What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-03 compared with 2022-11-04 · 120 added, 82 removed, 289 unchanged (41% of the section changed)

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• Our plans for growth and innovation opportunities;

• Financial projections and expectations, including profitability of certain business units, plans to reduce costs and improve efficiencies, the effects of seasonality on certain business units, continued reliance on key customers for a significant portion of our revenue, future sources of revenue, competition, pricing and demand pressures, the future impact of certain accounting pronouncements, and our estimation of the potential impact and materiality of litigation;

• Financial projections and expectations, including profitability of certain business units, plans to reduce costs and improve efficiencies, including restructuring and workforce reduction plans and the anticipated cost and operational benefits associated with such plans, the effects of seasonality on certain business units, continued reliance on key customers for a significant portion of our revenue, future sources of revenue, competition, pricing and demand pressures, the future impact of certain accounting pronouncements, and our estimation of the potential impact and materiality of litigation;

• Our plans for continued development, use and protection of our intellectual property;

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• Optical Security and Performance Products (OSP).

During the first quarter, we experienced currency headwinds, increased raw material costs, higher shipping-related charges, and inflationary pressures.

Any prolonged disruption of manufacturing of our products, commerce and related activity caused by the pandemic or significant decrease in demand for our products could materially and adversely affect our results of business, operations, and financial conditions.

During the second quarter, we continued to experience a constrained demand outlook, currency headwinds, and inflationary pressures.

Any prolonged disruption of manufacturing of our products, commerce and related activity or significant decrease in demand for our products could materially and adversely affect our results of business, operations, and financial conditions.

Our financial results and long-term growth model will continue to be driven by revenue growth, non-GAAP operating profit, non-GAAP diluted earnings per share (EPS) and cash flow from operations.

We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.

Restructuring plan

On February 1, 2023, the Company approved a restructuring and workforce reduction plan (the Plan) intended to improve operational efficiencies and better align the Company’s workforce with current business needs and strategic growth opportunities.

The Company expects approximately 5% of its global workforce to be affected and estimates it will incur charges of approximately $15 million in connection with the Plan.

The Company anticipates the Plan to be substantially complete by the end of fiscal 2023.

Looking Ahead

As we look ahead for this fiscal year, we expect the macroeconomic headwinds and end market demand volatility to persist into the near future.

As we look ahead to the remainder of the fiscal year, we expect the macroeconomic headwinds and end market demand volatility to persist into the near future.

We remain positive on our long-term growth drivers in 5G Wireless, Fiber, 3D Sensing and Resilient PNT.

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New and potentially more contagious variants of the virus have emerged over the course of the pandemic, along with a surge in cases in several regions across the globe, including Europe and Asia, resulting in renewed shutdown, mandatory quarantines and shelter in place orders in certain regions.

The reopening of China and ending of its “zero-Covid” policy could have unforeseen impacts on our operations and facilities.

These events have led, at times, to slowdowns in shipping and commercial activities.

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Financial Highlights

First quarter fiscal 2023 results included the following notable items:

Second quarter fiscal 2023 results included the following notable items:

• Net revenue of $284.5 million, down $30.3 million or 9.6% year-over-year.

• GAAP operating margin of 16.1%, up 170 bps year-over-year.

• GAAP operating margin of 8.0%, down 770 bps year-over-year.

• Non-GAAP operating margin of 16.2%, down 710 bps year-over-year.

• GAAP EPS of $0.14, up $0.38 or 158.3% year-over-year.

• GAAP EPS of $0.04, down $0.10 or 71.4% year-over-year.

• Non-GAAP EPS of $0.14, down $0.10 or 41.7%% year-over-year.

A reconciliation of Non-GAAP financial measures to GAAP financial measures is provided below (in millions, except EPS amounts):

Three Months Ended

October 1, 2022 October 2, 2021

Operating Income Operating Margin Operating Income Operating Margin

Three Months Ended Six Months Ended

December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022

Operating Income Operating Margin Operating Income Operating Margin Operating Income Operating Margin Operating Income Operating Margin

GAAP measures $ 22.9 8.0 % $ 49.3 15.7 % $ 72.7 12.2 % $ 96.2 15.0 %

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Change in fair value of contingent liability 1.3 0.5 % — — % 1.8 0.3 % 0.3 — %

Other (benefits) charges unrelated to core operating performance (1)

Other charges (benefits) unrelated to core operating performance (1)

0.9 0.3 % 0.8 0.2 % (4.3) (0.7) % 3.7 0.6 %

Amortization of intangibles 7.9 2.8 % 10.0 3.2 % 17.2 2.9 % 20.6 3.2 %

Restructuring and related benefits — — % (0.1) — % — — % (0.1) — %

Total related to Cost of Revenue and Operating Expenses 23.1 8.2 % 24.0 7.6 % 40.7 6.9 % 51.4 8.0 %

Non-GAAP measures $ 46.0 16.2 % $ 73.3 23.3 % $ 113.4 19.1 % $ 147.6 23.0 %

Three Months Ended

October 1, 2022 October 2, 2021

Net Income Diluted

Three Months Ended Six Months Ended

December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022

Net Income Diluted EPS Net Income Diluted EPS Net Income Diluted

EPS Net Income (loss) Diluted

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Change in fair value of contingent liability 1.3 0.01 — — 1.8 0.01 0.3 —

Other (benefits) charges unrelated to core operating performance (1)

Other charges (benefits) unrelated to core operating performance (1)

0.9 — 0.8 — (4.3) (0.02) 3.7 0.02

Amortization of intangibles 7.9 0.03 10.0 0.04 17.2 0.08 20.6 0.08

Restructuring and related benefits — — (0.1) — — — (0.1) —

Non-cash interest expense and other expense (2)

— — 6.8 0.03 — — 92.7 0.40

Provision for (benefit) from income taxes 2.3 0.01 (0.3) —

(Benefit from) provision for income taxes — — (6.1) (0.03) 2.3 0.01 (6.4) (0.03)

Total related to net income and EPS 23.1 0.10 24.7 0.10 43.0 0.19 137.7 0.59

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Certain totals may not add due to rounding.

(1) Other (benefits) charges unrelated to core operating performance primarily consisted of acquisition and integration related charges, transformational initiatives such as site consolidations and reorganization, legal settlements, sale of investments and disposal of long-lived assets.

(2) The Company incurred a loss of $85.9M in the first quarter of fiscal 2022 in connection with the repurchase of certain 1.00% and 1.75% Senior Convertible Notes.

(1) Other items include charges (benefits) unrelated to core operating performance primarily consisting of acquisition and integration related charges, transformational initiatives such as site consolidations and reorganization, legal settlements, sale of investments and disposal of long-lived assets.

(2) The Company incurred a loss of $6.4M and $92.3M for the three and six months ended January 1, 2022 in connection with the repurchase of certain 1.00% and 1.75% Senior Convertible Notes.

The Company eliminates this in calculating non-GAAP net income and non-GAAP net income per share, because it believes that in so doing, it can provide investors a clearer and more consistent view of the Company’s core operating performance.

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The following table summarizes selected Consolidated Statements of Operations items ( in millions, except for percentages ):

Three Months Ended

October 1, 2022 October 2, 2021 Change Percent Change

Three Months Ended Six Months Ended

December 31, 2022 January 1, 2022 Change Percent Change December 31, 2022 January 1, 2022 Change Percent Change

Segment net revenue:

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Percentage of net revenue 0.8 % 0.8 % 0.7 % 0.8 %

Restructuring and related benefits $ — $ (0.1) $ 0.1 (100.0) % $ — $ (0.1) $ 0.1 (100.0) %

Percentage of net revenue — % — % — % — %

Loss on convertible note exchange $ — $ (6.4) $ 6.4 (100.0) % $ — $ (92.3) $ 92.3 (100.0) %

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Percentage of net revenue

3.7 % 0.7 % 3.8 % 2.5 %

Revenue from our service offerings exceeds 10% of our total consolidated net revenue and is presented separately in our Consolidated Statements of Operations.

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Consequently, the following discussion of business segment performance focuses on total net revenue, gross profit, and operating income consistent with our approach for managing the business.

Three months ended October 1, 2022 and October 2, 2021

Net revenue decreased by $16.6 million, or 5.1%, during the three months ended October 1, 2022 compared to the same period a year ago.

This decrease was due to revenue decrease from our NE and OSP segments, partially offset by revenue increase in our SE segment.

Product revenues decreased by $21.4 million, or 7.4%, during the three months ended October 1, 2022 compared to the same period a year ago, driven by revenue decreases in all segments.

Service revenues increased by $4.8 million, or 12.7%, during the three months ended October 1, 2022 compared to the same period a year ago.

This increase was due to revenue increase from our SE segment, partially offset by revenue decreases in our NE and OSP segments.

NE net revenue decreased by $10.0 million, or 4.9%, during the three months ended October 1, 2022 compared to the same period a year ago.

This decrease was primarily driven by lower volume in Field Instruments and Wireless partially offset by increased volumes in AvComm and Lab & Production products compared to the same period a year ago.

SE net revenue increased by $1.0 million, or 4.3%, during the three months ended October 1, 2022 compared to the same period a year ago, primarily due to revenues from recent acquisitions not present in the same period a year ago.

OSP net revenue decreased by $7.6 million, or 7.7%, during the three months ended October 1, 2022 compared to the same period a year ago.

This decrease was primarily driven by lower volume in consumer and industrial and Anti-Counterfeiting compared to the same period a year ago.

Three months ended December 31, 2022 and January 1, 2022

Net revenue decreased by $30.3 million, or 9.6%, during the three months ended December 31, 2022 compared to the same period a year ago.

This decrease was due to revenue decrease from our NE and SE segments, partially offset by revenue increase in our OSP segment.

Product revenues decreased by $35.9 million, or 12.9%, during the three months ended December 31, 2022 compared to the same period a year ago, driven by revenue decreases from our NE and SE segments, partially offset by revenue increase in our OSP segment.

Service revenues increased by $5.6 million, or 15.0%, during the three months ended December 31, 2022 compared to the same period a year ago.

This increase was due to revenue increase from our NE and SE segments.

NE net revenue decreased by $34.7 million, or 16.2%, during the three months ended December 31, 2022 compared to the same period a year ago.

This decrease was primarily driven by lower volumes in Field Instruments, Wireless and Lab & Production products compared to the prior year partially offset by Jackson Labs revenues not included in the same period a year ago.

SE net revenue decreased by $2.4 million, or 8.1%, during the three months ended December 31, 2022 compared to the same period a year ago, due to lower volumes.

OSP net revenue increased by $6.8 million, or 9.6%, during the three months ended December 31, 2022 compared to the same period a year ago.

This increase was primarily driven by higher volume in Anti-Counterfeiting and consumer and industrial compared to the same period a year ago.

Going forward, we expect to continue to encounter a number of industry and market risks and uncertainties that may limit our visibility, and consequently, our ability to predict future revenue, seasonality, profitability, and general financial performance, which could create period over period variability in our financial measures and present foreign exchange rate risks.

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The following table presents net revenue by the three geographic regions we operate in and net revenue from countries that exceeded 10% of our total net revenue ( in millions ):

Three Months Ended

October 1, 2022 October 2, 2021

Three Months Ended Six Months Ended

December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022

United States $ 92.5 32.5 % $ 100.2 31.8 % $ 189.1 31.8 % $ 193.5 30.2 %

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Total net revenue $ 284.5 100.0 % $ 314.8 100.0 % $ 594.7 100.0 % $ 641.6 100.0 %

Net revenue from customers outside the Americas represented 60.4% and 62.8% of net revenue, respectively during the three months ended October 1, 2022 and October 2, 2021.

Net revenue from customers outside the Americas during the three and six months ended December 31, 2022 represented 62.6% and 61.4% of net revenue, respectively.

Net revenue from customers outside the Americas during the three and six months ended January 1, 2022 represented 60.1% and 61.5% of net revenue, respectively.

We expect revenue from customers outside of the United States to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities.

Gross margin decreased by 0.1 percentage points during the three months ended October 1, 2022 from 59.7% in the same period a year ago to 59.6% in the current period.

The decrease was primarily driven by gross margin reduction in our NE and OSP segments as discussed below in the Operating Segment Information section.

Partially offsetting the decrease was higher revenue volume and favorable product mix within our SE segment.

Gross margin decreased by 1.8 percentage points during the three months ended December 31, 2022 from 60.5% in the same period a year ago to 58.7% in the current period.

The decrease was primarily driven by gross margin reduction in all segments as discussed below in the Operating Segment Information section.

Gross margin decreased by 0.9 percentage points during the six months ended December 31, 2022 from 60.1% in the same period a year ago to 59.2% in the current period.

The decrease was primarily driven by gross margin reduction in all segments as discussed below in the Operating Segment Information section.

As discussed in more detail under “Net Revenue” above, we sell products in certain markets that are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive (increasingly due to Asia-Pacific-based competition), are price sensitive and/or are affected by customer seasonal and mix variant buying patterns.

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Amortization of Acquired Technologies and Other Intangibles

Amortization of acquired technologies and other intangibles decreased $1.3M or 12.3% during the three months ended October 1, 2022 compared to the same period a year ago.

Amortization of acquired technologies and other intangibles decreased $2.1M or 21.0% during the three months ended December 31, 2022 compared to the same period a year ago.

This decrease is primarily due to certain intangible assets becoming fully amortized in fiscal 2022.

Amortization of acquired technologies and other intangibles decreased $3.4M or 16.5% during the six months ended December 31, 2022 compared to the same period a year ago.

This decrease is primarily due to certain intangible assets becoming fully amortized in fiscal 2022.

Research and Development

R&D expense decreased by $1.0 million, or 1.9%, during the three months ended October 1, 2022 compared to the same period a year ago.

This decrease was driven primarily by foreign exchange impacts.

As a percentage of net revenue, R&D expense increased by 0.6 percentage points during the three months ended October 1, 2022 compared to the same period a year ago.

R&D expense increased by $1.4 million, or 2.8%, during the three months ended December 31, 2022 compared to the same period a year ago.

This increase was driven primarily by higher contractor and travel expenses.

As a percentage of net revenue, R&D expense increased by 2.2 percentage points during the three months ended December 31, 2022 compared to the same period a year ago.

R&D expense increased by $0.4 million or 0.4%, during the six months ended December 31, 2022 compared to the same period a year ago.

This increase was driven primarily by higher contractor expenses.

As a percentage of net revenue, R&D expense increased by 1.4 percentage points during the six months ended December 31, 2022 compared to the same period a year ago.

We believe that continuing our investments in R&D is critical to attaining our strategic objectives.

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Selling, General and Administrative

SG&A expense decreased by $11.6 million, or 12.6%, during the three months ended October 1, 2022 compared to the same period a year ago.

SG&A expense increased by $1.8 million, or 2.0%, during the three months ended December 31, 2022 compared to the same period a year ago.

This increase was primarily due to fair value adjustment of contingent consideration related to acquisitions and outside service expenses.

As a percentage of net revenue, SG&A increased 3.6 percentage points during the three months ended December 31, 2022 compared to the same period a year ago.

SG&A expense decreased by $9.8 million, or 5.4%, during the six months ended December 31, 2022 compared to the same period a year ago.

This decrease was primarily due to the reversal of the U.K.

pension accrued liability, lower commission expense and foreign exchange impacts.

As a percentage of net revenue, SG&A decreased 2.2 percentage points during the three months ended October 1, 2022 compared to the same period a year ago.

pension accrued liability, lower commission expense and foreign exchange impacts offset by fair value adjustment of contingent consideration related to acquisitions and outside service expenses.

As a percentage of net revenue, SG&A increased 0.5 percentage points during the six months ended December 31, 2022 compared to the same period a year ago.

Loss on convertible note exchange

During the three months ended October 1, 2022, the Company did not enter into any convertible note exchange agreements.

During the three months ended October 2, 2021, the Company entered into separate privately-negotiated agreements with certain holders of its 1.75% Senior Convertible Notes due 2023 and 1.00% Senior Convertible Notes due 2024.

The Company paid an aggregate of 10.6 million shares of its common stock, par value $0.001 per share, and $196.5 million in cash in exchange for $93.8 million principal amount of the 2023 Notes and $181.2 million principal amount of the 2024 Notes.

The Company recorded a loss of $85.9 million in connection with the settlement transaction, which included a loss on induced conversion of $9.5 million, a loss on debt extinguishment of $72.7 million and third-party fees of $3.7 million.

During the three and six months ended December 31, 2022, the Company did not enter into any convertible note exchange agreements.

During the three months ended January 1, 2022, the Company entered into separate privately-negotiated agreements with certain holders of its 1.75% Senior Convertible Notes due 2023 and 1.00% Senior Convertible Notes due 2024.

The Company paid $59.0 million in cash in exchange for $20.6 million principal amount of the 2023 Notes and $25.0 million principal amount of the 2024 Notes.

The Company recorded a loss of $6.4 million in connection with the settlement transactions.

During the six months ended January 1, 2022, the Company entered into separate privately-negotiated agreements with certain holders of its 1.75% Senior Convertible Notes due 2023 and 1.00% Senior Convertible Notes due 2024.

The Company paid an aggregate 10.6 million shares of its common stock, par value $0.001 per share, and $255.5 million in cash in exchange for $114.3 million principal amount of the 2023 Notes and $206.3 million principal amount of the 2024 Notes.

The Company recorded a loss of $92.3 million in connection with the settlement transactions.

Interest income and other income, net

Interest income and other income, net, was $1.1 million during the three months ended October 1, 2022 compared to $1.4 million during the same period a year ago.

This $0.3 million decrease was primarily driven by an unfavorable foreign exchange impact as the balance sheet hedging program provided a less favorable offset to the remeasurement of underlying foreign exchange exposures during the current period.

Interest income and other income, net, was $2.2 million during the three months ended December 31, 2022 compared to $1.1 million during the same period a year ago.

This $1.1 million increase was primarily driven by higher interest income during the current period.

Interest income and other income, net, was $3.3 million during the six months ended December 31, 2022 compared to $2.5 million during the same period a year ago.

This $0.8 million increase was primarily driven by higher interest income offset by an unfavorable foreign exchange impact as the balance sheet hedging program provided a less favorable offset to the remeasurement of underlying foreign exchange exposures during the current period.

Interest Expense

Interest expense increased by $2.5 million or 69.4% during the three months ended October 1, 2022 compared to the same period a year ago.

This increase was primarily due to a full quarter of interest and amortization of issuance costs for the Senior Notes due 2029 in the current period as a result of the issuance in September 2021.

Interest expense decreased by $0.9 million, or 12.7%, during the three months ended December 31, 2022 compared to the same period a year ago.

This decrease was primarily driven by lower interest expense and amortization of issuance cost on our convertible notes as a result of convertible notes exchange transactions during November 2021, March 2022 and June 2022.

Interest expense increased by $1.6 million, or 15.0%, during the six months ended December 31, 2022 compared to the same period a year ago.

This increase was primarily driven by full six month interest expense on the Senior Notes due 2029 in the current period as a result of the issuance in September 2021.

Provision for Income Taxes

We recorded an income tax provision of $12.2 million and $13.6 million for the three months ended October 1, 2022 and October 2, 2021, respectively.

The income tax provision for the three months ended October 1, 2022 and October 2, 2021 primarily relates to income tax in certain foreign and state jurisdictions based on our forecasted pre-tax income or loss.

We recorded an income tax provision of $10.5 million and $22.7 million for the three and six months ended December 31, 2022, respectively.

We recorded an income tax provision of $2.3 million and $15.9 million for the three and six months ended January 1, 2022, respectively.

The income tax provision for the three and six months ended December 31, 2022 and January 1, 2022 primarily relates to income tax in certain foreign and state jurisdictions based on our forecasted pre-tax income or loss.

The income tax provision recorded differs from the expected tax provision that would be calculated by applying the federal statutory rate to our income from continuing operations before taxes primarily due to the changes in valuation allowance for deferred tax assets attributable to our domestic and foreign income from continuing operations.

As of October 1, 2022, and July 2, 2022, our unrecognized tax benefits totaling $50.0 million and $49.7 million, respectively, are included in deferred taxes and other non-current tax liabilities, net.

We had $2.4 million accrued for the payment of interest and penalties as of October 1, 2022.

As of December 31, 2022, and July 2, 2022, our unrecognized tax benefits totaling $50.3 million and $49.7 million, respectively, are included in deferred taxes and other non-current tax liabilities, net.

We had $2.6 million accrued for the payment of interest and penalties as of December 31, 2022.

The timing and resolution of income tax examinations is uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ from the amounts accrued for each year.

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Information related to our operating segments were as follows, (in millions):

Three Months Ended

October 1, 2022 October 2, 2021 Change Percentage Change

Three Months Ended Six Months Ended

December 31, 2022 January 1, 2022 Change Percentage Change December 31, 2022 January 1, 2022 Change Percentage Change

Network Enablement

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Network Enablement

During the three months ended October 1, 2022, NE gross margin decreased by 0.4 percentage points from 64.8% in the same period a year ago to 64.4% in the current period, reflecting an unfavorable product mix.

During the three months ended December 31, 2022, NE gross margin decreased by 0.3 percentage points from 64.4% in the same period a year ago to 64.1% in the current period, reflecting lower volumes and unfavorable product mix.

During the six months ended December 31, 2022, NE gross margin decreased by 0.4 percentage points from 64.6% in the same period a year ago to 64.2% in the current period, reflecting lower volumes and unfavorable product mix.

Service Enablement

During the three months ended October 1, 2022, SE gross margin increased by 2.8 percentage points from 63.9% in the same period a year ago to 66.7% in the current period.

This increase was primarily due to higher revenue and favorable product mix.

During the three months ended December 31, 2022, SE gross margin decreased by 5.0 percentage points from 71.8% in the same period a year ago to 66.8% in the current period.

This decrease was primarily due to unfavorable product mix.

During the six months ended December 31, 2022, SE gross margin decreased by 1.6 percentage points from 68.4% in the same period a year ago to 66.8% in the current period.

This decrease was primarily due to unfavorable product mix.

Network and Service Enablement

During the three months ended October 1, 2022, NSE operating margin decreased by 0.3 percentage points from 13.5% in the same period a year ago to 13.2% in the current period.

This decrease in operating margin was primarily driven by lower volumes.

During the three months ended December 31, 2022, NSE operating margin decreased by 9.8 percentage points from 18.7% in the same period a year ago to 8.9% in the current period.

This decrease in operating margin was primarily driven by lower volumes and unfavorable product mix.

During the six months ended December 31, 2022, NSE operating margin decreased by 5.1 percentage points from 16.2% in the same period a year ago to 11.1% in the current period.

This decrease in operating margin was primarily driven by lower volumes and unfavorable product mix.

Optical Security and Performance Products

During the three months ended October 1, 2022, OSP gross margin decreased by 1.0 percentage points from 57.7% in the same period a year ago to 56.7% in the current period.

This decrease was primarily due to lower revenue and unfavorable manufacturing variances.

OSP operating margin decreased by 1.8 percentage points during the three months ended October 1, 2022 from 44.1% in the same period a year ago to 42.3% in the current period.

During the three months ended December 31, 2022, OSP gross margin decreased by 3.9 percentage points from 56.2% in the same period a year ago to 52.3% in the current period.

This decrease was primarily due to unfavorable manufacturing variances and startup costs at our Chandler facility partially offset by higher revenue.

During the six months ended December 31, 2022, OSP gross margin decreased by 2.4 percentage points from 57.1% in the same period a year ago to 54.7% in the current period.

This decrease was primarily due to unfavorable manufacturing variances and startup costs at our Chandler facility.

OSP operating margin decreased by 3.7 percentage points during the three months ended December 31, 2022 from 39.2% in the same period a year ago to 35.5% in the current period.

The decrease in operating margin was primarily due to the aforementioned reduction in gross margin.

OSP operating margin decreased by 2.9 percentage points during the six months ended December 31, 2022 from 42.1% in the same period a year ago to 39.2% in the current period.

The decrease in operating margin was primarily due to the aforementioned reduction in gross margin.

Liquidity and Capital Resources

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Unrealized gains and losses on available-for-sale investments are recorded as other comprehensive (loss) income and are reported as a separate component of stockholders’ equity.

As of October 1, 2022, U.S.

As of December 31, 2022, U.S.

subsidiaries owned approximately 40.7% of our cash and cash equivalents, short-term investments and restricted cash.

As of October 1, 2022, the majority of our cash investments have maturities of 90 days or less and are of high credit quality.

As of December 31, 2022, the majority of our cash investments have maturities of 90 days or less and are of high credit quality.

Nonetheless we could realize investment losses under adverse market conditions.

During the three months ended October 1, 2022, we have not realized material investment losses but can provide no assurance that the value or the liquidity of our investments will not be impacted by adverse conditions in the financial markets.

During the three months ended December 31, 2022, we have not realized material investment losses but can provide no assurance that the value or the liquidity of our investments will not be impacted by adverse conditions in the financial markets.

In addition, we maintain cash balances in operating accounts that are with third-party financial institutions.

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The Credit Agreement also provides that, under certain circumstances, we may increase the aggregate amount of revolving commitments thereunder by an aggregate amount of up to $100 million so long as certain conditions are met.

As of October 1, 2022, we had no borrowings under this facility and our available borrowing capacity was approximately $177.7 million.

As of December 31, 2022, we had no borrowings under this facility and our available borrowing capacity was approximately $169.6 million.

Refer to “Note 11.

Debt” for more information.

Cash Flows for the Three Months Ended October 1, 2022

As of October 1, 2022, our combined balance of cash and cash equivalents and restricted cash decreased by $47.8 million to $525.0 million from $572.8 million as of July 2, 2022.

During the three months ended October 1, 2022, Cash provided by operating activities was $26.6 million, consisting of net income of $32.6 million adjusted for non-cash charges (e.g.

Cash Flows for the Six Months Ended December 31, 2022

As of December 31, 2022, our combined balance of cash and cash equivalents and restricted cash decreased by $75.9 million to $496.9 million from $572.8 million as of July 2, 2022.

During the six months ended December 31, 2022, Cash provided by operating activities was $72.8 million, consisting of net income of $41.0 million adjusted for non-cash charges (e.g.

depreciation, amortization, stock-based compensation and other non-cash items) which totaled $62.8 million, including changes in deferred tax balances, and changes in operating assets and liabilities that used $31.0 million.

Changes in our operating assets and liabilities related primarily to a decrease in accrued payroll and related expenses of $25.7 million, a decrease in income taxes payable of $10.4 million, an increase in inventory of $6.6 million, a decrease in deferred revenue of $6.6 million and a decrease in accrued expenses and other current and non-current liabilities of $5.0 million.

These were partially offset by a decrease in accounts receivable of $11.3 million, an increase in accounts payable of $5.4 million, and a decrease in other current and non-current assets of $4.0 million.

During the three months ended October 1, 2022, Cash used in investing activities was $29.7 million, primarily related to $14.8 million of cash used for capital expenditures and $15.5 million of cash used for acquisitions, offset by $0.6 million proceeds from sales of assets.

During the three months ended October 1, 2022, Cash used in financing activities was $26.8 million, primarily resulting from $18.7 million cash paid to repurchase common stock under our share repurchase program, $11.1 million in withholding tax payments on the vesting of restricted stock awards and $0.7 million in other payments, primarily acquisition related.

Changes in our operating assets and liabilities related primarily to a decrease in accrued expenses and other current and non-current liabilities of $25.0 million, a decrease in accrued payroll and related expenses of $21.6 million, an increase in inventory of $14.4 million, a decrease in income taxes payable of $9.0 million, a decrease in deferred revenue of $8.3 million and a decrease in accounts payable of $6.9 million.

These were partially offset by a decrease in accounts receivable of $42.2 million and a decrease in other current and non-current assets of $12.0 million.

During the six months ended December 31, 2022, Cash used in investing activities was $95.9 million, primarily related to $64.4 million of cash used for acquisitions,$32.9 million of cash used for capital expenditures and $1.0 million for a purchase price adjustment related to business acquisition, offset by $2.4 million proceeds from sales of assets.

During the six months ended December 31, 2022, Cash used in financing activities was $52.7 million, primarily resulting from $43.9 million cash paid to repurchase common stock under our share repurchase program, $11.2 million in withholding tax payments on the vesting of restricted stock awards and $1.3 million in other payments, primarily acquisition related.

These were partially offset by $3.7 million in proceeds from the issuance of common stock under our employee stock purchase plan.

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The timing of repurchases under the plan will depend upon business and financial market conditions.

The 2022 Repurchase Plan replaces the $200 million stock repurchase plan that the Board previously authorized in September 2019 (“2019 Repurchase Plan”).

The 2019 Repurchase Plan expired on September 30, 2022.

During the three months ended December 31, 2022, the Company repurchased 2.2 million shares of its common stock for $25.2 million under the 2022 Repurchase Plan.

As of December 31, 2022, the Company had remaining authorization of $274.8 million for future share repurchases under the 2022 Repurchase Plan.

The 2022 Repurchase Plan replaces the $200 million stock repurchase plan that the Board previously authorized in September 2019 (“2019 Repurchase Plan”) and expired on September 30, 2022.

During the three months ended October 1, 2022, the Company repurchased 1.3 million shares of its common stock for $18.7 million under the 2019 Repurchase Plan.

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Contractual Obligations

There were no material changes to our existing contractual commitments during the first quarter of fiscal 2023.

There were no material changes to our existing contractual commitments during the second quarter of fiscal 2023.

Off-Balance Sheet Arrangements

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plan is fully funded, and the other Germany plans, which were initially established as “pay-as-you-go” plans, are unfunded.

As of October 1, 2022, our pension plans were under-funded by $54 million since the PBO exceeded the fair value of plan assets.

As of December 31, 2022, our pension plans were under-funded by $58.4 million since the PBO exceeded the fair value of plan assets.

Similarly, we had a liability of $0.4 million related to our non-pension post-retirement benefit plan.

Pension plan assets are managed by external third parties and we monitor the performance of our investment managers.

As of October 1, 2022, the fair value of plan assets had decreased approximately 13.8% since July 2, 2022, our most recent fiscal year end.

As of December 31, 2022, the fair value of plan assets had decreased approximately 4.6% since July 2, 2022, our most recent fiscal year end.

In estimating the expected return on plan assets, we consider historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of active management of the plan’s invested assets.

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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