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LITTELFUSE INC /DE - Quarter Report: 2023 September (Form 10-Q)

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United States
Securities and Exchange Commission
Washington, D.C. 20549
 
FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___

Commission file number 0-20388
LITTELFUSE, INC. 
(Exact name of registrant as specified in its charter)
Delaware36-3795742
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
8755 West Higgins Road 
 Suite 500
ChicagoIllinois60631
(Address of principal executive offices)(ZIP Code)
 
Registrant’s telephone number, including area code: 773-628-1000
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
Trading SymbolName of exchange on which registered
Common Stock, $0.01 par valueLFUSNASDAQGlobal Select Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company ☐ Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes [ ] No [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No [X]

As of October 27, 2023, the registrant had outstanding 24,902,916 shares of Common Stock, net of Treasury Shares.


Table of Contents
TABLE OF CONTENTS
 
 Page
  
PART I 
Item 1. 
 Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022
 Condensed Consolidated Statements of Net Income for the three and nine months ended September 30, 2023 (unaudited) and October 01, 2022 (unaudited)
 Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 (unaudited) and October 01, 2022 (unaudited)
 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 (unaudited) and October 01, 2022 (unaudited)
Condensed Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 2023 (unaudited) and October 01, 2022 (unaudited)
 
Item 2.
Item 3.
Item 4.
PART II 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

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ITEM 1. FINANCIAL STATEMENTS
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)September 30,
2023
December 31,
2022
ASSETS  
Current assets:  
Cash and cash equivalents$560,056 $562,588 
Short-term investments229 84 
Trade receivables, less allowances of $88,440 and $83,562 at September 30, 2023 and December 31, 2022, respectively
327,500 306,578 
Inventories483,075 547,690 
Prepaid income taxes and income taxes receivable3,776 7,215 
Prepaid expenses and other current assets83,684 87,641 
Total current assets1,458,320 1,511,796 
Net property, plant, and equipment478,906 481,110 
Intangible assets, net of amortization612,366 593,970 
Goodwill1,284,343 1,186,922 
Investments23,371 24,121 
Deferred income taxes13,598 14,367 
Right of use lease assets, net51,755 57,382 
Other long-term assets80,267 34,066 
Total assets$4,002,926 $3,903,734 
LIABILITIES AND EQUITY  
Current liabilities:  
Accounts payable$166,725 $208,571 
Accrued liabilities143,540 187,057 
Accrued income taxes35,762 41,793 
Current portion of long-term debt135,619 134,874 
Total current liabilities481,646 572,295 
Long-term debt, less current portion857,006 866,623 
Deferred income taxes106,656 100,230 
Accrued post-retirement benefits29,445 28,037 
Non-current operating lease liabilities39,818 45,661 
Other long-term liabilities83,496 79,510 
Shareholders’ equity:
Common stock, par value $0.01 per share: 34,000,000 shares authorized; shares issued, September 30, 2023–26,613,883; December 31, 2022–26,445,618
262 261 
Additional paid-in capital1,007,033 974,097 
Treasury stock, at cost: 1,711,033 and 1,685,357 shares, respectively
(259,191)(252,866)
Accumulated other comprehensive loss(99,526)(95,764)
Retained earnings1,755,936 1,585,466 
Littelfuse, Inc. shareholders’ equity2,404,514 2,211,194 
Non-controlling interest345 184 
Total equity2,404,859 2,211,378 
Total liabilities and equity$4,002,926 $3,903,734 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
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LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited)
 Three Months EndedNine Months Ended
(in thousands, except per share data)September 30,
2023
October 1,
2022
September 30,
2023
October 1,
2022
Net sales$607,071 $658,880 $1,828,850 $1,900,646 
Cost of sales380,200 402,059 1,122,190 1,122,258 
Gross profit226,871 256,821 706,660 778,388 
Selling, general, and administrative expenses87,204 90,219 270,057 258,820 
Research and development expenses25,484 25,752 77,270 68,796 
Amortization of intangibles16,022 15,567 49,773 39,883 
Restructuring, impairment, and other charges4,516 3,413 13,221 4,265 
Total operating expenses133,226 134,951 410,321 371,764 
Operating income93,645 121,870 296,339 406,624 
Interest expense10,101 8,399 29,803 17,069 
Foreign exchange loss11,776 18,191 8,697 40,051 
Other (income) expense, net(3,527)(698)(11,810)9,789 
Income before income taxes75,295 95,978 269,649 339,715 
Income taxes17,507 20,510 53,045 59,713 
Net income$57,788 $75,468 $216,604 $280,002 
Earnings per share:    
Basic$2.32 $3.05 $8.72 $11.32 
Diluted$2.30 $3.02 $8.63 $11.21 
Weighted-average shares and equivalent shares outstanding:
Basic24,893 24,755 24,838 24,726 
Diluted25,143 24,988 25,100 24,986 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

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LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 Three Months EndedNine Months Ended
(in thousands)September 30,
2023
October 1,
2022
September 30,
2023
October 1,
2022
Net income$57,788 $75,468 $216,604 $280,002 
Other comprehensive (loss) income:
Pension and postemployment adjustment, net of tax(3)599 (156)1,548 
Cash flow hedge, net of tax1,546 7,609 2,141 7,068 
Foreign currency translation adjustments(3,677)(36,396)(5,747)(70,356)
Comprehensive income$55,654 $47,280 $212,842 $218,262 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

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LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months Ended
(in thousands)September 30, 2023October 1, 2022
OPERATING ACTIVITIES  
Net income$216,604 $280,002 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation53,510 48,326 
Amortization of intangibles49,773 39,883 
Deferred revenue1,769 (377)
Non-cash inventory charges— 11,534 
Impairment charges 4,742 90 
Stock-based compensation20,132 19,732 
Loss on investments and other assets922 13,740 
Deferred income taxes(689)(4,320)
Other7,829 55,334 
Changes in operating assets and liabilities:
Trade receivables(21,752)(56,431)
Inventories66,456 (83,803)
Accounts payable(38,475)(3,838)
Accrued liabilities and income taxes(61,359)(4,399)
Prepaid expenses and other assets13,678 (2,034)
Net cash provided by operating activities313,140 313,439 
INVESTING ACTIVITIES  
Acquisitions of businesses, net of cash acquired(198,810)(532,772)
Purchases of property, plant, and equipment(63,166)(77,773)
Net proceeds from sale of property, plant and equipment, and other597 565 
Net cash used in investing activities(261,379)(609,980)
FINANCING ACTIVITIES  
Proceeds of term loan— 300,000 
Proceeds of senior notes— 100,000 
Payments of senior notes payable— (25,000)
Repayments of other debts(2,027)(5,979)
Payments of term loan(5,625)(1,875)
Net proceeds related to stock-based award activities6,481 (1,568)
Debt issuance costs— (2,600)
Cash dividends paid(45,973)(41,055)
Net cash (used in) provided by financing activities(47,144)321,923 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(7,965)(31,963)
Decrease in cash, cash equivalents, and restricted cash(3,348)(6,581)
Cash, cash equivalents, and restricted cash at beginning of period564,939 482,836 
Cash, cash equivalents, and restricted cash at end of period$561,591 $476,255 
Supplementary Cash Flow Information
Reconciliation of cash and cash equivalents:
Cash and cash equivalents$560,056 $474,003 
Restricted cash included in prepaid expenses and other current assets$— $824 
Restricted cash included in other long-term assets$1,535 $1,428 
Cash paid during the period for interest$33,177 $16,888 
Capital expenditures, not yet paid$9,780 $9,111 
 See accompanying Notes to Condensed Consolidated Financial Statements.
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LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
 Littelfuse, Inc. Shareholders’ Equity
(in thousands, except share and per share data)Common StockAddl. Paid in CapitalTreasury StockAccum. Other Comp. Inc. (Loss)Retained EarningsNon-controlling InterestTotal
Balance at December 31, 2022$261 $974,097 $(252,866)$(95,764)$1,585,466 $184 $2,211,378 
Net income— — — — 88,745 — 88,745 
Other comprehensive income, net of tax— — — 13,283 — — 13,283 
Stock-based compensation— 3,730 — — — — 3,730 
Non-controlling interest— — — — (66)66 — 
Withheld shares on restricted share units for withholding taxes— — (18)— — — (18)
Stock options exercised— 5,238 — — — — 5,238 
Cash dividends paid ($0.60 per share)
— — — — (14,880)— (14,880)
Balance at April 1, 2023$261 $983,065 $(252,884)$(82,481)$1,659,265 $250 $2,307,476 
Net income— — — — 70,071 — 70,071 
Other comprehensive loss, net of tax— — — (14,911)— — (14,911)
Stock-based compensation— 12,545 — — — — 12,545 
Non-controlling interest(45)$45 — 
Withheld shares on restricted share units for withholding taxes— — (5,999)— — — (5,999)
Stock options exercised— 2,979 — — — — 2,979 
Cash dividends paid ($0.60 per share)
— — — — (14,910)— (14,910)
Balance at July 1, 2023$261 $998,589 $(258,883)$(97,392)$1,714,381 $295 $2,357,251 
Net income— — — — 57,788 — 57,788 
Other comprehensive loss, net of tax— — — (2,134)— — (2,134)
Stock-based compensation— 3,857 — — — — 3,857 
Non-controlling interest(50)50 — 
Withheld shares on restricted share units for withholding taxes— — (308)— — — (308)
Stock options exercised4,587 — — — — 4,588 
Cash dividends paid ($0.65 per share)
— — — — (16,183)— (16,183)
Balance at September 30, 2023$262 $1,007,033 $(259,191)$(99,526)$1,755,936 $345 $2,404,859 


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 Littelfuse, Inc. Shareholders’ Equity
(in thousands, except share and per share data)Common StockAddl. Paid in CapitalTreasury StockAccum. Other Comp. (Loss)Retained EarningsNon-controlling InterestTotal
Balance at January 1, 2022$260 $946,588 $(248,120)$(73,463)$1,268,124 $131 $1,893,520 
Net income— — — — 117,518 — 117,518 
Other comprehensive loss, net of tax— — — (2,203)— — (2,203)
Stock-based compensation— 3,886 — — — — 3,886 
Withheld shares on restricted share units for withholding taxes— — (4)— — — (4)
Stock options exercised— 1,021 — — — — 1,021 
Cash dividends paid ($0.53 per share)
— — — — (13,086)— (13,086)
Balance at April 2, 2022$260 $951,495 $(248,124)$(75,666)$1,372,556 $131 $2,000,652 
Net income— — — — 87,016 — 87,016 
Other comprehensive loss, net of tax— — — (31,349)— — (31,349)
Stock-based compensation— 11,382 — — — — 11,382 
Withheld shares on restricted share units for withholding taxes— — (4,704)— — — (4,704)
Stock options exercised2,060 — — — — 2,061 
Cash dividends paid ($0.53 per share)
— — — — (13,115)— (13,115)
Balance at July 2, 2022$261 $964,937 $(252,828)$(107,015)$1,446,457 $131 $2,051,943 
Net income— — — — 75,468 — 75,468 
Other comprehensive loss, net of tax— — — (28,188)— — (28,188)
Stock-based compensation— 4,464 — — — — 4,464 
Non-controlling interest— — — — (36)36 — 
Stock options exercised— 58 — — — — 58 
Cash dividends paid ($0.60 per share)
— — — — (14,854)— (14,854)
Balance at October 1, 2022$261 $969,459 $(252,828)$(135,203)$1,507,035 $167 $2,088,891 

See accompanying Notes to Condensed Consolidated Financial Statements.
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Notes to Condensed Consolidated Financial Statements 
 
1. Summary of Significant Accounting Policies and Other Information
 
Nature of Operations 
 
Founded in 1927, Littelfuse is a diversified, industrial technology manufacturing company empowering a sustainable, connected, and safer world. Across more than 20 countries, and with approximately 17,000 global associates, the Company partners with customers to design and deliver innovative, reliable solutions. Serving over 100,000 end customers, the Company’s products are found in a variety of industrial, transportation and electronics end markets – everywhere, every day. 

Basis of Presentation 
 
The Company’s accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures normally included in the consolidated balance sheets, statements of net income and comprehensive income, statements of cash flows, and statements of stockholders' equity prepared in conformity with U.S. GAAP have been condensed or omitted as permitted by such rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. They have been prepared in accordance with accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which should be read in conjunction with the disclosures therein. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. Operating results for interim periods are not necessarily indicative of annual operating results.
 
Revenue Recognition
  
Revenue Disaggregation
 
The following tables disaggregate the Company’s revenue by primary business units for the three and nine months ended September 30, 2023 and October 1, 2022:
 Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
(in thousands)Electronics
Segment
Transportation
Segment
Industrial
Segment
 
Total
Electronics
Segment
Transportation
Segment
Industrial
Segment
 
Total
Electronics – Passive Products and Sensors$152,410 $— $— $152,410 $453,860 $— $— $453,860 
Electronics – Semiconductor191,523 — — 191,523 598,813 — — 598,813 
Passenger Car Products— 72,524 — 72,524 — 200,104 — 200,104 
Automotive Sensors— 23,205 — 23,205 — 66,839 — 66,839 
Commercial Vehicle Products— 81,290 — 81,290 — 248,765 — 248,765 
Industrial Products— — 86,119 86,119 — — 260,469 260,469 
Total$343,933 $177,019 $86,119 $607,071 $1,052,673 $515,708 $260,469 $1,828,850 



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 Three Months Ended October 1, 2022Nine Months Ended October 1, 2022
(in thousands)Electronics
Segment
Transportation
Segment
Industrial
Segment
 
Total
Electronics
Segment
Transportation
Segment
Industrial
Segment
 
Total
Electronics – Passive Products and Sensors$188,916 $— $— $188,916 $521,172 $— $— $521,172 
Electronics – Semiconductor208,713 — — 208,713 600,454 — — 600,454 
Passenger Car Products— 62,280 — 62,280 — 186,552 — 186,552 
Automotive Sensors— 22,998 — 22,998 — 72,336 — 72,336 
Commercial Vehicle Products— 96,457 — 96,457 — 289,378 — 289,378 
Industrial Products— — 79,516 79,516 230,754 230,754 
Total$397,629 $181,735 $79,516 $658,880 $1,121,626 $548,266 $230,754 $1,900,646 


See Note 15, Segment Information for net sales by segment and countries.
 
Revenue Recognition
 
The Company recognizes revenue on product sales in the period in which the Company satisfies its performance obligation and control of the product is transferred to the customer. The Company’s sales arrangements with customers are predominately short term in nature and generally provide for transfer of control at the time of shipment as this is the point at which title and risk of loss of the product transfers to the customer. At the end of each period, for those shipments where title to the products and the risk of loss and rewards of ownership do not transfer until the product has been received by the customer, the Company adjusts revenues and cost of sales for the delay between the time that the products are shipped and when they are received by the customer. The amount of revenue recorded reflects the consideration to which the Company expects to be entitled in exchange for goods and may include adjustments for customer allowance, rebates and price adjustments. The Company’s distribution channels are primarily through direct sales and independent third-party distributors.
 
The Company elected the practical expedient under Accounting Standards Codification ("ASC") 340-40-25-4 to expense commissions when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.
 
Revenue and Billing
 
The Company generally accepts orders from customers through receipt of purchase orders or electronic data interchange based on written sales agreements and purchasing contracts. Contract pricing and selling agreement terms are based on market factors, costs, and competition. Pricing is often negotiated as an adjustment (premium or discount) from the Company’s published price lists. The customer is invoiced when the Company’s products are shipped to them in accordance with the terms of the sales agreement. As the Company’s standard payment terms are less than one year, the Company elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company also elected the practical expedient provided in ASC 606-10-25-18B to treat all product shipping and handling activities as fulfillment activities, and therefore recognize the gross revenue associated with the contract, inclusive of any shipping and handling revenue.
 
Ship and Debit Program
 
Some of the terms of the Company’s sales agreements and normal business conditions provide customers (distributors) the ability to receive price adjustments on products previously shipped and invoiced. This practice is common in the industry and is referred to as a “ship and debit” program. This program allows the distributor to debit the Company for the difference between the distributors’ contracted price and a lower price for specific transactions. Under certain circumstances (usually in a competitive situation or large volume opportunity), a distributor will request authorization for pricing allowances to reduce its
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price. When the Company approves such a reduction, the distributor is authorized to “debit” its account for the difference between the contracted price and the lower approved price. The Company establishes reserves for this program based on historical activity, distributor inventory levels and actual authorizations for the debit and recognizes these debits as a reduction of revenue.

Return to Stock 
 
The Company has a return to stock policy whereby certain customers, with prior authorization from Littelfuse management, can return previously purchased goods for full or partial credit. The Company establishes an estimated allowance for these returns based on historical activity. Sales revenue and cost of sales are reduced to anticipate estimated returns.
 
Volume Rebates
 
The Company offers volume based sales incentives to certain customers to encourage greater product sales. If customers achieve their specific quarterly or annual sales targets, they are entitled to rebates. The Company estimates the projected amount of rebates that will be achieved by the customer and recognizes this estimated cost as a reduction to revenue as products are sold.
 
Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash at September 30, 2023 and December 31, 2022 reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statement of Cash Flows.

(in thousands)September 30, 2023December 31, 2022
Cash and cash equivalents$560,056 $562,588 
Restricted cash included in prepaid expenses and other current assets— 802 
Restricted cash included in other long-term assets1,535 1,549 
Total cash, cash equivalents, and restricted cash$561,591 $564,939 


Recently Issued Accounting Standards

In October 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-06, "Disclosure Improvements". The amendments in this update represent changes to clarify or improve the disclosure or presentation requirements of a variety of Topics in the ASC. The Company may be affected by one or more of those amendments. The amendments in this ASU should be applied prospectively and will not be effective until June 30, 2027. The company is currently evaluating the potential effects of these amendments on its Condensed Consolidated Financial Statements.


In March 2023, the FASB issued ASU No. 2023-01, "Leases (Topic 842): Common Control Arrangements". The standard requires that leasehold improvements associated with common control leases be: 1) Amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a lease. However, if the lessor obtained the right to control the use of the underlying asset through a lease with another entity not within the same common control group, the amortization period may not exceed the amortization period of the common control group. 2) Accounted for as a transfer between entities under common control through an adjustment to equity (or net assets for not-for-profit entities) if, and when, the lessee no longer controls the use of the underlying asset. Additionally, those leasehold improvements are subject to the impairment guidance in Topic 360, Property, Plant, and Equipment. This standard is effective on January 1, 2024. The Company does not expect any material effect on the Company's Condensed Consolidated Financial Statements.


2. Acquisitions
 
The Company accounts for acquisitions using the acquisition method in accordance with ASC 805, “Business Combinations,” in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition. The operating results of
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the acquired business are included in the Company’s Condensed Consolidated Financial Statements from the date of the acquisition.

Dortmund Fab

On June 28, 2023, the Company entered into a definitive purchase agreement to acquire a 200mm wafer fab located in Dortmund, Germany (“Dortmund Fab”) from Elmos Semiconductor SE. The acquisition of the Dortmund Fab is expected to close in early fiscal year 2025. The total purchase price for the fab is approximately 93 million Euro, of which 37.2 million Euro down payment (approximately $40.5 million) recorded in Other long-term assets in the Condensed Consolidated Balance Sheets was paid in the third quarter after regulatory approvals and approximately 56 million Euro will be paid at closing. The transaction is not expected to have a material impact on the Company’s fiscal year 2023 or 2024 financial results and will be reported in the Electronics-Semiconductor business within the Company’s Electronics segment.

Western Automation

On February 3, 2023, the Company completed the acquisition of Western Automation Research and Development Limited (“Western Automation”) for approximately $162 million in cash. Headquartered in Galway, Ireland, Western Automation is a designer and manufacturer of electrical shock protection devices used across a broad range of high-growth end markets, including e-Mobility off-board charging infrastructure, industrial safety and renewables. At the time the Company and Western Automation entered into the definitive agreement, Western Automation had annualized sales of approximately $25 million. The business is reported within the Company’s Industrial segment.

The acquisition was funded with cash on hand. The total purchase consideration of $158.3 million, net of cash, has been allocated, on a preliminary basis, to assets acquired and liabilities assumed, as of the completion of the acquisition, based on preliminary estimated fair values. The purchase price allocation is preliminary because the evaluations necessary to assess the fair values of the net assets acquired are still in process. The primary area not yet finalized relates to the completion of the valuation of certain acquired income tax assets and liabilities. As a result, these allocations are subject to change during the purchase price allocation period as the valuations are finalized.

The following table summarizes the preliminary purchase price allocation of the fair value of assets acquired and liabilities assumed in the Western Automation acquisition:

(in thousands)Purchase Price
Allocation
Total purchase consideration: 
Cash, net of cash acquired$158,260 
Allocation of consideration to assets acquired and liabilities assumed:
Trade receivables, net3,389 
Inventories3,678 
Other current assets718 
Property, plant, and equipment1,328 
Intangible assets68,000 
Goodwill94,823 
Other non-current assets573 
Current liabilities(5,251)
Other non-current liabilities(8,998)
 $158,260 

All Western Automation assets and liabilities were recorded in the Industrial segment and are primarily reflected in the Europe geographic area. The goodwill resulting from this acquisition consists largely of the Company’s expected future product sales and synergies from combining Western Automation’s products and technology with the Company’s existing Industrial products portfolio. Goodwill resulting from the Western Automation acquisition is not expected to be deductible for tax purposes.

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Included in the Company’s Condensed Consolidated Statements of Net Income for the three and nine months ended September 30, 2023 are net sales of $2.7 million and $10.2 million respectively, and a loss before income taxes of $1.0 million and $0.8 million, respectively, since the February 3, 2023 acquisition of Western Automation.

During the nine months ended September 30, 2023, the Company incurred approximately $1.2 million of legal and professional fees related to the Western Automation acquisition recognized as Selling, general, and administrative expenses. These costs were reflected as other non-segment costs.

C&K Switches

On July 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, datacom, and aerospace. 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 acquisition was funded through a combination of cash on hand and debt. The total purchase consideration of $523.0 million, net of cash acquired, has been allocated to assets acquired and liabilities assumed, as of the completion of the acquisition, based on estimated fair values.

The following table summarizes the final purchase price allocation of the fair value of assets acquired and liabilities assumed in the C&K acquisition:

(in thousands)Purchase Price
Allocation
Total purchase consideration: 
Cash, net of cash acquired$523,014 
Allocation of consideration to assets acquired and liabilities assumed:
Trade receivables, net20,967 
Inventories42,968 
Other current assets2,932 
Property, plant, and equipment32,791 
Intangible assets254,700 
Goodwill274,124 
Other non-current assets14,797 
Current liabilities(47,687)
Long-term debt(9,626)
Other non-current liabilities(62,952)
 $523,014 
All C&K goodwill, other assets and liabilities were recorded in the Electronics segment and are reflected in the Americas, Europe and Asia-Pacific geographic areas. The goodwill resulting from this acquisition consists largely of the Company’s expected future product sales and synergies from combining C&K’s products and technology with the Company’s existing Electronics products portfolio. Goodwill resulting from the C&K acquisition is not expected to be deductible for tax purposes.

During the nine months ended September 30, 2023, the Company recorded measurement period adjustments to increase other non-current liabilities of $4.2 million associated with uncertain tax positions, income taxes payable of $0.2 million, and reduce accrued liabilities of $0.3 million and deferred tax liabilities of $0.2 million. As a result of these adjustments, goodwill was increased by $3.9 million.
 

As required by purchase accounting rules, the Company recorded a $10.8 million step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation. The step-up was amortized as a non-cash charge to cost of sales during the third and fourth quarter of 2022 as the acquired inventory was sold and reflected as other non-segment costs.

Embed
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On April 12, 2022, the Company acquired Embed Ltd. (“Embed”). Founded in 2005, Embed is a proven provider of embedded software and firmware developed for a broad range of applications serving transportation end markets, primarily including commercial vehicle electrification and eMobility. The business is included in the commercial vehicle business within the Company's Transportation segment. The acquisition was funded with the Company’s cash on hand. The total purchase consideration was $9.2 million, net of cash.

Pro Forma Results
The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company and Western Automation as though the acquisition had occurred as of January 2, 2022, and C&K as though the acquisition had occurred as of December 27, 2020, and Carling business acquired on November 30, 2021 as though the acquisition had occurred as of December 29, 2019. The Company has not included pro forma results of operations for Embed as its operations were not material to the Company. The pro forma amounts presented are not necessarily indicative of either the actual consolidated results had the Western Automation acquisition occurred as of January 2, 2022, and had the C&K acquisition occurred as of December 27, 2020 and had Carling acquisition occurred as of December 29, 2019 or of future consolidated operating results.
 
 For the Three Months EndedFor the Nine Months Ended
(in thousands, except per share amounts)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Net sales$607,071 $669,956 $1,830,736 $1,376,586 
Income before income taxes75,071 107,585 271,165 271,474 
Net income57,591 83,713 217,930 222,514 
Net income per share — basic2.31 3.38 8.77 12.38 
Net income per share — diluted2.29 3.35 8.68 12.26 

Pro forma results presented above primarily reflect the following adjustments:
 
 For the Three Months EndedFor the Nine Months Ended
(in thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Amortization (a)$— $(1,512)$(479)$(8,951)
Depreciation— 451 — 1,979 
Transaction costs (b)(224)3,772 1,203 8,015 
Amortization of inventory step-up (c)— 6,765 — 11,534 
Interest expense (d)— 497 — 815 
Income tax benefit (expense) of above items28 (2,644)(91)(3,893)

(a) The amortization adjustment for the nine months ended September 30, 2023 and three and nine months ended October 1, 2022 primarily reflects incremental amortization resulting from the measurement of intangibles at their fair values.
(b) The transaction cost adjustments reflect the reversal of certain legal and professional fees from the three and nine months ended September 30, 2023 and three and nine months ended October 1, 2022, and recognition of those fees during the three and nine months ended September 30, 2023.
(c) The amortization of inventory step-up adjustment reflects the reversal of the amount recognized related to the Carling acquisition during the three months ended April 2, 2022. The inventory step-up was amortized over four months as the inventory was sold.
(d) The interest expense adjustment reflects incremental interest expense related to the financing of the C&K acquisition.

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3. Inventories
 
The components of inventories at September 30, 2023 and December 31, 2022 are as follows:
 
(in thousands)September 30, 2023December 31, 2022
Raw materials$214,588 $231,043 
Work in process134,657 134,792 
Finished goods192,365 226,215 
Inventory reserves(58,535)(44,360)
Total$483,075 $547,690 
 

4. Property, Plant, and Equipment
 
The components of net property, plant, and equipment at September 30, 2023 and December 31, 2022 are as follows:
 
(in thousands)September 30, 2023December 31, 2022
Land and land improvements$21,579 $22,089 
Building and building improvements194,322 191,733 
Machinery and equipment846,065 812,540 
Accumulated depreciation(583,060)(545,252)
Total$478,906 $481,110 


The Company recorded depreciation expense of $17.9 million and $17.0 million for the three months ended September 30, 2023 and October 1, 2022, respectively, and $53.5 million and $48.3 million for the nine months ended September 30, 2023 and October 1, 2022, respectively.


5. Goodwill and Other Intangible Assets
 
Changes in the carrying value of goodwill by segment for the nine months ended September 30, 2023 are as follows:
 
(in thousands)ElectronicsTransportationIndustrialTotal
Net book value of goodwill as of December 31, 2022
Gross goodwill as of December 31, 2022
$909,167 $234,793 $84,889 $1,228,849 
Accumulated impairment losses as of December 31, 2022
— (33,401)(8,526)(41,927)
Total909,167 201,392 76,363 1,186,922 
Changes during 2023:
Additions (a)
3,879 — 94,823 98,702 
Currency translation676 (1,616)(341)(1,281)
Net book value of goodwill as of September 30, 2023
Gross goodwill as of September 30, 2023
913,722 232,668 179,401 1,325,791 
Accumulated impairment losses as of September 30, 2023
— (32,892)$(8,556)(41,448)
Total$913,722 $199,776 $170,845 $1,284,343 
(a) The additions resulted from the acquisitions of Western Automation and measurement period adjustment related to the C&K acquisition.
The components of other intangible assets as of September 30, 2023 and December 31, 2022 are as follows:

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As of September 30, 2023
(in thousands)Gross
Carrying
Value
 
Accumulated Amortization
 
Net Book
Value
Land use rights$17,133 $2,579 $14,554 
Patents, licenses, and software269,219 154,983 114,236 
Distribution network42,888 42,888 — 
Customer relationships, trademarks, and tradenames679,246 195,670 483,576 
Total$1,008,486 $396,120 $612,366 
 
 
December 31, 2022
(in thousands)Gross
Carrying
Value
 
Accumulated
Amortization
 
Net Book
Value
Land use rights$17,938 $2,299 $15,639 
Patents, licenses, and software259,603 140,208 119,395 
Distribution network41,733 40,955 778 
Customer relationships, trademarks, and tradenames623,721 165,563 458,158 
Total$942,995 $349,025 $593,970 

During the three months ended September 30, 2023 and October 1, 2022, the Company recorded amortization expense of $16.0 million and $15.6 million, respectively. During the nine months ended September 30, 2023 and October 1, 2022, the Company recorded amortization expense of $49.8 million and $39.9 million, respectively.

During the nine months ended September 30, 2023, the Company recorded additions to intangible assets of $68.0 million, related to the Western Automation acquisition, the components of which were as follows:

(in thousands)Weighted Average Useful LifeAmount
Patents, licenses, and software6.7$11,500 
Customer relationships, trademarks, and tradenames14.756,500 
Total$68,000 

Estimated annual amortization expense related to intangible assets with definite lives as of September 30, 2023 is as follows:
 
(in thousands)
Amount
2023$65,693 
202462,578 
202562,258 
202651,475 
202749,470 
2028 and thereafter370,665 
Total$662,139 
 
 
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6. Accrued Liabilities
 
The components of accrued liabilities as of September 30, 2023 and December 31, 2022 are as follows:
 
(in thousands)September 30, 2023December 31, 2022
Employee-related liabilities$68,367 $99,089 
Current lease liability11,839 12,841 
Other non-income taxes8,639 10,594 
Professional services6,159 7,160 
Other customer reserves4,804 5,064 
Interest3,687 4,449 
Deferred revenue2,126 2,593 
Restructuring liability2,075 2,434 
Current benefit liability1,318 1,318 
Other34,526 41,515 
Total$143,540 $187,057 

Employee-related liabilities consist primarily of payroll, sales commissions, bonus, employee benefit accruals and workers’ compensation. Bonus accruals include amounts earned pursuant to the Company’s primary employee incentive compensation plans. Other accrued liabilities include miscellaneous operating accruals and other client-related liabilities.

7. Restructuring, Impairment, and Other Charges

The Company recorded restructuring, impairment, and other charges for the three and nine months ended September 30, 2023 and October 1, 2022 as follows:
Three months ended September 30, 2023Nine months ended September 30, 2023
(in thousands)ElectronicsTransportationIndustrialTotalElectronicsTransportationIndustrialTotal
Employee terminations$1,174 $1,665 $293 $3,132 $2,833 $2,598 $887 $6,318 
Other restructuring charges64 138 364 566 321 822 1,018 2,161 
Total restructuring charges1,238 1,803 657 3,698 3,154 3,420 1,905 8,479 
Impairment — — 818 818 — 3,870 872 4,742 
   Total$1,238 $1,803 $1,475 $4,516 $3,154 $7,290 $2,777 $13,221 

 Three months ended October 1, 2022Nine months ended October 1, 2022
(in thousands)ElectronicsTransportationIndustrialTotalElectronicsTransportationIndustrialTotal
Employee terminations$1,401 $1,574 $— $2,975 $1,807 $1,997 $— $3,804 
Other restructuring charges73 365 — 438 76 385 — 461 
   Total$1,474 $1,939 $— $3,413 $1,883 $2,382 $— $4,265 

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2023
For the three and nine months ended September 30, 2023, the Company recorded total restructuring charges of $3.7 million and $8.5 million, respectively, primarily for employee termination costs. These charges primarily related to the reorganization of certain manufacturing, selling and administrative functions within the Transportation segment’s commercial vehicle business, and the reorganization of certain selling and administrative functions within the Electronics segment due to the C&K acquisition. During the third quarter of 2023, the Company recognized a $0.8 million impairment charge substantially related to certain patents in a business within the Industrial segment. In addition, during the second quarter of 2023, the Company recognized a $3.9 million impairment charge related to the land and building of a property in the commercial vehicle business within the Transportation segment that the Company made the decision to donate.

2022
For the three and nine months ended October 1, 2022, the Company recorded total restructuring charges of $3.4 million and $4.3 million, respectively. primarily for employee termination costs. These charges are primarily related to the reorganization of certain manufacturing, selling and administrative functions within the passenger vehicle and automotive sensor businesses in the Transportation segment and the reorganization of selling and administrative functions due to the C&K acquisition within the Electronics segment.

The restructuring liability as of September 30, 2023 and December 31, 2022 is $2.1 million and $2.4 million, respectively. The restructuring liability is included within accrued liabilities in the Condensed Consolidated Balance Sheets. The Company anticipates the remaining payments associated with employee terminations will primarily be completed in the third quarter fiscal year 2024.

8. Debt
 
The carrying amounts of debt at September 30, 2023 and December 31, 2022 are as follows:
 
(in thousands)September 30, 2023December 31, 2022
Revolving Credit Facility$100,000 $100,000 
Term Loan290,625 296,250 
Euro Senior Notes, Series A due 2023123,605 124,716 
Euro Senior Notes, Series B due 2028100,363 101,265 
U.S. Senior Notes, Series B due 2027100,000 100,000 
U.S. Senior Notes, Series A due 202550,000 50,000 
U.S. Senior Notes, Series B due 2030125,000 125,000 
U.S. Senior Notes, due 2032100,000 100,000 
Other7,056 9,113 
Unamortized debt issuance costs(4,024)(4,847)
Total debt992,625 1,001,497 
Less: Current maturities(135,619)(134,874)
Total long-term debt$857,006 $866,623 
 
Revolving Credit Facility and Term Loan

On June 30, 2022, the Company amended and restated its Credit Agreement, dated as of April 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 to June 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
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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.

Under the Credit Agreement, 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 on June 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 September 30, 2022, through June 30, 2024, and in the amount of $3.8 million commencing September 30, 2024, through March 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 and nine months ended September 30, 2023, the Company made payments of $1.9 million and $5.6 million on its term loan, respectively. The revolving loan and term loan balance under the Credit Facility was $100.0 million and $290.6 million, respectively, as of September 30, 2023.

On May 12, 2022, the Company entered into an interest rate swap agreement to manage interest rate risk exposure, effectively converting the interest rate on the Company's SOFR based floating-rate loans to a fixed-rate. The interest rate swap, with a notional value of $200 million, was designated as a cash flow hedge against the variability of cash flows associated with the Company's SOFR based loans scheduled to mature on June 30, 2027.

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

As of September 30, 2023, the Company had $0.2 million outstanding letters of credit under the Credit Facility and had $599.8 million of borrowing capacity available under the revolving Credit Facility. As of September 30, 2023, the Company was in compliance with all covenants under the Credit Agreement.

Senior Notes
 
On December 8, 2016, the Company entered into a Note Purchase Agreement, pursuant to which the Company issued and sold €212 million aggregate principal amount of senior notes in two series. The funding date for the Euro denominated senior notes occurred on December 8, 2016 for €117 million in aggregate amount of 1.14% Senior Notes, Series A, due December 8, 2023 (“Euro Senior Notes, Series A due 2023”), and €95 million in aggregate amount of 1.83% Senior Notes, Series B due December 8, 2028 (“Euro Senior Notes, Series B due 2028”) (together, the “Euro Senior Notes”). Interest on the Euro Senior Notes is payable semiannually on June 8 and December 8, commencing June 8, 2017.
 
On December 8, 2016, the Company entered into a Note Purchase Agreement, pursuant to which the Company issued and sold $125 million aggregate principal amount of senior notes in two series. On February 15, 2017, $25 million in aggregate principal amount of 3.03% Senior Notes, Series A, due February 15, 2022 (“U.S. Senior Notes, Series A due 2022”), and $100 million in aggregate principal amount of 3.74% Senior Notes, Series B, due February 15, 2027 (“U.S. Senior Notes, Series B due 2027”) were funded. During the first quarter of 2022, the Company paid off $25 million of U.S. Senior Notes, Series A due on February 15, 2022. Interest on the U.S. Senior Notes due 2027 is payable semiannually on February 15 and August 15, commencing August 15, 2017.
 
On November 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. On January 16, 2018, $50 million aggregate principal amount of 3.48% Senior Notes, Series A, due February 15, 2025 (“U.S. Senior Notes, Series A due 2025”) and $125 million in aggregate principal amount of 3.78% Senior Notes, Series B, due February 15, 2030 (“U.S. Senior Notes, Series B due 2030”) (together, the “U.S. Senior Notes due 2025 and 2030”) were funded. Interest on the U.S. Senior Notes due 2025 and 2030 is payable semiannually on February 15 and August 15, commencing on August 15, 2018.
 
On May 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.
On May 18, 2022, the Company entered into a Note Purchase Agreement (“2022 Purchase Agreement”) pursuant to which the Company issued and funded on July 18, 2022 $100 million in aggregate principal amount of 4.33% Senior Notes, due June 30, 2032 (“U.S. Senior Notes, due 2032”) (together with the U.S. Senior Notes due 2025 and 2030, the Euro Senior Notes and the U.S. Senior Notes due 2022 and 2027, the “Senior Notes”). Interest on the U.S. Senior Notes due 2032 is payable semiannually on June 30 and December 30, commencing on December 30, 2022.
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The Senior Notes have not been registered under the Securities Act, or applicable state securities laws. The Senior Notes are general unsecured senior obligations and rank equal in right of payment with all existing and future unsecured unsubordinated indebtedness of the Company.
 
The Senior Notes are subject to certain customary covenants, including limitations on the Company’s ability, with certain exceptions, to engage in mergers, consolidations, asset sales and transactions with affiliates, to engage in any business that would substantially change the general business of the Company, and to incur liens. In addition, the Company is required to satisfy certain financial covenants and tests relating to, among other matters, interest coverage and leverage. At September 30, 2023, the Company was in compliance with all covenants under the Senior Notes.
 
The Company may redeem the Senior Notes upon the satisfaction of certain conditions and the payment of a make-whole amount to noteholders and are required to offer to repurchase the Senior Notes at par following certain events, including a change of control.

Interest paid on all Company debt was $11.9 million and $8.5 million for the three months ended September 30, 2023 and October 1, 2022, respectively, and $33.2 million and $16.9 million for the nine months ended September 30, 2023 and October 1, 2022, respectively.


9. Fair Value of Assets and Liabilities
 
For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, the Company classifies each fair value measurement as follows:
 
Level 1—Valuations based on unadjusted quoted prices for identical assets or liabilities in active markets;
 
Level 2—Valuations based upon quoted prices for similar instruments, prices for identical or similar instruments in markets that are not active, or model-derived valuations, all of whose significant inputs are observable, and
 
Level 3—Valuations based upon one or more significant unobservable inputs
.
There were no transfers in or out of Level 1, Level 2 and Level 3 during the period.

Following is a description of the valuation methodologies used for instruments measured at fair value and their classification in the valuation hierarchy.
 
Cash Equivalents
 
Cash equivalents primarily consist of money market funds, certificates of deposit, and short-term time deposits, which are held with institutions with sound credit ratings and are highly liquid. The Company classified cash equivalents as Level 1 and are valued at cost which approximates fair value.

Investments in Equity Securities
 
Investments in equity securities listed on a national market or exchange are valued at the last sales price and classified within Level 1 of the valuation hierarchy and recorded in Investments and Other long-term assets.

Derivatives Designated as Hedging Instruments

On May 12, 2022, the Company entered into an interest rate swap agreement to manage interest rate risk exposure, effectively converting the interest rate on the Company's SOFR based floating-rate loans to a fixed-rate. The interest rate swap, with a notional value of $200 million, was designated as a cash flow hedge against the variability of cash flows associated with the Company's SOFR based loans scheduled to mature on June 30, 2027. The fair value of the interest rate swap was valued using an independent third-party valuation model. Pursuant to this model, changes in fair value of derivatives that are designated as cash flow hedges are deferred in accumulated other comprehensive loss until the underlying transactions are recognized in
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earnings. The primary inputs into the valuation of the interest rate swap are interest yield curves, interest rate volatility, credit risk, credit spreads and other market information. The interest rate swap is classified within Level 2 of the fair value hierarchy, since all significant inputs are corroborated by market observable data.

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. The Company seeks to minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings and monitoring the total value of positions with individual counterparties. In the event of a default by one of our counterparties, the Company may not receive payments provided for under the terms of our derivatives.

Derivatives Not Designated as Hedging Instruments

On July 14, 2022, the Company entered into a foreign currency exchange forward contract to mitigate the currency fluctuation risk between the Euro and U.S. dollar on its Euro denominated Senior Notes, Series A due 2023. The notional value of the forward contract at July 14, 2022 was €117.0 million and expires on December 7, 2023. The foreign currency contract was not designated as a hedge instrument and is marked to market on a monthly basis. As a result, changes in fair value are reported in Foreign exchange loss in the Condensed Consolidated Statements of Operations. The fair value of the foreign currency forward contract was valued using market exchange rates by a third party and classified as a Level 2 input under the fair value hierarchy.

As of September 30, 2023 and December 31, 2022, the fair values of our derivative financial instrument and their classifications on the Condensed Consolidated Balance Sheets were as follows:


(in thousands)
Consolidated Balance Sheet ClassificationSeptember 30, 2023December 31, 2022
Derivatives Designated as Hedging Instruments
Interest rate swap agreement:
Designated as cash flow hedgePrepaid expenses and other current assets$4,963 $3,939 
Other long-term assets$6,533 $4,740 
Derivatives Not Designated as Hedging Instruments
Foreign exchange forward contractPrepaid expenses and other current assets$2,862 $6,186 

The pre-tax (gains) losses recognized on derivative financial instruments in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and October 1, 2022 were as follows:
Three Months EndedNine Months Ended
(in thousands)Classification of (Gain) Loss Recognized in the
Condensed Consolidated Statements of Operations
September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Derivatives designated as cash flow hedges
Interest rate swap agreementInterest expense, net$(1,252)$314 $(3,246)$335 
Derivatives Not Designated as Hedging Instruments
Foreign exchange forward contractForeign exchange loss$4,310 $3,209 $3,226 $3,209 


The pre-tax gains recognized on derivative financial instruments in the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and October 1, 2022 was as follows:
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 Three Months EndedNine Months Ended
(in thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Derivatives designated as cash flow hedges
Interest rate swap agreement$(2,034)$(10,012)$(2,817)$(9,300)

The pre-tax gain of $5.0 million from accumulated other comprehensive loss to earnings is expected to be recognized during the next twelve months.

Mutual Funds
 
The Company has a non-qualified Supplemental Retirement and Savings Plan which provides additional retirement benefits for certain management employees and named executive officers by allowing participants to defer a portion of their annual compensation. The Company maintains accounts for participants through which participants make investment elections. The marketable securities are classified as Level 1 under the fair value hierarchy as they are maintained in mutual funds with readily determinable fair value and recorded in Other long-term assets.
 
There were no changes during the quarter ended September 30, 2023 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. As of September 30, 2023 and December 31, 2022, the Company did not hold any non-financial assets or liabilities that are required to be measured at fair value on a recurring basis.

The following table presents assets measured at fair value by classification within the fair value hierarchy as of September 30, 2023:
 
 Fair Value Measurements Using 
(in thousands)Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Cash equivalents$427,671 $— $— $427,671 
Investments in equity securities9,703 — — 9,703 
Mutual funds18,192 — — 18,192 
   Total $455,566 $— $— $455,566 

The following table presents assets measured at fair value by classification within the fair value hierarchy as of December 31, 2022: 
 Fair Value Measurements Using 
(in thousands)Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Cash equivalents$304,101 $— $— $304,101 
Investments in equity securities10,653 — — 10,653 
Mutual funds14,094 — — 14,094 
   Total$328,848 $— $— $328,848 

In addition to the methods and assumptions used for the financial instruments recorded at fair value as discussed above, the following methods and assumptions are used to estimate the fair value of other financial instruments that are not marked to market on a recurring basis. The Company’s other financial instruments include cash and cash equivalents, short-term investments, accounts receivable and its long-term debt. Due to their short-term maturity, the carrying amounts of cash and cash equivalents, short-term investments and accounts receivable approximate their fair values. The Company’s revolving and term
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loan debt facilities' fair values approximate book value at September 30, 2023 and December 31, 2022, as the rates on these borrowings are variable in nature.
 
The carrying value and estimated fair values of the Company’s Euro Senior Notes, Series A and Series B and USD Senior Notes, Series A and Series B, as of September 30, 2023 and December 31, 2022 were as follows:
 
 September 30, 2023December 31, 2022
(in thousands)Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Euro Senior Notes, Series A due 2023$123,605 $122,830 $124,716 $122,270 
Euro Senior Notes, Series B due 2028100,363 87,722 101,265 87,119 
USD Senior Notes, Series B due 2027100,000 92,866 100,000 93,764 
USD Senior Notes, Series A due 202550,000 48,338 50,000 48,145 
USD Senior Notes, Series B due 2030125,000 109,188 125,000 112,028 
USD Senior Notes, due 2032100,000 86,977 100,000 90,131 

10. Benefit Plans
 
The Company has Company-sponsored and mandatory defined benefit pension plans covering employees in the United Kingdom ("U.K."), Germany, the Philippines, China, Japan, Mexico, Italy and France. The amount of the retirement benefits provided under the plans is generally based on years of service and final average pay.
 
The Company recognizes interest cost, expected return on plan assets, and amortization of prior service, net within Other (income) expense, net in the Condensed Consolidated Statements of Net Income. The components of net periodic benefit cost for the three and nine months ended September 30, 2023 and October 1, 2022 were as follows: 
 
 For the Three Months EndedFor the Nine Months Ended
(in thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Components of net periodic benefit cost:    
Service cost$700 $725 $2,087 $2,243 
Interest cost961 607 2,850 1,879 
Expected return on plan assets(470)(361)(1,409)(1,144)
Amortization of prior service and net actuarial loss12 92 34 289 
Net periodic benefit cost$1,203 $1,063 $3,562 $3,267 

The Company expects to make approximately $2.0 million of contributions to the plans and pay $1.9 million of benefits directly in 2023.

The Company also sponsors certain post-employment plans in foreign countries and other statutory benefit plans. The Company recorded expense of $0.4 million and $0.5 million for the three months ended September 30, 2023 and October 1, 2022, respectively, and $1.1 million and $1.5 million for the nine months ended September 30, 2023 and October 1, 2022, respectively, in Cost of Sales and Other (income) expense, net within the Condensed Consolidated Statements of Net Income. The pre-tax (gains) losses amount recognized in other comprehensive (loss) income as components of net periodic benefit costs for these plans were nominal and $0.1 million for the three months ended September 30, 2023 and October 1, 2022, respectively, and $(0.1) million and $0.3 million for the nine months ended September 30, 2023 and October 1, 2022, respectively.

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11. Other Comprehensive (Loss) Income

Changes in other comprehensive (loss) income by component were as follows:
(in thousands)Three Months Ended
September 30, 2023
Three Months Ended
October 1, 2022
Pre-taxTaxNet of TaxPre-taxTaxNet of Tax
Defined benefit pension plan and other adjustments$(3)$— $(3)$673 $(74)$599 
Cash flow hedge2,034 (488)1,546 10,012 (2,403)7,609 
Foreign currency translation adjustments (a)(4,301)624 (3,677)(37,289)893 (36,396)
Total change in other comprehensive (loss) income$(2,270)$136 $(2,134)$(26,604)$(1,584)$(28,188)
(in thousands)Nine Months Ended
September 30, 2023
Nine Months Ended
October 1, 2022
Pre-taxTaxNet of TaxPre-taxTaxNet of Tax
Defined benefit pension plan and other adjustments$(125)$(31)$(156)$1,718 $(170)$1,548 
Cash flow hedge2,817 (676)2,141 9,300 (2,232)7,068 
Foreign currency translation adjustments (a)(6,098)351 (5,747)(72,671)2,315 (70,356)
Total change in other comprehensive loss$(3,406)$(356)$(3,762)$(61,653)$(87)$(61,740)
(a) The tax shown above within the foreign currency translation adjustments is the U.S. tax associated with the foreign currency translation adjustments of earnings of non-U.S. subsidiaries which have been previously taxed in the U.S. and are not permanently reinvested.

The following tables set forth the changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2023 and October 1, 2022:
 
(in thousands)Defined benefit pension plan and other adjustmentsCash flow hedgeForeign currency
translation adjustment
Accumulated other
comprehensive loss
Balance at December 31, 2022$(2,193)$6,596 $(100,167)$(95,764)
Activity in the period(156)2,141 (5,747)(3,762)
Balance at September 30, 2023$(2,349)$8,737 $(105,914)$(99,526)
(in thousands)Defined benefit pension plan and other adjustmentsCash flow hedgeForeign currency translation adjustmentAccumulated other comprehensive loss
Balance at January 1, 2022$(11,928)$— $(61,535)$(73,463)
Activity in the period1,548 7,068 (70,356)(61,740)
Balance at October 1, 2022$(10,380)$7,068 $(131,891)$(135,203)

Amounts reclassified from accumulated other comprehensive loss to earnings for the three and nine months ended September 30, 2023 and October 1, 2022 were as follows:
 Three Months EndedNine Months Ended
(in thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Pension and Postemployment plans:
Amortization of prior service and net actuarial (gain) loss$(11)$193 $(33)$588 

The Company recognizes the amortization of prior service costs in Other (income) expense, net within the Condensed Consolidated Statements of Net Income.
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12. Income Taxes

The effective tax rate for the three and nine months ended September 30, 2023 was 23.3% and 19.7%, respectively, compared to the effective tax rate for the three and nine months ended October 1, 2022 of 21.4% and 17.6%, respectively. The effective tax rate for the third quarter of 2023 is higher than the effective tax rate for the comparable 2022 period, primarily due to less income earned in lower tax jurisdictions in the 2023 period, as compared to the 2022 period. The effective tax rates for both periods are higher than the statutory tax rate due to the impact of foreign exchange losses with no related tax benefit.

The effective tax rate for the first nine months of 2023 is higher than the effective tax rate for the comparable 2022 period, primarily due to the impact of a one-time deduction in the first quarter of 2022 that resulted in a net benefit of $7.2 million from the dissolution of one of the Company’s affiliates. The effective tax rates for both periods were lower than the applicable U.S. statutory tax rate primarily due to income earned in lower tax jurisdictions, while for the 2022 period, the effective tax rate was also lower due to the impact of the one-time deduction previously noted.


13. Earnings Per Share
 
The following table sets forth the computation of basic and diluted earnings per share: 
 Three Months EndedNine Months Ended
(in thousands, except per share amounts)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Numerator:
Net income as reported$57,788 $75,468 $216,604 $280,002 
Denominator:
Weighted average shares outstanding
Basic24,893 24,755 24,838 24,726 
Effect of dilutive securities250 233 262 260 
Diluted25,143 24,988 25,100 24,986 
Earnings Per Share:
Basic earnings per share$2.32 $3.05 $8.72 $11.32 
Diluted earnings per share$2.30 $3.02 $8.63 $11.21 
 
Potential shares of common stock relating to stock options and restricted share units excluded from the earnings per share calculation because their effect would be anti-dilutive were 80,828 and 92,052 for the three months ended September 30, 2023 and October 1, 2022, respectively, and 106,156 and 84,027 for the nine months ended September 30, 2023 and October 1, 2022, respectively.

Share Repurchase Program

On April 28, 2021, the Company announced that the Board of Directors authorized a new three year program to repurchase up to $300.0 million in the aggregate of shares of the Company’s common stock for the period May 1, 2021 to April 30, 2024 to replace its previous 2020 program.

The Company did not repurchase shares of its common stock for the three and nine months ended September 30, 2023, and October 1, 2022.


14. Related Party Transactions
 
The Company has equity ownership in various investments that are accounted for under the equity method. The following is a description of the investments and related party transactions.
 
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Powersem GmbH: The Company owns 45% of the outstanding equity of Powersem GmbH (“Powersem”), a module manufacturer based in Germany.
 
EB-Tech Co., Ltd.: The Company owns approximately 19% of the outstanding equity of EB Tech Co., Ltd. (“EB Tech”), a company with expertise in radiation technology based in South Korea.
 
Automated Technology (Phil), Inc.: The Company owns approximately 24% of the outstanding common shares of Automated Technology (Phil), Inc. (“ATEC”), a supplier located in the Philippines that provides assembly and test services. One member of the Company's Board of Directors serves on the Board of Directors of ATEC.
 Three Months Ended September 30, 2023Three Months Ended October 1, 2022
(in millions)PowersemEB-TechATECPowersemEB TechATEC
Sales to related party$0.5 $— $— $— $— $— 
Purchase material/service from related party1.2 0.1 2.0 — 0.1 2.9 
Nine Months Ended September 30, 2023Nine Months Ended October 1, 2022
(in millions)PowersemEB-TechATECPowersemEB TechATEC
Sales to related party$1.7 $— $— $— $— $— 
Purchase material/service from related party3.3 0.3 7.6 0.3 0.3 8.8 
 September 30, 2023December 31, 2022
(in millions)PowersemEB TechATECPowersemEB TechATEC
Accounts payable balance$0.8 $— $1.6 $— $— $1.8 


15. Segment Information
 
The Company and its subsidiaries design, manufacture and sell component, modules and subassemblies to empower the long-term structural themes of sustainability, connectivity and safety. The Company reports its operations by the following segments: Electronics, Transportation, and Industrial. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. The CODM is the Company’s President and Chief Executive Officer (“CEO”). The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest and taxes, but does not evaluate the operating segments using discrete balance sheet information.

Sales, marketing, and research and development expenses are charged directly into each operating segment. Purchasing, logistics, customer service, finance, information technology, and human resources are shared functions that are allocated back to the three operating segments. The Company does not report inter-segment revenue because the operating segments do not record it. Certain expenses, determined by the CODM to be strategic in nature and not directly related to segments current results, are not allocated but identified as “Other”. Additionally, the Company does not allocate interest and other income, interest expense, or taxes to operating segments. These costs are not allocated to the segments, as management excludes such costs when assessing the performance of the segments. Although the CODM uses operating income (loss) to evaluate the segments, operating costs included in one segment may benefit other segments. Except as discussed above, the accounting policies for segment reporting are the same as for the Company as a whole.

Electronics Segment: Consists of one of the broadest product offerings in the industry, including fuses and fuse accessories, positive temperature coefficient (“PTC”) resettable fuses, electromechanical switches and interconnect solutions, polymer electrostatic discharge (“ESD”) suppressors, varistors, reed switch based magnetic sensing, gas discharge tubes; semiconductor products such as discrete transient voltage suppressor (“TVS”) diodes, TVS diode arrays, protection and switching thyristors, silicon and silicon carbide metal-oxide-semiconductor field effect transistors (“MOSFETs”) and diodes; and insulated gate bipolar transistors (“IGBT”) technologies. The segment covers a broad range of end markets, including industrial motor drives and power conversion, automotive electronics, electric vehicle and related charging infrastructure, aerospace, power supplies, data centers and telecommunications,
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medical devices, alternative energy and energy storage, building and home automation, appliances, and mobile electronics.

Transportation Segment: Consists of a wide range of circuit protection, power control and sensing technologies for global original equipment manufacturers (“OEMs”), Tier-one suppliers and parts and aftermarket distributors in passenger vehicle, heavy-duty truck and bus, off-road and recreational vehicles, material handling equipment, agricultural machinery, construction equipment and other commercial vehicle end markets. Passenger vehicle products are used in internal combustion engine, hybrid and electric vehicles including blade fuses, battery cable protectors, resettable fuses, high-current fuses, high-voltage fuses, and sensor products designed to monitor the occupant’s safety and environment as well as the vehicle’s powertrain. Commercial vehicle products include fuses, switches, circuit breakers, relays, and power distribution modules and units used in applications serving a number of end markets, including heavy-duty truck and bus, construction, agriculture, material handling and marine.

Industrial Segment: Consists of industrial circuit protection (industrial fuses), industrial controls (protection relays, contactors, transformers, residual current devices, ground fault circuit interrupters, residual current monitors, and arc fault detection devices) and temperature sensors for use in various applications such as renewable energy and energy storage systems, industrial safety, factory automation, electric vehicle infrastructure, HVAC systems, non-residential construction, MRO, and mining.
 
Segment information is summarized as follows: 
 Three Months EndedNine Months Ended
(in thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Net sales    
Electronics$343,933 $397,629 $1,052,673 $1,121,626 
Transportation177,019 181,735 515,708 548,266 
Industrial86,119 79,516 260,469 230,754 
Total net sales$607,071 $658,880 $1,828,850 $1,900,646 
Depreciation and amortization
Electronics$19,623 $19,080 $59,219 48,984 
Transportation10,193 11,331 32,547 32,703 
Industrial4,093 2,180 11,517 6,522 
Total depreciation and amortization$33,909 $32,591 $103,283 $88,209 
Operating income
Electronics$77,022 $113,140 $247,028 $339,675 
Transportation9,694 12,987 26,015 57,604 
Industrial13,201 12,178 45,450 39,968 
Other (a)
(6,272)(16,435)(22,154)(30,623)
Total operating income93,645 121,870 296,339 406,624 
Interest expense10,101 8,399 29,803 17,069 
Foreign exchange loss11,776 18,191 8,697 40,051 
Other (income) expense, net(3,527)(698)(11,810)9,789 
Income before income taxes$75,295 $95,978 $269,649 $339,715 
 
(a) Included in “Other” Operating income for the third quarter of 2023 was $3.7 million ($8.5 million year-to-date) of restructuring charges, primarily related to employee termination costs, and $1.8 million ($9.0 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions. During the third quarter of 2023, the Company recognized a $0.8 million impairment charge substantially related to certain patents in a business within the Industrial segment. In addition, during the second quarter of 2023, the Company recognized a $3.9 million impairment charge related to the land and building in the commercial vehicle business within the Transportation segment. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion.
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Included in “Other” Operating income for the third quarter of 2022 was $6.8 million ($11.6 million year-to-date) of purchase accounting inventory step-up charges, $6.2 million ($14.8 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, and $3.4 million ($4.3 million year-to-date) of restructuring, impairment and other charges, primarily related to employee termination costs. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion.

The Company’s net sales by country were as follows: 

 Three Months EndedNine Months Ended
(in thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Net sales
United States$217,904 $244,907 $635,892 $689,888 
China138,393 165,091 415,430 492,195 
Other countries (a)
250,774 248,882 777,528 718,563 
Total net sales$607,071 $658,880 $1,828,850 $1,900,646 
 
 The Company’s long-lived assets by country were as follows:
 
(in thousands)September 30, 2023December 31, 2022
Long-lived assets
United States$73,902 $76,325 
China131,438 129,094 
Mexico102,896 107,119 
Germany42,712 39,635 
Philippines74,004 77,240 
Other countries 53,954 51,697 
Total long-lived assets$478,906 $481,110 
 
The Company’s additions to long-lived assets by country were as follows:
 Nine Months Ended
(in thousands)September 30, 2023October 1, 2022
Additions to long-lived assets
United States$7,407 $9,761 
China22,558 23,449 
Mexico11,339 21,169 
Germany6,534 3,246 
Philippines5,245 13,118 
Other countries 8,138 4,269 
Total additions to long-lived assets$61,221 $75,012 

(a)Each country included in other countries is less than 10% of net sales.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
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; 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 December 31, 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 December 31, 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.



 

 


 
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Executive Overview
 
Founded in 1927, Littelfuse is a diversified, industrial technology manufacturing company empowering a sustainable, connected, and safer world. Across more than 20 countries, and with approximately 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 third quarter of 2023, the Company recognized net sales of $607.1 million, a decrease of $51.8 million, or 7.9% as compared to $658.9 million in the third quarter of 2022 including $7.3 million or 1.1% of favorable changes in foreign exchange rates. The decrease in net sales was primarily due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment that more than offset higher volume in the passenger car products business within the Transportation segment, and higher volume in the Industrial segment. The Company recognized net income of $57.8 million, or $2.30 per diluted share, in the third quarter of 2023 compared to $75.5 million, or $3.02 per diluted share in the third quarter of 2022. The decrease in net income was primarily due to lower operating income of $36.1 million in the Electronics segment driven by a reduction in volume.

On June 28, 2023, the Company entered into a definitive purchase agreement to acquire a 200mm wafer fab located in Dortmund, Germany (“Dortmund Fab”) from Elmos Semiconductor SE. The acquisition of the Dortmund Fab is expected to close in early fiscal year 2025. The total purchase price for the fab is approximately 93 million Euro, of which 37.2 million Euro down payment (approximately $40.5 million) recorded in Other long-term assets in the Condensed Consolidated Balance Sheets was paid in the third quarter after regulatory approvals and approximately 56 million Euro will be paid at closing. The transaction is not expected to have a material impact on the Company’s fiscal year 2023 or 2024 financial results and will be reported in the Electronics-Semiconductor business within the Company’s Electronics segment.

On February 3, 2023, the Company acquired Western Automation Research and Development Limited (“Western Automation”) for approximately $162 million in cash. Headquartered in Galway, Ireland, Western Automation is a designer and manufacturer of electrical shock protection devices used across a broad range of high-growth end markets, including e-Mobility off-board charging infrastructure, industrial safety and renewables. At the time the Company and Western Automation entered into the definitive agreement, Western Automation had annualized sales of approximately $25 million and will be reported within the company’s Industrial segment. The Company financed the transaction with cash on hand.

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

Risks Related to Market Conditions

The Company continues to operate in a challenging macro environment, including but not limited to, supply chain disruptions, varying regional dynamics, and some pockets of end market softness. The ongoing war in Ukraine has had a modest impact on the Company, as the Company suspended sales into and purchases from Russia. The Company does not have any direct operations in Ukraine or Russia.

Results of Operations
 
The following table summarizes the Company’s unaudited condensed consolidated results of operations for the periods presented. The third quarter of 2023 includes $3.7 million ($8.5 million year-to-date) of restructuring charges, primarily related to employee termination costs, and $1.8 million ($9.0 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions. During the third quarter of 2023, the Company recognized a $0.8 million impairment charge substantially related to certain patents in a business within the Industrial segment. In addition, during the second quarter of 2023, the Company recognized a $3.9 million impairment charge related to the land and building in the commercial vehicle business within the Transportation segment. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion.
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The third quarter of 2022 includes $6.8 million ($11.6 million year-to-date) of purchase accounting inventory step-up charges, $6.2 million ($14.8 million year-to-date) of legal and professional fees primarily related to completed and contemplated acquisitions, and $3.4 million ($4.3 million year-to-date) of restructuring, impairment and other charges, primarily related to employee termination costs. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion.

 Third QuarterFirst Nine Months
(in thousands)20232022Change%
Change
20232022Change%
Change
Net sales$607,071 $658,880 $(51,809)(7.9)%$1,828,850 $1,900,646 $(71,796)(3.8)%
Cost of sales380,200 402,059 (21,859)(5.4)%1,122,190 1,122,258 (68)— %
Gross profit226,871 256,821 (29,950)(11.7)%706,660 778,388 (71,728)(9.2)%
Operating expenses133,226 134,951 (1,725)(1.3)%410,321 371,764 38,557 10.4 %
Operating income 93,645 121,870 (28,225)(23.2)%296,339 406,624 (110,285)(27.1)%
Income before income taxes75,295 95,978 (20,683)(21.5)%269,649 339,715 (70,066)(20.6)%
Income taxes17,507 20,510 (3,003)(14.6)%53,045 59,713 (6,668)(11.2)%
Net income$57,788 $75,468 $(17,680)(23.4)%$216,604 $280,002 $(63,398)(22.6)%

Net Sales
 
Net sales decreased $51.8 million, or 7.9%, for the third quarter of 2023 compared to the third quarter of 2022 including $7.3 million or 1.1% of favorable changes in foreign exchange rates. The decrease in net sales was due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment that more than offset higher volume in passenger car products business within the Transportation segment, and higher volume in the Industrial segment.

Net sales decreased $71.8 million, or 3.8%, for the first nine months of 2023 compared to the first nine months of 2022, including $3.1 million or 0.2% of unfavorable changes in foreign exchange rates. The sales decrease was primarily due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment that more than offset $102.0 million or 5.4% incremental net sales associated with the C&K and Western Automation acquisitions and higher volume from the Industrial segment.

Cost of Sales

Cost of sales was $380.2 million, or 62.6% of net sales, in the third quarter of 2023, compared to $402.1 million, or 61.0% of net sales, in the third quarter of 2022. As a percent of net sales, cost of sales increased 1.6% driven by lower volume in the Electronics segment.

Cost of sales was $1,122.2 million, or 61.4% of net sales, in the first nine months of 2023, compared to $1,122.3 million, or 59.0% of net sales, in the first nine months of 2022. As a percent of net sales, cost of sales increased 2.3% driven by lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment, partially offset by volume leverage, and favorable product mix from the Industrial segment.

Gross Profit
 
Gross profit was $226.9 million, or 37.4% of net sales, in the third quarter of 2023 compared to $256.8 million, or 39.0% of net sales, for the third quarter of 2022. The $30.0 million decrease in gross profit was primarily due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment, partially offset by higher volume in passenger car products business within the Transportation segment, and higher volume in the Industrial segment.

Gross profit was $706.7 million, or 38.6% of net sales, in the first nine months of 2023 compared to $778.4 million, or 41.0% of net sales, for the first nine months of 2022. The $71.7 million decrease in gross profit was primarily due to lower volume in the Electronics segment and the commercial vehicle business within the Transportation segment, partially offset by the acquisition of C&K within the Electronics segment, and volume leverage and favorable product mix from the Industrial segment and $11.5 million or 0.6% of purchase accounting inventory charges recorded during the first nine months of 2022.

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Operating Expenses
 
Operating expenses were $133.2 million, or 21.9% of net sales, for the third quarter of 2023 compared to $135.0 million, or 20.5% of net sales, for the third quarter of 2022. The decrease in operating expenses of $1.7 million was primarily due to lower selling, general, and administrative expenses of $3.0 million, partially offset by higher restructuring, impairment, and other charges of $1.1 million, including a $0.8 million impairment charge related to related to certain patents in a business within the Industrial segment.

Operating expenses were $410.3 million, or 22.4% of net sales, for the first nine months of 2023 compared to $371.8 million, or 19.6%of net sales, for the first nine months of 2022. The increase in operating expenses of $38.6 million was primarily due to higher selling, general, and administrative expenses of $11.2 million, higher amortization expense of $9.9 million and research and development expenses of $8.5 million mainly due to the C&K and Western Automation acquisitions. Additionally, the Company incurred an increase in restructuring, impairment, and other charges of $9.0 million, including a $3.9 million impairment charge related to the land and building in the commercial vehicle business within the Transportation segment and $0.8 million impairment charge related to related to certain patents in a business within the Industrial segment. This increase in operating expenses was partially offset by lower variable incentive compensation expense.

Operating Income
 
Operating income was $93.6 million, representing a decrease of $28.3 million, or 23.2%, for the third quarter of 2023 compared to $121.9 million for the third quarter of 2022. The decrease in operating income was due to lower gross profit from the Electronics segment. Operating margins decreased from 18.5% in the third quarter of 2022 to 15.4% in the third quarter of 2023 driven by lower volume in the Electronics segment.

Operating income was $296.3 million, representing a decrease of $110.3 million, or 27.1%, for the first nine months of 2023 compared to $406.6 million for the first nine months of 2022. The decrease in operating income was due to lower gross profit from the Electronics and Transportation segments and higher operating expenses as noted above. Operating margins decreased from 21.4% in the first nine months of 2022 to 16.2% in the first nine months of 2023 driven by lower volume in the Electronics and Transportation segments and the higher operating expenses mentioned above.
  
Income Before Income Taxes
 
Income before income taxes was $75.3 million, or 12.4% of net sales, for the third quarter of 2023 compared to $96.0 million, or 14.6% of net sales, for the third quarter of 2022. In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily favorably impacted by lower foreign exchange losses of $6.4 million in the third quarter of 2023 compared to the third quarter of 2022.

Income before income taxes was $269.6 million, or 14.7% of net sales, for the first nine months of 2023 compared to $339.7 million, or 17.9% of net sales, for the first nine months of 2022. In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily benefited by lower foreign exchange losses of $31.4 million and lower unrealized losses of $12.8 million related to one of the Company's equity investments during the nine months ended September 30, 2023 compared to the nine months ended October 1, 2022.

Income Taxes
 
Income tax expense for the third quarter of 2023 was $17.5 million, or an effective tax rate of 23.3%, compared to $20.5 million, or an effective tax rate of 21.4%, for the third quarter of 2022. The effective tax rate for the third quarter of 2023 is higher than the effective tax rate for the comparable 2022 period, primarily due to less income earned in lower tax jurisdictions in the 2023 period, as compared to the 2022 period. The effective tax rates for both periods are higher than the statutory tax rate due to the impact of foreign exchange losses with no related tax benefit.

Income tax expense for the first nine months of 2023 was $53.0 million, or an effective tax rate of 19.7%, compared to $59.7 million, or an effective tax rate of 17.6%, for the first nine months of 2022. The effective tax rate for the first nine months of 2023 is higher than the effective tax rate for the comparable 2022 period, primarily due to the impact of a one-time deduction in the first quarter of 2022 that resulted in a net benefit of $7.2 million from the dissolution of one of the Company’s affiliates. The effective tax rates for both periods were lower than the applicable U.S. statutory tax rate primarily due to income earned in lower tax jurisdictions, while for the 2022 period, the effective tax rate was also lower due to the impact of the one-time deduction previously noted.
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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 and operating income by segment:
 
Net SalesThird QuarterFirst Nine Months
(in thousands)20232022Change%
Change
20232022Change%
Change
Electronics$343,933 $397,629 $(53,696)(13.5)%$1,052,673 $1,121,626 $(68,953)(6.1)%
Transportation177,019 181,735 (4,716)(2.6)%515,708 548,266 (32,558)(5.9)%
Industrial86,119 79,516 6,603 8.3 %260,469 230,754 29,715 12.9 %
Total$607,071 $658,880 $(51,809)(7.9)%$1,828,850 $1,900,646 $(71,796)(3.8)%
Operating incomeThird QuarterFirst Nine Months
(in thousands)20232022Change%
Change
20232022Change%
Change
Electronics$77,022 $113,140 $(36,118)(31.9)%$247,028 $339,675 $(92,647)(27.3)%
Transportation9,694 12,987 (3,293)(25.4)%26,015 57,604 (31,589)(54.8)%
Industrial13,201 12,178 1,023 8.4 %45,450 39,968 5,482 13.7 %
Other (a)
(6,272)(16,435)10,163 (22,154)(30,623)8,469 
Total$93,645 $121,870 $(28,225)(23.2)%$296,339 $406,624 $(110,285)(27.1)%
(a) Included in “Other” Operating income for the third quarter of 2023 was $3.7 million ($8.5 million year-to-date) of restructuring charges, primarily related to employee termination costs, and $1.8 million ($9.0 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions. During the third quarter of 2023, the Company recognized a $0.8 million impairment charge substantially related to certain patents in a business within the Industrial segment. In addition, during the second quarter of 2023, the Company recognized a $3.9 million impairment charge related to the land and building in the commercial vehicle business within the Transportation segment.

Included in “Other” Operating income for the third quarter of 2022 was $6.8 million ($11.6 million year-to-date) of purchase accounting inventory step-up charges, $6.2 million ($14.8 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions, and $3.4 million ($4.3 million year-to-date) of restructuring, impairment and other charges, primarily related to employee termination costs. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion.

Electronics Segment

Net Sales
 
Net sales decreased $53.7 million, or 13.5%, in the third quarter of 2023 compared to the third quarter of 2022 and included favorable changes in foreign exchange rates of $4.4 million. The sales decrease was mainly due to lower volume across all businesses driven by inventory rebalancing at certain distributors and reduced demand across certain electronics markets, including consumer facing and personal electronics.

Net sales decreased $69.0 million, or 6.1%, in the first nine months of 2023 compared to the first nine months quarter of 2022 and included unfavorable changes in foreign exchange rates of $0.4 million. The sales decrease was mainly due to lower volume from the Electronics products business driven by inventory rebalancing at certain distributors and reduced demand across certain electronics markets, including consumer facing and personal electronics, and telecom, which more than offset the incremental net sales of $91.9 million from the C&K acquisition.

Operating Income

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Operating income was $77.0 million, representing a decrease of $36.1 million, or 31.9%, for the third quarter of 2023 compared to $113.1 million for the third quarter of 2022. The decrease in operating income was primarily due to lower volume leverage from the Electronics products businesses and unfavorable mix that were partially offset by cost control initiatives. Operating margins decreased from 28.5% in the third quarter of 2022 to 22.4% in the third quarter of 2023 primarily due to the lower volume.

Operating income was $247.0 million, representing a decrease of $92.6 million, or 27.3%, for the first nine months of 2023 compared to $339.7 million for the first nine months of 2022. The decrease in operating income was primarily due to lower volume mainly driven from the Electronics products business, which more than offset the incremental volume from the C&K acquisition. Operating margins decreased from 30.3% in the first nine months of 2022 to 23.5% in the first nine months of 2023 primarily due to the lower volume.

Transportation Segment

Net Sales
 
Net sales decreased $4.7 million, or 2.6%, in the third quarter of 2023 compared to the third quarter of 2022 and included favorable changes in foreign exchange rates of $2.8 million. The sales decrease was mainly from the commercial vehicle business which had a net sales decline of $15.2 million driven by reduced demand largely due to inventory rebalancing at certain distributors and customers, and demand reduction in Asia end markets, partially offset by an increase of $10.2 million from the passenger car products business driven by global car build growth, new vehicle launches, as well as the ongoing electronification and electrification of vehicles.

Net sales decreased $32.6 million, or 5.9%, in the first nine months of 2023 compared to the first nine months of 2022 and included unfavorable changes in foreign exchange rates of $2.2 million. The commercial vehicle business net sales declined $40.6 million driven by reduced demand largely due to inventory rebalancing at certain distributors and customers, and some demand reduction in commercial vehicle end markets, partially offset by an increase of $13.6 million from the passenger car products business driven by the ongoing electronification and electrification of vehicles. The automotive sensors business had net sales declines of $5.5 million primarily due to lower demand in the United States and China.

Operating Income

Operating income was $9.7 million, representing a decrease of $3.3 million, or 25.4%, for the third quarter of 2023 compared to $13.0 million for the third quarter of 2022. The decrease in operating income was primarily due to lower volume driven by the decrease from the commercial vehicle business partially offset by higher volume and price realization in the passenger car business. Operating margins decreased from 7.1% in the third quarter of 2022 to 5.5% in the third quarter of 2023 primarily driven by lower commercial vehicle volume.

Operating income was $26.0 million, representing a decrease of $31.6 million, or 54.8%, for the first nine months of 2023 compared to $57.6 million for the first nine months of 2022. Operating margins declined from 10.5% to 5.0% primarily due to lower volume from the commercial vehicle business.

Industrial Segment
 
Net Sales
Net sales increased by $6.6 million, or 8.3%, in the third quarter of 2023 compared to the third quarter of 2022, which included favorable changes in foreign exchange rates of $0.1 million. The sales increase was primarily due to continued growth in construction/MRO, price realization and the acquisition of Western Automation.

Net sales increased by $29.7 million, or 12.9%, in the first nine months of 2023 compared to the first nine months of 2022, which included unfavorable changes in foreign exchange rates of $0.5 million. The sales increase was primarily due to higher volume in the construction/MRO, renewables, and industrial OEM end markets, and the acquisition of Western Automation.

Operating Income

Operating income was $13.2 million, representing an increase of $1.0 million, or 8.4%, for the third quarter of 2023 compared to $12.2 million for the third quarter of 2022. The increase in operating income was driven by price realization and higher volume, partially offset by higher amortization expense from the acquisition of Western Automation. Operating margin was 15.3% for both the third quarter of 2023 and 2022.

Operating income was $45.5 million, representing an increase of $5.5 million, or 13.7%, for the first nine months of 2023 compared to $40.0 million for the first nine months of 2022. The increase in operating income was due to price realization and
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higher volume, partially offset by higher amortization expenses from the acquisition of Western Automation. Operating margins were 17.4% in the first nine months of 2023 compared to 17.3% in the first nine months of 2022.

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 QuarterFirst Nine Months
(in thousands)20232022Change%
Change
20232022Change%
Change
Americas$236,706 $264,894 $(28,188)(10.6)%$698,456 $749,715 $(51,259)(6.8)%
Asia-Pacific235,908 263,963 (28,055)(10.6)%693,611 776,990 (83,379)(10.7)%
Europe134,457 130,023 4,434 3.4 %436,783 373,941 62,842 16.8 %
Total$607,071 $658,880 $(51,809)(7.9)%$1,828,850 $1,900,646 $(71,796)(3.8)%

Americas
 
Net sales decreased $28.2 million, or 10.6%, in the third quarter of 2023 compared to the third quarter of 2022 and included favorable changes in foreign exchange rates of $0.1 million. The decrease in net sales was primarily due to lower volume from the Electronics segment and lower sales from the commercial vehicle business within the Transportation segment, partially offset by higher sales from the passenger car products business within the Transportation segment and growth across various markets in the Industrial segment compared to the third quarter of 2022.

Net sales decreased $51.3 million, or 6.8%, in the first nine months of 2023 compared to the first nine months of 2022 and included unfavorable changes in foreign exchange rates of $0.3 million. The decrease in net sales was primarily due to lower volume from the electronics products business within the Electronics segment and lower sales from the commercial vehicle business within the Transportation segment, partially offset by incremental sales from C&K acquisition within the Electronics segment and higher sales within the Industrial segment compared to the first nine months of 2022.

Asia-Pacific 

Net sales decreased $28.1 million, or 10.6%, in the third quarter of 2023 compared to the third quarter of 2022 and included unfavorable changes in foreign exchange rates of $1.8 million. The decrease in net sales was primarily due to lower net sales from the Electronics segment and lower net sales from the commercial vehicle business within the Transportation segment, partially offset by higher net sales from passenger car products business within the Transportation segment compared to the third quarter of 2022.

Net sales decreased $83.4 million, or 10.7%, in the first nine months of 2023 compared to the first nine months of 2022 and included unfavorable changes in foreign exchange rates of $8.4 million. The decrease in net sales was primarily due to lower net sales from electronics products business within the Electronics segment and lower net sales from the commercial vehicle and automotive sensors businesses within the Transportation segment, partially offset by incremental sales from the acquisition of C&K.

Europe 
 
Net sales increased $4.4 million, or 3.4%, in the third quarter of 2023 compared to the third quarter of 2022 and included favorable changes in foreign exchange rates of $9.0 million. The increase in net sales was primarily due to favorable changes in foreign exchange rates, increased volume across all businesses within the Transportation segment, and incremental sales from the Western Automation acquisition included within the Industrial segment, partially offset by lower net sales from the Electronics segment.

Net sales increased $62.8 million, or 16.8%, in the first nine months of 2023 compared to the first nine months of 2022 and included favorable changes in foreign exchange rates of $5.6 million. The increase in net sales was primarily due to the incremental sales from the acquisition of C&K, increased volume from the semiconductor business within the Electronics segment, and the incremental sales from the Western Automation acquisition included within the Industrial segment, partially offset by lower net sales from the electronics products business within the Electronics segment.
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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 $560.1 million as of September 30, 2023, a decrease of $2.5 million as compared to December 31, 2022. As of September 30, 2023, $155.6 million of the Company's $560.1 million cash and cash equivalents was held by U.S. subsidiaries.

Revolving Credit Facility and Term Loan

On June 30, 2022, the Company amended and restated its Credit Agreement, dated as of April 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 to June 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 0.00% 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.

Under the Credit Agreement, 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 on June 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 September 30, 2022, through June 30, 2024, and in the amount of $3.8 million commencing September 30, 2024, through March 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 and nine months ended September 30, 2023, the Company made payments of $1.9 million and $5.6 million on its term loan, respectively. The revolving loan and term loan balance under the Credit Facility was $100.0 million and $290.6 million, respectively, as of September 30, 2023.

On May 12, 2022, the Company entered into an interest rate swap agreement to manage interest rate risk exposure, effectively converting the interest rate on the Company's SOFR based floating-rate loans to a fixed-rate. The interest rate swap, with a notional value of $200 million, was designated as a cash flow hedge against the variability of cash flows associated with the Company's SOFR based loans scheduled to mature on June 30, 2027.

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

As of September 30, 2023, the Company had $0.2 million outstanding letters of credit under the Credit Facility and had $599.8 million of borrowing capacity available under the revolving Credit Facility. As of September 30, 2023, the Company was in compliance with all covenants under the Credit Agreement.
 
Senior Notes
 
On December 8, 2016, the Company entered into a Note Purchase Agreement, pursuant to which the Company issued and sold €212 million aggregate principal amount of senior notes in two series. The funding date for the Euro denominated senior notes occurred on December 8, 2016 for €117 million in aggregate amount of 1.14% Senior Notes, Series A, due December 8, 2023 (“Euro Senior Notes, Series A due 2023”), and €95 million in aggregate amount of 1.83% Senior Notes, Series B due December
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8, 2028 (“Euro Senior Notes, Series B due 2028”) (together, the “Euro Senior Notes”). Interest on the Euro Senior Notes is payable semiannually on June 8 and December 8, commencing June 8, 2017.
 
On December 8, 2016, the Company entered into a Note Purchase Agreement, pursuant to which the Company issued and sold $125 million aggregate principal amount of senior notes in two series. On February 15, 2017, $25 million in aggregate principal amount of 3.03% Senior Notes, Series A, due February 15, 2022 (“U.S. Senior Notes, Series A due 2022”), and $100 million in aggregate principal amount of 3.74% Senior Notes, Series B, due February 15, 2027 (“U.S. Senior Notes, Series B due 2027”) were funded. During the first quarter of 2022, the Company paid off $25 million of U.S. Senior Notes, Series A due on February 15, 2022. Interest on the U.S. Senior Notes due 2027 is payable semiannually on February 15 and August 15, commencing August 15, 2017.
 
On November 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. On January 16, 2018, $50 million aggregate principal amount of 3.48% Senior Notes, Series A, due February 15, 2025 (“U.S. Senior Notes, Series A due 2025”) and $125 million in aggregate principal amount of 3.78% Senior Notes, Series B, due February 15, 2030 (“U.S. Senior Notes, Series B due 2030”) (together, the “U.S. Senior Notes due 2025 and 2030”) were funded. Interest on the U.S. Senior Notes due 2025 and 2030 is payable semiannually on February 15 and August 15, commencing on August 15, 2018.
 
On May 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.

On May 18, 2022, the Company entered into a Note Purchase Agreement (“2022 Purchase Agreement”) pursuant to which the Company issued and funded on July 18, 2022 $100 million in aggregate principal amount of 4.33% Senior Notes, due June 30, 2032 (“U.S. Senior Notes, due 2032”) (together with the U.S. Senior Notes due 2025 and 2030, the Euro Senior Notes and the U.S. Senior Notes due 2022 and 2027, the “Senior Notes”). Interest on the U.S. Senior Notes due 2032 is payable semiannually on June 30 and December 30, commencing on December 30, 2022.

Debt Covenants
The Company was in compliance with all covenants under the Credit Agreement and Senior Notes as of September 30, 2023 and currently expects to remain in compliance based on management’s estimates of operating and financial results for 2023. As of September 30, 2023, the Company met all the conditions required to borrow under the Credit Agreement and management expects the Company to continue to meet the applicable borrowing conditions.

Acquisitions
On June 28, 2023, the Company entered into a definitive purchase agreement to acquire a 200mm wafer fab located in Dortmund, Germany (“Dortmund Fab”) from Elmos Semiconductor SE. The acquisition of the Dortmund Fab is expected to close in early fiscal year 2025. The total purchase price for the fab is approximately 93 million Euro, of which 37.2 million Euro down payment (approximately $40.5 million) recorded in Other long-term assets in the Condensed Consolidated Balance Sheets was paid in the third quarter after regulatory approvals and approximately 56 million Euro will be paid at closing. The transaction is not expected to have a material impact on the Company’s fiscal year 2023 or 2024 financial results and will be reported in the Electronics-Semiconductor business within the Company’s Electronics segment.

On February 3, 2023, the Company acquired Western Automation for approximately $162 million in cash. Headquartered in Galway, Ireland, Western Automation is a designer and manufacturer of electrical shock protection devices used across a broad range of high-growth end markets, including e-Mobility off-board charging infrastructure, industrial safety and renewables. At the time the Company and Western Automation entered into the definitive agreement, Western Automation had annualized sales of approximately $25 million. The business is reported within the Company’s Industrial segment. The Company financed the transaction with cash on hand.

Dividends
 
During the third quarter of 2023 the Company paid quarterly dividends of $16.2 million to the shareholders. On October 31, 2023, the Company announced the declaration of a quarterly cash dividend of $0.65 per share payable on December 7, 2023 to stockholders of record as of November 23, 2023.



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Cash Flow Overview
 
 First Nine Months
(in thousands)20232022
Net cash provided by operating activities$313,140 $313,439 
Net cash used in investing activities(261,379)(609,980)
Net cash (used in) provided by financing activities(47,144)321,923 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(7,965)(31,963)
Decrease in cash, cash equivalents, and restricted cash(3,348)(6,581)
Cash, cash equivalents, and restricted cash at beginning of period564,939 482,836 
Cash, cash equivalents, and restricted cash at end of period$561,591 $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 $313.1 million for the nine months ended September 30, 2023 compared to $313.4 million for the nine months ended October 1, 2022 as lower cash earnings were offset by reductions in working capital.

Cash Flow from Investing Activities
 
Net cash used in investing activities was $261.4 million for the nine months ended September 30, 2023 compared to $610.0 million during the nine months ended October 1, 2022. Net cash paid for acquisitions was $198.8 million and $532.8 million during the nine months ended September 30, 2023 and October 1, 2022, respectively. Capital expenditures were $63.2 million, representing a decrease of $14.6 million compared to nine months ended October 1, 2022. During the nine months ended September 30, 2023 and October 1, 2022, the Company received proceeds of $0.7 million from the sale of a property within the Electronics segment and $0.6 million from the sale of a property within the Transportation segment, respectively.  
 
Cash Flow from Financing Activities
 
Net cash used in financing activities was $47.1 million for the nine months ended September 30, 2023 compared to net cash provided by financing activities of $321.9 million for the nine months ended October 1, 2022. On June 30, 2022, the Company amended its Credit Agreement and borrowed $300.0 million through a term loan. During the nine months ended September 30, 2023, the Company made payments of $5.6 million on the term loan. During the nine months ended October 1, 2022, the Company paid $25.0 million of U.S. Senior Notes, Series A due on February 15, 2022 and $1.9 million on the term loan. Additionally, the Company paid dividends of $46.0 million and $41.1 million in the nine months ended September 30, 2023 and October 1, 2022, respectively. 

Share Repurchase Program
 
On April 28, 2021, the Company announced that the Board of Directors authorized a new three-year program to repurchase up to $300 million in the aggregate of shares of the Company’s common stock for the period May 1, 2021 to April 30, 2024 to replace its previous 2020 program.

The Company did not repurchase shares of its common stock for the three and nine months ended September 30, 2023, and October 1, 2022.

Off-Balance Sheet Arrangements
 
As of September 30, 2023, the Company did not have any off-balance sheet arrangements, as defined under SEC rules. Specifically, the Company was not liable for guarantees of indebtedness owed by third parties, the Company was not directly liable for the debt of any unconsolidated entity and the Company did not have any retained or contingent interest in assets. 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
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The Company’s Condensed Consolidated Financial Statements are prepared in accordance with U.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 ended December 31, 2022. During the nine months ended September 30, 2023, there were no significant changes in the application of critical accounting policies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of the Company's Annual Report on Form 10-K for the year ended December 31, 2022. During the nine months ended September 30, 2023, there have been no material changes in the Company's exposure to market risk.

ITEM 4. CONTROLS AND PROCEDURES 
 
(a) Evaluation of Disclosure Controls and Procedures
 
Disclosure controls and procedures (as defined in Rules 13a-15(b) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
 
In connection with the preparation of this report, management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of September 30, 2023. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the quarter ended September 30, 2023, the Company's disclosure controls and procedures were effective.
 
(b) Changes in Internal Control over Financial Reporting
 
There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 
PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS 
 
None.
 
ITEM 1A. RISK FACTORS 
 
There have been no material changes in the Company's risk factors from those disclosed in the Company's Annual Report on Form 10-K for its year ended December 31, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 
 
Recent Sales of Unregistered Securities
 
None.
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Purchases of Equity Securities

On April 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 period May 1, 2021 to April 30, 2024 to replace its previous 2020 program.

The Company did not repurchase shares of its common stock for the three months ended September 30, 2023 and October 1, 2022.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 
 
None.

ITEM 4. MINE SAFETY DISCLOSURES 
 
None.
 
ITEM 5. OTHER INFORMATION 
 
None of the Company’s directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended September 30, 2023.
 
ITEM 6. EXHIBITS

ExhibitDescription
31.1*
  
31.2*
  
32.1**
  
101
The following financial information from LITTELFUSE, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Net Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders' Equity , (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
104
The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL.
*Filed herewith.
**Furnished herewith.
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SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, to be signed on its behalf by the undersigned thereunto duly authorized.
 
 Littelfuse, Inc. 
    
By:/s/ Meenal A. Sethna 
  Meenal A. Sethna 
 Executive Vice President and Chief Financial Officer
   
Date: November 1, 2023
By:/s/ Jeffrey G. Gorski 
  Jeffrey G. Gorski 
 Senior Vice President and Chief Accounting Officer

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