening solutions and thermal management solutions across industry-leading brands that are recognized globally for quality, reliability and innovation.
Our broad range of products and solutions connect and protect our customers’ mission-critical equipment from hazardous conditions, improving their utilization, lowering costs and minimizing downtime. The cost of our products typically represents a small proportion of the total cost of our customers’ end systems as well assystems. We also are a small cost relative to the potential cost of failure that our products help avoid. We have a portfolio of premier, industry-leading brands, including nVent CADDY, ERICO, HOFFMAN, RAYCHEM, SCHROFF and TRACER, some of which have a history spanning over 100 years, that cover a wide range of verticals, including Industrial, Commercial & Residential, Energy and Infrastructure.
Unless the context otherwise indicates, references herein to "nVent," the "Company," and such words as "we," "us," and "our" include nVent Electric plc and its consolidated subsidiaries. Our principal office is in London, United Kingdom and our management office in the United States ("U.S.") is in Minneapolis, Minnesota. The Company was incorporated in Ireland on May 30, 2017. Although our jurisdiction of organization is Ireland, we manage our affairs so that we are centrally managed and controlled in the United Kingdom (the "U.K.") and have our tax residency in the U.K.
HISTORY AND DEVELOPMENT
On April 30, 2018, Pentair plc ("Pentair" or "Parent") completed the separation of its Water business and its Electrical business into two independent, publicly-traded companies (the "separation"). To effect the separation, Pentair distributed to its shareholders one ordinary share of nVent for every ordinary share of Pentair held as of the record date of April 17, 2018. As a result of the distribution, nVent is nowbecame an independent publicly-traded company and began "regular way" trading under the symbol "NVT" on the New York Stock Exchange on May 1, 2018.
Our roots within Pentair trace back to the acquisition of Federal-Hoffman Corporation in 1988, which included the nVent HOFFMAN enclosures brand. From that starting point, we have grown both organically and via acquisition. Our Enclosures business first applied lean principles within the organization in the 1990s, leveraging its culture of customer service and operational excellence. In 2012, Pentair merged with Tyco International Ltd.’s Flow Control division, which included our Thermal Management business and the nVent RAYCHEM brand, a global leader in heat tracing solutions. In 2015, Pentair acquired ERICO Global Company, a leading global manufacturer of superior engineered electrical and fastening products, which operates as our Electrical & Fastening Solutions business, broadening our product offering and enabling us to provide additional global solutions to our combined customers.
We aim to continue our journey as aare “One nVent” organization,, with a unified focus on commercial excellence, digital transformation, scaled and integrated technology, including Internet of Things (“IoT”), and global presence and capabilities. As we scalecontinue scaling our capabilities under our umbrella brand of nVent, we expect to expand our products and solutions and to continue to differentiate our company by creating solutions that solve problems for our customers.
Our strategySpark management system defines how we operate. The five elements of Spark are People, Growth, Lean, Digital and Velocity. Together, they provide the mindset and operating system to propel the success of our company. Spark supports the high performance culture we are grounded inbuilding at nVent.
•Peopleare at the valuescore of Spark, positively impacting our business and purposegrowing their careers.
•Growthis the foundation of lean, growth and talent management processes, designed to improve business performance, evaluate growth opportunities, and develop and retain employees. Through consistent application of these processes, we have been able to foster a culture of innovation, retain focus on theSpark, driving shareholder, customer and profitably growemployee value.
•Leanis the relentless pursuit of eliminating waste and increasing velocity.
•Digitaltransforms our business. We will continue to useproducts and improve these processes to drive sustainedhow we do business, improving both customer and profitable growth.employee experiences.
•Velocityis increasing speed in all we do for each other and our customers.
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BUSINESS AND PRODUCTS
We operate across three segments: Enclosures, Thermal Management, and Electrical & Fastening Solutions.Solutions and Thermal Management. The following is a brief description of each of the Company's reportable segments and business activities.
Enclosures
Our Enclosures business provides innovative solutions to connect and protect critical electronics, communication, control and power equipment. We are a leader in the enclosures sector, and our key brands, nVent HOFFMAN and SCHROFF, have a long history of solving customers’ problems by providing high quality solutions.
Electrical & Fastening Solutions
Our Electrical & Fastening Solutions business provides fastening solutions that connect and protect electrical and mechanical systems and civil structures.
We are a global leader in fastening solutions with spring steel and specialty metal fixings and reinforced steel connections, and our products are customized.primarily marketed under the nVent CADDY brand. Our products reduce total installed cost by ease of installation, provide design flexibility and increase structural integrity in electrical and mechanical fastening applications through inventive products and solutions and customer intimacy. These products are targeted towards commercial and industrial verticals with applications in fire & seismic, data & telecommunications, electrical fastening and heating, ventilation and air conditioning. These products are primarily used by electricians, telecommunications installers and roof top contractors.
We are also a global leader in bonding, grounding, lightning protection and low voltage power distribution products and solutions. These products are primarily marketed under the nVent ERICO brand. We offer a comprehensive range of facility electrical connection and protection solutions to protect against electrical transients to improve safety and reliability of electrical systems. Our products reduce total cost of ownership and provide design flexibility by offering maintenance free and reliable products and global end-user application expertise and intimacy. These products are targeted towards commercial, infrastructure and industrial verticals with applications in telecommunication, power distribution and facility electrical protection. These products and solutions are primarily used by electricians, panel builders, energy contractors and lightning protection installers.
Thermal Management
Our Thermal Management business provides electric thermal solutions that connect and protect critical buildings, infrastructure, industrial processes and people. Its highly reliable and easy-to-install solutions lower total cost of ownership to building owners, facility managers, operators and end users. Thermal Management’s products have been installed in some of the world’s most iconic buildings.
For Industrialindustrial and Energy,energy, we provide industrial heat-tracing and wiring, control and monitoring, sensing, engineering and construction services under industry leading nVent RAYCHEM and TRACER brands, primarily serving the energychemical and powerother industries. Products and solutions include heat tracing for freeze protection and process temperature maintenance, temperature control and monitoring systems, heat-traced tubing bundles, instrument winterization and tank heating systems. For Commercialcommercial, residential and Infrastructure,infrastructure, we provide products and services primarily under our nVent RAYCHEM brand. Applications include pipe freeze protection, roof and gutter de-icing,deicing, surface snow melting, hot water temperature maintenance, floor heating, fire rated wiring and freeze and frost preventionleak detection for hospitals, sports venues, hotels,healthcare, recreation, hospitality, commercial offices and education facilities.
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Competition
Our success depends on a variety of factors, including technical expertise, reputation for quality and reliability, timeliness of delivery, new product innovation, previous installation history, contractual terms and price. As many of our products sell through electrical distributors, data center contractors, original equipment manufacturers greenfield development contractors and maintenance contractors, our success also depends on building and partnering with a strong channel and distribution network.
Seasonality
We generally experience increased demand for Electrical & Fastening Solutions products during the spring and summer months in the Northern Hemisphere and increased demand for Thermal Management products and services during the fall and winter months in the Northern Hemisphere and increased demand for Electrical & Fastening Solutions products during the spring and summer months in the Northern Hemisphere.
Backlog of Orders by Segment
| December 31 | ||||||||||||||
| In millions | 2021 | 2020 | $ change | % change | ||||||||||
| Enclosures | $ | 296.2 | $ | 117.0 | $ | 179.2 | 153.2 | % | ||||||
| Electrical & Fastening Solutions | 70.8 | 34.1 | 36.7 | 107.6 | ||||||||||
| Thermal Management | 191.5 | 155.9 | 35.6 | 22.8 | ||||||||||
| Total | $ | 558.5 | $ | 307.0 | $ | 251.5 | 81.9 | % | ||||||
| December 31 | |||||||||||
| In millions | 2018 | 2017 | $ change | % change | |||||||
| Enclosures | $ | 138.6 | $ | 132.4 | $ | 6.2 | 4.7 | % | |||
| Thermal Management | 118.6 | 123.4 | (4.8 | ) | (3.9 | ) | |||||
| Electrical & Fastening Solutions | 22.5 | 24.6 | (2.1 | ) | (8.5 | ) | |||||
| Total | $ | 279.7 | $ | 280.4 | $ | (0.7 | ) | (0.2 | )% | ||
A substantial portion of our revenues result from orders received and productproducts delivered in the same month. Our backlog typically has a short manufacturing cycle and products generally ship within 90 days of the date on which a customer places an order. However, a portion of our backlog, particularly from orders for major capital projects, can take more than one year depending on the size and type of order. We record as part of our backlog all orders from external customers, which represent firm commitments, and are supported by a purchase order or other legitimate contract.
The increase in backlog from 2020 to 2021 was primarily the result of a significant increase in demand for our products and higher selling prices, along with increased order lead times, as compared to the prior year. We expect the majority of our backlog at December 31, 20182021 will be shipped in 2019. Despite the favorable long-term outlook for our end-markets, we experience volatility in the level of our backlog depending on the end-market and may continue to do so over the medium and longer term.2022.
Raw materials
The principal materials we use in manufacturing our products are mild steel, stainless steel, electronic components, plastics (resins, fiberglass, epoxies), copper and paint (powder and liquid). In addition to the purchase of raw materials, we purchase some finished goods for distribution through our sales channels.
We purchase the materials we use in various manufacturing processes on the open market and the majority is available through multiple sources which are in adequate supply. We have not experienced any significant work stoppages to date due to shortages of materials. We have certain long-term commitments, principally price commitments, for the purchase of various component parts and raw materials and believe that it is unlikely that any of these agreements would be terminated prematurely. Alternate sources of supply at competitive prices are available for most materials for which long-term commitments exist and we believe that the termination of any of these commitments would not have a material adverse effect on our financial position, results of operations or cash flows.
Certain commodities, such as metals and resin, are subject to market and duty-driven price fluctuations. We manage these fluctuations through several mechanisms, including long-term agreements with price adjustment clauses for significant commodity market movements in certain circumstances. Prices for raw materials, such as metals and resins, may trend higher in the future.
As COVID-19 conditions have improved and economic activity has increased, we have experienced supply chain challenges, including increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. However, we have not experienced any significant work stoppages to date due to shortages of materials.
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Intellectual property
Patents, non-compete agreements, proprietary technologies, customer relationships, trademarks, trade names and brand names are important to our business. However, we do not regard our business as being materially dependent upon any single patent, non-compete agreement, proprietary technology, customer relationship, trademark, trade name or brand name.
Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with their terms or otherwise. We do not expect the termination of patents, patent applications or license agreements to have a material adverse effect on our financial position, results of operations or cash flows.
Captive insurance subsidiary
We insure certain general and product liability, property, workers' compensation and automobile liability risks through our regulated wholly-owned captive insurance subsidiary, Tonka Bay Insurance Company ("Tonka Bay"). Reserves for policy claims are established based on actuarial projections of ultimate losses. Accruals are established with respect to liabilities insured by third parties, such as liabilities arising from acquired businesses, pre-Tonka Bay liabilities and those of certain non-U.S. operations are established.operations.
Matters pertaining to Tonka Bay are discussed in ITEM 3, included in this Form 10-K.
HUMAN CAPITAL MATTERS
As of December 31, 2021, we employed approximately 9,900 people worldwide, of which approximately 33% are located in the U.S. A small portion of our U.S. employees are unionized, while outside the U.S., we have employees in certain countries, particularly in Europe, that are represented by an employee representative organization, such as a union, works council or employee association.
Inclusion and Diversity
We aspire to be an equitable, inclusive and diverse company. We believe that the unique contributions of individuals with varying backgrounds and experiences will benefit our businesses. Guided by our Win Right values, we are committed to creating a workplace culture where everyone is included and respected. Our Code of Conduct outlines our commitment to equal opportunity and fair treatment for all. We do not tolerate acts of harassment, including any conduct or statements made on the basis of protected status that are intimidating, hostile or abusive.
Our leaders actively support and encourage employee development and engagement, including through our CEO Inclusion Council and an active Inclusion & Diversity Advisory Council. These councils promote inclusion across all dimensions of diversity.
We also support our Employee Resource Groups (“ERGs”), which were created organically by our employees and which provide a support system to foster awareness, promote inclusion and respect and provide a sounding board on strategic initiatives for nVent. Open to all employees, the ERGs are designed to create connections and opportunities for development, training and community involvement. In 2021, we had approximately 800 members globally in our ERGs.
In 2021, we expanded our training programs by offering Diversity 101 training in employees' native languages in which all of our people managers attended. We also introduced a new People and Culture Scorecard performance metric to our annual incentive compensation plan for management employees. The Scorecard focuses on five quantitative metrics to help drive year-over-year improvement in the following categories:
•Inclusion Index score from our quarterly employee pulse survey
•Employee Resource Group membership
•Diverse candidate slates
•Global gender representation for our professional and management populations
•U.S. racial representation for our professional and management populations
Additional details on our People and Culture Scorecard will be provided in our annual Proxy Statement for our 2022 annual general meeting of shareholders.
All executive officers developed diversity action plans for their business segments and functions, highlighting focused efforts on improving human capital metrics, engagement and a deeper awareness of inclusion & diversity.
Global Gender Diversity In The Workplace, as based on EEO-1 Report categories (as of December 31, 2021):
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•44% of our executive leadership team are female; 56% are male
•26% of our global management team are female; 74% are male
•25% of all other employees are female; 75% are male
We also launched, established baseline metrics, and trained over 400 internal stakeholders on a formal Supply Diversity program in 2021.
Compensation and Benefits
We strive to offer our employees across the world comprehensive benefit programs that reflect the market practices in their country of employment. We participate in and review remuneration surveys from leading, independent consultants for all of our countries so that we have the information to set competitive wages and salaries.
We are dedicated to providing equitable compensation as a commitment to our people. By focusing on equitable pay, we enhance our ability to grow, retain and motivate diverse employees on our team. We believe diverse teams drive innovation, connection and growth for our employees.
As part of this commitment to our people, we conduct pay parity reviews of our compensation systems. The goal of these reviews is to ensure internal pay alignment and equitable treatment for employees, as well as providing competitive and performance-based pay.
Employee Engagement and Development
We believe it is important to hear from our employees to learn about what we are doing well, and where we can become stronger. During 2021, we conducted four pulse surveys with questions focused on our Inclusion Index and employee satisfaction. As discussed under “Inclusion and Diversity,” the Inclusion Index is one of the metrics used in the People and Culture Scorecard for our annual incentive compensation plan for management. Results from each of the pulse surveys were shared with people managers, who were encouraged to discuss results and potential improvement areas with their teams. In 2021, as part of our annual goal planning process, all of our people managers were assigned a people manager goal focused on engaging and developing their employees. Action items in the people manager goal included: completing all performance processes including goal setting, mid-year, and annual reviews on time; creating an action plan from the 2020 employee engagement survey results; supporting an increase in the diversity of our candidate slates; and helping to ensure that people managers and their direct reports completed all ethics and compliance training on time.
We are also focused on recognizing our employees. Employee recognition was identified as an area of focus following our 2020 employee engagement survey. In 2021, we launched a global, digitized recognition platform, which allows employees to publicly appreciate one another as well as managers to give monetary and non-monetary forms of recognition to their employees around the globe.
As part of our continued efforts to develop our people, we launched a leadership series that had over 500 participants, launched a formalized mentoring program, and refreshed our Culture program and delivered it to employees around the globe. Our professional employees were asked to create individual development plans identifying key competencies to continue to grow or develop. With the goal of aligning development with retention, we also encourage our employees to regularly engage with their managers to discuss their performance, development and career aspirations.
Code of Conduct Training
Our Code of Conduct training was offered in 12 different languages to employees in 34 countries. Topics included nVent’s Code of Business Conduct & Ethics, Preventing Bribery, Use of Social Media, Dignity and Respect in the Workplace and Data Privacy and Cybersecurity. In 2021, we completed the training with 100% completion rate among professional employees. Additionally we launched role-based training in the areas of Bribery, Kickbacks and Conflicts of Interest. In 2021, we continued rolling out our live Code of Conduct training program for our offline, factory team members to multiple sites in North America, China and Europe.
We provide multiple ways for employees to ask for help and report misconduct and illegal or unethical behavior, including doing so anonymously. A Helpline is available on our website (www.nventethics.com) and is available 24/7 and accessible in over 200 languages. We are committed to investigating and responding to reported concerns. nVent prohibits retaliation against anyone who raises concerns or makes good-faith reports regarding possible breaches of law or policy or ethical violations.
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Workplace Health and Safety
The safety and well-being of our employees is our top priority. We are committed to preventing workplace injuries and maintaining a positive, healthy work environment. We encourage our employees to put safety first, speak up when they observe unsafe conditions or behaviors and follow all safety practices. We expect our employees to maintain a workplace free from illegal or controlled substances, weapons or potentially dangerous devices, and we strive for all nVent locations to meet or exceed all applicable Environmental, Health, and Safety ("EHS") requirements. We utilize a common safety standard identified within our EHS Lean Assessment highlighting expectations surrounding management commitment, employee engagement, metrics, regulatory compliance and hazard control.
We monitor and track health and safety data, including employee injuries, environmental releases and regulatory inspections. Additionally, we assess the EHS maturity of our locations by measuring progress against nVent's EHS Lean Assessment and Standards and region specific regulatory compliance evaluations, as well as nVent's employee driven risk notification program. Results are reviewed monthly to reduce recordable injury rates and to drive improvement within our EHS programs. Globally, we have adopted guidelines from the Occupational Safety and Health Administration (“OSHA”) in the United States to determine recordable injuries.
We have achieved a strong safety track record through employee engagement, behavior based safety and proactive risk management.
AVAILABLE INFORMATION
We make available free of charge (other than an investor's own Internet access charges) through our Internet website (http://www.nvent.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC"). Reports of beneficial ownership filed by our directors and executive officers pursuant to Section 16(a) of the Exchange Act are also available on our website. We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
You should carefully consider all of the information in this document and the following risk factors before making an investment decision regarding our securities. Any of the following risks could materially and adversely affect our business, financial condition, results of operations, cash flows and the actual outcome of matters as to which forward-looking statement are made in this document.
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Risks Relating to the COVID-19 Pandemic
Our business, financial condition, results of operations and cash flows may be materially adversely affected by global public health epidemics, including the current global COVID-19 pandemic.
Our business, financial condition, results of operations and cash flows may be adversely affected if a global public health pandemic, including the current global COVID-19 pandemic, interferes with the ability of our employees, vendors and customers to perform our and their respective responsibilities and obligations relative to the conduct of our business. The COVID-19 pandemic has significantly impacted economic activity and markets around the world, and it has had, and could continue to have, a material negative impact on our business in numerous ways, including but not limited to those outlined below:
•The risk that we or our employees, vendors or customers may be prevented from conducting business activities for an indefinite period of time, including shutdowns that may be requested or mandated by governmental authorities or that we determine are appropriate to sanitize our facilities.
•Restrictions on travel to or from locations where we provide services, or restrictions on shipping products from certain jurisdictions where they are produced or into certain jurisdictions where customers are located.
•Inability to meet our customers’ needs and achieve costs targets due to disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce or other manufacturing and distribution capability.
•Failure of third parties on which we rely, including our suppliers, distributors, contractors and commercial banks, to meet their obligations to us, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may adversely impact our operations.
•Significant reductions in demand or significant volatility in demand for one or more of our products and a global economic recession that could further reduce demand and/or pricing for our products, resulting from actions taken by governments, businesses and/or the general public in an effort to limit exposure to and spreading of such infectious diseases, such as travel restrictions, quarantines and business shutdowns or slowdowns. Deteriorating economic and political conditions caused by the COVID-19 pandemic, such as increased unemployment, decreases in capital spending, business shutdowns or economic recessions, could cause a further decrease in demand for our products.
•Delays or modifications to our strategic plans, initiatives and goals due to disruptions or uncertainties related to the COVID-19 pandemic for a sustained period of time.
•An impairment in the carrying value of goodwill or intangible assets or a change in the useful life of definite-lived intangible assets could occur if there are sustained changes in consumer purchasing behaviors, government restrictions, financial results, or a deterioration of macroeconomic conditions.
•Actions we have taken or may take, or decisions we have made or may make as a consequence of the COVID-19 pandemic may result in legal claims or litigation against us.
•Vaccine mandates that may be implemented in jurisdictions in which our business operates which could adversely affect our workforce retention and hiring.
The global COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which may continue and could cause a global recession. The extent to which the COVID-19 pandemic will continue to impact our business, financial condition, results of operations and cash flows is uncertain and will depend on numerous evolving factors that we may not be able to accurately predict, including:
•the duration and scope of the pandemic;
•the ability of vaccines to protect against variant strains of COVID-19;
•governmental, business and individual actions taken in response to the pandemic and the impact of those actions on global economic activity;
•the actions taken in response to economic disruption;
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•the impact of business disruptions on our customers and the resulting impact on their demand for our products and services; and
•our customers' ability to pay for our products and services.
Any of these factors could cause or contribute to the risks and uncertainties identified below and could materially adversely affect our business, financial condition, results of operations and cash flows.
Risks Relating to Our Business
General global economic and business conditions affect demand for our products.
We compete in various geographic regions and product markets around the world. Among these, the most significant are global industrial markets and commercial markets. We expect to experience fluctuations in revenues and results of operations due to economic and business cycles. Important factors for our business and the businesses of our customers include the overall strength of the economy and our customers’ confidence in the economy, industrial and governmental capital spending, the strength of the commercial real estate market, unemployment rates, availability of consumer and commercial financing, interest rates and energy and commodity prices. The businesses of many of our industrial customers are to varying degrees cyclical and have experienced periodic downturns. While we attempt to minimize our exposure to economic or market fluctuations by serving a balanced mix of end markets and geographic regions, any of the above factors, individually or in the aggregate, or a significant or sustained downturn in a specific end market or geographic region could reduce demand for our products and services, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We compete in attractive markets with a high level of competition, which may result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products.
The markets for our products and services are geographically diverse and highly competitive. We compete against large and well-established national and global companies, as well as regional and local companies and lower-cost manufacturers. We compete based on technical expertise, reputation for quality and reliability, timeliness of delivery, previous installation history, contractual terms and price. Some of our competitors, in particular smaller companies, attempt to compete based primarily on price, localized expertise and local relationships, especially with respect to products and applications that do not require a great deal of engineering or technical expertise. In addition, during economic downturns average selling prices tend to decrease as market participants compete more aggressively on price. If we are unable to continue to differentiate our products, services and solutions, or if we are forced to cut prices or to incur additional costs to remain competitive, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our future growth is dependent upon our ability to adapt our products, services and organization to meet the demands of local markets in both developed and emerging economies and by developing or acquiring new technologies that achieve market acceptance with acceptable margins.
We operate in global markets that are characterized by customer demand that is often global in scope but localized in delivery. We compete with thousands of smaller regional and local companies that may be positioned to offer products produced at lower cost than ours, or to capitalize on highly localized relationships and knowledge that are difficult for us to replicate. Also, in several emerging markets potential customers prefer local suppliers, in some cases because of existing relationships and in other cases because of local legal restrictions or incentives that favor local businesses. Accordingly, our future success depends upon a number of factors, including our ability to adapt our products, services, organization, workforce and sales strategies to fit localities throughout the world, particularly in high-growth emerging markets; identify emerging technological and other trends in our target end markets; and develop or acquire competitive products and services and bring them to market quickly and cost-effectively. The failure to effectively adapt our products or services could have a material adverse effect on our business, financial condition, results of operations and cash flows.
A sustained downturn in the energy industry, due to oil and gas prices decreasing or otherwise, could decrease demand for some of our products and services.
A portion of our revenue historically has been generated by end-users in the oil and gas markets where we serve all three major categories of customers in the petroleum industry—upstream exploration/production,primarily midstream transportation and downstream refining. The businesses of most of our customers in the energy industry are, to varying degrees, cyclical and historically have experienced periodic downturns. Profitability in the energy industry is highly sensitive to supply and demand cycles and commodity prices, which historically have been volatile, and our customers in this industry have tended to delay large capital projects, including expensive maintenance and upgrades, during industry downturns. Customer project delays and cancellations may limit our ability to realize value from our backlog as expected and cause fluctuations in the timing or the amount of revenue earned and the profitability of our business in a particular period. In addition, such delays and cancellations may lead to significant fluctuations in results of operations from quarter to quarter, making it difficult to predict our financial performance on a quarterly basis.
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Demand for a portion of our products and services depends upon the level of capital expenditure by companies in the energy industry, which depends, in part, on energy prices. Prices of oil and gas are volatile and within recent years, the price of crude oil has declined significantly. We have experienced suspensions or delays in large capital projects within the energy sector, especially in the upstream exploration and production sector, and most notably in Canada. A sustained downturn in the capital expenditures of our customers, whether due to a decrease in the market price of oil and gas or otherwise, may delay projects, decrease demand for our products and services and cause downward pressure on the prices we charge, which, in turn, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may not be able to identify, finance and complete suitable acquisitions and investments, and any completed acquisitions and investments could be unsuccessful or consume significant resources.
Our business strategy is expected to includeincludes acquiring businesses and making investments that complement our existing business. We expect to analyze and evaluate the acquisition of strategic businesses or product lines with the potential to extend or strengthen our industry position or enhance our existing set of product and service offerings. We may not be able to identify suitable acquisition candidates, obtain financing or have sufficient cash necessary for acquisitions or successfully complete acquisitions in the future. Acquisitions and investments may involve significant cash expenditures, debt incurrences, equity issuances, operating losses and expenses. Acquisitions involve numerous other risks, including:
•diversion of management time and attention from daily operations;
•difficulties integrating acquired businesses, technologies and personnel into our business;
•difficulties in obtaining and verifying the financial statements and other business information of acquired businesses;
•inability to obtain required regulatory approvals;
•potential loss of key employees, key contractual relationships or key customers of acquired companies or of ours;
•assumption of the liabilities and exposure to unforeseen liabilities of acquired companies, including risks relating to the U.S. Foreign Corrupt Practices Act (the “FCPA”);companies; and
•dilution of interests of holders of nVent ordinary shares through the issuance of equity securities or equity-linked securities.
It may be difficult for us to complete transactions quickly and to integrate acquired operations efficiently into our business operations. Any acquisitions or investments may not be successful and may ultimately result in impairment charges and have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may not achieve some or all of the expected benefits of our business initiatives.
During 2021, 2020 and 2019, we continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. In order to align our resources with our growth strategies, operate more efficiently and control costs, we may periodically announce in the future restructuring plans, which may include workforce reductions, global plant closures and consolidations, asset impairments and other cost reduction initiatives. We may undertake restructuring actions and workforce reductions in the future. As these plans and actions are complex, we may not be able to achieve the operating efficiencies to reduce costs or realize benefits that were anticipated in connection with these initiatives. If we are unable to execute these initiatives as planned, we may not realize all or any of the anticipated benefits, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our backlog may fluctuate and material amounts of cancellations or reductions of orders or a failure to deliver our backlog on time could affect our future sales.
Our backlog is comprised of the portion of firm signed purchase orders or other written contractual commitments received from customers that we have not recognized as revenue. Backlog may increase or decrease based on the addition of large multi-year projects and their subsequent completion. Backlog may also be favorably or unfavorably affected by foreign currency rate fluctuations. The dollar amount of backlog as of December 31, 20182021 was $279.7$558.5 million. The timing of our recognition of revenue out of our backlog is subject to a variety of factors that may cause delays, many of which, including fluctuations in our customers’ delivery schedules, are beyond our control. Such delays may lead to significant fluctuations in results of operations from quarter to quarter, making it difficult to predict our financial performance on a quarterly basis. Further, while we have historically experienced few order cancellations and the amount of order cancellations has not been material compared to our total contract volume, if we were to experience a significant amount of cancellations of or reductions in purchase orders, it
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would reduce our backlog and, consequently, our future sales and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our future revenue depends in part on our ability to bid and win new contracts.
Our future revenue and overall results of operations require us to successfully bid on new contracts and, in particular, contracts for large greenfield projects, which are frequently subject to competitive bidding processes. Our revenue from major projects depends in part on the level of capital expenditures in some of our principal end markets, including the energy, chemical processing and power generation industries. In addition, if we fail to replace completed or canceled large greenfield projects with new order volume of the same magnitude, our backlog will decrease. The number of such projects we win in any year fluctuates, and is dependent upon the number of projects available and our ability to bid successfully for such projects. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which is affected by a number of factors, such as competitive position, market conditions, financing arrangements and required governmental approvals. If negative market conditions arise, or if we fail to secure adequate financial arrangements or required governmental approvals, we may not be able to pursue particular projects or win new contracts, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are exposed to political, regulatory, economic and other risks that arise from operating a multinational business.
Sales outside of the U.S. for the year ended December 31, 20182021 accounted for approximately 40%43% of our net sales. Further, our business obtains some products, components and raw materials from non-U.S. suppliers. Accordingly, our business is subject to the political, regulatory, economic and other risks that are inherent in operating in numerous countries. These risks include:
•the imposition of tariffs, exchange controls or other trade restrictions;
•changes in general economic and political conditions in countries where we operate, particularly in emerging markets;
•relatively more severe economic conditions in some international markets than in the U.S.;
•the difficulty of enforcing agreements and collecting receivables through non-U.S. legal systems;
•the difficulty of communicating and monitoring standards and directives across our global facilities;
•trade protection measures and import or export licensing requirements and restrictions;
•the possibility of terrorist action or military conflict affecting us or our operations;
•the threat of nationalization and expropriation;
•difficulty in staffing and managing widespread operations in non-U.S. labor markets;
•changes in tax treaties, laws or rulings that could have a material adverse impact on our effective tax rate;
•limitations on repatriation of earnings;
•the difficulty of protecting intellectual property in non-U.S. countries; and
•changes in and required compliance with a variety of non-U.S. laws and regulations.
Our success depends in part on our ability to anticipate and effectively manage these and other risks. We cannot assure you that these and other factors will not have a material adverse effect on our international operations or on our business as a whole.
A disruption in the availability, price or quality of products or materials that we manufacture and source from various countries throughout the world could have a material adverse effect on our results of operations.
Our business is subject to risks associated with global manufacturing and sourcing. We use a variety of raw materials in the production of our products including steel, copper, aluminum, brass, copper, bronze, zinc, nickelpaints and plastics.resins. We also purchase certain electrical and electronic components and packaging materials from a number of suppliers. During 2021, we experienced supply chain challenges, including increased lead times, due to availability constraints and high demand, and we expect supply chain pressures to continue in 2022. Although we regularly monitor the financial health and operations of companies in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints could cause a disruption in our ability to obtain raw materials or components required to manufacture our products and adversely affect our operations. Significant shortages in the availability of these materials or price increases could increase our operating costs and adversely
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impact the competitive positions of our products. We rely on materials, components and finished goods that are sourced from or manufactured outside the U.S., including Mexico, China and other countries, and these countries may experience political or trade instability, which could disrupt our supply of products or materials. We rely on our suppliers to produce high quality materials, components and finished goods according to our specifications. Although we have quality control procedures in place, there is a risk that products may not meet our specifications which could impact our ability to ship quality products to our customers on a timely basis.
Our Thermal Management segment’s dependence on subcontractors and third party suppliers and manufacturers with respect to projects could have a material adverse effect on us.
Our Thermal Management segment often relies on third party subcontractors as well as third party suppliers and manufacturers to complete projects. To the extent that we cannot engage subcontractors or acquire supplies or materials from third parties for these projects, our ability to complete a project in a timely fashion or at a profit may be impaired. If the amount we are required to pay for these goods and services exceeds the amount we have estimated in bidding for fixed-price contracts, we could experience losses on these contracts. In addition, if a subcontractor, supplier or manufacturer is unable to deliver its services or materials according to the negotiated contract terms for any reason, including the deterioration of its financial condition or over-commitment of its resources, we may be required to purchase the services or materials from another source at a higher price. This may reduce the profit to be realized or result in a loss on a project for which the services or materials were needed.
We may experience material cost and other inflation.
During 2021, we experienced inflationary increases of raw materials, logistics and labor costs due to availability constraints and high demand, and we expect inflationary cost increases to continue in 2022. We strive for productivity improvements and implement increases in selling prices to help mitigate cost increases in raw materials, freight, energy, wage and other costs such as pension, health care and insurance. We continue to implement operational initiatives in order to mitigate the impact of this inflation and continuously reduce our costs. However, these actions may not be successful in managing our costs or increasing our productivity. Continued cost inflation or failure of our initiatives to increase prices, generate cost savings or improve productivity could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Intellectual property challenges may hinder our ability to develop, engineer and market our products, and we may incur significant costs in our efforts to successfully avoid, manage, defend and litigate intellectual property matters.products.
Patents, non-compete agreements, proprietary technologies, customer relationships, trademarks, trade names and brand names are important to our business. Intellectual property protection, however, may not preclude competitors from developing products similar to ours or from challenging our names or products. Our pending patent applications, and our pending copyright and trademark registration applications, may not be allowed or competitors may challenge the validity or scope of our patents, copyrights or trademarks. In addition, our patents, copyrights, trademarks and other intellectual property rights may not provide us a significant competitive advantage. Over the past few years, we have noticed an increasing tendency for participants in our markets to use challenges to intellectual property as a means to compete. Patent and trademark challenges increase our costs to develop, engineer and market our products. We may need to spend significant resources monitoring our intellectual property rights and we may or may not be able to detect infringement by third parties. If we fail to successfully enforce our intellectual property rights or register new patents, our competitive position could suffer, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We test goodwill and cash flows.other indefinite-lived intangible assets for impairment on at least an annual basis, and more frequently if circumstances warrant, by comparing the estimated fair value of our reporting unit to its respective carrying values on its balance sheets. As of December 31, 2021, our goodwill and intangible assets were $3.3 billion and represented 71% of our total assets. Changes in economic and operating conditions impacting the assumptions used in our impairment tests could result in future goodwill and intangible asset impairment expense.
Risks Relating to Legal, Regulatory and Compliance Matters
Changes in U.S. and foreign government administrative policy, including changes to existing trade agreements and U.S government sanctions, could have a material adverse effect on us.
As a result of changes to U.S. and foreign government administrative policy, there may be changes to existing trade agreements, greater restrictions on free trade generally, significant increases in tariffs on goods imported into the U.S. particularly tariffs on products manufactured in China, Canada and Mexico, among other possible changes.
In addition, from time to time, the U.S. government has imposed sanctions restricting U.S. companies from conducting business with specified non-U.S. individuals and companies. For example, the U.S. government has imposed sanctions through several executive orders and legislation restricting U.S. companies from conducting business with specified Russian and Ukrainian
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individuals and companies. The sanctions imposed by the U.S. government may be expanded in the future to restrict or further restrict us from engaging with customers or vendors. If we are unable to conduct business with new or existing customers or vendors or pursue business opportunities in Russia or Ukraine, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently manufacture and sell products, and any resulting negative sentiments towards the U.S. as a result of such changes, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Further, our global operations require importing and exporting goods and technology across international borders on a regular basis. Certain of the credit qualityproducts we manufacture are “dual use” products, which are products that may have both civil and military applications, or may otherwise be involved in weapons proliferation, and are often subject to more stringent export controls. From time to time, we may obtain or receive information alleging improper activity in connection with imports or exports.
Our policies mandate strict compliance with applicable laws and regulations, including those pertaining to anti-corruption, anti-bribery and trade. However, even when we are in strict compliance with law and our policies, we may suffer reputational damage if certain of several major customersour products are sold through various intermediaries to entities operating in sanctioned countries. We cannot assure that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or third-party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable laws, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may require self-disclosure to governmental agencies and result in criminal or civil sanctions, which could havedisrupt our business, cause denial of import or export privileges, and result in a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.
We are exposed to potential environmental laws, liabilities and litigation.
We are subject to U.S. federal, state, local and non-U.S. laws and regulations governing our environmental practices, public and worker health and safety, and the indoor and outdoor environment. Compliance with these environmental, health and safety regulations could require us to satisfy environmental liabilities, increase the cost of manufacturing our products or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows. Any violations of these laws by us could cause us to incur unanticipated liabilities. We are also required to comply with various environmental laws and maintain permits, some of which are subject to renewal from time to time, for many of our businesses and we could suffer if we are unable to renew existing permits or to obtain any additional permits that we may require. Compliance with environmental requirements also could require significant operating or capital expenditures or result in significant operational restrictions. We cannot assure you that we have been or will be at all times in compliance with environmental and health and safety laws. If we violate these laws, we could be fined, criminally charged or otherwise sanctioned by regulators.
We have been named as defendant, target or a potentially responsible party ("PRP") in a number of environmental cleanups relating to our current or former business units. We may be named as a PRP at other sites in the future for existing business units, as well as both divested and acquired businesses. In addition to clean-up actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. Certain environmental laws impose liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances at their properties or at properties at which they have disposed of hazardous substances. The cost of clean-up and other environmental liabilities can be difficult to accurately predict. In addition, environmental requirements change and tend to become more stringent over time. Our eventual environmental clean-up costs and liabilities could exceed the amount of our current reserves.
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We may incur significant costs in our efforts to successfully avoid, manage, defend and litigate intellectual property matters.
From time to time, we receive notices from third parties alleging intellectual property infringement. Any dispute or litigation involving intellectual property could be costly and time-consuming due to the complexity and the uncertainty of intellectual property litigation. Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. In addition, as a result of such claims, we may lose our rights to utilize critical technology, may be required to pay substantial damages or license fees with respect to the infringed rights or may be required to redesign our products at a substantial cost, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are exposed to certain regulatory and financial risks related to climate change.change and other sustainability matters.
Climate change is receiving ever increasing attention worldwide. Many scientists, legislators and others attribute global warming to increased levels of greenhouse gases, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. The U.S. Environmental Protection Agency ("EPA") has published findings that emissions of carbon dioxide, methane, and other greenhouse gases ("GHGs") present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth's atmosphere and other climate changes. Based on these findings, the EPA has implemented regulations that require reporting of GHG emissions, or that limit emissions of GHGs from certain mobile or stationary sources. In addition, the U.S. Congress and federal and state regulatory agencies have considered other legislation and regulatory proposals to reduce emissions of GHGs, and many states have already taken legal measures to reduce emissions of GHGs, primarily through the development of GHG inventories, GHG permitting and/or regional GHG cap-and-trade programs. It is uncertain whether, when and in what form a federal mandatory carbon dioxide emissions reduction program, or other state programs, may be adopted. Similarly, certain countries have adopted the Kyoto Protocol and/orand in February 2021, the U.S. rejoined the Paris Accord, and these and other existing international initiatives or those under consideration could affect our international operations. To the extent our customers, particularly our energy and industrial customers, are subject to any of these or other similar proposed or newly enacted laws and regulations, we are exposed to risks that the additional costs incurred by customers to comply with such laws and regulations could impact their ability or desire to continue to operate at similar levels in certain jurisdictions as historically seen or as currently anticipated, which could negatively impact their demand for our products and services. These actions could also increase costs associated with our operations, including costs for raw materials and transportation. Because it is uncertain what laws will be enacted, we cannot predict the potential impact of such laws on our future financial condition, results of operations and cash flows.
In addition, as part of our strategy regarding climate change and sustainability matters, we have set and may set additional targets aimed at reducing our impact on the environment and climate change and/or targets relating to other sustainability matters. It is possible that we may not be able to achieve such targets or our desired impact, which may cause us to suffer from reputational damage or our business or financial condition could be adversely affected. It is also possible that actions we take to achieve our strategy or targets could result in increased costs to our operations. In addition, investors and other stakeholders are increasingly focused on environmental, social and governance ("ESG") matters, and as stakeholder ESG expectations and standards are evolving, our failure to sufficiently response to these evolving standards and expectations may cause us to suffer from reputational damage or our business or financial condition could be adversely affected.
Increased information technology security threats and computer crime pose a risk to our systems, networks, products and services, and we are exposed to potential regulatory, financial and reputational risks relating to the protection of our data.
We rely upon information technology systems and networks in connection with a variety of business activities, some of which are managed by third parties. Additionally, we collect and store data that is sensitive to us and our employees, customers, dealersdistributors and suppliers. As our business increasingly interfaces with employees, customers, dealersdistributors and suppliers using information technology systems and networks, we are subject to an increased risk to the secure operation of these systems and networks and to additional laws and regulatory requirements regarding data privacy, including the European Union General Data Protection Regulation. The secure operation of these information technology systems and networks, and the processing and maintenance of this data is critical to our business operations and strategy. Information technology security threats — from user error to attacks designed to gain unauthorized access to our systems, networks and data — are increasing in frequency and sophistication. Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of the data we process and maintain and pose a risk of theft to our assets. Establishing systems and processes to address these threats and changes in legal requirements relating to data collection and storage may increase our costs. We have experienced data breaches, and, although we have determined such data breaches to be immaterial and such data breaches have not had a material adverse effect on our financial condition, results of operations or cash flows, there can be no assurance of similar results in the future. Should future attacks succeed in the theft of assets, exporting sensitive data or financial information or controlling sensitive systems or networks, it could expose us and our employees, customers, dealersdistributors and suppliers to the theft of assets, misuse of information or systems, the compromising of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions, and breach of privacy, which may require notification under data privacy and other applicable laws. The occurrence of any of these events could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows. In
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addition, such breaches in security could result in litigation, regulatory action and potential liability and the costs and operational consequences of implementing further data protection measures.
We may be negatively impacted by litigation, including product liability claims.
We are currently, and may in the future, become subject to litigation and other claims. We have been made parties to a number of actions filed or have been given notice of potential claims relating to the conduct of our business, including those pertaining to commercial disputes, product liability, asbestos, environmental, safety and health, patent infringement and employment matters. The outcome of such legal proceedings cannot be predicted with certainty and some may be disposed of unfavorably to us. Our business exposes us to potential litigation, such as product liability claims relating to the design, manufacture and sale of our products. While we currently maintain what we believe to be suitable product liability insurance, we may not be able to maintain this insurance on acceptable terms and this insurance may not provide adequate protection against potential or previously existing liabilities. In addition, we self-insure a portion of product liability claims. Successful claims against us for significant amounts could have a material adverse effect on our product reputation, business, financial condition, results of operations and cash flows.
If the distribution from Pentair fails to qualify as a tax-free transaction for U.S. federal income tax purposes, then we and our shareholders could be subject to significant tax liability or tax indemnity obligations.
Pentair received an IRS Ruling from the IRS substantially to the effect that, among other things, the distribution and certain related transactions qualify as tax-free under Section 355 and related provisions of the Code. The tax-free nature of the distribution was conditioned on the continued validity of the IRS Ruling, as well as on receipt of a tax opinion, substantially to the effect that, among other things, the distribution would qualify as a tax-free transaction under Section 355 and related provisions of the Code, and certain transactions related to the transfer of assets and liabilities to us in connection with the separation and distribution would not result in the recognition of any gain or loss to Pentair, us or our shareholders. The IRS ruling and the tax opinion relied on certain facts and assumptions, certain representations from Pentair and us regarding the past and future conduct of both businesses and other matters, and the tax opinion relies on the IRS Ruling. Notwithstanding the IRS ruling and tax opinion, the IRS could determine on audit that the distribution should be treated as a taxable transaction if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated, or that the distribution should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the distribution, or if the IRS were to disagree with the conclusions of the tax opinion that are not covered by the IRS ruling. If the distribution is ultimately determined to be taxable, the distribution could be treated as a taxable dividend to you for U.S. federal income tax purposes, and you could incur significant U.S. federal income tax liability. In addition, Pentair and/or we could incur significant U.S. federal income tax liabilities or tax indemnification obligations, whether under applicable law or the tax matters agreement that we entered into with Pentair, if it is ultimately determined that certain related transactions undertaken in anticipation of the distribution are taxable. To the extent we incur any tax liability or indemnification obligation under applicable law or the tax matters agreement, there could be a material adverse effect on our business, financial condition and results of operations and cash flows in future reporting periods.
Risks Relating to Financial Markets and Our Debt and Liquidity
Volatility in currency exchange rates could have a material adverse effect on our financial condition, results of operations and cash flows.
Sales outside of the U.S. for the year ended December 31, 2021 accounted for approximately 43% of our net sales. Our financial statements reflect translation of items denominated in non-U.S. currencies to U.S. dollars. Therefore, if the U.S. dollar strengthens in relation to the principal non-U.S. currencies from which we derive revenue as compared to a prior period, our U.S. dollar-reported revenue and income will effectively be decreased to the extent of the change in currency valuations and vice-versa. For the year ended December 31, 2021, foreign currency translations had a 2% positive impact on our net sales. Fluctuations in foreign currency exchange rates, most notably the strengthening of the U.S. dollar against the euro, could have a material adverse effect on our reported revenue and income in future periods.
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Disruptions in the financial markets could adversely affect us, our customers and our suppliers by increasing funding costs or reducing availability of credit.
In the normal course of our business, we may access credit markets for general corporate purposes, which may include repayment of indebtedness, acquisitions, additions to working capital, repurchase of shares, capital expenditures and investments in our subsidiaries. Although we expect to have sufficient liquidity to meet our foreseeable needs, our access to and the cost of capital could be negatively impacted by disruptions in the credit markets, which have occurred in the past and made financing terms for borrowers unattractive or unavailable. These factors may make it more difficult or expensive for us to access credit markets if the need arises. In addition, these factors may make it more difficult for our suppliers to meet demand for their products or for prospective customers to commence new projects, as customers and suppliers may experience increased costs of debt financing or difficulties in obtaining debt financing. Disruptions in the financial markets in the past have had adverse effects on other areas of the economy and have led to a slowdown in general economic activity that may adversely affect our businesses. One or more of these factors could adversely affect our business, financial condition, results of operations orand cash flows.
Covenants in our debt instruments may adversely affect us.
Our credit agreements and indentures contain customary financial covenants, including those that limit the amount of our debt, which may restrict the operations of our business and our ability to incur additional debt to finance acquisitions. Our ability to meet the financial covenants can be affected by events beyond our control, and we cannot provide assurance that we will meet those tests. A breach of any of these covenants could result in a default under our credit agreements or indentures. Upon the occurrence of an event of default under any of our credit facilities or indentures, the lenders or trustees could elect to declare all amounts outstanding thereunder to be immediately due and payable and, in the case of credit facility lenders, terminate all commitments to extend further credit. If the lenders or trustees accelerate the repayment of borrowings, we cannot provide assurance that we will have sufficient assets to repay our credit facilities and our other indebtedness. Furthermore, acceleration of any obligation under any of our material debt instruments will permit the holders of our other material debt to accelerate their obligations, which could have a material adverse effect on our financial condition.
As of December 31, 2018,2021, we had $0.9$1.0 billion of total debt outstanding. WeIf we are not able to repay or refinance our debt as it becomes due, we may be forced to sell assets or take other disadvantageous actions, including (i) reducing financing in the future for working capital, capital expenditures and general corporate purposes or (ii) dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. The lenders who hold such debt could also accelerate amounts due, which could potentially trigger a default or acceleration of any of our other debt.
Further, we may increase our debt or raise additional capital in the future, subject to restrictions in our debt agreements. If our cash flow from operations is less than we anticipate, if our cash requirements are more than we expect, or if we intend to finance acquisitions, we may require more financing. However, debt or equity financing may not be available to us on acceptable terms, if at all. If we incur additional debt or raise equity through the issuance of additional capital shares, the terms of the debt or capital shares issued may give the holders rights, preferences and privileges senior to those of holders of our ordinary shares, particularly in the event of liquidation. The terms of the debt may also impose additional and more stringent restrictions on our operations than we currently have. If we raise funds through the issuance of additional equity, the percentage ownership of existing shareholders in our company would decline. If we are unable to raise additional capital when needed, our financial condition could be adversely affected. Unfavorable changes in the ratings that rating agencies assign to our debt may ultimately negatively impact our access to the debt capital markets and increase the costs we incur to borrow funds. If ratings for our debt are downgraded, our access to the debt capital markets may become restricted. Additionally, our credit agreements generally include an increase in interest rates if the ratings for our debt are downgraded.
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Risks Relating to Our Jurisdiction of Incorporation in Ireland and Tax Residency in the U.K.
We are subject to changes in law and other factors that may not allow us to maintain a worldwide effective corporate tax rate that is competitive in our industry.
While we believe that we should be able to maintain a worldwide effective corporate tax rate that is competitive in our industry, we cannot give any assurance as to what our effective tax rate will be in the future, because of, among other things, uncertainty regarding the tax policies of the jurisdictions where we operate. Our actual effective tax rate may vary from our expectation and that variance may be material. Also, the tax laws of the U.S., the U.K., Ireland and other jurisdictions could change in the future, and such changes could cause a material change in our worldwide effective corporate tax rate. In particular, legislative action could be taken by the U.S., the U.K., Ireland or the European Union which could override tax treaties or modify tax statutes or regulations upon which we expect to rely and adversely affect our effective tax rate. We cannot predict the outcome of any specific legislative proposals. If proposals were enacted that had the effect of disregarding our incorporation in Ireland or limiting our ability as an Irish company to maintain tax residency in the U.K. and take advantage of the tax treaties among the U.S., the U.K. and Ireland, we could be subject to increased taxation, which could materially adversely affect our financial condition, results of operations, cash flows or our effective tax rate in future reporting periods.
A change in our tax residency could have a negative effect on our future profitability, and may trigger taxes on dividends or exit charges.
Our application under the Mutual Agreement Procedure provided for in Article 24 of effective management test. Thethe Convention (as amended residence tie-breaker should take effect for nVent from January 1, 2020 and nVent intendspursuant to seek a determinationthe MLI) seeking confirmation that we will continue to be tax resident solely in respect of its tax residence from the taxU.K. was approved by the competent authorities of the UKU.K. and Ireland in advance of that date. nVent does not expect such a determination to alter its tax residency in the U.K..effective December 31, 2019.
It is possible that in the future, whether as a result of a change in law (including the entry into force and effect of the MLI) or the practice of any relevant tax authority or as a result of any change in the conduct of our affairs, nVentwe could become, or be regarded as having become, resident in a jurisdiction other than the U.K. If nVent ceaseswe cease to be resident in the U.K. and becomesbecome resident in another jurisdiction, itwe may be subject to U.K. exit charges, and could become liable for additional tax charges in the other jurisdiction (including dividend withholding taxes or corporate income tax charges). If nVentwe were to be treated as resident in more than one jurisdiction, itwe could be subject to taxation in multiple jurisdictions. If, for example, nVentwe were considered to be a tax resident of Ireland, nVentwe could become liable for Irish corporation tax and any dividends paid by itus could be subject to Irish dividend withholding tax.
Legislative action in the U.S. could materially adversely affect us.
Legislative or administrative action may be taken by the U.S. Congress or U.S. Treasury which, if ultimately enacted or finalized, could limit the availability of tax benefits or deductions that we currently claim, override tax treaties upon which we rely, or otherwise affect the taxes that the U.S. imposes on our worldwide operations. Such actions include proposed regulations issued by the U.S. Treasury on December 20, 2018 that, when finalized, would limit the availability of tax benefits we currently claim related to the deductibility of interest (the "Proposed Regulations"). It is anticipated that the Proposed Regulations will be finalized during, or prior to, June 2019. As the Proposed Regulations are not yet finalized, the ultimate outcome is not specifically known at this time. Such changes could materially adversely affect our effective tax rate and/or require us to take further action, at potentially significant expense, to seek to preserve our effective tax rate.
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Irish law differs from the laws in effect in the U.S. and may afford less protection to holders of our securities.
It may not be possible to enforce court judgments obtained in the U.S. against us in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. We have been advised that the U.S. currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.
As an Irish company, we are governed by the Irish Companies Act 2014, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of our securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the U.S.
In addition, our articles of association provide that the Irish courts have exclusive jurisdiction to determine any and all derivative actions in which a holder of nVent ordinary shares asserts a claim in the name of nVent, actions asserting a claim of breach of a fiduciary duty of any of the directors of nVent and actions asserting a claim arising pursuant to any provision of Irish law or our articles of association. Under Irish law, the proper claimant for wrongs committed against nVent, including by our directors, is considered to be nVent itself. Irish law permits a shareholder to initiate a lawsuit on behalf of a company such as nVent only in limited circumstances and requires court permission to do so.
Transfers of nVent ordinary shares may be subject to Irish stamp duty.
Transfers of nVent ordinary shares effected by means of the transfer of book entry interests in the Depository Trust Company ("DTC") will not be subject to Irish stamp duty. However, if you hold your nVent ordinary shares directly, rather than beneficially through DTC, any transfer of your nVent ordinary shares could be subject to Irish stamp duty (currently at the rate of 1 percent of the higher of the price paid or the market value of the shares acquired). Payment of Irish stamp duty is generally a legal obligation of the transferee.
We currently intend to pay (or cause one of our affiliates to pay) stamp duty in connection with share transfers made in the ordinary course of trading by a seller who holds shares directly to a buyer who holds the acquired shares beneficially. In other cases we may, in our absolute discretion, pay (or cause one of our affiliates to pay) any stamp duty. Our constitution provides that, in the event of any such payment, we (i) may seek reimbursement from the buyer, (ii) will have a lien against the shares acquired by such buyer and any dividends paid on such shares and (iii) may set-off the amount of the stamp duty against future dividends on such shares. Parties to a share transfer may assume that any stamp duty arising in respect of a transaction in nVent ordinary shares has been paid unless one or both of such parties is otherwise notified by us.
nVent ordinary shares, received by means of a gift or inheritance, could be subject to Irish capital acquisitions tax.
Irish capital acquisitions tax (“CAT”) could apply to a gift or inheritance of nVent ordinary shares irrespective of the place of residence, ordinary residence or domicile of the parties. This is because nVent ordinary shares will be regarded as property situated in Ireland. The person who receives the gift or inheritance has primary liability for CAT. Gifts and inheritances passing between spouses are exempt from CAT. Children have a tax-free threshold of €320,000 per lifetimewhich Irish Revenue typically updates annually in respect of taxable gifts or inheritances received from their parentsparents.
General Risk Factors
Our share price may fluctuate significantly.
We cannot predict the prices at which nVent ordinary shares may trade. The market price of nVent ordinary shares may fluctuate widely, depending on many factors, some of which may be beyond our control, including:
•actual or anticipated fluctuations in our results of operations due to factors related to our business;
•success or failure of our business strategy;
•our quarterly or annual earnings, or those of other companies in our industry;
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•our ability to obtain third-party financing as needed;
•announcements by us or our competitors of significant acquisitions or dispositions;
•changes in accounting standards, policies, guidance, interpretations or principles;
•changes in earnings estimates by us or securities analysts or our ability to meet those estimates;
•the operating and share price performance of other comparable companies;
•investors' perceptions of us;
•natural or other environmental disasters that investors believe may affect us;
•overall market fluctuations;
•results from any material litigation, including government investigations or environmental liabilities;
•changes in laws and regulations affecting our business; and
•general economic conditions and other external factors.
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could have a material adverse effect on our share price.
Our success depends on attracting and retaining qualified personnel.
Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce. Failure to ensure that we have the depth and breadth of personnel with the necessary skill set and experience, or the loss of key employees, could impede our ability to deliver our growth objectives and execute our strategy.
Catastrophic and other events beyond our control may disrupt operations at our manufacturing facilities and those of our suppliers, which could cause us to be unable to meet customer demands or increase our costs or reduce customer spending.
If operations at any of our manufacturing facilities or those of our suppliers were to be disrupted as a result of significant equipment failures, natural disasters, earthquakes, power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes, public health epidemics or other catastrophic events or events outside of our control, we may be unable to fill customer orders and otherwise meet customer demand for periodsour products. In addition, these types of events may negatively impact consumer, commercial and industrial spending in impacted regions or, depending on the severity, globally. As a result, any of such events could have a material adverse effect our business, financial condition, results of operations and cash flows. Interruptions in production, in particular at our manufacturing facilities, could increase our costs and reduce our sales. Any interruption in production capability could require us to make substantial capital expenditures to fill customer orders. We maintain property damage insurance that we believe to be adequate to provide for reconstruction of facilities and equipment, as well as business interruption insurance to mitigate losses resulting from any production interruption or after October 10, 2018.
shutdown caused by an insured loss. However, any recovery under our insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could have a material adverse effect our business, financial condition, results of operations and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Our principal office is located in leased premises in London, United Kingdom,U.K., and our management office in the United StatesU.S. is located in leased premises in Minneapolis, Minnesota.
Our key operations are conducted in manufacturing and distribution facilities throughout the world. These facilities houseThe following is a summary of our principal manufacturing, distribution, and distribution operations, as well as sales and marketing, engineering and administrative offices.service center properties:
| Number of Facilities | |||||||||||||||||
| Manufacturing Plant Locations | Manufacturing Plants | Distribution Facilities | Service Centers | ||||||||||||||
| Enclosures | U.S. and 9 other countries | 19 | 10 | — | |||||||||||||
| Electrical & Fastening Solutions | U.S. and 2 other countries | 8 | 6 | — | |||||||||||||
| Thermal Management | U.S. and 2 other countries | 4 | 6 | 4 | |||||||||||||
We believe that our production facilities are suitable for their purpose and are adequate to support our businesses.
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ITEM 3. LEGAL PROCEEDINGS
We have been made parties to a number of actions filed or have been given notice of potential claims relating to the conduct of our business, including those pertaining to commercial disputes, product liability, asbestos, environmental, safety and health, patent infringement and employment matters.
While we believe that a material impact on our financial position, results of operations or cash flows from any such future claims or potential claims is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future adverse ruling or unfavorable development could result in future charges that could have a material adverse impact. We do and will continue to periodically reexamine our estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on our financial position, results of operations and cash flows for the proceedings and claims described in the notes to our consolidated and combined financial statements could change in the future.
Environmental matters
We have been named as defendant, target or a potentially responsible party ("PRP") in a number of environmental clean-ups relating to our current or former business units. We may be named as a PRP at other sites in the future for existing business units, as well as both divested and acquired businesses. In addition to clean-up actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances.
Certain environmental laws impose liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances at their properties or at properties at which they have disposed of hazardous substances. Our accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. It can be difficult to estimate reliably the final costs of investigation and remediation due to various factors. In our opinion, the amounts accrued are appropriate based on facts and circumstances as currently known. As of December 31, 2018,2021, our recorded reserves for environmental matters were not material. We do not anticipate these environmental conditions will have a material adverse effect on our financial position, results of operations or cash flows. However, unknown conditions, new details about existing conditions or changes in environmental requirements may give rise to environmental liabilities that will exceed the amount of our current reserves and could have a material adverse effect in the future.
Product liability claims
We are subject to various product liability lawsuits and personal injury claims. A substantial number of lawsuits and claims incurred prior to the effective date of the separation on April 30, 2018 are insured and accrued for by Pentair’sPentair's captive insurance subsidiary. Pentair’s captive insurance subsidiary records a liability for these claims based on actuarial projections of ultimate losses. Lawsuits and claims incurred after the separation are insured and accrued for by Tonka Bay, a captive insurance subsidiary of nVent. For all other claims, accruals covering the claims are recorded, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The accruals are adjusted periodically as additional information becomes available. We have not experienced significant unfavorable trends in either the severity or frequency of product liability lawsuits or personal injury claims.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
Current executive officers of nVent Electric plc, their ages, current position and their business experience during at least the past five years are as follows:
| Name | Age | Current Position and Business Experience | ||||||||||||
| Beth A. Wozniak | Chief Executive Officer since 2018; | |||||||||||||
| Executive Vice President and Chief Financial Officer since | ||||||||||||||
| Jon D. Lammers | 57 | Executive Vice President | ||||||||||||
| Lynnette R. Heath | Executive Vice President and Chief Human Resources Officer since 2018; Ms. Heath was the Senior Vice President, Global Human Resources of Entrust Datacard (a privately held global security and identity company) from 2009 – 2017. Ms. Heath previously held various human resources roles with General Electric Company from 2000 – 2009, with McKesson Corporation from 1996 – 2000 and with Northern States Power Company (n/k/a Xcel Energy Inc.) from 1992 – 1996. | |||||||||||||
| Aravind Padmanabhan | 53 | Executive Vice President and Chief Technology Officer since 2019; Mr. Padmanabhan was the Vice President and Chief Technology Officer of the Honeywell Connected Worker unit of Honeywell International Inc. (a software-industrial company) from 2018 – 2019, and served as Acting Chief Architect of the Honeywell Sentience Platform in 2018. Mr. Padmanabhan previously served as Vice President and Chief Technology Officer of the Home & Building Technologies unit of Honeywell International Inc. from 2016 – 2018 and the Environmental & Energy Solutions unit of Honeywell International Inc. from 2013 – 2016. Mr. Padmanabhan also previously held various other technology and engineering leadership positions at Honeywell International Inc. from 1997 – 2013. | ||||||||||||
| Randolph A. Wacker | Senior Vice President and Chief Accounting Officer since | |||||||||||||
| Joseph A. Ruzynski | President of Enclosures since 2018; Mr. Ruzynski was the Vice President of Pentair’s Enclosures Strategic Business Unit and served in that role during 2017. Mr. Ruzynski previously served as Vice President of Pentair’s Engineered Projects Strategic Business Group in its Valves & Controls Global Business Unit from 2016 – 2017 and Vice President of Pentair’s Fluid Motion Business Group from 2015 – 2016. He was the Vice President, Operations of Pentair’s Equipment Protection and Technical Solutions Global Business Units from 2012 – 2014, and held various supply leadership positions with Pentair from 2003 – 2012. Mr. Ruzynski was a Manager with Ernst & Young from 1997 – 2003. | |||||||||||
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| Robert J. van der Kolk | 53 | President of Electrical & Fastening Solutions since 2018; Mr. van der Kolk was the Vice President of Pentair’s Engineered & Fastening Solutions Strategic Business Unit of the Electrical segment and served in that role from 2015 – 2017. Mr. van der Kolk previously served as the Executive Vice President, Sales for ERICO from 2011 – 2015, and held various sales, development, and manufacturing leadership roles with ERICO from 2001 – 2008. Mr. van der Kolk held Plant Superintendent and Production Management roles for Cargill in the Netherlands and Germany from 1993 – 2001. | ||||||||||||
| Michael B. Faulconer | President of Thermal Management since 2018; Mr. Faulconer was the Vice President of Pentair’s Thermal Management Strategic Business Unit of the Electrical segment and served in that role during 2017. Mr. Faulconer previously served as the Vice President of Pentair’s Thermal Building Solutions Unit from 2014 – 2016. He was the Vice President, Marketing of Pentair’s Thermal Management Unit from 2010 – 2013. Mr. Faulconer held various general management and marketing leadership roles with Tyco Thermal Controls in the U.S. and Asia from 2001 – 2010. From 1991 – 2000, Mr. Faulconer held various sales roles with Valquip Corporation. | |||||||||||||
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our ordinary shares are listed for trading on the New York Stock Exchange and trade under the symbol "NVT." As of December 31, 2018,2021, there were 15,03413,678 shareholders of record.
The timing, declaration and payment of future dividends to holders of our ordinary shares will depend upon many factors, including our financial condition and results of operations, the capital requirements of our businesses, industry practice and any other relevant factors.
Share Performance Graph
The following information under the caption "Share Performance Graph" in this ITEM 5 of this Annual Report on Form 10-K is not deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or to the liabilities of Section 18 of the Exchange Act and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.
The following graph sets forth the cumulative total shareholder return on our ordinary shares from the date of the separation of nVent from Pentair, assuming the investment of $100 on April 30, 2018 and the reinvestment of all dividends since that date to December 31, 2018.2021. The graph also contains for comparison purposes the S&P Mid Cap 400 Index and the S&P Mid Cap 400 Industrials Index, assuming the same investment level and reinvestment of dividends. By virtue of our market capitalization, we are a component of the S&P Mid Cap 400 Index. On the basis of our size and diversity of businesses, we believe the S&P Mid Cap 400 Industrials Index is an appropriate published industry index for comparison purposes.
| Base Period 2018 | INDEXED RETURNS Years ended December 31, | |||||||||||||||||||
| Company / Index | April 30 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||
| nVent Electric plc | 100 | 102.99 | 117.30 | 113.84 | 190.38 | |||||||||||||||
| S&P Mid Cap 400 Index | 100 | 88.82 | 110.18 | 128.87 | 160.77 | |||||||||||||||
| S&P Mid Cap 400 Industrials Index | 100 | 90.13 | 118.98 | 137.03 | 174.59 | |||||||||||||||
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Base Period 2018 | INDEXED RETURNS Quarters ended in 2018 | |||||||
| Company / Index | April 30 | June 30 | September 30 | December 31 | ||||
| nVent Electric plc | 100 | 113.57 | 123.69 | 102.99 | ||||
| S&P Mid Cap 400 Index | 100 | 104.23 | 107.86 | 88.82 | ||||
| S&P Mid Cap 400 Industrials Index | 100 | 103.07 | 111.08 | 90.13 | ||||
Purchases of Equity Securities
The following table provides information with respect to purchases we made of our ordinary shares during the fourth quarter of 2018:2021:
| (a) | (b) | (c) | (d) | |||||||||||
| Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Dollar value of shares that may yet be purchased under the plans or programs | |||||||||||
| October 1 – October 30, 2021 | 199 | $ | 35.23 | — | $ | 300,000,000 | ||||||||
| October 31 – November 27, 2021 | 964,927 | 36.92 | 738,668 | 272,429,945 | ||||||||||
| November 28 – December 31, 2021 | 1,660,516 | 36.83 | 1,867,166 | 203,883,660 | ||||||||||
| Total | 2,625,642 | 2,605,834 | ||||||||||||
(a)The purchases in this column includes shares repurchased as part of our publicly announced plans and shares deemed surrendered to us by participants in the nVent Electric plc 2018 Omnibus Incentive Plan (the "2018 Plan") and earlier Pentair stock incentive plans that are now outstanding under the 2018 Plan (collectively the "Plans") to satisfy the exercise price or withholding of tax obligations related to the exercise of stock options, vesting of restricted shares and vesting of performance shares.
(b)The average price paid in this column includes shares repurchased as part of our publicly announced plans and shares deemed surrendered to us by participants in the Plans to satisfy the exercise price of stock options and withholding tax obligations due upon stock option exercises, vesting of restricted shares and vesting of performance shares.
(c)The number of shares in this column represents the number of shares repurchased as part of our publicly announced plans to repurchase our ordinary shares up to a maximum dollar limit authorized by the Board of Directors, discussed below.
(d)On May 14, 2021, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $300.0 million (the "2021 Authorization"). The 2021 Authorization began on July 23, 2021 and expires on July 22, 2024. As of December 31, 2021, we had $203.9 million available for repurchases under the 2021 Authorization.
| (a) | (b) | (c) | (d) | |||||||
Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Dollar value of shares that may yet be purchased under the plans or programs | |||||||
| October 1 – October 27, 2018 | 2,293 | $ | 27.52 | — | $ | 500,000,000 | ||||
| October 28 – November 24, 2018 | 2,018,748 | 24.86 | 1,922,799 | 452,084,142 | ||||||
| November 25 – December 31, 2018 | 510,398 | 21.88 | 506,214 | 441,003,961 | ||||||
| Total | 2,531,439 | 2,429,013 | ||||||||
ITEM 6. SELECTED FINANCIAL DATARESERVED
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| Years ended December 31 | |||||||||||||||
| In millions, except per-share data | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||
| Consolidated and combined statements of operations and comprehensive income data | |||||||||||||||
| Net sales | $ | 2,213.6 | $ | 2,097.9 | $ | 2,116.0 | $ | 1,809.3 | $ | 1,728.0 | |||||
| Income before income taxes | 268.7 | 313.3 | 315.0 | 265.9 | 277.3 | ||||||||||
| Net income | 230.8 | 361.7 | 259.1 | 210.1 | 212.2 | ||||||||||
| Per-share data | |||||||||||||||
| Basic: | |||||||||||||||
| Earnings per ordinary share | $ | 1.29 | $ | 2.02 | $ | 1.45 | $ | 1.17 | $ | 1.19 | |||||
Weighted average shares (1) | 178.6 | 179.0 | 179.0 | 179.0 | 179.0 | ||||||||||
| Diluted: | |||||||||||||||
| Earnings per ordinary share | $ | 1.28 | $ | 2.00 | $ | 1.43 | $ | 1.16 | $ | 1.17 | |||||
Weighted average shares (1) | 180.8 | 181.2 | 181.2 | 181.2 | 181.2 | ||||||||||
| Cash dividends declared and paid per ordinary share | $ | 0.35 | $ | — | $ | — | $ | — | $ | — | |||||
| Cash dividends declared and unpaid per ordinary share | 0.175 | — | — | — | — | ||||||||||
| Consolidated and combined balance sheets data | |||||||||||||||
| Total assets | $ | 4,552.7 | $ | 4,725.0 | $ | 4,493.8 | $ | 4,564.4 | $ | 2,205.9 | |||||
| Total debt | 941.7 | — | — | — | — | ||||||||||
| Total equity | 2,687.1 | 3,791.3 | 3,485.7 | 3,506.7 | 1,605.4 | ||||||||||
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations refers to and should be read in conjunction with the audited consolidated and combined financial statements and the corresponding notes included in ItemITEM 8.
Forward-looking statements
This report contains statements that we believe to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact are forward-looking statements. Without limitation, any statements preceded or followed by or that include the words "targets," "plans," "believes," "expects," "intends," "will," "likely," "may," "anticipates," "estimates," "projects," "forecasts," "should," "would," "positioned," "strategy," "future," "forecast""are confident," or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include;include adverse effects on our business operations or financial results, as a resultincluding due to the impact of the consummationnovel coronavirus 2019 ("COVID-19") pandemic and potential impairment of the separation (as defined below); the ability of our business to operate independently following the separation;goodwill and trade names; overall global economic and business conditions impacting our business; the ability to achieve the benefits of our restructuring plans; the ability to successfully identify, finance, complete and integrate acquisitions; competition and pricing pressures in the markets we serve, including the impacts of tariffs; the strength of housing and related markets; volatility in currency exchange rates and commodity prices; inability to generate savings from excellence in operations initiatives consisting of lean enterprise, supply management and cash flow practices; inability to mitigate material and other cost inflation; risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging and transportation; increased risks associated with operating foreign businesses; the ability to deliver backlog and win future project work; failure of markets to accept new product introductions and enhancements; the impact of changes in laws and regulations, including those that limit U.S. tax benefits; the outcome of litigation and governmental proceedings; and the ability to achieve our long-term strategic operating goals. Additional information concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission (the "SEC"), including this Annual Report on Form 10-K. All forward-looking statements speak only as of the date of this report. nVent Electric plc assumes no obligation, and disclaims any obligation, to update the information contained in this report.
The following is the discussion and analysis of changes in the financial condition and results of operations for fiscal year 2021 compared to fiscal year 2020. The discussion and analysis of fiscal year 2019 and changes in the financial condition and results of operations for fiscal year 2020 compared to fiscal year 2019 that are not included in this Form 10-K may be found in Part II, ITEM 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 23, 2021.
Overview
The terms "us," "we," "our," "the Company" or "nVent" refer to nVent Electric plc. nVent is a leading global provider of electrical connection and protection solutions. We believe our inventive electrical solutions enable safer systems and ensure a more secure world. We design, manufacture, market, install and service high performance products and solutions that connect and protect some of the world’sworld's most sensitive equipment, buildings and critical processes. We offer a comprehensive range of enclosures, electrical connections and fastening and thermal management solutions across industry-leading brands that are recognized globally for quality, reliability and innovation.
We classify our operations into business segments based primarily on types of products offered and markets served. We operate across three segments: Enclosures, Thermal Management, and Electrical & Fastening Solutions and Thermal Management, which contributed 46%represented approximately 51%, 28%26% and 26%23% of total revenues during 2018,2021, respectively. We classify our operations into business segments based primarily on types of products offered and markets served:
•Enclosures- —The Enclosures segment provides inventiveinnovative solutions thatto connect, protect, connectpower and manage heat incool critical controls systems, electronics, communication, control,data and powerelectrical equipment. From metallic and non-metallic enclosures to cabinets, subracks and backplanes, it offers the physical infrastructure to host, connect and protect server and network equipment, as well as indoor and outdoor protection for broadband voice, datatest and video surveillancemeasurement and aerospace and defense applications in industrial, infrastructure, commercial and energy verticals.
•Electrical & Fastening Solutions—The Electrical & Fastening Solutions segment provides solutions that connect and protect electrical and mechanical systems and civil structures. Its engineered electrical and fastening products are innovative, cost efficient and time saving connections that are used across a wide range of verticals, including commercial, infrastructure, industrial and energy.
•Thermal Management - —The Thermal Management segment provides electric thermal solutions that connect and protect critical buildings, infrastructure, industrial processes and people. Its thermal management systems include heat
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tracing, floor heating, fire-rated and specialty wiring, sensing and snow melting and de-icing solutions for use in industrial, energy, commercial & residential, energy and infrastructure verticals. Its highly reliable and easy to install solutions lower total cost of ownership to building owners, facility managers, operators and end users.
On April 30, 2018, Pentair plc ("Pentair" or "Parent") completed the separation of its Water business and its Electrical business into two independent, publicly-traded companies (the "separation"). To effect the separation, Pentair distributed to its shareholders one ordinary share of nVent for every ordinary share of Pentair held as1, 2021, we acquired substantially all of the record dateassets of April 17, 2018.Vynckier Enclosure Systems, Inc. ("Vynckier") for approximately $27.0 million in cash. The U.S. based Vynckier business manufactures high-quality non-metallic enclosures that we market as part of the nVent HOFFMAN product line within our Enclosures segment.
On June 30, 2021, we acquired CIS Global LLC ("CIS Global") for approximately $202.4 million in cash. The CIS Global business is a leading provider of intelligent rack power distribution and server slides products, and operates within our Enclosures segment.
COVID-19
In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has adversely affected, and may continue to adversely affect, our business. Governments around the world have implemented measures to help control the spread of the virus, including business curtailments and shutdowns, isolating residents to their places of residence and restricting travel. The effects of the COVID-19 pandemic have had and may continue to have an unfavorable impact on our business.
Beginning in March 2020, we experienced significant reductions in customer demand in several end-markets across our business segments. However, economic activity in many of the end-markets in which we operate began to stabilize and recover in the second half of 2020, and continued to increase in 2021. Our organic sales increased 18% in 2021 as compared to 2020.
In response to the adverse effects of the pandemic, we executed a number of temporary cash and cost-savings measures, which were largely implemented in 2020. As our business has seen significant improvement in our financial results and improved outlook for many end-markets, we eliminated in 2021 many of the temporary cash and cost savings measures put in place.
While our facilities remained operational during 2021, we continue to experience various degrees of higher manufacturing cost pressures and inflation as a result of supply chain challenges and high demand. Although we regularly monitor the distribution, nVent is now an independent publicly-traded companyfinancial health and began regular way trading underoperations of companies in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints could cause a disruption in our ability to obtain raw materials or components required to manufacture our products and adversely affect our operations. As the symbol "NVT" onCOVID-19 conditions have improved and economic activity has increased, we have experienced supply chain challenges, including increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. We expect the New York Stock Exchange on May 1, 2018.inflationary trends and supply chain pressures to continue in 2022.
Key trends and uncertainties regarding our existing business
The following trends and uncertainties affected our financial performance in 20182021 and 2017,2020, and willare reasonably likely to impact our results in the future:
•There are many uncertainties regarding the COVID-19 pandemic, including the anticipated duration and severity of the pandemic and the extent of worldwide social, political and economic disruption it may cause. The magnitude of the impact of the pandemic on our financial condition, liquidity and results of operations cannot be determined at this time, and ultimately will be affected by a number of evolving factors including the length of time that the pandemic continues, the ability of vaccines to protect against variant strains of COVID-19, the pandemic's effect on the demand for our products and services and the supply chain, as well as the impact of governmental regulations imposed in response to the pandemic including potential business curtailments and shutdowns impacting our factories.
•We have identified specific product, vertical and geographic market opportunities that we find attractive and continue to pursue, both within and outside the U.S. We are reinforcingpositioning our businesses to more effectively address these opportunities through research and development and additional sales and marketing resources. Unless we successfully penetrate these markets, our organic sales growth will likely be limited or may decline.
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•During 2021, we experienced supply chain challenges, including increased lead times, and inflationary increases of raw materials, logistics and labor costs due to availability constraints and high demand. While we have experienced materialtaken pricing actions and other cost inflation. We strivewe plan for productivity improvements that could help offset these cost increases, we expect supply chain pressures and we implementinflationary cost increases in selling prices to help mitigate this inflation. We expect the current economic environment, including the impactscontinue into 2022, and could negatively impact our results of tariffs, will result in continuing price volatility for many of our raw materialsoperations.
•During 2021 and purchased components and we are uncertain as to the timing and impact of these market changes.
In 2019,2022, our operating objectives include the following:
•Executing our ESG strategy focused on People, Products and Planet;
•Enhancing and supporting employee engagement, development and retention;
•Achieving differentiated revenue growth through new products and solutionsinnovation and market expansion in key developing regions;higher growth verticals across all regions globally;
•Optimizing our technological capabilities to increasingly generate innovative new and connected products and enhance theadvance digital transformation;
•Driving operational excellence through lean and agile, with specific focus on our digital transformation and supply chain resiliency;
•Optimizing working capital through inventory reduction initiatives across business segments and focused actions to optimize customer experience; and vendor payment terms; and
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CONSOLIDATED AND COMBINED RESULTS OF OPERATIONS
The consolidated and combined results of operations were as follows:
| Years ended December 31 | % / point change | |||||||||||||
| In millions | 2018 | 2017 | 2016 | 2018 vs 2017 | 2017 vs 2016 | |||||||||
| Net sales | $ | 2,213.6 | $ | 2,097.9 | $ | 2,116.0 | 5.5 | % | (0.9 | %) | ||||
| Cost of goods sold | 1,337.5 | 1,256.0 | 1,280.2 | 6.5 | % | (1.9 | %) | |||||||
| Gross profit | 876.1 | 841.9 | 835.8 | 4.1 | % | 0.7 | % | |||||||
| % of net sales | 39.6 | % | 40.1 | % | 39.5 | % | (0.5 | pts) | 0.6 | pts | ||||
| Selling, general and administrative | 519.7 | 483.3 | 462.4 | 7.5 | % | 4.5 | % | |||||||
| % of net sales | 23.5 | % | 23.0 | % | 21.9 | % | 0.5 | pts | 1.1 | pts | ||||
| Research and development | 45.6 | 42.5 | 40.6 | 7.3 | % | 4.7 | % | |||||||
| % of net sales | 2.1 | % | 2.0 | % | 1.9 | % | 0.1 | pts | 0.1 | pts | ||||
| Operating income | 310.8 | 316.1 | 332.8 | (1.7 | %) | (5.0 | %) | |||||||
| % of net sales | 14.0 | % | 15.1 | % | 15.7 | % | (1.1 | pts) | (0.6 | pts) | ||||
| Net interest expense | 31.2 | 0.2 | 1.4 | N.M. | N.M. | |||||||||
| Other expense | 10.9 | 2.6 | 16.4 | N.M. | N.M. | |||||||||
| Income before income taxes | 268.7 | 313.3 | 315.0 | (14.2 | %) | (0.5 | %) | |||||||
| Provision (benefit) for income taxes | 37.9 | (48.4 | ) | 55.9 | N.M. | N.M. | ||||||||
| Effective tax rate | 14.1 | % | (15.4 | %) | 17.7 | % | N.M. | N.M. | ||||||
| Years ended December 31 | % / point change | ||||||||||||||||||||||
| In millions | 2021 | 2020 | 2021 vs 2020 | ||||||||||||||||||||
| Net sales | $ | 2,462.0 | $ | 1,998.6 | 23.2 | % | |||||||||||||||||
| Cost of goods sold | 1,520.1 | 1,249.2 | 21.7 | % | |||||||||||||||||||
| Gross profit | 941.9 | 749.4 | 25.7 | % | |||||||||||||||||||
| % of net sales | 38.3 | % | 37.5 | % | 0.8 | pts | |||||||||||||||||
| Selling, general and administrative | 537.9 | 447.0 | 20.3 | % | |||||||||||||||||||
| % of net sales | 21.8 | % | 22.4 | % | (0.6 | pts) | |||||||||||||||||
| Research and development | 48.6 | 43.5 | 11.7 | % | |||||||||||||||||||
| % of net sales | 2.0 | % | 2.2 | % | (0.2 | pts) | |||||||||||||||||
| Impairment of goodwill and trade names | — | 220.5 | N.M. | ||||||||||||||||||||
| Operating income | 355.4 | 38.4 | 825.5 | % | |||||||||||||||||||
| % of net sales | 14.4 | % | 1.9 | % | 12.5 | pts | |||||||||||||||||
| Net interest expense | 32.3 | 36.4 | N.M. | ||||||||||||||||||||
| Loss on early extinguishment of debt | 15.2 | — | N.M. | ||||||||||||||||||||
| Other expense (income) | (12.8) | 11.5 | N.M. | ||||||||||||||||||||
| Income (loss) before income taxes | 320.7 | (9.5) | N.M. | ||||||||||||||||||||
| Provision for income taxes | 47.8 | 37.7 | 26.8 | % | |||||||||||||||||||
| Effective tax rate | 14.9 | % | (396.8 | %) | N.M. | ||||||||||||||||||
| Net income (loss) | 272.9 | (47.2) | 678.2 | % | |||||||||||||||||||
N.M. Not Meaningful
Net sales
The components of the consolidated net sales change were as follows:
| 2018 vs 2017 | 2017 vs 2016 | ||||
| Volume | 2.9 | % | (2.2 | %) | |
| Price | 1.8 | 0.1 | |||
| Organic growth | 4.7 | (2.1 | ) | ||
| Acquisition | — | 0.7 | |||
| Currency | 0.8 | 0.5 | |||
| Total | 5.5 | % | (0.9 | %) | |
| 2021 vs 2020 | ||||||||
| Volume | 11.3 | % | ||||||
| Price | 7.1 | |||||||
| Organic growth | 18.4 | |||||||
| Acquisition | 2.8 | |||||||
| Currency | 2.0 | |||||||
| Total | 23.2 | % | ||||||
The 5.523.2 percent increase in net sales in 20182021 from 20172020 was primarily the result of:
•organic sales growth contribution of approximately 2.5%9.0%, 4.5% and 3.0% from our industrial, business and 2.0% from our commercial & residential business,and infrastructure businesses, respectively, in 2021 from 2020, which includes selective increases in selling prices; and
•favorable foreign currency effects.
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Gross profit
The 0.5 percentage point decrease in gross profit as a percentage of sales in 2018 from 2017 was primarily the result of:
•increases in lower margin long-cycle energy salesselling prices to mitigate inflationary cost increases; and growth in higher margin product sales; and
•supply chain challenges, including increased lead times, and inflationary increases related toof raw materials, logistics and labor costs and certain raw materials; and
Selling, general and administrative ("SG&A")
The 0.50.6 percentage point increasedecrease in SG&A expense as a percentage of sales in 20182021 from 20172020 was driven by:
•restructuring and other professional fees,costs of $8.8 million in 2021, compared to $16.1$22.0 million in 2017;2020; and
•temporary actions taken in 2017.2020 to lower costs in response to the adverse effects of the COVID-19 pandemic, including reducing labor costs and limiting discretionary spending for purchased services and travel; and
Impairment of goodwill and trade names
In 2020, as a percentageresult of salesthe adverse market and economic conditions attributed to the COVID-19 pandemic, combined with significant volatility in 2017 from 2016 was driven byoil and gas prices leading to a potential sustained downturn in the following:energy industry, we recognized pre-tax, non-cash impairment expense of $220.5 million, which primarily relates to a $212.3 million impairment of goodwill in the Thermal Management reporting unit. In 2020, we also recognized pre-tax, non-cash impairment expense of $8.2 million related to trade names.
Loss on early extinguishment of debt
In 2021, we issued $300.0 million of non-recurring separation costs incurred in 20172.750% fixed rate senior notes due 2031 and utilized the proceeds to prepare nVent to operateredeem $300.0 million of 3.950% fixed rate senior notes due 2023. The $15.2 million premium paid on the early extinguishment was recorded as an independent stand-alone public company, primarily related to legal, advisory and other professional fees; and
Provision for income taxes
The 29.5 percentage point increasedifference in the effective tax rate in 20182021 from 20172020 was primarily due to:the result of:
•the provisional tax benefit of $84.8 million recognized as a result of U.S. tax reform in 2017 that is not recurring in 2018.
•a $5.5 million one-time benefit recorded in 2021 to reflect an anticipated that the Proposed Regulations will be finalized during, or prior to, June 2019. As the Proposed Regulations are not yet finalized, the ultimate outcome is not specifically known at this time. Such changes could materially adversely affect our effective tax rate and/or require us to take further action to seek to preserve our effective tax rate.worthless stock deduction on an investment in a foreign subsidiary.
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SEGMENT RESULTS OF OPERATIONS
The summary that follows provides a discussion of the results of operations of our three reportable segments (Enclosures, Thermal Management and Electrical & Fastening Solutions)Solutions and Thermal Management). Each of these segments comprises various product offerings that serve multiple end markets.users.
We evaluate performance based on sales and segment income and use a variety of ratios to measure performance of our reporting segments. Segment income (loss) represents operating income exclusive of intangible amortization, separation costs, net interest expense, costs of restructuring activities, impairments and other unusual non-operating items.
Enclosures
The net sales and segment income for Enclosures were as follows:
| Years ended December 31 | % / point change | Years ended December 31 | % / point change | |||||||||||||||||||||||||||||||
| In millions | 2018 | 2017 | 2016 | 2018 vs 2017 | 2017 vs 2016 | In millions | 2021 | 2020 | 2021 vs 2020 | |||||||||||||||||||||||||
| Net sales | $ | 1,019.7 | $ | 934.9 | $ | 911.2 | 9.1 | % | 2.6 | % | Net sales | $ | 1,244.8 | $ | 952.9 | 30.6 | % | |||||||||||||||||
| Segment income | 174.8 | 164.6 | 184.4 | 6.2 | % | (10.7 | %) | Segment income | 202.1 | 148.5 | 36.1 | % | ||||||||||||||||||||||
| % of net sales | 17.1 | % | 17.6 | % | 20.2 | % | (0.5 | pts) | (2.6 | pts) | % of net sales | 16.2% | 15.6% | 0.6 | pts | |||||||||||||||||||
Net sales
The components of the change in Enclosures net sales were as follows:
| 2018 vs 2017 | 2017 vs 2016 | ||||
| Volume | 7.1 | % | 3.0 | % | |
| Price | 1.2 | (0.6 | ) | ||
| Organic growth | 8.3 | 2.4 | |||
| Currency | 0.8 | 0.2 | |||
| Total | 9.1 | % | 2.6 | % | |
| 2021 vs 2020 | ||||||||
| Volume | 16.2 | % | ||||||
| Price | 7.0 | |||||||
| Organic growth | 23.2 | |||||||
| Acquisition | 5.7 | |||||||
| Currency | 1.7 | |||||||
| Total | 30.6 | % | ||||||
The 9.130.6 percent increase in Enclosures net sales in 20182021 from 20172020 was primarily the result of:
•organic sales growth contribution of approximately 5.0%14.5%, 3.5% and 3.0% from our industrial, businessinfrastructure and approximately 2.5%commercial & residential businesses, respectively, in 2021 from our infrastructure business,2020, which includes selective increases in selling prices; and
•favorable foreign currency effects.
Segment income
The components of the change in Enclosures segment income as a percentage of net sales from the prior period were as follows:
| 2018 | 2017 | |||
| Growth | 1.7 | pts | 2.0 | pts |
| Inflation | (3.5 | ) | (2.4 | ) |
| Productivity/Price | 1.3 | (2.2 | ) | |
| Total | (0.5 | pts) | (2.6 | pts) |
| 2021 vs 2020 | ||||||||
| Growth/acquisition | 3.3 | pts | ||||||
| Price | 5.5 | |||||||
| Currency | (0.3) | |||||||
| Net productivity | (7.9) | |||||||
| Total | 0.6 | pts | ||||||
The 0.50.6 percentage point decreaseincrease in segment income for Enclosures as a percentage of net sales in 20182021 from 20172020 was primarily the result of:
•increases in selling prices to mitigate inflationary increases related to certain raw materials, laborcost increases; and freight costs.
•higher sales volume resulting in increased leverage on fixed expenses.
This decreaseincrease was partially offset by:
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•supply chain challenges, including increased lead times, and infrastructure businesses, including selective increases in selling prices, which resulted in increased leverage on production and operating expenses; and
inflationary increases relatedof raw materials, logistics and labor costs due to availability constraints and high demand compared to 2020;
•temporary actions taken in 2020 to lower costs in response to the adverse effects of the COVID-19 pandemic, including reducing labor costs and certain raw materials;limiting discretionary spending for purchased services and travel; and
•higher cost of sales due to manufacturing footprint rationalization and a new U.S. distribution center.
| Years ended December 31 | % / point change | |||||||||||||
| In millions | 2018 | 2017 | 2016 | 2018 vs 2017 | 2017 vs 2016 | |||||||||
| Net sales | $ | 623.2 | $ | 622.2 | $ | 692.2 | 0.2 | % | (10.1 | %) | ||||
| Segment income | 154.2 | 147.3 | 123.5 | 4.7 | % | 19.3 | % | |||||||
| % of net sales | 24.7 | % | 23.7 | % | 17.8 | % | 1.0 | pts | 5.9 | pts | ||||
| 2018 vs 2017 | 2017 vs 2016 | ||||
| Volume | (1.0 | %) | (11.3 | %) | |
| Price | 0.5 | — | |||
| Organic growth | (0.5 | ) | (11.3 | ) | |
| Currency | 0.7 | 1.2 | |||
| Total | 0.2 | % | (10.1 | %) | |
| 2018 | 2017 | |||
| Growth | 1.9 | pts | 7.6 | pts |
| Inflation | (1.3 | ) | (0.7 | ) |
| Productivity/Price | 0.4 | (1.0 | ) | |
| Total | 1.0 | pts | 5.9 | pts |
Electrical & Fastening Solutions
The net sales and segment income for Electrical & Fastening Solutions were as follows:
| Years ended December 31 | % / point change | Years ended December 31 | % / point change | |||||||||||||||||||||||||||||||
| In millions | 2018 | 2017 | 2016 | 2018 vs 2017 | 2017 vs 2016 | In millions | 2021 | 2020 | 2021 vs 2020 | |||||||||||||||||||||||||
| Net sales | $ | 570.7 | $ | 540.8 | $ | 512.6 | 5.5 | % | 5.5 | % | Net sales | $ | 657.5 | $ | 569.1 | 15.5 | % | |||||||||||||||||
| Segment income | 144.5 | 140.7 | 144.9 | 2.7 | % | (2.9 | %) | Segment income | 181.5 | 150.2 | 20.8 | % | ||||||||||||||||||||||
| % of net sales | 25.3 | % | 26.0 | % | 28.3 | % | (0.7 | pts) | (2.3 | pts) | % of net sales | 27.6% | 26.4% | 1.2 | pts | |||||||||||||||||||
Net sales
The components of the change in Electrical & Fastening Solutions net sales were as follows:
| 2021 vs 2020 | ||||||||
| Volume | 3.1 | % | ||||||
| Price | 10.6 | |||||||
| Organic growth | 13.7 | |||||||
| Acquisition | 0.3 | |||||||
| Currency | 1.5 | |||||||
| Total | 15.5 | % | ||||||
| 2018 vs 2017 | 2017 vs 2016 | ||||
| Volume | 0.4 | % | 0.9 | % | |
| Price | 4.3 | 1.3 | |||
| Organic growth | 4.7 | 2.2 | |||
| Acquisition | — | 2.8 | |||
| Currency | 0.8 | 0.5 | |||
| Total | 5.5 | % | 5.5 | % | |
The 5.515.5 percent increase in Electrical & Fastening Solutions net sales in 20182021 from 20172020 was primarily the result of:.
•organic sales growth contribution of approximately 3.0%6.5% and 5.0% from our commercial & residential business and approximately 1.5%infrastructure businesses, respectively, in 2021 from our industrial business,2020, which includes selective increases in selling prices; and
•favorable foreign currency effects.
Segment income
The components of the change inElectrical & Fastening Solutionssegment income as a percentage of net sales from the prior period were as follows:
| 2021 vs 2020 | ||||||||
| Growth/acquisition | 0.6 | pts | ||||||
| Price | 7.1 | |||||||
| Currency | 0.1 | |||||||
| Net productivity | (6.6) | |||||||
| Total | 1.2 | pts | ||||||
| 2018 | 2017 | |||
| Growth | (0.6 | pts) | (1.9 | pts) |
| Inflation | (3.3 | ) | (3.2 | ) |
| Productivity/Price | 3.2 | 2.8 | ||
| Total | (0.7 | pts) | (2.3 | pts) |
The 0.71.2 percentage point decreaseincrease in segment income for Electrical & Fastening Solutions as a percentage of net sales in 20182021 from 20172020was primarily the result of:
•higher sales volume resulting in increased leverage on fixed expenses; and
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This increase was partially offset by:
•supply chain challenges, including increased lead times, and supply management practices.inflationary increases of raw materials, logistics and labor costs due to availability constraints and high demand compared to 2020;
•temporary actions taken in 2020 to lower costs in response to the adverse effects of the COVID-19 pandemic, including reducing labor costs and limiting discretionary spending for purchased services and travel; and
•higher sales volume resulting in increased employee incentive compensation expense compared to 2020.
Thermal Management
The 2.3 percentage point decrease innet sales and segment income for Electrical & Fastening SolutionsThermal Management were as a percentagefollows:
| Years ended December 31 | % / point change | |||||||||||||||||||
| In millions | 2021 | 2020 | 2021 vs 2020 | |||||||||||||||||
| Net sales | $ | 559.7 | $ | 476.6 | 17.4 | % | ||||||||||||||
| Segment income | 121.2 | 93.9 | 29.1 | % | ||||||||||||||||
| % of net sales | 21.7% | 19.7% | 2.0 | pts | ||||||||||||||||
Net sales
The components of the change in Thermal Management net sales were as follows:
| 2021 vs 2020 | ||||||||
| Volume | 11.3 | % | ||||||
| Price | 3.2 | |||||||
| Organic growth | 14.5 | |||||||
| Currency | 2.9 | |||||||
| Total | 17.4 | % | ||||||
•organic sales growth contribution of approximately 7.5% and 6.0% from our industrial and commercial & residential businesses, respectively, in 2021 from 2020, which includes increases in selling prices; and
•favorable foreign currency effects.
Segment income
The components of the change in Thermal Management segment income as a percentage of net sales from the prior period were as follows:
| 2021 vs 2020 | ||||||||
| Growth/acquisition | 3.5 | pts | ||||||
| Price | 2.5 | |||||||
| Currency | 0.1 | |||||||
| Net productivity | (4.1) | |||||||
| Total | 2.0 | pts | ||||||
The 2.0 percentage point increase in segment income for Thermal Management as a percentage of net sales in 2021 from 2020was primarily the result of:
•higher sales volume resulting in increased leverage on fixed expenses;
•increases in selling prices to mitigate inflationary increases related to labor costscost increases; and certain raw materials.
•savings generated from restructuring and lean initiatives.
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This decreaseincrease was partially offset by:
•higher sales volume in the energy and industrial businesses, which resultedresulting in increased leverage on operating expenses.employee incentive compensation expense compared to 2020.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of liquidity for our business is cash flows provided by operations. For periods prior to the separation, transfers of cash to and from the former Parent's cash management system have been reflected in the Net Parent investment in the historical Consolidated and Combined Balance Sheets, Consolidated and Combined Statements of Cash Flows and Consolidated and Combined Statements of Changes in Equity. In connection with the separation, our capital structure and sources of liquidity changed significantly from our historical capital structure. Our businesses no longer participate in cash management and funding arrangements with the former Parent.
We expect to continue to have cash requirements to support working capital needs and capital expenditures, to pay interest and service debt, and to pay dividends to shareholders quarterly.quarterly and otherwise as described below under "Material cash requirements." We believe we have the ability and sufficient capacity to meet these cash requirements in the short term and long term by using available cash, and internally generated funds and borrowing under committed credit facilities. We are focused on increasing our cash flow, and repaying debt, while continuing to fund our research and development, sales and marketing and capital investment initiatives. Our intent is to maintain investment grade metrics and a solid liquidity position. As of December 31, 2021, we had $49.5 million of cash on hand, of which $20.8 million is held in certain countries in which the ability to repatriate is limited due to local regulations or significant potential tax consequences.
We experience seasonal cash flows primarily due to increased demand for Electrical & Fastening Solutions products during the spring and summer months in the Northern Hemisphere and increased demand for Thermal Management products and services during the fall and winter months in the Northern Hemisphere and increased demand for Electrical & Fastening Solutions products during the spring and summer months in the Northern Hemisphere.
Operating activities
Investing activities
Net cash used for investing activities of continuing operations was $39.1$274.0 million in 2018, compared2021, which related primarily to capital expenditures of $39.5 million and cash paid for the CIS Global and Vynckier acquisitions of $228.0 million, net of cash acquired. Net cash used for investing activities was $65.0 million in 2020, which primarily related to capital expenditures of $41.2$40.0 million and $68.6 million in 2017 and 2016, respectively. The following investing activity impacted our cash flow:
paid for the acquisition of WBT of $27.0 million. Capital expenditures in 2018, 2017 and 2016 were $39.5 million, $31.8 million and $74.5 million, respectively. We anticipate capital expendituresare primarily used for fiscal 2019 to be approximately $55 million, primarily for capacity expansionsexpansion of manufacturing facilities, investments to expand our digital infrastructure and capabilities and developing new products and general maintenance.
Financing activities
Net cash used for financing activities was $166.6$272.5 million in 2018,2020, which primarily relatesrelated to $1.0 billionshare repurchases of proceeds from$43.2 million, dividends paid of $119.0 million and net payments of revolving long-term debt described further below, offset by $993.6 million of cash provided at the separation to Pentair as consideration for the contribution of the net assets of the Electrical business to nVent by Pentair. Additionally, we repaid $52.5 million of outstanding principal on the Term Loan Facility, had cash outflows of $56.0 million for shares repurchased and paid $62.9 million of dividends during 2018.$100.0 million.
Senior notes
In March 2018, nVent Finance S.à r.l. (“nVent Finance” or “Subsidiary Issuer”"Subsidiary Issuer"), a 100-percent owned subsidiary of nVent, issued $300.0 million aggregate principal amount of 3.950% senior notes due 2023 (the "2023 Notes") and $500.0 million aggregate principal amount of 4.550% senior notes due 2028 (the "2028 Notes").
In November 2021, nVent Finance issued $300.0 million aggregate principal amount of 2.750% fixed rate senior notes due 2031 (the "2031 Notes" and, collectively with the 20232028 Notes, the "Notes"). In December 2021, we redeemed the $300 million aggregate principal amount of our 3.950% fixed rate senior notes due 2023. We incurred costs of $15.2 million related to the early extinguishment of the 2023 Notes.
33
Interest on the 2028 Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning Octoberand interest on the 2031 Notes is payable semi-annually in arrears on May 15 2018. In August 2018, nVent and nVent Finance filed a Registration Statement on Form S-4 with the Securities and Exchange Commission to exchange the Notes for new, registered Notes. The exchange offer was completed on October 22, 2018, pursuant to which substantially allNovember 15 of the Notes were exchanged for the new, registered Notes. The exchange offer did not impact the aggregate principal amount of the Notes outstanding or any material terms.each year.
The Notes are fully and unconditionally guaranteed as to payment by nVent ("the Parent(the "Parent Company Guarantor"). There are no subsidiaries that guarantee the Notes. The Parent Company Guarantor is a holding company that has no independent assets or operations unrelated to its investments in its consolidated subsidiaries. The Parent Company Guarantor’s only direct subsidiarySubsidiary Issuer is the Subsidiary Issuer. The Subsidiary Issuera holding company that has no independent assets or operations unrelated to its investments in its consolidated subsidiaries and the issuance of the Notes and other external debt. The Parent Company Guarantor’s principal source of cash flow, including cash flow to make payments on the Notes pursuant to the guarantees, is dividends from its subsidiaries. The Subsidiary Issuer’s principal source of cash flow is interest income from its subsidiaries. None of the subsidiaries of the Parent Company Guarantor or the Subsidiary Issuer is under any direct obligation to pay or otherwise fund amounts due on the Notes or the guarantees, whether in the form of dividends, distributions, loans or other payments. In addition, there may be statutory and regulatory limitations on the payment of dividends from certain subsidiaries of the Parent Company Guarantor or the Subsidiary Issuer. If such subsidiaries are unable to transfer funds to the Parent Company Guarantor or the Subsidiary Issuer and sufficient cash or liquidity is not otherwise available, the Parent Company Guarantor or the Subsidiary Issuer may not be able to make principal and interest payments on their outstanding debt, including the Notes or the guarantees.
The Notes constitute general unsecured senior obligations of the Subsidiary Issuer and rank equally in right of payment with all existing and future unsubordinated and unsecured indebtedness and liabilities of the Subsidiary Issuer.The guarantees of the Notes by the Parent Company Guarantor constitute general unsecured obligations of the Parent Company Guarantor and rank equally in right of payment with all existing and future unsubordinated and unsecured indebtedness and liabilities of the Subsidiary Issuer. Subject to certain qualifications and exceptions, the indenture pursuant to which the Notes were issued contains covenants that, among other things, restrict nVent’s, nVent Finance’s and certain subsidiaries’ ability to merge or consolidate with another person, create liens or engage in sale and lease-back transactions.
There are no significant restrictions on the ability of nVent to obtain funds from its subsidiaries by dividend or loan. None of the assets of nVent or its subsidiaries represents restricted net assets pursuant to the guidelines established by the SEC.
Senior credit facilities
In March 2018, the Company and its subsidiaries nVent Finance and Hoffman Schroff Holdings, Inc. entered into a credit agreement with a syndicate of banks providing for a five-year $200.0 million senior unsecured term loan facility and a five-year $600.0 million senior unsecured revolving credit facility.
In September 2021, the Company and its subsidiaries nVent Finance and Hoffman Schroff Holdings, Inc. entered into an amended and restated credit agreement (the "Credit Agreement") with a syndicate of banks providing for a five-year $300.0 million senior unsecured term loan facility (the "Term Loan Facility") and a five-year $600.0 million senior unsecured revolving credit facility (the "Revolving Credit Facility" and, together with the Term Loan Facility, the "Senior Credit Facilities"). We have, which amended and restated the March 2018 credit agreement. Borrowings under the Term Loan Facility are permitted on a delayed draw basis during the first year of the five-year term of the Term Loan Facility, and borrowings under the Revolving Credit Facility are permitted from time to time during the full five-year term of the Revolving Credit Facility. nVent Finance has the option to request to increase the Revolving Credit Facility in an aggregate amount of up to $300.0 million, subject to customary conditions, including the commitment of the participating lenders. There were no outstanding borrowings
Borrowings under the Senior Credit Facilities bear interest at a rate equal to an adjusted base rate, London Interbank Offered Rate (“LIBOR”), Euro Interbank Offer Rate (“EURIBOR”) or Sterling Overnight Index Average (“SONIA”), plus, in each case, an applicable margin. The applicable margin will be based on, at nVent Finance’s election, the Company's leverage level or public credit rating.
As of December 31, 2021, the borrowing capacity under the Term Loan Facility on a delayed draw basis was $200.0 million, and the borrowing capacity under the Revolving Credit Facility as of December 31, 2018.
was $493.3 million.
Our debt agreements contain certain financial covenants, the most restrictive of which are in the Senior Credit Facilities, including that we may not permit (i) the ratio of our consolidated debt (net of our consolidated unrestricted cash in excess of $5.0 million but not to exceed $250.0 million) to our consolidated net income (excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization and non-cash share-based compensation expense ("EBITDA") on the last day of any period of four consecutive fiscal quarters (each, a "testing period") to exceed 3.75 to 1.00 (or, at nVent Finance’s election and subject to certain conditions, 4.25 to 1.00 for four testing periods in connection with certain material acquisitions) and (ii) the ratio of our EBITDA to our consolidated interest expense for the same period to be less than 3.00 to 1.00. In addition, subject to certain qualifications and exceptions, the Senior Credit Facilities also contain covenants that, among other things, restrict our ability to create liens, merge or consolidate with another person, make acquisitions and incur subsidiary debt. As of December 31, 2018,2021, we were in compliance with all financial covenants in our debt agreements. As discussed above,agreements, and there is no material uncertainty about our ongoing ability to meet those covenants.
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Share repurchases
On July 23, 2018, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $500.0 million (the "2018 Authorization"). On February 19, 2019, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $380.0 million (the "2019 Authorization"). The 2018 and the 2019 Authorizations expired on July 23, 2021.
On May 14, 2021, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $300.0 million (the "2021 Authorization"). The 2021 Authorization began on July 23, 2021 upon expiration of the 2018 Authorization and the 2019 Authorization, and expires on July 22, 2024.
During the year ended December 31, 2021, we repaid $52.5repurchased 3.5 million of outstanding principal onour ordinary shares for $116.1 million under the Term Loan Facility during 2018.
2018 Authorization and the 2021 Authorization. As of December 31, 2018,2021, we have $10.4had $203.9 million of cash held in certain countries in whichavailable for share repurchases under the ability to repatriate is limited due to local regulations or significant potential tax consequences.2021 Authorization.
Dividends
On December 11, 2018,13, 2021, the Board of Directors declared a quarterly cash dividend of $0.175 that was paid on February 8, 20194, 2022 to shareholders of record at the close of business on January 25, 2019.21, 2022. The balance of dividends payable included in Other current liabilities on our Consolidated Balance Sheets was $30.5 million and $29.4 million at December 31, 2021 and 2020, respectively.
On February 19, 2019,21, 2022, the Board of Directors declared a quarterly cash dividend of $0.175 per ordinary share payable on May 3, 2019
6, 2022 to shareholders of record at the close of business on April 18, 2019.22, 2022.
Under Irish law, the payment of future cash dividends and repurchases of shares may be paid only out of nVent Electric plc's "distributable reserves" on its statutory balance sheet. nVent Electric plc is not permitted to pay dividends out of share capital, which includes share premiums. Distributable reserves may be created through the earnings of the Irish parent company and through a reduction in share capital approved by the Irish High Court. Distributable reserves of nVent Electric plc are not linked to a U.S. generally accepted accounting principles in the United States of America ("GAAP") reported amount (e.g., retained earnings). In June 2018, the Irish High Court approved nVent Electric plc's conversionOur distributable reserve balance was $2.9 billion and $3.1 billion as of approximately $3.8 billion of share premium to distributable reserves. On July 9, 2018, following the approval of the Irish High Court, we made the required filing of nVent Electric plc's initial accounts with the Irish Companies Registration Office, which completed the process to allow us to pay future cash dividendsDecember 31, 2021 and redeem and repurchase shares out of nVent Electric plc's "distributable reserves."2020, respectively.
Authorized shares
Our authorized share capital consists of 400.0 million ordinary shares with a par value of $0.01 per share.
Our material contractual cash requirements as of December 31, 2018, we had $441.02021 include principal and interest on long-term debt as well as payments for operating lease liabilities. Servicing these obligations includes the following estimated cash outflows from December 31, 2021:
| In millions | Within 1 year | Greater than 1 year | Total | |||||||||||||||||||||||
| Debt obligations | $ | 5.0 | $ | 1,000.5 | $ | 1,005.5 | ||||||||||||||||||||
| Interest obligations on fixed-rate debt | 31.0 | 199.4 | 230.4 | |||||||||||||||||||||||
| Operating lease obligations, net of sublease rentals | 20.8 | 76.3 | 97.1 | |||||||||||||||||||||||
| Total | $ | 56.8 | $ | 1,276.2 | $ | 1,333.0 | ||||||||||||||||||||
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We also incur purchase obligations in the ordinary course of business that are enforceable and legally binding. We have contractual purchase obligations of $84.0 million remaining availability for repurchases under the 2018 authorization.
| Years ended December 31 | |||||||||||||||||||||
| In millions | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | ||||||||||||||
| Debt obligations | $ | 12.5 | $ | 17.5 | $ | 20.0 | $ | 20.0 | $ | 377.5 | $ | 500.0 | $ | 947.5 | |||||||
| Interest obligations on fixed-rate debt | 34.6 | 34.6 | 34.6 | 34.6 | 28.7 | 102.6 | 269.7 | ||||||||||||||
| Operating lease obligations, net of sublease rentals | 16.2 | 12.6 | 8.0 | 5.6 | 2.7 | 9.6 | 54.7 | ||||||||||||||
| Purchase obligations | 29.9 | — | — | — | — | — | 29.9 | ||||||||||||||
| Pension and other post-retirement plan contributions | 5.9 | 5.7 | 6.1 | 6.4 | 9.0 | 41.3 | 74.4 | ||||||||||||||
| Total contractual obligations, net | $ | 99.1 | $ | 70.4 | $ | 68.7 | $ | 66.6 | $ | 417.9 | $ | 653.5 | $ | 1,376.2 | |||||||
The total gross liability for uncertain tax positions at December 31, 20182021 was estimated to be $16.8$15.6 million. We record penalties and interest related to unrecognized tax benefits in Provision (benefit) for income taxes and Net interest expense, respectively, which is consistent with our past practices. As of December 31, 2018,2021, we had recorded $1.7$2.1 million for the possible payment of penalties and $2.7$2.9 million related to the possible payment of interest.
Other financial measures
In addition to measuring our cash flow generation or usage based upon operating, investing and financing classifications included in the Consolidated and Combined Statements of Cash Flows, we also measure our free cash flow. Free cash flow is a non-GAAP financial measure that we use to assess our cash flow performance. We believe free cash flow is an important measure of liquidity because it provides us and our investors a measurement of cash generated from operations that is available to pay dividends, make acquisitions, repay debt and repurchase shares. In addition, free cash flow is used as a criterion to measure and pay compensation-based incentives.annual incentive compensation. Our measure of free cash flow may not be comparable to similarly titled measures reported by other companies.
The following table is a reconciliation of free cash flow:
| Years ended December 31 | ||||||||
| In millions | 2021 | 2020 | ||||||
| Net cash provided by (used for) operating activities | $ | 373.3 | $ | 344.0 | ||||
| Capital expenditures | (39.5) | (40.0) | ||||||
| Proceeds from sale of property and equipment | 0.6 | 2.0 | ||||||
Free cash flow | $ | 334.4 | $ | 306.0 | ||||
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| Years ended December 31 | |||||||||
| In millions | 2018 | 2017 | 2016 | ||||||
| Net cash provided by (used for) operating activities | $ | 343.5 | $ | 409.7 | $ | 364.0 | |||
| Capital expenditures | (39.5 | ) | (31.8 | ) | (74.5 | ) | |||
| Proceeds from sale of property and equipment | 2.4 | 4.2 | 5.9 | ||||||
Free cash flow | $ | 306.4 | $ | 382.1 | $ | 295.4 | |||
COMMITMENTS AND CONTINGENCIES
We have been, and in the future may be, made parties to a number of actions filed or have been, and in the future may be, given notice of potential claims relating to the conduct of our business, including those pertaining to commercial or contractual disputes, product liability, environmental, safety and health, patent infringement and employment matters.
While we believe that a material impact on our consolidated financial position, results of operations or cash flows from any such future claims or potential claims is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future adverse ruling or unfavorable development could result in future charges that could have a material impact. We do and will continue to periodically reexaminere-examine our estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on our consolidated financial position, results of operations and cash flows for the proceedings and claims described in ITEM 8, Note 1516 of the Notes to the Consolidated and Combined Financial Statements could change in the future.
Stand-by Letters of Credit, Bank Guarantees and Bonds
As of December 31, 20182021 and 2017,2020, the outstanding value of bonds, letters of credit and bank guarantees totaled $75.8$38.2 million and $72.3$43.8 million, respectively.
NEW ACCOUNTING STANDARDS
See ITEM 8, Note 1 of the Notes to Consolidated and Combined Financial Statements, included in this Form 10-K, for information pertaining to recently adopted accounting standards or accounting standards to be adopted in the future.
CRITICAL ACCOUNTING POLICIESESTIMATES
We have adopted various accounting policies to prepare the consolidated financial statements in accordance with GAAP. Our significant accounting policies are more fully described in ITEM 8, Note 1 of the Notes to Consolidated and Combined Financial Statements. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry and information available from other outside sources, as appropriate. We consider an accounting estimate to be critical if:
•it requires us to make assumptions about matters that were uncertain at the time we were making the estimate; and
•changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.
Impairment of goodwill and indefinite-lived intangibles
Goodwill
Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.
Goodwill is tested annually for impairment as of the first day of the fourth quarter, and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is performed using a two-step process. In the first step,by comparing the fair value of each reporting unit is compared with its carrying amount, and recognizing an impairment expense for the amount by which the carrying amount ofexceeds the reporting unit, including goodwill. If the estimatedunit's fair value, is less thannot to exceed the carryingtotal amount of goodwill allocated to the reporting unit there is an indication that goodwill impairment exists and a second step must be completed in order to determine the amount of the goodwill impairment, if any, which should be recorded. In the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.unit.
The fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount rate. Use of the market approach consists of comparisons
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to comparable publicly-traded companies that are similar in size and industry. Actual results may differ from those used in our valuations.
Discount rate assumptions for each reporting unit take into consideration our assessment of risks inherent in the future cash flows of the respective reporting unit and our weighted-average cost of capital. We utilized a discount rate ofranging from 10.0% to 11.5% for each reporting unit in determining the discounted cash flows in our fair value analysis.
In estimating fair value using the market approach, we identify a group of comparable publicly-traded companies for each reporting unit that are similar in terms of size and product offering. These groups of comparable companies are used to develop multiples based on total market-based invested capital as a multiple of EBITDA.earnings before interest, taxes, depreciation and amortization (“EBITDA”). We determine our estimated values by applying these comparable EBITDA multiples to the operating results of our reporting units. The ultimate fair value of each reporting unit is determined considering the results of both valuation methods.
A 10% decrease in the fair values determined in the quantitative impairment assessment for each of the reporting units would not have changed our determination that the fair value of each reporting unit was in excess of its carrying value for 2021.
In 2020, we recognized a pre-tax, non-cash goodwill impairment expense of $212.3 million related to the Thermal Management reporting unit. The impairment resulted in a $21.6 million income tax benefit associated with the proportionate share of tax deductible goodwill. We did not recognize any goodwill impairment lossesexpense in 2018, 20172021 or 2016.2019.
There is a risk that changes in economic and operating conditions affecting the assumptions used in our impairment tests, including changes due to the evolving nature of the COVID-19 pandemic, could adversely affect future estimates or fair value and result in additional goodwill or other intangible asset impairment expense in the future.
Identifiable intangible assets
Our primary identifiable intangible assets include: customer relationships, trade names, proprietary technologytechnologies and patents. Identifiable intangibles with definite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant. We complete our annual impairment test during the fourth quarter each year for those identifiable assets not subject to amortization.
The impairment test for trade names consists of a comparison of the fair value of the trade name with its carrying value. Fair value is measured using the relief-from-royalty method. This method assumes the trade name has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. We utilized a royalty rate ranging from 1.0% to 5.5% for each trade name in our fair value analysis.
In 2020, we recorded anrecognized pre-tax, non-cash impairment chargeexpense of $13.0$8.2 million related to a trade name in Electrical & Fastening Solutions as a result of lower forecasted sales volume in our annualnames. There was no impairment evaluation. We also recorded an impairment charge of $3.4 million related to certain trade names in Thermal Management as a result of rebranding strategies implemented in the fourth quarter of 2017. An impairment charge of $13.3 million wasexpense recorded in 2016 related to a trade name in Thermal Management as a result of a rebranding strategy implemented in the fourth quarter of 2016. The trade name impairment charges were recorded in Selling, general and administrative in our Consolidated and Combined Statements of Income and Comprehensive Income.
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Pension and other post-retirement plans
We sponsor defined-benefit pension plans and a post-retirement health plan ("Direct Plans").plan. The defined benefit plans cover certain non-U.S. employees and retirees and the pension benefits are based principally on an employee's years of service and/or compensation levels near retirement. For periods prior to the separation, certain nVent employees participated in defined benefit pension plans and post-retirement health plans sponsored by the former Parent, which also include the Parent participants. For purposes of these consolidated and combined financial statements, nVent accounts for these plans as multi-employer benefit plans. Accordingly, nVent does not record an asset or liability to recognize the funded status of these plans. However, nVent does record its share of the allocated expense, including net actuarial gains or losses described below.
The amounts recognized in our consolidated and combined financial statements related to our defined-benefit pension and other post-retirement plans are determined from actuarial valuations. Inherent in these valuations are assumptions, including: expected return on plan assets, discount rates and rate of increase in future compensation levels. These assumptions are updated annually and are disclosed for our Direct Plans in ITEM 8, Note 12 to the Notes to Consolidated and Combined Financial Statements. Differences in actual experience or changes in assumptions may affect our pension and other post-retirement obligations and future expense.
We recognize changes in the fair value of plan assets and net actuarial gains or losses for pension and other post-retirement benefits annually in the fourth quarter each year (“mark-to-market adjustment”) and, if applicable, in any quarter in which an interim remeasurement is triggered. Net actuarial gains and losses occur when the actual experience differs from any of the various assumptions used to value our pension and other post-retirement plans or when assumptions change, as they may each year. The primary factors contributing to actuarial gains and losses each year are (1) changes in the discount rate used to value pension and other post-retirement benefit obligations as of the measurement date and (2) differences between the expected and the actual return on plan assets. This accounting method also results in the potential for volatile and difficult to forecast mark-to-market adjustments. Mark-to-market adjustments resulted in a pre-tax chargegain of $7.0$15.2 million in 2018,2021 and a pre-tax gainexpense of $3.0$8.7 million and $27.3 million in 20172020 and pre-tax charge of $10.8 million in 2016.2019, respectively. The remaining components of pension expense, including service and interest costs and estimated return on plan assets, are recorded on a quarterly basis as ongoing pension expense.
Discount rates
The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year based on our December 31 measurement date. The discount rates on our pension plans ranged from 0.50%0.25% to 4.25%3.25%, 0.50% 0.00% to 3.50%2.75% and 0.50%0.25% to 4.00%3.25% in 2018, 20172021, 2020 and 2016,2019, respectively. The discount rates are determined by matching high-quality, fixed-income debt instruments with maturities corresponding to the expected timing of benefit payments as of the annual measurement date for each of the various plans. There are no known or anticipated changes in our discount rate assumptions that will materially impact our pension expense in 2019.2022.
Expected rates of return
The expected rates of return on our pension plan assets ranged from 1.00% to 5.50%4.50%, 1.00% to 5.50%5.00% and 1.00% to 5.50%5.25% in 2018, 20172021, 2020 and 2016,2019, respectively. The expected rate of return is designed to be a long-term assumption that may be subject to considerable year-to-year variance from actual returns. In developing the expected long-term rate of return, we considered our historical returns, with consideration given to forecasted economic conditions, our asset allocations, input from external consultants and broader longer-termlong-term market indices. Any difference in the expected rate and actual returns will be included with the actuarial gain or loss recorded in the fourth quarter when our plans are remeasured.
Sensitivity to changes in key assumptions
A 0.25 percentage point change in the discount rates used to measure our pension and other post-retirement benefit plans is estimated to have an impact on our total projected benefit obligation of approximately $10$11 million. A 0.25 percentage point change in the assumed rate of return on pension assets or discount rates for our pension and other post-retirement benefit plans is estimated to have no material impact on our ongoing 2019 pension expense. These estimates exclude any potential mark-to-market adjustments.
Income taxes
In determining taxable income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In estimating future taxable income, we develop assumptions including the amount of future pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses.
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We maintain valuation allowances with respect to our deferred tax assets unless it is more likely than not that all or a portion of such deferred tax assets will be realized. Our income tax expense recorded in the future may be reduced to the extent of decreases in our valuation allowances. The realization of our remaining deferred tax assets is primarily dependent on future taxable income in the appropriate jurisdiction. Any reduction in future taxable income including but not limited to any future restructuring activities may require that we record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance could result in additional income tax expense in such period and could have a significant impact on our future earnings.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management records the effect of a tax rate or law change on nVent’s deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on nVent’s financial condition, results of operations or cash flows.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We perform reviews of our income tax positions on a quarterly basis and accrue for uncertain tax positions. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the tax jurisdictions in which we operate based on our estimate of whether, and the extent to which, additional taxes will be due. These tax liabilities are reflected net of related tax loss carryforwards. As events change or resolution occurs, these liabilities are adjusted, such as in the case of audit settlements with taxing authorities. The ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. We recognize the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is more likely than not to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. We are exposed to various market risks, including changes in interest rates and foreign currency rates. Periodically, we use derivative financial instruments for the purpose of hedging interest rate and currency exposures. The major accounting policies and utilization of these instruments is described more fully in ItemITEM 8, Note 1 of the Notes to Consolidated and Combined Financial Statements.
Foreign currency risk
We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. dollar. Periodically, we use derivative financial instruments to manage these risks. The functional currencies of our foreign operating locations are generally the local currency in the country of domicile. We manage these operating activities at the local level and revenues, costs, assets and liabilities are generally denominated in local currencies, thereby mitigating the risk associated with changes in foreign exchange. However, our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.
From time to time, we may enter into foreign currency contracts to hedge certain foreign currency risks. As the majority of our foreign currency contracts have an original maturity date of less than one year, there is no material risk of fluctuations in the value of these contracts. Counterparties to all derivative contracts are major financial institutions. All instruments are entered into for other than trading purposes.
At December 31, 20182021 and 2017,2020, we had outstanding foreign currency derivative contracts, including those related to cross currency swaps that qualify as a hedge of future cash flows, with gross notional U.S. dollar equivalent amounts of $129.0$482.2 million and $10.7$297.3 million, respectively. Changes in the fair value of all derivatives are recognized immediately in income unless the derivative qualifiesthat do not qualify as a hedge of future cash flows.flows are recognized immediately in income. Gains and losses related to a hedge are deferred and recorded in the Consolidated and Combined Balance Sheets as a component of Accumulated other comprehensive income (loss) and subsequently recognized in the Consolidated and Combined Statements of IncomeOperations and Comprehensive Income (Loss) when the hedged item affects earnings.
Interest rate risk
Our debt portfolio as of December 31, 2021 was comprised of debt denominated in U.S. dollars. The debt portfolio is comprised of approximately 80% fixed-rate debt and 20% variable-rate debt. Changes in interest rates have different impacts on the fixed and variable-rate portions of our debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the fair value, but has no impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows but does not impact the net financial instrument position.
Based on the fixed-rate debt included in our debt portfolio, as of December 31, 2021, a 100 basis point increase or decrease in interest rates would result in a $56.0 million decrease or a $60.7 million increase in fair value, respectively.
Based on the variable-rate debt included in our debt portfolio as of December 31, 2021, a 100 basis point increase or decrease in interest rates would result in a $2.0 million increase or decrease in interest incurred.
We are also exposed to interest rate risk in connection with the planned issuance of long-term debt. To manage the volatility related to this exposure, we may use forward starting interest rate swap locks to fix a portion of the interest cost associated with anticipated financings. We designate these financial instruments as cash flow hedges at the time the agreements are executed.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of nVent Electric plc and its subsidiaries (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2018.2021. In making this assessment, management used the criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2018,2021, the Company's internal control over financial reporting was effective based on those criteria.
Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Company's internal control over financial reporting as of December 31, 2018.2021. That attestation report is set forth immediately following this management report.
| Beth A. Wozniak | ||||||||
| Chief Executive Officer | Executive Vice President and Chief Financial Officer | |||||||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
nVent Electric plc
London, United Kingdom
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of nVent Electric plc and subsidiaries (the "Company") as of December 31, 2018,2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)("COSO"). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on the criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements as of and for the year ended December 31, 2018,2021, of the Company and our report dated February 19, 201925, 2022, expressed an unqualified opinion on those financial statements and included an emphasis of a matter paragraph regarding the allocation of expenses from Pentair plc for the periods prior to April 30, 2018.statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 19, 201925, 2022
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
nVent Electric plc
London, United Kingdom
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of nVent Electric plc and subsidiaries (the "Company") as of December 31, 20182021 and 2017,2020, the related consolidated and combined statements of operationsoperation and other comprehensive income (loss), changes in equity, and cash flows, for each of the three years in the period ended December 31, 20182021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control-IntegratedControl — Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 201925, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill - Thermal Management Reporting Unit - Refer to Notes 1 and 6 to the financial statements
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using income and market approaches. The determination of the fair value using an income approach involves the use of a discounted cash flow model that requires management to make significant estimates and assumptions related to future revenues and expenses, projected capital expenditures, changes in working capital and discount rates. The determination of the fair value using the market approach requires management to make significant assumptions related to earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples. The goodwill balance for the Thermal Management reporting unit was $714.3 million as of December 31, 2021, and no impairment was recognized as the fair value of the reporting unit exceeded its carrying value as of the measurement date.
Given the significant judgments made by management to estimate the fair value of the reporting unit and the difference between their fair value and carrying value, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rates, EBITDA multiples, and forecasts of future revenues and operating
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margins, required a high degree of auditor judgment and an increased extent of effort, including the need to involve fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to significant estimates and assumptions for the Thermal Management reporting unit included the following, among others:
•We tested the effectiveness of controls over goodwill, including those over the underlying assumptions to forecast future revenue and operating margins, the selection of the discount rate, and the selection of the EBITDA multiples.
•We evaluated management’s ability to accurately forecast future revenues and operating margins by comparing actual results to management’s historical forecasts.
•We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in Company press releases, analyst and industry reports of the Company and companies in its peer group.
•With the assistance of our fair value specialists, we evaluated the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management.
•With the assistance of our fair value specialists, we evaluated the EBITDA multiples used in estimating fair value, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline companies.
•With the assistance of our fair value specialists, we compared the aggregated fair value estimates of the Company’s reporting units to the Company’s market capitalization and evaluated the implied control premium.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 19, 201925, 2022
We have served as the Company's auditor since 2017.
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nVent Electric plc
Consolidated and Combined Statements of Operations and Comprehensive Income (Loss)
| Years ended December 31 | Years ended December 31 | |||||||||||||||||||
| In millions, except per-share data | 2018 | 2017 | 2016 | In millions, except per-share data | 2021 | 2020 | 2019 | |||||||||||||
| Net sales | $ | 2,213.6 | $ | 2,097.9 | $ | 2,116.0 | Net sales | $ | 2,462.0 | $ | 1,998.6 | $ | 2,204.0 | |||||||
| Cost of goods sold | 1,337.5 | 1,256.0 | 1,280.2 | Cost of goods sold | 1,520.1 | 1,249.2 | 1,338.2 | |||||||||||||
| Gross profit | 876.1 | 841.9 | 835.8 | Gross profit | 941.9 | 749.4 | 865.8 | |||||||||||||
| Selling, general and administrative | 519.7 | 483.3 | 462.4 | Selling, general and administrative | 537.9 | 447.0 | 484.5 | |||||||||||||
| Research and development | 45.6 | 42.5 | 40.6 | Research and development | 48.6 | 43.5 | 48.2 | |||||||||||||
| Impairment of goodwill and trade names | Impairment of goodwill and trade names | — | 220.5 | — | ||||||||||||||||
| Operating income | 310.8 | 316.1 | 332.8 | Operating income | 355.4 | 38.4 | 333.1 | |||||||||||||
| Net interest expense | 31.2 | 0.2 | 1.4 | Net interest expense | 32.3 | 36.4 | 44.7 | |||||||||||||
| Other expense | 10.9 | 2.6 | 16.4 | |||||||||||||||||
| Income before income taxes | 268.7 | 313.3 | 315.0 | |||||||||||||||||
| Provision (benefit) for income taxes | 37.9 | (48.4 | ) | 55.9 | ||||||||||||||||
| Net income | $ | 230.8 | $ | 361.7 | $ | 259.1 | ||||||||||||||
| Comprehensive income, net of tax | ||||||||||||||||||||
| Net income | $ | 230.8 | $ | 361.7 | $ | 259.1 | ||||||||||||||
| Loss on early extinguishment of debt | Loss on early extinguishment of debt | 15.2 | — | — | ||||||||||||||||
| Other expense (income) | Other expense (income) | (12.8) | 11.5 | 31.0 | ||||||||||||||||
| Income (loss) before income taxes | Income (loss) before income taxes | 320.7 | (9.5) | 257.4 | ||||||||||||||||
| Provision for income taxes | Provision for income taxes | 47.8 | 37.7 | 34.7 | ||||||||||||||||
| Net income (loss) | Net income (loss) | $ | 272.9 | $ | (47.2) | $ | 222.7 | |||||||||||||
| Comprehensive income (loss), net of tax | Comprehensive income (loss), net of tax | |||||||||||||||||||
| Net income (loss) | Net income (loss) | $ | 272.9 | $ | (47.2) | $ | 222.7 | |||||||||||||
| Changes in cumulative translation adjustment | (48.2 | ) | 2.4 | 31.6 | Changes in cumulative translation adjustment | 4.4 | (3.7) | 4.8 | ||||||||||||
| Changes in market value of derivative financial instruments, net of tax | (2.5 | ) | 1.1 | (3.3 | ) | Changes in market value of derivative financial instruments, net of tax | 7.6 | 7.1 | 4.4 | |||||||||||
| Comprehensive income | $ | 180.1 | $ | 365.2 | $ | 287.4 | ||||||||||||||
| Earnings per ordinary share | ||||||||||||||||||||
| Comprehensive income (loss) | Comprehensive income (loss) | $ | 284.9 | $ | (43.8) | $ | 231.9 | |||||||||||||
| Earnings (loss) per ordinary share | Earnings (loss) per ordinary share | |||||||||||||||||||
| Basic | $ | 1.29 | $ | 2.02 | $ | 1.45 | Basic | $ | 1.63 | $ | (0.28) | $ | 1.30 | |||||||
| Diluted | $ | 1.28 | $ | 2.00 | $ | 1.43 | Diluted | $ | 1.61 | $ | (0.28) | $ | 1.29 | |||||||
| Weighted average ordinary shares outstanding | Weighted average ordinary shares outstanding | |||||||||||||||||||
| Basic | 178.6 | 179.0 | 179.0 | Basic | 167.9 | 169.6 | 171.6 | |||||||||||||
| Diluted | 180.8 | 181.2 | 181.2 | Diluted | 169.7 | 169.6 | 173.0 | |||||||||||||
See accompanying notes to consolidated and combined financial statements.
46
nVent Electric plc
Consolidated and Combined Balance Sheets
| December 31 | December 31 | |||||||||||||
| In millions, except per-share data | 2018 | 2017 | In millions, except per-share data | 2021 | 2020 | |||||||||
| Assets | Assets | Assets | ||||||||||||
| Current assets | Current assets | |||||||||||||
| Cash and cash equivalents | $ | 159.0 | $ | 26.9 | Cash and cash equivalents | $ | 49.5 | $ | 122.5 | |||||
| Accounts and notes receivable, net of allowances of $6.1 and $8.4, respectively | 340.9 | 349.3 | ||||||||||||
| Accounts and notes receivable, net of allowances of $6.7 and $6.2, respectively | Accounts and notes receivable, net of allowances of $6.7 and $6.2, respectively | 438.1 | 313.8 | |||||||||||
| Inventories | 228.2 | 224.1 | Inventories | 321.9 | 235.2 | |||||||||
| Other current assets | 118.4 | 132.3 | Other current assets | 102.0 | 92.9 | |||||||||
| Total current assets | 846.5 | 732.6 | Total current assets | 911.5 | 764.4 | |||||||||
| Property, plant and equipment, net | 264.8 | 265.8 | Property, plant and equipment, net | 291.1 | 289.4 | |||||||||
| Other assets | Other assets | |||||||||||||
| Goodwill | 2,234.3 | 2,238.2 | Goodwill | 2,186.7 | 2,098.2 | |||||||||
| Intangibles, net | 1,173.3 | 1,236.6 | Intangibles, net | 1,143.8 | 1,105.5 | |||||||||
| Other non-current assets | 33.8 | 251.8 | Other non-current assets | 141.1 | 108.6 | |||||||||
| Total other assets | 3,441.4 | 3,726.6 | Total other assets | 3,471.6 | 3,312.3 | |||||||||
| Total assets | $ | 4,552.7 | $ | 4,725.0 | Total assets | $ | 4,674.2 | $ | 4,366.1 | |||||
| Liabilities and Equity | Liabilities and Equity | Liabilities and Equity | ||||||||||||
| Current liabilities | Current liabilities | |||||||||||||
| Current maturities of long-term debt and short-term borrowings | $ | 12.5 | $ | — | Current maturities of long-term debt and short-term borrowings | $ | 5.0 | $ | 20.0 | |||||
| Accounts payable | 186.4 | 174.1 | Accounts payable | 261.0 | 171.1 | |||||||||
| Employee compensation and benefits | 75.8 | 75.5 | Employee compensation and benefits | 113.9 | 70.4 | |||||||||
| Other current liabilities | 187.0 | 141.3 | Other current liabilities | 256.4 | 188.5 | |||||||||
| Total current liabilities | 461.7 | 390.9 | Total current liabilities | 636.3 | 450.0 | |||||||||
| Other liabilities | Other liabilities | |||||||||||||
| Long-term debt | 929.2 | — | Long-term debt | 994.2 | 928.0 | |||||||||
| Pension and other post-retirement compensation and benefits | 177.9 | 176.7 | Pension and other post-retirement compensation and benefits | 208.1 | 237.9 | |||||||||
| Deferred tax liabilities | 224.8 | 279.4 | Deferred tax liabilities | 210.3 | 230.1 | |||||||||
| Other non-current liabilities | 72.0 | 86.7 | Other non-current liabilities | 129.2 | 110.3 | |||||||||
| Total liabilities | 1,865.6 | 933.7 | Total liabilities | 2,178.1 | 1,956.3 | |||||||||
| Commitments and Contingencies (Note 15) | ||||||||||||||
| Commitments and Contingencies (Note 16) | Commitments and Contingencies (Note 16) | |||||||||||||
| Equity | Equity | |||||||||||||
| Net Parent Investment | — | 3,848.4 | ||||||||||||
| Ordinary shares $0.01 par value, 400.0 authorized, 177.2 issued at December 31, 2018 | 1.8 | — | ||||||||||||
| Ordinary shares $0.01 par value, 400.0 million authorized, 166.1 million and 168.2 million issued at December 31, 2021 and 2020, respectively | Ordinary shares $0.01 par value, 400.0 million authorized, 166.1 million and 168.2 million issued at December 31, 2021 and 2020, respectively | 1.7 | 1.7 | |||||||||||
| Additional paid-in capital | 2,709.7 | — | Additional paid-in capital | 2,403.1 | 2,482.6 | |||||||||
| Retained earnings | 83.4 | — | Retained earnings | 174.5 | 20.7 | |||||||||
| Accumulated other comprehensive loss | (107.8 | ) | (57.1 | ) | Accumulated other comprehensive loss | (83.2) | (95.2) | |||||||
| Total equity | 2,687.1 | 3,791.3 | Total equity | 2,496.1 | 2,409.8 | |||||||||
| Total liabilities and equity | $ | 4,552.7 | $ | 4,725.0 | Total liabilities and equity | $ | 4,674.2 | $ | 4,366.1 | |||||