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Item 2. Management’s Discussion and Analysis

2024-05-01 compared with 2023-11-01 · 95 added, 149 removed, 160 unchanged (60% of the section changed)

39 unchanged sentences

Executive Summary

For the third quarter of 2023, the Company recognized net sales of $607.1 million, a decrease of $51.8 million, or 7.9% as compared to $658.9 million in the third quarter of 2022 including $7.3 million or 1.1% of favorable changes in foreign exchange rates.

The decrease in net sales was primarily due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment that more than offset higher volume in the passenger car products business within the Transportation segment, and higher volume in the Industrial segment.

The Company recognized net income of $57.8 million, or $2.30 per diluted share, in the third quarter of 2023 compared to $75.5 million, or $3.02 per diluted share in the third quarter of 2022.

For the first quarter of 2024, the Company recognized net sales of $535.4 million, a decrease of $74.4 million, or 12.2% as compared to $609.8 million in the first quarter of 2023 including $1.8 million or 0.3% of unfavorable changes in foreign exchange rates.

The decrease in net sales was primarily due to lower volume in the Electronics and Industrial segments.

The Company recognized net income of $48.5 million, or $1.93 per diluted share, in the first quarter of 2024 compared to $88.7 million, or $3.54 per diluted share, in the first quarter of 2023.

The decrease in net income was primarily due to lower operating income of $52.4 million in the Electronics segment driven by a reduction in 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 37.2 million Euro down payment (approximately $40.5 million) recorded in Other long-term assets in the Condensed Consolidated Balance Sheets was paid in the third quarter 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.

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

At the time the Company and Western Automation entered into the definitive agreement, Western Automation had annualized sales of approximately $25 million and will be reported within the company’s Industrial segment.

The Company financed the transaction with cash on hand.

Net cash provided by operating activities was $313.1 million for the nine months ended September 30, 2023 compared to $313.4 million for the nine months ended October 1, 2022 as lower cash earnings were 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.

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.

Net cash provided by operating activities was $57.2 million for the three months ended March 30, 2024 compared to $53.4 million for the three months ended April 1, 2023.

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

The Company has been notified by one of its customers of a product recall potentially due to certain fuses provided by Littelfuse and incorporated in such products.

The Company is currently working with its customer to investigate the cause and level of responsibility for this recall.

The Company has determined pursuant to ASC 450, "Contingencies " that a loss is reasonably possible.

However, the Company continues to evaluate this matter and the ultimate costs of the recall and range of the potential loss cannot be determined at this time.

Accordingly, no accrual has been made yet for this matter.

Factors that will impact the amount of such losses include the per vehicle cost of fuse replacement, the determination of the relative liability among the customer, the Company, and any relevant third parties, as well as actual insurance recoveries .

Results of Operations

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

The third quarter of 2023 includes $3.7 million ($8.5 million year-to-date) of restructuring charges, primarily related to employee termination costs, and $1.8 million ($9.0 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions.

During the third quarter of 2023, the Company recognized a $0.8 million impairment charge substantially related to certain patents in a business within the Industrial segment.

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.

The first quarter of 2024 includes $2.3 million of restructuring charges primarily related to employee termination costs and a $0.9 million impairment charge related to certain machinery and equipment in the commercial vehicle business within the Transportation segment.

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

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

In addition, during the first quarter of 2024, the Company recognized $0.9 million of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, partially offset by a gain of $0.3 million recorded for the sale of a building in the commercial vehicle business within the Transportation segment.

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

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

Third Quarter First Nine Months

First Quarter

(in thousands) 2024 2023 Change %

Change 2023 2022 Change %

Net sales $ 535,385 $ 609,782 $ (74,397) (12.2) %

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Net income $ 48,452 $ 88,745 $ (40,293) (45.4) %

Net sales decreased $51.8 million, or 7.9%, for the third quarter of 2023 compared to the third quarter of 2022 including $7.3 million or 1.1% of favorable 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 higher volume in passenger car products business within the Transportation segment, and higher volume in the Industrial segment.

Net sales decreased $71.8 million, or 3.8%, for the first nine months of 2023 compared to the first nine months of 2022, including $3.1 million or 0.2% 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 $102.0 million or 5.4% incremental net sales associated with the C&K and Western Automation acquisitions and higher volume from the Industrial segment.

Net sales decreased $74.4 million, or 12.2%, for the first quarter of 2024 compared to the first quarter of 2023 including $1.8 million or 0.3% of unfavorable changes in foreign exchange rates.

The decrease in net sales was due to lower volume of $67.5 million and $10.6 million in the Electronics and Industrial segments, respectively, that more than offset higher volume in the passenger car products business within the Transportation segment.

Cost of Sales

Cost of sales was $380.2 million, or 62.6% of net sales, in the third quarter of 2023, compared to $402.1 million, or 61.0% of net sales, in the third quarter of 2022.

As a percent of net sales, cost of sales increased 1.6% driven by lower volume in the Electronics segment.

Cost of sales was $1,122.2 million, or 61.4% of net sales, in the first nine months of 2023, compared to $1,122.3 million, or 59.0% of net sales, in the first nine months of 2022.

As a percent of net sales, cost of sales increased 2.3% 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 $226.9 million, or 37.4% of net sales, in the third quarter of 2023 compared to $256.8 million, or 39.0% of net sales, for the third quarter of 2022.

The $30.0 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 higher volume in passenger car products business within the Transportation segment, and higher volume in the Industrial segment.

Gross profit was $706.7 million, or 38.6% of net sales, in the first nine months of 2023 compared to $778.4 million, or 41.0% of net sales, for the first nine months of 2022.

The $71.7 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 the Electronics segment, and volume leverage and favorable product mix from the Industrial segment and $11.5 million or 0.6% of purchase accounting inventory charges recorded during the first nine months of 2022.

Cost of sales was $347.6 million, or 64.9% of net sales, in the first quarter of 2024, compared to $364.8 million, or 59.8% of net sales, in the first quarter of 2023.

As a percent of net sales, cost of sales increased 5.1% driven by lower volume in the Electronics and Industrial segments, partially offset by improved margin from the commercial vehicle and auto sensor businesses within the Transportation segment driven by favorable price, product mix and cost reduction initiatives.

Gross profit was $187.8 million, or 35.1% of net sales, in the first quarter of 2024 compared to $245.0 million, or 40.2% of net sales, for the first quarter of 2023.

The $57.2 million decrease in gross profit was primarily due to lower volume in the Electronics and Industrial segments, partially offset by improved margin from the commercial vehicle and auto sensor businesses within the Transportation segment driven by favorable price, product mix and cost reduction initiatives.

Operating Expenses

Operating expenses were $133.2 million, or 21.9% of net sales, for the third quarter of 2023 compared to $135.0 million, or 20.5% of net sales, for the third quarter of 2022.

The decrease in operating expenses of $1.7 million was primarily due to lower selling, general, and administrative expenses of $3.0 million, partially offset by higher restructuring, impairment, and other charges of $1.1 million, including a $0.8 million impairment charge related to related to certain patents in a business within the Industrial segment.

Operating expenses were $410.3 million, or 22.4% of net sales, for the first nine months of 2023 compared to $371.8 million, or 19.6%of net sales, for the first nine months of 2022.

The increase in operating expenses of $38.6 million was primarily due to higher selling, general, and administrative expenses of $11.2 million, higher amortization expense of $9.9 million and research and development expenses of $8.5 million mainly due to the C&K and Western Automation acquisitions.

Additionally, the Company incurred an increase in restructuring, impairment, and other charges of $9.0 million, including a $3.9 million impairment charge related to the land and building in the commercial vehicle business within the Transportation segment and $0.8 million impairment charge related to related to certain patents in a business within the Industrial segment.

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

Operating expenses were $132.9 million, or 24.8% of net sales, for the first quarter of 2024 compared to $134.3 million, or 22.0% of net sales, for the first quarter of 2023.

The decrease in operating expenses of $1.5 million was primarily due to lower selling, general, and administrative expenses of $2.2 million and amortization expense of $1.0 million, partially offset by higher restructuring, impairment, and other charges of $1.4 million, including a $0.9 million impairment charge related to certain machinery and equipment in the commercial vehicle business within the Transportation segment.

Operating Income

Operating income was $93.6 million, representing a decrease of $28.3 million, or 23.2%, for the third quarter of 2023 compared to $121.9 million for the third quarter of 2022.

Operating income was $55.0 million, representing a decrease of $55.7 million, or 50.3%, for the first quarter of 2024 compared to $110.6 million for the first quarter of 2023.

The decrease in operating income was due to lower gross profit from the Electronics segment.

Operating margins decreased from 18.5% in the third quarter of 2022 to 15.4% in the third quarter of 2023 driven by lower volume in the Electronics segment.

Operating income was $296.3 million, representing a decrease of $110.3 million, or 27.1%, for the first nine months of 2023 compared to $406.6 million for the first nine 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 21.4% in the first nine months of 2022 to 16.2% in the first nine months of 2023 driven by lower volume in the Electronics and Transportation segments and the higher operating expenses mentioned above.

Operating margins decreased from 18.1% in the first quarter of 2023 to 10.3% in the first quarter of 2024 driven by lower volume in the Electronics segment.

Income Before Income Taxes

Income before income taxes was $75.3 million, or 12.4% of net sales, for the third quarter of 2023 compared to $96.0 million, or 14.6% of net sales, for the third quarter of 2022.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily favorably impacted by lower foreign exchange losses of $6.4 million in the third quarter of 2023 compared to the third quarter of 2022.

Income before income taxes was $269.6 million, or 14.7% of net sales, for the first nine months of 2023 compared to $339.7 million, or 17.9% of net sales, for the first nine months of 2022.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily benefited by lower foreign exchange losses of $31.4 million and lower unrealized losses of $12.8 million related to one of the Company's equity investments during the nine months ended September 30, 2023 compared to the nine months ended October 1, 2022.

Income tax expense for the third quarter of 2023 was $17.5 million, or an effective tax rate of 23.3%, compared to $20.5 million, or an effective tax rate of 21.4%, for the third quarter of 2022.

The effective tax rate for the third quarter of 2023 is higher than the effective tax rate for the comparable 2022 period, primarily due to less income earned in lower tax jurisdictions in the 2023 period, as compared to the 2022 period.

The effective tax rates for both periods are higher than the statutory tax rate due to the impact of foreign exchange losses with no related tax benefit.

Income tax expense for the first nine months of 2023 was $53.0 million, or an effective tax rate of 19.7%, compared to $59.7 million, or an effective tax rate of 17.6%, for the first nine months of 2022.

The effective tax rate for the first nine 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.

Income before income taxes was $55.7 million, or 10.4% of net sales, for the first quarter of 2024 compared to $108.9 million, or 17.9% of net sales, for the first quarter of 2023.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily benefited by higher foreign exchange gains of $3.4 million and higher interest income from short term investment in cash equivalents in the first quarter of 2024 compared to the first quarter of 2023, partially offset by unrealized losses of $0.4 million during the first quarter of 2024 compared to unrealized gains of $1.8 million during the first quarter of 2023 related to the Company's equity investment.

The effective tax rate for the three months ended March 30, 2024 was 13.0%, compared to the effective tax rate for the three months ended April 1, 2023 of 18.5%.

The effective tax rate for the first quarter of 2024 is lower than the effective tax rate for the comparable 2023 period primarily due to the lapse in the statute of limitations for previously unrecognized tax benefits.

The effective tax rate for 2023 is lower than the statutory tax rate primarily due to income earned in lower tax jurisdictions, and the effective tax rate for 2024 is lower than the statutory tax rate primarily due to the lapse in the statute of limitations for previously unrecognized tax benefits.

Segment Results of Operations

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

Net Sales Third Quarter First Nine Months

Net Sales First Quarter

(in thousands) 2024 2023 Change %

Change 2023 2022 Change %

Electronics $ 291,105 $ 358,593 $ (67,488) (18.8) %

2 unchanged sentences

Total $ 535,385 $ 609,782 $ (74,397) (12.2) %

Operating income Third Quarter First Nine Months

Operating Income First Quarter

(in thousands) 2024 2023 Change %

Change 2023 2022 Change %

Electronics $ 37,803 $ 90,162 $ (52,359) (58.1) %

3 unchanged sentences

Total $ 54,952 $ 110,641 $ (55,689) (50.3) %

(a) Included in “Other” Operating income for the third quarter of 2023 was $3.7 million ($8.5 million year-to-date) of restructuring charges, primarily related to employee termination costs, and $1.8 million ($9.0 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions.

During the third quarter of 2023, the Company recognized a $0.8 million impairment charge substantially related to certain patents in a business within the Industrial segment.

Included in “Other” Operating income for the third quarter of 2022 was $6.8 million ($11.6 million year-to-date) of purchase accounting inventory step-up charges, $6.2 million ($14.8 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, and $3.4 million ($4.3 million year-to-date) of restructuring, impairment and other charges, primarily related to employee termination costs.

(a) Included in “Other” Operating income for the first quarter of 2024 was $2.3 million of restructuring charges primarily related to employee termination costs and a $0.9 million impairment charge related to certain machinery and equipment 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 first quarter of 2023 was $3.3 million of legal and professional fees and other integration expenses related to completed acquisitions, and $1.9 million of restructuring, impairment and other charges, primarily related to employee termination costs.

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

Electronics Segment

Net sales decreased $53.7 million, or 13.5%, in the third quarter of 2023 compared to the third quarter of 2022 and included favorable changes in foreign exchange rates of $4.4 million.

The sales decrease was mainly due to lower volume across all businesses driven by inventory rebalancing at certain distributors and reduced demand across certain electronics markets, including consumer facing and personal electronics.

Net sales decreased $69.0 million, or 6.1%, in the first nine months of 2023 compared to the first nine months quarter of 2022 and included unfavorable changes in foreign exchange rates of $0.4 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 $91.9 million from the C&K acquisition.

Net sales decreased $67.5 million, or 18.8%, in the first quarter of 2024 compared to the first quarter of 2023 and included unfavorable changes in foreign exchange rates of $0.9 million.

Operating Income

Operating income was $77.0 million, representing a decrease of $36.1 million, or 31.9%, for the third quarter of 2023 compared to $113.1 million for the third quarter of 2022.

The decrease in operating income was primarily due to lower volume leverage from the Electronics products businesses and unfavorable mix that were partially offset by cost control initiatives.

Operating margins decreased from 28.5% in the third quarter of 2022 to 22.4% in the third quarter of 2023 primarily due to the lower volume.

Operating income was $247.0 million, representing a decrease of $92.6 million, or 27.3%, for the first nine months of 2023 compared to $339.7 million for the first nine months of 2022.

The decrease in operating income was primarily due to lower volume mainly driven from the Electronics products business, which more than offset the incremental volume from the C&K acquisition.

Operating margins decreased from 30.3% in the first nine months of 2022 to 23.5% in the first nine months of 2023 primarily due to the lower volume.

Operating income was $37.8 million, representing a decrease of $52.4 million, or 58.1%, for the first quarter of 2024 compared to $90.2 million for the first quarter of 2023.

The decrease in operating income was primarily due to lower volume leverage and unfavorable mix that were partially offset by cost control initiatives.

Operating margins decreased from 25.1% in the first quarter of 2023 to 13.0% in the first quarter of 2024 primarily due to the lower volume.

Transportation Segment

Net sales decreased $4.7 million, or 2.6%, in the third quarter of 2023 compared to the third quarter of 2022 and included favorable changes in foreign exchange rates of $2.8 million.

The sales decrease was mainly from the commercial vehicle business which had a net sales decline of $15.2 million driven by reduced demand largely due to inventory rebalancing at certain distributors and customers, and demand reduction in Asia end markets, partially offset by an increase of $10.2 million from the passenger car products business driven by global car build growth, new vehicle launches, as well as the ongoing electronification and electrification of vehicles.

Net sales decreased $32.6 million, or 5.9%, in the first nine months of 2023 compared to the first nine months of 2022 and included unfavorable changes in foreign exchange rates of $2.2 million.

The commercial vehicle business net sales declined $40.6 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 $13.6 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 $5.5 million primarily due to lower demand in the United States and China.

Net sales increased $3.7 million, or 2.2%, in the first quarter of 2024 compared to the first quarter of 2023 and included unfavorable changes in foreign exchange rates of $0.8 million.

The sales increase was mainly from the passenger car products business of $8.6 million driven by the ongoing electronification and electrification of vehicles and global passenger vehicle production growth, partially offset by sales declines of $4.6 million from the commercial vehicle business driven by reduced demand largely due to inventory rebalancing at certain distributors and customers.

Operating Income

Operating income was $9.7 million, representing a decrease of $3.3 million, or 25.4%, for the third quarter of 2023 compared to $13.0 million for the third quarter of 2022.

The decrease in operating income was primarily due to lower volume driven by the decrease from the commercial vehicle business partially offset by higher volume and price realization in the passenger car business.

Operating margins decreased from 7.1% in the third quarter of 2022 to 5.5% in the third quarter of 2023 primarily driven by lower commercial vehicle volume.

Operating income was $26.0 million, representing a decrease of $31.6 million, or 54.8%, for the first nine months of 2023 compared to $57.6 million for the first nine months of 2022.

Operating margins declined from 10.5% to 5.0% primarily due to lower volume from the commercial vehicle business.

Operating income was $16.2 million, representing an increase of $7.7 million, or 89.9%, for the first quarter of 2024 compared to $8.5 million for the first quarter of 2023.

The increase in operating income was primarily due to favorable price and cost reduction initiatives from the commercial vehicle business.

Operating margins increased from 5.1% in the first quarter of 2023 to 9.5% in the first quarter of 2024 primarily driven by favorable price and cost reduction initiatives from the commercial vehicle business.

Industrial Segment

Net sales increased by $6.6 million, or 8.3%, in the third quarter of 2023 compared to the third quarter of 2022, which included favorable changes in foreign exchange rates of $0.1 million.

The sales increase was primarily due to continued growth in construction/MRO, price realization and the acquisition of Western Automation.

Net sales increased by $29.7 million, or 12.9%, in the first nine months of 2023 compared to the first nine months 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 construction/MRO, renewables, and industrial OEM end markets, and the acquisition of Western Automation.

Net sales decreased by $10.6 million, or 12.6%, in the first quarter of 2024 compared to the first quarter of 2023, which included unfavorable changes in foreign exchange rates of $0.1 million.

The sales decrease was due to lower volume across industrial circuit protection and industrial control products driven by slower end market demand.

Operating Income

Operating income was $13.2 million, representing an increase of $1.0 million, or 8.4%, for the third quarter of 2023 compared to $12.2 million for the third quarter of 2022.

The increase in operating income was driven by price realization and higher volume, partially offset by higher amortization expense from the acquisition of Western Automation.

Operating margin was 15.3% for both the third quarter of 2023 and 2022.

Operating income was $45.5 million, representing an increase of $5.5 million, or 13.7%, for the first nine months of 2023 compared to $40.0 million for the first nine months of 2022.

The increase in operating income was due to price realization and

higher volume, partially offset by higher amortization expenses from the acquisition of Western Automation.

Operating margins were 17.4% in the first nine months of 2023 compared to 17.3% in the first nine months of 2022.

Operating income was $4.8 million, representing a decrease of $12.3 million, or 72.0%, for the first quarter of 2024 compared to $17.1 million for the first quarter of 2023.

The decrease in operating income was driven by lower volume due to reduced industrial end market demand across industrial circuit protection and industrial control products and unfavorable product mix.

Operating margins decreased from 20.3% in the first quarter of 2023 to 6.5% in the first quarter of 2024.

Geographic Net Sales Information

1 unchanged sentence

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

Third Quarter First Nine Months

First Quarter

(in thousands) 2024 2023 Change %

Change 2023 2022 Change %

Americas $ 214,784 $ 233,854 $ (19,070) (8.2) %

2 unchanged sentences

Total $ 535,385 $ 609,782 $ (74,397) (12.2) %

Net sales decreased $28.2 million, or 10.6%, in the third quarter of 2023 compared to the third quarter of 2022 and included favorable changes in foreign exchange rates of $0.1 million.

The decrease in net sales was primarily due to lower volume from the Electronics segment and lower sales from the commercial vehicle business within the Transportation segment, partially offset by higher sales from the passenger car products business within the Transportation segment and growth across various markets in the Industrial segment compared to the third quarter of 2022.

Net sales decreased $51.3 million, or 6.8%, in the first nine months of 2023 compared to the first nine months of 2022 and included unfavorable changes in foreign exchange rates of $0.3 million.

The decrease in net sales was primarily due to lower volume from the electronics products business within the Electronics segment and lower sales 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 first nine months of 2022.

Net sales decreased $28.1 million, or 10.6%, in the third quarter of 2023 compared to the third quarter of 2022 and included unfavorable changes in foreign exchange rates of $1.8 million.

The decrease in net sales was primarily due to lower net sales from the Electronics segment and lower net sales from the commercial vehicle business within the Transportation segment, partially offset by higher net sales from passenger car products business within the Transportation segment compared to the third quarter of 2022.

Net sales decreased $83.4 million, or 10.7%, in the first nine months of 2023 compared to the first nine months of 2022 and included unfavorable changes in foreign exchange rates of $8.4 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 segment, partially offset by incremental sales from the acquisition of C&K.

Net sales increased $4.4 million, or 3.4%, in the third quarter of 2023 compared to the third quarter of 2022 and included favorable changes in foreign exchange rates of $9.0 million.

The increase in net sales was primarily due to favorable changes in foreign exchange rates, increased volume across all businesses within the Transportation segment, and incremental sales from the Western Automation acquisition included within the Industrial segment, partially offset by lower net sales from the Electronics segment.

Net sales increased $62.8 million, or 16.8%, in the first nine months of 2023 compared to the first nine months of 2022 and included favorable changes in foreign exchange rates of $5.6 million.

The increase in net sales was primarily due to the incremental sales from the acquisition of C&K, increased volume from the semiconductor business within the Electronics segment, and the incremental sales from the Western Automation acquisition included within the Industrial segment, partially offset by lower net sales from the electronics products business within the Electronics segment.

Net sales decreased $19.1 million, or 8.2%, in the first quarter of 2024 compared to the first quarter of 2023 and included favorable changes in foreign exchange rates of $0.1 million.

The decrease in net sales was primarily due to lower volume from the Electronics and Industrial segments, partially offset by higher volume from the passenger car products business within the Transportation segment compared to the first quarter of 2023.

Net sales decreased $34.3 million, or 15.1%, in the first quarter of 2024 compared to the first quarter of 2023 and included unfavorable changes in foreign exchange rates of $3.8 million.

The decrease in net sales was primarily due to lower net sales from the Electronics and Industrial segments and lower net sales from the commercial vehicle business within the Transportation segment, partially offset by higher net sales from the passenger car products business within the Transportation segment compared to the first quarter of 2023.

Net sales decreased $21.0 million, or 14.2%, in the first quarter of 2024 compared to the first quarter of 2023 and included favorable changes in foreign exchange rates of $1.9 million.

Liquidity and Capital Resources

1 unchanged sentence

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 $560.1 million as of September 30, 2023, a decrease of $2.5 million as compared to December 31, 2022.

As of September 30, 2023, $155.6 million of the Company's $560.1 million cash and cash equivalents was held by U.S.

Cash and cash equivalents were $562.2 million as of March 30, 2024, an increase of $6.6 million as compared to December 30, 2023.

As of March 30, 2024, $157.9 million of the Company's $562.2 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 and nine months ended September 30, 2023, the Company made payments of $1.9 million and $5.6 million on its term loan, respectively.

The revolving loan and term loan balance under the Credit Facility was $100.0 million and $290.6 million, respectively, as of September 30, 2023.

During the three months ended March 30, 2024, 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 $286.9 million, respectively, as of March 30, 2024.

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 September 30, 2023, the effective interest rate on revolving loan and term loan outstanding borrowings was 6.67%.

As of September 30, 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 September 30, 2023, the Company was in compliance with all covenants under the Credit Agreement.

As of March 30, 2024, the effective interest rate on unhedged portion of the outstanding borrowings under the credit facility was 6.68%, and 4.13% on the hedged portion.

As of March 30, 2024, 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 March 30, 2024, 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”).

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

During the fourth quarter of 2023, the Company paid off €117 million of Euro Senior Notes, Series A due on December 8, 2023.

Interest on the Euro Senior Notes due 2028 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.

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Debt Covenants

The Company was in compliance with all covenants under the Credit Agreement and Senior Notes as of September 30, 2023 and currently expects to remain in compliance based on management’s estimates of operating and financial results for 2023.

As of September 30, 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 March 30, 2024 and currently expects to remain in compliance based on management’s estimates of operating and financial results for 2023.

As of March 30, 2024, 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.

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

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

The Company financed the transaction with cash on hand.

During the third quarter of 2023 the Company paid quarterly dividends of $16.2 million to the shareholders.

On October 31, 2023, the Company announced the declaration of a quarterly cash dividend of $0.65 per share payable on December 7, 2023 to stockholders of record as of November 23, 2023.

The total purchase price for the fab is approximately 93 million Euro, of which 37.2 million Euro down payment (approximately $40.5 million) recorded in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets was paid in the third quarter of 2023 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 2024 financial results and will be reported in the Electronics-Semiconductor business within the Company’s Electronics segment.

During the first quarter of 2024 the Company paid quarterly dividends of $16.2 million to the shareholders.

On May 1, 2024, the Company announced the declaration of a quarterly cash dividend of $0.65 per share payable on June 6, 2024 to stockholders of record as of May 22, 2024.

Cash Flow Overview

First Nine Months

First Three Months

(in thousands) 2024 2023

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Net cash used in investing activities (8,483) (183,188)

Net cash (used in) provided by financing activities (47,144) 321,923

Net cash used in financing activities (33,520) (12,204)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (8,550) 4,571

Decrease in cash, cash equivalents, and restricted cash (3,348) (6,581)

Increase (decrease) in cash, cash equivalents, and restricted cash 6,597 (137,414)

Cash, cash equivalents, and restricted cash at beginning of period 557,123 564,939

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

Net cash provided by operating activities was $57.2 million for the three months ended March 30, 2024 compared to $53.4 million for the three months ended April 1, 2023.

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

Cash Flow from Investing Activities

Net cash used in investing activities was $261.4 million for the nine months ended September 30, 2023 compared to $610.0 million during the nine months ended October 1, 2022.

Net cash paid for acquisitions was $198.8 million and $532.8 million during the nine months ended September 30, 2023 and October 1, 2022, respectively.

Capital expenditures were $63.2 million, representing a decrease of $14.6 million compared to nine months ended October 1, 2022.

During the nine months ended September 30, 2023 and October 1, 2022, the Company received proceeds of $0.7 million from the sale of a property within the Electronics segment and $0.6 million from the sale of a property within the Transportation segment, respectively.

Net cash used in investing activities was $8.5 million for the three months ended March 30, 2024 compared to $183.2 million during the three months ended April 1, 2023.

Capital expenditures were $15.5 million, representing a decrease of $10.1 million compared to three months ended April 1, 2023.

During the three months ended March 30, 2024, the Company received proceeds of $7.1 million from the sale of a building from the commercial vehicle business within the Transportation segment.

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

Cash Flow from Financing Activities

Net cash used in financing activities was $47.1 million for the nine months ended September 30, 2023 compared to net cash provided by financing activities of $321.9 million for the nine months ended October 1, 2022.

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

During the nine months ended September 30, 2023, the Company made payments of $5.6 million on the term loan.

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

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

Additionally, the Company paid dividends of $46.0 million and $41.1 million in the nine months ended September 30, 2023 and October 1, 2022, respectively.

Net cash used in financing activities was $33.5 million for the three months ended March 30, 2024 compared to $12.2 million during the three months ended April 1, 2023.

During the three months ended March 30, 2024 and April 1, 2023, the Company made payments of $1.9 million on the term loan for both periods, respectively.

The Company paid dividends of $16.2 million and $14.9 million in the three months ended March 30, 2024 and April 1, 2023, respectively.

Additionally, during the three months ended March 30, 2024, the Company repurchased 70,280 shares of its common stock totaling $16.1 million.

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 shares of its common stock for the three and nine months ended September 30, 2023, and October 1, 2022.

The Company’s Board of Directors authorized the repurchase of 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 (2021 program).

During the three months ended March 30, 2024, the Company repurchased 70,280 shares of its common stock totaling $16.1 million.

There is $283.9 million of an authorized amount yet purchased under the 2021 program as of March 30, 2024.

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

On April 25, 2024, 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 stock for the period May 1, 2024 to April 30, 2027 to replace its 2021 program.

Off-Balance Sheet Arrangements

As of September 30, 2023, the Company did not have any off-balance sheet arrangements, as defined under SEC rules.

As of March 30, 2024, the Company did not have any off-balance sheet arrangements, as defined under SEC rules.

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

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The significant accounting policies and critical accounting estimates are consistent with those discussed in Note 1, Summary of Significant Accounting Policies and Other Information, to the consolidated financial statements and the MD&A section of the Company’s Annual Report on Form 10-K for the year ended December 30, 2023.

During the nine months ended September 30, 2023, there were no significant changes in the application of critical accounting policies.

During the three months ended March 30, 2024, there were no significant changes in the application of critical accounting policies and estimates.

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 30, 2023.

During the nine months ended September 30, 2023, there have been no material changes in the Company's exposure to market risk.

During the three months ended March 30, 2024, 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