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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023
OR
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☐ | 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)
| | | | | | | | |
Delaware | | 36-3795742 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
8755 West Higgins Road | | |
Suite 500 | | |
Chicago | Illinois | 60631 |
(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 |
Common Stock, $0.01 par value | | LFUS | | NASDAQ | 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 27, 2023, the registrant had outstanding 24,902,916 shares of Common Stock, net of Treasury Shares.
TABLE OF CONTENTS
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| Page |
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PART I | | |
Item 1. | | |
| Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 | |
| Condensed Consolidated Statements of Net Income for the three and nine months ended September 30, 2023 (unaudited) and October 01, 2022 (unaudited) | |
| Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 (unaudited) and October 01, 2022 (unaudited) | |
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 (unaudited) and October 01, 2022 (unaudited) | |
| Condensed Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 2023 (unaudited) and October 01, 2022 (unaudited) | |
| | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
PART II | | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
| |
ITEM 1. FINANCIAL STATEMENTS
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | (Unaudited) | | |
(in thousands) | | September 30, 2023 | | December 31, 2022 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 560,056 | | | $ | 562,588 | |
Short-term investments | | 229 | | | 84 | |
Trade receivables, less allowances of $88,440 and $83,562 at September 30, 2023 and December 31, 2022, respectively | | 327,500 | | | 306,578 | |
Inventories | | 483,075 | | | 547,690 | |
Prepaid income taxes and income taxes receivable | | 3,776 | | | 7,215 | |
Prepaid expenses and other current assets | | 83,684 | | | 87,641 | |
Total current assets | | 1,458,320 | | | 1,511,796 | |
| | | | |
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| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Net property, plant, and equipment | | 478,906 | | | 481,110 | |
Intangible assets, net of amortization | | 612,366 | | | 593,970 | |
Goodwill | | 1,284,343 | | | 1,186,922 | |
Investments | | 23,371 | | | 24,121 | |
Deferred income taxes | | 13,598 | | | 14,367 | |
Right of use lease assets, net | | 51,755 | | | 57,382 | |
Other long-term assets | | 80,267 | | | 34,066 | |
Total assets | | $ | 4,002,926 | | | $ | 3,903,734 | |
LIABILITIES AND EQUITY | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 166,725 | | | $ | 208,571 | |
| | | | |
| | | | |
| | | | |
Accrued liabilities | | 143,540 | | | 187,057 | |
Accrued income taxes | | 35,762 | | | 41,793 | |
Current portion of long-term debt | | 135,619 | | | 134,874 | |
Total current liabilities | | 481,646 | | | 572,295 | |
Long-term debt, less current portion | | 857,006 | | | 866,623 | |
Deferred income taxes | | 106,656 | | | 100,230 | |
Accrued post-retirement benefits | | 29,445 | | | 28,037 | |
Non-current operating lease liabilities | | 39,818 | | | 45,661 | |
Other long-term liabilities | | 83,496 | | | 79,510 | |
Shareholders’ equity: | | | | |
Common stock, par value $0.01 per share: 34,000,000 shares authorized; shares issued, September 30, 2023–26,613,883; December 31, 2022–26,445,618 | | 262 | | | 261 | |
Additional paid-in capital | | 1,007,033 | | | 974,097 | |
Treasury stock, at cost: 1,711,033 and 1,685,357 shares, respectively | | (259,191) | | | (252,866) | |
Accumulated other comprehensive loss | | (99,526) | | | (95,764) | |
Retained earnings | | 1,755,936 | | | 1,585,466 | |
Littelfuse, Inc. shareholders’ equity | | 2,404,514 | | | 2,211,194 | |
Non-controlling interest | | 345 | | | 184 | |
Total equity | | 2,404,859 | | | 2,211,378 | |
Total liabilities and equity | | $ | 4,002,926 | | | $ | 3,903,734 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(in thousands, except per share data) | | September 30, 2023 | | October 1, 2022 | | September 30, 2023 | | October 1, 2022 |
Net sales | | $ | 607,071 | | | $ | 658,880 | | | $ | 1,828,850 | | | $ | 1,900,646 | |
Cost of sales | | 380,200 | | | 402,059 | | | 1,122,190 | | | 1,122,258 | |
Gross profit | | 226,871 | | | 256,821 | | | 706,660 | | | 778,388 | |
| | | | | | | | |
Selling, general, and administrative expenses | | 87,204 | | | 90,219 | | | 270,057 | | | 258,820 | |
| | | | | | | | |
Research and development expenses | | 25,484 | | | 25,752 | | | 77,270 | | | 68,796 | |
Amortization of intangibles | | 16,022 | | | 15,567 | | | 49,773 | | | 39,883 | |
Restructuring, impairment, and other charges | | 4,516 | | | 3,413 | | | 13,221 | | | 4,265 | |
Total operating expenses | | 133,226 | | | 134,951 | | | 410,321 | | | 371,764 | |
Operating income | | 93,645 | | | 121,870 | | | 296,339 | | | 406,624 | |
| | | | | | | | |
Interest expense | | 10,101 | | | 8,399 | | | 29,803 | | | 17,069 | |
Foreign exchange loss | | 11,776 | | | 18,191 | | | 8,697 | | | 40,051 | |
Other (income) expense, net | | (3,527) | | | (698) | | | (11,810) | | | 9,789 | |
Income before income taxes | | 75,295 | | | 95,978 | | | 269,649 | | | 339,715 | |
Income taxes | | 17,507 | | | 20,510 | | | 53,045 | | | 59,713 | |
Net income | | $ | 57,788 | | | $ | 75,468 | | | $ | 216,604 | | | $ | 280,002 | |
| | | | | | | | |
Earnings per share: | | | | | | | | |
Basic | | $ | 2.32 | | | $ | 3.05 | | | $ | 8.72 | | | $ | 11.32 | |
Diluted | | $ | 2.30 | | | $ | 3.02 | | | $ | 8.63 | | | $ | 11.21 | |
| | | | | | | | |
Weighted-average shares and equivalent shares outstanding: | | | | | | | | |
Basic | | 24,893 | | | 24,755 | | | 24,838 | | | 24,726 | |
Diluted | | 25,143 | | | 24,988 | | | 25,100 | | | 24,986 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(in thousands) | | September 30, 2023 | | October 1, 2022 | | September 30, 2023 | | October 1, 2022 |
Net income | | $ | 57,788 | | | $ | 75,468 | | | $ | 216,604 | | | $ | 280,002 | |
Other comprehensive (loss) income: | | | | | | | | |
Pension and postemployment adjustment, net of tax | | (3) | | | 599 | | | (156) | | | 1,548 | |
| | | | | | | | |
| | | | | | | | |
Cash flow hedge, net of tax | | 1,546 | | | 7,609 | | | 2,141 | | | 7,068 | |
Foreign currency translation adjustments | | (3,677) | | | (36,396) | | | (5,747) | | | (70,356) | |
Comprehensive income | | $ | 55,654 | | | $ | 47,280 | | | $ | 212,842 | | | $ | 218,262 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended |
(in thousands) | | September 30, 2023 | | October 1, 2022 |
OPERATING ACTIVITIES | | | | |
Net income | | $ | 216,604 | | | $ | 280,002 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation | | 53,510 | | | 48,326 | |
Amortization of intangibles | | 49,773 | | | 39,883 | |
| | | | |
Deferred revenue | | 1,769 | | | (377) | |
Non-cash inventory charges | | — | | | 11,534 | |
Impairment charges | | 4,742 | | | 90 | |
| | | | |
Stock-based compensation | | 20,132 | | | 19,732 | |
Loss on investments and other assets | | 922 | | | 13,740 | |
| | | | |
Deferred income taxes | | (689) | | | (4,320) | |
Other | | 7,829 | | | 55,334 | |
Changes in operating assets and liabilities: | | | | |
Trade receivables | | (21,752) | | | (56,431) | |
Inventories | | 66,456 | | | (83,803) | |
Accounts payable | | (38,475) | | | (3,838) | |
| | | | |
| | | | |
| | | | |
Accrued liabilities and income taxes | | (61,359) | | | (4,399) | |
Prepaid expenses and other assets | | 13,678 | | | (2,034) | |
Net cash provided by operating activities | | 313,140 | | | 313,439 | |
INVESTING ACTIVITIES | | | | |
Acquisitions of businesses, net of cash acquired | | (198,810) | | | (532,772) | |
| | | | |
Purchases of property, plant, and equipment | | (63,166) | | | (77,773) | |
Net proceeds from sale of property, plant and equipment, and other | | 597 | | | 565 | |
Net cash used in investing activities | | (261,379) | | | (609,980) | |
FINANCING ACTIVITIES | | | | |
| | | | |
Proceeds of term loan | | — | | | 300,000 | |
Proceeds of senior notes | | — | | | 100,000 | |
Payments of senior notes payable | | — | | | (25,000) | |
Repayments of other debts | | (2,027) | | | (5,979) | |
Payments of term loan | | (5,625) | | | (1,875) | |
| | | | |
Net proceeds related to stock-based award activities | | 6,481 | | | (1,568) | |
| | | | |
Debt issuance costs | | — | | | (2,600) | |
Cash dividends paid | | (45,973) | | | (41,055) | |
Net cash (used in) provided by financing activities | | (47,144) | | | 321,923 | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | (7,965) | | | (31,963) | |
Decrease in cash, cash equivalents, and restricted cash | | (3,348) | | | (6,581) | |
Cash, cash equivalents, and restricted cash at beginning of period | | 564,939 | | | 482,836 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 561,591 | | | $ | 476,255 | |
Supplementary Cash Flow Information | | | | |
Reconciliation of cash and cash equivalents: | | | | |
Cash and cash equivalents | | $ | 560,056 | | | $ | 474,003 | |
Restricted cash included in prepaid expenses and other current assets | | $ | — | | | $ | 824 | |
Restricted cash included in other long-term assets | | $ | 1,535 | | | $ | 1,428 | |
Cash paid during the period for interest | | $ | 33,177 | | | $ | 16,888 | |
| | | | |
Capital expenditures, not yet paid | | $ | 9,780 | | | $ | 9,111 | |
| | | | |
| | | | |
See accompanying Notes to Condensed Consolidated Financial Statements.
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. Inc. (Loss) | | Retained Earnings | | Non-controlling Interest | | Total |
Balance at December 31, 2022 | $ | 261 | | | $ | 974,097 | | | $ | (252,866) | | | $ | (95,764) | | | $ | 1,585,466 | | | $ | 184 | | | $ | 2,211,378 | |
Net income | — | | | — | | | — | | | — | | | 88,745 | | | — | | | 88,745 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other comprehensive income, net of tax | — | | | — | | | — | | | 13,283 | | | — | | | — | | | 13,283 | |
Stock-based compensation | — | | | 3,730 | | | — | | | — | | | — | | | — | | | 3,730 | |
Non-controlling interest | — | | | — | | | — | | | — | | | (66) | | | 66 | | | — | |
Withheld shares on restricted share units for withholding taxes | — | | | — | | | (18) | | | — | | | — | | | — | | | (18) | |
Stock options exercised | — | | | 5,238 | | | — | | | — | | | — | | | — | | | 5,238 | |
| | | | | | | | | | | | | |
Cash dividends paid ($0.60 per share) | — | | | — | | | — | | | — | | | (14,880) | | | — | | | (14,880) | |
Balance at April 1, 2023 | $ | 261 | | | $ | 983,065 | | | $ | (252,884) | | | $ | (82,481) | | | $ | 1,659,265 | | | $ | 250 | | | $ | 2,307,476 | |
Net income | — | | | — | | | — | | | — | | | 70,071 | | | — | | | 70,071 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (14,911) | | | — | | | — | | | (14,911) | |
Stock-based compensation | — | | | 12,545 | | | — | | | — | | | — | | | — | | | 12,545 | |
Non-controlling interest | | | | | | | | | (45) | | | $ | 45 | | | — | |
Withheld shares on restricted share units for withholding taxes | — | | | — | | | (5,999) | | | — | | | — | | | — | | | (5,999) | |
Stock options exercised | — | | | 2,979 | | | — | | | — | | | — | | | — | | | 2,979 | |
| | | | | | | | | | | | | |
Cash dividends paid ($0.60 per share) | — | | | — | | | — | | | — | | | (14,910) | | | — | | | (14,910) | |
Balance at July 1, 2023 | $ | 261 | | | $ | 998,589 | | | $ | (258,883) | | | $ | (97,392) | | | $ | 1,714,381 | | | $ | 295 | | | $ | 2,357,251 | |
Net income | — | | | — | | | — | | | — | | | 57,788 | | | — | | | 57,788 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (2,134) | | | — | | | — | | | (2,134) | |
Stock-based compensation | — | | | 3,857 | | | — | | | — | | | — | | | — | | | 3,857 | |
Non-controlling interest | | | | | | | | | (50) | | | 50 | | | — | |
Withheld shares on restricted share units for withholding taxes | — | | | — | | | (308) | | | — | | | — | | | — | | | (308) | |
Stock options exercised | 1 | | | 4,587 | | | — | | | — | | | — | | | — | | | 4,588 | |
| | | | | | | | | | | | | |
Cash dividends paid ($0.65 per share) | — | | | — | | | — | | | — | | | (16,183) | | | — | | | (16,183) | |
Balance at September 30, 2023 | $ | 262 | | | $ | 1,007,033 | | | $ | (259,191) | | | $ | (99,526) | | | $ | 1,755,936 | | | $ | 345 | | | $ | 2,404,859 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 January 1, 2022 | $ | 260 | | | $ | 946,588 | | | $ | (248,120) | | | $ | (73,463) | | | $ | 1,268,124 | | | $ | 131 | | | $ | 1,893,520 | |
Net income | — | | | — | | | — | | | — | | | 117,518 | | | — | | | 117,518 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (2,203) | | | — | | | — | | | (2,203) | |
Stock-based compensation | — | | | 3,886 | | | — | | | — | | | — | | | — | | | 3,886 | |
| | | | | | | | | | | | | |
Withheld shares on restricted share units for withholding taxes | — | | | — | | | (4) | | | — | | | — | | | — | | | (4) | |
Stock options exercised | — | | | 1,021 | | | — | | | — | | | — | | | — | | | 1,021 | |
| | | | | | | | | | | | | |
Cash dividends paid ($0.53 per share) | — | | | — | | | — | | | — | | | (13,086) | | | — | | | (13,086) | |
Balance at April 2, 2022 | $ | 260 | | | $ | 951,495 | | | $ | (248,124) | | | $ | (75,666) | | | $ | 1,372,556 | | | $ | 131 | | | $ | 2,000,652 | |
Net income | — | | | — | | | — | | | — | | | 87,016 | | | — | | | 87,016 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (31,349) | | | — | | | — | | | (31,349) | |
Stock-based compensation | — | | | 11,382 | | | — | | | — | | | — | | | — | | | 11,382 | |
| | | | | | | | | | | | | |
Withheld shares on restricted share units for withholding taxes | — | | | — | | | (4,704) | | | — | | | — | | | — | | | (4,704) | |
Stock options exercised | 1 | | | 2,060 | | | — | | | — | | | — | | | — | | | 2,061 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cash dividends paid ($0.53 per share) | — | | | — | | | — | | | — | | | (13,115) | | | — | | | (13,115) | |
Balance at July 2, 2022 | $ | 261 | | | $ | 964,937 | | | $ | (252,828) | | | $ | (107,015) | | | $ | 1,446,457 | | | $ | 131 | | | $ | 2,051,943 | |
Net income | — | | | — | | | — | | | — | | | 75,468 | | | — | | | 75,468 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (28,188) | | | — | | | — | | | (28,188) | |
Stock-based compensation | — | | | 4,464 | | | — | | | — | | | — | | | — | | | 4,464 | |
Non-controlling interest | — | | | — | | | — | | | — | | | (36) | | | 36 | | | — | |
| | | | | | | | | | | | | |
Stock options exercised | — | | | 58 | | | — | | | — | | | — | | | — | | | 58 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cash dividends paid ($0.60 per share) | — | | | — | | | — | | | — | | | (14,854) | | | — | | | (14,854) | |
Balance at October 1, 2022 | $ | 261 | | | $ | 969,459 | | | $ | (252,828) | | | $ | (135,203) | | | $ | 1,507,035 | | | $ | 167 | | | $ | 2,088,891 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
1. Summary of Significant Accounting Policies and Other Information
Nature of Operations
Founded in 1927, Littelfuse is a diversified, industrial technology manufacturing company empowering a sustainable, connected, and safer world. Across more than 20 countries, and with approximately 17,000 global associates, the Company partners with customers to design and deliver innovative, reliable solutions. Serving over 100,000 end customers, the Company’s products are found in a variety of industrial, transportation and electronics end markets – everywhere, every day.
Basis of Presentation
The Company’s accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures normally included in the consolidated balance sheets, statements of net income and comprehensive income, statements of cash flows, and statements of stockholders' equity prepared in conformity with U.S. GAAP have been condensed or omitted as permitted by such rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. They have been prepared in accordance with accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which should be read in conjunction with the disclosures therein. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. Operating results for interim periods are not necessarily indicative of annual operating results.
Revenue Recognition
Revenue Disaggregation
The following tables disaggregate the Company’s revenue by primary business units for the three and nine months ended September 30, 2023 and October 1, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
(in thousands) | | Electronics Segment | | Transportation Segment | | Industrial Segment | | Total | | Electronics Segment | | Transportation Segment | | Industrial Segment | | Total |
Electronics – Passive Products and Sensors | | $ | 152,410 | | | $ | — | | | $ | — | | | $ | 152,410 | | | $ | 453,860 | | | $ | — | | | $ | — | | | $ | 453,860 | |
Electronics – Semiconductor | | 191,523 | | | — | | | — | | | 191,523 | | | 598,813 | | | — | | | — | | | 598,813 | |
Passenger Car Products | | — | | | 72,524 | | | — | | | 72,524 | | | — | | | 200,104 | | | — | | | 200,104 | |
Automotive Sensors | | — | | | 23,205 | | | — | | | 23,205 | | | — | | | 66,839 | | | — | | | 66,839 | |
Commercial Vehicle Products | | — | | | 81,290 | | | — | | | 81,290 | | | — | | | 248,765 | | | — | | | 248,765 | |
Industrial Products | | — | | | — | | | 86,119 | | | 86,119 | | | — | | | — | | | 260,469 | | | 260,469 | |
Total | | $ | 343,933 | | | $ | 177,019 | | | $ | 86,119 | | | $ | 607,071 | | | $ | 1,052,673 | | | $ | 515,708 | | | $ | 260,469 | | | $ | 1,828,850 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended October 1, 2022 | | Nine Months Ended October 1, 2022 |
(in thousands) | | Electronics Segment | | Transportation Segment | | Industrial Segment | | Total | | Electronics Segment | | Transportation Segment | | Industrial Segment | | Total |
Electronics – Passive Products and Sensors | | $ | 188,916 | | | $ | — | | | $ | — | | | $ | 188,916 | | | $ | 521,172 | | | $ | — | | | $ | — | | | $ | 521,172 | |
Electronics – Semiconductor | | 208,713 | | | — | | | — | | | 208,713 | | | 600,454 | | | — | | | — | | | 600,454 | |
Passenger Car Products | | — | | | 62,280 | | | — | | | 62,280 | | | — | | | 186,552 | | | — | | | 186,552 | |
Automotive Sensors | | — | | | 22,998 | | | — | | | 22,998 | | | — | | | 72,336 | | | — | | | 72,336 | |
Commercial Vehicle Products | | — | | | 96,457 | | | — | | | 96,457 | | | — | | | 289,378 | | | — | | | 289,378 | |
Industrial Products | | — | | | — | | | 79,516 | | | 79,516 | | | | | | | 230,754 | | | 230,754 | |
Total | | $ | 397,629 | | | $ | 181,735 | | | $ | 79,516 | | | $ | 658,880 | | | $ | 1,121,626 | | | $ | 548,266 | | | $ | 230,754 | | | $ | 1,900,646 | |
See Note 15, Segment Information for net sales by segment and countries.
Revenue Recognition
The Company recognizes revenue on product sales in the period in which the Company satisfies its performance obligation and control of the product is transferred to the customer. The Company’s sales arrangements with customers are predominately short term in nature and generally provide for transfer of control at the time of shipment as this is the point at which title and risk of loss of the product transfers to the customer. At the end of each period, for those shipments where title to the products and the risk of loss and rewards of ownership do not transfer until the product has been received by the customer, the Company adjusts revenues and cost of sales for the delay between the time that the products are shipped and when they are received by the customer. The amount of revenue recorded reflects the consideration to which the Company expects to be entitled in exchange for goods and may include adjustments for customer allowance, rebates and price adjustments. The Company’s distribution channels are primarily through direct sales and independent third-party distributors.
The Company elected the practical expedient under Accounting Standards Codification ("ASC") 340-40-25-4 to expense commissions when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.
Revenue and Billing
The Company generally accepts orders from customers through receipt of purchase orders or electronic data interchange based on written sales agreements and purchasing contracts. Contract pricing and selling agreement terms are based on market factors, costs, and competition. Pricing is often negotiated as an adjustment (premium or discount) from the Company’s published price lists. The customer is invoiced when the Company’s products are shipped to them in accordance with the terms of the sales agreement. As the Company’s standard payment terms are less than one year, the Company elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company also elected the practical expedient provided in ASC 606-10-25-18B to treat all product shipping and handling activities as fulfillment activities, and therefore recognize the gross revenue associated with the contract, inclusive of any shipping and handling revenue.
Ship and Debit Program
Some of the terms of the Company’s sales agreements and normal business conditions provide customers (distributors) the ability to receive price adjustments on products previously shipped and invoiced. This practice is common in the industry and is referred to as a “ship and debit” program. This program allows the distributor to debit the Company for the difference between the distributors’ contracted price and a lower price for specific transactions. Under certain circumstances (usually in a competitive situation or large volume opportunity), a distributor will request authorization for pricing allowances to reduce its
price. When the Company approves such a reduction, the distributor is authorized to “debit” its account for the difference between the contracted price and the lower approved price. The Company establishes reserves for this program based on historical activity, distributor inventory levels and actual authorizations for the debit and recognizes these debits as a reduction of revenue.
Return to Stock
The Company has a return to stock policy whereby certain customers, with prior authorization from Littelfuse management, can return previously purchased goods for full or partial credit. The Company establishes an estimated allowance for these returns based on historical activity. Sales revenue and cost of sales are reduced to anticipate estimated returns.
Volume Rebates
The Company offers volume based sales incentives to certain customers to encourage greater product sales. If customers achieve their specific quarterly or annual sales targets, they are entitled to rebates. The Company estimates the projected amount of rebates that will be achieved by the customer and recognizes this estimated cost as a reduction to revenue as products are sold.
Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash at September 30, 2023 and December 31, 2022 reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statement of Cash Flows.
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2023 | | December 31, 2022 |
Cash and cash equivalents | | $ | 560,056 | | | $ | 562,588 | |
Restricted cash included in prepaid expenses and other current assets | | — | | | 802 | |
Restricted cash included in other long-term assets | | 1,535 | | | 1,549 | |
Total cash, cash equivalents, and restricted cash | | $ | 561,591 | | | $ | 564,939 | |
Recently Issued Accounting Standards
In October 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-06, "Disclosure Improvements". The amendments in this update represent changes to clarify or improve the disclosure or presentation requirements of a variety of Topics in the ASC. The Company may be affected by one or more of those amendments. The amendments in this ASU should be applied prospectively and will not be effective until June 30, 2027. The company is currently evaluating the potential effects of these amendments on its Condensed Consolidated Financial Statements.
In March 2023, the FASB issued ASU No. 2023-01, "Leases (Topic 842): Common Control Arrangements". The standard requires that leasehold improvements associated with common control leases be: 1) Amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a lease. However, if the lessor obtained the right to control the use of the underlying asset through a lease with another entity not within the same common control group, the amortization period may not exceed the amortization period of the common control group. 2) Accounted for as a transfer between entities under common control through an adjustment to equity (or net assets for not-for-profit entities) if, and when, the lessee no longer controls the use of the underlying asset. Additionally, those leasehold improvements are subject to the impairment guidance in Topic 360, Property, Plant, and Equipment. This standard is effective on January 1, 2024. The Company does not expect any material effect on the Company's Condensed Consolidated Financial Statements.
2. Acquisitions
The Company accounts for acquisitions using the acquisition method in accordance with ASC 805, “Business Combinations,” in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition. The operating results of
the acquired business are included in the Company’s Condensed Consolidated Financial Statements from the date of the acquisition.
Dortmund Fab
On June 28, 2023, the Company entered into a definitive purchase agreement to acquire a 200mm wafer fab located in Dortmund, Germany (“Dortmund Fab”) from Elmos Semiconductor SE. The acquisition of the Dortmund Fab is expected to close in early fiscal year 2025. The total purchase price for the fab is approximately 93 million Euro, of which 37.2 million Euro down payment (approximately $40.5 million) recorded in Other long-term assets in the Condensed Consolidated Balance Sheets was paid in the third quarter after regulatory approvals and approximately 56 million Euro will be paid at closing. The transaction is not expected to have a material impact on the Company’s fiscal year 2023 or 2024 financial results and will be reported in the Electronics-Semiconductor business within the Company’s Electronics segment.
Western Automation
On February 3, 2023, the Company completed the acquisition of Western Automation Research and Development Limited (“Western Automation”) for approximately $162 million in cash. Headquartered in Galway, Ireland, Western Automation is a designer and manufacturer of electrical shock protection devices used across a broad range of high-growth end markets, including e-Mobility off-board charging infrastructure, industrial safety and renewables. At the time the Company and Western Automation entered into the definitive agreement, Western Automation had annualized sales of approximately $25 million. The business is reported within the Company’s Industrial segment.
The acquisition was funded with cash on hand. The total purchase consideration of $158.3 million, net of cash, has been allocated, on a preliminary basis, to assets acquired and liabilities assumed, as of the completion of the acquisition, based on preliminary estimated fair values. The purchase price allocation is preliminary because the evaluations necessary to assess the fair values of the net assets acquired are still in process. The primary area not yet finalized relates to the completion of the valuation of certain acquired income tax assets and liabilities. As a result, these allocations are subject to change during the purchase price allocation period as the valuations are finalized.
The following table summarizes the preliminary purchase price allocation of the fair value of assets acquired and liabilities assumed in the Western Automation acquisition:
| | | | | |
(in thousands) | Purchase Price Allocation |
Total purchase consideration: | |
Cash, net of cash acquired | $ | 158,260 | |
Allocation of consideration to assets acquired and liabilities assumed: | |
Trade receivables, net | 3,389 | |
Inventories | 3,678 | |
Other current assets | 718 | |
Property, plant, and equipment | 1,328 | |
Intangible assets | 68,000 | |
Goodwill | 94,823 | |
Other non-current assets | 573 | |
Current liabilities | (5,251) | |
| |
Other non-current liabilities | (8,998) | |
| $ | 158,260 | |
| |
All Western Automation assets and liabilities were recorded in the Industrial segment and are primarily reflected in the Europe geographic area. The goodwill resulting from this acquisition consists largely of the Company’s expected future product sales and synergies from combining Western Automation’s products and technology with the Company’s existing Industrial products portfolio. Goodwill resulting from the Western Automation acquisition is not expected to be deductible for tax purposes.
Included in the Company’s Condensed Consolidated Statements of Net Income for the three and nine months ended September 30, 2023 are net sales of $2.7 million and $10.2 million respectively, and a loss before income taxes of $1.0 million and $0.8 million, respectively, since the February 3, 2023 acquisition of Western Automation.
During the nine months ended September 30, 2023, the Company incurred approximately $1.2 million of legal and professional fees related to the Western Automation acquisition recognized as Selling, general, and administrative expenses. These costs were reflected as other non-segment costs.
C&K Switches
On July 19, 2022, the Company completed the previously announced acquisition of C&K Switches (“C&K”) for $540 million in cash. Founded in 1928, C&K is a leading designer and manufacturer of high-performance electromechanical switches and interconnect solutions with a strong global presence across a broad range of end markets, including industrial, transportation, datacom, and aerospace. At the time the Company and C&K entered into the definitive agreement, C&K had annualized sales of over $200 million. The business is reported as part of the electronics-passive products and sensors business within the Company's Electronics segment.
The acquisition was funded through a combination of cash on hand and debt. The total purchase consideration of $523.0 million, net of cash acquired, has been allocated to assets acquired and liabilities assumed, as of the completion of the acquisition, based on estimated fair values.
The following table summarizes the final purchase price allocation of the fair value of assets acquired and liabilities assumed in the C&K acquisition:
| | | | | |
(in thousands) | Purchase Price Allocation |
Total purchase consideration: | |
Cash, net of cash acquired | $ | 523,014 | |
Allocation of consideration to assets acquired and liabilities assumed: | |
Trade receivables, net | 20,967 | |
Inventories | 42,968 | |
Other current assets | 2,932 | |
Property, plant, and equipment | 32,791 | |
Intangible assets | 254,700 | |
Goodwill | 274,124 | |
Other non-current assets | 14,797 | |
Current liabilities | (47,687) | |
Long-term debt | (9,626) | |
Other non-current liabilities | (62,952) | |
| $ | 523,014 | |
All C&K goodwill, other assets and liabilities were recorded in the Electronics segment and are reflected in the Americas, Europe and Asia-Pacific geographic areas. The goodwill resulting from this acquisition consists largely of the Company’s expected future product sales and synergies from combining C&K’s products and technology with the Company’s existing Electronics products portfolio. Goodwill resulting from the C&K acquisition is not expected to be deductible for tax purposes.
During the nine months ended September 30, 2023, the Company recorded measurement period adjustments to increase other non-current liabilities of $4.2 million associated with uncertain tax positions, income taxes payable of $0.2 million, and reduce accrued liabilities of $0.3 million and deferred tax liabilities of $0.2 million. As a result of these adjustments, goodwill was increased by $3.9 million.
As required by purchase accounting rules, the Company recorded a $10.8 million step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation. The step-up was amortized as a non-cash charge to cost of sales during the third and fourth quarter of 2022 as the acquired inventory was sold and reflected as other non-segment costs.
Embed
On April 12, 2022, the Company acquired Embed Ltd. (“Embed”). Founded in 2005, Embed is a proven provider of embedded software and firmware developed for a broad range of applications serving transportation end markets, primarily including commercial vehicle electrification and eMobility. The business is included in the commercial vehicle business within the Company's Transportation segment. The acquisition was funded with the Company’s cash on hand. The total purchase consideration was $9.2 million, net of cash.
Pro Forma Results
The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company and Western Automation as though the acquisition had occurred as of January 2, 2022, and C&K as though the acquisition had occurred as of December 27, 2020, and Carling business acquired on November 30, 2021 as though the acquisition had occurred as of December 29, 2019. The Company has not included pro forma results of operations for Embed as its operations were not material to the Company. The pro forma amounts presented are not necessarily indicative of either the actual consolidated results had the Western Automation acquisition occurred as of January 2, 2022, and had the C&K acquisition occurred as of December 27, 2020 and had Carling acquisition occurred as of December 29, 2019 or of future consolidated operating results.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
(in thousands, except per share amounts) | | September 30, 2023 | | October 1, 2022 | | September 30, 2023 | | October 1, 2022 |
Net sales | | $ | 607,071 | | | $ | 669,956 | | | $ | 1,830,736 | | | $ | 1,376,586 | |
Income before income taxes | | 75,071 | | | 107,585 | | | 271,165 | | | 271,474 | |
Net income | | 57,591 | | | 83,713 | | | 217,930 | | | 222,514 | |
Net income per share — basic | | 2.31 | | | 3.38 | | | 8.77 | | | 12.38 | |
Net income per share — diluted | | 2.29 | | | 3.35 | | | 8.68 | | | 12.26 | |
Pro forma results presented above primarily reflect the following adjustments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
(in thousands) | | September 30, 2023 | | October 1, 2022 | | September 30, 2023 | | October 1, 2022 |
Amortization (a) | | $ | — | | | $ | (1,512) | | | $ | (479) | | | $ | (8,951) | |
Depreciation | | — | | | 451 | | | — | | | 1,979 | |
Transaction costs (b) | | (224) | | | 3,772 | | | 1,203 | | | 8,015 | |
Amortization of inventory step-up (c) | | — | | | 6,765 | | | — | | | 11,534 | |
Interest expense (d) | | — | | | 497 | | | — | | | 815 | |
Income tax benefit (expense) of above items | | 28 | | | (2,644) | | | (91) | | | (3,893) | |
(a) The amortization adjustment for the nine months ended September 30, 2023 and three and nine months ended October 1, 2022 primarily reflects incremental amortization resulting from the measurement of intangibles at their fair values.
(b) The transaction cost adjustments reflect the reversal of certain legal and professional fees from the three and nine months ended September 30, 2023 and three and nine months ended October 1, 2022, and recognition of those fees during the three and nine months ended September 30, 2023.
(c) The amortization of inventory step-up adjustment reflects the reversal of the amount recognized related to the Carling acquisition during the three months ended April 2, 2022. The inventory step-up was amortized over four months as the inventory was sold.
(d) The interest expense adjustment reflects incremental interest expense related to the financing of the C&K acquisition.
3. Inventories
The components of inventories at September 30, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2023 | | December 31, 2022 |
Raw materials | | $ | 214,588 | | | $ | 231,043 | |
Work in process | | 134,657 | | | 134,792 | |
Finished goods | | 192,365 | | | 226,215 | |
Inventory reserves | | (58,535) | | | (44,360) | |
Total | | $ | 483,075 | | | $ | 547,690 | |
4. Property, Plant, and Equipment
The components of net property, plant, and equipment at September 30, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2023 | | December 31, 2022 |
Land and land improvements | | $ | 21,579 | | | $ | 22,089 | |
Building and building improvements | | 194,322 | | | 191,733 | |
Machinery and equipment | | 846,065 | | | 812,540 | |
| | | | |
Accumulated depreciation | | (583,060) | | | (545,252) | |
Total | | $ | 478,906 | | | $ | 481,110 | |
The Company recorded depreciation expense of $17.9 million and $17.0 million for the three months ended September 30, 2023 and October 1, 2022, respectively, and $53.5 million and $48.3 million for the nine months ended September 30, 2023 and October 1, 2022, respectively.
5. Goodwill and Other Intangible Assets
Changes in the carrying value of goodwill by segment for the nine months ended September 30, 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Electronics | | Transportation | | Industrial | | Total |
Net book value of goodwill as of December 31, 2022 | | | | | | | | |
Gross goodwill as of December 31, 2022 | | $ | 909,167 | | | $ | 234,793 | | | $ | 84,889 | | | $ | 1,228,849 | |
Accumulated impairment losses as of December 31, 2022 | | — | | | (33,401) | | | (8,526) | | | (41,927) | |
Total | | 909,167 | | | 201,392 | | | 76,363 | | | 1,186,922 | |
Changes during 2023: | | | | | | | | |
Additions (a) | | 3,879 | | | — | | | 94,823 | | | 98,702 | |
| | | | | | | | |
Currency translation | | 676 | | | (1,616) | | | (341) | | | (1,281) | |
Net book value of goodwill as of September 30, 2023 | | | | | | | | |
Gross goodwill as of September 30, 2023 | | 913,722 | | | 232,668 | | | 179,401 | | | 1,325,791 | |
Accumulated impairment losses as of September 30, 2023 | | — | | | (32,892) | | | $ | (8,556) | | | (41,448) | |
Total | | $ | 913,722 | | | $ | 199,776 | | | $ | 170,845 | | | $ | 1,284,343 | |
(a) The additions resulted from the acquisitions of Western Automation and measurement period adjustment related to the C&K acquisition.
The components of other intangible assets as of September 30, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | |
| | | As of September 30, 2023 |
(in thousands) | | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Land use rights | | | $ | 17,133 | | | $ | 2,579 | | | $ | 14,554 | |
Patents, licenses, and software | | | 269,219 | | | 154,983 | | | 114,236 | |
Distribution network | | | 42,888 | | | 42,888 | | | — | |
Customer relationships, trademarks, and tradenames | | | 679,246 | | | 195,670 | | | 483,576 | |
| | | | | | | |
Total | | | $ | 1,008,486 | | | $ | 396,120 | | | $ | 612,366 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
(in thousands) | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Land use rights | $ | 17,938 | | | $ | 2,299 | | | $ | 15,639 | |
Patents, licenses, and software | 259,603 | | | 140,208 | | | 119,395 | |
Distribution network | 41,733 | | | |