What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-16 compared with 2022-02-17 · 240 added, 209 removed, 390 unchanged (54% of the section changed)

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2022 EXECUTIVE OVERVIEW

Net sales increased by $634.2 million or 43.9% including $27.4 million or 1.9% of favorable changes in foreign exchange rates in 2021 compared to 2020.

The increase was due to volume growth across all segments and businesses while 2020 had temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19.

The increase was due to higher sales of $363.0 million, $138.9 million, and $132.3 million in the Electronics, Industrial, and Transportation segments, respectively, driven by higher volumes across all businesses within these segments.

The volume increase within the Electronics segment was led by broad-based demand across electronics, transportation and industrial end markets.

The increase with the Industrial segment was primarily due to $100.5 million of net sales resulting from the Hartland acquisition and volume growth across all businesses within the Industrial segment.

The increase within the Transportation segment was due to volume growth driven by higher demand in the global auto and commercial vehicle markets, greater content growth across passenger vehicles due to vehicle mix, including growth in electric vehicles and some customers maintaining additional inventory of our products, and $15.3 million of net sales resulting from the Carling acquisition.

Net sales were $2,513.9 million, which increased by $434.0 million or 20.9% in 2022 compared to 2021.

The increase was primarily driven by higher volume and price realization in the Electronics and Industrial segments, $202.8 million or 9.8% of incremental net sales from the Carling acquisition within the Transportation segment and $81.7 million or 3.9% of net sales from the C&K acquisition within the Electronics segment, partially offset by $65.3 million or 3.1% of unfavorable changes in foreign exchange rates.

The Company recognized net income of $373.3 million, or $14.94 per diluted share, in 2022 compared to net income of $283.8 million, or $11.38 per diluted share in 2021.

The increase in net income reflects higher operating income of $223.3 million driven by a $156.9 million increase in operating income in the Electronics segment, the 2020 goodwill impairment charge of $33.8 million, a $24.3 million increase in operating income in the Transportation segment partially offset by higher foreign exchange losses of $32.0 million and a $19.9 million non-cash pension settlement charge associated with the completion of the buy-out of one of our U.K.

pension plans.

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

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

Net cash provided by operating activities was $373.3 million for the fiscal year ended January 1, 2022 representing an increase of $115.3 million as compared to the fiscal year ended December 26, 2020.

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.

On January 28, 2021, the Company acquired Hartland Controls, a manufacturer and leading supplier of electrical components used primarily in HVAC and other industrial and control systems applications.

At the time of acquisition, Hartland had annualized sales of approximately $70 million.

The purchase price for Hartland was $111.0 million and the operations of Hartland are included in the Industrial segment.

On November 30, 2021, the Company acquired Carling, a leader in switching, circuit protection and power distribution technologies with a strong global presence in commercial transportation, communications infrastructure and marine markets.

At the time of acquisition, Carling had annualized sales of approximately $170 million.

The purchase price for Carling was approximately $315 million and the operations of Carling are included in the Transportation segment.

The increase in net income is primarily due to an increase in operating income of $122.0 million and $26.2 million in the Electronics and Industrial segments, respectively, partially offset by higher interest expense of $7.7 million and foreign exchange losses of $7.2 million.

Supply chain constraints, including material shortages and transportation capacity and costs impacted the Company, its suppliers and customers during the first half of 2022 and to a lesser extent during the second half of 2022.

The Company expects to see continued improvement in supply chain availability during 2023.

Net cash provided by operating activities was $419.7 million for the fiscal year ended December 31, 2022 representing an increase of $46.4 million as compared to the fiscal year ended January 1, 2022.

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 larger annual incentive bonus payments made in 2022 as compared to 2021.

On June 30, 2022, the Company amended and restated its Credit Agreement, dated as of April 3, 2020 (as so amended and restated, 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 February 3, 2023, the Company acquired Western Automation Research and Development Limited (“Western Automation”) for approximately $162 million in cash.

Headquartered in Galway, Ireland, Western Automation is a designer and manufacturer of electrical shock protection devices used across a broad range of high-growth end markets, including e-Mobility off-board charging infrastructure, industrial safety and renewables.

Western Automation has annualized sales of approximately $25 million and will be reported within the company’s Industrial segment.

The company does not expect the acquisition to have a material impact to its 2023 financial results.The Company financed the transaction with cash on hand.

On July 19, 2022, the Company acquired 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, datacom, and aerospace.

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

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.

Impact of COVID-19 on Business

The effects from COVID-19 continue to drive increased costs, though less than net costs incurred in 2020.

Ongoing costs include 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 2021, all of our manufacturing facilities were operational and were generally running at normal capacity levels.

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

It is currently difficult to estimate the magnitude of the COVID-19 disruption, if future disruptions will occur due to a resurgence in COVID-19 cases and its impact on our employees, customers, suppliers and vendors.

The Company will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and other stakeholders, or as required by federal, state, or local authorities.

It is not clear what the potential effects any such alterations or modifications may have on our business and operations, including the effects on our customers, employees, and prospects, or on our financial results for the fiscal year 2022.

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.

Although COVID-19 had less of an effect on fiscal year 2022 as compared to fiscal year 2021, it is difficult to estimate the ongoing magnitude of future COVID-19 disruptions, and its potential impact on the Company's employees, customers, suppliers and vendors.

The Company will continue to actively monitor the situation and may take further actions altering its business operations that the Company determines are in the best interests of its employees, customers, partners, suppliers, and other stakeholders, or as required by federal, state, or local authorities.

It is not clear what the potential effects any such alterations or modifications may have on the Company's business and operations, including the effects on its customers, employees, and prospects, or on the Company's financial results for the fiscal year 2023.

Risks Related to Market Conditions

The Company continues to operate in a more volatile macro environment, including events related to the war in Ukraine.

Although the Company does not have any direct operations in Ukraine or Russia, it had a modest impact on the Company, including higher transportation costs due to the Company modifying its shipping logistics as well as suspending sales into and purchases from Russia.

Additionally, the war impacted some of the Company's customers who had lower production levels during 2022 due to shut-downs and ongoing material shortages.

Vision and Strategy

The Company closely collaborates with strategic customers to design and manufacture innovative and reliable solutions to help empower a sustainable, connected, and safer world in virtually every market that uses electrical energy.

Within transportation end markets, the Company’s products are found in passenger vehicles and commercial vehicles, like material handling equipment, heavy-duty truck and bus, off-road and recreational vehicles, construction equipment, agricultural machinery, rail and marine.

The Company is also a key enabler of electrification, or eMobility, across these transportation applications, and EV charging infrastructure.

The Company continues to advance its existing customer relationships with OEM, Tier One and channel partners while driving product content growth for advanced, high-growth applications.

Within industrial end markets, the Company’s products are found in renewable energy and energy storage applications, HVAC, factory automation and safety, industrial motor drives and power conversion, and heavy and general industrial type applications.

The Company utilizes its deep technical engineering capabilities and design support to drive product content growth across high-growth applications like renewables, energy storage, HVAC, and industrial automation.

Within electronics end markets, the Company’s products are found in data center, cloud storage and telecom infrastructure applications, building technologies and automation, appliances, mobile electronics, medical devices, and gaming and entertainment applications.

Within industrial end markets, the Company’s products are found in renewable energy and energy storage applications, HVAC, factory automation and industrial safety, industrial motor drives and power conversion, and heavy and general industrial type applications.

Within electronics end markets, the Company’s products are found in data center, cloud storage and telecom infrastructure applications, building technologies and automation, appliances, medical devices, gaming and entertainment applications and mobile electronics.

The Company leverages its strategic distribution partnerships and deep OEM relationships, coupled with its comprehensive product offerings, to drive product content growth across a broad range of applications.

The Company expects the ever-increasing complexity of application architectures, driven by ongoing electronification and electrification across these end markets, to drive increasing product content opportunities.

Built upon that framework, the Company has positioned itself around the structural growth themes of sustainability, connectivity, and safety, which will

continue to drive increased demand for the Company’s innovative, reliable solutions across the transportation, industrial and electronics end markets that it serves.

Built upon that framework, the Company has positioned itself around the structural growth themes of sustainability, connectivity, and safety, which will continue to drive increased demand for the Company’s innovative, reliable solutions across the transportation, industrial and electronics end markets that it serves.

The Company’s five-year strategic plan, built around these structural growth themes, is focused on delivering top-tier shareholder returns by driving double-digit sales growth, best-in-class profitability, earnings per share growth, strong cash flow generation, and deploying capital to drive value creation.

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Strategic Objectives Priorities

Double-digit sales growth ● Increased product content with existing and new customers, and expand market share

5-7% average annual growth from annual organic sales growth ● Expand portfolio into new and underpenetrated, high-growth geographies and end markets

Double-digit sales growth ● Increase product content with existing and new customers, and expand market share

5-7% average annual organic sales growth ● Expand presence (i.e.

with portfolio and infrastructure) into new and underpenetrated, high-growth geographies and end markets

5-7% average annual growth from strategic acquisitions ● Increase innovation capabilities and investments

● Leverage breadth of go-to-market strategies

● Targeted mergers and acquisitions to enhance and sustain organic growth

● Target mergers and acquisitions that enhance and sustain organic growth

EPS growth ● Focus on higher profitability growth opportunities

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Capital allocation and returns ● Disciplined management of working capital

Cash flow from operations less capital expenditures is targeted to approximate or exceed net income

Cash flow from operations less capital expenditures (free cash flow) is targeted to approximate or exceed net income

● Deployment of capital consistent with capital allocation priorities

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● Opportunistic share repurchases

The Company’s strategy is focused on accelerating organic growth by increasing its product content in applications and share gains, enhancing technology efforts to drive innovation, capitalizing on cross segment opportunities, and gaining traction in underpenetrated, high-growth geographies and end markets.

The Company’s strategy is focused on accelerating organic growth by increasing its product content in applications and share gains, enhancing technology efforts to drive innovation, expanding its digital presence, capitalizing on cross segment opportunities, and gaining traction in underpenetrated, high-growth geographies and end markets.

The Company also leverages strategic acquisitions to enhance and sustain its organic growth.

The Company will continue to make targeted strategic acquisitions that align to its strategy and financial metrics to drive growth across its business, products, markets, and technologies while leveraging existing customers and targeting new customers.

Management believes that profitable growth through a combination of organic growth and strategic acquisitions is critical to the Company’s competitiveness, while enhancing value the Company delivers to all of its stakeholders.

In addition, the Company continues to implement initiatives across all platforms to enhance productivity while managing its cost structure to align with business conditions.

Areas of focus include integration of operations and streamlining administrative and support activities to drive improved operating margins.

The Company seeks to deploy its capital consistent with capital allocation priorities.

The Company will continue to make targeted strategic acquisitions that align to its strategy and financial metrics to drive growth across its businesses, products, markets, and technologies while leveraging existing customers and targeting new customers.

Management believes that profitable growth through a combination of organic growth and strategic acquisitions is critical to the Company’s competitiveness, while enhancing the value the Company delivers to all of its stakeholders.

In addition, the Company continues to implement initiatives across all businesses to enhance productivity, and its commercial and operational capabilities, while managing its cost structure to align with business conditions, and the markets it serves.

Primary areas of focus include optimizing its global operations, successfully integrating strategic acquisitions, and streamlining administrative and support activities to drive improved operating margins.

The Company seeks to deploy its capital consistent with its capital allocation priorities.

These priorities include investments to drive increased organic growth, targeted acquisitions that align to the Company’s strategic and financial metrics, and enhance and sustain its organic growth, and returning capital to shareholders through dividends and opportunistic share repurchases.

Critical Estimates and Significant Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of financial statements in conformity with generally accepted accounting principle ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company’s most critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

The Company has identified the following as its most critical accounting policies and judgments.

Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made, and therefore, actual results may differ from these estimates under different assumptions or conditions.

Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made, and therefore, actual results may

differ from these estimates under different assumptions or conditions.

The Company has reviewed these critical accounting policies and related disclosures with the Audit Committee of its Board of Directors.

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In addition, management considers how other key assumptions, including discount rates and expected long-term growth rates, used in the last annual impairment test, could be impacted by changes in market conditions and economic events.

There were no impairment charges recorded during the fiscal years of 2022 and 2021.

During the second quarter of 2020, the Company recorded a non-cash charge of $33.8 million to recognize the impairment of goodwill in the automotive sensors reporting unit within the Transportation segment.

As of January 1, 2022, the automotive sensors reporting unit had $9.2 million of remaining goodwill.

Quantitative Assessment for Impairment

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If the carrying value of a reporting unit exceeds the estimated fair value, the difference between the estimated fair value and carrying value is recorded as the amount of the goodwill impairment charge.

The results of the goodwill impairment test as of September 26, 2021 indicated that the estimated fair values for each of the seven reporting units exceeded their respective carrying values.

The results of the goodwill impairment test as of October 2, 2022 indicated that the estimated fair values for each of the seven reporting units exceeded their respective carrying values.

Accordingly, there were no goodwill impairment charges recorded as part of the Company’s 2022 annual goodwill impairment test.

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All seven of the reporting units passed the goodwill impairment test, with fair values that exceeded the carrying values between 42% and 191% of their respective estimated fair values.

As of the most recent annual test conducted on September 26, 2021, the Company noted that the excess of fair value over the carrying value was 380%, 104%, 255%, 217%, 95%, 144%, and 231% f or its reporting units:

As of the most recent annual test conducted on October 2, 2022, the Company noted that the

excess of fair value over the carrying value was 151%, 66%, 98%, 42%, 44%, 57%, and 191% for its reporting units:

Electronics-Passive Products and Sensors, Electronics-Semiconductor, Passenger Car Products, Commercial Vehicle Products, Automotive Sensors, Relays, and Power Fuse, respectively.

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Of the other key assumptions that impact the estimated fair values, most reporting units have the greatest sensitivity to changes in the estimated discount rate.

The estimated discount rate was 8.9% for the Electronics-Passive Products and Sensors and the Passenger Car Products reporting units, 9.9% for the Electronics-Semiconductor, Commercial Vehicle Products and the Automotive Sensors reporting units, 10.9% for the Power Fuse reporting unit and 11.9% for the Relays reporting unit.

The estimated discount rate was 13.4% for the Electronics-Passive Products and Sensors, the Passenger Car Products, and Commercial Vehicle Products reporting units, 14.3% for the Electronics-Semiconductor reporting unit, and 15.2% for each of the Automotive Sensors, Power Fuse and Relays reporting units.

A 1.0% increase in the estimated discount rates would have resulted in no reporting units failing the annual goodwill impairment test.

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subsidiaries and included base broadening provisions commonly referred to as the global intangible low-taxed income provisions ("GILTI").

In accordance with guidance issued by the FASB staff, the Company has adopted an accounting policy to treat any GILTI inclusions as a period cost if and when incurred.

Thus, for the fiscal years ended January 1, 2022 , December 26, 2020, and

December 28, 2019 , deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.

In accordance with guidance issued by the Financial Accounting Standards Board ("FASB") staff, the Company has adopted an accounting policy to treat any GILTI inclusions as a period cost if and when incurred.

Thus, for the fiscal years ended December 31, 2022 , January 1, 2022, and December 26, 2020 , deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.

Further information regarding income taxes, including a detailed reconciliation of current year activity, is provided in Note 14, Income Taxes , of the Notes to Consolidated Financial Statements included in this Annual Report.

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Revenue Disaggregation

The following table disaggregates the Company’s revenue by primary business units for the fiscal years ended January 1, 2022 and December 26, 2020:

Fiscal Year Ended January 1, 2022

The following table disaggregates the Company’s revenue by primary business units for the fiscal years ended December 31, 2022 and January 1, 2022:

Fiscal Year Ended December 31, 2022

(in thousands) Electronics

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Electronics – Passive Products and Sensors 690,538 — — 690,538

Passenger Car Products — 266,020 — 266,020

Commercial Vehicle Products — 374,707 — 374,707

Passenger Car Products — 249,470 — 249,470

Automotive Sensors — 91,963 — 91,963

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Total $ 1,492,819 $ 716,140 $ 304,938 $ 2,513,897

Fiscal Year Ended December 26, 2020

Fiscal Year Ended January 1, 2022

(in thousands) Electronics

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As the Company’s standard payment terms are less than one year, the Company has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component.

The Company also elected the practical expedient provided in ASC 606-10-25-18B to treat all product shipping and handling activities as fulfillment activities, and therefore recognize the gross revenue associated with the contract, inclusive of any shipping and handling revenue.

The Company also elected the practical expedient provided in ASC 606-10-25-18B to treat all product shipping and handling activities as fulfillment

activities, and therefore recognize the gross revenue associated with the contract, inclusive of any shipping and handling revenue.

Ship and Debit Program

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When the Company approves such a reduction, the distributor is authorized to “debit” its account for the difference between the contracted price and the lower approved price.

The Company establishes reserves for this program based on historic activity, electronic distributor inventory levels and actual authorizations for the debit and recognizes these debits as a reduction of revenue.

The Company establishes reserves for this program based on historic activity, distributor inventory levels and actual authorizations for the debit and recognizes these debits as a reduction of revenue.

Return to Stock

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The Company estimates the projected amount of rebates that will be achieved by the customer and recognizes this estimated cost as a reduction to revenue as products are sold.

Allowance for Doubtful Accounts

Allowance for Credit Losses

The Company currently measures the expected credit losses based on our historical credit loss experience.

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The Company also analyzes all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and historical collection and loss experience.

Historically, the allowance for doubtful accounts has been adequate to cover bad debts.

Historically, the allowance for credit losses has been adequate to cover bad debts.

If circumstances related to specific customers change, the estimates of the recoverability of receivables could be further adjusted.

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When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition.

If the carrying value of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying value over its fair value.

If the carrying value of an asset exceeds its estimated future

undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying value over its fair value.

For the fiscal year ended December 31, 2022, the Company recorded a $2.9 million non-cash impairment charge for certain acquired technology and patent intangible assets due to a change in use and projected cash flows within the Electronics segment.

Additionally, the Company recorded a non-cash impairment charge of $1.7 million for certain machinery and equipment within the Electronics segment due to a decision to cease further production of a product line during the fourth quarter of 2022.

For the fiscal year ended December 26, 2020, the Company recognized a $2.2 million impairment charge related to the land and building associated with the Company’s announced consolidation of a manufacturing facility within the Industrial segment.

For the year-ended December 28, 2019, the Company recognized non-cash impairment charges of $0.3 million for certain machinery and equipment related to the closure of a European manufacturing facility in the automotive sensors business within the Transportation segment.

Environmental Liabilities

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The expected returns on plan assets and discount rates are determined based on each plan’s investment approach, local interest rates and plan participant profiles.

The weighted-average discount rates for the Company’s defined benefit plans primarily in Europe and the Asia-Pacific regions at January 1, 2022 and December 26, 2020 were 3.1% and 1.2%, respectively.

A 50 basis point change in the discount rates at January 1, 2022 would have the following effect on the projected benefit obligation:

The weighted-average discount rates for the Company’s defined benefit plans primarily in Europe and the Asia-Pacific regions at December 31, 2022 and January 1, 2022 were 5.8% and 3.1%, respectively.

A 50 basis point change in the discount rates at December 31, 2022 would have the following effect on the projected benefit obligation:

(in millions) 0.5%

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Projected benefit obligation $ (3.4) $ 3.6

On April 7, 2020, the Company entered into a definitive agreement to purchase a group annuity contract, under which an insurance company will be required to directly pay and administer pension payments to certain of the Company’s U.K.

On April 7, 2020, the Company entered into a definitive agreement to purchase a group annuity contract, under which an insurance company is required to directly pay and administer pension payments to certain of the Company’s U.K.

pension plan participants, or their designated beneficiaries.

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pension plan during the fourth quarter of 2021 and as a result recorded a non-cash pension settlement charge of $19.9 million (£14.9 million), inclusive of the accelerated recognition of prior service cost of $0.5 million (£0.4 million).

The purchase of this group annuity contract reduced the Company’s outstanding pension benefit obligation by $47.1 million, representing 35% of the total obligation of the Company’s qualified pension plans.

Equity-based Compensation

Equity-based compensation expense is recorded for stock-option awards and restricted share units based upon the fair values of the awards.

The fair value of stock-option awards is estimated at the grant date using the Black-Scholes option pricing model,

which includes assumptions for volatility, expected term, risk-free interest rate and dividend yield.

The fair value of stock-option awards is estimated at the grant date using the Black-Scholes option pricing model, which includes assumptions for volatility, expected term, risk-free interest rate and dividend yield.

Expected volatility is based on implied volatilities from traded options on Littelfuse stock, historical volatility of Littelfuse stock and other factors.

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This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and related notes.

RESULTS OF OPERATIONS FOR THE YEAR ENDED JANUARY 01, 2022 AS COMPARED TO THE YEAR ENDED DECEMBER 26, 2020

The fiscal year 2021 included approximately $12.6 million of non-segment charges, of which $8.4 million relates to purchase accounting inventory step-up charges, $7.0 million of acquisition-related and integration charges related to the Carling and Hartland acquisitions and other contemplated acquisitions, and $2.2 million of restructuring, impairment and other charges, primarily related to employee termination costs.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2022 AS COMPARED TO THE YEAR ENDED JANUARY 01, 2022

Fiscal year 2022 included $43.2 million of non-segment charges, of which $17.6 million related to legal and professional fees and other integration expenses primarily associated with the C&K and Carling acquisitions and other contemplated acquisitions, $15.6 million of purchase accounting inventory step-up charges, and $10.0 million of restructuring, impairment and other charges, primarily related to employee termination costs and a $2.9 million intangible asset impairment charge within the Electronics segment in the fourth quarter of 2022.

See Note 8, Restructuring, Impairment and Other Charges, for further discussion.

Fiscal year 2021 included $12.6 million of non-segment charges, of which $8.4 million relates to purchase accounting inventory step-up charges, $7.0 million of acquisition-related and integration charges related to the Carling and Hartland acquisitions and other contemplated acquisitions, and $2.2 million of restructuring, impairment and other charges, primarily related to employee termination costs.

See Note 8, Restructuring, Impairment and Other Charges , for further discussion.

Additionally, partially offsetting the above amounts was a gain of $5.0 million recorded for the sale of buildings within the Electronics segment.

The fiscal year 2020 included approximately $44.0 million of non-segment charges, of which $2.3 million of charges are acquisition-related and integration charges related to the IXYS acquisition and other contemplated acquisitions.

In addition, there were $41.7 million of restructuring, impairment and other charges, primarily related to the goodwill impairment charge of $33.8 million recorded in the second quarter associated with the automotive sensors reporting unit within the Transportation segment, employee termination costs of $5.5 million, $2.2 million of impairment charges recorded in the first quarter associated with the announced consolidation of a manufacturing facility within the Industrial segment and other restructuring charges of $0.2 million.

Fiscal year 2021 also included approximately $17.2 million in foreign currency exchange losses primarily attributable to changes in the value of the Euro, Chinese renminbi, Mexican peso, and Philippine peso against the U.S.

dollar, while fiscal year 2020 included approximately $14.9 million in foreign currency exchange gains primarily attributable to changes in the value of the Euro, Philippine peso, and Chinese renminbi against the U.S.

Fiscal year 2022 also included approximately $24.4 million in foreign currency exchange losses primarily attributable to changes in the value of the Euro, Philippine peso, Sterling, and Chinese renminbi against the U.S.

dollar, while fiscal year 2021 included approximately $17.2 million in foreign currency exchange losses primarily attributable to changes in the value of the Euro, Chinese renminbi, Mexican peso, and Philippine peso against the U.S.

(in thousands, except % change) 2022 2021 Change % Change

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Operating income 500,826 385,642 115,184 29.9 %

Other expense (income), net 8,932 (5,083) 14,015 (275.7) %

Other expense, net 7,207 8,932 (1,725) (19.3) %

Income before income taxes 443,044 341,025 102,019 29.9 %

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Net income 373,306 283,806 89,500 31.5 %

Net sales increased $634.2 million or 43.9% including $27.4 million or 1.9% of favorable changes in foreign exchange rates for 2021 compared to 2020.

The increase was due to higher sales of $363.0 million, $138.9 million, and $132.3 million in the Electronics, Industrial, and Transportation segments, respectively, primarily driven by higher volumes across all businesses within these segments.

The volume increase within the Electronics segment was led by broad-based demand across electronics, transportation and industrial end markets.

The increase within the Industrial segment was primarily due to $100.5 million of net sales resulting from the Hartland acquisition and volume growth across all businesses within the Industrial segment.

Net sales were $2,513.9 million, which increased $434.0 million, or 20.9% compared to 2021, including $202.8 million or 9.8% of incremental net sales within the Transportation segment from the Carling acquisition and $81.7 million or 3.9% of net sales within the Electronics segment from the C&K acquisition, partially offset by $65.3 million or 3.1% of unfavorable changes in foreign exchange rates for 2022 compared to 2021.

The remaining increase of $110.3 million in the Electronics segment was due to higher volume and price realization across numerous end markets while the Industrial segment increased $53.8 million as a result of higher volume and price realization.

Cost of Sales

Cost of sales was $1,507.0 million, or 59.9% of net sales, in 2022, compared to $1,308.0 million, or 62.9% of net sales, in 2021.

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

As a percent of net sales, cost of sales decreased 2.4% driven by volume leverage, partially offset by higher transportation , duty and tariff charges of 2.2%, the purchase accounting inventory charges of $8.4 million or 0.4% resulting from the Hartland and Carling acquisitions, and higher material costs.

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 3.0% driven by volume leverage, partially offset by higher purchase accounting inventory charges of $7.2 million or 0.2% compared to 2021.

Gross profit was $1,006.9 million, or 40.1% of net sales, in 2022, compared to $771.9 million, or 37.1% of net sales, in 2021.

The $270.8 million increase in gross profit was primarily due to higher volume across all segments while 2020 had additional costs associated with government-directed plant shutdowns and supply chain constraints.

The increase in gross margin of 2.4% was primarily driven by volume leverage and favorable product mix within the Electronics segment, partially offset by higher transportation , duty and tariff charges as a percent of net sales of 2.2%, the purchase accounting inventory charges of $8.4 million or 0.4%, and higher material costs.

The $235.0 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 3.0% was primarily driven by volume leverage and price realization, partially offset by higher purchase accounting inventory charges of $7.2 million or 0.2% compared to 2021.

Operating Expenses

Total operating expenses were $506.1 million, or 20.1% of net sales, for 2022 compared to $386.3 million, or 18.6% of net sales, for 2021.

The increase in operating expenses of $47.5 million is primarily due to higher selling, general, and administrative expenses of $71.0 million largely due to higher accrued incentive compensation, the Hartland and Carling acquisitions and higher acquisition-related and integration charges of $4.7 million, and higher research and development expenses of $13.4 million, partially offset by the 2020 goodwill impairment charge of $33.8 million, or 2.3% of net sales, in the automotive sensors reporting unit within the Transportation segment and impairment charges of $2.2 million related to the Company’s 2020 first quarter announcement to consolidate a manufacturing facility within the Industrial segment.

The increase in operating expenses of $119.8 million was primarily due to higher selling, general, and administrative expenses, which increased by $69.4 million, research and development expenses, which increased by $29.7 million and increased amortization expense of $13.0 million and acquisition-related expenses of $10.6 million largely due to the Carling and C&K acquisitions.

Operating Income

Operating income for 2022 was $500.8 million , an increase of $115.2 million or 29.9% compared to $385.6 million for 2021.

The increase in operating income was primarily due to higher gross margin across all segments, led by the Electronics segment partially offset by higher operating expenses noted above.

Operating margins increased from 11.2% in 2020 to 18.5% in 2021 primarily driven by the factors mentioned above.

The 2020 goodwill impairment charge of $33.8 million negatively impacted the 2020 operating margin by 2.3%.

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

Operating margins increased from 18.5% in 2021 to 19.9% in 2022 primarily driven by higher operating income in the Electronics segment of $122.0 million.

Income Before Income Taxes

Income before income taxes for 2022 was $443.0 million, or 17.6% of net sales compared to $341.0 million, or 16.4% of net sales, for 2021.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was impacted by foreign exchange losses of $17.2 million during the fiscal year ended January 1, 2022 compared to foreign exchange gains of $14.9 million during the fiscal year ended December 26, 2020, and a $19.9 million non-cash pension settlement charge, partially of fset by a $4.0 million increase in unrealized investment gains associated with our equity investment, and lower interest expense of $2.6 million due to lower outstanding borrowings under the credit facility along with a lower effective interest rate and a reduction in coal mining charges of $1.6 million compared to 2020.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was impacted by $14.0 million of unrealized losses during 2022 compared to unrealized gains of $8.8 million during 2021 related to the Company's equity investment, higher interest expense of $7.7 million due to an increase in borrowings outstanding, and higher foreign exchange losses of $7.2 million compared to 2021, partially offset by a $19.9 million non-cash pension settlement charge recognized in 2021.

Income tax expense for 2022 was $69.7 million, or an effective tax rate of 15.7%, compared to income tax expense of $57.2 million, or an effective tax rate of 16.8% for 2021.

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losses and expenses with no tax benefit.

The effective tax rate for 2021 is lower than the effective tax rate for 2020, primarily due to an increase in the income earned in lower tax jurisdictions in 2021 as compared to 2020, as well as the impact of the goodwill impairment charge of $33.8 million recorded in 2020, the substantial majority of which did not result in a tax benefit.

The effective tax rate for 2022 is lower than the effective tax rate for 2021, primarily due to one-time tax benefits resulting from losses on investments in the stock of two of the Company's affiliates.

Further information regarding these items is provided in Note 14, Income Taxes , of the Notes to Consolidated Financial Statements included in this Annual Report.

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Electronics Segment

Net sales for the Electronics segment increased $363.0 million, or 38.7%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $14.5 million or 1.5%.

The sales increase was primarily due to increased volume for the electronics and semiconductor products businesses of $206.5 million and $156.5 million, respectively.

The volume increases were driven by broad-based demand across electronics, transportation and industrial end markets while 2020 were negatively impacted by production disruptions and temporary plant shutdowns due to the impact of COVID-19.

Net sales for the Electronics segment increased $192.1 million, or 14.8%, in 2022 compared to 2021 and included unfavorable changes in foreign exchange rates of $37.1 million or 2.9%.

The sales increase was $123.4 million for the semiconductor products business and $68.7 million in the electronics products business, primarily driven by increased volume and price realization.

The sales increase in electronics products business also included the incremental $81.7 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 in the Transportation segment increased $132.3 million, or 33.4%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $12.0 million or 3.0%.

The sales increase was due to higher volume in passenger car products, commercial vehicle products, and the automotive sensors businesses of $65.6 million, $59.0 million, and $7.8 million, respectively, including the incremental net sales of $ 15.3 million from the Carling acquisition within the commercial vehicle products business.

These increases were due to volume growth driven by higher demand in the global auto and commercial vehicle markets, greater content growth across passenger vehicles due to vehicle mix, including growth in electric vehicles and some customers maintaining additional inventory of our products as compared to 2020, which had production disruptions and temporary plant shutdowns due to the impact of COVID-19.

Net sales in the Transportation segment increased $188.1 million, or 35.6%, in 2022 compared to 2021 and included unfavorable changes in foreign exchange rates of $26.0 million or 4.9%.

The sales increase was primarily due to the incremental sales of $202.8 million from the Carling acquisition.

Net sales in the commercial vehicle business increased by $214.4 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 $16.6 million and $9.8 million, respectively.

The decreases were primarily driven by unfavorable changes in foreign exchange rates, certain automotive customers rebalancing their inventory levels of the Company's products, and supply chain constraints, partially offset by greater content growth from vehicle mix and electric vehicles.

Industrial Segment

The Industrial segment net sales increased by $138.9 million, or 123.8%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $0.9 million or 0.8%.

The increase in net sales was primarily due to the incremental net sales of $100.5 million or 90% from the Hartland acquisition, growth across all product lines, and the transfer of the temperature sensor product line totaling $4.7 million which was previously reported in the Electronics segment and moved to Industrial segment in the third quarter of 2020.

Additionally, 2020 was negatively impacted by production disruptions and temporary plant shutdowns due to the impact of COVID-19.

The Industrial segment net sales increased by $53.8 million, or 21.4%, in 2022 compared to 2021 and included unfavorable changes in foreign exchange rates of $2.2 million or 0.9%.

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 3.6% from the Hartland acquisition.

Geographic Net Sales Information

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Total $ 2,513.9 $ 2,079.9 $ 434.0 20.9 %

Asia-Pacific net sales increased $285.2 million, or 42.5%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $12.5 million.

The increase in net sales was primarily due to higher volume across all segments and businesses compared to 2020 that had production disruptions due to the impact of COVID-19.

Net sales in the Americas increased $236.5 million, or 51.7%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $0.7 million.

The increase in net sales was primarily due to incremental sales from the Hartland and Carling acquisitions, higher volume across all segments and businesses compared to 2020 that had production disruptions due to the impact of COVID-19.

European net sales increased $112.5 million, or 35.4%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $14.2 million.

The increase in net sales was primarily due to higher volume across all businesses within the Electronics and Transportation segments compared to the 2020 that had production disruptions due to the impact of COVID-19.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 26, 2020 AS COMPARED TO THE YEAR ENDED DECEMBER 28, 2019

Asia-Pacific net sales increased $64.2 million, or 6.7%, in 2022 compared to 2021 and included unfavorable changes in foreign exchange rates of $18.4 million.

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

Net sales in the Americas increased $298.0 million, or 42.9%, in 2022 compared to 2021 and included unfavorable changes in foreign exchange rates of $1.4 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, higher volume and price realization from all businesses within the Electronics segment including incremental sales from the C&K acquisition and higher volume and price realization from the Industrial segment compared to 2021.

European net sales increased $71.8 million, or 16.7%, in 2022 compared to 2021 and included unfavorable changes in foreign exchange rates of $45.5 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 2021.

RESULTS OF OPERATIONS FOR THE YEAR ENDED JANUARY 01, 2022 AS COMPARED TO THE YEAR ENDED DECEMBER 26, 2020

Fiscal year 2021 included approximately $12.6 million of non-segment charges, of which $8.4 million relates to purchase accounting inventory step-up charges, $7.0 million of acquisition-related and integration charges related to the Carling and Hartland acquisitions and other contemplated acquisitions, and $2.2 million of restructuring, impairment and other charges, primarily related to employee termination costs.

See Note 8, Restructuring, Impairment and Other Charges, for further discussion.

The fiscal year 2019 included approximately $21.9 million of non-segment charges, of which $8.9 million of charges are acquisition-related and integration charges primarily related to the IXYS acquisition and other contemplated acquisitions, and $13.0 million of restructuring charges primarily related to employee termination costs.

Fiscal year 2020 also included approximately $14.9 million in foreign currency exchange gains primarily attributable to changes in the value of the Euro, Philippine peso, and Chinese renminbi against the U.S.

dollar, while fiscal year 2019 included approximately $5.2 million in foreign currency exchange losses primarily attributable to changes in the value of the Euro, Chinese renminbi, and Japanese yen against the U.S.

Additionally, partially offsetting the above amounts was a gain of $5.0 million recorded for the sale of buildings within the Electronics segment.

Fiscal year 2020 included approximately $44.0 million of non-segment charges, of which $2.3 million of charges are acquisition-related and integration charges related to the IXYS acquisition and other contemplated acquisitions.

(in thousands, except % change) 2021 2020 Change % Change

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Operating income 385,642 162,372 223,270 137.5 %

Other income, net (5,083) (583) (4,500) 771.9 %

Other expense (income), net 8,932 (5,083) 14,015 (275.7) %

Income before income taxes 341,025 161,253 179,772 111.5 %

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Net income 283,806 129,986 153,820 118.3 %

Net sales of $1,445.7 million decreased $58.2 million, or 3.9%, for 2020 compared to the prior year primarily due to lower volume in the Transportation and Electronics segments which had net sales decreases of $32.7 million and $23.4 million, respectively, partially offset by $7.7 million or 0.5% of favorable changes in foreign exchange rates.

These decreases were primarily driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 and a decline in global auto production driven by the temporary closures of customer manufacturing facilities during the first half of 2020.

These sales declines were partially offset by increases in customer demand for consumer devices for work from home needs and strength in various end market demand across all businesses in the second half of the year.

All businesses within the Transportation segment experienced lower sales in 2020 due to the production disruptions in the first half of 2020 mentioned above, which was partially offset in the second half of the year, driven by stronger end market demand.

Net sales increased $634.2 million or 43.9% including $27.4 million or 1.9% of favorable changes in foreign exchange rates for 2021 compared to 2020.

The volume increase within the Electronics segment was led by broad-based demand across electronics, transportation and industrial end markets.

The increase within the Industrial segment was primarily due to $100.5 million of net sales resulting from the Hartland acquisition and volume growth within the Industrial segment.

Cost of Sales

Cost of sales was $1,308.0 million, or 62.9% of net sales, in 2021, compared to $944.5 million, or 65.3% of net sales, in 2020.

The decrease in cost of sales was primarily due to lower volume in the Electronics and Transportation segments driven by the factors discussed above.

As a percent of net sales, cost of sales increased 1.6% driven by higher freight costs of $5.6 million, additional costs associated with government-directed plant shutdowns and supply chain constraints, supplies and other costs due to the impact of COVID-19, and unfavorable product mix.

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

Gross profit was $771.9 million, or 37.1% of net sales, in 2021, compared to $501.2 million, or 34.7% of net sales, in 2020.

The decrease of $45.1 million in gross profit reflected lower volume across all segments driven by the disruption across all segments

due to temporary closures of manufacturing facilities in the first half of the year resulting from government directives due to the impact of COVID-19.

The decrease in gross margin of 1.6% was primarily from the lower volume mentioned previously, unfavorable price and product mix primarily in the Industrial segment.

Additionally, higher freight cost of $5.6 million, costs associated with government-directed plant shutdowns and supply chain constraints, supplies and other costs due to the impact of COVID-19 negatively impacted gross margins.

Operating Expenses

Total operating expenses were $386.3 million, or 18.6% of net sales, for 2021 compared to $338.8 million, or 23.4% of net sales, for 2020.

The decrease in operating expenses of $14.7 million is primarily due to lower research and development expenses of $27.5 million, or 1.7% of net sales, a reduction in discretionary expenses including travel and marketing expenses and a $6.6 million reduction in acquisition-related and integration charges, partially offset by the second quarter goodwill impairment charge of $33.8 million, or 2.3% of net sales, in the automotive sensors reporting unit within the Transportation segment and impairment charges of $2.2 million related to the Company’s first quarter announcement to consolidate a manufacturing facility within the Industrial segment.

Operating Income

Operating income for 2020 was $162.4 million, a decrease of $30.4 million or 15.8% compared to $192.8 million for 2019.

The decrease in operating income is primarily due to lower gross margin across all segments and the $33.8 million goodwill impairment charge noted above partially offset by a reduction in operating expenses described above.

Operating margins decreased from 12.8% in 2019 to 11.2% in 2020 primarily driven by the factors mentioned above.

The second quarter goodwill impairment charge of $33.8 million negatively impacted the 2020 operating margin by 2.3% which was partially offset by the lower operating expenses and cost reductions noted above.

Operating income for 2021 was $385.6 million, an increase of $223.3 million or 137.5% compared to $162.4 million for 2020.

The increase in operating income was primarily due to higher gross margin across all segments, led by the Electronics segment partially offset by higher operating expenses noted above.

Operating margins increased from 11.2% in 2020 to 18.5% in 2021 primarily driven by the factors mentioned above.

The 2020 goodwill impairment charge of $33.8 million negatively impacted the 2020 operating margin by 2.3%.

Income Before Income Taxes

Income before income taxes for 2021 was $341.0 million, or 16.4% of net sales compared to $161.3 million, or 11.2% of net sales, for 2020.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes benefited from foreign exchange gains of $14.9 million during the fiscal year ended December 26, 2020 compared to foreign exchange losses of $5.2 million during the fiscal year ended December 28, 2019.

Additionally, the increase in other income of $4.5 million was primarily due to the 2019 fiscal year impairment charges of $7.3 million for certain other investments and a $2.6 million loss on the disposal of a business within the Electronics segment and $1.7 million increase in unrealized investment gains associated with our equity investments, partially offset by lower interest income of $2.0 million and a $1.2 million increase in coal mining reserves in 2020 versus 2019.

Income tax expense for 2021 was $57.2 million, or an effective tax rate of 16.8%, compared to income tax expense of $31.3 million, or an effective tax rate of 19.4% for 2020.

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losses and expenses with no tax benefit.

Changes in the amount of these items from year to year impact the effective tax rates.

In addition, the 2020 income tax expense included the impact of the goodwill impairment charge of $33.8 million that was recorded in the second quarter of 2020, the substantial majority of which related to non-U.S.

entities and did not result in a tax benefit, and the 2019 income tax expense included a benefit of $3.3 million from the recognition of previously unrecognized tax benefits (and the reversal of the related accrued interest) due to a lapse in the statute of limitations.

The impact of the items discussed above resulted in an increase in the effective tax rate in 2020, as compared to the effective tax rate in 2019.

Further information regarding these items is provided in Note 14, Income Taxes , of the Notes to Consolidated Financial Statements included in this Annual Report.

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Electronics Segment

Net sales for the Electronics segment decreased $23.4 million, or 2.4%, in 2020 compared to 2019 primarily due to declines in net sales for the semiconductor and electronics products businesses of $17.5 million and $5.9 million, respectively, driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 during the first half of the year.

These declines were partially offset by increases in customer demand for consumer devices for work from home needs and strength in various end markets during the second half of the year along with favorable changes in foreign exchange rates of $3.6 million.

Net sales for the Electronics segment increased $363.0 million, or 38.7%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $14.5 million or 1.5%.

The sales increase was primarily due to increased volume for the electronics and semiconductor products businesses of $206.5 million and $156.5 million, respectively.

Transportation Segment

Net sales in the Transportation segment decreased $32.7 million, or 7.6%, in 2020 compared to 2019 due to decreased volume in passenger car products, commercial vehicle products, and automotive sensors businesses of $18.1 million, $10.6 million, and $4.0 million, respectively, driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 and a decline in global auto production driven by the temporary closures of customer manufacturing facilities during the first half of 2020.

These sales declines were partially offset by increases in end market demand across all businesses in the second half of 2020 and favorable changes in foreign exchange rates of $4.1 million.

Net sales in the Transportation segment increased $132.3 million, or 33.4%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $12.0 million or 3.0%.

The sales increase was due to higher volume in passenger car products, commercial vehicle products, and the automotive sensors businesses of $65.6 million, $59.0 million, and $7.8 million, respectively, including the incremental net sales of $15.3 million from the Carling acquisition within the commercial vehicle products business.

Industrial Segment

The Industrial segment net sales decreased slightly by $2.1 million, or 1.9%, in 2020 compared to 2019 primarily due to decreased volume across all businesses driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 in the first half of 2020, partially offset by the transfer of the temperature sensor product line in the third quarter of 2020 previously reported in the Electronics segment.

The Industrial segment net sales increased by $138.9 million, or 123.8%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $0.9 million or 0.8%.

Additionally, 2020 was negatively impacted by production disruptions and temporary plant shutdowns due to the impact of COVID-19.

Geographic Net Sales Information

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Total $ 2,079.9 $ 1,445.7 $ 634.2 43.9 %

Asia-Pacific net sales increased $13.7 million, or 2.1%, in 2020 compared to 2019.

The increase in net sales was primarily due to higher volume in the semiconductor business within the Electronics segment and favorable changes in foreign exchange rates of $2.2 million, partially offset by lower volume in the passenger car products business within the Transportation segment due to the production disruption associated with temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 in the first half of 2020.

Net sales in the Americas decreased $50.6 million, or 10.0%, in 2020 compared to 2019 primarily due to lower volume across all segments driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19, the temporary closures of customer manufacturing facilities during the first half of 2020 and unfavorable changes in foreign exchange rates of $0.3 million.

These sales declines were partially offset by increases in end market demand across all businesses in the second half of the year.

European net sales decreased $21.3 million, or 6.3%, in 2020 compared to 2019.

The decrease in net sales was primarily due to lower volume in the semiconductor business within the Electronics segment, lower volume in passenger car products and commercial vehicle products businesses within the Transportation segment driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 and the temporary closures of customer manufacturing facilities during the first half of 2020, partially offset by increased volume in the second half of 2020 due to higher end market demand in Electronics and Transportation businesses and favorable changes in foreign exchange rates of $5.8 million.

Asia-Pacific net sales increased $285.2 million, or 42.5%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $12.5 million.

The increase in net sales was primarily due to higher volume across all segments and businesses compared to 2020 that had production disruptions due to the impact of COVID-19.

Net sales in the Americas increased $236.5 million, or 51.7%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $0.7 million.

European net sales increased $112.5 million, or 35.4%, in 2021 compared to 2020 and included favorable changes in foreign exchange rates of $14.2 million.

Liquidity and Capital Resources

Cash and cash equivalents were $478.5 million as of January 1, 2022, a decrease of $209.1 million as compared to December 26, 2020.

As of January 1, 2022, $326.1 million of the Company's $478.5 million cash and cash equivalents was held by non-U.S.

Cash and cash equivalents were $562.6 million as of December 31, 2022, an increase of $84.1 million as compared to January 1, 2022.

As of December 31, 2022, $452.0 million of the Company's $562.6 million cash and cash equivalents was held by non-U.S.

subsidiaries.

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withholding tax would be payable but subsequently refunded.

With respect to the remaining $154.9 million, the Company has recognized deferred tax liabilities on approximately $68.6 million as of January 1, 2022 because the amounts are not considered to be permanently reinvested, and the Company may access additional amounts through loans and other means.

With respect to the remaining $112.4 million, the Company has recognized deferred tax liabilities on approximately $53.6 million as of December 31, 2022 because the amounts are not considered to be permanently reinvested, and the Company may access additional amounts through loans and other means.

Repatriation of some non-U.S.

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Revolving Credit Facility

On April 3, 2020, the Company amended its existing credit agreement to effect certain changes, including, among others:

(i) eliminating the $200.0 million unsecured term loan credit facility, the remaining outstanding balance ($140.0 million) of which was repaid in full on April 3, 2020 through the revolving credit facility;

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

(iii) modifying performance-based interest rate margins and undrawn fees;

and (iv) extending the maturity date to April 3, 2025.

The amended Credit Agreement also allows the Company to increase the size of the revolving credit facility or enter into o ne or more tranches of term loans if there is no event of default and the Company is in compliance with certain financial covenants.

The Company made payments of $30.0 million on the amended revolving credit facility during the fiscal year ended January 1, 2022.

The balance under the facility was $100.0 million as of January 1, 2022.

Outstanding borrowings under the amended credit agreement bear interest, at the Company’s option, at either LIBOR, fixed for interest periods of one, two, three or six-month periods, plus 1.25% to 2.00%, or at the bank’s Base Rate, as defined, plus 0.25% to 1.00%, based upon the Company’s Consolidated Leverage Ratio, as defined.

The Company is also required to pay commitment fees on unused portions of the credit agreement ranging from 0.125% to 0.20%, based on the Consolidated Leverage Ratio, as defined in the agreement.

The credit agreement includes representations, covenants and events of default that are customary for financing transactions of this natu re.

The effective interest rate on outstanding borrowings under the credit facility was 1.35% at January 1, 2022.

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

At January 1, 2022, the Company was in compliance with all covenants under the credit agreement.

(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”).

Loans made under the available credit facility pursuant to the Credit Agreement ("the Credit Facility") bear interest at the Company’s option, at either Secured Overnight Financing Rate ("SOFR"), fixed for interest periods of one, two, three or six-month periods, plus 1.00% to 1.75%, plus a SOFR adjustment of 0.10% or at the bank’s Base Rate, as defined in the Credit Agreement, plus —% to 0.75%, based upon the Company’s Consolidated Leverage Ratio, as defined in the Credit Agreement.

The Company is also required to pay commitment fees on unused portions of the Credit Facility ranging from 0.10% to 0.175%, based on the Consolidated Leverage Ratio, as defined in the Credit Agreement.

The Credit Agreement includes representations, covenants and events of default that are customary for financing transactions of this nature.

Under the Credit Agreement, revolving loans may be borrowed, repaid and reborrowed until the Maturity Date, at which time all amounts borrowed must be repaid.

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.

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.

During the fiscal year ended December 31, 2022, the Company made term loan payments of $3.8 million.

The revolving loan and term loan balance under the Credit Facility was $100.0 million and $296.3 million, respectively, as of December 31, 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 December 31, 2022, the effective interest rate on outstanding borrowings under the credit facility was 5.42%.

As of December 31, 2022, the Company had no outstanding letters of credit and had available $600.0 million of borrowing capacity under the revolving credit facility.

At December 31, 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 fiscal year ended December 31, 2022, the Company paid off $25.0 million of U.S.

Senior Notes, Series A due 2022.

On November 15, 2017, the Company entered into a Note Purchase Agreement pursuant to which the Company issued and sold $175 million in aggregate principal amount of senior notes in two series.

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Senior Notes, Series B due 2030”) (together, the “U.S.

Senior Notes due 2025 and 2030” and with the Euro Senior Notes and the U.S.

Senior Notes due 2022 and 2027, the “Senior Notes”) were funded.

Senior Notes due 2025 and 2030”) were funded.

Interest on the U.S.

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

The Company was in compliance with its debt covenants as of January 1, 2022.

As of January 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 January 28, 2021, the Company acquired Hartland, a manufacturer and leading supplier of electrical components used primarily in HVAC and other industrial and control systems applications.

At the time of acquisition, Hartland had annualized sales of approximately $70 million.

The total purchase price for Hartland was $111.0 million and the operations of Hartland are included in the Industrial segment.

The net cash payment of $108.5 million was funded by the Company’s cash on hand.

Senior Notes due 2025 and 2030 is payable 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 amended and restated Credit Agreement and 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.

Senior Notes, due 2032”) (together with the U.S.

Senior Notes due 2025 and 2030, the Euro Senior Notes and the U.S.

Senior Notes due 2022 and 2027, the “Senior Notes”).

Interest on the U.S.

Senior Notes due 2032 is payable semiannually on June 30 and December 30, commencing on December 30, 2032.

Debt Covenants

The Company was in compliance with its debt covenants as of December 31, 2022.

As of December 31, 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 February 3, 2023, the Company acquired Western Automation for approximately $162 million in cash.

Western Automation has annualized sales of approximately $25 million and will be reported within the company’s Industrial segment.

The company does not expect the acquisition to have a material impact to its 2023 financial results.The Company financed the transaction with cash on hand.

On July 19, 2022, the Company acquired C&K Switches for $540 million in cash.

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

The business is reported as part of the electronics-passive products and sensors business within the Company's Electronics segment.

The net cash payment of $523.0 million was funded through a combination of cash on hand and debt.

On November 30, 2021, the Company acquired Carling, pursuant to the Stock Purchase Agreement, dated as of October 19, 2021.

Founded in 1920, Carling has a leading position in switching and circuit protection technologies with a strong global presence in commercial vehicle electronification, communications infrastructure and marine markets.

At the time of acquisition, Carling had annualized sales of approximately $170 million.

The purchase price for Carling was $315 million subject to change for working capital adjustments and the operations of Carling are included in the Transportation segment.

The operations of Carling are included in the commercial vehicle business within the Company's Transportation segment.

The purchase price for Carling Technologies was approximately $315 million subject to a working capital adjustment.

The net cash payment of $314.1 million was funded by the Company’s cash on hand.

On January 28, 2021, the Company acquired Hartland, a manufacturer and leading supplier of electrical components used primarily in heating, ventilation, air conditioning ("HVAC") and other industrial and systems applications, and eMobility.

At the time of acquisition, Hartland had annualized sales of approximately $70 million.

The purchase price for Hartland was $111.0 million and the operations of Hartland are included in the Industrial segment.

The net cash payment of $108.5 million was funded by the Company’s cash on hand.

Cash Flow Overview

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

The following describes the Company’s cash flows for the fiscal year ended January 1, 2022 and December 26, 2020:

The following describes the Company’s cash flows for the fiscal year ended December 31, 2022 and January 1, 2022:

(in millions) 2022 2021

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Net cash used in investing activities (636.4) (499.2)

Net cash used in financing activities (69.0) (67.8)

Net cash provided by (used in) financing activities 310.2 (69.0)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (11.4) (9.9)

(Decrease) increase in cash, cash equivalents, and restricted cash (204.7) 156.4

Increase (decrease) in cash, cash equivalents, and restricted cash 82.1 (204.7)

Cash, cash equivalents, and restricted cash at beginning of period 482.8 687.5

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Net cash provided by operating activities was $419.7 million for the fiscal year 2022, an increase of $46.4 million, compared to $373.3 million during the fiscal year 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.

Cash Flow from Investing Activities

Net cash used in investing activities was $636.4 million for the fiscal year 2022, compared to $499.2 million during the fiscal year 2021.

Capital expenditures were $90.6 million, representing a decrease of $34.4 million compared to the fiscal year 2020.

Net cash paid for the Hartland and Carling acquisitions was $422.1 million during the fiscal year 2021.

The Company also received proceeds of $15.4 million from the sale of buildings within the Electronics segment during the fiscal year 2021 as compared to proceeds of $4.8 million as a result of the sale of a property within the Industrial segment during the fiscal year 2020.

Capital expenditures were $104.3 million, representing an increase of $13.8 million compared to the fiscal year 2021.

Net cash paid for acquisitions was $532.7 million during the fiscal year 2022 primarily for the C&K and Embed acquisitions versus net cash paid of $422.1 million for the Carling and Hartland acquisitions during the fiscal year 2021.

The Company also received proceeds of $0.7 million primarily from the sale of a property within the Transportation segment during the fiscal year 2022 as compared to proceeds of $15.4 million from the sale of buildings within the Electronics segment during the fiscal year 2021.

Cash Flow from Financing Activities

Net cash used in financing activities was $69.0 million for the fiscal year 2021 compared to $67.8 million for the fiscal year 2020.

The Company made payments of $30.0 million on the amended revolving credit facility during the fiscal year 2021.

On March 25, 2020, the Company borrowed $100.0 million from its revolving credit facility to preserve financial flexibility and enhance liquidity, given the increasing levels of uncertainty related to COVID-19.

On April 3, 2020, the Company amended the Credit Agreement to eliminate the $200.0 million unsecured term loan credit facility, with the remaining outstanding balance of $140.0 million repaid in full on April 3, 2020 through a new borrowing of $140.0 million under the amended revolving credit facility.

The Company also made principal payments of $5.0 million on the term loan during fiscal year 2020 before amended the Credit Agreement.

Net cash provided by financing activities was $310.2 million for the fiscal year 2022 compared to $69.0 million used in financing activities for the fiscal year 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 and restated its Credit Agreement and borrowed $300.0 million through a term loan.

During the fiscal year 2022, the Company paid $25.0 million of U.S.

Senior Notes, Series A due on February 15, 2022 and $3.8 million on the term loan.

During the fiscal year 2021, the Company made payments of $30 million on the amended revolving credit facility.

During the fiscal year 2020, the Company repurchased 175,110 shares of its common stock totaling $22.9 million.

Additionally, dividends paid increased $2.9 million from $46.8 million for the fiscal year 2020 to $49.7 million for the fiscal year 2021.

The following describes the Company’s cash flows for the twelve months ended December 26, 2020 and December 28, 2019:

Additionally, dividends paid by the Company increased $6.2 million from $49.7 million for the fiscal year 2021 to $55.9 million for the fiscal year 2022.

The following describes the Company’s cash flows for the twelve months ended January 1, 2022 and December 26, 2020:

(in millions) 2021 2020

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Effect of exchange rate changes on cash, cash equivalents, and restricted cash (9.9) 17.6

Increase in cash, cash equivalents, and restricted cash 156.4 41.4

(Decrease) increase in cash, cash equivalents, and restricted cash (204.7) 156.4

Cash, cash equivalents, and restricted cash at beginning of period 687.5 531.1

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Cash Flow from Operating Activities

Net cash provided by operating activities was $258.0 million for the fiscal year 2020, compared to $245.3 million during the fiscal year 2019.

The increase in net cash provided by operating activities was primarily due to lower annual incentive payments and favorable changes in net working capital partially offset by lower earnings largely due to the impact of COVID-19.

Net cash provided by operating activities was $373.3 million for the fiscal year 2021, an increase of $115.3 million, compared to $258.0 million during the fiscal year 2020.

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.

Cash Flow from Investing Activities

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Capital expenditures were $90.6 million, representing a decrease of $34.4 million compared to the fiscal year 2020.

The Company also received proceeds of $4.8 million and $6.2 million, respectively, in the fiscal year 2020 and the fiscal year 2019 primarily as a result of the sale of properties within the Industrial segment.

Net cash paid for the Hartland and Carling acquisitions was $422.1 million during the fiscal year 2021.

Cash Flow from Financing Activities

Net cash used in financing activities was $67.8 million for 2020 compared to $146.3 million for the fiscal year 2019.

The Company made principal payments of $5.0 million and $10.0 million on the term loan during fiscal year 2020 and 2019, respectively.

During fiscal year 2020, the company borrowed $100.0 million from its revolving credit facility to preserve financial flexibility and enhance liquidity, given the increasing levels of uncertainty related to COVID-19.

Net cash used in financing activities was $69.0 million for the fiscal year 2021 compared to $67.8 million for the fiscal year 2020.

The Company made payments of $30.0 million on the amended revolving credit facility during the fiscal year 2021.

The balance under the facility was $130.0 million as of December 26, 2020.

For the fiscal year 2020 and 2019, the Company repurchased 175,110 and 579,916 shares of its common stock totaling $22.9 million and $95.0 million, respectively, but made payments of $99.4 million related to settled share repurchases during the fiscal year 2019.

The Company also made principal payments of $5.0 million on the term loan during fiscal year 2020 before amended the Credit Agreement.

During the fiscal year 2020, the Company made payments of $110.0 million on the amended revolving credit facility.

During the fiscal year 2020, the Company repurchased 175,110 shares of its common stock totaling $22.9 million.

Additionally, dividends paid increased $2.9 million from $46.8 million for the fiscal year 2020 to $49.7 million for the fiscal year 2021.

C ontractual Obligations and Commitments

The following table summarizes outstanding contractual obligations and commitments as of January 1, 2022:

The following table summarizes outstanding contractual obligations and commitments as of December 31, 2022:

Payments Due By Period

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202,327 39,411 73,283 56,482 33,151

Operating lease payments (c)

Operating and finance lease payments (c)

68,965 15,132 22,516 10,100 21,217

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(b) Amounts represent estimated contractual interest payments on outstanding debt.

Rates in effect as of January 1, 2022 are used for variable rate debt.

Rates in effect as of December 31, 2022 are used for variable rate debt.

For more information see Note 9, Debt, of the Notes to Consolidated Financial Statements.

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(e) Purchase obligations include purchase commitments and commitments for capital expenditures not recognized in the Company’s Consolidated Balance Sheets.

In addition to the above contractual obligations and commitments, the Company had the following obligations at January 1, 2022:

In addition to the above contractual obligations and commitments, the Company had the following obligations at December 31, 2022:

The Company has Company-sponsored defined benefit pension plans covering employees at various non-U.S.

subsidiaries including the U.K., Germany, the Philippines, China, Japan, Mexico, Italy and France.

At January 1, 2022, the Company had a net unfunded status of $38.2 million.

At December 31, 2022, the Company had a net unfunded status of $29.1 million.

The Company expects to make approximately $2.0 million of contributions to the plans in 2023.

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Cash dividends paid totaled $55.9 million, $49.7 million and $46.8 million for 2022, 2021 and 2020, respectively.

On January 27, 2022, the Board of Directors of the Company declared a quarterly cash dividend of $0.53 per share, payable on March 10, 2022 to stockholders of record as of February 24, 2022.

On February 1, 2023, the Board of Directors of the Company declared a quarterly cash dividend of $0.60 per share, payable on March 9, 2023 to stockholders of record as of February 23, 2023.

Capital Resources

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Share Repurchase Program

On April 26, 2019, the Company's Board of Directors authorized a program to repurchase up to 1,000,000 shares of the Company's common stock for the period May 1, 2019 to April 30, 2020 (the "2019 program").

On April 29, 2020, the Company announced that the Board of Directors authorized a new program to repurchase up to 1,000,000 shares of the Company's common stock for the period May 1, 2020 to April 30, 2021 (the "2020 program") to replace its previous expired 2019 program.

On April 28, 2021, the Company announced that the Board of Directors authorized a new three-year program to repurchase up to $300 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.

There are $300 million in the aggregate of shares available for purchase under the new program as of January 1, 2022.

During the fiscal year 2021, the Company did not repurchase any shares of its common stock.

During the fiscal year 2020 and 2019, the Company repurchased 175,110, and 579,916 shares of its common stock totaling $22.9 million and $95.0 million, respectively.

There are $300 million in the aggregate of shares available for purchase under the new program as of December 31, 2022.

During the fiscal years of 2022 and 2021, the Company did not repurchase any shares of its common stock.

During the fiscal year 2020, the Company repurchased 175,110 shares of its common stock totaling $22.9 million.

Off-Balance Sheet Arrangements

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

As of December 31, 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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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-K

Item 7. Management’s Discussion and Analysis