LITTELFUSE INC /DE 10-Q

ITEM 1. FINANCIAL STATEMENTS LITTELFUSE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) July 1, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 480,743 $ 562,588 Short-term investments 84 84 Trade receivables, less allowanc es o f $ 86,968 a n d $ 83,562 at July 1, 2023 and December 31, 2022, respectively 339,637 306,578 Inventories 527,151 547,690 Prepaid income taxes and income taxes receivable 3,407 7,215 Prepaid expenses and other current assets 90,324 87,641 Total current assets 1,441,346 1,511,796 Net property, plant, and equipment 481,567 481,110 Intangible assets, net of amortization 628,333 593,970 Goodwill 1,289,188 1,186,922 Investments 25,248 24,121 Deferred income taxes 13,394 14,367 Right of use lease assets, net 56,379 57,382 Other long-term assets 40,259 34,066 Total assets $ 3,975,714 $ 3,903,734 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 173,353 $ 208,571 Accrued liabilities 143,843 187,057 Accrued income taxes 41,049 41,793 Current portion of long-term debt 137,435 134,874 Total current liabilities 495,680 572,295 Long-term debt, less current portion 864,223 866,623 Deferred income taxes 104,121 100,230 Accrued post-retirement benefits 30,038 28,037 Non-current operating lease liabilities 43,571 45,661 Other long-term liabilities 80,830 79,510 Shareholders’ equity: Common stock, par value $ 0.01 per share: 34,000,000 shares authorized; shares issued, July 1, 2023– 26,579,761 ; December 31, 2022– 26,445,618 261 261 Additional paid-in capital 998,589 974,097 Treasury stock, at cost: 1,709,947 and 1,685,357 shares, respectively ( 258,883 ) ( 252,866 ) Accumulated other comprehensive loss ( 97,392 ) ( 95,764 ) Retained earnings 1,714,381 1,585,466 Littelfuse, Inc. shareholders’ equity 2,356,956 2,211,194 Non-controlling interest 295 184 Total equity 2,357,251 2,211,378 Total liabilities and equity $ 3,975,714 $ 3,903,734 See accompanying Notes to Condensed Consolidated Financial Statements. 3 Table of Contents LITTELFUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (Unaudited) Three Months Ended Six Months Ended (in thousands, except per share data) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Net sales $ 611,997 $ 618,436 $ 1,221,779 $ 1,241,766 Cost of sales 377,165 355,465 741,990 720,199 Gross profit 234,832 262,971 479,789 521,567 Selling, general, and administrative expenses 94,543 93,093 182,853 168,601 Research and development expenses 24,496 23,488 51,786 43,044 Amortization of intangibles 16,885 11,592 33,751 24,316 Restructuring, impairment, and other charges 6,855 634 8,705 852 Total operating expenses 142,779 128,807 277,095 236,813 Operating income 92,053 134,164 202,694 284,754 Interest expense 10,056 4,368 19,702 8,670 Foreign exchange (gain) loss ( 1,404 ) 14,124 ( 3,079 ) 21,860 Other (income) expense, net ( 2,050 ) 6,060 ( 8,283 ) 10,487 Income before income taxes 85,451 109,612 194,354 243,737 Income taxes 15,380 22,596 35,538 39,203 Net income $ 70,071 $ 87,016 $ 158,816 $ 204,534 Earnings per share: Basic $ 2.82 $ 3.52 $ 6.40 $ 8.28 Diluted $ 2.79 $ 3.48 $ 6.33 $ 8.19 Weighted-average shares and equivalent shares outstanding: Basic 24,839 24,734 24,810 24,712 Diluted 25,095 24,985 25,078 24,986 See accompanying Notes to Condensed Consolidated Financial Statements. 4 Table of Contents LITTELFUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended Six Months Ended (in thousands) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Net income $ 70,071 $ 87,016 $ 158,816 $ 204,534 Other comprehensive (loss) income: Pension and postemployment adjustment, net of tax ( 159 ) 639 ( 153 ) 949 Cash flow hedge, net of tax 3,113 ( 541 ) 595 ( 541 ) Foreign currency translation adjustments ( 17,865 ) ( 31,447 ) ( 2,070 ) ( 33,960 ) Comprehensive income $ 55,160 $ 55,667 $ 157,188 $ 170,982 See accompanying Notes to Condensed Consolidated Financial Statements. 5 Table of Contents LITTELFUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended (in thousands) July 1, 2023 July 2, 2022 OPERATING ACTIVITIES Net income $ 158,816 $ 204,534 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 35,623 31,302 Amortization of intangibles 33,751 24,316 Deferred revenue 824 315 Non-cash inventory charges — 4,769 Impairment charges 3,924 18 Stock-based compensation 16,275 15,268 (Gain) loss on investments and other assets ( 680 ) 12,506 Deferred income taxes ( 3,431 ) ( 2,422 ) Other ( 2,939 ) 28,587 Changes in operating assets and liabilities: Trade receivables ( 30,562 ) ( 76,807 ) Inventories 26,638 ( 70,285 ) Accounts payable ( 33,796 ) 9,153 Accrued liabilities and income taxes ( 57,790 ) ( 23,107 ) Prepaid expenses and other assets 4,980 7,175 Net cash provided by operating activities 151,633 165,322 INVESTING ACTIVITIES Acquisitions of businesses, net of cash acquired ( 158,260 ) ( 9,758 ) Purchases of property, plant, and equipment ( 41,501 ) ( 56,151 ) Net proceeds from sale of property, plant and equipment, and other 741 542 Net cash used in investing activities ( 199,020 ) ( 65,367 ) FINANCING ACTIVITIES Proceeds of term loan — 300,000 Payments of senior notes payable — ( 25,000 ) Repayments of other debts ( 1,347 ) — Payments of term loan ( 3,750 ) — Net proceeds related to stock-based award activities 2,201 ( 1,626 ) Debt issuance costs — ( 2,156 ) Cash dividends paid ( 29,790 ) ( 26,201 ) 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) 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 Cash, cash equivalents, and restricted cash at end of period $ 483,094 $ 812,297 Supplementary Cash Flow Information Reconciliation of cash and cash equivalents: Cash and cash equivalents $ 480,743 $ 809,122 Restricted cash included in prepaid expenses and other current assets $ 771 $ 1,653 Restricted cash included in other long-term assets $ 1,580 $ 1,522 Cash paid during the period for interest $ 21,310 $ 8,365 Capital expenditures, not yet paid $ 10,183 $ 7,243 See accompanying Notes to Condensed Consolidated Financial Statements. 6 Table of Contents LITTELFUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) Littelfuse, Inc. Shareholders’ Equity (in thousands, except share and per share data) Common Stock Addl. Paid in Capital Treasury Stock Accum. Other Comp. Inc. (Loss) Retained Earnings Non-controlling Interest Total Balance at December 31, 2022 $ 261 $ 974,097 $ ( 252,866 ) $ ( 95,764 ) $ 1,585,466 $ 184 $ 2,211,378 Net income — — — — 88,745 — 88,745 Other comprehensive income, net of tax — — — 13,283 — — 13,283 Stock-based compensation — 3,730 — — — — 3,730 Non-controlling interest — — — — ( 66 ) 66 — Withheld shares on restricted share units for withholding taxes — — ( 18 ) — — — ( 18 ) Stock options exercised — 5,238 — — — — 5,238 Cash dividends paid ($ 0.60 per share) — — — — ( 14,880 ) — ( 14,880 ) Balance at April 1, 2023 $ 261 $ 983,065 $ ( 252,884 ) $ ( 82,481 ) $ 1,659,265 $ 250 $ 2,307,476 Net income — — — — 70,071 — 70,071 Other comprehensive loss, net of tax — — — ( 14,911 ) — — ( 14,911 ) Stock-based compensation — 12,545 — — — — 12,545 Non-controlling interest $ ( 45 ) $ 45 — Withheld shares on restricted share units for withholding taxes — — ( 5,999 ) — — — ( 5,999 ) Stock options exercised — 2,979 — — — — 2,979 Cash dividends paid ($ 0.60 per share) — — — — ( 14,910 ) — ( 14,910 ) Balance at July 1, 2023 $ 261 $ 998,589 $ ( 258,883 ) $ ( 97,392 ) $ 1,714,381 $ 295 $ 2,357,251 7 Table of Contents Littelfuse, Inc. Shareholders’ Equity (in thousands, except share and per share data) Common Stock Addl. Paid in Capital Treasury Stock Accum. Other Comp. (Loss) Retained Earnings Non-controlling Interest Total Balance at January 1, 2022 $ 260 $ 946,588 $ ( 248,120 ) $ ( 73,463 ) $ 1,268,124 $ 131 $ 1,893,520 Net income — — — — 117,518 — 117,518 Other comprehensive loss, net of tax — — — ( 2,203 ) — — ( 2,203 ) Stock-based compensation — 3,886 — — — — 3,886 Withheld shares on restricted share units for withholding taxes — — ( 4 ) — — — ( 4 ) Stock options exercised — 1,021 — — — — 1,021 Cash dividends paid ($ 0.53 per share) — — — — ( 13,086 ) — ( 13,086 ) Balance at April 2, 2022 $ 260 $ 951,495 $ ( 248,124 ) $ ( 75,666 ) $ 1,372,556 $ 131 $ 2,000,652 Net income — — — — 87,016 — 87,016 Other comprehensive loss, net of tax — — — ( 31,349 ) — — ( 31,349 ) Stock-based compensation — 11,382 — — — — 11,382 Withheld shares on restricted share units for withholding taxes — — ( 4,704 ) — — — ( 4,704 ) Stock options exercised 1 2,060 — — — — 2,061 Cash dividends paid ($ 0.53 per share) — — — — ( 13,115 ) — ( 13,115 ) Balance at July 2, 2022 $ 261 $ 964,937 $ ( 252,828 ) $ ( 107,015 ) $ 1,446,457 $ 131 $ 2,051,943 See accompanying Notes to Condensed Consolidated Financial Statements. 8 Table of Contents Notes to Condensed Consolidated Financial Statements 1. Summary of Significant Accounting Policies and Other Information Nature of Operations 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 approximate ly 18,000 glob al associates, the Company partners with customers to design and deliver innovative, reliable solutions. Serving over 100,000 end customers, the Company’s products are found in a variety of industrial, transportation and electronics end markets – everywhere, every day. Basis of Presentation The Company’s accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures normally included in the consolidated balance sheets, statements of net income and comprehensive income, statements of cash flows, and statements of stockholders' equity prepared in conformity with U.S. GAAP have been condensed or omitted as permitted by such rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. They have been prepared in accordance with accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which should be read in conjunction with the disclosures therein. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. Operating results for interim periods are not necessarily indicative of annual operating results. Revenue Recognition Revenue Disaggregation The following tables disaggregate the Company’s revenue by primary business units for the three and six months ended July 1, 2023 and July 2, 2022: Three Months Ended July 1, 2023 Six Months Ended July 1, 2023 (in thousands) Electronics Segment Transportation Segment Industrial Segment Total Electronics Segment Transportation Segment Industrial Segment Total Electronics – Passive Products and Sensors $ 152,852 $ — $ — $ 152,852 $ 301,450 $ — $ — $ 301,450 Electronics – Semiconductor 197,295 — — 197,295 407,290 — — 407,290 Passenger Car Products — 65,883 — 65,883 — 127,580 — 127,580 Automotive Sensors — 22,836 — 22,836 — 43,634 — 43,634 Commercial Vehicle Products — 83,329 — 83,329 — 167,475 — 167,475 Industrial Products — — 89,802 89,802 — — 174,350 174,350 Total $ 350,147 $ 172,048 $ 89,802 $ 611,997 $ 708,740 $ 338,689 $ 174,350 $ 1,221,779 9 Table of Contents Three Months Ended July 2, 2022 Six Months Ended July 2, 2022 (in thousands) Electronics Segment Transportation Segment Industrial Segment Total Electronics Segment Transportation Segment Industrial Segment Total Electronics – Passive Products and Sensors $ 162,313 $ — $ — $ 162,313 $ 332,256 $ — $ — $ 332,256 Electronics – Semiconductor 195,863 — — 195,863 391,741 — — 391,741 Passenger Car Products — 59,778 — 59,778 — 124,272 — 124,272 Automotive Sensors — 23,201 — 23,201 — 49,338 — 49,338 Commercial Vehicle Products — 99,048 — 99,048 — 192,921 — 192,921 Industrial Products — — 78,233 78,233 151,238 151,238 Total $ 358,176 $ 182,027 $ 78,233 $ 618,436 $ 723,997 $ 366,531 $ 151,238 $ 1,241,766 See Note 15, Segment Information for net sales by segment and countries. Revenue Recognition The Company recognizes revenue on product sales in the period in which the Company satisfies its performance obligation and control of the product is transferred to the customer. The Company’s sales arrangements with customers are predominately short term in nature and generally provide for transfer of control at the time of shipment as this is the point at which title and risk of loss of the product transfers to the customer. At the end of each period, for those shipments where title to the products and the risk of loss and rewards of ownership do not transfer until the product has been received by the customer, the Company adjusts revenues and cost of sales for the delay between the time that the products are shipped and when they are received by the customer. The amount of revenue recorded reflects the consideration to which the Company expects to be entitled in exchange for goods and may include adjustments for customer allowance, rebates and price adjustments. The Company’s distribution channels are primarily through direct sales and independent third-party distributors. The Company elected the practical expedient under Accounting Standards Codification ("ASC") 340-40-25-4 to expense commissions when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year. Revenue and Billing The Company generally accepts orders from customers through receipt of purchase orders or electronic data interchange based on written sales agreements and purchasing contracts. Contract pricing and selling agreement terms are based on market factors, costs, and competition. Pricing is often negotiated as an adjustment (premium or discount) from the Company’s published price lists. The customer is invoiced when the Company’s products are shipped to them in accordance with the terms of the sales agreement. As the Company’s standard payment terms are less than one year, the Company 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. Ship and Debit Program Some of the terms of the Company’s sales agreements and normal business conditions provide customers (distributors) the ability to receive price adjustments on products previously shipped and invoiced. This practice is common in the industry and is referred to as a “ship and debit” program. This program allows the distributor to debit the Company for the difference between the distributors’ contracted price and a lower price for specific transactions. Under certain circumstances (usually in a competitive situation or large volume opportunity), a distributor will request authorization for pricing allowances to reduce its 10 Table of Contents price. 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 historical activity, distributor inventory levels and actual authorizations for the debit and recognizes these debits as a reduction of revenue. Return to Stock The Company has a return to stock policy whereby certain customers, with prior authorization from Littelfuse management, can return previously purchased goods for full or partial credit. The Company establishes an estimated allowance for these returns based on historical activity. Sales revenue and cost of sales are reduced to anticipate estimated returns. Volume Rebates The Company offers volume based sales incentives to certain customers to encourage greater product sales. If customers achieve their specific quarterly or annual sales targets, they are entitled to rebates. 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. Cash, Cash Equivalents, and Restricted Cash The following table provides a reconciliation of cash, cash equivalents and restricted cash at July 1, 2023 and December 31, 2022 reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statement of Cash Flows. (in thousands) July 1, 2023 December 31, 2022 Cash and cash equivalents $ 480,743 $ 562,588 Restricted cash included in prepaid expenses and other current assets 771 802 Restricted cash included in other long-term assets 1,580 1,549 Total cash, cash equivalents, and restricted cash $ 483,094 $ 564,939 Recently Issued Accounting Standards In March 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-01, "Leases (Topic 842): Common Control Arrangements". The standard requires that leasehold improvements associated with common control leases be: 1) Amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a lease. However, if the lessor obtained the right to control the use of the underlying asset through a lease with another entity not within the same common control group, the amortization period may not exceed the amortization period of the common control group. 2) Accounted for as a transfer between entities under common control through an adjustment to equity (or net assets for not-for-profit entities) if, and when, the lessee no longer controls the use of the underlying asset. Additionally, those leasehold improvements are subject to the impairment guidance in Topic 360, Property, Plant, and Equipment. This standard is effective on January 1, 2024. The Company does not expect any material effect on the Company's Condensed Consolidated Financial Statements. 2. Acquisitions The Company accounts for acquisitions using the acquisition method in accordance with ASC 805, “Business Combinations,” in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition. The operating results of the acquired business are included in the Company’s Condensed Consolidated Financial Statements from the date of the acquisition. Western Automation On February 3, 2023, the Company completed the acquisition of 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, 11 Table of Contents including e-Mobility off-board charging infrastructure, industrial safety and renewables. 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 acquisition was funded with cash on hand. The total purchase consideration of $ 158.3 million, net of cash, has been allocated, on a preliminary basis, to assets acquired and liabilities assumed, as of the completion of the acquisition, based on preliminary estimated fair values. The purchase price allocation is preliminary because the evaluations necessary to assess the fair values of the net assets acquired are still in process. The primary area not yet finalized relates to the completion of the valuation of certain acquired income tax assets and liabilities. As a result, these allocations are subject to change during the purchase price allocation period as the valuations are finalized. The following table summarizes the preliminary purchase price allocation of the fair value of assets acquired and liabilities assumed in the Western Automation acquisition: (in thousands) Purchase Price Allocation Total purchase consideration: Cash, net of cash acquired $ 158,260 Allocation of consideration to assets acquired and liabilities assumed: Trade receivables, net 3,389 Inventories 3,678 Other current assets 718 Property, plant, and equipment 1,328 Intangible assets 68,000 Goodwill 94,823 Other non-current assets 573 Current liabilities ( 5,251 ) Other non-current liabilities ( 8,998 ) $ 158,260 All Western Automation assets and liabilities were recorded in the Industrial segment and are primarily reflected in the Europe geographic area. The goodwill resulting from this acquisition consists largely of the Company’s expected future product sales and synerg ies from combining Western Automation’s products and technology with the Company’s existing Industrial products portfolio. Goodwill resulting from the Western Automation acquisition is not expected to be deductible for tax purposes. Included in the Company’s Condensed Consolidated Statements of Net Income for the three and six months ended July 1, 2023 are net sales of approximately $ 4.8 million and $ 7.5 million respectively, and an income before income taxes of $ 0.3 million and $ 0.2 million, respectively, since the February 3, 2023 acquisition of Western Automation. During the six months ended July 1, 2023, the Company incurred approximately $ 1.4 million of legal and professional fees related to the Western Automation acquisition recognized as Selling, general, and administrative expenses . These costs were reflected as other non-segment costs. C&K Switches 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, datacom, and aerospace. 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 acquisition was funded through a combination of cash on hand and debt. The total purchase consideration of $ 523.0 million, net of cash acquired, has been allocated, on a preliminary basis, to assets acquired and liabilities assumed, as of the completion of the acquisition, based on preliminary estimated fair values. The purchase price allocation is preliminary because the evaluations necessary to assess the fair values of the net assets acquired are still in process. The primary area not 12 Table of Contents yet finalized relates to the completion of the valuation of certain acquired income tax assets and liabilities. As a result, these allocations are subject to change during the purchase price allocation period as the valuations are finalized. The following table summarizes the preliminary purchase price allocation of the fair value of assets acquired and liabilities assumed in the C&K acquisition: (in thousands) Purchase Price Allocation Total purchase consideration: Cash, net of cash acquired $ 523,014 Allocation of consideration to assets acquired and liabilities assumed: Trade receivables, net 20,967 Inventories 42,968 Other current assets 2,932 Property, plant, and equipment 32,791 Intangible assets 254,700 Goodwill 274,124 Other non-current assets 14,797 Current liabilities ( 47,687 ) Long-term debt ( 9,626 ) Other non-current liabilities ( 62,952 ) $ 523,014 All C&K goodwill, other assets and liabilities were recorded in the Electronics segment and are reflected in the Americas, Europe and Asia-Pacific geographic areas. The goodwill resulting from this acquisition consists largely of the Company’s expected future product sales and synergies from combining C&K’s products and technology with the Company’s existing Electronics products portfolio. Goodwill resulting from the C&K acquisition is not expected to be deductible for tax purposes. During the three months ended July 1, 2023, the Company recorded measurement period adjustments to increase other non-current liabilities of $ 4.2 million associated with uncertain tax positions, income taxes payable of $ 0.2 million, and reduce accrued liabilities of $ 0.3 million and deferred tax liabilities of $ 0.2 million. As a result of these adjustments, goodwill was increased by $ 3.9 million. As required by purchase accounting rules, the Company recorded a $ 10.8 million step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation. The step-up was amortized as a non-cash charge to cost of sales during the third and fourth quarter of 2022 as the acquired inventory was sold and reflected as other non-segment costs. Embed On April 12, 2022, the Company acquired Embed Ltd. (“Embed”). Founded in 2005, Embed is a proven provider of embedded software and firmware developed for a broad range of applications serving transportation end markets, primarily including commercial vehicle electrification and eMobility. The business is included in the commercial vehicle business within the Company's Transportation segment. The acquisition was funded with the Company’s cash on hand. The total purchase consideration was $ 9.2 million, net of cash. Pro Forma Results The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company and Western Automation as though the acquisition had occurred as of January 2, 2022, and C&K as though the acquisition had occurred as of December 27, 2020, and Carling business acquired on November 30, 2021 as though the acquisition had occurred as of December 29, 2019. The Company has not included pro forma results of operations for Embed as its operations were not material to the Company. The pro forma amounts presented are not necessarily indicative of either the actual consolidated results had the Western Automation acquisition occurred as of January 2, 2022, and had the C&K acquisition occurred as of December 27, 2020 and had Carling acquisition occurred as of December 29, 2019 or of future consolidated operating results. 13 Table of Contents For the Three Months Ended For the Six Months Ended (in thousands, except per share amounts) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Net sales $ 611,997 $ 684,835 $ 1,223,665 $ 1,376,586 Income before income taxes 85,481 121,995 196,094 271,474 Net income 70,098 93,818 160,339 222,514 Net income per share — basic 2.82 3.79 6.46 9.00 Net income per share — diluted 2.79 3.75 6.39 8.91 Pro forma results presented above primarily reflect the following adjustments: For the Three Months Ended For the Six Months Ended (in thousands) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Amortization (a) $ — $ ( 3,709 ) $ ( 479 ) $ ( 7,439 ) Depreciation — 805 — 1,528 Transaction costs (b) 30 2,264 1,427 4,243 Amortization of inventory step-up (c) — — — 4,769 Interest expense (d) — 123 — 317 Income tax expense of above items ( 3 ) ( 55 ) ( 118 ) ( 1,250 ) (a) The amortization adjustment for the six months ended July 1, 2023 and three and six months ended July 2, 2022 primarily reflects incremental amortization resulting from the measurement of intangibles at their fair values. (b) The transaction cost adjustments reflect the reversal of certain legal and professional fees from the three and six months ended July 1, 2023 and three and six months ended July 2, 2022, and recognition of those fees during the three and six months ended July 1, 2023. (c) The amortization of inventory step-up adjustment reflects the reversal of the amount recognized related to the Carling acquisition during the three months ended April 2, 2022. The inventory step-up was amortized over four months as the inventory was sold. (d) The interest expense adjustment reflects incremental interest expense related to the financing of the C&K acquisition. 3. Inventories The components of inventories at July 1, 2023 and December 31, 2022 are as follows: (in thousands) July 1, 2023 December 31, 2022 Raw materials $ 229,813 $ 231,043 Work in process 142,420 134,792 Finished goods 209,520 226,215 Inventory reserves ( 54,602 ) ( 44,360 ) Total $ 527,151 $ 547,690 14 Table of Contents 4. Property, Plant, and Equipment The components of net property, plant, and equipment at July 1, 2023 and December 31, 2022 are as follows: (in thousands) July 1, 2023 December 31, 2022 Land and land improvements $ 21,970 $ 22,089 Building and building improvements 193,254 191,733 Machinery and equipment 838,909 812,540 Accumulated depreciation ( 572,566 ) ( 545,252 ) Total $ 481,567 $ 481,110 The Company recorded depreciation expense of $ 18.0 million and $ 15.7 million for the three months ended July 1, 2023 and July 2, 2022, respectively, and $ 35.6 million and $ 31.3 million for the six months ended July 1, 2023 and July 2, 2022, respectively. 5. Goodwill and Other Intangible Assets Changes in the carrying value of goodwill by segment for the six months ended July 1, 2023 are as follows: (in thousands) Electronics Transportation Industrial Total Net book value of goodwill as of December 31, 2022 Gross goodwill as of December 31, 2022 $ 909,167 $ 234,793 $ 84,889 $ 1,228,849 Accumulated impairment losses as of December 31, 2022 — ( 33,401 ) ( 8,526 ) ( 41,927 ) Total 909,167 201,392 76,363 1,186,922 Changes during 2023: Additions (a) 3,879 — 94,823 98,702 Currency translation 3,384 365 ( 185 ) 3,564 Net book value of goodwill as of July 1, 2023 Gross goodwill as of July 1, 2023 916,430 235,281 179,719 1,331,430 Accumulated impairment losses as of July 1, 2023 — ( 33,524 ) $ ( 8,718 ) ( 42,242 ) Total $ 916,430 $ 201,757 $ 171,001 $ 1,289,188 (a) The additions resulted from the acquisitions of Western Automation and measurement period adjustment related to the C&K acquisition. The components of other intangible assets as of July 1, 2023 and December 31, 2022 are as follows: As of July 1, 2023 (in thousands) Gross Carrying Value Accumulated Amortization Net Book Value Land use rights $ 17,275 $ 2,470 $ 14,805 Patents, licenses, and software 271,310 151,514 119,796 Distribution network 43,089 43,089 — Customer relationships, trademarks, and tradenames 680,820 187,088 493,732 Total $ 1,012,494 $ 384,161 $ 628,333 15 Table of Contents December 31, 2022 (in thousands) Gross Carrying Value Accumulated Amortization Net Book Value Land use rights $ 17,938 $ 2,299 $ 15,639 Patents, licenses, and software 259,603 140,208 119,395 Distribution network 41,733 40,955 778 Customer relationships, trademarks, and tradenames 623,721 165,563 458,158 Total $ 942,995 $ 349,025 $ 593,970 During the three months ended July 1, 2023 and July 2, 2022, the Company recorded amortization expense of $ 16.9 million and $ 11.6 million, respectively. During the six months ended July 1, 2023 and July 2, 2022, the Company recorded amortization expense of 33.8 million and $ 24.3 million, respectively. During the six months ended July 1, 2023, the Company recorded additions to intangible assets of $ 68.0 million, related to the Western Automation acquisition, the components of which were as follows: (in thousands) Weighted Average Useful Life Amount Patents, licenses, and software 6.7 $ 11,500 Customer relationships, trademarks, and tradenames 14.7 56,500 Total $ 68,000 Estimated annual amortization expense related to intangible assets with definite lives as of July 1, 2023 is as follows: (in thousands) Amount 2023 $ 65,730 2024 62,859 2025 62,536 2026 51,576 2027 49,529 2028 and thereafter 369,854 Total $ 662,084 6. Accrued Liabilities The components of accrued liabilities as of July 1, 2023 and December 31, 2022 are as follows: (in thousands) July 1, 2023 December 31, 2022 Employee-related liabilities $ 63,644 $ 99,089 Current lease liability 12,559 12,841 Other non-income taxes 8,373 10,594 Professional services 6,619 7,160 Other customer reserves 4,575 5,064 Interest 4,205 4,449 Deferred revenue 2,488 2,593 Restructuring liability 1,744 2,434 Current benefit liability 1,318 1,318 Other 38,318 41,515 Total $ 143,843 $ 187,057 16 Table of Contents Employee-related liabilities consist primarily of payroll, sales commissions, bonus, employee benefit accruals and workers’ compensation. Bonus accruals include amounts earned pursuant to the Company’s primary employee incentive compensation plans. Other accrued liabilities include miscellaneous operating accruals and other client-related liabilities. 7. Restructuring, Impairment, and Other Charges The Company recorded restructuring, impairment, and other charges for the three and six months ended July 1, 2023 and July 2, 2022 as follows: Three months ended July 1, 2023 Six months ended July 1, 2023 (in thousands) Electronics Transportation Industrial Total Electronics Transportation Industrial Total Employee terminations $ 987 $ 351 $ 277 $ 1,615 $ 1,659 $ 933 $ 594 $ 3,186 Other restructuring charges 250 412 654 1,316 257 684 654 1,595 Total restructuring charges 1,237 763 931 2,931 1,916 1,617 1,248 4,781 Impairment — 3,870 54 3,924 — 3,870 54 3,924 Total $ 1,237 $ 4,633 $ 985 $ 6,855 $ 1,916 $ 5,487 $ 1,302 $ 8,705 Three months ended July 2, 2022 Six months ended July 2, 2022 (in thousands) Electronics Transportation Industrial Total Electronics Transportation Industrial Total Employee terminations $ 201 $ 423 $ — $ 624 $ 406 $ 423 $ — $ 829 Other restructuring charges 3 7 — 10 3 20 — 23 Total $ 204 $ 430 $ — $ 634 $ 409 $ 443 $ — $ 852 2023 For the three and six months ended July 1, 2023, the Company recorded total restructuring charges of $ 2.9 million and $ 4.8 million, respectively, primarily for employee termination costs. These charges primarily related to the reorganization of certain selling and administrative functions within the Electronics segment due to the C&K acquisition and the reorganization of certain manufacturing, selling and administrative functions within the Transportation segment’s commercial vehicle business. In addition, during the second quarter of 2023, the Company recognized a $ 3.9 million impairment charge related to the land and building of a property in the commercial vehicle business within the Transportation segment that the Company made the decision to donate. 2022 For the three and six months ended July 2, 2022, the Company recorded total restructuring charges of $ 0.6 million and $ 0.9 million, respectively. primarily for employee termination costs. These charges are primarily related to the reorganization of certain manufacturing, selling, and administrative functions within the Electronics segment. The restructuring liability as of July 1, 2023 and December 31, 2022 is $ 1.7 million and $ 2.4 million, respectively. The restructuring liability is included within accrued liabilities in the Condensed Consolidated Balance Sheets. The Company anticipates the remaining payments associated with employee terminations will primarily be completed in fiscal year 2023. 17 Table of Contents 8. Debt The carrying amounts of debt at July 1, 2023 and December 31, 2022 are as follows: (in thousands) July 1, 2023 December 31, 2022 Revolving Credit Facility $ 100,000 $ 100,000 Term Loan 292,500 296,250 Euro Senior Notes, Series A due 2023 127,220 124,716 Euro Senior Notes, Series B due 2028 103,298 101,265 U.S. Senior Notes, Series B due 2027 100,000 100,000 U.S. Senior Notes, Series A due 2025 50,000 50,000 U.S. Senior Notes, Series B due 2030 125,000 125,000 U.S. Senior Notes, due 2032 100,000 100,000 Other 7,942 9,113 Unamortized debt issuance costs ( 4,302 ) ( 4,847 ) Total debt 1,001,658 1,001,497 Less: Current maturities ( 137,435 ) ( 134,874 ) Total long-term debt $ 864,223 $ 866,623 Revolving Credit Facility and Term Loan On June 30, 2022, the Company amended and restated its Credit Agreement, dated as of April 3, 2020 (the “Credit Agreement”) to effect certain changes, including, among other changes: (i) adding a $ 300 million unsecured term loan credit facility; (ii) making certain financial and non-financial covenants less restrictive on the Company and its subsidiaries; (iii) replacing LIBOR-based interest rate benchmarks and modifying performance-based interest rate margins; and (iv) extending the maturity date to June 30, 2027 (the “Maturity Date”). Pursuant to the Credit Agreement, the Company may, from time to time, increase the size of the revolving credit facility or enter into one or more tranches of term loans in minimum increments of $ 25 million if there is no event of default and the Company is in compliance with certain financial covenants. 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 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 July 1, 2023, the effective interest rate on revolving loan and term loan outstanding borrowings was 6.45 %. 18 Table of Contents 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. Senior Notes 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”). Interest on the Euro Senior Notes is payable semiannually on June 8 and December 8, commencing June 8, 2017. On December 8, 2016, the Company entered into a Note Purchase Agreement, pursuant to which the Company issued and sold $ 125 million aggregate principal amount of senior notes in two series. On February 15, 2017, $ 25 million in aggregate principal amount of 3.03 % Senior Notes, Series A, due February 15, 2022 (“U.S. 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”) 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. On January 16, 2018, $ 50 million aggregate principal amount of 3.48 % Senior Notes, Series A, due February 15, 2025 (“U.S. Senior Notes, Series A due 2025”) and $ 125 million in aggregate principal amount of 3.78 % Senior Notes, Series B, due February 15, 2030 (“U.S. Senior Notes, Series B due 2030”) (together, the “U.S. 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 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 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, 2022. The Senior Notes have not been registered under the Securities Act, or applicable state securities laws. The Senior Notes are general unsecured senior obligations and rank equal in right of payment with all existing and future unsecured unsubordinated indebtedness of the Company. The Senior Notes are subject to certain customary covenants, including limitations on the Company’s ability, with certain exceptions, to engage in mergers, consolidations, asset sales and transactions with affiliates, to engage in any business that would substantially change the general business of the Company, and to incur liens. In addition, the Company is required to satisfy certain financial covenants and tests relating to, among other matters, interest coverage and leverage. At July 1, 2023, the Company was in compliance with all covenants under the Senior Notes. The Company may redeem the Senior Notes upon the satisfaction of certain conditions and the payment of a make-whole amount to noteholders and are required to offer to repurchase the Senior Notes at par following certain events, including a change of control. Interest paid on all Company debt was $ 10.3 million and $ 2.3 million for the three months ended July 1, 2023 and July 2, 2022, respectively, and $ 21.3 million and $ 8.4 million for the six months ended July 1, 2023 and July 2, 2022, respectively. 19 Table of Contents 9. Fair Value of Assets and Liabilities For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, the Company classifies each fair value measurement as follows: Level 1 —Valuations based on unadjusted quoted prices for identical assets or liabilities in active markets; Level 2 —Valuations based upon quoted prices for similar instruments, prices for identical or similar instruments in markets that are not active, or model-derived valuations, all of whose significant inputs are observable, and Level 3 —Valuations based upon one or more significant unobservable inputs . There were no transfers in or out of Level 1, Level 2 and Level 3 during the period. Following is a description of the valuation methodologies used for instruments measured at fair value and their classification in the valuation hierarchy. Cash Equivalents Cash equivalents primarily consist of money market funds, which are held with an institution with sound credit rating and are highly liquid. The Company classified cash equivalents as Level 1 and are valued at cost which approximates fair value. Investments in Equity Securities Investments in equity securities listed on a national market or exchange are valued at the last sales price and classified within Level 1 of the valuation hierarchy and recorded in Investments and Other long-term assets. Derivatives Designated as Hedging Instruments 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. The fair value of the interest rate swap was valued using an independent third-party valuation model. Pursuant to this model, c hanges in fair value of derivatives that are designated as cash flow hedges are deferred in accumulated other comprehensive loss u ntil the underlying transactions are recognized in earnings. The primary inputs into the valuation of the interest rate swap are interest yield curves, interest rate volatility, credit risk, credit spreads and other market information. The interest rate swap is classified within Level 2 of the fair value hierarchy, since all significant inputs are corroborated by market observable data. The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. The Company seeks to minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings and monitoring the total value of positions with individual counterparties. In the event of a default by one of our counterparties, the Company may not receive payments provided for under the terms of our derivatives. Derivatives Not Designated as Hedging Instruments On July 14, 2022, the Company entered into a foreign currency exchange forward contract to mitigate the currency fluctuation risk between the Euro and U.S. dollar on its Euro denominated Senior Notes, Series A due 2023. The notional value of the forward contract at July 1, 2023 was € 117.0 million and expires on December 7, 2023. The foreign currency contract was not designated as a hedge instrument and is marked to market on a monthly basis. As a result, changes in fair value are reported in Foreign exchange (gain) loss in the Condensed Consolidated Statements of Operations. The fair value of the foreign currency forward contract was valued using market exchange rates by a third party and classified as a Level 2 input under the fair value hierarchy. As of July 1, 2023 and December 31, 2022, the fair values of our derivative financial instrument and their classifications on the Condensed Consolidated Balance Sheets were as follows: 20 Table of Contents (in thousands) Consolidated Balance Sheet Classification July 1, 2023 December 31, 2022 Derivatives Designated as Hedging Instruments Interest rate swap agreement: Designated as cash flow hedge Prepaid expenses and other current assets $ 4,794 $ 3,939 Other long-term assets $ 4,668 $ 4,740 Derivatives Not Designated as Hedging Instruments Foreign exchange forward contract Prepaid expenses and other current assets $ 7,245 $ 6,186 The pre-tax (gains) losses recognized on derivative financial instruments in the Condensed Consolidated Statements of Operations for the three and six months ended July 1, 2023 and July 2, 2022 were as follows: Three Months Ended Six Months Ended (in thousands) Classification of (Gain) Loss Recognized in the Condensed Consolidated Statements of Operations July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Derivatives designated as cash flow hedges Interest rate swap agreement Interest expense, net $ ( 1,119 ) $ 21 $ ( 2,094 ) $ 21 Derivatives Not Designated as Hedging Instruments Foreign exchange forward contract Foreign exchange (gain) loss $ ( 264 ) $ — $ ( 1,083 ) $ — The pre-tax (gains) losses recognized on derivative financial instruments in the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 1, 2023 and July 2, 2022 was as follows: Three Months Ended Six Months Ended (in thousands) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Derivatives designated as cash flow hedges Interest rate swap agreement $ ( 4,096 ) $ 712 $ ( 783 ) $ 712 The pre-tax gain of $ 4.8 million from accumulated other comprehensive loss to earnings is expected to be recognized during the next twelve months. Mutual Funds The Company has a non-qualified Supplemental Retirement and Savings Plan which provides additional retirement benefits for certain management employees and named executive officers by allowing participants to defer a portion of their annual compensation. The Company maintains accounts for participants through which participants make investment elections. The marketable securities are classified as Level 1 under the fair value hierarchy as they are maintained in mutual funds with readily determinable fair value and recorded in Other long-term assets. There we re no changes during the quarter ended July 1, 2023 to the Company’s valuation techniques used to measure asset and liability fair values o n a recurring basis. As of July 1, 2023 and December 31, 2022, the Company did not hold any non-financial assets or liabilities that are required to be measured at fair value on a recurring basis. 21 Table of Contents The following table presents assets measured at fair value by classification within the fair value hierarchy as of July 1, 2023: Fair Value Measurements Using (in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash equivalents $ 246,566 $ — $ — $ 246,566 Investments in equity securities 11,573 — — 11,573 Mutual funds 18,513 — — 18,513 Total $ 276,652 $ — $ — $ 276,652 The following table presents assets measured at fair value by classification within the fair value hierarchy as of December 31, 2022: Fair Value Measurements Using (in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash equivalents $ 304,101 $ — $ — $ 304,101 Investments in equity securities 10,653 — — 10,653 Mutual funds 14,094 — — 14,094 Total $ 328,848 $ — $ — $ 328,848 In addition to the methods and assumptions used for the financial instruments recorded at fair value as discussed above, the following methods and assumptions are used to estimate the fair value of other financial instruments that are not marked to market on a recurring basis. The Company’s other financial instruments include cash and cash equivalents, short-term investments, accounts receivable and its long-term debt. Due to their short-term maturity, the carrying amounts of cash and cash equivalents, short-term investments and accounts receivable approximate their fair values. The Company’s revolving and term loan debt facilities' fair values approximate book value at July 1, 2023 and December 31, 2022, as the rates on these borrowings are variable in nature. The carrying value and estimated fair values of the Company’s Euro Senior Notes, Series A and Series B and USD Senior Notes, Series A and Series B, as of July 1, 2023 and December 31, 2022 were as follows: July 1, 2023 December 31, 2022 (in thousands) Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Euro Senior Notes, Series A due 2023 $ 127,220 $ 125,507 $ 124,716 $ 122,270 Euro Senior Notes, Series B due 2028 103,298 89,941 101,265 87,119 USD Senior Notes, Series B due 2027 100,000 93,334 100,000 93,764 USD Senior Notes, Series A due 2025 50,000 48,128 50,000 48,145 USD Senior Notes, Series B due 2030 125,000 111,735 125,000 112,028 USD Senior Notes, due 2032 100,000 89,879 100,000 90,131 10. Benefit Plans The Company has Company-sponsored and mandatory defined benefit pension plans covering employees in the United Kingdom ("U.K."), Germany, the Philippines, China, Japan, Mexico, Italy and France. The amount of the retirement benefits provided under the plans is generally based on years of service and final average pay. 22 Table of Contents The Company recognizes interest cost, expected return on plan assets, and amortization of prior service, net within Other (income) expense, net in the Condensed Consolidated Statements of Net Income. The components of net periodic benefit cost for the three and six months ended July 1, 2023 and July 2, 2022 were as follows: For the Three Months Ended For the Six Months Ended (in thousands) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Components of net periodic benefit cost: Service cost $ 695 $ 750 $ 1,387 $ 1,518 Interest cost 952 628 1,889 1,272 Expected return on plan assets ( 470 ) ( 380 ) ( 939 ) ( 783 ) Amortization of prior service and net actuarial loss 11 96 22 197 Net periodic benefit cost $ 1,188 $ 1,094 $ 2,359 $ 2,204 The Company expects to make approximately $ 2.0 million of contributions to the plans and pay $ 1.9 million of benefits directly in 2023. The Company also sponsors certain post-employment plans in foreign countries and other statutory benefit plans. The Company recorded expense of $ 0.4 million and $ 0.5 million for the three months ended July 1, 2023 and July 2, 2022 , respectively, and of $ 0.8 million and $ 0.5 million for the six months ended July 1, 2023 and July 2, 2022, respectively, in Cost of Sales and Other (income) expense, net within the Condensed Consolidated Statements of Net Income. The pre-tax amounts recognized in other comprehensive income (loss) as components of net periodic benefit costs for these plans were nominal and $ 0.1 million for the three months ended July 1, 2023 and July 2, 2022, respectively, and nominal and $ 0.2 million f or the six months ended July 1, 2023 and July 2, 2022, respectively. 11. Other Comprehensive (Loss) Income Changes in other comprehensive (loss) income by component were as follows: (in thousands) Three Months Ended July 1, 2023 Three Months Ended July 2, 2022 Pre-tax Tax Net of Tax Pre-tax Tax Net of Tax Defined benefit pension plan and other adjustments $ ( 146 ) $ ( 13 ) $ ( 159 ) $ 722 $ ( 83 ) $ 639 Cash flow hedge 4,096 ( 983 ) 3,113 ( 712 ) 171 ( 541 ) Foreign currency translation adjustments (a) ( 17,865 ) — ( 17,865 ) ( 32,167 ) 720 ( 31,447 ) Total change in other comprehensive (loss) income $ ( 13,915 ) $ ( 996 ) $ ( 14,911 ) $ ( 32,157 ) $ 808 $ ( 31,349 ) (in thousands) Six Months Ended July 1, 2023 Six Months Ended July 2, 2022 Pre-tax Tax Net of Tax Pre-tax Tax Net of Tax Defined benefit pension plan adjustments $ ( 122 ) $ ( 31 ) $ ( 153 ) 1,045 ( 96 ) $ 949 Cash flow hedge 783 ( 188 ) 595 ( 712 ) 171 ( 541 ) Foreign currency translation adjustments (a) ( 1,797 ) ( 273 ) ( 2,070 ) $ ( 35,382 ) $ 1,422 $ ( 33,960 ) Total change in other comprehensive (loss) income $ ( 1,136 ) $ ( 492 ) $ ( 1,628 ) $ ( 35,049 ) $ 1,497 $ ( 33,552 ) (a) The tax shown above within the foreign currency translation adjustments is the U.S. tax associated with the foreign currency translation adjustments of earnings of non-U.S. subsidiaries which have been previously taxed in the U.S. and are not permanently reinvested. The following tables set forth the changes i n accumulated other comprehensive loss by compon ent for the six months ended July 1, 2023 and July 2, 2022: 23 Table of Contents (in thousands) Defined benefit pension plan and other adjustments Cash flow hedge Foreign currency translation adjustment Accumulated other comprehensive loss Balance at December 31, 2022 $ ( 2,193 ) $ 6,596 $ ( 100,167 ) $ ( 95,764 ) Activity in the period ( 153 ) 595 ( 2,070 ) ( 1,628 ) Balance at July 1, 2023 $ ( 2,346 ) $ 7,191 $ ( 102,237 ) $ ( 97,392 ) (in thousands) Defined benefit pension plan and other adjustments Cash flow hedge Foreign currency translation adjustment Accumulated other comprehensive loss Balance at January 1, 2022 $ ( 11,928 ) $ — $ ( 61,535 ) $ ( 73,463 ) Activity in the period 949 ( 541 ) ( 33,960 ) ( 33,552 ) Balance at July 2, 2022 $ ( 10,979 ) $ ( 541 ) $ ( 95,495 ) $ ( 107,015 ) Amounts reclassified from accumulated other comprehensive loss to e arnings for the three and six months ended July 1, 2023 and July 2, 2022 were as follows: Three Months Ended Six Months Ended (in thousands) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Pension and Postemployment plans: Amortization of prior service and net actuarial (gain) loss $ ( 11 ) $ 198 $ ( 22 ) $ 395 The Company recognizes the amortization of prior service costs in Other (income) expense, net within the Condensed Consolidated Statements of Net Income. 12. Income Taxes The effective tax rate for the three and six months ended July 1, 2023 was 18.0 % and 18.3 %, respectively, compared to the effective tax rate for the three and six months ended July 2, 2022 of 20.6 % and 16.1 %, respectively. 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. 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 was also lower due to the impact of the one-time deduction previously noted. 24 Table of Contents 13. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Six Months Ended (in thousands, except per share amounts) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Numerator: Net income as reported $ 70,071 $ 87,016 $ 158,816 $ 204,534 Denominator: Weighted average shares outstanding Basic 24,839 24,734 24,810 24,712 Effect of dilutive securities 256 251 268 274 Diluted 25,095 24,985 25,078 24,986 Earnings Per Share: Basic earnings per share $ 2.82 $ 3.52 $ 6.40 $ 8.28 Diluted earnings per share $ 2.79 $ 3.48 $ 6.33 $ 8.19 Potential shares of common stock relating to stock options and restricted share units excluded from the earnings per share calculation because their effect would be anti-dilutive were 110,598 and 88,130 for the three months ended July 1, 2023 and July 2, 2022, respectively, and 102,283 and 72,970 for 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 $ 300.0 million in the aggregate of shares of the Company’s common stock for the period May 1, 2021 to April 30, 2024 to replace its previous 2020 program. The Company did no t repurchase shares of its common stock for the three and six months ended July 1, 2023, and July 2, 2022. 14. Related Party Transactions The Company has equity ownership in various investments that are accounted for under the equity method. The following is a description of the investments and related party transactions. Powersem GmbH: The Company owns 45 % of the outstanding equity of Powersem GmbH (“Powersem”), a module manufacturer based in Germany. EB-Tech Co., Ltd.: The Company owns approximately 19 % of the outstanding equity of EB Tech Co., Ltd. (“EB Tech”), a company with expertise in radiation technology based in South Korea. Automated Technology (Phil), Inc. : The Company owns approximately 24 % of the outstanding common shares of Automated Technology (Phil), Inc. (“ATEC”), a supplier located in the Philippines that provides assembly and test services. One member of the Company's Board of Directors serves on the Board of Directors of ATEC. 25 Table of Contents Three Months Ended July 1, 2023 Three Months Ended July 2, 2022 (in millions) Powersem EB-Tech ATEC Powersem EB Tech ATEC Sales to related party $ 0.7 $ — $ — $ — $ — $ — Purchase material/service from related party 1.1 0.1 2.9 0.1 0.1 3.0 Six Months Ended July 1, 2023 Six Months Ended July 2, 2022 (in millions) Powersem EB-Tech ATEC Powersem EB Tech ATEC Sales to related party $ 1.2 $ — $ — $ — $ — $ — Purchase material/service from related party 2.1 0.2 5.6 0.3 0.2 5.9 July 1, 2023 December 31, 2022 (in millions) Powersem EB Tech ATEC Powersem EB Tech ATEC Accounts payable balance $ 0.7 $ — $ 2.0 $ — $ — $ 1.8 15. Segment Information The Company and its subsidiaries design, manufacture and sell component, modules and subassemblies to empower the long-term structural themes of sustainability, connectivity and safety. The Company reports its operations by the following segments: Electronics, Transportation, and Industrial. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. The CODM is the Company’s President and Chief Executive Officer (“CEO”). The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest and taxes, but does not evaluate the operating segments using discrete balance sheet information. Sales, marketing, and research and development expenses are charged directly into each operating segment. Purchasing, logistics, customer service, finance, information technology, and human resources are shared functions that are allocated back to the three operating segments. The Company does not report inter-segment revenue because the operating segments do not record it. Certain expenses, determined by the CODM to be strategic in nature and not directly related to segments current results, are not allocated but identified as “Other”. Additionally, the Company does not allocate interest and other income, interest expense, or taxes to operating segments. These costs are not allocated to the segments, as management excludes such costs when assessing the performance of the segments. Although the CODM uses operating income (loss) to evaluate the segments, operating costs included in one segment may benefit other segments. Except as discussed above, the accounting policies for segment reporting are the same as for the Company as a whole. • Electronics Segment : Consists of one of the broadest product offerings in the industry, including fuses and fuse accessories, positive temperature coefficient (“PTC”) resettable fuses, electromechanical switches and interconnect solutions, polymer electrostatic discharge (“ESD”) suppressors, varistors, reed switch based magnetic sensing, gas discharge tubes; semiconductor products such as discrete transient voltage suppressor (“TVS”) diodes, TVS diode arrays, protection and switching thyristors, silicon and silicon carbide metal-oxide-semiconductor field effect transistors (“MOSFETs”) and diodes; and insulated gate bipolar transistors (“IGBT”) technologies. The segment covers a broad range of end markets, including industrial motor drives and power conversion, automotive electronics, electric vehicle and related charging infrastructure, aerospace, power supplies, data centers and telecommunications, medical devices, alternative energy and energy storage, building and home automation, appliances, and mobile electronics. • Transportation Segment: Consists of a wide range of circuit protection, power control and sensing technologies for global original equipment manufacturers (“OEMs”), Tier-one suppliers and parts and aftermarket distributors in passenger vehicle, heavy-duty truck and bus, off-road and recreational vehicles, material handling equipment, agricultural machinery, construction equipment and other commercial vehicle end markets. Passenger vehicle products are used in internal combustion engine, hybrid and electric vehicles including blade fuses, battery cable protectors, resettable fuses, high-current fuses, high-voltage fuses, and sensor products designed to monitor the occupant’s safety and environment as well as the vehicle’s powertrain. Commercial vehicle products include fuses, switches, circuit breakers, relays, and power distribution modules and units used in applications serving a number of end markets, including heavy-duty truck and bus, construction, agriculture, material handling and marine. 26 Table of Contents • Industrial Segment: Consists of industrial circuit protection (industrial fuses), industrial controls (protection relays, contactors, transformers, residual current devices, ground fault circuit interrupters, residual current monitors, and arc fault detection devices) and temperature sensors for use in various applications such as renewable energy and energy storage systems, industrial safety, factory automation, electr ic vehicle infrastructure, HVAC systems, non-residential construction, MRO, and mining. Segment information is summarized as follows: Three Months Ended Six Months Ended (in thousands) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Net sales Electronics $ 350,147 $ 358,176 $ 708,740 $ 723,997 Transportation 172,048 182,027 338,689 366,531 Industrial 89,802 78,233 174,350 151,238 Total net sales $ 611,997 $ 618,436 $ 1,221,779 $ 1,241,766 Depreciation and amortization Electronics $ 19,808 $ 14,511 $ 39,596 29,904 Transportation 11,063 10,628 22,354 21,372 Industrial 4,021 2,181 7,424 4,342 Total depreciation and amortization $ 34,892 $ 27,320 $ 69,374 $ 55,618 Operating income Electronics $ 79,844 $ 105,958 $ 170,006 $ 226,535 Transportation 7,789 18,309 16,321 44,617 Industrial 15,108 15,285 32,249 27,790 Other (a) ( 10,688 ) ( 5,388 ) ( 15,882 ) ( 14,188 ) Total operating income 92,053 134,164 202,694 284,754 Interest expense 10,056 4,368 19,702 8,670 Foreign exchange (gain) loss ( 1,404 ) 14,124 ( 3,079 ) 21,860 Other (income) expense, net ( 2,050 ) 6,060 ( 8,283 ) 10,487 Income before income taxes $ 85,451 $ 109,612 $ 194,354 $ 243,737 (a) Included in “Other” Operating income for the second quarter of 2023 was $ 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. Included in “Other” Operating income for the second quarter of 2022 was $ 4.8 million ($ 8.6 million year-to-date) of legal and professional fees and other integration expenses 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. 27 Table of Contents The Company’s net sales by country were as follows: Three Months Ended Six Months Ended (in thousands) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Net sales United States $ 205,793 $ 224,743 $ 417,988 $ 444,981 China 143,570 162,322 277,037 327,104 Other countries (a) 262,634 231,371 526,754 469,681 Total net sales $ 611,997 $ 618,436 $ 1,221,779 $ 1,241,766 The Company’s long-lived assets by country were as follows: (in thousands) July 1, 2023 December 31, 2022 Long-lived assets United States $ 75,381 $ 76,325 China 130,154 129,094 Mexico 104,293 107,119 Germany 41,890 39,635 Philippines 75,216 77,240 Other countries (a) 54,633 51,697 Total long-lived assets $ 481,567 $ 481,110 The Company’s additions to long-lived assets by country were as follows: Six Months Ended (in thousands) July 1, 2023 July 2, 2022 Additions to long-lived assets United States $ 5,482 $ 6,527 China 15,228 15,623 Mexico 7,176 14,244 Germany 3,269 2,432 Philippines 3,202 10,138 Other countries (a) 5,602 2,558 Total additions to long-lived assets $ 39,959 $ 51,522 (a) Each country included in other countries is less than 10% of net sales. 28 Table of Contents