What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 117 added, 125 removed, 175 unchanged (58% of the section changed)

32 unchanged sentences

Founded in 1927, Littelfuse is an industrial technology manufacturing company empowering a sustainable, connected, and safer world.

Across more than 15 countries, and with 17,000 global associates, we partner with customers to design and deliver innovative, reliable solutions.

Across more than 15 countries, and with approximately 19,000 global associates, we partner with customers to design and deliver innovative, reliable solutions.

Serving over 100,000 end customers, our products are found in a variety of industrial, transportation and electronics end markets – everywhere, every day.

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Executive Summary

For the second quarter of 2022, the Company recognized net sales of $618.4 million, an increase of $94.9 million, or 18.1% as compared to $523.5 million in the second quarter of 2021.

The increase was primarily driven by higher volumes in the Electronics and Industrial segments and $57.8 million or 11.0% of net sales from the Carling acquisition within the Transportation segment, partially offset by $16.4 million or 3.1% of unfavorable changes in foreign exchange rates.

The Company recognized net income of $87.0 million, or $3.48 per diluted share, in the second quarter of 2022 compared to $82.1 million, or $3.30 per diluted share in the second quarter of 2021.

The increase in net income reflects higher operating income of $37.9 million primarily due to an increase in operating income of $31.7 million in the Electronics segment partially offset by higher foreign exchange losses of $15.8 million and higher unrealized losses of $9.1 million associated with the Company’s equity investment.

Supply chain constraints, including material and transportation capacity shortages have and are expected to continue to impact the Company, its suppliers and its customers.

This has resulted in higher transportation and input costs incurred by the Company.

Net cash provided by operating activities was $165.3 million for the six months ended July 2, 2022 as compared to $126.3 million for the six months ended June 26, 2021.

For the third quarter of 2022, the Company recognized net sales of $658.9 million, an increase of $119.3 million, or 22.1% as compared to $539.6 million in the third quarter of 2021.

The increase was primarily driven by higher volumes in the Electronics and Industrial segments, $58.8 million or 10.9% of net sales from the Carling acquisition within the Transportation segment and $37.9 million or 7.0% of net sales from the C&K acquisition within the Electronics segment, partially offset by $21.5 million or 4.0% of unfavorable changes in foreign exchange rates.

The Company recognized net income of $75.5 million, or $3.02 per diluted share, in the third quarter of 2022 compared to $92.1 million, or $3.69 per diluted share in the third quarter of 2021.

The decrease in net income was primarily due to higher foreign exchange losses of $15.0 million.

Supply chain constraints, including material and transportation capacity shortages impacted the Company, its suppliers and customers to a lesser extent during the third quarter of 2022 as compared to previous quarters.

The Company expects ongoing improvement during the remainder of 2022.

Net cash provided by operating activities was $313.4 million for the nine months ended October 1, 2022 as compared to $240.7 million for the nine months ended September 25, 2021.

The increase in net cash provided by operating activities was primarily due to higher cash earnings, partially offset by increases in working capital resulting from higher sales growth and higher annual incentive bonus payments made in 2022 as compared to 2021.

On June 30, 2022, the Company amended its Credit Agreement, dated as of April 3, 2020 (the “Credit Agreement”) to effect certain changes, including, among other changes:

(i) adding a $300 million unsecured term loan credit facility;

(ii) making certain financial and non-financial covenants less restrictive on the Company and its subsidiaries;

(iii) replacing LIBOR-based interest rate benchmarks and modifying performance-based interest rate margins;

and (iv) extending the maturity date to June 30, 2027 (the “Maturity Date”).

Pursuant to the Credit Agreement, the Company may, from time to time, increase the size of the revolving credit facility or enter into one or more tranches of term loans in minimum increments of $25 million if there is no event of default and the Company is in compliance with certain financial covenants.

On July 19, 2022, t he Company acquired C&K Switches (“C&K”) for $540 million in cash.

Founded in 1928, C&K is a leading designer and manufacturer of high-performance electromechanical switches and interconnect solutions with a strong global presence across a broad range of end markets, including industrial, transportation, aerospace, and datacom.

On July 19, 2022, t he Comp any completed the previously announced acquisition of C&K Switches (“C&K”) for $540 million in cash.

Founded in 1928, C&K is a leading designer and manufacturer of high-performance electromechanical switches and interconnect solutions with a strong global presence across a broad range of en d markets, including industrial, transportation, aerospace, and datacom.

At the time the Company and C&K entered into the definitive agreement, C&K had annualized sales of over $200 million.

The business will be reported as part of the Electronics-Passive Products and Sensors business within the Company's Electronics segment.

The business is reported as part of the Electronics-Passive Products and Sensors business within the Company's Electronics segment.

The Company financed the transaction through a combination of cash on hand and debt.

On July 28, 2022, the Board of Directors of the Company approved a 13% increase in the quarterly cash dividend from $0.53 to $0.60 per share, payable on September 8, 2022 to stockholders of record as of August 25, 2022.

Impact of COVID-19 on Business

The effects from COVID-19 continue to drive higher ongoing costs including spending on personal protective equipment ("PPE"), additional personnel and employee transportation costs, and manufacturing inefficiencies as well as an increase in material costs and transportation costs due to global supply chain and logistics constraints around the world.

During the second quarter of 2022, the outbreak of COVID-19 in China in late March resulted in the temporary shut-down of certain of the Company's China manufacturing facilities during April and May.

The Company's other manufacturing facilities were operational and were generally running at normal capacity levels.

The financial impact of these shut-downs was modest to the Company’s financial results during the second quarter of 2022.

The Company anticipates that the disruptions caused by COVID-19 may continue to impact its business activity for the foreseeable future.

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The following table summarizes the Company’s unaudited condensed consolidated results of operations for the periods presented.

The second quarter of 2022 includes $4.8 million ($8.6 million year-to-date) of legal and professional fees primarily related to the acquisition of C&K and other integration expenses related to completed and contemplated acquisitions, and $0.6 million ($0.8 million year-to-date) of restructuring, impairment and other charges, primarily related to employee termination costs, and $4.8 million year-to-date of purchase accounting inventory step-up charges.

The third quarter of 2022 includes $6.8 million ($11.6 million year-to-date) of purchase accounting inventory step-up charges, $6.2 million ($14.8 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, and $3.4 million ($4.3 million year-to-date) of restructuring, impairment and other charges, primarily related to employee termination costs.

See Note 7, Restructuring, Impairment, and Other Charges, for further discussion.

The second quarter of 2021 includes $3.3 million ($6.8 million year-to-date) of purchase accounting inventory step-up charges, $0.5 million ($1.3 million year-to-date) of legal and professional fees and other integration expenses related to Hartland and other contemplated acquisitions, and $0.8 million ($1.3 million year-to-date) of restructuring, impairment and other charges, primarily related to employee termination costs.

The third quarter of 2021 includes $6.8 million year-to-date of purchase accounting inventory step-up charges, $2.0 million ($3.4 million year-to-date) of legal and professional fees and other integration expenses related to Hartland and other contemplated acquisitions, and $0.8 million ($2.0 million year-to-date) of restructuring, impairment and other charges, primarily related to employee termination costs.

See Note 7, Restructuring, Impairment, and Other Charges , for further discussion.

In addition, there was a loss of $1.0 million recorded during the second quarter of 2021 for a total year-to-date gain of $0.9 million from the sale of a building within the Electronics segment.

Second Quarter First Six Months

In addition, there was a year-to-date gain of $0.9 million recorded for the sale of a building within the Electronics segment.

Third Quarter First Nine Months

(in thousands) 2022 2021 Change %

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Net income $ 75,468 $ 92,054 $ (16,586) (18.0) % $ 280,002 $ 231,862 $ 48,140 20.8 %

Net sales increased $94.9 million, or 18.1%, including $57.8 million or 11.0% from the Carling acquisition within the Transportation segment and $16.4 million or 3.1% of unfavorable changes in foreign exchange rates for the second quarter of 2022 compared to the second quarter of 2021.

The remaining increase was primarily driven by growth across the Company's Electronics and Industrial segments, which had sales increases of $32.8 million and $13.4 million, respectively.

The increase within the Electronics segment was led by continued broad-based demand across numerous end markets and price realization.

The increase in the Industrial segment was driven across all businesses within the segment and price realization.

Net sales increased $254.5 million, or 25.8%, including $113.5 million or 11.5% from the Carling acquisition and $25.0 million or 2.5% of unfavorable changes in foreign exchange rates for the first six months of 2022 compared to the first six months of 2021.

The remaining increase was primarily driven by growth across the Company's Electronics and Industrial segments, which had sales increases of $112.1 million and $37.7 million, respectively.

The increase within the Electronics segment was led by continued broad-based demand across numerous end markets.

The increase in the Industrial segment was driven across all businesses within the segment.

Net sales increased $119.3 million, or 22.1%, for the third quarter of 2022 compared to the third quarter of 2021, including $58.8 million or 10.9% from the Carling acquisition within the Transportation segment and $37.9 million or 7.0% of net sales from the C&K acquisition within the Electronics segment, and included $21.5 million or 4.0% of unfavorable changes in foreign exchange rates.

The remaining increase of $12.5 million in the Electronics segment was due to demand primarily in primarily in the semiconductors business within the Electronics segment while the Industrial segment increased $11.6 million driven by higher volume and price realization across all businesses.

Net sales increased $373.8 million, or 24.5%, including $172.4 million or 11.3% from the Carling acquisition within the Transportation segment and $37.9 million or 2.5% of net sales from the C&K acquisition within the Electronics segment, and included $46.5 million or 3.0% of unfavorable changes in foreign exchange rates for the first nine months of 2022 compared to the first nine months of 2021.

The remaining increase of $124.6 million in the Electronics segment was due to higher volume and price realization across numerous end markets while the Industrial segment increased $49.3 million driven by higher volume and price realization across all businesses and incremental one month net sales of $9.1 million from the Hartland acquisition.

Cost of Sales

Cost of sales was $355.5 million, or 57.5% of net sales, in 2022, compared to $326.1 million, or 62.3% of net sales, in 2021.

The increase in cost of sales was primarily due to greater volume across the Electronics and Industrial segments driven by the factors discussed above along with the acquisition of Carling.

As a percent of net sales, cost of sales decreased 4.8% driven by volume leverage, favorable product mix predominantly in the Electronics segment in 2022 and lower purchase accounting inventory charges of $3.3 million or 0.6%, partially offset by higher commodity costs.

Cost of sales was $720.2 million, or 58.0% of net sales for the first six months of 2022, compared to $629.4 million, or 63.8% of net sales for the first six months of 2021.

The increase in cost of sales was primarily due to greater volume across the Electronics and Industrial segments driven by the factors discussed above along with the acquisition of Carling.

As a percent of net sales, cost of sales decreased 5.8% driven by volume leverage and lower purchase accounting inventory charges of $2.0 million or 0.2% in 2022, partially offset by higher commodity costs and higher transportation , duty and tariff charges of 0.3%.

Gross profit was $263.0 million, or 42.5% of net sales, in the second quarter of 2022 compared to $197.4 million, or 37.7% of net sales, for the second quarter of 2021.

The $65.6 million increase in gross profit was primarily due to higher volume and price in the Electronics and Industrial segments along with acquisition of Carling.

The increase in gross margin of 4.8% was primarily driven by volume leverage, price realization and favorable product mix within the Electronics segment and lower purchase accounting inventory charges, partially offset by higher commodity costs.

Gross profit was $521.6 million, or 42.0% of net sales, in the first six months of 2022 compared to $357.9 million, or 36.2% of net sales, for the first six months of 2021.

The $163.7 million increase in gross profit was primarily due to higher volume in the Electronics and Industrial segments along with acquisition of Carling.

The increase in gross margin of 5.8% was primarily driven by volume leverage, price realization and lower purchase accounting inventory charges of $2.0 million or 0.3% in 2022, partially offset by higher commodity costs and higher transportation , duty and tariff charges of 0.3%.

Cost of sales was $402.1 million, or 61.0% of net sales, in the third quarter of 2022, compared to $325.0 million, or 60.2% of net sales, in the third quarter of 2021.

The increase in cost of sales was primarily due to greater volume across the Electronics and Industrial segments driven by the factors discussed above along with the acquisitions of Carling and C&K.

As a percent of net sales, cost of sales increased 0.8% driven by purchase accounting inventory charges of $6.8 million or 1.0%, partially offset by volume leverage, and favorable product mix predominantly in the Electronics segment.

Cost of sales was $1,122.3 million, or 59.0% of net sales for the first nine months of 2022, compared to $954.4 million, or 62.5% of net sales for the first nine months of 2021.

The increase in cost of sales was primarily due to greater volume across the Electronics and Industrial segments driven by the factors discussed above along with the acquisitions of Carling and C&K.

As a percent of net sales, cost of sales decreased 3.5% driven by volume leverage, partially offset by higher purchase accounting inventory charges of $4.7 million or 0.3% in 2022.

Gross profit was $256.8 million, or 39.0% of net sales, in the third quarter of 2022 compared to $214.6 million, or 39.8% of net sales, for the third quarter of 2021.

The $42.2 million increase in gross profit was primarily due to higher volume and price realization in the Electronics and Industrial segments along with the acquisitions of Carling and C&K.

The decrease in gross margin of 0.8% was primarily driven by purchase accounting inventory charges of $6.8 million or 1.0%, partially offset by volume leverage and favorable price and product mix predominantly in the Electronics segment.

Gross profit was $778.4 million, or 41.0% of net sales, in the first nine months of 2022 compared to $572.4 million, or 37.5% of net sales, for the first nine months of 2021.

The $206.0 million increase in gross profit was primarily due to higher volume and price realization in the Electronics and Industrial segments along with the acquisitions of Carling and C&K.

The increase in gross margin of 3.5% was primarily driven by volume leverage and price realization, partially offset by higher purchase accounting inventory charges of $4.7 million or 0.2% in 2022.

Operating Expenses

Total operating expenses were $128.8 million, or 20.8% of net sales, for the second quarter of 2022 compared to $101.1 million, or 19.3% of net sales, for the second quarter of 2021.

The increase in operating expenses of $27.7 million was primarily due to the higher selling, general, and administrative expenses of $19.8 million largely due to the Carling acquisition and increased acquisition-related expenses of $4.3 million and higher research and development expenses of $7.1 million.

Total operating expenses were $236.8 million, or 19.1% of net sales, for the first six months of 2022 compared to $185.1 million, or 18.8% of net sales, for the first six months of 2021.

The increase in operating expenses of $51.7 million was primarily due to the higher selling, general, and administrative expenses of $37.0 million largely due to the Carling acquisition and increased acquisition-related expenses of $7.3 million, higher research and development expenses of $11.9 million, and higher amortization expense of $3.2 million due to the Carling acquisition.

Total operating expenses were $135.0 million, or 20.5% of net sales, for the third quarter of 2022 compared to $94.5 million, or 17.5% of net sales, for the third quarter of 2021.

The increase in operating expenses of $40.5 million was primarily due to higher selling, general, and administrative expenses of $22.8 million, research and development expenses of $10.0 million, and increased amortization expense of $5.1 million and acquisition-related expenses of $4.2 million largely due to the Carling and C&K acquisitions.

Total operating expenses were $371.8 million, or 19.6% of net sales, for the first nine months of 2022 compared to $279.6 million, or 18.3% of net sales, for the first nine months of 2021.

The increase in operating expenses of $92.2 million was primarily due to higher selling, general, and administrative expenses of $59.7 million, research and development expenses of $21.9 million and increased acquisition-related expenses of $11.4 million and amortization expense of $8.3 million largely due to the Carling and C&K acquisitions.

Operating Income

Operating income was $134.2 million, an increase of $37.9 million, or 39.4%, for the second quarter of 2022 compared to $96.3 million for the second quarter of 2021.

The increase in operating income was due to higher gross profit from all segments, particularly in the Electronics segment, partially offset by higher operating expenses as noted above.

Operating margins

increased from 18.4% in the second quarter of 2021 to 21.7% in the second quarter of 2022 driven by the factors mentioned above.

Operating income was $284.8 million, an increase of $112.0 million, or 64.8%, for the first six months of 2022 compared to $172.7 million for the first six months of 2021.

Operating income was $121.9 million, an increase of $1.8 million, or 1.5%, for the third quarter of 2022 compared to $120.1 million for the third quarter of 2021.

The increase in operating income was due to higher gross profit from the Electronics and Industrial segments, partially offset by higher operating expenses as noted above.

Operating margins decreased from 22.3% in the third quarter of 2021 to 18.5% in the third quarter of 2022 driven by the higher operating expenses associated with the acquisitions mentioned above.

Operating income was $406.6 million, an increase of $113.8 million, or 38.9%, for the first nine months of 2022 compared to $292.8 million for the first nine months of 2021.

The increase in operating income was due to higher gross profit from all segments, particularly in the Electronics segment, partially offset by higher operating expenses as noted above.

Operating margins increased from 17.5% in the first six months of 2021 to 22.9% in the first six months of 2022 driven by the factors mentioned above.

Operating margins increased from 19.2% in the first nine months of 2021 to 21.4% in the first nine months of 2022 driven by higher operating income of $109.4 million in the Electronics segment.

Income Before Income Taxes

Income before income taxes was $109.6 million, or 17.7% of net sales, for the second quarter of 2022 compared to $95.2 million, or 18.2% of net sales, for the second quarter of 2021.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily impacted by foreign exchange losses of $14.1 million in the second quarter of 2022 compared to foreign exchange gains of $1.7 million in the second quarter of 2021, and $7.8 million of unrealized losses in the second quarter of 2022 compared to unrealized gains of $1.3 million in the second quarter of 2021 related to the Company's equity investment.

Income before income taxes was $243.7 million, or 19.6% of net sales, for the first six months of 2022 compared to $167.9 million, or 17.0% of net sales, for the first six months of 2021.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was impacted by $12.5 million of unrealized losses during the six months ended July 2, 2022 compared to unrealized gains of $8.8 million during six months ended June 26, 2021 related to the Company's equity investment, and higher foreign exchange losses of $16.7 million during the six months ended July 2, 2022.

Income tax expense for the second quarter of 2022 was $22.6 million, or an effective tax rate of 20.6%, compared to $13.1 million, or an effective tax rate of 13.8%, for the second quarter of 2021.

The effective tax rate for the second quarter of 2022 is higher than the effective tax rate for the comparable 2021 period, primarily due to foreign exchange losses noted above with no related tax benefit in the 2022 period, as compared to foreign exchange gains with limited tax expense during the comparable 2021 period.

Income tax expense for the first six months of 2022 was $39.2 million, or an effective tax rate of 16.1%, compared to income tax expense of $28.1 million, or an effective tax rate of 16.7%, for the first six months of 2021.

The effective tax rate for the first six months of the 2022 period is lower than the applicable U.S.

statutory tax rate due to a one-time deduction that resulted from the dissolution of one o f the Company’s affiliates, as well as the forecasted impact of income earned in lower tax jurisdictions.

Income before income taxes was $96.0 million, or 14.6% of net sales, for the third quarter of 2022 compared to $113.6 million, or 21.1% of net sales, for the third quarter of 2021.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily impacted by higher foreign exchange losses of $15.0 million in the third quarter of 2022, and increased interest expense of $3.8 million due to higher borrowings.

Income before income taxes was $339.7 million, or 17.9% of net sales, for the first nine months of 2022 compared to $281.5 million, or 18.4% of net sales, for the first nine months of 2021.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was impacted by higher foreign exchange losses of $31.7 million during the nine months ended October 1, 2022 and $13.7 million of unrealized losses during the nine months ended October 1, 2022 compared to unrealized gains of $9.2 million during nine months ended September 25, 2021 related to the Company's equity investment.

Income tax expense for the third quarter of 2022 was $20.5 million, or an effective tax rate of 21.4%, compared to $21.5 million, or an effective tax rate of 19.0%, for the third quarter of 2021.

The effective tax rate for the third quarter of 2022 is higher than the effective tax rate for the comparable 2021 period, primarily due to higher foreign exchange losses with no related tax benefit in the 2022 period, as compared to the comparable 2021 period.

Income tax expense for the first nine months of 2022 was $59.7 million, or an effective tax rate of 17.6%, compared to income tax expense of $49.6 million, or an effective tax rate of 17.6%, for the first nine months of 2021.

The effective tax rate for the first nine months of the 2022 period is lower than the applicable U.S.

statutory tax rate due to a one-time deduction that resulted from the dissolution of one of the Company’s affiliates, as well as the forecasted impact of income earned in lower tax jurisdictions.

The effective tax rate for the comparable 2021 period is lower than the applicable U.S.

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The following table is a summary of the Company’s net sales by segment:

Second Quarter First Six Months

Third Quarter First Nine Months

(in thousands) 2022 2021 Change %

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Electronics Segment

Net sales increased $32.8 million, or 10.1%, in the second quarter of 2022 compared to the second quarter of 2021 and included unfavorable changes in foreign exchange rates of $9.5 million.

The sales increase was primarily due to increased volume for the semiconductor and electronics products businesses of $25.8 million and $7.0 million, respectively, primarily driven by continued broad-based demand across numerous end markets and price realization.

Net sales increased $112.1 million, or 18.3%, in the first six months of 2022 compared to the first six months of 2021 and included unfavorable changes in foreign exchange rates of $14.4 million.

The sales increase was primarily due to increased volume for the semiconductor and electronics products businesses of $67.6 million and $44.5 million, respectively.

The volume increases were driven by continued broad-based demand across numerous end markets.

Net sales increased $50.4 million, or 14.5%, in the third quarter of 2022 compared to the third quarter of 2021 and included unfavorable changes in foreign exchange rates of $12.9 million.

The sales increase was primarily due to the acquisition of C&K which contributed net sales of $37.9 million.

The remaining sales increase was due to $32.8 million of higher volume for the semiconductor business driven by increased demand predominantly in the data center and electric vehicle end markets along with capacity growth and price realization.

Net sales increased $162.5 million, or 16.9%, in the first nine months of 2022 compared to the first nine months of 2021 and included unfavorable changes in foreign exchange rates of $27.3 million.

The sales increase was primarily due to increased volume and price realization for the semiconductor business of $100.3 million and $62.2 million in the electronics products business, which included the incremental $37.9 million of sales from the acquisition of C&K.

These volume increases were driven by continued broad-based demand across numerous end markets.

Transportation Segment

Net sales increased $48.7 million, or 36.5%, in the second quarter of 2022 compared to the second quarter of 2021 and included unfavorable changes in foreign exchange rates of $6.3 million.

Net sales increased $57.3 million, or 46.1%, in the third quarter of 2022 compared to the third quarter of 2021 and included unfavorable changes in foreign exchange rates of $8.0 million.

The sales increase was primarily due to the acquisition of Carling which contributed net sales of $58.8 million.

Net sales in the commercial vehicle business increased by $60.5 million, largely due to the Carling acquisition noted previously and continued demand across a number of commercial vehicle end markets.

The passenger car products and automotive sensors businesses had sales decreases of $8.3 million and $3.5 million, respectively, driven by a decline in global car build compared to the same quarter last year primarily due to supply chain constraints, including China COVID shut-downs and OEM shut downs caused by market shortages of semiconductor chips partially offset by greater content growth from vehicle mix and electric vehicles.

Net sales increased $104.7 million, or 40.0%, in the first six months of 2022 compared to the first six months of 2021 and included favorable changes in foreign exchange rates of $9.9 million.

Net sales in the commercial vehicle business increased by $60.8 million,

largely due to the Carling acquisition noted previously and continued demand across a number of commercial vehicle end markets.

The passenger car products and automotive sensors businesses had sales decreases of $2.4 million and $1.1 million, respectively, mostly due to unfavorable changes in foreign exchange rates, certain automotive customer’s rebalancing their inventory levels of the Company's products given lower car build forecasts and softer demand for some products, partially offset by continued content growth in standard and electric vehicles.

Net sales increased $162.0 million, or 41.9%, in the first nine months of 2022 compared to the first nine months of 2021 and included unfavorable changes in foreign exchange rates of $17.8 million.

The sales increase was primarily due to the acquisition of Carling which contributed net sales of $172.4 million.

Net sales in the commercial vehicle business increased by $182.8 million, largely due to the Carling acquisition noted previously and continued demand across a number of commercial vehicle end markets.

The passenger car products and automotive sensors businesses had sales decreases of $11.7 million and $5.6 million, respectively, driven by a decline in global car build compared to last year largely due to supply chain constraints and OEM shut downs caused by market shortages of semiconductor chips as well as a reduction of demand in Europe due to Ukraine/Russia conflict partially offset by greater content growth from vehicle mix and electric vehicles.

The passenger car products and automotive sensors businesses had sales decreases of $14.0 million and $6.7 million, respectively, primarily driven by unfavorable changes in foreign exchange rates, certain automotive customer’s rebalancing their inventory levels of the Company's products given lower car build forecasts and softer demand for some products due to supply chain constraints and OEM shut downs caused by market shortages of semiconductor chips as well as a reduction of demand in Europe due to Ukraine/Russia conflict partially offset by greater content growth from vehicle mix and electric vehicles.

Industrial Segment

Net sales increased by $13.4 million, or 20.7%, in the second quarter of 2022 compared to the second quarter of 2021, which included unfavorable changes in foreign exchange rates of $0.6 million.

The increase in net sales was primarily due to higher volume and demand across product lines in renewables, and ongoing improving demand in nonresidential construction, oil & gas, natural resources, and industrial maintenance, repair, and operations end markets along with price realization.

Net sales increased by $37.7 million, or 33.2%, in the first six months of 2022 compared to the first six months of 2021, which included favorable changes in foreign exchange rates of $0.7 million.

The increase in net sales was primarily due to higher volume and demand across product lines in industrial safety, HVAC, renewables, nonresidential construction, oil & gas, natural resources, and industrial maintenance, repair, and operations end markets and incremental one month net sales of $9.1 million or 14.0% from the Hartland acquisition.

Net sales increased by $11.6 million, or 17.1%, in the third quarter of 2022 compared to the third quarter of 2021, which included unfavorable changes in foreign exchange rates of $0.6 million.

The increase in net sales was primarily due to higher volume and demand across a number of end markets along with price realization.

The higher volume was favorably impacted by increased manufacturing capacity and material availability.

Net sales increased by $49.3 million, or 27.2%, in the first nine months of 2022 compared to the first nine months of 2021, which included unfavorable changes in foreign exchange rates of $1.4 million.

The increase in net sales was primarily due to higher volume and demand across a number of end markets, price realization, and incremental one month net sales of $9.1 million or 13.3% from the Hartland acquisition.

Geographic Net Sales Information

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The following table is a summary of the Company’s net sales by geography:

Second Quarter First Six Months

Third Quarter First Nine Months

(in thousands) 2022 2021 Change %

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Total $ 658,880 $ 539,581 $ 119,299 22.1 % $ 1,900,646 $ 1,526,863 $ 373,783 24.5 %

Net sales increased $13.3 million, or 5.6%, in the second quarter of 2022 compared to the second quarter of 2021 and included unfavorable changes in foreign exchange rates of $4.5 million.

The increase in net sales was primarily due to higher volume from the semiconductor business within the Electronics segment and incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment compared to the second quarter of 2021.

Net sales increased $61.4 million, or 13.6%, in the first six months of 2022 compared to the first six months of 2021 and included unfavorable changes in foreign exchange rates of $5.5 million.

The increase in net sales was primarily due to higher volume across all businesses within the Electronics segment and incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment compared to the first six months of 2021.

Net sales increased $67.3 million, or 37.3%, in the second quarter of 2022 compared to the second quarter of 2021 and included unfavorable changes in foreign exchange rates of $0.3 million.

Net sales increased $151.6 million, or 45.5%, in the first six months of 2022 compared to the first six months of 2021 and included unfavorable changes in foreign exchange rates of $0.5 million.

T he increase in net sales was primarily due to incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment and higher volume from all businesses within the Electronics and Industrial segments compared to the first six months of 2021.

Net sales increased $14.4 million, or 13.9%, in the second quarter of 2022 compared to the second quarter of 2021 and included unfavorable changes in foreign exchange rates of $11.6 million.

The increase in net sales was primarily due to increased volume across all businesses within the Electronics segment and incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment compared to the second quarter of 2021.

Net sales increased $41.5 million, or 20.5%, in the first six months of 2022 compared to the first six months of 2021 and included favorable changes in foreign exchange rates of $19.0 million.

Net sales increased $13.1 million, or 5.2%, in the third quarter of 2022 compared to the third quarter of 2021 and included unfavorable changes in foreign exchange rates of $5.9 million.

The increase in net sales was primarily due to incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment, incremental sales from the acquisition of C&K, and higher volume and price realization from the semiconductor business within the Electronics segment, partially offset by lower net sales from electronics products business.

Net sales increased $74.4 million, or 10.6%, in the first nine months of 2022 compared to the first nine months of 2021, and included unfavorable changes in foreign exchange rates of $11.4 million.

The increase in net sales was primarily due to higher volume and price realization across all businesses within the Electronics segment and incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment compared to the first nine months of 2021.

Net sales increased $97.6 million, or 58.3%, in the third quarter of 2022 compared to the third quarter of 2021 and included unfavorable changes in foreign exchange rates of $0.5 million.

The increase in net sales was primarily due to incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment and higher volume and price realization from all businesses within the Electronics including incremental sales from C&K acquisition and higher volume and price realization from all businesses within Industrial segments compared to the third quarter of 2021.

Net sales increased $249.2 million, or 49.8%, in the first nine months of 2022 compared to the first nine months of 2021 and included unfavorable changes in foreign exchange rates of $1.0 million.

T he increase in net sales was primarily due to incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment and higher volume and price realization from all businesses within the Electronics and Industrial segments compared to the first nine months of 2021.

Net sales increased $8.6 million, or 7.1%, in the third quarter of 2022 compared to the third quarter of 2021 and included unfavorable changes in foreign exchange rates of $15.1 million.

The increase in net sales was primarily due to incremental sales from the acquisition of C&K, increased volume from the semiconductor business within the Electronics segment, and incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment compared to the third quarter of 2021.

Net sales increased $50.2 million, or 15.5%, in the first nine months of 2022 compared to the first nine months of 2021 and included unfavorable changes in foreign exchange rates of $34.1 million.

The increase in net sales was primarily due to increased volume across all businesses within the Electronics segment including incremental sales from C&K acquisition, and incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment compared to the first nine months of 2021.

Liquidity and Capital Resources

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Management expects that the Company’s (i) current level of cash, cash equivalents, and marketable securities, (ii) current and forecasted cash flows from operations, (iii) availability under existing funding arrangements, and (iv) access to capital in the capital markets will provide sufficient funds to support the Company’s operations, capital expenditures, investments, and debt obligations on both a short-term and long-term basis.

Cash and cash equivalents were $809.1 million as of July 2, 2022, an increase of $330.6 million as compared to January 1, 2022.

As of July 2, 2022, $532.2 million of the Company's $809.1 million cash and cash equivalents was held by U.S.

Cash and cash equivalents were $474.0 million as of October 1, 2022, a decrease of $4.5 million as compared to January 1, 2022.

As of October 1, 2022, $115.9 million of the Company's $474.0 million cash and cash equivalents was held by U.S.

subsidiaries.

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The Company borrowed $300.0 million under a term loan on June 30, 2022.

The principal balance of the term loans must be repaid in quarterly installments on the last day of each calendar quarter in the amount of $1.9 million commencing September 30, 2022, through June 30, 2024, and in the amount of $3.8 million commencing September 30, 2024, through March 31, 2027, with the remaining outstanding principal balance payable in full on the Maturity Date.

The principal balance of the term loans must be repaid in quarterly installments on the last day of each calendar quarter in the amount of $1.9 million commencing

September 30, 2022, through June 30, 2024, and in the amount of $3.8 million commencing September 30, 2024, through March 31, 2027, with the remaining outstanding principal balance payable in full on the Maturity Date.

Accrued interest on the loans is payable in arrears on each interest payment date applicable thereto and at such other times as may be specified in the Credit Agreement.

Subject to certain conditions, (i) the Company may terminate or reduce the Aggregate Revolving Commitments, as defined in the Credit Agreement, in whole or in part, and (ii) the Company may prepay the revolving loans or the term loans at any time, without premium or penalty.

The revolving loan and term loan balance under the Credit Facility was $100.0 million and $300.0 million, respectively, as of July 2, 2022.

During the three months ended October 1, 2022, the Company paid $1.9 million of term loan.

The revolving loan and term loan balance under the Credit Facility was $100.0 million and $298.1 million, respectively, as of October 1, 2022.

On May 12, 2022, the Company entered into an interest rate swap agreement to manage interest rate risk exposure, effectively converting the interest rate on the Company's SOFR based floating-rate loans to a fixed-rate.

The interest rate swap, with a notional value of $200 million, was designated as a cash flow hedge against the variability of cash flows associated with the Company's SOFR based loans scheduled to mature on June 30, 2027.

As of July 2, 2022, the effective interest rate on revolving loan and term loan outstanding borrowings was 2.875%.

As of July 2, 2022, the Company had no amount outstanding in letters of credit and had available $600.0 million of borrowing capacity under the revolving Credit Facility.

At July 2, 2022, the Company was in compliance with all covenants under the Credit Agreement.

As of October 1, 2022, the effective interest rate on revolving loan and term loan outstanding borrowings was 4.134%.

As of October 1, 2022, the Company had no outstanding in letters of credit under the Credit Facility and had available $600.0 million of borrowing capacity under the revolving Credit Facility.

As of October 1, 2022, the Company was in compliance with all covenants under the Credit Agreement.

On December 8, 2016, the Company entered into a Note Purchase Agreement, pursuant to which the Company issued and sold €212 million aggregate principal amount of senior notes in two series.

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Senior Notes due 2022 and 2027 is payable semiannually on February 15 and August 15, commencing August 15, 2017.

During the six months ended July 2, 2022, the Company paid $25.0 million of U.S.

During the nine months ended October 1, 2022, the Company paid $25.0 million of U.S.

Senior Notes, Series A due on February 15, 2022.

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Senior Notes due 2025 and 2030 is payable semiannually on February 15 and August 15, commencing on August 15, 2018.

On May 18, 2022, the above note purchase agreements were amended to, among other things, update certain terms, including financial covenants to be consistent with the terms of the 2022 Purchase Agreement, as defined below.

On May 18, 2022, the Company entered into a Note Purchase Agreement (“2022 Purchase Agreement”) pursuant to which the Company issued and funded on July 18, 2022 $100 million in aggregate principal amount of 4.33% Senior Notes, due June 30, 2032 (“U.S.

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Debt Covenants

The Company was in compliance with all covenants under the Credit Agreement and Senior Notes as of July 2, 2022 and currently expects to remain in compliance based on management’s estimates of operating and financial results for 2022.

As of July 2, 2022, the Company met all the conditions required to borrow under the Credit Agreement and management expects the Company to continue to meet the applicable borrowing conditions.

On July 19, 2022, t he Company acquired C&K Switches (“C&K”) for $540 million in cash.

The Company was in compliance with all covenants under the Credit Agreement and Senior Notes as of October 1, 2022 and currently expects to remain in compliance based on management’s estimates of operating and financial results for 2022.

As of October 1, 2022, the Company met all the conditions required to borrow under the Credit Agreement and management expects the Company to continue to meet the applicable borrowing conditions.

On July 19, 2022, the Company completed the previously announced acquisition of C&K Switches (“C&K”) for $540 million in cash.

At the time the Company and C&K entered into the definitive agreement, C&K had annualized sales of over $200 million.

The business will be reported as part of the Electronics-Passive Products and Sensors business within the Company's Electronics segment.

The Company financed the transaction through a combination of cash on hand and debt.

During the second quarter of 2022 the Company paid quarterly dividends of $26.2 million to the shareholders.

The business is reported as part of the Electronics-Passive Products and Sensors business within the Company's Electronics segment.

The Co mpany financed the transaction through a combination of cash on hand and debt.

During the third quarter of 2022 the Company paid quarterly dividends of $41.1 million to the shareholders.

On November 1, 2022, the Board of Directors of the Company declared quarterly cash dividend of $0.60 per share, payable on December 8, 2022 to stockholders of record as of November 24, 2022.

Cash Flow Overview

First Six Months

First Nine Months

(in thousands) 2022 2021

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Effect of exchange rate changes on cash, cash equivalents, and restricted cash (31,963) (5,832)

Increase (decrease) in cash, cash equivalents, and restricted cash 329,461 (65,671)

(Decrease) increase in cash, cash equivalents, and restricted cash (6,581) 8,344

Cash, cash equivalents, and restricted cash at beginning of period 482,836 687,525

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Operating cash outflows are largely attributable to recurring expenditures for raw materials, labor, rent, interest, taxes and other operating activities.

Net cash provided by operating activities was $165.3 million for the six months ended July 2, 2022 as compared to $126.3 million for the six months ended June 26, 2021.

The increase in net cash provided by operating activities was primarily due to

higher cash earnings, partially offset by increases in working capital resulting from higher sales growth and higher annual incentive bonus payments made in 2022 as compared to 2021.

Net cash provided by operating activities was $313.4 million for the nine months ended October 1, 2022 as compared to $240.7 million for the nine months ended September 25, 2021.

Cash Flow from Investing Activities

Net cash used in investing activities was $65.4 million for the six months ended July 2, 2022 compared to $139.9 million during the six months ended June 26, 2021.

Net cash paid for acquisitions was $9.8 million and $109.9 million for the six months ended July 2, 2022 and June 26, 2021, respectively.

Net cash used in investing activities was $610.0 million for the nine months ended October 1, 2022 compared to $165.6 million during the nine months ended September 25, 2021.

Net cash paid for acquisitions was $532.8 million and $110.6 million for the nine months ended October 1, 2022 and September 25, 2021, respectively.

Capital expenditures were $77.8 million, representing an increase of $20.2 million compared to 2021.

During six months ended July 2, 2022 and June 26, 2021, the Company received proceeds of $0.5 million from the sale of a property within the Transportation segment and $2.6 million from the sale of a property within the Electronics segment, respectively.

During nine months ended October 1, 2022 and September 25, 2021, the Company received proceeds of $0.6 million from the sale of a property within the Transportation segment and $2.6 million from the sale of a property within the Electronics segment, respectively.

Cash Flow from Financing Activities

Net cash used in financing activities was $245.0 million for the six months ended July 2, 2022 compared to $49.2 million for the six months ended June 26, 2021.

Net cash provided by financing activities was $321.9 million for the nine months ended October 1, 2022 compared to net cash used in financing activities $60.9 million for the nine months ended September 25, 2021.

On July 18, 2022, the Company issued and funded $100 million in aggregate principal amount of 4.33% U.S.

Senior Notes, due 2032.

On June 30, 2022, the Company amended its Credit Agreement and borrowed of $300.0 million through a term loan.

During the six months ended July 2, 2022, the Company paid $25.0 million of U.S.

Senior Notes, Series A due on February 15, 2022.

During the six months ended June 26, 2021, the Company made payments of $30.0 million on the amended revolving credit facility.

Additionally, the Company paid dividends $26.2 million and $23.6 million in the six months ended July 2, 2022 and June 26, 2021, respectively.

During the nine months ended October 1, 2022, the Company paid $25.0 million of U.S.

Senior Notes, Series A due on February 15, 2022 and $1.9 million on the term loan.

During the nine months ended September 25, 2021, the Company made payments of $30.0 million on the

amended revolving credit facility.

Additionally, the Company paid dividends $41.1 million and $36.6 million in the nine months ended October 1, 2022 and September 25, 2021, respectively.

Share Repurchase Program

On April 28, 2021, the Company announced that the Board of Directors authorized a new three year program to repurchase up to $300.0 million in the aggregate of shares of the Company’s common stock for the period May 1, 2021 to April 30, 2024 to replace its previous 2020 program.

The Company did not repurchase any shares of its common stock for the three and six months ended July 2, 2022, and June 26, 2021.

The Company did not repurchase any shares of its common stock for the three and nine months ended October 1, 2022, and September 25, 2021.

Off-Balance Sheet Arrangements

As of July 2, 2022, the Company did not have any off-balance sheet arrangements, as defined under SEC rules.

As of October 1, 2022, the Company did not have any off-balance sheet arrangements, as defined under SEC rules.

Specifically, the Company was not liable for guarantees of indebtedness owed by third parties, the Company was not directly liable for the debt of any unconsolidated entity and the Company did not have any retained or contingent interest in assets.

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The significant accounting policies and critical accounting estimates are consistent with those discussed in Note 1, Summary of Significant Accounting Policies and Other Information, to the consolidated financial statements and the MD&A section of the Company’s Annual Report on Form 10-K for the year ended January 1, 2022.

During the six months ended July 2, 2022, there were no significant changes in the application of critical accounting policies.

During the nine months ended October 1, 2022, there were no significant changes in the application of critical accounting policies.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of the Company's Annual Report on Form 10-K for the year ended January 1, 2022.

During the six months ended July 2, 2022, there have been no material changes in the Company's exposure to market risk.

During the nine months ended October 1, 2022, there have been no material changes in the Company's exposure to market risk.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis