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.
30-------------------------------------------------------------------------------- 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 approximately 19,000 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 third quarter of 2022, the Company recognized net sales of$658.9 million , an increase of$119.3 million , or 22.1% as compared to$539.6 million in the third quarter of 2021. The increase was primarily driven by higher volumes in the Electronics and Industrial segments,$58.8 million or 10.9% of net sales from the Carling acquisition within the Transportation segment and$37.9 million or 7.0% of net sales from the C&K acquisition within the Electronics segment, partially offset by$21.5 million or 4.0% of unfavorable changes in foreign exchange rates. The Company recognized net income of$75.5 million , or$3.02 per diluted share, in the third quarter of 2022 compared to$92.1 million , or$3.69 per diluted share in the third quarter of 2021. The decrease in net income was primarily due to higher foreign exchange losses of$15.0 million . Supply chain constraints, including material and transportation capacity shortages impacted the Company, its suppliers and customers to a lesser extent during the third quarter of 2022 as compared to previous quarters. The Company expects ongoing improvement during the remainder of 2022. Net cash provided by operating activities was$313.4 million for the nine months endedOctober 1, 2022 as compared to$240.7 million for the nine months endedSeptember 25, 2021 . The increase in net cash provided by operating activities was primarily due to higher cash earnings, partially offset by increases in working capital resulting from higher sales growth and higher annual incentive bonus payments made in 2022 as compared to 2021. OnJuly 19, 2022 , the Company completed the previously announced acquisition of C&K Switches ("C&K") for$540 million in cash. Founded in 1928, C&K is a leading designer and manufacturer of high-performance electromechanical switches and interconnect solutions with a strong global presence across a broad range of end markets, including industrial, transportation, 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 reported as part of the Electronics-Passive Products and Sensors business within the Company's Electronics segment. The Company financed 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.
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 further 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 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
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The Company continues to operate in a more volatile macro environment given
events related to the war in Ukraine . The Company does not have any direct
operations in Ukraine or Russia . 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 from Russia .
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 third quarter of 2022 includes$6.8 million ($11.6 million year-to-date) of purchase accounting inventory step-up charges,$6.2 million ($14.8 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, and$3.4 million ($4.3 million year-to-date) of restructuring, impairment and other charges, primarily related to employee termination costs. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion. The third quarter of 2021 includes$6.8 million year-to-date of purchase accounting inventory step-up charges,$2.0 million ($3.4 million year-to-date) of legal and professional fees and other integration expenses related to Hartland and other contemplated acquisitions, and$0.8 million ($2.0 million year-to-date) of restructuring, impairment and other charges, primarily related to employee termination costs. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion. In addition, there was a year-to-date gain of$0.9 million recorded for the sale of a building within the Electronics segment. Third Quarter First Nine Months % % (in thousands) 2022 2021 Change Change 2022 2021 Change Change Net sales$ 658,880 $ 539,581 $ 119,299 22.1 %$ 1,900,646 $ 1,526,863 $ 373,783 24.5 % Cost of sales 402,059 325,009 77,050 23.7 % 1,122,258 954,429 167,829 17.6 % Gross profit 256,821 214,572 42,249 19.7 % 778,388 572,434 205,954 36.0 % Operating expenses 134,951 94,465 40,486 42.9 % 371,764 279,589 92,175 33.0 % Operating income 121,870 120,107 1,763 1.5 % 406,624 292,845 113,779 38.9 % Income before income taxes 95,978 113,591 (17,613) (15.5) % 339,715 281,496 58,219 20.7 % Income taxes 20,510 21,537 (1,027) (4.8) % 59,713 49,634 10,079 20.3 % Net income$ 75,468 $ 92,054 $ (16,586) (18.0) %$ 280,002 $ 231,862 $ 48,140 20.8 % Net Sales Net sales increased$119.3 million , or 22.1%, for the third quarter of 2022 compared to the third quarter of 2021, including$58.8 million or 10.9% from the Carling acquisition within the Transportation segment and$37.9 million or 7.0% of net sales from the C&K acquisition within the Electronics segment, and included$21.5 million or 4.0% of unfavorable changes in foreign exchange rates. The remaining increase of$12.5 million in the Electronics segment was due to demand primarily in primarily in the semiconductors business within the Electronics segment while the Industrial segment increased$11.6 million driven by higher volume and price realization across all businesses. Net sales increased$373.8 million , or 24.5%, including$172.4 million or 11.3% from the Carling acquisition within the Transportation segment and$37.9 million or 2.5% of net sales from the C&K acquisition within the Electronics segment, and included$46.5 million or 3.0% of unfavorable changes in foreign exchange rates for the first nine months of 2022 compared to the first nine months of 2021. The remaining increase of$124.6 million in the Electronics segment was due to higher volume and price realization across numerous end markets while the Industrial segment increased$49.3 million driven by higher volume and price realization across all businesses and incremental one month net sales of$9.1 million from the Hartland acquisition.
Cost of Sales
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Cost of sales was $402.1 million , or 61.0% of net sales, in the third quarter of
2022, compared to $325.0 million , or 60.2% of net sales, in the third quarter of
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 acquisitions of Carling and C&K. As a percent of net sales, cost
of sales increased 0.8% driven by purchase accounting inventory charges of $6.8
million or 1.0%, partially offset by volume leverage, and favorable product mix
predominantly in the Electronics segment.
Cost of sales was $1,122.3 million , or 59.0% of net sales for the first nine
months of 2022, compared to $954.4 million , or 62.5% of net sales for the first
nine months of 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 acquisitions of Carling and C&K. As a percent of
net sales, cost of sales decreased 3.5% driven by volume leverage, partially
offset by higher purchase accounting inventory charges of $4.7 million or 0.3%
in 2022.
Gross Profit
Gross profit was $256.8 million , or 39.0% of net sales, in the third quarter of
2022 compared to $214.6 million , or 39.8% of net sales, for the third quarter of
2021. The $42.2 million increase in gross profit was primarily due to higher
volume and price realization in the Electronics and Industrial segments along
with the acquisitions of Carling and C&K. The decrease in gross margin of 0.8%
was primarily driven by purchase accounting inventory charges of $6.8 million or
1.0%, partially offset by volume leverage and favorable price and product mix
predominantly in the Electronics segment.
Gross profit was $778.4 million , or 41.0% of net sales, in the first nine months
of 2022 compared to $572.4 million , or 37.5% of net sales, for the first nine
months of 2021. The $206.0 million increase in gross profit was primarily due to
higher volume and price realization in the Electronics and Industrial segments
along with the acquisitions of Carling and C&K. The increase in gross margin of
3.5% was primarily driven by volume leverage and price realization, partially
offset by higher purchase accounting inventory charges of $4.7 million or 0.2%
in 2022.
Operating Expenses
Total operating expenses were $135.0 million , or 20.5% of net sales, for the
third quarter of 2022 compared to $94.5 million , or 17.5% of net sales, for the
third quarter of 2021. The increase in operating expenses of $40.5 million was
primarily due to higher selling, general, and administrative expenses of $22.8
million , research and development expenses of $10.0 million , and increased
amortization expense of $5.1 million and acquisition-related expenses of
$4.2 million largely due to the Carling and C&K acquisitions.
Total operating expenses were $371.8 million , or 19.6% of net sales, for the
first nine months of 2022 compared to $279.6 million , or 18.3% of net sales, for
the first nine months of 2021. The increase in operating expenses of $92.2
million was primarily due to higher selling, general, and administrative
expenses of $59.7 million , research and development expenses of $21.9 million
and increased acquisition-related expenses of $11.4 million and amortization
expense of $8.3 million largely due to the Carling and C&K acquisitions.
Operating Income
Operating income was$121.9 million , an increase of$1.8 million , or 1.5%, for the third quarter of 2022 compared to$120.1 million for the third quarter of 2021. The increase in operating income was due to higher gross profit from the Electronics and Industrial segments, partially offset by higher operating expenses as noted above. Operating margins decreased from 22.3% in the third quarter of 2021 to 18.5% in the third quarter of 2022 driven by the higher operating expenses associated with the acquisitions mentioned above. Operating income was$406.6 million , an increase of$113.8 million , or 38.9%, for the first nine months of 2022 compared to$292.8 million for the first nine months 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 19.2% in the first nine months of 2021 to 21.4% in the first nine months of 2022 driven by higher operating income of$109.4 million in the Electronics segment.
Income Before Income Taxes
Income before income taxes was$96.0 million , or 14.6% of net sales, for the third quarter of 2022 compared to$113.6 million , or 21.1% of net sales, for the third quarter of 2021. In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily impacted by higher foreign exchange losses of$15.0 million in the third quarter of 2022, and increased interest expense of$3.8 million due to higher borrowings. 33 -------------------------------------------------------------------------------- Table of Contents Income before income taxes was$339.7 million , or 17.9% of net sales, for the first nine months of 2022 compared to$281.5 million , or 18.4% of net sales, for the first nine months of 2021. In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was impacted by higher foreign exchange losses of$31.7 million during the nine months endedOctober 1, 2022 and$13.7 million of unrealized losses during the nine months endedOctober 1, 2022 compared to unrealized gains of$9.2 million during nine months endedSeptember 25, 2021 related to the Company's equity investment.
Income Taxes
Income tax expense for the third quarter of 2022 was$20.5 million , or an effective tax rate of 21.4%, compared to$21.5 million , or an effective tax rate of 19.0%, for the third quarter of 2021. The effective tax rate for the third quarter of 2022 is higher than the effective tax rate for the comparable 2021 period, primarily due to higher foreign exchange losses with no related tax benefit in the 2022 period, as compared to the comparable 2021 period. Income tax expense for the first nine months of 2022 was$59.7 million , or an effective tax rate of 17.6%, compared to income tax expense of$49.6 million , or an effective tax rate of 17.6%, for the first nine months of 2021. The effective tax rate for the first nine months of the 2022 period is lower than the applicableU.S. statutory tax rate due to a one-time deduction that resulted from the dissolution of one of the Company's affiliates, as well as the forecasted impact of income earned in lower tax jurisdictions. The effective tax rate for the comparable 2021 period is lower than the applicableU.S. statutory tax rate primarily due to the forecasted impact of income earned in lower tax jurisdictions.
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:
Third Quarter First Nine Months
% %
(in thousands) 2022 2021 Change Change 2022 2021 Change Change
Electronics $ 397,629 $ 347,240 $ 50,389 14.5 % $ 1,121,626 $ 959,122 $ 162,504 16.9 %
Transportation 181,735 124,415 57,320 46.1 % 548,266 386,262 162,004 41.9 %
Industrial 79,516 67,926 11,590 17.1 % 230,754 181,479 49,275 27.2 %
Total $ 658,880 $ 539,581 $ 119,299 22.1 % $ 1,900,646 $ 1,526,863 $ 373,783 24.5 %
Electronics Segment
Net sales increased $50.4 million , or 14.5%, in the third quarter of 2022
compared to the third quarter of 2021 and included unfavorable changes in
foreign exchange rates of $12.9 million . The sales increase was primarily due to
the acquisition of C&K which contributed net sales of $37.9 million . The
remaining sales increase was due to $32.8 million of higher volume for the
semiconductor business driven by increased demand predominantly in the data
center and electric vehicle end markets along with capacity growth and price
realization.
Net sales increased $162.5 million , or 16.9%, in the first nine months of 2022
compared to the first nine months of 2021 and included unfavorable changes in
foreign exchange rates of $27.3 million . The sales increase was primarily due to
increased volume and price realization for the semiconductor business of $100.3
million and $62.2 million in the electronics products business, which included
the incremental $37.9 million of sales from the acquisition of C&K. These volume
increases were driven by continued broad-based demand across numerous end
markets.
Transportation Segment
Net sales increased$57.3 million , or 46.1%, in the third quarter of 2022 compared to the third quarter of 2021 and included unfavorable changes in foreign exchange rates of$8.0 million . The sales increase was primarily due to the acquisition of Carling which contributed net sales of$58.8 million . Net sales in the commercial vehicle business increased by$60.8 million , 34 -------------------------------------------------------------------------------- Table of Contents 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$2.4 million and$1.1 million , respectively, mostly due to unfavorable changes in foreign exchange rates, certain automotive customer's rebalancing their inventory levels of the Company's products given lower car build forecasts and softer demand for some products, partially offset by continued content growth in standard and electric vehicles. Net sales increased$162.0 million , or 41.9%, in the first nine months of 2022 compared to the first nine months of 2021 and included unfavorable changes in foreign exchange rates of$17.8 million . The sales increase was primarily due to the acquisition of Carling which contributed net sales of$172.4 million . Net sales in the commercial vehicle business increased by$182.8 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$14.0 million and$6.7 million , respectively, primarily driven by unfavorable changes in foreign exchange rates, certain automotive customer's rebalancing their inventory levels of the Company's products given lower car build forecasts and softer demand for some products 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$11.6 million , or 17.1%, in the third quarter of 2022 compared to the third quarter of 2021, which included unfavorable changes in foreign exchange rates of$0.6 million . The increase in net sales was primarily due to higher volume and demand across a number of end markets along with price realization. The higher volume was favorably impacted by increased manufacturing capacity and material availability. Net sales increased by$49.3 million , or 27.2%, in the first nine months of 2022 compared to the first nine months of 2021, which included unfavorable changes in foreign exchange rates of$1.4 million . The increase in net sales was primarily due to higher volume and demand across a number of end markets, price realization, and incremental one month net sales of$9.1 million or 13.3% 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:
Third Quarter First Nine Months
% %
(in thousands) 2022 2021 Change Change 2022 2021 Change Change
Asia-Pacific $ 263,963 $ 250,880 $ 13,083 5.2 % $ 776,990 $ 702,542 $ 74,448 10.6 %
Americas 264,894 167,314 97,580 58.3 % 749,715 500,555 249,160 49.8 %
Europe 130,023 121,387 8,636 7.1 % 373,941 323,766 50,175 15.5 %
Total $ 658,880 $ 539,581 $ 119,299 22.1 % $ 1,900,646 $ 1,526,863 $ 373,783 24.5 %
Asia-Pacific
Net sales increased $13.1 million , or 5.2%, in the third quarter of 2022
compared to the third quarter of 2021 and included unfavorable changes in
foreign exchange rates of $5.9 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, incremental sales
from the acquisition of C&K, and higher volume and price realization from the
semiconductor business within the Electronics segment, partially offset by lower
net sales from electronics products business.
Net sales increased $74.4 million , or 10.6%, in the first nine months of 2022
compared to the first nine months of 2021, and included unfavorable changes in
foreign exchange rates of $11.4 million . The increase in net sales was primarily
due to higher volume and price realization 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 nine months of 2021.
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Net sales increased $97.6 million , or 58.3%, in the third quarter of 2022
compared to the third quarter of 2021 and included unfavorable changes in
foreign exchange rates of $0.5 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
and price realization from all businesses within the Electronics including
incremental sales from C&K acquisition and higher volume and price realization
from all businesses within Industrial segments compared to the third quarter of
2021.
Net sales increased $249.2 million , or 49.8%, in the first nine months of 2022
compared to the first nine months of 2021 and included unfavorable changes in
foreign exchange rates of $1.0 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
and price realization from all businesses within the Electronics and Industrial
segments compared to the first nine months of 2021.
Net sales increased$8.6 million , or 7.1%, in the third quarter of 2022 compared to the third quarter of 2021 and included unfavorable changes in foreign exchange rates of$15.1 million . The increase in net sales was primarily due to incremental sales from the acquisition of C&K, increased volume from the semiconductor business 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 third quarter of 2021. Net sales increased$50.2 million , or 15.5%, in the first nine months of 2022 compared to the first nine months of 2021 and included unfavorable changes in foreign exchange rates of$34.1 million . The increase in net sales was primarily due to increased volume across all businesses within the Electronics segment including incremental sales from C&K acquisition, and incremental sales from the Carling acquisition included in the commercial vehicle products business within the Transportation segment compared to the first nine months 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$474.0 million as ofOctober 1, 2022 , a decrease of$4.5 million as compared toJanuary 1, 2022 . As ofOctober 1, 2022 ,$115.9 million of the Company's$474.0 million cash and cash equivalents was held byU.S. subsidiaries.
Revolving Credit Facility and Term Loan
OnJune 30, 2022 , the Company amended and restated its Credit Agreement, dated as ofApril 3, 2020 (the "Credit Agreement") to effect certain changes, including, among other changes: (i) adding a$300 million unsecured term loan credit facility; (ii) making certain financial and non-financial covenants less restrictive on the Company and its subsidiaries; (iii) replacing LIBOR-based interest rate benchmarks and modifying performance-based interest rate margins; and (iv) extending the maturity date toJune 30, 2027 (the "Maturity Date"). Pursuant to the Credit Agreement, the Company may, from time to time, increase the size of the revolving credit facility or enter into one or more tranches of term loans in minimum increments of$25 million if there is no event of default and the Company is in compliance with certain financial covenants. Loans made under the available credit facility pursuant to the Credit Agreement ("the Credit Facility") bear interest at the Company's option, at either Secured Overnight Financing Rate ("SOFR"), fixed for interest periods of one, two, three or six-month periods, plus 1.00% to 1.75%, plus a SOFR adjustment of 0.10% or at the bank's Base Rate, as defined in the Credit Agreement, plus -% to 0.75%, based upon the Company's Consolidated Leverage Ratio, as defined in the Credit Agreement. The Company is also required to pay commitment fees on unused portions of the Credit Facility ranging from 0.10% to 0.175%, based on the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement includes representations, covenants and events of default that are customary for financing transactions of this nature. Revolving loans may be borrowed, repaid and reborrowed until the Maturity Date, at which time all amounts borrowed must be repaid. The Company borrowed$300.0 million under a term loan onJune 30, 2022 . The principal balance of the term loans must be repaid in quarterly installments on the last day of each calendar quarter in the amount of$1.9 million commencing 36 -------------------------------------------------------------------------------- Table of ContentsSeptember 30, 2022 , throughJune 30, 2024 , and in the amount of$3.8 million commencingSeptember 30, 2024 , throughMarch 31, 2027 , with the remaining outstanding principal balance payable in full on the Maturity Date. Accrued interest on the loans is payable in arrears on each interest payment date applicable thereto and at such other times as may be specified in the Credit Agreement. Subject to certain conditions, (i) the Company may terminate or reduce the Aggregate Revolving Commitments, as defined in the Credit Agreement, in whole or in part, and (ii) the Company may prepay the revolving loans or the term loans at any time, without premium or penalty. During the three months endedOctober 1, 2022 , the Company paid$1.9 million of term loan. The revolving loan and term loan balance under the Credit Facility was$100.0 million and$298.1 million , respectively, as ofOctober 1, 2022 . OnMay 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 onJune 30, 2027 .
As of
As ofOctober 1, 2022 , the Company had no outstanding in letters of credit under the Credit Facility and had available$600.0 million of borrowing capacity under the revolving Credit Facility. As ofOctober 1, 2022 , the Company was in compliance with all covenants under the Credit Agreement.
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 nine months endedOctober 1, 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") (together, the "U.S. Senior Notes due 2025 and 2030") were funded. Interest on theU.S. Senior Notes due 2025 and 2030 is payable semiannually onFebruary 15 andAugust 15 , commencing onAugust 15, 2018 . OnMay 18, 2022 , the above note purchase agreements were amended to, among other things, update certain terms, including financial covenants to be consistent with the terms of the restated Credit Agreement and the 2022 Purchase Agreement, as defined below. OnMay 18, 2022 , the Company entered into a Note Purchase Agreement ("2022 Purchase Agreement") pursuant to which the Company issued and funded onJuly 18, 2022 $100 million in aggregate principal amount of 4.33% Senior Notes, dueJune 30, 2032 ("U.S. Senior Notes, due 2032") (together with theU.S. Senior Notes due 2025 and 2030, the Euro Senior Notes and theU.S. Senior Notes due 2022 and 2027, the "Senior Notes"). Interest on theU.S. Senior Notes due 2032 is payable semiannually onJune 30 andDecember 30 , commencing onDecember 30, 2032 . Debt Covenants The Company was in compliance with all covenants under the Credit Agreement and Senior Notes as ofOctober 1, 2022 and currently expects to remain in compliance based on management's estimates of operating and financial results for 2022. As ofOctober 1, 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. 37
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Table of Contents
Acquisitions
OnJuly 19, 2022 , the Company completed the previously announced acquisition of C&K Switches ("C&K") for$540 million in cash. Founded in 1928, C&K is a leading designer and manufacturer of high-performance electromechanical switches and interconnect solutions with a strong global presence across a broad range of end markets, including industrial, transportation, 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 reported as part of the Electronics-Passive Products and Sensors business within the Company's Electronics segment. The Company financed the transaction through a combination of cash on hand and debt. Dividends During the third quarter of 2022 the Company paid quarterly dividends of$41.1 million to the shareholders. OnNovember 1, 2022 , the Board of Directors of the Company declared quarterly cash dividend of$0.60 per share, payable onDecember 8, 2022 to stockholders of record as ofNovember 24, 2022 . Cash Flow Overview First Nine Months (in thousands) 2022 2021 Net cash provided by operating activities$ 313,439 $ 240,664 Net cash used in investing activities (609,980) (165,611) Net cash used in financing activities 321,923 (60,877)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(31,963) (5,832)
(Decrease) increase in cash, cash equivalents, and restricted cash
(6,581) 8,344
Cash, cash equivalents, and restricted cash at beginning of period 482,836
687,525
Cash, cash equivalents, and restricted cash at end of period $
476,255
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$313.4 million for the nine months endedOctober 1, 2022 as compared to$240.7 million for the nine months endedSeptember 25, 2021 . The increase in net cash provided by operating activities was primarily due to higher cash earnings, partially 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$610.0 million for the nine months endedOctober 1, 2022 compared to$165.6 million during the nine months endedSeptember 25, 2021 . Net cash paid for acquisitions was$532.8 million and$110.6 million for the nine months endedOctober 1, 2022 andSeptember 25, 2021 , respectively. Capital expenditures were$77.8 million , representing an increase of$20.2 million compared to 2021. During nine months endedOctober 1, 2022 andSeptember 25, 2021 , the Company received proceeds of$0.6 million from the sale of a property within the Transportation segment and$2.6 million from the sale of a property within the Electronics segment, respectively.
Cash Flow from Financing Activities
Net cash provided by financing activities was$321.9 million for the nine months endedOctober 1, 2022 compared to net cash used in financing activities$60.9 million for the nine months endedSeptember 25, 2021 . OnJuly 18, 2022 , the Company issued and funded$100 million in aggregate principal amount of 4.33%U.S. Senior Notes, due 2032. OnJune 30, 2022 , the Company amended its Credit Agreement and borrowed of$300.0 million through a term loan. During the nine months endedOctober 1, 2022 , the Company paid$25.0 million ofU.S. Senior Notes, Series A due onFebruary 15, 2022 and$1.9 million on the term loan. During the nine months endedSeptember 25, 2021 , the Company made payments of$30.0 million on the 38 -------------------------------------------------------------------------------- Table of Contents amended revolving credit facility. Additionally, the Company paid dividends$41.1 million and$36.6 million in the nine months endedOctober 1, 2022 andSeptember 25, 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 and
nine months ended
Off-Balance Sheet Arrangements
As ofOctober 1, 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 nine months endedOctober 1, 2022 , there were no significant changes in the application of critical accounting policies.
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