LITTELFUSE, INC. Cautionary Statement Regarding Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995 ("PSLRA").
Certain statements in this section and other parts of this Quarterly Report on
Form 10-Q may constitute "forward-looking statements" within the meaning of the
federal securities laws and are entitled to the safe-harbor provisions of the
PSLRA. These statements include statements regarding the Company's future
performance, as well as management's expectations, beliefs, intentions, plans,
estimates or projections relating to the future. Such statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans" or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy, although not all forward-looking statements contain
such terms. The Company cautions that forward-looking statements, which speak
only as of the date they are made, are subject to risks, uncertainties and other
factors, and actual results and outcomes may differ materially from those
indicated or implied by the forward-looking statements. These risks,
uncertainties and other factors include, but are not limited to, risks and
uncertainties relating to general economic conditions; the severity and duration
of the coronavirus disease 2019 ("COVID-19") pandemic and the measures taken in
response thereto and the effects of those items on the Company's business;
product demand and market acceptance; economic conditions; the impact of
competitive products and pricing; product quality problems or product recalls;
capacity and supply difficulties or constraints; coal mining exposures reserves;
cybersecurity matters; failure of an indemnification for environmental
liability; exchange rate fluctuations; commodity price fluctuations; the effect
of the Company's accounting policies; labor disputes; restructuring costs in
excess of expectations; pension plan asset returns less than assumed;
uncertainties related to political or regulatory changes; integration of
acquisitions may not be achieved in a timely manner, or at all; and other risks
that may be detailed in Item 1A. "Risk Factors" of the Company's Annual Report
on Form 10-K for the year ended January 1, 2022 , and the Company's other filings
and submissions with the Securities and Exchange Commission . The Company does
not undertake any obligation to update or revise any forward-looking statements
to reflect future events or circumstances, new information or otherwise.
This report, including the Management's Discussion and Analysis of Financial
Condition and Results of Operations, should be read in conjunction with
information provided in the consolidated financial statements and the related
Notes thereto appearing in the Company's Annual Report on Form 10-K for the year
ended January 1, 2022 .
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is designed to provide information that is supplemental to,
and should be read together with, the consolidated financial statements and the
accompanying notes. Information in MD&A is intended to assist the reader in
obtaining an understanding of (i) the consolidated financial statements,
(ii) the changes in certain key items within those financial statements from
year-to-year, (iii) the primary factors that contributed to those changes, and
(iv) any changes in known trends or uncertainties that the Company is aware of
and that may have a material effect on future performance. In addition, MD&A
provides information about the Company's segments and how the results of those
segments impact the results of operations and financial condition as a whole.
27-------------------------------------------------------------------------------- Table of Contents Executive Overview Founded in 1927,Littelfuse is an industrial technology manufacturing company empowering a sustainable, connected, and safer world. Across more than 15 countries, and with 17,000 global associates, we partner with customers to design and deliver innovative, reliable solutions. Serving over 100,000 end customers, our products are found in a variety of industrial, transportation and electronics end markets - everywhere, every day. The Company maintains a network of global laboratories and engineering centers that develop new products and product enhancements, provide customer application support and test products for safety, reliability, and regulatory compliance. The Company conducts its business through three reportable segments: Electronics, Transportation, and Industrial. Within these segments, the Company designs, manufactures and sells components and modules empowering a sustainable, connected, and safer world. Our products protect against electrostatic discharge, power surges, short circuits, voltage spikes and other harmful occurrences, safely and efficiently control power and improve productivity and are used to identify and detect temperature, proximity, flow speed and fluid level in various applications.
Executive Summary
For the first quarter of 2022, the Company recognized net sales of$623.3 million , an increase of$159.5 million , or 34.4% as compared to$463.8 million in the first quarter of 2021. The increase was primarily driven by higher volumes in the Electronics and Industrial segments and$55.8 million or 12.0% of net sales from the Carling acquisition within the Transportation segment. The Company recognized net income of$117.5 million , or$4.70 per diluted share, in the first quarter of 2022 compared to$57.7 million , or$2.32 per diluted share in the first quarter of 2021. The increase in net income reflects higher operating income of$74.1 million primarily due to an increase in operating income of$65.1 million in the Electronics segment. Supply chain constraints, including transportation capacity shortages have and are expected to continue to impact the Company, its suppliers and its customers. This has resulted in higher transportation and input costs incurred by the Company. Net cash provided by operating activities was$51.7 million for the three months endedApril 2, 2022 as compared to$50.2 million for the three months endedMarch 27, 2021 . The slight increase in net cash provided by operating activities was primarily due to higher cash earnings, largely offset by increases in working capital resulting from higher sales growth and higher annual incentive bonus payments made in 2022 as compared to 2021. OnApril 8, 2022 , the Company announced that it had entered into a definitive agreement to acquire C&K Switches ("C&K") for$540 million in cash, subject to a working capital adjustment. Founded in 1928, C&K Switches is a leading designer and manufacturer of high-performance electromechanical switches and interconnect solutions with a strong global presence across a broad range of end markets, including industrial, transportation, aerospace, and datacom.At the time the Company and C&K entered into the definitive agreement, C&K had annualized sales of over$200 million . The business is headquartered inWaltham, Massachusetts , with facilities located around the world and will be reported as part of the Electronics-Passive Products and Sensors within the Company's Electronics Segment. The transaction is subject to customary closing conditions and regulatory approvals, and is expected to close during the second quarter of 2022. The Company expects to finance the transaction through a combination of cash on hand and debt.
Impact of COVID-19 on Business
The effects from COVID-19 continue to drive higher ongoing costs including
spending on personal protective equipment ("PPE"), additional personnel and
employee transportation costs, and manufacturing inefficiencies as well as an
increase in material costs and transportation costs due to global supply chain
and logistics constraints around the world.
During the first quarter of 2022, the Company's manufacturing facilities were
operational and were generally running at normal capacity levels. However, the
recent outbreak of COVID-19 in China in late March has resulted in the temporary
shut-down of certain of the Company's China manufacturing facilities throughout
April. The Company is focused on the safety and well-being of its employees and
actively monitoring the current situation. The Company is not currently able to
determine the duration of the temporary shut-down, the impact on its customers,
suppliers and transportation in and out of China or the potential financial
impact on the Company's 2022 financial results.
The Company anticipates that the disruptions caused by COVID-19 may continue to
impact its business activity for the foreseeable future. It is currently
difficult to estimate the magnitude of the COVID-19 disruption, if future
disruptions will occur due to a resurgence in COVID-19 cases and its impact on
the Company's employees, customers, suppliers and vendors. The Company will
continue to actively monitor the situation and may take further actions altering
its business operations that the Company determines are in the best interests of
its employees, customers, partners, suppliers, and other stakeholders, or as
28
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Table of Contents
required by federal, state, or local authorities. It is not clear what the
potential effects any such alterations or modifications may have on the
Company's business and operations, including the effects on its customers,
employees, and prospects, or on the Company's financial results for the fiscal
year 2022.
Risks Related to Market Conditions
The Company continues to operate in a more volatile macro environment given events related to the war inUkraine . The company does not have any direct operations inUkraine orRussia . The war has had a modest impact on the Company, including higher transportation costs due to the Company modifying its shipping logistics as well as suspending sales into and purchases fromRussia . Additionally, the war has impacted certain OEM customers who have had lower production levels due to shut-downs and ongoing material shortages.
Results of Operations
The following table summarizes the Company's unaudited condensed consolidated results of operations for the periods presented. The first quarter of 2022 includes$4.8 million of purchase accounting inventory step-up charges,$3.8 million of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, and$0.2 million of restructuring, impairment and other charges, primarily related to employee termination costs. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion. The first quarter of 2021 includes$3.5 million of purchase accounting inventory step-up charges,$0.8 million of legal and professional fees and other integration expenses related to Hartland and other contemplated acquisitions and$0.4 million of restructuring, impairment and other charges, primarily related to employee termination costs. In addition, there was a gain of$1.9 million from the sale of a building within the Electronics segment. First Quarter % (in thousands) 2022 2021 Change Change Net sales$ 623,330 $ 463,794 $ 159,536 34.4 % Cost of sales 364,734 303,328 61,406 20.2 % Gross profit 258,596 160,466 98,130 61.2 % Operating expenses 108,006 83,985 24,021 28.6 % Operating income 150,590 76,481 74,109 96.9 % Income before income taxes 134,125 72,708 61,417 84.5 % Income taxes 16,607 14,995 1,612 10.8 % Net income$ 117,518 $ 57,713 $ 59,805 103.6 % Net Sales Net sales increased$159.5 million , or 34.4%, including$55.8 million or 12.0% from the Carling acquisition within the Transportation segment and$8.6 million or 1.9% of unfavorable changes in foreign exchange rates for the first quarter of 2022 compared to the first quarter of 2021. The remaining increase was primarily driven by growth across the Company's Electronics and Industrial segments, which had sales increases of$79.3 million and$24.3 million , respectively. The increase within the Electronics segment was led by continued broad-based demand across electronics, transportation and industrial end markets. The increase in the Industrial segment was driven across all businesses within the segment. Cost of Sales Cost of sales was$364.7 million , or 58.5% of net sales, in 2022, compared to$303.3 million , or 65.4% of net sales, in 2021. The increase in cost of sales was primarily due to greater volume across the Electronics and Industrial segments driven by the factors discussed above along with the acquisition of Carling. As a percent of net sales, cost of sales decreased 6.9% driven by volume leverage and favorable product mix predominantly in the Electronics segment, partially offset by higher transportation, duty and tariff charges of 0.9%, and higher commodity costs.
Gross Profit
29
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Gross profit was $258.6 million , or 41.5% of net sales, in the first quarter of
2022 compared to $160.5 million , or 34.6% of net sales, for the first quarter of
2021. The $98.1 million increase in gross profit was primarily due to higher
volume in the Electronics segment. The increase in gross margin of 6.9% was
primarily driven by volume leverage and favorable product mix within the
Electronics segment and higher prices, partially offset by higher
transportation, duty and tariff charges as a percent of net sales of 0.9%, and
higher commodity costs.
Operating Expenses
Total operating expenses were $108.0 million , or 17.3% of net sales, for the
first quarter of 2022 compared to $84.0 million , or 18.1% of net sales, for the
first quarter of 2021. The increase in operating expenses of $24.0 million was
primarily due to the higher selling, general, and administrative expenses of
$17.2 million largely due to the Carling acquisition and increased
acquisition-related expenses of $3.0 million , higher research and development
expenses of $4.8 million , and higher amortization expense of $2.2 million due to
the Carling acquisition.
Operating Income
Operating income was$150.6 million , an increase of$74.1 million , or 96.9%, for the first quarter of 2022 compared to$76.5 million for the first quarter of 2021. The increase in operating income was due to higher gross profit from all segments, particularly in the Electronics segment, partially offset by higher operating expenses as noted above. Operating margins increased from 16.5% in the first quarter of 2021 to 24.2% in the first quarter of 2022 driven by the factors mentioned above.
Income Before Income Taxes
Income before income taxes was$134.1 million , or 21.5% of net sales, for the first quarter of 2022 compared to$72.7 million , or 15.7% of net sales, for the first quarter of 2021. In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily impacted by$4.7 million of unrealized losses associated with the Company's equity investment in the first quarter of 2022 compared to unrealized gains of$7.5 million from the Company's equity investment in the first quarter of 2021, and higher foreign exchange losses of$0.9 million .
Income Taxes
Income tax expense for the first quarter of 2022 was$16.6 million , or an effective tax rate of 12.4%, compared to$15.0 million , or an effective tax rate of 20.6%, for the first quarter of 2021. The effective tax rate for the first quarter of 2022 is lower than the effective tax rate for the comparable 2021 period, primarily due to a one-time deduction that resulted from the dissolution of one of the Company's affiliates, which resulted in a net benefit of$7.2 million for the first quarter of 2022. The effective tax rate for the 2022 period is lower than the applicableU.S. statutory tax rate due to the one-time deduction that resulted from the dissolution of one of the Company's affiliates that is referred to in the preceding sentence, as well as the forecasted impact of income earned in lower tax jurisdictions. The effective tax rate for the comparable 2021 period is approximately the same as the applicableU.S. statutory tax rate. Segment Results of Operations The Company reports its operations by the following segments: Electronics, Transportation and Industrial. Segment information is described more fully in Note 15, Segment Information, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.
The following table is a summary of the Company's net sales by segment:
First Quarter
%
(in thousands) 2022 2021 Change Change
Electronics $ 365,821 $ 286,535 $ 79,286 27.7 %
Transportation 184,504 128,529 55,975 43.6 %
Industrial 73,005 48,730 24,275 49.8 %
Total $ 623,330 $ 463,794 $ 159,536 34.4 %
30-------------------------------------------------------------------------------- Table of Contents Electronics Segment Net sales increased$79.3 million , or 27.7%, in the first quarter of 2022 compared to the first quarter of 2021 and included unfavorable changes in foreign exchange rates of$4.8 million . The sales increase was primarily due to increased volume for the semiconductor and electronics products businesses of$41.8 million and$37.5 million , respectively, led by continued broad-based demand across electronics, transportation and industrial end markets.
Transportation Segment
Net sales increased$56.0 million , or 43.6%, in the first quarter of 2022 compared to the first quarter of 2021 and included unfavorable changes in foreign exchange rates of$3.6 million . The sales increase was primarily due to the acquisition of Carling which contributed net sales of$55.8 million . Net sales in the commercial vehicle business increased by$61.5 million , largely due to the Carling acquisition noted previously and continued demand across a number of commercial vehicle end markets. The passenger car products and automotive sensors businesses had sales decreases of$3.4 million and$2.1 million , respectively, driven by a decline in global car build compared to the same quarter last year largely due to supply chain constraints and OEM shut downs caused by market shortages of semiconductor chips as well as a reduction of demand inEurope due toUkraine /Russia conflict partially offset by greater content growth from vehicle mix and electric vehicles.
Industrial Segment
Net sales increased by$24.3 million , or 49.8%, in the first quarter of 2022 compared to the first quarter of 2021, which included unfavorable changes in foreign exchange rates of$0.2 million . The increase in net sales was primarily due to higher volume and demand across product lines in industrial safety, HVAC, renewables, nonresidential construction, and industrial maintenance, repair, and operations end markets and incremental net sales of$9.1 million or 18.6% from the Hartland acquisition.
Geographic Net Sales Information
Net sales by geography represent net sales to customer or distributor locations. The following table is a summary of the Company's net sales by geography:
First Quarter
%
(in thousands) 2022 2021 Change Change
Asia-Pacific $ 260,218 $ 212,185 $ 48,033 22.6 %
Americas 237,230 152,906 84,324 55.1 %
Europe 125,882 98,703 27,179 27.5 %
Total $ 623,330 $ 463,794 $ 159,536 34.4 %
Asia-Pacific
Net sales increased $48.0 million , or 22.6%, in the first quarter of 2022
compared to the first quarter of 2021 and included unfavorable changes in
foreign exchange rates of $1.1 million . The increase in net sales was primarily
due to higher volume across all businesses within the Electronics segment and
incremental sales from the Carling acquisition included in the commercial
vehicle products business within the Transportation segment compared to the
first quarter of 2021.
Net sales increased$84.3 million , or 55.1%, in the first quarter of 2022 compared to the first quarter of 2021 and included unfavorable changes in foreign exchange rates of$0.1 million . The increase in net sales was primarily due to incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment and higher volume from all businesses within the Electronics and Industrial segments compared to the first quarter of 2021.Europe 31
-------------------------------------------------------------------------------- Table of Contents Net sales increased$27.2 million , or 27.5%, in the first quarter of 2022 compared to the first quarter of 2021 and included unfavorable changes in foreign exchange rates of$7.4 million . The increase in net sales was primarily due to increased volume across all businesses within the Electronics segment and incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment compared to the first quarter of 2021.
Liquidity and Capital Resources
The Company has historically supported its liquidity needs through cash flows from operations. 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$461.6 million as ofApril 2, 2022 , a decrease of$16.9 million as compared toJanuary 1, 2022 . As ofApril 2, 2022 ,$145.3 million of the Company's$461.6 million cash and cash equivalents was held byU.S. subsidiaries. Revolving Credit Facility OnApril 3, 2020 , the Company amended its Credit Agreement to effect certain changes, including, among others: (i) eliminating the$200.0 million unsecured term loan credit facility, the remaining outstanding balance ($140.0 million ) of which was repaid in full onApril 3, 2020 through the revolving credit facility; (ii) making certain financial and non-financial covenants less restrictive on the Company; (iii) modifying performance-based interest rate margins and undrawn fees; and (iv) extending the maturity date toApril 3, 2025 . The amended Credit Agreement also allows the Company to increase the size of the revolving credit facility or enter into one or more tranches of term loans if there is no event of default and the Company is in compliance with certain financial covenants. The balance under the facility was$100.0 million as ofApril 2, 2022 . Outstanding borrowings under the amended Credit Agreement bears interest, at the Company's option, at either LIBOR, fixed for interest periods of one, two, three or six-month periods, plus 1.25% to 2.00%, or at the bank's Base Rate, as defined, plus 0.25% to 1.00%, based upon the Company's Consolidated Leverage Ratio, as defined. The Company is also required to pay commitment fees on unused portions of the credit agreement ranging from 0.125% to 0.20%, based on the Consolidated Leverage Ratio, as defined in the agreement. The amended Credit Agreement includes representations, covenants and events of default that are customary for financing transactions of this nature. The effective interest rate on outstanding borrowings under the credit facility was 1.71% atApril 2, 2022 .
As of
Senior Notes
OnDecember 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 onDecember 8, 2016 for €117 million in aggregate amount of 1.14% Senior Notes, Series A, dueDecember 8, 2023 ("Euro Senior Notes, Series A due 2023"), and €95 million in aggregate amount of 1.83% Senior Notes, Series B dueDecember 8, 2028 ("Euro Senior Notes, Series B due 2028") (together, the "Euro Senior Notes"). Interest on the Euro Senior Notes is payable semiannually onJune 8 andDecember 8 , commencingJune 8, 2017 . OnDecember 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. OnFebruary 15, 2017 ,$25 million in aggregate principal amount of 3.03% Senior Notes, Series A, dueFebruary 15, 2022 ("U.S. Senior Notes, Series A due 2022"), and$100 million in aggregate principal amount of 3.74% Senior Notes, Series B, dueFebruary 15, 2027 ("U.S. Senior Notes, Series B due 2027") (together, the "U.S. Senior Notes due 2022 and 2027") were funded. Interest on theU.S. Senior Notes due 2022 and 2027 is payable semiannually onFebruary 15 andAugust 15 , commencingAugust 15, 2017 . During the three months endedApril 2, 2022 , the Company paid$25.0 million ofU.S. Senior Notes, Series A due onFebruary 15, 2022 . OnNovember 15, 2017 , the Company entered into a Note Purchase Agreement pursuant to which the Company issued and sold$175 million in aggregate principal amount of senior notes in two series. OnJanuary 16, 2018 ,$50 million aggregate principal amount of 3.48% Senior Notes, Series A, dueFebruary 15, 2025 ("U.S. Senior Notes, Series A due 2025") and$125 million in aggregate principal amount of 3.78% Senior Notes, Series B, dueFebruary 15, 2030 ("U.S. Senior Notes, Series B due 2030") 32 -------------------------------------------------------------------------------- Table of Contents (together the "U.S. Senior Notes due 2025 and 2030" and with the Euro Senior Notes and theU.S. Senior Notes due 2022 and 2027, the "Senior Notes") were funded. Interest on theU.S. Senior Notes due 2025 and 2030 is payable semiannually onFebruary 15 andAugust 15 , commencing onAugust 15, 2018 . Debt Covenants The Company was in compliance with all covenants under the Credit Agreement and Senior Notes as ofApril 2, 2022 and currently expects to remain in compliance based on management's estimates of operating and financial results for 2022. As ofApril 2, 2022 , 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.
Acquisitions
OnApril 8, 2022 , the Company announced that it had entered into a definitive agreement to acquire C&K Switches for$540 million in cash, subject to a working capital adjustment. Founded in 1928, C&K Switches is a leading designer and manufacturer of high-performance electromechanical switches and interconnect solutions with a strong global presence across a broad range of end markets, including industrial, transportation, aerospace, and datacom. At the time the Company and C&K entered into the definitive agreement, C&K had annualized sales of over$200 million . The business is headquartered inWaltham, Massachusetts , with facilities located around the world and will be reported as part of the Electronics-Passive Products and Sensors within the Company's Electronics Segment. The transaction is subject to customary closing conditions and regulatory approvals, and is expected to close during the second quarter of 2022. The Company expects to finance the transaction through a combination of cash on hand and debt. Dividends During the first quarter of 2022 the Company paid quarterly dividends of$13.1 million to the shareholders. OnApril 28, 2022 , the Board of Directors of the Company declared a quarterly cash dividend of$0.53 per share, payable onJune 9, 2022 to stockholders of record as ofMay 26, 2022 . Cash Flow Overview First three Months (in thousands) 2022 2021 Net cash provided by operating activities$ 51,731 $ 50,166 Net cash used in investing activities (29,788) (122,020) Net cash used in financing activities (37,070) (34,273)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(2,738) (4,101)
Decrease in cash, cash equivalents, and restricted cash (17,865) (110,228)
Cash, cash equivalents, and restricted cash at beginning of period 482,836
687,525
Cash, cash equivalents, and restricted cash at end of period $
464,971
Cash Flow from Operating Activities
Operating cash inflows are largely attributable to sales of the Company's products. 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$51.7 million for the three months endedApril 2, 2022 as compared to$50.2 million for the three months endedMarch 27, 2021 . The slight increase in net cash provided by operating activities was primarily due to higher cash earnings, largely offset by increases in working capital resulting from higher sales growth and higher annual incentive bonus payments made in 2022 as compared to 2021.
Cash Flow from Investing Activities
Net cash used in investing activities was$29.8 million for the three months endedApril 2, 2022 compared to$122.0 million during the three months endedMarch 27, 2021 . Net cash paid for acquisitions was$109.9 million for the three months endedMarch 27, 2021 . Capital expenditures were$29.8 million , representing an increase of$15.1 million compared to 2021. During the three months endedMarch 27, 2021 , the Company received proceeds of$2.6 million from the sale of a property within the Electronics segment. 33
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Cash Flow from Financing Activities
Net cash used in financing activities was$37.1 million for the three months endedApril 2, 2022 compared to$34.3 million for the three months endedMarch 27, 2021 . During the three months endedApril 2, 2022 , the Company paid$25.0 million ofU.S. Senior Notes, Series A due onFebruary 15, 2022 . During the three months endedMarch 27, 2021 , the Company made payments of$30.0 million on the amended revolving credit facility. Additionally, the Company paid dividends$13.1 million and$11.8 million in the three months endedApril 2, 2022 andMarch 27, 2021 , respectively.
Share Repurchase Program
OnApril 28, 2021 , the Company announced that the Board of Directors authorized a new three year program to repurchase up to$300.0 million in the aggregate of shares of the Company's common stock for the periodMay 1, 2021 toApril 30, 2024 to replace its previous 2020 program.
The Company did not repurchase any shares of its common stock for the three
months ended
Off-Balance Sheet Arrangements
As ofApril 2, 2022 , the Company did not have any off-balance sheet arrangements, as defined underSEC 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. The Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.
Critical Accounting Policies and Estimates
The Company's Condensed Consolidated Financial Statements are prepared in accordance withU.S. GAAP. In connection with the preparation of the Condensed Consolidated Financial Statements, the Company uses estimates and makes judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. The assumptions, estimates, and judgments are based on historical experience, current trends, and other factors the Company believes are relevant at the time it prepares the Condensed Consolidated Financial Statements. 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 endedJanuary 1, 2022 . During the three months endedApril 2, 2022 , there were no significant changes in the application of critical accounting policies.
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