LFUS 10-Q
Littelfuse Inc /De (LFUS)
10-Q
2024-10-30
For: 2024-09-28
View Original
Added on
April 10, 2026
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 28, 2024
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)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| | ||||||||
| (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 Symbol | Name of exchange on which registered | |||||||||||||||
| Global 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 25, 2024, the registrant had outstanding 24,814,687 shares of Common Stock, net of Treasury Shares.
TABLE OF CONTENTS
| Page | ||||||||
| PART I | ||||||||
| Item 1. | ||||||||
| Condensed Consolidated Balance Sheets as of September 28, 2024 (unaudited) and December 30, 2023 | ||||||||
| Condensed Consolidated Statements of Net Income for the three and nine months ended September 28, 2024 (unaudited) and September 30, 2023 (unaudited) | ||||||||
| Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 28, 2024 (unaudited) and September 30, 2023 (unaudited) | ||||||||
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 28, 2024 (unaudited) and September 30, 2023 (unaudited) | ||||||||
| Condensed Consolidated Statements of Stockholders' Equity for the nine months ended September 28, 2024 (unaudited) and September 30, 2023 (unaudited) | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
PART II | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
2
ITEM 1. FINANCIAL STATEMENTS
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| (Unaudited) | ||||||||||||||
| (in thousands, except share and per share data) | September 28, 2024 | December 30, 2023 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents (Note 1) | $ | $ | ||||||||||||
| Short-term investments | ||||||||||||||
Trade receivables, less allowances of $ | ||||||||||||||
| Inventories (Note 3) | ||||||||||||||
| Prepaid income taxes and income taxes receivable | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Net property, plant, and equipment (Note 4) | ||||||||||||||
| Intangible assets, net of amortization (Note 5) | ||||||||||||||
| Goodwill (Note 5) | ||||||||||||||
| Investments | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Right of use lease assets | ||||||||||||||
| Other long-term assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued liabilities (Note 6) | ||||||||||||||
| Accrued income taxes | ||||||||||||||
| Current portion of long-term debt (Note 8) | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt, less current portion (Note 8) | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Accrued post-retirement benefits | ||||||||||||||
| Non-current lease liabilities | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total liabilities | $ | $ | ||||||||||||
| Commitments and contingencies (Note 15) | ||||||||||||||
| Shareholders’ equity: | ||||||||||||||
Common stock, par value $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
Treasury stock, at cost: | ( | ( | ||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| Littelfuse, Inc. shareholders’ equity | ||||||||||||||
| Non-controlling interest | ||||||||||||||
| Total equity | ||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands, except per share data) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Selling, general, and administrative expenses | ||||||||||||||||||||||||||
| Research and development expenses | ||||||||||||||||||||||||||
| Amortization of intangibles | ||||||||||||||||||||||||||
| Restructuring, impairment, and other charges | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Foreign exchange loss | ||||||||||||||||||||||||||
| Other income, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income taxes | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Earnings per share: | ||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted-average shares and equivalent shares outstanding: | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||
| Defined benefit pension plan and other adjustments, net of tax | ( | ( | ||||||||||||||||||||||||
| Cash flow hedges, net of tax | ( | ( | ||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ||||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Nine Months Ended | ||||||||||||||
| (in thousands) | September 28, 2024 | September 30, 2023 | ||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation | ||||||||||||||
| Amortization of intangibles | ||||||||||||||
| Deferred revenue | ( | |||||||||||||
| Impairment charges | ||||||||||||||
| Stock-based compensation | ||||||||||||||
| (Gain) loss on investments and other assets | ( | |||||||||||||
| Deferred income taxes | ( | ( | ||||||||||||
| Other | ||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Trade receivables | ( | ( | ||||||||||||
| Inventories | ||||||||||||||
| Accounts payable | ( | |||||||||||||
| Accrued liabilities and income taxes | ( | ( | ||||||||||||
| Prepaid expenses and other assets | ( | |||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||
| Acquisitions of businesses, net of cash acquired | ( | |||||||||||||
| Purchases of property, plant, and equipment | ( | ( | ||||||||||||
| Net proceeds from sale of property, plant and equipment, and other | ||||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
| Repayments of other debts | ( | ( | ||||||||||||
| Payments of term loan | ( | ( | ||||||||||||
| Net proceeds related to stock-based award activities | ||||||||||||||
| Repurchases of common stock | ( | |||||||||||||
| Cash dividends paid | ( | ( | ||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | ( | ( | ||||||||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash | ( | |||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||||||||
| Supplementary Cash Flow Information | ||||||||||||||
| Reconciliation of cash and cash equivalents: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash included in other long-term assets | $ | $ | ||||||||||||
| Cash paid during the period for interest | $ | $ | ||||||||||||
| Capital expenditures, not yet paid | $ | $ | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
| Littelfuse, Inc. Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | Common Stock | Addl. Paid in Capital | Treasury Stock | Accum. Other Comp. Loss | Retained Earnings | Non-controlling Interest | Total | ||||||||||||||||||||||||||||||||||
| Balance at December 30, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Non-controlling interest | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Withheld shares on restricted share units for withholding taxes | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends paid ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at March 30, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Non-controlling interest | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Withheld shares on restricted share units for withholding taxes | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Repurchase of common stock, with excise tax | ( | ( | |||||||||||||||||||||||||||||||||||||||
Cash dividends paid ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at June 29, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive gain, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Non-controlling interest | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Withheld shares on restricted share units for withholding taxes | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock options exercised | — | ||||||||||||||||||||||||||||||||||||||||
| Excise tax adjustment on stock options exercised | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Cash dividends paid ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at September 28, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
7
| Littelfuse, Inc. Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | Common Stock | Addl. Paid in Capital | Treasury Stock | Accum. Other Comp. Income (Loss) | Retained Earnings | Non-controlling Interest | Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Non-controlling interest | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Withheld shares on restricted share units for withholding taxes | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Cash dividends paid ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at April 1, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Non-controlling interest | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Withheld shares on restricted share units for withholding taxes | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Cash dividends paid ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at July 1, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Non-controlling interest | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Withheld shares on restricted share units for withholding taxes | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Cash dividends paid ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
8
Notes to Condensed Consolidated Financial Statements
1. Summary of Significant Accounting Policies and Other Information
Nature of Operations
Founded in 1927, Littelfuse, Inc. ("Littelfuse" or the "Company") is a diversified, industrial technology manufacturing company empowering a sustainable, connected, and safer world. Across more than 20 countries, and with approximately 16,000 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 30, 2023, 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 28, 2024 and September 30, 2023:
| Three Months Ended September 28, 2024 | Nine Months Ended September 28, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Electronics Segment | Transportation Segment | Industrial Segment | Total | Electronics Segment | Transportation Segment | Industrial Segment | Total | ||||||||||||||||||||||||||||||||||||||||||
| Electronics – Semiconductor | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Electronics – Passive Products and Sensors | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Vehicle Products | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Passenger Car Products | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Automotive Sensors | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial Products | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
9
| Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Electronics Segment | Transportation Segment | Industrial Segment | Total | Electronics Segment | Transportation Segment | Industrial Segment | Total | ||||||||||||||||||||||||||||||||||||||||||
| Electronics – Semiconductor | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Electronics – Passive Products and Sensors | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Vehicle Products | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Passenger Car Products | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Automotive Sensors | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial Products | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
See Note 14, Segment Information, for net sales by segment and country.
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 allowances, rebates and price adjustments. The Company’s distribution channels are primarily through direct sales and independent third-party distributors.
The Company has 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 distributors 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 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.
10
Return to Stock
The Company has a return to stock policy whereby certain customers, with prior authorization from the Company's 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 28, 2024 and December 30, 2023 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 28, 2024 | December 30, 2023 | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash included in other long-term assets | ||||||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||||||||
Recently Adopted Accounting Standards
In March 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") 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 for fiscal years beginning after December 15, 2023 including interim periods within those fiscal years. The adoption of ASU 2023-01 did not have a material impact on the Company's Condensed Consolidated Financial Statements.
Recently Issued Accounting Standards
In March 2024, the Securities and Exchange Commission ("SEC") issued a final rule that requires registrants to provide climate disclosures in annual reports and registration statements. The climate-related final rule requires disclosures in the footnotes to the financial statements, including: 1) specified financial statement effects of severe weather events and other natural conditions, 2) certain carbon offsets and renewable energy credits or certificates if used as a material component of a registrant's plans to achieve its disclosed climate-related targets or goals, 3) material impacts on financial estimates and assumptions in the financial statements if they would materially impacted by risks and uncertainties associated with severe weather events and other natural conditions, previously disclosed climate-related targets, and transition plans. The financial statement disclosure requirements are effective beginning with annual reports for the fiscal year beginning in calendar year 2025 for the Company as a large accelerated filer. These disclosures will be subject to existing audit requirement for financial statements. On April 4, 2024, the SEC chose to stay its climate disclosure rules pending judicial review. The adoption of this rule will increase the Company's disclosures in its Consolidated Financial Statements. The Company is currently evaluating and is in the process of performing its initial assessment of the potential impact on its Condensed Consolidated Financial Statements.
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In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." The amendments in this update provide more transparency about income tax information through improvements to the income tax disclosure primarily related to the income tax rate reconciliation and income taxes paid information. These requirements include: (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The other amendments in this update improve the effectiveness and comparability of disclosures by (3) adding disclosures of pretax income (or loss) and income tax expense (or benefit), and (4) removing disclosures that are no longer considered cost beneficial or relevant. The guidance is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. The adoption of this guidance will modify the Company's disclosures in its Condensed Consolidated Financial Statements.
In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The amendments in this update require additional detailed and enhanced information about reportable segments' expense, including significant segment expenses and other segment items that bridge segment revenue, significant expenses to segment profit or loss. The ASU also requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”) on an annual basis as well as an explanation of how the CODM uses the reported measures and other disclosures. The amendments in this update do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption of this guidance will modify the Company's disclosures in its Condensed Consolidated Financial Statements.
In October 2023, the 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.
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 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 Dortmund Fab is approximately 93 million Euro, of which a 37.2 million Euro down payment (approximately $40.5 million) recorded in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The down payment was paid in the third quarter of 2023 after regulatory approvals, and approximately 56 million Euro will be paid at closing. The transaction is not expected to have a material impact on the Company’s fiscal year 2024 financial results and will be reported in the Electronics-Semiconductor business within the Company’s Electronics segment.
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 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 Western Automation acquisition:
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| (in thousands) | Purchase Price Allocation | ||||
| Total purchase consideration: | |||||
| Cash, net of cash acquired | $ | ||||
| Allocation of consideration to assets acquired and liabilities assumed: | |||||
| Trade receivables | |||||
| Inventories | |||||
| Other current assets | |||||
| Property, plant, and equipment | |||||
| Intangible assets | |||||
| Goodwill | |||||
| Other long-term assets | |||||
| Current liabilities | ( | ||||
| Other long-term liabilities | ( | ||||
| $ | |||||
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.
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 in the Condensed Consolidated Statement of Net Income. These costs were reflected as other non-segment costs.
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. 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, or of future consolidated operating results.
| (in thousands, except per share amounts) | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | ||||||||||||
| Net sales | $ | $ | ||||||||||||
| Income before income taxes | ||||||||||||||
| Net income | ||||||||||||||
| Net income per share — basic | ||||||||||||||
| Net income per share — diluted | ||||||||||||||
Pro forma results presented above primarily reflect the following adjustments:
| (in thousands) | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | ||||||||||||
| Amortization (a) | $ | $ | ( | |||||||||||
| Transaction costs (b) | ( | |||||||||||||
| Income tax benefit (expense) of above items | ( | |||||||||||||
(a) The amortization adjustment for the nine months ended September 30, 2023 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.
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3. Inventories
The components of inventories at September 28, 2024 and December 30, 2023 are as follows:
| (in thousands) | September 28, 2024 | December 30, 2023 | ||||||||||||
| Raw materials | $ | $ | ||||||||||||
| Work in process | ||||||||||||||
| Finished goods | ||||||||||||||
| Inventory reserves | ( | ( | ||||||||||||
| Total | $ | $ | ||||||||||||
4. Property, Plant, and Equipment
The components of net property, plant, and equipment at September 28, 2024 and December 30, 2023 are as follows:
| (in thousands) | September 28, 2024 | December 30, 2023 | ||||||||||||
| Land and land improvements | $ | $ | ||||||||||||
| Building and building improvements | ||||||||||||||
| Machinery and equipment | ||||||||||||||
| Accumulated depreciation | ( | ( | ||||||||||||
| Total | $ | $ | ||||||||||||
The Company recorded depreciation expense of $17.3 million and $17.9 million for the three months ended September 28, 2024 and September 30, 2023, respectively, and $51.0 million and $53.5 million for the nine months ended September 28, 2024 and September 30, 2023, respectively.
5. Goodwill and Other Intangible Assets
Changes in the carrying value of goodwill by segment for the nine months ended September 28, 2024 are as follows:
| (in thousands) | Electronics | Transportation | Industrial | Total | ||||||||||||||||||||||
Net goodwill as of December 30, 2023 | ||||||||||||||||||||||||||
Gross goodwill as of December 30, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||
Accumulated impairment losses as of December 30, 2023 | ( | ( | ( | |||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
Changes during 2024: | ||||||||||||||||||||||||||
| Foreign currency translation adjustments | ||||||||||||||||||||||||||
Net goodwill as of September 28, 2024 | ||||||||||||||||||||||||||
Gross goodwill as of September 28, 2024 | ||||||||||||||||||||||||||
Accumulated impairment losses as of September 28, 2024 | ( | ( | ( | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
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The components of other intangible assets as of September 28, 2024 and December 30, 2023 are as follows:
| As of September 28, 2024 | |||||||||||||||||
| (in thousands) | Gross Carrying Value | Accumulated Amortization | Net Book Value | ||||||||||||||
| Land use rights | $ | $ | $ | ||||||||||||||
| Patents, licenses, and software | |||||||||||||||||
| Distribution network | |||||||||||||||||
| Customer relationships, trademarks, and tradenames | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
December 30, 2023 | |||||||||||||||||
| (in thousands) | Gross Carrying Value | Accumulated Amortization | Net Book Value | ||||||||||||||
| Land use rights | $ | $ | $ | ||||||||||||||
| Patents, licenses, and software | |||||||||||||||||
| Distribution network | |||||||||||||||||
| Customer relationships, trademarks, and tradenames | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
During the three months ended September 28, 2024 and September 30, 2023, the Company recorded amortization expense of $15.9 million and $16.0 million, respectively. During the nine months ended September 28, 2024 and September 30, 2023, the Company recorded amortization expense of $47.4 million and $49.8 million, respectively.
Estimated annual amortization expense related to intangible assets with definite lives as of September 28, 2024 is as follows:
(in thousands) | Amount | ||||
| Remainder of 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 and thereafter | |||||
| Total | $ | ||||
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6. Accrued Liabilities
The components of accrued liabilities as of September 28, 2024 and December 30, 2023 are as follows:
| (in thousands) | September 28, 2024 | December 30, 2023 | ||||||||||||
| Employee-related liabilities | $ | $ | ||||||||||||
| Current lease liability | ||||||||||||||
| Other non-income taxes | ||||||||||||||
| Interest | ||||||||||||||
| Professional services | ||||||||||||||
| Other customer reserves | ||||||||||||||
| Restructuring liability | ||||||||||||||
| Current hedge liability | ||||||||||||||
| Deferred revenue | ||||||||||||||
| Current benefit liability | ||||||||||||||
| Other | ||||||||||||||
| Total | $ | $ | ||||||||||||
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 customer-related liabilities.
7. Restructuring, Impairment, and Other Charges
The Company recorded restructuring, impairment, and other charges for the three and nine months ended September 28, 2024 and September 30, 2023 as follows:
| Three Months Ended September 28, 2024 | Nine Months Ended September 28, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Electronics | Transportation | Industrial | Total | Electronics | Transportation | Industrial | Total | |||||||||||||||||||||||||||||||||||||||
| Employee terminations | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Other restructuring charges | |||||||||||||||||||||||||||||||||||||||||||||||
| Total restructuring charges | |||||||||||||||||||||||||||||||||||||||||||||||
| Impairment | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Electronics | Transportation | Industrial | Total | Electronics | Transportation | Industrial | Total | |||||||||||||||||||||||||||||||||||||||
| Employee terminations | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Other restructuring charges | |||||||||||||||||||||||||||||||||||||||||||||||
| Total restructuring charges | |||||||||||||||||||||||||||||||||||||||||||||||
| Impairment | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
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2024
For the three and nine months ended September 28, 2024, the Company recorded total restructuring charges of $1.8 million and $9.4 million, respectively, primarily for employee termination costs. These charges primarily related to the reorganization of certain manufacturing, selling and administrative functions within the semiconductor business in the Electronics segment and the reorganization of certain selling and administrative functions within the commercial vehicle business in the Transportation segment. In addition, during the first quarter of 2024, the Company recognized a $0.9 million impairment charge related to certain machinery and equipment in the commercial vehicle business within the Transportation segment.
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 Switches 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.
The restructuring reserves as of September 28, 2024 and December 30, 2023 are $4.5 million and $2.1 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 first quarter of fiscal year 2025.
8. Debt
The carrying amounts of debt at September 28, 2024 and December 30, 2023 are as follows:
| (in thousands) | September 28, 2024 | December 30, 2023 | ||||||||||||
| Revolving credit facility | $ | $ | ||||||||||||
| Term loan | ||||||||||||||
| Euro Senior Notes, Series B due 2028 | ||||||||||||||
| U.S. Senior Notes, Series B due 2027 | ||||||||||||||
| U.S. Senior Notes, Series A due 2025 | ||||||||||||||
| U.S. Senior Notes, Series B due 2030 | ||||||||||||||
| U.S. Senior Notes, due 2032 | ||||||||||||||
| Other | ||||||||||||||
| Unamortized debt issuance costs | ( | ( | ||||||||||||
| Total debt | ||||||||||||||
| Less: Current maturities | ( | ( | ||||||||||||
| Total long-term debt | $ | $ | ||||||||||||
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.
17
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 % 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 nine months ended September 28, 2024, the Company made payments of $3.8 million on its term loan. The revolving loan and term loan balance under the Credit Facility was $100.0 million and $285.0 million, respectively, as of September 28, 2024.
On May 12, 2022, the Company entered into an interest rate swap agreement to manage interest rate risk exposure, effectively converting the interest rate on the Company's SOFR based floating-rate loans to a fixed-rate. The interest rate swap, with a notional value of $200 million, was designated as a cash flow hedge against the variability of cash flows associated with the Company's SOFR based loans scheduled to mature on June 30, 2027.
As of September 28, 2024, the effective interest rate on unhedged portion of the outstanding borrowings under the credit facility was 6.60 %, and 4.13 % on the hedged portion.
As of September 28, 2024, the Company had $0.1 million outstanding letters of credit under the Credit Facility and had $599.9 million of borrowing capacity available under the revolving credit facility. As of September 28, 2024, 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”). During the fourth quarter of 2023, the Company paid off €117 million of Euro Senior Notes, Series A due on December 8, 2023. Interest on the Euro Senior Notes due 2028 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.
18
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.
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. As of September 28, 2024, 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 note holders 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 $10.5 million and $11.9 million for the three months ended September 28, 2024 and September 30, 2023, respectively, and $30.1 million and $33.2 million for the nine months ended September 28, 2024 and September 30, 2023, 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.
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Derivatives Designated as Hedging Instruments
For derivatives that will be accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, the Company formally assesses, both at the inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in either the fair values or cash flows of the related underlying exposures. For highly effective cash flow hedges, ASC 815 requires the entire change in fair value of the hedging instrument included in the assessment of hedge effectiveness to be recorded in other comprehensive income. No components of the Company's hedging instruments were excluded from the assessment of hedge effectiveness.
Zero Cost Collar Agreement
In July 2024, the Company implemented a hedging program to manage foreign currency risk exposure related to fluctuations between the U.S. dollar and Mexican peso. These foreign currency zero cost collars are designated as cash flow hedges for a portion of our Mexican peso-denominated manufacturing expenses, predominantly salary expenses, vendor payments, and utility expenses. The July 2024 collars mature in August 2025 at a weighted-average ceiling of 19.435 and a weighted-average floor of 18.000 . The August 2024 collars mature in September 2025 at a weighted-average ceiling of 21.000 and a weighted-average floor of 19.655 . If the spot rate is between the weighted-average ceiling and floor rates on the date of maturity, then the Company would not owe or receive any payments under these collars. The Company plans to continue executing zero cost collars with 14-month rolling maturities as an ongoing strategy to hedge peso-denominated manufacturing expenses.
The fair value of the collars was determined 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 earnings. For the three months ended September 28, 2024, the Company recorded a pre-tax unrealized loss on the collars of $4.0 million. The Company estimates that approximately $4.2 million of pre-tax losses currently recorded in accumulated other comprehensive loss will be recognized in earnings over the next 12 months. The amounts included in accumulated other comprehensive income will be reclassified to earnings should the hedge no longer be considered effective. No amount of ineffectiveness was included in net income for the three months ended September 28, 2024. The Company will continue to assess the effectiveness of the hedge on an ongoing basis. The primary inputs into the valuation of the collars are interest yield curves, interest rate volatilities, foreign exchange rates, foreign exchange volatilities, credit risk, credit spreads and other market information. The collars are classified within Level 2 of the fair value hierarchy, since all significant inputs are corroborated by market observable data.
Interest Rate Swap
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 earnings. For the three and nine months ended September 28, 2024, the Company recorded a pre-tax unrealized loss on the interest rate swap of $5.9 million and $3.3 million, respectively. The Company estimates that approximately $1.8 million of pre-tax gain currently recorded in accumulated other comprehensive loss will be recognized in earnings over the next 12 months. 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 its 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 its counterparties, the Company may not receive payments provided for under the terms of its 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 expired on December 7, 2023 with the final settlement value of $6.3 million which the Company used to convert USD to Euro to pay down the €117.0 million of Euro Senior Notes, Series A due 2023. The foreign currency contract was not designated as a hedge instrument and was marked to market on a monthly basis. As a result, changes in fair value during 2023 were reported in Foreign exchange gain in the Condensed Consolidated Statements of Net Income. 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.
20
The Company does not enter into derivative financial instruments for trading purposes.
As of September 28, 2024 and December 30, 2023, the fair values of the Company's derivative financial instrument and their classifications on the Condensed Consolidated Balance Sheets were as follows:
(in thousands) | Condensed Consolidated Balance Sheet Classification | September 28, 2024 | December 30, 2023 | ||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||
| Interest rate swap agreement: | |||||||||||||||||
| Designated as cash flow hedge | Prepaid expenses and other current assets | $ | $ | ||||||||||||||
| Other long-term assets | $ | $ | |||||||||||||||
| Zero cost collar agreement: | |||||||||||||||||
| Designated as cash flow hedge | Prepaid expenses and other current assets | $ | $ | ||||||||||||||
| Accrued liabilities | $ | $ | |||||||||||||||
| Other long-term liabilities | $ | $ | |||||||||||||||
The pre-tax (gains) losses recognized on derivative financial instruments in the Condensed Consolidated Statements of Net Income for the three and nine months ended September 28, 2024 and September 30, 2023 were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| (in thousands) | Classification of (Gains) Losses Recognized in the Condensed Consolidated Statements of Net Income | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||||||||||
| Derivatives designated as cash flow hedges | ||||||||||||||||||||||||||||||||
| Interest rate swap agreement | Interest expense | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Zero cost collar agreement | Cost of sales | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||||||||
| Foreign exchange forward contract | Foreign exchange loss | $ | $ | $ | $ | |||||||||||||||||||||||||||
The pre-tax losses (gains) recognized on derivative financial instruments in the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 28, 2024 and September 30, 2023 was as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||||
| Derivatives designated as cash flow hedges | ||||||||||||||||||||||||||
| Interest rate swap agreement | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Zero cost collar agreement | $ | $ | $ | $ | ||||||||||||||||||||||
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 in the Condensed Consolidated Balance Sheets.
21
There were no changes during the quarter ended September 28, 2024 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. As of September 28, 2024 and December 30, 2023, 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 28, 2024:
| 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 | $ | $ | $ | $ | ||||||||||||||||||||||
| Investments in equity securities | ||||||||||||||||||||||||||
| Mutual funds | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
The following table presents assets measured at fair value by classification within the fair value hierarchy as of December 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 | $ | $ | $ | $ | ||||||||||||||||||||||
| Investments in equity securities | ||||||||||||||||||||||||||
| Mutual funds | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
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 loan debt facilities' fair values approximate book value at September 28, 2024 and December 30, 2023, 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 28, 2024 and December 30, 2023 were as follows:
| September 28, 2024 | December 30, 2023 | |||||||||||||||||||||||||
| (in thousands) | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||||||||||||
| Euro Senior Notes, Series B due 2028 | $ | $ | $ | $ | ||||||||||||||||||||||
| USD Senior Notes, Series B due 2027 | ||||||||||||||||||||||||||
| USD Senior Notes, Series A due 2025 | ||||||||||||||||||||||||||
| USD Senior Notes, Series B due 2030 | ||||||||||||||||||||||||||
| USD Senior Notes, due 2032 | ||||||||||||||||||||||||||
22
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, net in the Condensed Consolidated Statements of Net Income. The components of net periodic benefit cost for the three and nine months ended September 28, 2024 and September 30, 2023 were as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||||
| Components of net periodic benefit cost: | ||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of prior service and net actuarial loss | ||||||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | ||||||||||||||||||||||
The Company expects to make approximately $2.2 million of contributions to the plans and pay $2.1 million of benefits directly in 2024.
On October 4, 2024, the Company entered into a definitive agreement to purchase a group annuity contract, under which an insurance company will be required to pay pension payments to the Company’s United Kingdom pension plan to match required pension payments until a later buyout, at which point the insurance company will directly pay and administer the benefits to the plan's participants, or to their designated beneficiaries. The purchase of this group annuity contract will reduce the Company’s outstanding pension benefit obligation by approximately $23 million, representing approximately 31 % of the total obligations of the Company’s qualified pension plans, and will be funded with pension plan assets and additional cash on hand. In connection with this transaction, the Company currently expects to record a one-time non-cash settlement charge in 2026 estimated between $6 million and $8 million, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan. The actual settlement charge could differ from this estimate due to final data and plan wind-up expenses.
The Company also sponsors certain post-employment plans in foreign countries and other statutory benefit plans. The Company recorded expense of $0.6 million and $0.4 million for the three months ended September 28, 2024 and September 30, 2023, respectively, and $2.0 million and $1.1 million for the nine months ended September 28, 2024 and September 30, 2023, respectively, in Cost of sales and Other income, net within the Condensed Consolidated Statements of Net Income. The pre-tax (gains) losses amount recognized in other comprehensive income (loss) as components of net periodic benefit costs for these plans were $0.3 million and nominal for the three months ended September 28, 2024 and September 30, 2023, respectively, and $0.9 million and $(0.1 ) million for the nine months ended September 28, 2024 and September 30, 2023, respectively.
23
11. Other Comprehensive Income (Loss)
Changes in other comprehensive income (loss) by component were as follows:
| (in thousands) | Three Months Ended September 28, 2024 | Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Pre-tax | Tax | Net of Tax | Pre-tax | Tax | Net of Tax | |||||||||||||||||||||||||||||||||
| Defined benefit pension plan and other adjustments | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||
| Cash flow hedges | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments (a) | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Total change in other comprehensive income (loss) | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||
| (in thousands) | Nine Months Ended September 28, 2024 | Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Pre-tax | Tax | Net of Tax | Pre-tax | Tax | Net of Tax | |||||||||||||||||||||||||||||||||
| Defined benefit pension plan and other adjustments | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||
| Cash flow hedges | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments (a) | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Total change in other comprehensive income (loss) | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||
(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 income (loss) by component for the nine months ended September 28, 2024 and September 30, 2023:
| (in thousands) | Defined benefit pension plan and other adjustments | Cash flow hedges | Foreign currency translation adjustment | Accumulated other comprehensive loss | ||||||||||||||||||||||
| Balance at December 30, 2023 | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Activity in the period | ( | |||||||||||||||||||||||||
| Balance at September 28, 2024 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| (in thousands) | Defined benefit pension plan and other adjustments | Cash flow hedges | Foreign currency translation adjustment | Accumulated other comprehensive loss | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Activity in the period | ( | ( | ( | |||||||||||||||||||||||
| Balance at September 30, 2023 | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) to earnings for the three and nine months ended September 28, 2024 and September 30, 2023 were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||||
| Pension and postemployment plans: | ||||||||||||||||||||||||||
| Amortization of prior service and net actuarial loss (gain) | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
The Company recognizes the amortization of prior service costs in Other income, net within the Condensed Consolidated Statements of Net Income.
24
12. Income Taxes
The effective tax rate for the three and nine months ended September 28, 2024 was 25.3 % and 21.9 %, respectively, compared to the effective tax rate for the three and nine months ended September 30, 2023 of 23.3 % and 19.7 %, respectively. The effective tax rates for 2024 are higher than the effective tax rates for the comparable 2023 periods primarily due to decreases in the income earned in lower tax jurisdictions in 2024 as compared to 2023.
13. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands, except per share amounts) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net income as reported | $ | $ | $ | $ | ||||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Effect of dilutive securities | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
| Earnings Per Share: | ||||||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
Potential shares of common stock relating to stock options and restricted share units are excluded from the earnings per share calculation because their effect would be anti-dilutive were 124,197 and 80,828 for the three months ended September 28, 2024 and September 30, 2023, respectively, and 136,635 and 106,156 for the nine months ended September 28, 2024 and September 30, 2023, respectively.
Share Repurchase Program
The Company’s Board of Directors authorized the repurchase of up to $300.0 million in the aggregate of shares of the Company’s common stock under a program for the period May 1, 2021 to April 30, 2024 ("2021 program"). On April 25, 2024, the Company's Board of Directors authorized a new three year program to repurchase up to $300.0 million in the aggregate of shares of the Company's stock for the period May 1, 2024 to April 30, 2027 ("2024 program") to replace the expired 2021 program. The Company did no 179,311 shares of its common stock totaling $40.9 million, of which, $38.9 million was pursuant to the 2021 program and $2.0 million was pursuant to the 2024 program. The Company did no
25
14. 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, 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), protective and monitoring relays (protection relays, residual current devices and monitors, ground fault circuit interrupters, and arc fault detection devices), and industrial controls and sensors (contactors, transformers, 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.
26
Segment information is summarized as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||
| Electronics | $ | $ | $ | $ | ||||||||||||||||||||||
| Transportation | ||||||||||||||||||||||||||
| Industrial | ||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Electronics | $ | $ | $ | |||||||||||||||||||||||
| Transportation | ||||||||||||||||||||||||||
| Industrial | ||||||||||||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating income (loss) | ||||||||||||||||||||||||||
| Electronics | $ | $ | $ | $ | ||||||||||||||||||||||
| Transportation | ||||||||||||||||||||||||||
| Industrial | ||||||||||||||||||||||||||
Other (a) | ( | ( | ( | ( | ||||||||||||||||||||||
| Total operating income | ||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Foreign exchange loss | ||||||||||||||||||||||||||
| Other income, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | ||||||||||||||||||||||
(a) Included in “Other” Operating income for the third quarter of 2024 includes $1.8 million ($9.4 million year-to-date) of restructuring charges primarily related to employee termination cost, and $1.0 million ($2.8 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions. During the first quarter of 2024, the Company recognized a $0.9 million impairment charge related to certain machinery and equipment in the commercial vehicle business within the Transportation segment. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion. During the third quarter of 2024, the Company recorded a gain of $0.5 million related to the sale of a land use right within the Electronics segment. In addition, the Company recognized a gain of $1.0 million for the sale of two buildings within the Transportation segment during the first half of 2024.
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.
27
The Company’s net sales by country were as follows, classified according to the country where the customer is located:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||||||||||||
| China | ||||||||||||||||||||||||||
Other countries (a) | ||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||||||||||||
The Company’s long-lived assets represent net property, plant, and equipment, and are classified according to the country where the asset is located were as follows:
| (in thousands) | September 28, 2024 | December 30, 2023 | ||||||||||||
| Long-lived assets | ||||||||||||||
| United States | $ | $ | ||||||||||||
| China | ||||||||||||||
| Mexico | ||||||||||||||
| Germany | ||||||||||||||
| Philippines | ||||||||||||||
| Other countries | ||||||||||||||
| Total long-lived assets | $ | $ | ||||||||||||
The Company’s additions to long-lived assets by country were as follows:
| Nine Months Ended | ||||||||||||||
| (in thousands) | September 28, 2024 | September 30, 2023 | ||||||||||||
| Additions to long-lived assets | ||||||||||||||
| United States | $ | $ | ||||||||||||
| China | ||||||||||||||
| Mexico | ||||||||||||||
| Germany | ||||||||||||||
| Philippines | ||||||||||||||
| Other countries | ||||||||||||||
| Total additions to long-lived assets | $ | $ | ||||||||||||
(a)Each country included in other countries is less than 10% of net sales.
15. Commitments and Contingencies
Off-Balance Sheet Arrangements
As of September 28, 2024, the Company did not have any off-balance sheet arrangements, as defined under SEC rules. Specifically, the Company was not liable for guarantees of indebtedness owed by third parties, the Company was not directly liable for the debt of any unconsolidated entity and the Company did not have any retained or contingent interest in assets. 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.
28
Product Warranty Liabilities
The company's policy is to accrue for warranty claims when a loss is both probable and estimable. Liabilities for warranty claims have historically not been material and in limited instances, customers may make claims for costs they incurred or other damages related to a claim.
The Company carries insurance for potential product liability claims at coverage levels based on the Company's prior claims experience. This coverage is subject to deductibles, and various terms and conditions. The Company cannot assure that the level of coverage will be sufficient to cover every possible claim that can arise in its businesses, now or in the future, or that such coverage always will be available should the Company, now or in the future, wish to extend, increase or otherwise adjust its insurance.
The Company has been notified by one of its customers of a product recall potentially due to certain fuses provided by Littelfuse and incorporated in such products. The Company is currently working with its customer to investigate the cause and level of responsibility for this recall. The Company has determined pursuant to ASC 450, "Contingencies", that a loss is reasonably possible. However, the Company continues to evaluate this matter and the ultimate costs of the recall and range of the potential loss cannot be determined at this time. Accordingly, no accrual has been made yet for this matter. Factors that will impact the amount of such losses include the per vehicle cost of fuse replacement, the determination of the relative liability among the customer, the Company, and any relevant third parties, as well as actual insurance recoveries.
Environmental Remediation Liabilities
The company's operations and facilities are subject to U.S. and non-U.S. laws and regulations governing the protection of the environment and its employees, including those governing air emissions, chemical usage, water discharges, the management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites. The Company could incur significant costs, including cleanup costs, fines, civil or criminal sanctions, or third-party property damage or personal injury claims, in the event of violations or liabilities under these laws and regulations, or non-compliance with the environmental permits required at its facilities. Potentially significant expenditures could be required in order to comply with environmental laws that may be adopted or imposed in the future. The Company is, however, not aware of any threatened or pending material environmental investigations, lawsuits, or claims involving the Company or its operations.
Legal Proceedings
In the ordinary course of business, the Company may be involved in a number of claims and litigation matters. While it is not feasible to predict the outcome of these matters, based upon the Company's experience and current information known, the Company does not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on its results of operations, financial position, and/or cash flows.
The Company accounts for litigation and claims losses in accordance with ASC 450, "Contingencies" where loss contingency provisions are recognized for probable and estimable losses at the Company's best estimate of a loss or, when a best estimate cannot be made, at its estimate of the minimum loss. These estimates require the application of considerable judgment and are refined each accounting period as additional information becomes known. If the Company is initially unable to develop a best estimate of loss and therefore the minimum amount, which could be an immaterial amount, is recognized. As information becomes known, either the minimum loss amount is increased, or a best estimate can be made, resulting in additional loss provisions. A best estimate may be changed when events result in an expectation different than previously expected.
Pending Litigation and Claims
There are no material pending litigation or claims outstanding as of September 28, 2024.
16. 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.
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.
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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 executive officers serves on the Board of Directors of ATEC.
| Three Months Ended September 28, 2024 | Three Months Ended September 30, 2023 | |||||||||||||||||||||||||
| (in millions) | Powersem | EB Tech | ATEC | Powersem | EB Tech | ATEC | ||||||||||||||||||||
| Sales to related party | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Purchase material/service from related party | ||||||||||||||||||||||||||
| Nine Months Ended September 28, 2024 | Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||
| (in millions) | Powersem | EB-Tech | ATEC | Powersem | EB Tech | ATEC | ||||||||||||||||||||
| Sales to related party | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Purchase material/service from related party | ||||||||||||||||||||||||||
| September 28, 2024 | December 30, 2023 | |||||||||||||||||||||||||
| (in millions) | Powersem | EB Tech | ATEC | Powersem | EB Tech | ATEC | ||||||||||||||||||||
| Accounts receivable balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Accounts payable balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
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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 and shortages; 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; limited realization of the expected benefits from investment and strategic plans; and other risks that may be detailed in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of Part I and Item 1, “Legal Proceedings” and Item 1A, “Risk Factors” of Part II of this Report, as well as Item 1A. "Risk Factors" and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of Part II of the Company's Annual Report on Form 10-K for the year ended December 30, 2023, 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 30, 2023.
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 16,000 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 2024, the Company recognized net sales of $567.4 million, a decrease of $39.7 million, or 6.5% as compared to $607.1 million in the third quarter of 2023 including $0.7 million or 0.1% of favorable changes in foreign exchange rates. The decrease in net sales was primarily due to lower volume in the Electronics segment. The Company recognized net income of $58.1 million, or $2.32 per diluted share, in the third quarter of 2024 compared to $57.8 million, or $2.30 per diluted share, in the third quarter of 2023.
Net cash provided by operating activities was $207.0 million for the nine months ended September 28, 2024 compared to $313.1 million for the nine months ended September 30, 2023. The decrease in net cash provided by operating activities was primarily due to lower cash earnings.
On October 4, 2024, the Company entered into a definitive agreement to purchase a group annuity contract, under which an insurance company will be required to pay pension payments to the Company’s United Kingdom pension plan to match required pension payments until a later buyout, at which point the insurance company will directly pay and administer the benefits to the plan's participants, or to their designated beneficiaries. The purchase of this group annuity contract will reduce the Company’s outstanding pension benefit obligation by approximately $23 million, representing approximately 31% of the total obligations of the Company’s qualified pension plans, and will be funded with pension plan assets and additional cash on hand. In connection with this transaction, the Company currently expects to record a one-time non-cash settlement charge in 2026 estimated between $6 million and $8 million, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan. The actual settlement charge could differ from this estimate due to final data and plan wind-up expenses.
Risk Related to Market Conditions
The Company performs its goodwill impairment tests annually on the first day of its fiscal fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. As part of its interim review for indicators of impairment, management analyzed potential changes in value of individual reporting units with goodwill based on each reporting unit’s operating results for the nine months ended September 28, 2024 compared to expected results. In addition, management considered how other key assumptions, including discount rates and expected long-term growth rates, used in the last fiscal year’s impairment analysis could be impacted by changes in market conditions and economic events.
Management considered trends in these factors when performing its assessment of whether an interim impairment review was required for any reporting unit. Based on this interim assessment, management concluded that as of September 28, 2024, no events or changes in circumstances indicated that it was more likely than not that the fair value of any reporting unit had declined below its carrying value. Nevertheless, significant changes in global economic and market conditions could result in changes to expectations of future financial results and key valuation assumptions. Such changes could result in revisions of management’s estimates of the fair value of the Company’s reporting units and could result in a material impairment of goodwill as of September 29, 2024, the Company’s next annual measurement date.
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In particular, the Industrial controls and sensors reporting unit within the Industrial segment is at risk for future impairment if projected operating results are not met or other inputs into the fair value measurement change. The potential reduction in the estimated fair value of the reporting unit is due to lower expectations for future revenue, profitability and cash flows for the Industrial controls and sensors reporting unit as compared to the expectations of the 2023 annual goodwill impairment test driven by lower-than-expected demand in the electric vehicle end market as well as reduced government funding to support charging infrastructures for electric vehicles, primarily in Europe. Continued negative trends could have a significant impact on the estimate fair value of this reporting unit and could result in future impairment charges. As of the October 1, 2023 annual goodwill impairment test, the Industrial controls and sensors reporting unit’s estimated fair value exceeded book value by approximately 23%. As of September 28, 2024, the Industrial controls and sensors reporting unit had $157.8 million of goodwill.
Other Risk
The Company has been notified by one of its customers of a product recall potentially due to certain fuses provided by Littelfuse and incorporated in such products. The Company is currently working with its customer to investigate the cause and level of responsibility for this recall. The Company has determined pursuant to ASC 450, "Contingencies" that a loss is reasonably possible. However, the Company continues to evaluate this matter and the ultimate costs of the recall and range of the potential loss cannot be determined at this time. Accordingly, no accrual has been made yet for this matter. Factors that will impact the amount of such losses include the per vehicle cost of fuse replacement, the determination of the relative liability among the customer, the Company, and any relevant third parties, as well as actual insurance recoveries.
Results of Operations
The following table summarizes the Company’s unaudited condensed consolidated results of operations for the periods presented. The third quarter of 2024 includes $1.8 million ($9.4 million year-to-date) of restructuring charges primarily related to employee termination cost, and $1.0 million ($2.8 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions. During the first quarter of 2024, the Company recognized a $0.9 million impairment charge related to certain machinery and equipment in the commercial vehicle business within the Transportation segment. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion. During the third quarter of 2024, the Company recorded a gain of $0.5 million related to the sale of a land use right within the Electronics segment. In addition, the Company recognized a gain of $1.0 million for the sale of two buildings within the Transportation segment during the first half of 2024.
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.
| Third Quarter | First Nine Months | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | Change | % Change | 2024 | 2023 | Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 567,390 | $ | 607,071 | $ | (39,681) | (6.5) | % | $ | 1,661,263 | $ | 1,828,850 | $ | (167,587) | (9.2) | % | ||||||||||||||||||||||||||||||||||
| Cost of sales | 351,498 | 380,200 | (28,702) | (7.5) | % | 1,050,559 | 1,122,190 | (71,631) | (6.4) | % | ||||||||||||||||||||||||||||||||||||||||
| Gross profit | 215,892 | 226,871 | (10,979) | (4.8) | % | 610,704 | 706,660 | (95,956) | (13.6) | % | ||||||||||||||||||||||||||||||||||||||||
| Operating expenses | 128,071 | 133,226 | (5,155) | (3.9) | % | 402,425 | 410,321 | (7,896) | (1.9) | % | ||||||||||||||||||||||||||||||||||||||||
| Operating income | 87,821 | 93,645 | (5,824) | (6.2) | % | 208,279 | 296,339 | (88,060) | (29.7) | % | ||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 77,716 | 75,295 | 2,421 | 3.2 | % | 194,564 | 269,649 | (75,085) | (27.8) | % | ||||||||||||||||||||||||||||||||||||||||
| Income taxes | 19,658 | 17,507 | 2,151 | 12.3 | % | 42,588 | 53,045 | (10,457) | (19.7) | % | ||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 58,058 | $ | 57,788 | $ | 270 | 0.5 | % | $ | 151,976 | $ | 216,604 | $ | (64,628) | (29.8) | % | ||||||||||||||||||||||||||||||||||
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Net Sales
Net sales decreased $39.7 million, or 6.5%, for the third quarter of 2024 compared to the third quarter of 2023 including $0.7 million or 0.1% of favorable changes in foreign exchange rates. The decrease in net sales was primarily due to lower volume of $39.7 million in the Electronics segment.
Net sales decreased $167.6 million, or 9.2%, for the first nine months of 2024 compared to the first nine months of 2023, including $6.2 million or 0.3% of unfavorable changes in foreign exchange rates. The sales decrease was primarily due to lower volume of $151.7 million and $10.8 million in the Electronics and Industrial segments, respectively.
Cost of Sales
Cost of sales was $351.5 million, or 61.9% of net sales, in the third quarter of 2024, compared to $380.2 million, or 62.6% of net sales, in the third quarter of 2023. As a percent of net sales, cost of sales decreased 0.7% driven by improved margins from all businesses within the Transportation and Industrial segments driven by favorable price, product mix and cost reduction initiatives, partially offset by lower volume in the Electronics segments.
Cost of sales was $1,050.6 million, or 63.2% of net sales, in the first nine months of 2024, compared to $1,122.2 million, or 61.4% of net sales, in the first nine months of 2023. As a percent of net sales, cost of sales increased 1.8% driven by lower volume in the Electronics and Industrial segments, partially offset by improved margin from all businesses within the Transportation segment driven by favorable price, product mix and cost reduction initiatives.
Gross Profit
Gross profit was $215.9 million, or 38.1% of net sales, in the third quarter of 2024 compared to $226.9 million, or 37.4% of net sales, for the third quarter of 2023. The $11.0 million decrease in gross profit was primarily due to lower volume in the Electronics segment, partially offset by improved margin from the Transportation and Industrial segments driven by favorable price, product mix and cost reduction initiatives.
Gross profit was $610.7 million, or 36.8% of net sales, in the first nine months of 2024 compared to $706.7 million, or 38.6% of net sales, for the first nine months of 2023. The $96.0 million decrease in gross profit was primarily due to lower volume in the Electronics and Industrial segments, partially offset by improved margin from the commercial vehicle and passenger car products businesses within the Transportation segment driven by favorable price, product mix and cost reduction initiatives.
Operating Expenses
Operating expenses were $128.1 million, or 22.6% of net sales, for the third quarter of 2024 compared to $133.2 million, or 21.9% of net sales, for the third quarter of 2023. The decrease in operating expenses of $5.2 million was primarily due to lower selling, general, and administrative expenses of $3.3 million driven by cost control initiatives and lower restructuring, impairment, and other charges of $2.7 million, partially offset by higher research and development expenses of $1.0 million.
Operating expenses were $402.4 million, or 24.2% of net sales, for the first nine months of 2024 compared to $410.3 million, or 22.4% of net sales, for the first nine months of 2023. The decrease in operating expenses of $7.9 million was primarily due to lower selling, general, and administrative expenses of $6.7 million as a result of lower legal and professional fees and other integration expenses related to completed and contemplated acquisitions, lower restructuring, impairment, and other charges of $2.9 million caused by a $3.9 million impairment charge recognized during the second quarter 2023 related to the land and building of a property within the Transportation segment, and lower amortization expense of $2.4 million, partially offset by higher research and development expenses of $4.0 million.
Operating Income
Operating income was $87.8 million, representing a decrease of $5.8 million, or 6.2%, for the third quarter of 2024 compared to $93.6 million for the third quarter of 2023. The decrease in operating income was due to lower gross profit from the Electronics segment, partially offset by higher gross profit from the Transportation and Industrial segments. Operating margins increased from 15.4% in the third quarter of 2023 to 15.5% in the third quarter of 2024 driven by improved gross margin in the Transportation and Industrial segments, partially offset by lower volume in the Electronics segment.
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Operating income was $208.3 million, representing a decrease of $88.1 million, or 29.7%, for the first nine months of 2024 compared to $296.3 million for the first nine months of 2023. The decrease in operating income was due to lower gross profit from the Electronics and Industrial segments, partially offset by higher gross profit from the Transportation segment. Operating margins decreased from 16.2% in the first nine months quarter of 2023 to 12.5% in the first nine months of 2024 driven by lower volume in the Electronics segment.
Income Before Income Taxes
Income before income taxes was $77.7 million, or 13.7% of net sales, for the third quarter of 2024 compared to $75.3 million, or 12.4% of net sales, for the third quarter of 2023. In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily benefited by unrealized gains of $3.1 million in the third quarter of 2024 compared to unrealized losses of $1.6 million in the third quarter of 2023 related to the Company's equity investment, higher interest income of $2.3 million from short-term investment in cash equivalents, and lower foreign exchange losses of $2.1 million in the third quarter of 2024 compared to the third quarter of 2023.
Income before income taxes was $194.6 million, or 11.7% of net sales, for the first nine months of 2024 compared to $269.6 million, or 14.7% of net sales, for the first nine months of 2023. In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was primarily benefited by higher interest income of $8.2 million from short-term investments in cash equivalents and lower foreign exchange losses of $4.4 million in the first nine months of 2024 compared to the first nine months of 2023, and unrealized gains of $1.9 million during the first nine months of 2024 compared to unrealized losses of $0.9 million during the first nine months of 2023 related to the Company's equity investment.
Income Taxes
The effective tax rate for the three and nine months ended September 28, 2024 was 25.3% and 21.9%, compared to the effective tax rate for the three and nine months ended September 30, 2023 of 23.3% and 19.7%. The effective tax rates for 2024 are higher than the effective tax rates for the comparable 2023 periods primarily due to decreases in the income earned in lower tax jurisdictions in 2024 as compared to 2023.
The effective tax rates for the three months ended September 28, 2024 and September 30, 2023 are higher than the statutory tax rate primarily due to the impact of foreign exchange losses with no related tax benefit. Additionally, for the 2024 period, the effective tax rate was also higher due to the proportion of pre-tax income that is earned in higher tax jurisdictions. The effective tax rate for the nine months ended September 28, 2024 is higher than the statutory tax rate primarily due to the proportion of pre-tax income that is earned in higher tax jurisdictions, partially offset by previously unrecognized tax benefits recognized in the first quarter due to the lapse in the statute of limitations. The effective tax rate for the nine months ended September 30, 2023 is lower than the statutory tax rate primarily due to income earned in lower tax jurisdictions.
Segment Results of Operations
The Company reports its operations by the following segments: Electronics, Transportation and Industrial. Segment information is described more fully in Note 14, 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 Sales | Third Quarter | First Nine Months | ||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | Change | % Change | 2024 | 2023 | Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| Electronics | $ | 304,188 | $ | 343,933 | $ | (39,745) | (11.6) | % | $ | 900,932 | $ | 1,052,673 | $ | (151,741) | (14.4) | % | ||||||||||||||||||||||||||||||||||
| Transportation | 171,381 | 177,019 | (5,638) | (3.2) | % | 510,711 | 515,708 | (4,997) | (1.0) | % | ||||||||||||||||||||||||||||||||||||||||
| Industrial | 91,821 | 86,119 | 5,702 | 6.6 | % | 249,620 | 260,469 | (10,849) | (4.2) | % | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | 567,390 | $ | 607,071 | $ | (39,681) | (6.5) | % | $ | 1,661,263 | $ | 1,828,850 | $ | (167,587) | (9.2) | % | ||||||||||||||||||||||||||||||||||
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| Operating Income | Third Quarter | First Nine Months | ||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | Change | % Change | 2024 | 2023 | Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| Electronics | $ | 48,891 | $ | 77,022 | $ | (28,131) | (36.5) | % | $ | 132,859 | $ | 247,028 | $ | (114,169) | (46.2) | % | ||||||||||||||||||||||||||||||||||
| Transportation | 23,485 | 9,694 | 13,791 | 142.3 | % | 54,925 | 26,015 | 28,910 | 111.1 | % | ||||||||||||||||||||||||||||||||||||||||
| Industrial | 17,711 | 13,201 | 4,510 | 34.2 | % | 32,054 | 45,450 | (13,396) | (29.5) | % | ||||||||||||||||||||||||||||||||||||||||
Other (a) | (2,266) | (6,272) | 4,006 | (11,559) | (22,154) | 10,595 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 87,821 | $ | 93,645 | $ | (5,824) | (6.2) | % | $ | 208,279 | $ | 296,339 | $ | (88,060) | (29.7) | % | ||||||||||||||||||||||||||||||||||
(a) Included in “Other” Operating income for the third quarter of 2024 was $1.8 million ($9.4 million year-to-date) of restructuring charges primarily related to employee termination cost, and $1.0 million ($2.8 million year-to-date) of legal and professional fees and other integration expenses related to completed and contemplated acquisitions. During the first quarter of 2024, the Company recognized a $0.9 million impairment charge related to certain machinery and equipment in the commercial vehicle business within the Transportation segment. See Note 7, Restructuring, Impairment, and Other Charges, for further discussion. During the third quarter of 2024, the Company recorded a gain of $0.5 million related to the sale of a land use right within the Electronics segment. In addition, the Company recognized a gain of $1.0 million for the sale of two buildings within the Transportation segment during the first half of 2024.
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.
Electronics Segment
Net Sales
Net sales decreased $39.7 million, or 11.6%, in the third quarter of 2024 compared to the third quarter of 2023 and included favorable changes in foreign exchange rates of $0.5 million. The sales decrease was due to lower volume from the semiconductor business resulting in a sales decline of $39.6 million driven by reduced demand across industrial markets and inventory rebalancing at certain distributors.
Net sales decreased $151.7 million, or 14.4%, in the first nine months of 2024 compared to the first nine months of 2023 and included unfavorable changes in foreign exchange rates of $3.0 million. The sales decrease was mainly due to lower volume from the semiconductor business of $129.4 million and to a lesser extent the electronics products business driven by inventory rebalancing at certain distributors and reduced demand across certain electronics markets, including consumer facing and personal electronics, as well as industrial markets.
Operating Income
Operating income was $48.9 million, representing a decrease of $28.1 million, or 36.5%, for the third quarter of 2024 compared to $77.0 million for the third quarter of 2023. The decrease in operating income was primarily from the semiconductor business due to lower volume leverage and unfavorable product mix. Operating margins decreased from 22.4% in the third quarter of 2023 to 16.1% in the third quarter of 2024 primarily due to the lower volume.
Operating income was $132.9 million, representing a decrease of $114.2 million, or 46.2%, for the first nine months of 2024 compared to $247.0 million for the first nine months of 2023. The decrease in operating income was primarily due to lower volume leverage and unfavorable product mix that were partially offset by cost control initiatives. Operating margins decreased from 23.5% in the first nine months of 2023 to 14.7% in the first nine months of 2024 primarily due to the lower volume.
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Transportation Segment
Net Sales
Net sales decreased $5.6 million, or 3.2%, in the third quarter of 2024 compared to the third quarter of 2023 and included favorable changes in foreign exchange rates of $0.5 million. The sales decline was primarily due to lower automotive sensors business volume of $5.2 million driven by the strategic exit of certain lower margin products.
Net sales decreased $5.0 million, or 1.0%, in the first nine months of 2024 compared to the first nine months of 2023 and included unfavorable changes in foreign exchange rates of $2.3 million. The sales decrease was mainly driven by lower volume of $9.1 million and $6.4 million from the automotive sensors and the commercial vehicles businesses, respectively, due to the strategic exit of certain lower margin products and reduced demand largely due to inventory rebalancing at certain distributors and customers, partially offset by a sales increase of $10.5 million from the passenger car business driven by the ongoing electronification and electrification of vehicles and vehicle content growth.
Operating Income
Operating income was $23.5 million, representing an increase of $13.8 million, or 142.3%, for the third quarter of 2024 compared to $9.7 million for the third quarter of 2023. The increase in operating income was primarily from the commercial vehicle and passenger car businesses due to favorable price and cost reduction initiatives. Operating margins increased from 5.5% in the third quarter of 2023 to 13.7% in the third quarter of 2024 primarily driven by favorable price and products mix and cost reduction initiatives from all businesses.
Operating income was $54.9 million, representing an increase of $28.9 million, or 111.1%, for the first nine months of 2024 compared to $26.0 million for the first nine months of 2023. The increase in operating income was primarily due to favorable price and cost reduction initiatives from the commercial vehicle business. Operating margins increased from 5.0% in the first nine months of 2023 to 10.8% in the first nine months of 2024 primarily driven by favorable price and products mix and cost reduction initiatives from the commercial vehicle business.
Industrial Segment
Net Sales
Net sales increased by $5.7 million, or 6.6%, in the third quarter of 2024 compared to the third quarter of 2023, which included unfavorable changes in foreign exchange rates of $0.3 million. The sales increase was due to higher volume from industrial circuit protection and industrial control and sensor products driven by higher end market demand.
Net sales decreased by $10.8 million, or 4.2%, in the first nine months of 2024 compared to the first nine months of 2023, which included unfavorable changes in foreign exchange rates of $0.9 million. The sales decrease was due to lower volume across industrial control products driven by softer end market demand in the first half of 2024.
Operating Income
Operating income was $17.7 million, representing an increase of $4.5 million, or 34.2%, for the third quarter of 2024 compared to $13.2 million for the third quarter of 2023. The increase in operating income was driven by higher volume from industrial circuit protection and industrial control and sensor products driven by increased end market demand. Operating margins increased from 15.3% in the third quarter of 2023 to 19.3% in the third quarter of 2024 due to higher volume, product mix and price.
Operating income was $32.1 million, representing a decrease of $13.4 million, or 29.5%, for the first nine months of 2024 compared to $45.5 million for the first nine months of 2023. The decrease in operating income was driven by lower volume due to reduced industrial end market demand across industrial control products and industrial circuit protection along with cost inflation. Operating margins decreased from 17.4% in the first nine months of 2023 to 12.8% in the first nine months of 2024 due to lower demand and cost inflation, partially offset by favorable price.
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Geographic Net Sales Information
Net sales by geography represent net sales to customer or distributor locations. The following table is a summary of the Company’s net sales by geography:
| Third Quarter | First Nine Months | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | Change | % Change | 2024 | 2023 | Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| Americas | $ | 237,951 | $ | 236,706 | $ | 1,245 | 0.5 | % | $ | 681,064 | $ | 698,456 | $ | (17,392) | (2.5) | % | ||||||||||||||||||||||||||||||||||
| Asia-Pacific | 213,942 | 235,908 | (21,966) | (9.3) | % | 621,731 | 693,611 | (71,880) | (10.4) | % | ||||||||||||||||||||||||||||||||||||||||
| Europe | 115,497 | 134,457 | (18,960) | (14.1) | % | 358,468 | 436,783 | (78,315) | (17.9) | % | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | 567,390 | $ | 607,071 | $ | (39,681) | (6.5) | % | $ | 1,661,263 | $ | 1,828,850 | $ | (167,587) | (9.2) | % | ||||||||||||||||||||||||||||||||||
Americas
Net sales increased $1.2 million, or 0.5%, in the third quarter of 2024 compared to the third quarter of 2023 and included unfavorable changes in foreign exchange rates of $0.3 million. The net sales increase was due to higher volume from the Industrial segment, partially offset by lower volume from the Electronics segment compared to the third quarter of 2023.
Net sales decreased $17.4 million, or 2.5%, in the first nine months of 2024 compared to the first nine months of 2023 and included unfavorable changes in foreign exchange rates of $0.5 million. The decrease in net sales was primarily due to lower volume from the Electronics segment, partially offset by higher volume from the Industrial segment and the commercial vehicle and passenger car products businesses within the Transportation segment compared to the first nine months of 2023.
Asia-Pacific
Net sales decreased $22.0 million, or 9.3%, in the third quarter of 2024 compared to the third quarter of 2023 and included unfavorable changes in foreign exchange rates of $0.5 million. The decrease in net sales was primarily due to lower net sales from the Electronics and Industrial segments, partially offset by higher net sales from the commercial vehicle and passenger car products businesses within the Transportation segment compared to the third quarter of 2023.
Net sales decreased $71.9 million, or 10.4%, in the first nine months of 2024 compared to the first nine months of 2023 and included unfavorable changes in foreign exchange rates of $8.1 million. The decrease in net sales was primarily due to lower net sales from the Electronics and Industrial segments, partially offset by higher net sales from the passenger car products business within the Transportation segment compared to the first nine months of 2023.
Europe
Net sales decreased $19.0 million, or 14.1%, in the third quarter of 2024 compared to the third quarter of 2023 and included favorable changes in foreign exchange rates of $1.5 million. The decrease in net sales was primarily due to lower net sales from the Electronics and Transportation segments compared to the third quarter of 2023.
Net sales decreased $78.3 million, or 17.9%, in the first nine months of 2024 compared to the first nine months of 2023 and included favorable changes in foreign exchange rates of $2.4 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 and automotive sensors businesses within the Transportation segment compared to the first nine months of 2023.
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 $629.7 million as of September 28, 2024, an increase of $74.2 million, as compared to December 30, 2023. As of September 28, 2024, $135.5 million of the Company's $629.7 million cash and cash equivalents was held by U.S. subsidiaries.
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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 nine months ended September 28, 2024, the Company made payments of $3.8 million on its term loan. The revolving loan and term loan balance under the Credit Facility was $100.0 million and $285.0 million, respectively, as of September 28, 2024.
On May 12, 2022, the Company entered into an interest rate swap agreement to manage interest rate risk exposure, effectively converting the interest rate on the Company's SOFR based floating-rate loans to a fixed-rate. The interest rate swap, with a notional value of $200 million, was designated as a cash flow hedge against the variability of cash flows associated with the Company's SOFR based loans scheduled to mature on June 30, 2027.
As of September 28, 2024, the effective interest rate on unhedged portion of the outstanding borrowings under the credit facility was 6.60%, and 4.13% on the hedged portion.
As of September 28, 2024, the Company had $0.1 million outstanding letters of credit under the Credit Facility and had $599.9 million of borrowing capacity available under the revolving credit facility. As of September 28, 2024, 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”). During the fourth quarter of 2023, the Company paid off €117 million of Euro Senior Notes, Series A due on December 8, 2023. Interest on the Euro Senior Notes due 2028 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.
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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 28, 2024 and currently expects to remain in compliance based on management’s estimates of operating and financial results for 2023. As of September 28, 2024, the Company met all the conditions required to borrow under the Credit Agreement and management expects the Company to continue to meet the applicable borrowing conditions.
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 a 37.2 million Euro down payment (approximately $40.5 million), recorded in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The down payment was paid in the third quarter of 2023 after regulatory approvals, and approximately 56 million Euro will be paid at closing. The transaction is not expected to have a material impact on the Company’s fiscal year 2024 financial results and will be reported in the Electronics-Semiconductor business within the Company’s Electronics segment.
Dividends
During the third quarter of 2024 the Company paid quarterly dividends of $17.4 million to the shareholders. On October 29, 2024, the Company announced the declaration of a quarterly cash dividend of $0.70 per share payable on December 5, 2024 to stockholders of record as of November 21, 2024.
Cash Flow Overview
| First Nine Months | ||||||||||||||
| (in thousands) | 2024 | 2023 | ||||||||||||
| Net cash provided by operating activities | $ | 206,999 | $ | 313,140 | ||||||||||
| Net cash used in investing activities | (41,134) | (261,379) | ||||||||||||
| Net cash used in financing activities | (91,299) | (47,144) | ||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (396) | (7,965) | ||||||||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash | 74,170 | (3,348) | ||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 557,123 | 564,939 | ||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 631,293 | $ | 561,591 | ||||||||||
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.
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Net cash provided by operating activities was $207.0 million for the nine months ended September 28, 2024 compared to $313.1 million for the nine months ended September 30, 2023. The decrease in net cash provided by operating activities was primarily due to lower cash earnings.
Cash Flow from Investing Activities
Net cash used in investing activities was $41.1 million for the nine months ended September 28, 2024 compared to $261.4 million during the nine months ended September 30, 2023. Capital expenditures were $50.1 million, representing a decrease of $13.1 million compared to the nine months ended September 30, 2023. During the nine months ended September 28, 2024, the Company received net proceeds of $9.7 million mainly from the sale of a land use right within the Electronics segment and two buildings from the Transportation segment. Net cash paid for the Western Automation acquisition was $198.8 million during the nine months ended September 30, 2023.
Cash Flow from Financing Activities
Net cash used in financing activities was $91.3 million for the nine months ended September 28, 2024 compared to $47.1 million during the nine months ended September 30, 2023. During the nine months ended September 28, 2024 and September 30, 2023, the Company made payments of $3.8 million and $5.6 million on the term loan, respectively. The Company paid dividends of $49.7 million and $46.0 million in the nine months ended September 28, 2024 and September 30, 2023, respectively. Additionally, during the nine months ended September 28, 2024, the Company repurchased 179,311 shares of its common stock totaling $40.9 million.
Share Repurchase Program
The Company’s Board of Directors authorized the repurchase of up to $300.0 million in the aggregate of shares of the Company’s common stock under a program for the period May 1, 2021 to April 30, 2024 ("2021 program"). On April 25, 2024, the Company's Board of Directors authorized a new three year program to repurchase up to $300.0 million in the aggregate of shares of the Company's stock for the period May 1, 2024 to April 30, 2027 ("2024 program") to replace the expired 2021 program. The Company did not repurchase shares of its common stock for the three months ended September 28, 2024. During the nine months ended September 28, 2024, the Company repurchased 179,311 shares of its common stock totaling $40.9 million, of which $38.9 million was pursuant to the 2021 program and $2.0 million was pursuant to the 2024 program. The Company did not repurchase shares of its common stock for the three and nine months ended September 30, 2023.
Off-Balance Sheet Arrangements
As of September 28, 2024, the Company did not have any off-balance sheet arrangements, as defined under SEC rules. Specifically, the Company was not liable for guarantees of indebtedness owed by third parties, the Company was not directly liable for the debt of any unconsolidated entity and the Company did not have any retained or contingent interest in assets. The Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.
Critical Accounting Policies and Estimates
The Company’s Condensed Consolidated Financial Statements are prepared in accordance 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 30, 2023. During the nine months ended September 28, 2024, there were no significant changes in the application of critical accounting policies and estimates.
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 30, 2023. During the nine months ended September 28, 2024, there have been no material changes in the Company's exposure to market risk.
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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 28, 2024. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the quarter ended September 28, 2024, 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 28, 2024 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
The Company may incur material losses and costs as a result of defects in its products, including as a result of warranty claims, product recalls, and product liability.
The Company has been notified by one of its customers of a product recall potentially due to certain fuses provided by the Company and incorporated in the customer’s products. The Company is working with its customer to investigate the cause and level of responsibility for this recall. Given the highly complex products that the Company manufactures, it is possible that those products, including third-party components contained in those products, may contain defects or fail to work properly or as intended when integrated with customer products. This could subject the Company to product liability or warranty claims, which could lead to significant expenses, including recall, repair, and/or replacement costs and, potentially breach of contract or other damage claims, all of which could materially adversely affect the Company’s financial results. This is particularly true if the Company does not discover these issues until after the products have been sold and deployed. In addition to expenses directly attributable to product defects, the Company’s reputation and ability to attract and retain customers may be harmed. Further, significant warranty and product liability claims may, among other things, result in the need for significant reserves, divert management’s and other personnel’s attention, cause production delays, impact on-time delivery of products to other customers, reduce margins, and delay recognition of revenues. It is also possible that end users of customers’ products may make claims against the Company, resulting in additional defense costs and potential damages. Although, the Company generally attempts to limit its liability through standard contract terms and conditions and maintains insurance in connection with product defects and warranty claims, it is possible that the Company may not be able to enforce contractual limitations on damages and/or that a successful claim against the Company may exceed the Company’s applicable insurance policy limits or be excluded from coverage.
Other than the item listed above, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for our year ended December 30, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
None.
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Repurchases of Common Stock
The Company’s Board of Directors authorized the repurchase of up to $300.0 million in the aggregate of shares of the Company’s common stock under a program for the period May 1, 2021 to April 30, 2024 ("2021 program"). On April 25, 2024, the Company's Board of Directors authorized a new three year program to repurchase up to $300.0 million in the aggregate of shares of the Company's stock for the period May 1, 2024 to April 30, 2027 ("2024 program") to replace the expired 2021 program. The Company did not repurchase shares of its common stock for the three months ended September 28, 2024. During the nine months ended September 28, 2024, the Company repurchased 179,311 shares of its common stock totaling $40.9 million, of which $38.9 million was pursuant to the 2021 program and $2.0 million was pursuant to the 2024 program. There is $298.0 million of an authorized amount yet purchased under the 2024 program as of September 28, 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
The adoption or termination of contracts, instructions or written plans for the purchase or sale of our securities by our Section 16 officers and directors for the three months ended September 28, 2024, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 Plan”), were as follows:
| Name | Title | Action | Date Adopted | Expiration Date | Aggregate # of securities to be Sold | |||||||||||||||||||||||||||
| Matthew J. Cole (1) | Senior Vice President, eMobility and Corporate Strategy | Adoption | 9/12/2024 | 3/31/2025 | ||||||||||||||||||||||||||||
(1) On September 12, 2024 , Matthew J. Cole , Senior Vice President, eMobility and Corporate Strategy , entered into a pre-arranged stock trading plan pursuant to Rule 10b5-1. Mr. Cole’s plan provided for the potential exercise of vested stock options and the associated sale of up to 1,500 shares of the Company’s common stock. The stock options covered by the plan will otherwise expire on April 27, 2025 if they have not been exercised. The plan expires on March 31, 2025, or upon the earlier completion of all authorized transactions under the plan.
Other than those disclosed above, none
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ITEM 6. EXHIBITS
| Exhibit | Description | |||||||
| 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 28, 2024 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 Condensed 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 28, 2024, 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 28, 2024, 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: October 30, 2024 | By: | /s/ Jeffrey G. Gorski | |||||||||
| Jeffrey G. Gorski | |||||||||||
| Senior Vice President and Chief Accounting Officer | |||||||||||
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