# nVent Electric plc (NVT) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from nVent Electric plc's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1720635/000172063525000018/nvt-20241231.htm
Accession: 0001720635-25-000018
Filing date: 2025-02-18
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/NVT/
All MD&A years: /company/NVT/mda/
Previous year: /company/NVT/mda/fy2023/ (FY 2023)
Next year: /company/NVT/mda/fy2025/ (FY 2025)

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 financial statements and the corresponding notes included in ITEM 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," "could," "positioned," "strategy," "future," "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. Among these factors are adverse effects on our business operations or financial results, including the 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, including the Trachte acquisition; competition and pricing pressures in the markets we serve, including the impacts of tariffs; volatility in currency exchange rates, interest 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, including risks associated with military conflicts; 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.

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 connect and protect some of the world's most critical electrical systems to make them safer, more efficient and resilient. We design, manufacture, market, install and service high performance products and solutions that connect and protect mission critical equipment, buildings and essential processes. We have a comprehensive portfolio of cable management, control buildings, cooling solutions, both liquid and air, electrical connections, enclosures, equipment protection, power connections and power management solutions, and we 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 two segments: Enclosures and Electrical & Fastening Solutions, which represented approximately 61% and 39% of total revenues during 2024, respectively. In the first quarter of 2025, we will be renaming our Enclosures segment to Systems Protection, and our Electrical & Fastening Solutions segment to Electrical Connections.

•Enclosures (to be renamed Systems Protection beginning in the first quarter of 2025)—The Enclosures segment provides innovative solutions to help protect electronics, systems and data in mission critical applications, including data centers, that improve resiliency and energy efficiency. Our standard and custom protective enclosures, cooling solutions, both liquid and air, control buildings and power distribution solutions help protect operating environments for mission critical applications in industrial, infrastructure, commercial and energy verticals.

•Electrical & Fastening Solutions (to be renamed Electrical Connections beginning in the first quarter of 2025)—The Electrical & Fastening Solutions segment provides innovative solutions that connect power and data infrastructure. Our offerings enhance end-user safety, reduce installation time and provide resiliency for critical systems. Our cable management, electrical connections and solutions, and power connections help make electrical systems safe, efficient and resilient, and are used across a wide range of verticals, including commercial and residential, infrastructure, industrial and energy.

On May 18, 2023, as part of our Electrical & Fastening Solutions reporting segment, we completed the acquisition of ECM Investors, LLC, the parent of ECM Industries, LLC ("ECM Industries"), for approximately $1.1 billion in cash. ECM Industries is a leading provider of high-value electrical connectors, tools and test instruments and cable management. The purchase price was funded primarily through borrowings under the 2033 Notes and 2023 Term Loan Facility (as defined below).

21

On July 10, 2023, we acquired TEXA Industries for approximately $34.8 million in cash. TEXA Industries is an Italian manufacturer of industrial cooling applications that we will market as part of the nVent HOFFMAN product line within our Enclosures segment.

On July 16, 2024, we completed the acquisition of the Trachte, LLC ("Trachte") as part of our Enclosures reporting segment, for approximately $687.5 million in cash. Trachte is a leading manufacturer of engineered control building solutions designed to protect critical infrastructure assets. The purchase price was funded primarily through borrowings under the 2024 Term Loan Facility and Revolving Credit Facility (as defined below).

On July 31, 2024, we entered into a definitive agreement to sell our Thermal Management business to BCP VI Summit Holdings LP (as assignee of BCP Acquisitions LLC), an affiliate of funds managed by Brookfield Asset Management, for a purchase price of $1.7 billion in cash, subject to certain customary purchase price adjustments. The results of the Thermal Management business are reported as a discontinued operation in our Consolidated Financial Statements for all periods presented. The assets and liabilities of this business have been reclassified as held for sale in the Consolidated Balance Sheets for all periods presented. The Thermal Management business was previously disclosed as a stand-alone reporting segment. On January 30, 2025, we completed the sale of the Thermal Management business. For further details, see ITEM 8, Note 6 of the Notes to the Consolidated Financial Statements.

Key Trends and Uncertainties Regarding our Existing Business

The following trends and uncertainties affected our financial performance in 2023 and 2024, and are reasonably likely to impact our results in the future:

•During 2023 and 2024, we experienced inflationary increases, primarily related to labor and raw material costs. We have taken pricing actions and implemented productivity improvements that could help offset these cost increases. We expect inflationary cost increases, including the impacts of tariffs, to continue into 2025, which could negatively impact our results of operations.

•Our global operations make our effective tax rate sensitive to significant tax law changes. The Organization for Economic Co-operation and Development introduced an international tax framework under Pillar II (the "Pillar II framework") which includes a global minimum tax of 15%. The Pillar II framework has been implemented by several jurisdictions, including jurisdictions in which we operate, with effect from January 1, 2024, which resulted in an increase to our effective tax rate in 2024. We will continue to monitor these developments as more countries in which we operate adopt legislation and provide guidance.

•The converging megatrends of the electrification of everything, sustainability and digitalization, including the increased use of artificial intelligence, have led to sales growth, particularly in the infrastructure vertical, which includes our data solutions business that is primarily in our Enclosures segment. We expect these megatrends to continue and further drive sales growth in 2025.

•We have invested in innovation and new products, which has contributed to sales growth. We expect continued investment in new products to further drive sales growth in 2025.

In 2025, our operating objectives include the following:

•Executing our sustainability strategy focused on People, Products, Planet and Governance;

•Enhancing and supporting employee engagement, development and retention;

•Achieving differentiated revenue growth through focus on higher growth verticals, new products and innovation, global expansion and acquisitions;

•Integrating recent acquisitions with our existing operations;

•Optimizing our technological capabilities to increasingly generate innovative new and connected products and advance 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 and vendor payment terms; and

•Deploying capital strategically to drive growth and value creation.

22

CONSOLIDATED RESULTS OF OPERATIONS

The consolidated results of operations were as follows:

[[GREPCENT_TABLE]]
[["","Years ended December 31","","% / point change"],["In millions","2024","2023","2022","","2024 vs 2023","2023 vs 2022"],["Net sales","$","3,006.1","","$","2,668.9","","$","2,295.1","","","12.6","%","16.3","%"],["Cost of goods sold","1,797.0","","1,593.7","","1,472.2","","","12.8","%","8.3","%"],["Gross profit","1,209.1","","1,075.2","","822.9","","","12.5","%","30.7","%"],["% of net sales","40.2","%","40.3","%","35.9","%","","(0.1)","pts","4.4","pts"],["Selling, general and administrative","615.9","","557.3","","468.3","","","10.5","%","19.0","%"],["% of net sales","20.5","%","20.9","%","20.4","%","","(0.4)","pts","0.5","pts"],["Research and development","66.1","","55.2","","45.6","","","19.7","%","21.1","%"],["% of net sales","2.2","%","2.1","%","2.0","%","","0.1","pts","0.1","pts"],["Operating income","527.1","","462.7","","309.0","","","13.9","%","49.7","%"],["% of net sales","17.5","%","17.3","%","13.5","%","","0.2","pts","3.8","pts"],["Net interest expense","106.0","","79.4","","31.2","","","N.M.","N.M."],["Gain on sale of investment","\u2014","","(10.3)","","\u2014","","","N.M.","N.M."],["Other expense (income)","(8.1)","","18.3","","(58.5)","","","N.M.","N.M."],["Income before income taxes","429.2","","375.3","","336.3","","","14.4","%","11.6","%"],["Provision (benefit) for income taxes","188.4","","(84.4)","","43.2","","","N.M.","N.M."],["Effective tax rate","43.9","%","(22.5)","%","12.8","%","","66.4","pts","(35.3","pts)"],["Net income from continuing operations","240.8","","459.7","","293.1","","","(47.6)","%","56.8","%"],["Income from discontinued operations, net of tax","91.0","","107.4","","106.7","","","(15.3)","%","0.7","%"],["Net income","$","331.8","","$","567.1","","$","399.8","","","(41.5)","%","41.8","%"]]
[[/GREPCENT_TABLE]]

N.M. Not Meaningful

Net sales

The components of the change in consolidated net sales were as follows:

[[GREPCENT_TABLE]]
[["","2024 vs 2023","2023 vs 2022"],["Volume","2.6","%","(0.4)","%"],["Price","(0.2)","","5.5"],["Organic growth","2.4","%","5.1","%"],["Acquisition","10.3","","11.0"],["Currency","(0.1)","","0.2"],["Total","12.6","%","16.3","%"]]
[[/GREPCENT_TABLE]]

The 12.6 percent increase in net sales in 2024 from 2023 was primarily the result of:

•sales of $274.4 million in 2024 as a result of the ECM Industries, Trachte and TEXA Industries acquisitions; and

•organic sales growth contribution of approximately 2.5% from our infrastructure business in 2024 from 2023, which includes selective increases in selling prices.

23

The 16.3 percent increase in net sales in 2023 from 2022 was primarily the result of:

•sales of $252.7 million in 2023 as a result of the ECM Industries and TEXA Industries acquisitions; and

•organic sales growth contribution of approximately 2.5%, 1.5%, and 1.0% from our infrastructure, commercial & residential and industrial businesses, respectively, in 2023 from 2022, which primarily includes selective increases in selling prices.

Gross profit 

The 0.1 percentage point decrease in gross profit as a percentage of net sales in 2024 from 2023 was primarily the result of:

•inflationary increases, primarily related to labor costs, compared to 2023.

This decrease was partially offset by:

•higher sales volume resulting in increased leverage on fixed expenses in cost of goods sold; and

•$17.7 million of expense related to inventory step-up recorded in 2023 as a result of the ECM Industries acquisition.

The 4.4 percentage point increase in gross profit as a percentage of net sales in 2023 from 2022 was primarily the result of:

•increases in selling prices to mitigate inflationary cost increases; and

•increased productivity as a result of supply chain management and manufacturing efficiencies.

This increase was partially offset by:

•$17.7 million of expense related to inventory step-up recorded in 2023 as a result of the ECM Industries acquisition; and

•inflationary increases, primarily related to labor costs, compared to 2022.

Selling, general and administrative ("SG&A")

The 0.4 percentage point decrease in SG&A expense as a percentage of net sales in 2024 from 2023 was driven by:

•higher sales volume resulting in increased leverage on fixed expenses; and

•savings generated from restructuring and other lean initiatives.

This decrease was partially offset by:

•intangible amortization expense of $94.7 million in 2024 compared to $69.6 million in 2023 as a result of the ECM Industries, Trachte and TEXA Industries acquisitions;

•inflationary increases impacting our labor costs, professional fees and other administrative costs;

•investments in capacity, new products and digital to drive growth; and

•$8.8 million of impairment expense in 2024 related to equity investments recorded on a cost basis.

The 0.5 percentage point increase in SG&A expense as a percentage of net sales in 2023 from 2022 was driven by:

•inflationary increases impacting our labor costs, professional fees and other administrative costs; and

•investments in capacity, digital, new products, selling and marketing to drive growth.

This increase was partially offset by:

•savings generated from restructuring and other lean initiatives.

Net interest expense

The increase in net interest expense in 2024 from 2023 was the result of:

•increased debt due to the acquisition of Trachte.

The increase in net interest expense in 2023 from 2022 was the result of:

•increased debt due to the acquisition of ECM Industries;

•increased variable interest rates compared to the same periods of the prior year; and

•the amortization of debt issuance costs of $3.6 million during 2023 related to financing commitments for the bridge loan facility established in connection with the acquisition of ECM Industries.

24

Gain on sale of investment

In 2023, we recorded a $10.3 million gain related to the sale of a $3.8 million equity investment recorded on a cost basis.

Other expense (income)

In 2024, 2023 and 2022, we recognized a pre-tax, non-cash pension and other post-retirement mark-to-market gain of $0.1 million, a loss of $13.4 million and a gain of $61.9 million, respectively.

In 2024, we recorded $12.5 million of income related to the release of a guarantee liability.

Provision (benefit) for income taxes

The 66.4 percentage point increase in the effective tax rate in 2024 from 2023 was primarily the result of:

•$92.8 million of non-cash expense recorded in 2024 related to the establishment of valuation allowances on deferred tax assets related to tax-deductible statutory losses in Luxembourg initially established in 2023;

•the enactment of the Pillar II global minimum tax framework, effective January 1, 2024 in certain jurisdictions in which we operate; and

•increased earnings in higher tax rate jurisdictions.

The 35.3 percentage point decrease in the effective tax rate in 2023 from 2022 was primarily the result of:

•$55.4 million of non-cash benefit recorded in 2023 for the recognition of deferred tax assets for a step up in tax basis of intangible assets in Switzerland, partially offset by valuation allowances of $5.1 million. The assets are amortizable starting in 2024 and the amortization period varies based on the nature of the underlying assets from which the values were derived.

•$93.2 million of non-cash benefit recorded in 2023 for the recognition of deferred tax assets related to tax-deductible statutory losses in Luxembourg.

This decrease was partially offset by:

•increased earnings in higher tax rate jurisdictions.

SEGMENT RESULTS OF OPERATIONS

The summary that follows provides a discussion of the results of operations of both of our reportable segments (Enclosures and Electrical & Fastening Solutions). Both of these segments comprise various product offerings that serve multiple end users.

We evaluate performance based on net sales and reportable segment income ("segment income") and use a variety of ratios to measure performance of our reporting segments. Segment income represents operating income, which includes certain corporate overhead allocations, exclusive of intangible amortization, acquisition related expenses, costs of restructuring activities, impairments and other unusual non-operating items.

Enclosures

The net sales, segment income and segment income as a percentage of net sales for Enclosures were as follows:

[[GREPCENT_TABLE]]
[["","Years ended December 31","","% / point change"],["In millions","2024","2023","2022","","2024 vs 2023","2023 vs 2022"],["Net sales","$","1,823.3","$","1,605.9","$","1,503.7","","13.5%","6.8%"],["Segment income","403.1","346.6","256.0","","16.3%","35.4%"],["% of net sales","22.1%","21.6%","17.0%","","0.5","pts","4.6","pts"]]
[[/GREPCENT_TABLE]]

25

Net sales

The components of the change in Enclosures net sales from the prior period were as follows:

[[GREPCENT_TABLE]]
[["","2024 vs 2023","2023 vs 2022"],["Volume","5.4","%","0.6","%"],["Price","(0.4)","","5.3"],["Organic growth","5.0","%","5.9","%"],["Acquisition","8.6","","0.8"],["Currency","(0.1)","","0.1"],["Total","13.5","%","6.8","%"]]
[[/GREPCENT_TABLE]]

The 13.5 percent increase in Enclosures net sales in 2024 from 2023 was primarily the result of:

•organic sales growth contribution of approximately 4.5% from our infrastructure business in 2024 from 2023, which includes selective increases in selling prices and growth in the data solutions business; and

•sales of $138.1 million in 2024 as a result of the Trachte and TEXA Industries acquisitions.

The 6.8 percent increase in Enclosures net sales in 2023 from 2022 was primarily the result of:

•organic sales growth contribution of approximately 3.5% from our infrastructure business in 2023 from 2022, which includes increases in selling prices and growth in the data solutions business; and 1.5% and 1.0% from our industrial and commercial & residential businesses, respectively, in 2023 from 2022, which includes increases in selling prices; and

•sales of $12.0 million in 2023 as a result of the TEXA Industries acquisition.

Segment income

The components of the change in Enclosures segment income as a percentage of net sales from the prior period were as follows:

[[GREPCENT_TABLE]]
[["","2024 vs 2023","2023 vs 2022"],["Growth/acquisition","2.0","pts","(0.4","pts)"],["Price","(0.3)","","4.2"],["Currency","0.1","","(0.4)"],["Net productivity","(1.3)","","1.2"],["Total","0.5","pts","4.6","pts"]]
[[/GREPCENT_TABLE]]

The 0.5 percentage point increase in segment income for Enclosures as a percentage of net sales in 2024 from 2023 was primarily the result of:

•higher sales volume resulting in increased leverage on fixed expenses; and

•increased productivity as a result of supply chain management and manufacturing efficiencies.

This increase was partially offset by:

•inflationary increases, primarily related to labor costs and raw materials, compared to 2023; and

•investments in capacity, new products and digital to drive growth.

The 4.6 percentage point increase in segment income for Enclosures as a percentage of net sales in 2023 from 2022 was primarily the result of:

•increases in selling prices to mitigate inflationary cost increases; and

•increased productivity as a result of supply chain management and manufacturing efficiencies.

This increase was partially offset by:

•inflationary increases, primarily related to labor cost, compared to 2022; and

•investments in capacity, digital and new products to drive growth.

26

Electrical & Fastening Solutions

The net sales, segment income and segment income as a percentage of net sales for Electrical & Fastening Solutions were as follows:

[[GREPCENT_TABLE]]
[["","Years ended December 31","","% / point change"],["In millions","2024","2023","2022","","2024 vs 2023","2023 vs 2022"],["Net sales","$","1,182.8","$","1,063.0","$","791.4","","11.3%","34.3%"],["Segment income","354.5","330.6","219.9","","7.2%","50.3%"],["% of net sales","30.0%","31.1%","27.8%","","(1.1","pts)","3.3","pts"]]
[[/GREPCENT_TABLE]]

Net sales

The components of the change in Electrical & Fastening Solutions net sales from the prior period were as follows:

[[GREPCENT_TABLE]]
[["","2024 vs 2023","2023 vs 2022"],["Volume","(1.7)","%","(2.3)","%"],["Price","0.2","","5.9"],["Organic growth","(1.5)","%","3.6","%"],["Acquisition","12.8","","30.4"],["Currency","\u2014","","0.3"],["Total","11.3","%","34.3","%"]]
[[/GREPCENT_TABLE]]

The 11.3 percent increase in Electrical & Fastening Solutions net sales in 2024 from 2023 was primarily the result of:

•sales of $136.3 million in 2024 as a result of the ECM Industries acquisition.

This increase was partially offset by:

•organic sales decline of approximately 1.5% from our commercial & residential business in 2024 from 2023.

The 34.3 percent increase in Electrical & Fastening Solutions net sales in 2023 from 2022 was primarily the result of:

•sales of $240.7 million in 2023 as a result of the ECM Industries acquisition; and

•organic sales growth contribution of approximately 1.5% from both our infrastructure and commercial & residential businesses in 2023 from 2022, which primarily includes selective increases in selling prices.

Segment income

The components of the change in Electrical & Fastening Solutions segment income as a percentage of net sales from the prior period were as follows:

[[GREPCENT_TABLE]]
[["","2024 vs 2023","2023 vs 2022"],["Growth/acquisition","(1.7)","pts","1.1","pts"],["Price","0.2","","4.0"],["Net productivity","0.4","","(1.8)"],["Total","(1.1)","pts","3.3","pts"]]
[[/GREPCENT_TABLE]]

The 1.1 percentage point decrease in segment income for Electrical & Fastening Solutions as a percentage of net sales in 2024 from 2023 was primarily the result of:

•the impact of unfavorable product mix;

•inflationary increases, primarily related to labor costs and raw materials, compared to 2023; and

•investments in digital to drive growth.

This decrease was partially offset by:

•increased productivity as a result of supply chain management and manufacturing efficiencies.

27

The 3.3 percentage point increase in segment income for Electrical & Fastening Solutions as a percentage of net sales in 2023 from 2022 was primarily the result of:

•increases in selling prices to mitigate inflationary cost increases;

•increased productivity as a result of supply chain management, manufacturing and other efficiencies; and

•the impact of favorable product mix.

This increase was partially offset by:

•inflationary increases, primarily related to labor costs, compared to 2022;

•lower sales volume resulting in decreased leverage on fixed expenses; and

•investments in digital, selling and marketing to drive growth.

LIQUIDITY AND CAPITAL RESOURCES

The primary source of liquidity for our business is cash flows provided by operations. 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. We believe we have the ability and sufficient capacity to meet these cash requirements by using available cash, internally generated funds and borrowing under committed credit facilities. We are focused on increasing our cash flow, 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, 2024, we had $131.2 million of cash on hand, of which $53.2 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.

Operating activities

Net cash provided by operating activities from continuing operations was $501.0 million in 2024. Net cash provided by operating activities in 2024 primarily reflects net income from continuing operations of $472.0 million, net of non-cash depreciation, amortization, changes in deferred taxes and pension and other-post retirement mark-to-market gain, and a $3.5 million decrease in net working capital.

Net cash provided by operating activities from continuing operations was $422.2 million in 2023. Net cash provided by operating activities in 2023 primarily reflects net income from continuing operations of $420.4 million, net of non-cash depreciation, amortization, changes in deferred taxes and pension and other post-retirement mark-to-market loss, partially offset by a $2.4 million increase in net working capital.

Net cash provided by operating activities from continuing operations was $273.3 million in 2022. Net cash provided by operating activities in 2022 primarily reflects net income of $306.2 million, net of non-cash depreciation, amortization, changes in deferred taxes and pension and other post-retirement mark-to-market gain, partially offset by a $47.3 million increase in net working capital.

Investing activities

Net cash used for investing activities from continuing operations was $750.8 million in 2024, which primarily related to cash paid for the Trachte acquisition of $677.7 million, net of cash acquired, and capital expenditures of $74.0 million.

Net cash used for investing activities from continuing operations was $1,166.7 million in 2023, which primarily related to cash paid for the ECM Industries and TEXA Industries acquisitions of $1,120.1 million, net of cash acquired, and capital expenditures of $65.6 million.

Net cash used for investing activities from continuing operations was $47.1 million in 2022, which primarily related to capital expenditures of $40.5 million.

Financing activities

Net cash provided by financing activities was $146.2 million in 2024, which primarily related to proceeds from long-term debt of $500.0 million, partially offset by dividends paid of $126.8 million, repayments of long-term debt of $126.5 million and share repurchases of $100.0 million.

28

Net cash provided by financing activities was $516.7 million in 2023, which primarily related to proceeds from long-term debt of $800.0 million, partially offset by dividends paid of $116.8 million, repayments of long-term debt of $101.1 million and share repurchases of $60.8 million.

Net cash used for financing activities was $82.1 million in 2022, which primarily related to dividends paid of $117.0 million, net repayments of revolving credit facility of $106.7 million and share repurchases of $65.9 million, partially offset by $200.0 million of proceeds from long-term debt.

Senior notes

In March 2018, nVent Finance S.à r.l. (“nVent Finance” or "Subsidiary Issuer"), a 100-percent owned subsidiary of nVent, issued $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").

In May 2023, to finance the acquisition of ECM Industries, nVent Finance issued $500.0 million aggregate principal amount of 5.650% Senior Notes due 2033 (the "2033 Notes" and, collectively with the 2028 Notes and the 2031 Notes, the "Notes").

Interest on the 2028 Notes is payable semi-annually in arrears on April 15 and October 15 of each year, and interest on the 2031 Notes and 2033 Notes is payable semi-annually in arrears on May 15 and November 15 of each year.

The Notes are fully and unconditionally guaranteed as to payment by nVent (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 consolidated subsidiaries. The Subsidiary Issuer is a holding company that has no independent assets or operations unrelated to its investments in 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 Securities and Exchange Commission.

Senior credit facilities

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 "2021 Term Loan Facility") and a five-year $600.0 million senior unsecured revolving credit facility (the "Revolving Credit Facility" and, together with the 2021 Term Loan Facility, the "Senior Credit Facilities"). Borrowings under the 2021 Term Loan Facility were permitted on a delayed draw basis during the first year of the five-year term of the 2021 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. In September 2022, nVent exercised the delayed draw provision of the 2021 Term Loan Facility, increasing the total borrowings under the 2021 Term Loan Facility by $200.0 million to $300.0 million. 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.

As of December 31, 2024, the borrowing capacity under the Revolving Credit Facility was $600.0 million.

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Borrowings under the Senior Credit Facilities bear interest at a rate equal to an adjusted base rate, the Secured Overnight Financing Rate ("SOFR"), 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.

In April 2023, nVent and nVent Finance entered into a loan agreement providing for another senior unsecured term loan facility of $300.0 million for five years (the "2023 Term Loan Facility"), which was used to fund the acquisition of ECM Industries. The 2023 Term Loan Facility bears interest at a rate equal to an adjusted base rate or adjusted term SOFR 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.

In June 2024, nVent and nVent Finance entered into a new loan agreement providing for an additional senior unsecured term loan facility of $500.0 million for two years (the "2024 Term Loan Facility"). In July 2024, we partially financed the acquisition of Trachte using the 2024 Term Loan Facility. The 2024 Term Loan Facility bears interest at a rate equal to an adjusted base rate or adjusted term SOFR 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.

Our debt agreements contain certain financial covenants, the most restrictive of which are in the Senior Credit Facilities, the 2023 Term Loan Facility and the 2024 Term Loan Facility, 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, the 2023 Term Loan Facility and the 2024 Term Loan Facility 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, 2024, we were in compliance with all financial covenants in our debt agreements, and there is no material uncertainty about our ongoing ability to meet those covenants.

Share repurchases

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 expired on July 22, 2024.

On May 17, 2024, the Board of Directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $500.0 million (the "2024 Authorization"). The 2024 Authorization began on July 23, 2024, following the expiration of the 2021 Authorization, and expires on July 22, 2027.

During the year ended December 31, 2024, we repurchased 1.5 million of our ordinary shares for $100.0 million under the 2024 Authorization and we did not repurchase ordinary shares under the 2021 Authorization.

As of December 31, 2024, we had $400.0 million available for share repurchases under the 2024 Authorization.

Dividends

Dividends paid per ordinary share were $0.76 for the year ended December 31, 2024 and $0.70 for both the years ended December 31, 2023 and 2022.

On December 16, 2024, the Board of Directors declared a quarterly cash dividend of $0.20 that was paid on February 7, 2025 to shareholders of record at the close of business on January 17, 2025. The balance of dividends payable included in Other current liabilities on our Consolidated Balance Sheets was $33.9 million and $32.6 million at December 31, 2024 and 2023, respectively.

On February 17, 2025, the Board of Directors declared a quarterly cash dividend of $0.20 per ordinary share payable on May 9, 2025 to shareholders of record at the close of business on April 25, 2025.

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 generally accepted accounting principles in the United States of America ("GAAP") reported amount (e.g., retained earnings). Our distributable reserve balance was $2.4 billion and $2.7 billion as of December 31, 2024 and 2023, respectively.

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Authorized shares

Our authorized share capital consists of 400.0 million ordinary shares with a par value of $0.01 per share.

Material cash requirements

In general, we require cash to fund working capital investments, acquisitions, capital expenditures, debt and interest payments, taxes, dividends and share repurchases.

Our material contractual cash requirements as of December 31, 2024 include principal and interest on long-term debt as well as payments for lease liabilities. Servicing these obligations includes the following estimated cash outflows from December 31, 2024:

[[GREPCENT_TABLE]]
[["In millions","Within 1 year","Greater than 1 year","","","","","","Total"],["Debt obligations","$","37.5","","$","2,128.8","","","","","","","$","2,166.3"],["Interest obligations on fixed-rate debt","59.3","","318.2","","","","","","","377.5"],["Lease obligations, net of sublease rentals","33.1","","142.7","","","","","","","175.8"],["Total","$","129.9","","$","2,589.7","","","","","","","$","2,719.6"]]
[[/GREPCENT_TABLE]]

We also incur purchase obligations in the ordinary course of business that are enforceable and legally binding. We have contractual purchase obligations of $66.7 million for 2025, which represent commitments for raw materials to be utilized in the normal course of business for which all significant terms have been confirmed. Contractual purchase obligations beyond 2025 are not material.

The total gross liability for uncertain tax positions at December 31, 2024 was estimated to be $11.7 million. We record penalties and interest related to unrecognized tax benefits in Provision (benefit) for income taxes and Net interest expense, respectively in the Consolidated Statements of Operations and Comprehensive Income, which is consistent with our past practices. As of December 31, 2024, we have liabilities of $2.0 million for the possible payment of penalties and $1.4 million related to the possible payment of interest expense, which are recorded in Other current liabilities in the Consolidated Balance Sheet.

Other financial measures

In addition to measuring our cash flow generation or usage based upon operating, investing and financing classifications included in the Consolidated 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 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:

[[GREPCENT_TABLE]]
[["","Years ended December 31"],["In millions","2024","2023","2022"],["Net cash provided by (used for) operating activities of continuing operations","$","501.0","","$","422.2","","$","273.3"],["Capital expenditures","(74.0)","","(65.6)","","(40.5)"],["Proceeds from sale of property and equipment","0.5","","0.1","","2.0"],["Free cash flow of continuing operations","427.5","","356.7","","234.8"],["Net cash provided by (used for) operating activities of discontinued operations","142.1","","105.9","","121.3"],["Capital expenditures of discontinued operations","(7.8)","","(5.4)","","(5.4)"],["Proceeds from sale of property and equipment of discontinued operations","0.2","","7.4","","\u2014"],["Total free cash flow","$","562.0","","$","464.6","","$","350.7"]]
[[/GREPCENT_TABLE]]

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.

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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 re-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 18 of the Notes to the Consolidated Financial Statements could change in the future.

Stand-by Letters of Credit, Bank Guarantees and Bonds

In the ordinary course of business, we are required to commit to bonds, letters of credit and bank guarantees that require payments to our customers for any non-performance. The outstanding face value of these instruments fluctuates with the value of our projects in process and in our backlog. In addition, we issue financial stand-by letters of credit primarily to secure our performance to third parties under self-insurance programs.

As of December 31, 2024 and 2023, the outstanding value of bonds, letters of credit and bank guarantees totaled $10.7 million and $10.5 million, respectively.

CRITICAL ACCOUNTING ESTIMATES

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 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.

Business Combinations

Assets and liabilities acquired in a business combination are recorded at their estimated fair values at the acquisition date. Goodwill is recorded when the purchase price exceeds the estimated fair value of the net identifiable tangible and intangible assets acquired. Estimates of intangible asset fair value represent management’s best estimate of assumptions and about future events and uncertainties, including significant judgments related to future cash flows, discount rates, margin and revenue growth assumptions including royalty rates and customer attrition rates, and others. Inputs used are generally obtained from historical data supplemented by current and anticipated market conditions and growth rates. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill or require acceleration of the amortization expense of finite-lived intangible assets.

Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocation. During this measurement period, which may be up to one year from the acquisition date, we will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. All changes that do not qualify as measurement period adjustments are included in current period earnings.

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 by comparing the fair value of each reporting unit with its carrying amount, and recognizing an impairment expense for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

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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 to comparable publicly-traded companies that are similar in size and industry. Actual results may differ from those used in our valuations.

Determining the fair value of the reporting units required the use of significant judgment, including assumptions about future revenues and expenses, capital expenditures and changes in working capital and discount rates, which are based on our annual operating plan and long-term business plan. These plans take into consideration numerous factors including historical experience, anticipated future economic conditions, and growth expectations for the industries and end markets in which the reporting unit participates. The level of judgment and estimation is inherently high. These assumptions are determined over a six year long-term planning period. The six year growth rates for revenues and operating profits vary for each reporting unit being evaluated. Revenues and operating profit beyond 2030 are projected to grow at a perpetual growth rate of 3.0%.

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 10.0% discount rate 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 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.

There was no impairment expense recorded in 2024, 2023 or 2022 related to goodwill. 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 2024.

There is a risk that changes in economic and operating conditions affecting the assumptions used in our impairment tests 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 technologies 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.

There was no impairment expense recorded in 2024, 2023 or 2022 related to identifiable intangible assets. A 10% decrease in the fair values determined in the quantitative impairment assessment for each of the trade names would not have changed our determination that the fair value of each trade name was in excess of its carrying value for 2024.

Pension and other post-retirement plans

We sponsor defined-benefit pension plans and a post-retirement health 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.

The amounts recognized in our consolidated 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 13 to the Notes to Consolidated Financial Statements. Differences in actual experience or changes in assumptions may affect our pension and other post-retirement obligations and future expense.

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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 gain of $0.1 million in 2024, a pre-tax loss of $13.4 million in 2023, and a pre-tax gain of $61.9 million in 2022. 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 1.00% to 5.39%, 1.00% to 4.88% and 1.00% to 5.22% in 2024, 2023 and 2022, 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 2025.

Expected rates of return

The expected rates of return on our pension plan assets ranged from 1.00% to 3.25%, 1.00% to 3.75% and 1.00% to 2.25% in 2024, 2023 and 2022, 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 long-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 $4.6 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 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.

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

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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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