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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-05-01 · 125 added, 78 removed, 177 unchanged (53% of the section changed)

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Executive Summary

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.

For the second quarter of 2024, the Company recognized net sales of $558.5 million, a decrease of $53.5 million, or 8.7% as compared to $612.0 million in the second quarter of 2023 including $5.1 million or 0.8% of unfavorable changes in foreign exchange rates.

The decrease in net sales was primarily due to lower volume in the Electronics segment.

The Company recognized net income of $45.5 million, or $1.82 per diluted share, in the second quarter of 2024 compared to $70.1 million, or $2.79 per diluted share, in the second quarter of 2023.

The decrease in net income was primarily due to lower operating income of $33.7 million in the Electronics segment driven by a reduction in volume.

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.

Net cash provided by operating activities was $126.6 million for the six months ended June 29, 2024 compared to $151.6 million for the six months ended July 1, 2023.

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

During the three and six months ended June 29, 2024, the Company repurchased 109,031 and 179,311 shares of its common stock totaling $24.7 million and $40.9 million, respectively.

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.

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

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.

The second quarter of 2024 includes $5.3 million ($7.6 million year-to-date) of restructuring charges primarily related to employee termination costs.

During the first quarter of 2024, the Company recognized 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.

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.

In addition, during the second quarter of 2024, the Company recognized $0.8 million ($1.8 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, partially offset by a gain of $0.7 million ($1.0 million year-to-date) recorded for the sale of two buildings within the Transportation segment.

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

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

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

First Quarter

Second Quarter First Six Months

(in thousands) 2024 2023 Change %

Change 2024 2023 Change %

Net sales $ 558,489 $ 611,997 $ (53,508) (8.7) % $ 1,093,874 $ 1,221,779 $ (127,905) (10.5) %

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Net income $ 45,466 $ 70,071 $ (24,605) (35.1) % $ 93,918 $ 158,816 $ (64,898) (40.9) %

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.

Net sales decreased $53.5 million, or 8.7%, for the second quarter of 2024 compared to the second quarter of 2023 including $5.1 million or 0.8% of unfavorable changes in foreign exchange rates.

The decrease in net sales was primarily due to lower volume of $44.5 million and $5.9 million, in the Electronics and Industrial segments, respectively.

Net sales decreased $127.9 million, or 10.5%, for the first six months of 2024 compared to the first six months of 2023, including $6.9 million or 0.6% of unfavorable changes in foreign exchange rates.

The sales decrease was primarily due to lower volume of $112.0 million and $16.6 million in the Electronics and Industrial segments, respectively, that more than offset higher volume of $11.7 million in the passenger car products business within the Transportation segment.

Cost of Sales

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.

Cost of sales was $351.5 million, or 62.9% of net sales, in the second quarter of 2024, compared to $377.2 million, or 61.6% of net sales, in the second quarter of 2023.

As a percent of net sales, cost of sales increased 1.3% driven by lower volume in the Electronics and Industrial segments, partially offset by improved margin from all businesses within the Transportation segment driven by favorable price, product mix and cost reduction initiatives.

Cost of sales was $699.1 million, or 63.9% of net sales, in the first six months of 2024, compared to $742.0 million, or 60.7% of net sales, in the first six months of 2023.

As a percent of net sales, cost of sales increased 3.2% 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.

Gross profit was $207.0 million, or 37.1% of net sales, in the second quarter of 2024 compared to $234.8 million, or 38.4% of net sales, for the second quarter of 2023.

The $27.8 million decrease in gross profit was primarily due to lower volume in the Electronics and Industrial segments, partially offset by improved margin from all businesses within the Transportation segment driven by favorable price, product mix and cost reduction initiatives.

Gross profit was $394.8 million, or 36.1% of net sales, in the first six months of 2024 compared to $479.8 million, or 39.3% of net sales, for the first six months of 2023.

The $85.0 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 $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 expenses were $141.5 million, or 25.3% of net sales, for the second quarter of 2024 compared to $142.8 million, or 23.3% of net sales, for the second quarter of 2023.

The decrease in operating expenses of $1.3 million was primarily due to lower restructuring, impairment, and other charges of $1.6 million caused by a $3.9 million impairment charge recognized during the second quarter 2023 related to the land and building of a property within the Transportation segment and lower legal and professional fees and other integration expenses related to completed and contemplated acquisitions, partially offset by

higher employee termination costs related to the reorganization of certain manufacturing, selling and administrative functions within the semiconductor business in the Electronics segment and higher research and development expenses.

Operating expenses were $274.4 million, or 25.1% of net sales, for the first six months of 2024 compared to $277.1 million, or 22.7% of net sales, for the first six months of 2023.

The decrease in operating expenses of $2.7 million was primarily due to lower selling, general, and administrative expenses of $3.4 million as a result of lower legal and professional fees and other integration expenses related to completed and contemplated acquisitions and lower amortization expense of $2.2 million, partially offset by higher research and development expenses of $3.0 million.

Operating Income

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

Operating income was $65.5 million, representing a decrease of $26.5 million, or 28.8%, for the second quarter of 2024 compared to $92.1 million for the second quarter of 2023.

The decrease in operating income was due to lower gross profit from the Electronics segment, partially offset by higher gross profit from the Transportation segment.

Operating margins decreased from 15.0% in the second quarter of 2023 to 11.7% in the second quarter of 2024 driven by lower volume in the Electronics segment.

Operating income was $120.5 million, representing a decrease of $82.2 million, or 40.6%, for the first six months of 2024 compared to $202.7 million for the first six months of 2023.

The decrease in operating income was due to lower gross profit from the Electronics and Industrial segments, partially offset by higher gross profit from the Transportation segment.

Operating margins decreased from 16.6% in the first six months quarter of 2023 to 11.0% in the first six months of 2024 driven by lower volume in the Electronics segment.

Income Before Income Taxes

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.

Income before income taxes was $61.1 million, or 10.9% of net sales, for the second quarter of 2024 compared to $85.5 million, or 14.0% of net sales, for the second quarter of 2023.

Income before income taxes was $116.8 million, or 10.7% of net sales, for the first six months of 2024 compared to $194.4 million, or 15.9% of net sales, for the first six months of 2023.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily benefited by higher interest income of $5.8 million from short-term investment in cash equivalents and higher foreign exchange gains of $2.3 million in the first six months of 2024 compared to the first six months of 2023, partially offset by unrealized losses of $1.1 million during the first six months of 2024 compared to unrealized gains of $0.7 million during the first six months of 2023 related to the Company's equity investment.

The effective tax rate for the three and six months ended June 29, 2024 was 25.6% and 19.6%, compared to the effective tax rate for the three and six months ended July 1, 2023 of 18.0% and 18.3%.

The effective tax rates for 2024 are higher than the effective tax rates for the comparable 2023 periods primarily due to decreases in the income earned in lower tax jurisdictions in 2024 as compared to 2023.

The effective tax rate for the three months ended June 29, 2024 is higher than the statutory tax rate primarily due to the proportion of pre-tax income that is earned in higher tax jurisdictions.

The effective tax rate for the six months ended June 29, 2024 is lower than the statutory tax rate primarily due to the lapse in the statute of limitations for previously unrecognized tax benefits recognized in the first quarter.

The effective tax rates for 2023 are lower than the statutory tax rate primarily due to income earned in lower tax jurisdictions.

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 First Quarter

Net Sales Second Quarter First Six Months

(in thousands) 2024 2023 Change %

Change 2024 2023 Change %

Electronics $ 305,639 $ 350,147 $ (44,508) (12.7) % $ 596,744 $ 708,740 $ (111,996) (15.8) %

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Total $ 558,489 $ 611,997 $ (53,508) (8.7) % $ 1,093,874 $ 1,221,779 $ (127,905) (10.5) %

Operating Income First Quarter

Operating Income Second Quarter First Six Months

(in thousands) 2024 2023 Change %

Change 2024 2023 Change %

Electronics $ 46,165 $ 79,844 $ (33,679) (42.2) % $ 83,968 $ 170,006 $ (86,038) (50.6) %

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Total $ 65,506 $ 92,053 $ (26,547) (28.8) % $ 120,458 $ 202,694 $ (82,236) (40.6) %

(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.

(a) Included in “Other” Operating income for the second quarter of 2024 includes $5.3 million ($7.6 million year-to-date) of restructuring charges primarily related to employee termination costs.

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.

Included in “Other” Operating income for the second quarter of 2023 includes $3.9 million ($7.2 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, and $2.9 million ($4.8 million year-to-date) of restructuring charges, primarily related to employee termination costs.

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

Electronics Segment

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.

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, as well as industrial markets.

Net sales decreased $44.5 million, or 12.7%, in the second quarter of 2024 compared to the second quarter of 2023 and included unfavorable changes in foreign exchange rates of $2.6 million.

The sales decrease was mainly due to lower volume from the semiconductor business driven by reduced demand across industrial markets and inventory rebalancing at certain distributors.

Net sales decreased $112.0 million, or 15.8%, in the first six months of 2024 compared to the first six months of 2023 and included unfavorable changes in foreign exchange rates of $3.5 million.

The sales decrease was mainly due to lower volume from the semiconductor and electronics products businesses driven by inventory rebalancing at certain distributors and reduced demand across certain electronics markets, including consumer facing and personal electronics, as well as industrial markets.

Operating Income

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.

Operating income was $46.2 million, representing a decrease of $33.7 million, or 42.2%, for the second quarter of 2024 compared to $79.8 million for the second quarter of 2023.

The decrease in operating income was primarily from semiconductor business due to lower volume leverage.

Operating margins decreased from 22.8% in the second quarter of 2023 to 15.1% in the second quarter of 2024 primarily due to the lower volume.

Operating income was $84.0 million, representing a decrease of $86.0 million, or 50.6%, for the first six months of 2024 compared to $170.0 million for the first six months 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.

Operating margins decreased from 24.0% in the first six months of 2023 to 14.1% in the first six months of 2024 primarily due to the lower volume.

Transportation Segment

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.

Net sales decreased $3.1 million, or 1.8%, in the second quarter of 2024 compared to the second quarter of 2023 and included unfavorable changes in foreign exchange rates of $2.0 million.

The sales decrease was mainly from sales declines of $3.7 million and $2.6 million from the automotive sensors and commercial vehicle businesses, respectively, driven by reduced demand largely due to inventory rebalancing at certain distributors and customers as well as the strategic exit of certain lower margin products, partially offset by net sales increases of $3.2 million in the passenger car products business driven by vehicle content growth and global passenger vehicle production growth.

Net sales increased $0.6 million, or 0.2%, in the first six months of 2024 compared to the first six months of 2023 and included unfavorable changes in foreign exchange rates of $2.8 million.

The sales increase was mainly from the passenger car products business of $11.7 million driven by the ongoing electronification and electrification of vehicles and global passenger vehicle production growth, partially offset by sales declines of $7.2 million and $3.9 million from the commercial vehicle and automotive sensors businesses driven by reduced demand largely due to inventory rebalancing at certain distributors and customers as well as the strategic exit of certain lower margin products.

Operating Income

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.

Operating income was $15.2 million, representing an increase of $7.4 million, or 95.6%, for the second quarter of 2024 compared to $7.8 million for the second quarter of 2023.

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

Operating margins increased from 4.5% in the second quarter of 2023 to 9.0% in the second quarter of 2024 primarily driven by favorable price and products mix and cost reduction initiatives from the commercial vehicle business.

Operating income was $31.4 million, representing an increase of $15.1 million, or 92.6%, for the first six months of 2024 compared to $16.3 million for the first six months 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.

Operating margins increased from 4.8% in the first six months of 2023 to 9.3% in the first six months of 2024 primarily driven by favorable price and products mix and cost reduction initiatives from the commercial vehicle business.

Industrial Segment

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.

Net sales decreased by $5.9 million, or 6.6%, in the second quarter of 2024 compared to the second quarter of 2023, which included unfavorable changes in foreign exchange rates of $0.5 million.

The sales decrease was due to lower volume from industrial control products driven by slower end market demand.

Net sales decreased by $16.6 million, or 9.5%, in the first six months of 2024 compared to the first six months of 2023, which included unfavorable changes in foreign exchange rates of $0.6 million.

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

Operating Income

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.

Operating income was $9.5 million, representing a decrease of $5.6 million, or 36.8%, for the second quarter of 2024 compared to $15.1 million for the second quarter of 2023.

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

Operating margins decreased from 16.8% in the second quarter of 2023 to 11.4% in the second quarter of 2024 due to lower volume and cost inflation partially offset by favorable price.

Operating income was $14.3 million, representing a decrease of $17.9 million, or 55.5%, for the first six months of 2024 compared to $32.2 million for the first six months 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.

Operating margins decreased from 18.5% in the first six months of 2023 to 9.1% in the first six months of 2024 due to lower demand and cost inflation partially offset by favorable price.

Geographic Net Sales Information

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

First Quarter

Second Quarter First Six Months

(in thousands) 2024 2023 Change %

Change 2024 2023 Change %

Americas $ 228,330 $ 227,896 $ 434 0.2 % $ 443,114 $ 461,750 $ (18,636) (4.0) %

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Total $ 558,489 $ 611,997 $ (53,508) (8.7) % $ 1,093,874 $ 1,221,779 $ (127,905) (10.5) %

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.

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 compared to the first quarter of 2023.

Net sales increased $0.4 million, or 0.2%, in the second quarter of 2024 compared to the second quarter of 2023 and included unfavorable changes in foreign exchange rates of $0.2 million.

The net sales was essentially flat with higher volume from the commercial vehicle products and passenger car products businesses within the Transportation segment, offset by lower volume from the Electronics and Industrial segments compared to the second quarter of 2023.

Net sales decreased $18.6 million, or 4.0%, in the first six months of 2024 compared to the first six months of 2023 and included unfavorable changes in foreign exchange rates of $0.2 million.

Net sales decreased $15.6 million, or 6.8%, in the second quarter of 2024 compared to the second 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, partially offset by higher net sales from the passenger car products business within the Transportation segment compared to the second quarter of 2023.

Net sales decreased $49.9 million, or 10.9%, in the first six months of 2024 compared to the first six months of 2023 and included unfavorable changes in foreign exchange rates of $7.6 million.

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

Net sales decreased $38.4 million, or 24.8%, in the second quarter of 2024 compared to the second quarter of 2023 and included unfavorable changes in foreign exchange rates of $1.0 million.

The decrease in net sales was primarily due to lower net sales from the Electronics and Transportation segments compared to the second quarter of 2023.

Net sales decreased $59.4 million, or 19.6%, in the first six months of 2024 compared to the first six months of 2023 and included favorable changes in foreign exchange rates of $0.9 million.

The decrease in net sales was primarily due to lower net sales from the Electronics segment and lower net sales from the automotive sensors and commercial vehicle businesses within the Transportation segment compared to the first six months of 2023.

Liquidity and Capital Resources

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

Cash and cash equivalents were $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.

Cash and cash equivalents were $561.7 million as of June 29, 2024, an increase of $6.2 million as compared to December 30, 2023.

As of June 29, 2024, $102.1 million of the Company's $561.7 million cash and cash equivalents was held by U.S.

subsidiaries.

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Subject to certain conditions, (i) the Company may terminate or reduce the Aggregate Revolving Commitments, as defined in the Credit Agreement, in whole or in part, and (ii) the Company may prepay the revolving loans or the term loans at any time, without premium or penalty.

During the three months ended 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.

During the three and six months ended June 29, 2024, the Company made payments of $1.9 million and $3.8 million, respectively, on its term loan.

The revolving loan and term loan balance under the Credit Facility was $100.0 million and $285.0 million, respectively, as of June 29, 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 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.

As of June 29, 2024, the effective interest rate on unhedged portion of the outstanding borrowings under the credit facility was 6.69%, and 4.13% on the hedged portion.

As of June 29, 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 June 29, 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.

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

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

Senior Notes, Series B due 2027”)

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

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Debt Covenants

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.

The Company was in compliance with all covenants under the Credit Agreement and Senior Notes as of June 29, 2024 and currently expects to remain in compliance based on management’s estimates of operating and financial results for 2023.

As of June 29, 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.

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 total purchase price for the fab is approximately 93 million Euro, of which a 37.2 million Euro down payment (approximately $40.5 million), recorded in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

The down payment 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.

During the second quarter of 2024 the Company paid quarterly dividends of $16.1 million to the shareholders.

On July 30, 2024, the Company announced the declaration of a quarterly cash dividend of $0.70 per share, an 8% percent increase from the first quarter, payable on September 5, 2024 to stockholders of record as of August 22, 2024.

Cash Flow Overview

First Three Months

First Six Months

(in thousands) 2024 2023

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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.

Net cash provided by operating activities was $126.6 million for the six months ended June 29, 2024 compared to $151.6 million for the six months ended July 1, 2023.

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

Cash Flow from Investing Activities

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.

Net cash used in investing activities was $26.7 million for the six months ended June 29, 2024 compared to $199.0 million during the six months ended July 1, 2023.

Capital expenditures were $34.7 million, representing a decrease of $6.8 million compared to the six months ended July 1, 2023.

During the six months ended June 29, 2024, the Company received proceeds of $8.7 million from the sale of two buildings from the Transportation segment.

Net cash paid for the Western Automation acquisition was $158.3 million during the six months ended July 1, 2023.

Cash Flow from Financing Activities

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.

Net cash used in financing activities was $79.3 million for the six months ended June 29, 2024 compared to $32.7 million during the six months ended July 1, 2023.

During the six months ended June 29, 2024 and July 1, 2023, the Company made payments of $3.8 million on the term loan for both periods, respectively.

The Company paid dividends of $32.3 million and $29.8 million in the six months ended June 29, 2024 and July 1, 2023, respectively.

Additionally, during the six months ended June 29, 2024, the Company repurchased 179,311 shares of its common stock totaling $40.9 million.

Share Repurchase Program

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.

On April 25, 2024, the Company's 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 ("2024 program") to replace the expired 2021 program.

During the three and six months ended June 29, 2024, the Company repurchased 109,031 and 179,311 shares of its common stock totaling $24.7 million and $40.9 million, respectively, of which $38.9 million was pursuant to the 2021 program and $2.0 million was pursuant to the 2024 program.

There is $298.0 million of an authorized amount yet purchased under the 2024 program as of June 29, 2024.

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

Off-Balance Sheet Arrangements

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

As of June 29, 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 three months ended March 30, 2024, there were no significant changes in the application of critical accounting policies and estimates.

During the six months ended June 29, 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 three months ended March 30, 2024, there have been no material changes in the Company's exposure to market risk.

During the six months ended June 29, 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