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Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-05-03 · 114 added, 68 removed, 165 unchanged (52% of the section changed)

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Executive Overview

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

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

Across more than 20 countries, and with approximately 18,000 global associates, we partner with customers to design and deliver innovative, reliable solutions.

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Executive Summary

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.

For the second quarter of 2023, the Company recognized net sales of $612.0 million, a decrease of $6.4 million, or 1.0% as compared to $618.4 million in the second quarter of 2022 including $0.5 million or 0.1% of unfavorable changes in foreign exchange rates.

The decrease in net sales was due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment that more than offset $40.0 million or 6.5% and $4.8 million or 0.8% 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 $70.1 million, or $2.79 per diluted share, in the second quarter of 2023 compared to $87.0 million, or $3.48 per diluted share in the second 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 June 28, 2023, the Company entered into a definitive purchase agreement to acquire a 200mm wafer fab located in Dortmund, Germany (“Dortmund Fab”) from Elmos Semiconductor SE.

The acquisition of the Dortmund Fab is expected to close in early fiscal year 2025.

The total purchase price for the fab is approximately 93 million Euro, of which approximately 37 million Euro will be paid after regulatory approvals and approximately 56 million Euro will be paid at closing.

The transaction is not expected to have a material impact on the Company’s fiscal year 2023 or 2024 financial results and will be reported in the Electronics-Semiconductor business within the Company’s Electronics segment.

On February 3, 2023, the Company acquired Western Automation Research and Development Limited (“Western Automation”) for approximately $162 million in cash.

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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.

Net cash provided by operating activities was $151.6 million for the six months ended July 1, 2023 compared to $165.3 million for the six months ended July 2, 2022.

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

Risks Related to Market Conditions

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 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.

The ongoing war in Ukraine has had a modest impact on the Company, as the Company suspended sales into and purchases from Russia.

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.

Results of Operations

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

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.

The second quarter of 2023 includes $3.9 million ($7.2 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, and $2.9 million ($4.8 million year-to-date) of restructuring charges, primarily related to employee termination costs.

In addition, during the second quarter of 2023, the Company recognized a $3.9 million impairment charge related to the land and building in the commercial vehicle business within the Transportation segment.

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

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.

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

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

First Quarter

Second Quarter First Six Months

(in thousands) 2023 2022 Change %

Change 2023 2022 Change %

Net sales $ 611,997 $ 618,436 $ (6,439) (1.0) % $ 1,221,779 $ 1,241,766 $ (19,987) (1.6) %

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Net income $ 70,071 $ 87,016 $ (16,945) (19.5) % $ 158,816 $ 204,534 $ (45,718) (22.4) %

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.

Net sales decreased $6.4 million, or 1.0%, for the second quarter of 2023 compared to the second quarter of 2022 including $0.5 million or 0.1% of unfavorable changes in foreign exchange rates.

The sales decrease was due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment that more than offset $40.0 million or 6.5% and $4.8 million or 0.8% of incremental net sales associated with the C&K and Western Automation acquisitions included in the Electronics and Industrial segments, respectively, and higher volume from the Industrial segment.

Net sales decreased $20.0 million, or 1.6%, for the first six months of 2023 compared to the first six months of 2022, including $10.4 million or 0.8% of unfavorable changes in foreign exchange rates.

The sales decrease was primarily due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment that more than offset $82.5 million or 6.6% and $7.5 million or 0.6% incremental net sales associated with the C&K and Western Automation acquisitions included in the Electronics and Industrial segments, respectively, and higher volume from the Industrial segment.

Cost of Sales

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.

Cost of sales was $377.2 million, or 61.6% of net sales, in the second quarter of 2023, compared to $355.5 million, or 57.5% of net sales, in the second quarter of 2022.

As a percent of net sales, cost of sales increased 4.1% driven by lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment.

Cost of sales was $742.0 million, or 60.7% of net sales, in the first six months of 2023, compared to $720.2 million, or 58.0% of net sales, in the first six months of 2022.

As a percent of net sales, cost of sales increased 2.7% driven by lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment, partially offset by volume leverage, and favorable product mix from the Industrial segment.

Gross profit was $234.8 million, or 38.4% of net sales, in the second quarter of 2023 compared to $263.0 million, or 42.5% of net sales, for the second quarter of 2022.

The $28.1 million decrease in gross profit was primarily due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment, partially offset by the acquisition of C&K within Electronics segment.

Gross profit was $479.8 million, or 39.3% of net sales, in the first six months of 2023 compared to $521.6 million, or 42.0% of net sales, for the first six months of 2022.

The $41.8 million decrease in gross profit was primarily due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment, 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 0.4% of purchase accounting inventory charges recorded during the first six months of 2022.

Operating Expenses

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 expenses were $142.8 million, or 23.3% of net sales, for the second quarter of 2023 compared to $128.8 million, or 20.8% of net sales, for the second quarter of 2022.

The increase in operating expenses of $14.0 million was primarily due to higher restructuring, impairment, and other charges of $6.2 million, including a $3.9 million impairment charge related to the land and building in the commercial vehicle business within the Transportation segment, and higher amortization, selling, general, and administrative, and research and development expenses of $5.3 million, $1.5 million, and $1.0 million, respectively mainly due to the C&K and Western Automation acquisitions.

This increase in operating expenses was partially offset by lower variable incentive compensation expense.

Operating expenses were $277.1 million, or 22.7% of net sales, for the first six months of 2023 compared to $236.8 million, or 19.1%of net sales, for the first six months of 2022.

The increase in operating expenses of $40.3 million was primarily due to higher selling, general, and administrative expenses of $14.3 million, higher amortization expense of $9.4 million and research and development expenses of $8.7 million mainly due to the C&K and Western Automation acquisitions, and higher restructuring, impairment, and other charges of $7.9 million, including a $3.9 million impairment charge related to the land and building in the commercial vehicle business within the Transportation segment.

This increase in operating expenses was partially offset by lower variable incentive compensation expense.

Operating Income

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.

Operating income was $92.1 million, representing a decrease of $42.1 million, or 31.4%, for the second quarter of 2023 compared to $134.2 million for the second 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.

Operating margins decreased from 21.7% in the second quarter of 2022 to 15.0% in the second quarter of 2023 driven by lower volume in the Electronics and Transportation segments and the higher operating expenses mentioned above.

Operating income was $202.7 million, representing a decrease of $82.1 million, or 28.8%, for the first six months of 2023 compared to $284.8 million for the first six months 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 22.9% in the first six months of 2022 to 16.6% in the first six months of 2023 driven by lower volume in the Electronics and Transportation segments and the higher operating expenses mentioned above.

Income Before Income Taxes

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.

$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.

Income before income taxes was $85.5 million, or 14.0% of net sales, for the second quarter of 2023 compared to $109.6 million, or 17.7% of net sales, for the second 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 $1.4 million in the second quarter of 2023 compared to foreign exchange losses of $14.1 million during the second quarter of 2022 and lower unrealized losses of $6.7 million compared to the second quarter of 2022 related to one of the Company's equity investments.

Income before income taxes was $194.4 million, or 15.9% of net sales, for the first six months of 2023 compared to $243.7 million, or 19.6% of net sales, for the first six months 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 $3.1 million during the six months ended July 1, 2023 compared to foreign exchange losses of $21.9 million during the six months ended July 2, 2022, unrealized gains of $0.7 million during the six months ended July 1, 2023 compared to unrealized losses of $12.5 million during the six months ended July 2, 2022 related to one of the Company's equity investments.

Income tax expense for the second quarter of 2023 was $15.4 million, or an effective tax rate of 18.0%, compared to $22.6 million, or an effective tax rate of 20.6%, for the second quarter of 2022.

The effective tax rate for the second quarter of 2023 is lower than the effective tax rate for the comparable 2022 period, primarily due to the impact of foreign exchange losses with no related tax benefit in the 2022 period.

Income tax expense for the first six months of 2023 was $35.5 million, or an effective tax rate of 18.3%, compared to $39.2 million, or an effective tax rate of 16.1%, for the first six months of 2022.

The effective tax rate for the first six months 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.

statutory tax rate primarily due to income earned in

lower tax jurisdictions, while for the 2022 period, the effective tax rate was also lower due to the impact of the one-time deduction previously noted.

Segment Results of Operations

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

First Quarter

Second Quarter First Six Months

(in thousands) 2023 2022 Change %

Change 2023 2022 Change %

Electronics $ 350,147 $ 358,176 $ (8,029) (2.2) % $ 708,740 $ 723,997 $ (15,257) (2.1) %

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Electronics Segment

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.

Net sales decreased $8.0 million, or 2.2%, in the second quarter of 2023 compared to the second quarter of 2022 and included unfavorable changes in foreign exchange rates of $0.1 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 $40.0 million from the C&K acquisition and $1.4 million of higher volume from the semiconductor business driven by increased demand predominantly in our industrial and medical end markets.

Net sales decreased $15.3 million, or 2.1%, in the first six months of 2023 compared to the first six months quarter of 2022 and included unfavorable changes in foreign exchange rates of $4.9 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 $82.5 million from the C&K acquisition and $15.5 million of higher volume from the semiconductor business driven by increased demand predominantly in our industrial and medical end markets.

Transportation Segment

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.

Net sales decreased $10.0 million, or 5.5%, in the second quarter of 2023 compared to the second quarter of 2022 and included unfavorable changes in foreign exchange rates of $0.2 million.

The sale decrease was mainly from the commercial vehicle business which had net sales decline of $15.7 million driven by reduced demand largely due to inventory rebalancing at certain distributors and customers, and some demand reduction in commercial vehicle end markets, partially offset by an increase of $6.1 million from the passenger car products business driven by global car build growth, as well as the ongoing electronification and electrification of vehicles.

Net sales decreased $27.8 million, or 7.6%, in the first six months of 2023 compared to the first six months of 2022 and included unfavorable changes in foreign exchange rates of $4.9 million.

The commercial vehicle business net sales declined $25.4 million driven by reduced demand largely due to inventory rebalancing at certain distributors and customers, and some demand reduction in commercial vehicle end markets, partially offset by an increase of $3.3 million from the passenger car products business driven by the ongoing electronification and electrification of vehicles.

The automotive sensors business had net sales declines of $5.7 million primarily due to lower demand in China.

Industrial Segment

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.

Net sales increased by $11.6 million, or 14.8%, in the second quarter of 2023 compared to the second quarter of 2022, which included unfavorable changes in foreign exchange rates of $0.2 million.

The sales increase was primarily due to higher growth across various markets including construction/MRO, renewables and industrial safety end markets, and the acquisition of Western Automation which contributed net sales of $4.8 million.

Net sales increased by $23.1 million, or 15.3%, in the first six months of 2023 compared to the first six months of 2022, which included unfavorable changes in foreign exchange rates of $0.6 million.

The sales increase was primarily due to higher volume in the construction/MRO, renewables, and industrial safety end markets, and the acquisition of Western Automation which contributed net sales of $7.5 million.

Geographic Net Sales Information

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

First Quarter

Second Quarter First Six Months

(in thousands) 2023 2022 Change %

Change 2023 2022 Change %

Asia-Pacific $ 229,691 $ 252,809 $ (23,118) (9.1) % $ 457,703 $ 513,027 $ (55,324) (10.8) %

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Total $ 611,997 $ 618,436 $ (6,439) (1.0) % $ 1,221,779 $ 1,241,766 $ (19,987) (1.6) %

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.

Net sales decreased $23.1 million, or 9.1%, in the second quarter of 2023 compared to the second quarter of 2022 and included unfavorable changes in foreign exchange rates of $2.7 million.

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

Net sales decreased $55.3 million, or 10.8%, in the first six months of 2023 compared to the first six months of 2022 and included unfavorable changes in foreign exchange rates of $6.6 million.

The decrease in net sales was primarily due to lower net sales from electronics products business within the Electronics segment and lower net sales from the commercial vehicle and automotive sensors businesses within the Transportation segments, partially offset by incremental sales from the acquisition of C&K.

Net sales decreased $19.7 million, or 8.0%, in the second quarter of 2023 compared to the second quarter of 2022 and included unfavorable changes in foreign exchange rates of $0.1 million.

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

Net sales decreased $23.1 million, or 4.8%, in the first six months of 2023 compared to the first six months of 2022 and included unfavorable changes in foreign exchange rates of $0.4 million.

The decrease in net sales was primarily due to lower volume from the Electronics products business within the Electronics segment and lower sales across all businesses within the Transportation segment, partially offset by incremental sales from C&K acquisition within the Electronics segment and higher sales within the Industrial segment compared to the first six months of 2022.

Net sales increased $36.4 million, or 30.8%, in the second quarter of 2023 compared to the second quarter of 2022 and included favorable changes in foreign exchange rates of $2.3 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 the passenger car products business within the Transportation segment, and incremental sales from the Western Automation acquisition included within the Industrial segment compared to the second quarter of 2022.

Net sales increased $58.4 million, or 23.9%, in the first six months of 2023 compared to the first six months of 2022 and included unfavorable changes in foreign exchange rates of $3.4 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 six months of 2022, partially offset by lower net sales from the Electronics products business within the Electronics segment.

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 $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.

Cash and cash equivalents were $480.7 million as of July 1, 2023, a decrease of $81.8 million as compared to December 31, 2022.

As of July 1, 2023, $127.4 million of the Company's $480.7 million cash and cash equivalents was held by U.S.

subsidiaries.

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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 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.

During the three and six months ended July 1, 2023, the Company made payments of $1.9 million and $3.8 million on its term loan, respectively.

The revolving loan and term loan balance under the Credit Facility was $100.0 million and $292.5 million, respectively, as of July 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 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.

As of July 1, 2023, the effective interest rate on revolving loan and term loan outstanding borrowings was 6.45%.

As of July 1, 2023, the Company had $0.2 million outstanding letters of credit under the Credit Facility and had $599.8 million of borrowing capacity available under the revolving Credit Facility.

As of July 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.

The funding date for the Euro denominated senior notes occurred on December 8, 2016 for €117 million in aggregate amount of 1.14% Senior Notes, Series A, due December 8, 2023 (“Euro Senior Notes, Series A due 2023”), and €95 million in aggregate amount of 1.83% Senior Notes, Series B due December 8, 2028 (“Euro Senior Notes, Series B due 2028”) (together, the “Euro Senior Notes”).

The funding date for the Euro denominated senior notes

occurred on December 8, 2016 for €117 million in aggregate amount of 1.14% Senior Notes, Series A, due December 8, 2023 (“Euro Senior Notes, Series A due 2023”), and €95 million in aggregate amount of 1.83% Senior Notes, Series B due December 8, 2028 (“Euro Senior Notes, Series B due 2028”) (together, the “Euro Senior Notes”).

Interest on the Euro Senior Notes is payable semiannually on June 8 and December 8, commencing June 8, 2017.

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Debt Covenants

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.

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

As of July 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 June 28, 2023, the Company entered into a definitive purchase agreement to acquire a 200mm wafer fab located in Dortmund, Germany (“Dortmund Fab”) from Elmos Semiconductor SE.

The acquisition of the Dortmund Fab is expected to close in early fiscal year 2025.

On February 3, 2023, the Company acquired Western Automation for approximately $162 million in cash.

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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.

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

On August 1, 2023, the Company announced the declaration of a quarterly cash dividend of $0.65 per share, a 8% increase from the first quarter, payable on September 7, 2023 to stockholders of record as of August 24, 2023.

Cash Flow Overview

First Three Months

First Six Months

(in thousands) 2023 2022

1 unchanged sentence

Net cash used in investing activities (199,020) (65,367)

Net cash used in financing activities (12,204) (37,070)

Net cash (used in) provided by financing activities (32,686) 245,017

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (1,772) (15,511)

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

(Decrease) increase in cash, cash equivalents, and restricted cash (81,845) 329,461

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

3 unchanged sentences

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 $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

Net cash provided by operating activities was $151.6 million for the six months ended July 1, 2023 compared to $165.3 million for the six months ended July 2, 2022.

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

Cash Flow from Investing Activities

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

Net cash used in investing activities was $199.0 million for the six months ended July 1, 2023 compared to $65.4 million during the six months ended July 2, 2022.

Net cash paid for acquisitions was $158.3 million and $9.8 million during the six months ended July 1, 2023 and July 2, 2022, respectively.

Capital expenditures were $41.5 million, representing a decrease of $14.7 million compared to six months ended July 2, 2022.

During the six months ended July 1, 2023 and July 2, 2022, the Company received proceeds of $0.7 million from the sale of a property within the Electronics segment, and $0.5 million from the sale of a property within the Transportation segment, respectively.

Cash Flow from Financing Activities

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.

Net cash used in financing activities was $32.7 million for the six months ended July 1, 2023 compared to net cash provided by financing activities of $245.0 million for the six months ended July 2, 2022.

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

During the six months ended July 1, 2023, the Company made payments of $3.8 million on the term loan.

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

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

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.

Additionally, the Company paid dividends of $29.8 million and $26.2 million in the six months ended July 1, 2023 and July 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 months ended April 1, 2023, and April 2, 2022.

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

Off-Balance Sheet Arrangements

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

As of July 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.

5 unchanged sentences

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 December 31, 2022.

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

During the six months ended July 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 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.

During the six months ended July 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