What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2022-11-02 · 89 added, 148 removed, 144 unchanged (62% of the section changed)

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and other risks that may be detailed in Item 1A.

"Risk Factors" of the Company's Annual Report on Form 10-K for the year ended January 1, 2022, and the Company's other filings and submissions with the Securities and Exchange Commission.

"Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2022, and the Company's other filings and submissions with the Securities and Exchange Commission.

The Company does not undertake any obligation to update or revise any forward-looking statements to reflect future events or circumstances, new information or otherwise.

This report, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with information provided in the consolidated financial statements and the related Notes thereto appearing in the Company's Annual Report on Form 10-K for the year ended January 1, 2022.

Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide information that is supplemental to, and should be read together with, the consolidated financial statements and the accompanying notes.

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Executive Summary

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

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

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

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

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

The Company expects ongoing improvement during the remainder of 2022.

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

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

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

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

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

The business 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 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.

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 further resurgence in COVID-19 cases and its 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 2022.

For the first quarter of 2023, the Company recognized net sales of $609.8 million, a decrease of $13.5 million, or 2.2% as compared to $623.3 million in the first quarter of 2022 including $10.0 million or 1.6% of unfavorable changes in foreign exchange rates.

The decrease in net sales was due to lower volumes in the Electronics and Transportation segments that more than offset $42.5 million or 6.8% and $2.7 million or 0.4% of incremental net sales from the C&K and Western Automation acquisitions, respectively, and higher volume in the Industrial segment.

The Company recognized net income of $88.7 million, or $3.54 per diluted share, in the first quarter of 2023 compared to $117.5 million, or $4.70 per diluted share in the first quarter of 2022.

The decrease in net income was primarily due to a decrease in operating income in the Electronics and Transportation segments driven by lower volume.

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.

Net cash provided by operating activities was $53.4 million for the three months ended April 1, 2023 as compared to $51.7 million for the three months ended April 2, 2022.

The increase in net cash provided by operating activities was primarily due to reductions in working capital, partially offset by lower cash earnings.

Risks Related to Market Conditions

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

The Company continues to operate in a challenging macro environment, including but not limited to, supply chain disruptions, varying regional dynamics, and some pockets of end market softness, and the ongoing war in Ukraine.

The Company does not have any direct operations in Ukraine or Russia.

The war has 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 has impacted certain OEM customers who have had lower production levels due to shut-downs and ongoing material shortages.

Results of Operations

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

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

The first quarter of 2023 includes $3.3 million of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, and $1.9 million of restructuring, impairment and other charges, primarily related to employee termination costs.

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

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

The first quarter of 2022 includes $4.8 million of purchase accounting inventory step-up charges, $3.8 million of legal and professional fees and other integration expenses related to completed and other contemplated acquisitions, and $0.2 million of restructuring, impairment and other charges, primarily related to employee termination costs.

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

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

Third Quarter First Nine Months

First Quarter

(in thousands) 2023 2022 Change %

Change 2022 2021 Change %

Net sales $ 609,782 $ 623,330 $ (13,548) (2.2) %

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Net income $ 88,745 $ 117,518 $ (28,773) (24.5) %

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

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

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

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

Net sales decreased $13.5 million, or 2.2%, for the first quarter of 2023 compared to the first quarter of 2022 including $10.0 million or 1.6% of unfavorable changes in foreign exchange rates.

The sales decrease was due to lower volume in the Electronics and Transportation segments that more than offset $42.5 million or 6.8% and $2.7 million or 0.4% of incremental net sales associated with the C&K and Western Automation acquisitions included in the Electronics and Industrial segments, respectively, and higher volume in the Industrial segment.

Cost of Sales

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

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

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

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

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

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

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

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

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

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

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

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

Cost of sales was $364.8 million, or 59.8% of net sales, in the first quarter of 2023, compared to $364.7 million, or 58.5% of net sales, in the first quarter of 2022.

As a percent of net sales, cost of sales increased 1.3% driven by lower volumes in the Electronics and Transportation segments, partially offset by volume leverage, and favorable product mix from the Industrial segment.

Gross profit was $245.0 million, or 40.2% of net sales, in the first quarter of 2023 compared to $258.6 million, or 41.5% of net sales, for the first quarter of 2022.

The $13.6 million decrease in gross profit was primarily due to lower volume in the Electronics and Transportation segments, partially offset by the acquisition of C&K within Electronics segment, and volume leverage and favorable product mix from the Industrial segment and $4.8 million or 0.8% of purchase accounting inventory charges recorded during the first quarter of 2022.

Operating Expenses

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

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

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

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

Operating expenses were $134.3 million, or 22.0% of net sales, for the first quarter of 2023 compared to $108.0 million, or 17.3% of net sales, for the first quarter of 2022.

The increase in operating expenses of $26.3 million was primarily due to higher selling, general, and administrative expenses of $12.8 million, research and development expenses of $7.7 million, and higher amortization expense of $4.1 million mainly due to the C&K and Western Automation acquisitions.

Operating Income

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

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

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

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

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

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

Operating income was $110.6 million, representing a decrease of $39.9 million, or 26.5%, for the first quarter of 2023 compared to $150.6 million for the first quarter of 2022.

The decrease in operating income was due to lower gross profit from the Electronics and Transportation segments and higher operating expenses as noted above.

Operating margins decreased from 24.2% in the first quarter of 2022 to 18.1% in the first quarter of 2023 driven by lower volumes in the Electronics and Transportation segments and the higher operating expenses mentioned above.

Income Before Income Taxes

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

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

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

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

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

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

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

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

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

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

statutory tax rate primarily due to the forecasted impact of income earned in lower tax jurisdictions.

Income before income taxes was $108.9 million, or 17.9% of net sales, for the first quarter of 2023 compared to $134.1 million, or 21.5% of net sales, for the first quarter of 2022.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily impacted by foreign exchange gains of $1.7 million in the first quarter of 2023 compared to foreign exchange losses of $7.7 million during the first quarter of 2022 and unrealized gains of

$1.8 million during the first quarter of 2023 compared to unrealized losses of $4.7 million during the first quarter of 2022 related to the Company's equity investment.

Income tax expense for the first quarter of 2023 was $20.2 million, or an effective tax rate of 18.5%, compared to $16.6 million, or an effective tax rate of 12.4%, for the first quarter of 2022.

The effective tax rate for the first quarter of 2023 is higher than the effective tax rate for the comparable 2022 period, primarily due to the impact of a one-time deduction in the first quarter of 2022 that resulted in a net benefit of $7.2 million from the dissolution of one of the Company’s affiliates.

The effective tax rates for both periods were lower than the applicable U.S.

statutory tax rate primarily due to income earned in lower tax jurisdictions, while for the 2022 period, the effective tax rate also was lower due to the impact of the one-time deduction referred to in the preceding sentence.

Segment Results of Operations

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

Third Quarter First Nine Months

First Quarter

(in thousands) 2023 2022 Change %

Change 2022 2021 Change %

Electronics $ 358,593 $ 365,821 $ (7,228) (2.0) %

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Electronics Segment

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

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

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

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

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

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

Net sales decreased $7.2 million, or 2.0%, in the first quarter of 2023 compared to the first quarter of 2022 and included unfavorable changes in foreign exchange rates of $4.7 million.

The sales decrease was mainly due to lower volume from the Electronics products business driven by inventory rebalancing at certain distributors and reduced demand across certain electronics markets, including consumer facing and personal electronics, and telecom, which more than offset the incremental net sales of $42.5 million from the C&K acquisition and $14.1 million of higher volume from the semiconductor business driven by increased demand predominantly in our industrial and medical end markets.

Transportation Segment

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

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

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

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

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

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

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

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

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

Net sales decreased $17.9 million, or 9.7%, in the first quarter of 2023 compared to the first quarter of 2022 and included unfavorable changes in foreign exchange rates of $4.8 million.

The commercial vehicle business net sales declined $9.7 million driven by reduced demand across various commercial vehicle end markets and inventory rebalancing at certain distributors, partially offset by price realization.

The automotive sensors and passenger car products businesses had net sales declines of $5.3 million and $2.8 million, respectively, primarily due to lower demand in China and certain automotive customers rebalancing their inventory levels of the Company's products, partially offset by price realization.

Industrial Segment

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

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

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

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

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

Net sales increased by $11.5 million, or 15.8%, in the first quarter of 2023 compared to the first quarter of 2022, which included unfavorable changes in foreign exchange rates of $0.5 million.

The sales increase was primarily due to higher volume in the MRO/construction, renewables and industrial safety end markets, and the acquisition of Western Automation which contributed net sales of $2.7 million.

Geographic Net Sales Information

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

Third Quarter First Nine Months

First Quarter

(in thousands) 2023 2022 Change %

Change 2022 2021 Change %

Asia-Pacific $ 228,012 $ 260,218 $ (32,206) (12.4) %

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Total $ 609,782 $ 623,330 $ (13,548) (2.2) %

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

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

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

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

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

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

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

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

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

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

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

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

Net sales decreased $32.2 million, or 12.4%, in the first quarter of 2023 compared to the first quarter of 2022 and included unfavorable changes in foreign exchange rates of $4.0 million.

The decrease in net sales was primarily due to lower net sales from electronics products business within Electronics segment and lower net sales across all businesses within Transportation segments, partially offset by incremental sales from the acquisition of C&K, and higher volume from the semiconductor business within the Electronics segment.

Net sales decreased $3.4 million, or 1.4%, in the first quarter of 2023 compared to the first quarter of 2022 and included unfavorable changes in foreign exchange rates of $0.3 million.

The decrease in net sales was primarily due to lower net sales from Electronics and Transportation segments, partially offset by incremental sales from C&K acquisition within the Electronics segment, and higher volume within the Industrial segment compared to the first quarter of 2022.

Net sales increased $22.0 million, or 17.5%, in the first quarter of 2023 compared to the first quarter of 2022 and included unfavorable changes in foreign exchange rates of $5.7 million.

The increase in net sales was primarily due to incremental sales from the acquisition of C&K, increased volume from the semiconductor business within the Electronics segment, and incremental sales from the Western Automation acquisition included within the Industrial segment compared to the first quarter of 2022.

Liquidity and Capital Resources

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

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

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

Cash and cash equivalents were $425.1 million as of April 1, 2023, a decrease of $137.5 million as compared to December 31, 2022.

As of April 1, 2023, $79.9 million of the Company's $425.1 million cash and cash equivalents was held by U.S.

subsidiaries.

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

Revolving loans may be borrowed, repaid and reborrowed until the Maturity Date, at which time all amounts borrowed must be repaid.

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.

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

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

During the three months ended April 1, 2023, the Company made payments of $1.9 million on its term loan.

The revolving loan and term loan balance under the Credit Facility was $100.0 million and $294.4 million, respectively, as of April 1, 2023.

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

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

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

As of April 1, 2023, the effective interest rate on revolving loan and term loan outstanding borrowings was 5.91%.

As of April 1, 2023, the Company had no outstanding letters of credit under the Credit Facility and had $600.0 million of borrowing capacity available under the revolving Credit Facility.

As of April 1, 2023, 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, Series A due 2022”), and $100 million in aggregate principal amount of 3.74% Senior Notes, Series B, due February 15, 2027 (“U.S.

Senior Notes, Series B due 2027”) (together, the “U.S.

Senior Notes due 2022 and 2027”) were funded.

Interest on the U.S.

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

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

Senior Notes, Series B due 2027”) were funded.

During the first quarter of 2022, the Company paid off $25 million of U.S.

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

Interest on the U.S.

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

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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Debt Covenants

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

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

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

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

At the time the Company and C&K entered into the 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 Co mpany financed the transaction through a combination of cash on hand and debt.

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

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

The Company was in compliance with all covenants under the Credit Agreement and Senior Notes as of April 1, 2023 and currently expects to remain in compliance based on management’s estimates of operating and financial results for 2023.

As of April 1, 2023, 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.

At the time the Company and Western Automation entered into the definitive agreement, Western Automation had annualized sales of approximately $25 million.

The business is reported within the Company’s Industrial segment.

The Company financed the transaction with cash on hand.

During the first quarter of 2023 the Company paid quarterly dividends of $14.9 million to the shareholders.

On May 2, 2023, the Board of Directors of the Company declared quarterly cash dividend of $0.60 per share, payable on June 8, 2023 to stockholders of record as of May 25, 2023.

Cash Flow Overview

First Nine Months

First Three Months

(in thousands) 2023 2022

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Effect of exchange rate changes on cash, cash equivalents, and restricted cash 4,571 (2,738)

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

Decrease in cash, cash equivalents, and restricted cash (137,414) (17,865)

Cash, cash equivalents, and restricted cash at beginning of period 564,939 482,836

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

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

Net cash provided by operating activities was $53.4 million for the three months ended April 1, 2023 as compared to $51.7 million for the three months ended April 2, 2022.

The increase in net cash provided by operating activities was primarily due to reductions in working capital, partially offset by lower cash earnings

Cash Flow from Investing Activities

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

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

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

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

Net cash used in investing activities was $183.2 million for the three months ended April 1, 2023 compared to $29.8 million during the three months ended April 2, 2022.

Net cash paid for West Automation acquisition was $158.3 million during the three months ended April 1, 2023.

Capital expenditures were $25.7 million, representing a decrease of $4.1 million compared to three months ended April 2, 2022

Cash Flow from Financing Activities

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

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

Senior Notes, due 2032.

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

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

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

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

amended revolving credit facility.

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

Net cash used in financing activities was $12.2 million for the three months ended April 1, 2023 compared to net cash used in financing activities of $37.1 million for the three months ended April 2, 2022.

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

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

Additionally, the Company paid dividends of $14.9 million and $13.1 million in the three months ended April 1, 2023 and April 2, 2022, respectively.

Share Repurchase Program

On April 28, 2021, the Company announced that the Board of Directors authorized a new three-year program to repurchase up to $300 million in the aggregate of shares of the Company’s common stock for the period May 1, 2021 to April 30, 2024 to replace its previous 2020 program.

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

The Company did not repurchase any shares of its common stock for the three months ended April 1, 2023, and April 2, 2022.

Off-Balance Sheet Arrangements

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

As of April 1, 2023, the Company did not have any off-balance sheet arrangements, as defined under SEC rules.

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

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The assumptions, estimates, and judgments are based on historical experience, current trends, and other factors the Company believes are relevant at the time it prepares the Condensed Consolidated Financial Statements.

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

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

During the three months ended April 1, 2023, there were no significant changes in the application of critical accounting policies.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

During the three months ended April 1, 2023, there have been no material changes in the Company's exposure to market risk.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis