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United States
Securities and Exchange Commission
Washington, D.C. 20549 
FORM 10-K 
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
(Mark one)
for the fiscal year ended December 28, 2019
 
 
 
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)
Delaware
36-3795742
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 

8755 West Higgins Road Suite 500
Chicago, Illinois 60631
(Address of principal executive offices)

 773-628-1000
 (Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange On Which Registered
Common Stock, $0.01 par value 
LFUS
NASDAQ
Global Select MarketSM

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No  

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 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 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 emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
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.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The aggregate market value of 24,104,227 shares of voting stock held by non-affiliates of the registrant was approximately $4,264,278,799 based on the last reported sale price of the registrant’s Common Stock as reported on the NASDAQ Global Select MarketSM on June 29, 2019.
 
As of February 18, 2020, the registrant had outstanding 24,425,955 shares of Common Stock, net of Treasury Shares. 

DOCUMENTS INCORPORATED BY REFERENCE 
Portions of the Littelfuse, Inc. Proxy Statement for the 2020 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.  






TABLE OF CONTENTS

 
Page
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
Item 15.
Item 16.
 
 
 


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FORWARD-LOOKING STATEMENTS
 
Certain statements contained in this Annual Report on Form 10-K that are not historical facts are intended to constitute “forward-looking statements” entitled to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995 (“PSRLA”). These statements may involve risks and uncertainties, including, but not limited to, risks relating to 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; failure of an indemnification for environmental liability; exchange rate fluctuations; commodity price fluctuations; the effect of the company’s accounting policies; labor disputes; restructuring costs in excess of expectations; pension plan asset returns less than assumed; uncertainties related to political and regulatory changes; integration of acquisitions may not be achieved in a timely manner, or at all; and other risks that may be detailed in “Item 1A. Risk Factors” below and in the Company’s other Securities and Exchange Commission filings.
 
AVAILABLE INFORMATION
 
The Company is subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended and as a result, are obligated to file annual, quarterly, and current reports, proxy statements, and other information with the United States Securities and Exchange Commission (“SEC”). The Company makes these filings available free of charge on its website (http://investor.littelfuse.com) as soon as reasonably practicable after it electronically files them with, or furnish them to, the SEC. Information on the Company’s website does not constitute part of this Annual Report on Form 10-K. In addition, the SEC maintains a website (http://www.sec.gov) that contains the Company’s annual, quarterly, and current reports, proxy and information statements, and other information the Company electronically files with, or furnishes to, the SEC. The Company’s website and the information contained therein or connected thereto are not incorporated into this Annual Report on Form 10-K.
 
PART I
ITEM 1. BUSINESS.
 
GENERAL
 
Littelfuse, Inc., was incorporated under the laws of the State of Delaware in 1991. References herein to the “Company,” “we,” “our” or “Littelfuse” refer to Littelfuse, Inc. and its subsidiaries. References herein to “2019”, “fiscal 2019” or “fiscal year 2019” refer to the fiscal year ended December 28, 2019. References herein to “2018”, “fiscal 2018” or “fiscal year 2018” refer to the fiscal year ended December 29, 2018. References herein to “2017”, “fiscal 2017” or “fiscal year 2017” refer to the fiscal year ended December 30, 2017. The Company operates on a 52-53 week fiscal year (4-4-5 basis) ending on the Saturday closest to December 31.
 
OVERVIEW
 
Founded in 1927, Littelfuse is a global manufacturer of leading technologies in circuit protection, power control and sensing. Serving over 100,000 end customers, the Company’s products are found in automotive and commercial vehicles, industrial applications, data and telecommunications, medical devices, consumer electronics and appliances. With its broad product portfolio of fuses, semiconductors, polymers, ceramics, relays and sensors, and extensive global infrastructure, the Company’s worldwide associates partner with its customers to design, manufacture and deliver innovative, high-quality solutions for a safer, greener and increasingly connected world.
 
Segments
 
The Company conducts its business through three reportable segments: Electronics, Automotive, and Industrial. Within these segments, the Company designs, manufactures and sells components and modules for circuit protection, power control and sensing
products throughout the world. The circuit protection products protect against electrostatic discharge, power surges, short circuits, voltage spikes and other harmful occurrences; our power control products safely and efficiently control power and improve productivity and our sensor products are used to identify and detect temperature, proximity, flow speed and fluid level in various applications. For segment and geographical information and consolidated net sales and operating income see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 16, Segment Information, of the Notes to Consolidated Financial Statements included in this Annual Report.
 
Electronics Segment: Consists of one of the broadest product offerings in the industry, including fuses and fuse accessories, positive temperature coefficient (“PTC”) resettable fuses, solid state relays, polymer electrostatic discharge (“ESD”) suppressors, varistors, positions and fluid sensors, temperature sensors, reed switch based magnetic sensing, gas discharge tubes; semiconductor products such as discrete transient voltage suppressor (“TVS”) diodes, TVS diode arrays, protection

3





and switching thyristors, metal-oxide-semiconductor field-effect transistors (“MOSFETs”), integrated circuits, silicon carbide diodes; and insulated gate bipolar transistors (“IGBT”) technologies. The segment covers a broad range of end markets, including industrial and automotive electronics, electric vehicle and related infrastructure, data and telecommunications, medical devices, alternative energy, consumer electronics and white goods.

Automotive Segment: Consists of a wide range of circuit protection, power control and sensing technologies for global original equipment manufacturers (“OEMs”), Tier-I suppliers and parts distributors in passenger car, heavy duty truck, off-road vehicles, material handling, agricultural, construction and other commercial vehicle end markets. Passenger car fuse products include fuses and fuse accessories for internal combustion engine vehicles and hybrid and electric vehicles including blade fuses, battery cable protectors, resettable fuses, high-current fuses, and high-voltage fuses. Commercial vehicle products include fuses and fuse holders, switches, high power relays, and power distribution modules for the commercial vehicle industry. Automotive sensor products include a wide range of automotive and commercial vehicle products designed to monitor passenger occupants, including comfort and convenience sensors, safety and environment as well as applications in the vehicle’s powertrain.

Industrial Segment: Consists of power fuses and holders, protection relays and controls and other circuit protection products for use in various industrial applications such as oil, gas, mining, alternative energy, electric vehicle infrastructure, non-residential construction, HVAC systems, elevators and other industrial equipment.

Strategy
 
In December 2016, the Company announced its five-year strategic plan. Building upon its achievements from its previous five-year plan and leveraging the global mega trends of safety, resource efficiency and connectivity, the Company is targeting an average annual accelerated organic growth of 5-7 percent and growth from strategic acquisitions of 5-7 percent. The Company’s strategic goals include growing its circuit protection, power control and sensor platforms. The Company expects to do this through content and share gains, targeting underpenetrated geographies and high-growth niche applications, leveraging investments in its people, innovations and operating systems, and capitalizing on growth opportunities where technologies and applications are converging across its segments, while continuing to acquire and integrate businesses that fit its strategic focus areas.
 
Recent Acquisitions 
 
IXYS Corporation: On January 17, 2018, the Company acquired IXYS corporation ("IXYS"), a global pioneer in the power semiconductor and integrated circuit markets with a focus on medium to high voltage power semiconductors across the industrial, communications, consumer and medical markets. IXYS had a broad customer base, serving more than 3,500 customers through its direct sales force and global distribution partners. The purchase price for IXYS was $856.5 million, which included consideration of cash, Littelfuse common stock, and the value of converted, or cash settled IXYS equity awards. The operations of IXYS are included in the Electronics segment.

U.S. Sensor: On July 7, 2017, the Company acquired the assets of U.S. Sensor Corporation (“U.S. Sensor”) for $24.3 million. U.S. Sensor manufactures a variety of high quality negative temperature coefficient thermistor probes and assemblies. The acquisition expands the Company’s existing sensor portfolio in several key electronics and industrial end markets. The operations of U.S. Sensor are included in the Electronics segment.

Monolith Semiconductor Inc.: On February 28, 2017, pursuant to a Securities Purchase Agreement between the Company and the stockholders of Monolith Semiconductor Inc. (“Monolith”), a U.S. start-up Company developing silicon carbide technology, the Company increased its investment in Monolith by acquiring approximately 62% of the outstanding common stock of Monolith for $15.0 million. During 2018, the Company acquired the remaining outstanding stock of Monolith for $9.0 million based on Monolith meeting certain technical and sales targets, and now owns 100% of Monolith. The operations of Monolith are included in the Electronics segment.
 
ON Portfolio: On August 29, 2016, the Company acquired certain assets of select businesses (the “ON Portfolio”) of ON Semiconductor Corporation for $104.0 million. The acquired business, which is included in the Electronics segment, consists of a product portfolio that includes transient voltage suppression (“TVS”) diodes, switching thyristors, and IGBTs for automotive ignition applications. The acquisition expands the Company’s offerings in power semiconductor applications as well as increases its presence in the automotive electronics market. The ON Portfolio products have strong synergies with the Company’s existing circuit protection business, will strengthen its channel partnerships and customer engagement, and expand its power semiconductor portfolio.
 

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Menber’s: On April 4, 2016, the Company completed the acquisition of Menber’s S.p.A. (“Menber’s”) headquartered in Legnago, Italy for $19.2 million (net of cash acquired and after settlement of a working capital adjustment). The acquired business is part of the Company's commercial vehicle product business within the Automotive segment and specializes in the design, manufacturing, and selling of manual and electrical high current switches and trailer connectors for commercial vehicles. The transaction expands the Company’s commercial vehicle products business globally.

PolySwitch: On March 25, 2016, the Company acquired 100% of the circuit protection business (“PolySwitch”) of TE Connectivity Ltd. for $348.3 million (net of cash acquired and after settlement of certain post-closing adjustments). The PolySwitch business, which is split between the Automotive and Electronics segments, has a leading position in polymer based resettable circuit protection devices, with a strong global presence in the automotive, battery, industrial, communications and mobile computing markets. PolySwitch has manufacturing facilities in Shanghai and Kunshan, China, and Tsukuba, Japan. The acquisition allows the Company to strengthen its global circuit protection product portfolio, as well as expands its presence in the automotive electronics and battery protection end markets. The acquisition also significantly increases the Company’s presence in Japan.

Sales and Operations
 
The Company operates in three geographic regions: Asia-Pacific, the Americas, and Europe. The Company manufactures products and sells to customers in all three regions.
 
Net sales by segment for the periods indicated are as follows:
 
 
Fiscal Year
(in millions)
2019
 
2018
 
2017
Electronics
$
961.1

 
$
1,124.3

 
$
661.9

Automotive
428.5

 
479.8

 
453.2

Industrial
114.3

 
114.4

 
106.4

Total
$
1,503.9


$
1,718.5


$
1,221.5

 
Net sales in the Company’s three geographic regions, based upon the shipped-to destination, are as follows:
 
 
Fiscal Year
(in millions)
2019
 
2018
 
2017
Asia-Pacific
$
656.8

 
$
753.3

 
$
541.1

Americas
508.4

 
578.6

 
436.5

Europe
338.7

 
386.6

 
243.9

Total
$
1,503.9


$
1,718.5


$
1,221.5

 
The Company’s products are sold worldwide through distributors, a direct sales force and manufacturers’ representatives in certain regions. For the fiscal year 2019, approximately 71% of the Company’s net sales were to customers outside the United States (“U.S.”), including approximately 28% to China.
 
The Company manufactures many of its products on fully integrated manufacturing and assembly equipment. The Company maintains product quality through a Global Quality Management System with most manufacturing sites certified under ISO 9001:2000. In addition, several of the Littelfuse manufacturing sites are also certified under IATF 16949 and ISO 14001.
 
Additional information regarding the Company’s sales by geographic area and long-lived assets in different geographic areas is in Note 16, Segment Information, of the Notes to Consolidated Financial Statements included in this Annual Report.








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BUSINESS ENVIRONMENT
 
Electronics Segment
 
The Company designs, develops and manufactures a wide range of components and modules that provide circuit protection, power control and sensing for a multitude of electronic, transportation and industrial applications. Circuit protection technologies in the Electronics Segment are designed to protect against harmful occurrences like voltage spikes, short circuits, power surges and electrostatic discharge. Products include fuses and fuse accessories, PTC resettable fuses, ESD suppressors, varistors, gas discharge tubes, semiconductor products such as discrete TVS diodes, TVS diode arrays, protection and switching thyristors, integrated circuits, and silicon carbide diodes.
 
The Company also offers a wide range of power control products used to convert and regulate energy and safely and efficiently control power across a broad spectrum of industrial applications like renewable energy and storage, motor drives and power conversion. Products include a comprehensive portfolio of semiconductor components and modules including thyristors, rectifiers and fast recovery diodes, IGBTs and wide band gap devices. The acquisition of IXYS helped the Company expand its power semiconductor portfolio in medium and high-power applications and technology expertise. The Company expects to continue to diversify and expand its presence within industrial electronics markets, leveraging the strong IXYS industrial OEM customer base.
 
As products become increasingly sophisticated, smarter and more connected, the need for complex sensor technologies continues to grow. Sensor products in the Electronics Segment are used in a wide variety of applications including white goods, building and home automation, industrial controls, and commercial vehicles.
 
Automotive Segment
 
The Company is a primary supplier of fuses and circuit protection technologies to global automotive OEMs, through sales made to Tier One automotive suppliers, main-fuse box, and wire harness manufacturers that incorporate the fuses into their products, as well as automotive component parts manufacturers, and automotive parts distributors. The Company also sells its fuses in the replacement parts market, with its products being sold through merchandisers, discount stores, and service stations, as well as under private label by national firms.
 
Circuit protection needs in the automotive space are expected to generate additional content-per-vehicle exceeding global auto production, with the continued electronification of vehicles, as well as market growth, development, and penetration of hybrid and electric vehicles.
 
The Company also continues to focus on its automotive sensor business and products. Products include a wide range of automotive and commercial vehicle products designed to monitor passenger occupants, including comfort and convenience sensors, safety and environment as well as applications in the vehicle’s powertrain.

The Company has expanded the Automotive segment into the commercial vehicle end markets through various acquisitions, as well as internal product development. Additional products in this market include:  power distribution modules, low and high current switches, relays, battery management products, ignition key switches, and trailer connectors. Products are sold directly to a mix of OEMs, Tier One suppliers, aftermarket channels, as well as through general distribution.

 
Industrial Segment
 
The Company designs and sells a broad range of power fuses and holders, protection relays and controls and other circuit protection products for use in various industrial applications such as oil and gas, mining, alternative energy, electric vehicle and related infrastructure, non-residential construction, HVAC systems, elevators and other industrial equipment. These products are used to protect personnel and equipment from excessive currents, over voltages, and electrical shock hazards.

Products are sold through electrical distributors, electronics channel partnerships and directly to OEM's. The Company sees growth opportunities through expanding the end markets and geographies it serves and growing its sales through electronics channel partnerships, and continuing to invest in new product development.

 



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PRODUCT DESIGN AND DEVELOPMENT
 
The Company employs scientific, engineering, and other personnel to continually improve its existing product lines and to develop new products at its research, product design, and development (“R&D”) and engineering facilities with primary locations in China, Germany, Italy, Japan, Lithuania, Mexico, Philippines, Taiwan(China), United Kingdom, and the U.S. The Company maintains a staff of engineers, chemists, material scientists and technicians whose primary responsibility is to design and develop new products.
 
Proposals for the development of new products are initiated primarily by sales, marketing, and product management personnel with input from customers. The entire product development process usually ranges from a few months to a few years based on the complexity of development, with continuous efforts to reduce the development cycle. During fiscal years 2019, 2018, and 2017, the Company expended $80.5 million, $87.3 million, and $50.5 million, respectively, on R&D. 

PATENTS, TRADEMARKS, AND OTHER INTELLECTUAL PROPERTY
 
The Company generally relies on patents, trademarks, licenses, and nondisclosure agreements to protect its intellectual property and proprietary products. In cases where it is deemed necessary by management, key employees are required to sign an agreement that they will maintain the confidentiality of the Company’s proprietary information and trade secrets.
 
The Company owns a large portfolio of patents worldwide and new products are continually being developed to replace older products. The Company regularly applies for patent protection on such new products. While, in the aggregate, the Company’s patents are important in the operation of its businesses, the Company believes that the loss by expiration or otherwise of any one patent or group of patents would not materially affect its business.
 
MANUFACTURING
 
The Company’s manufacturing facilities are in China, Germany, Italy, Japan, Lithuania, Mexico, Philippines, Portugal, the United Kingdom, and the United States. The Company performs the majority of its own fabrication and maintains in-house capabilities for metal stamping, surface mount assembly, plating (silver, nickel, zinc, and oxides) and thermoplastic molding. In addition, the Company fabricates semiconductor wafers for certain applications and maintains in-house capability for epitaxy fabrication, die attach, and wafer probe testing. After sub-components are readied for assembly, final assembly is accomplished on fully automatic and semi-automatic assembly machines. Quality assurance and operations personnel, using techniques such as statistical process control, perform tests, checks and measurements during the production process to maintain the highest levels of product quality, including safety and reliability, and customer satisfaction. Additionally, the Company utilizes external wafer foundries and subcontracted test and assembly facilities for a portion of its semiconductor business.

The principal raw materials for the Company’s products include copper and copper alloys, heat-resistant plastics, zinc, melamine, glass, silver, gold, raw silicon, solder, and various gases. The Company uses a single source for several heat-resistant plastics and for zinc but has specifically identified capable alternative heat-resistant plastics and zinc sources. All other raw materials are purchased from a number of readily available outside sources.

MARKETING
 
The Company goes to market through a worldwide selling organization consisting of direct sales personnel, distribution partners and manufacturers’ representatives. The direct sales force closely works with global OEM, Tier One automotive, consulting engineers, and major end customers to design-in and sell the Company’s circuit protection, power control and sensing products. The distributors provide fulfillment for a majority of customers including those partnered with electronic manufacturing services ("EMS"). The direct sales force is supplemented with manufacturers’ representatives. The Company has sales offices and direct sales channels in all major regions of the world.
 
Electronics Segment
 
Most Electronics segment products are sold through broad line distribution partners, including global distributors such as Arrow Electronics, Inc., Future Electronics and TTI, Inc, and regional and high service distributors, including Digi-Key and Mouser, as well as directly to OEM's. Many of our products are incorporated into applications with complex design technical support requirements. These may be sold through our direct salesforce and fulfilled through our distribution partners.





7





Automotive Segment
 
The Company primarily uses a direct sales force to service all of the major automotive and commercial vehicle OEMs, system suppliers, and Tier One automotive and aftermarket customers globally.

The Company also leverages its automotive customer relationships to sell products from the Electronics segment into automotive end markets, primarily to Tier One automotive customers. These revenues are reported in the Electronics segment.

Industrial Segment
 
The Company markets and sells its power fuses and protection relays through manufacturers’ representatives, and industrial and electrical distributors, primarily across North America and through a worldwide direct sales force & electronics channels. The electrical and industrial distribution network includes electrical contractors, municipalities, utilities and factories.
 
CUSTOMERS
 
The Company directly sells to nearly 6,400 customers and distributors worldwide. Sales to Arrow Electronics, Inc., which were reported in our Electronics, Automotive and Industrial segments, were 10.7%, 10.7% and 10.6% of consolidated net sales in 2019, 2018, and 2017, respectively. No other single customer accounted for more than 10% of net sales during any of the last three years. During fiscal 2019, 2018, and 2017, net sales to customers outside the U.S. accounted for approximately 71%, 70%, and 69%, respectively, of the Company’s total net sales.
 
COMPETITION
 
The Company’s products compete with similar products of other manufacturers, some of which may have substantially greater financial resources than the Company. In the Electronics segment, the Company’s competitors include Eaton Corporation, Bel Fuse Inc., Bourns Inc., EPCOS, ON Semiconductor Corporation, Infineon Technologies, STMicroelectronics NV, Semtech Corporation, and Vishay Intertechnology Inc. In the Automotive segment, the Company’s competitors include Eaton Corporation, Pacific Engineering, MTA, CTS Corporation, Amphenol Corporation, Sensata Technologies Holding NV, and TE Connectivity Ltd. In the Industrial segment, the Company’s major competitors include Eaton Corporation, GE Multilin, and Mersen. The Company believes that it globally competes on the basis of innovative products, the breadth of its product line, the quality, design and performance of its products based on their reliability, consistency and safety, its technical capabilities and application expertise, and the responsiveness of its customer service.
 
BACKLOG
 
The backlog of unfilled orders at December 28, 2019 was approximately $477.6 million, compared to $405.7 million at December 29, 2018 with the increase primarily driven by the Electronics segment, partially offset by a decrease from the Automotive segment. Substantially all the orders currently in backlog are scheduled for delivery in 2020.
 
EMPLOYEES
 
As of December 28, 2019, the Company employed approximately 11,300 employees worldwide. Approximately 20% of the Company's total workforce was employed under collective bargaining agreements at December 28, 2019. In Mexico, the Company has two separate collective bargaining agreements, one for 1,758 employees in Piedras Negras, expiring January 31, 2022 and the second for 600 employees in Matamoros, expiring January 1, 2022. In Germany, the Company has collective bargaining agreements with approximately 375 employees in Lampertheim and Essen, expiring March 31, 2020. In the United Kingdom, the Company has a collective bargaining agreement with some of the employees in Chippenham. Overall, the Company has historically maintained satisfactory employee relations and considers employee relations to be good.
 
ENVIRONMENTAL REGULATION
 
The Company is subject to numerous foreign, federal, state, and local regulations relating to air and water quality, the disposal of hazardous waste materials, safety and health. Compliance with applicable environmental regulations has not significantly changed the Company’s competitive position, capital spending or earnings in the past and the Company does not presently anticipate that compliance with such regulations will change its competitive position, capital spending or earnings for the foreseeable future.
 
The Company believes that it is currently in compliance in all material respects with applicable environmental laws and regulations.


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Littelfuse GmbH, which was acquired by the Company in May 2004, is responsible for maintaining closed coal mines in Germany from legacy operations. The Company is compliant with German regulations pertaining to the maintenance of the mines and has an accrual related to certain of these coal mine shafts based on an engineering study estimating the cost of remediating the dangers (such as a shaft collapse) of certain of these closed coal mine shafts in Germany. The accrual is reviewed annually and calculated based upon the estimated costs of remediating the shafts. Further information regarding the coal mine liability accrual is provided in Note 1, Summary of Significant Accounting Policies and Other Information, of the Notes to Consolidated Financial Statements included in this Annual Report.

ITEM 1A. RISK FACTORS.
 
The Company’s business, financial condition, and results of operations are subject to various risks and uncertainties, including the risk factors it has identified below. Any of the following risk factors could materially and adversely affect the Company’s business, financial condition, or results of operations. These factors are not necessarily listed in order of importance.

1) Operational Risks:
 
The Company’s industry is subject to intense competitive pressures.
 
The Company operates in markets that are highly competitive. The Company competes on the basis of price, product performance and quality, service, and / or brand name across the industries and markets it serves. Competitive pressures could affect the prices the Company is able to charge its customers or demand for its products.
 
The Company may not always be able to compete on price, particularly when compared to manufacturers with lower cost structures. Some of the Company’s competitors have substantially greater sales, financial and manufacturing resources and may have greater access to capital than the Company. As other companies enter its markets or develop new products, competition may further intensify. The Company’s failure to compete effectively could materially adversely affect its business, financial condition, and results of operations.
 
The Company engages in strategic acquisitions and may not realize the anticipated benefits of the acquisitions and / or may encounter difficulties in integrating these businesses.
 
The Company seeks to grow through strategic acquisitions. In the past, the Company has acquired a number of businesses or companies and additional product lines and assets. The Company intends to continue to expand and diversify its operations with additional future acquisitions.
 
An acquired business, technology, service or product could under-perform relative to the Company’s expectations and the price paid for it, or not perform in accordance with the Company’s anticipated timetable. This could cause the Company’s financial results to differ from expectations in any given fiscal period, or over the long term. The success of these transactions also depends on the Company’s ability to integrate the assets, operations, and personnel associated with these acquisitions. The Company may encounter difficulties in integrating acquisitions with the Company’s operations and may not realize the degree or timing of the benefits that are anticipated from an acquisition.
 
The Company may also discover liabilities or deficiencies associated with the companies or assets it acquires that were not identified in advance, which may result in significant unanticipated costs. The effectiveness of the Company’s due diligence review and its ability to evaluate the results of such due diligence are dependent upon the accuracy and completeness of statements and disclosures made or actions taken by the companies acquired or their representatives, as well as the limited amount of time in which acquisitions are executed. In addition, the Company may fail to accurately forecast the financial impact of an acquisition transaction, including tax and accounting charges. Acquisitions may also result in recording of significant additional expenses to the results of operations and recording of substantial intangible assets on the balance sheet upon closing. Any of these factors may adversely affect the Company’s financial condition and results of operations.

Disruptions in the Company’s manufacturing, supply or distribution chain could result in an adverse impact on results of operations.
 
The Company sources materials and sells product through various international network channels. A disruption could occur within the Company’s manufacturing, distribution or supply chain network. This could include damage or destruction due to various causes including natural disasters or political instability which would cause one or more of these network channels to become non-operational. This could adversely affect the Company’s ability to manufacture or deliver its products in a timely manner,

9





impair its ability to meet customer demand for products and result in lost sales or damage to its reputation. Such a disruption could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company may be unable to manufacture and deliver products in a manner that is responsive to its customers’ needs.
 
The end markets for the Company’s products are characterized by technological change, frequent new product introductions and enhancements, changes in customer requirements and emerging industry standards. The introduction of products embodying new technologies and the emergence of new industry standards could render its existing products obsolete and unmarketable before it can recover any or all of its research, development, and commercialization expenses on capital investments. Furthermore, the life cycles of its products may change and are difficult to estimate.

The Company’s future success will depend upon its ability to manufacture and deliver products in a manner that is responsive to its customers’ needs. The Company will need to develop and introduce new products and product enhancements on a timely basis that keep pace with technological developments and emerging industry standards and address increasingly sophisticated requirements of its customers. The Company invests heavily in research and development without knowing that it will recover these costs. The Company’s competitors may develop products or technologies that will render its products non-competitive or obsolete. If it cannot develop and market new products or product enhancements in a timely and cost-effective manner, its business, financial condition and results of operations could be materially adversely affected.

The Company’s business may be interrupted by labor disputes or other interruptions of supplies.
 
A work stoppage could occur at certain Company facilities, most likely as a result of disputes under collective bargaining agreements or in connection with negotiations of new collective bargaining agreements. In addition, the Company may experience a shortage of supplies for various reasons, such as financial distress, work stoppages, natural disasters, or production difficulties that may affect one of its suppliers. A significant work stoppage, or an interruption or shortage of supplies for any reason, if protracted, could substantially adversely affect the Company’s business, financial condition and results of operations. The transfer of the Company’s manufacturing operations and changes in its distribution model could disrupt operations for a limited time.
 
Failure to attract and retain qualified personnel could affect the Company’s business results.
 
The Company’s success, both generally and in connection with mergers and acquisitions, depends on the Company’s ability to attract, retain, and motivate a highly-skilled and diverse management team and workforce. Failure to ensure that the Company has the depth and breadth of personnel with the necessary skill set and experience could impede its ability to deliver growth objectives and execute the Company’s strategy. Competition for qualified employees among companies that rely heavily upon engineering and technology is at times intense, and the loss of qualified employees could hinder the Company’s ability to conduct research activities successfully and develop marketable products.
 
The Company may not be successful protecting its intellectual property.
 
The Company considers its intellectual property, including patents, trade names, and trademarks, to be of significant value to its business as a whole. The Company’s products are manufactured, marketed, and sold under a portfolio of patents, trademarks, licenses, and other forms of intellectual property, some of which expire or are allowed to lapse at various dates in the future. The Company develops and acquires new intellectual property on an ongoing basis and considers all of its intellectual property to be valuable. The Company's policy is to file applications and obtain patents for the great majority of its novel and innovative new products including product modifications and improvements. Based on the broad scope of its product lines, the Company believes that the loss or expiration of any single intellectual property right would not have a material adverse effect upon its consolidated results of operations, financial position and cash flows; however, multiple losses or expirations could have a material adverse effect upon the Company’s consolidated results of operations, financial position and cash flows.

2) Regulatory Risks:

Changes in U.S. and other countries trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.

The U.S. government has adopted a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements. It has also imposed tariffs on certain foreign goods and products. These measures may materially increase costs for goods imported into the United States. This in turn could require us to materially increase prices to our customers which may reduce demand, or, if we do not or are unable to increase prices, could result in lower margins on products sold. Changes in U.S. trade policy have resulted in, and could result in more, U.S. trading partners adopting responsive

10





trade policies making it more difficult or costly for us to export our products to those countries. Additionally, continued geo-political issues may result in customers in China seeking to source products from local suppliers, which could result in lower sales or lost customers.

The Company is exposed to political, economic, and other risks that arise from operating a multinational business.
 
The Company's customers, suppliers, employees and operations are located in numerous countries around the world, and contribute significantly to its revenues and earnings. Sales to customers outside the U.S. constituted approximately 71% of the Company's net sales in fiscal 2019. Many of the Company's key customers are located outside of U.S. and maintain global operations. Serving a global customer base and remaining competitive in the global marketplace requires the Company to diversify its operations outside the U.S. to capitalize on customer and market opportunities, build a global workforce and maintain a cost efficient structure. In addition, the Company sources a significant amount of raw materials, components and finished goods from third-party suppliers and contract manufacturers.  The Company’s operating activities are subject to a number of risks generally associated with multi-national operations, including risks relating to the following:

general economic conditions;
currency fluctuations and exchange restrictions;
import and export duties and restrictions;
the imposition of tariffs and other import or export barriers;
compliance with regulations governing import and export activities;
current and changing regulatory requirements;
political and economic instability;
potentially adverse income tax consequences;
transportation delays and interruptions;
labor unrest;
natural disasters;
terrorist activities;
public health concerns, including the recent outbreak of the coronavirus impacting China and elsewhere;
difficulties in staffing and managing multi-national operations; and
limitations on the Company’s ability to enforce legal rights and remedies.

More recently, the coronavirus outbreak originating from China at the beginning of 2020 has resulted in extended shutdowns of numerous business activities in the region and supply chain disruptions, which has impacted the sales, production and shipment of products in and out of its borders. These shutdowns and disruptions have impacted the Company’s manufacturing and supply chain operations, as well as those of its suppliers, contract manufacturers and customers. As new developments continue to arise, the Company is not yet able to fully ascertain the impact on its sales, manufacturing, supply chain and operations to its business and financial results, both inside and outside of China. Health concerns in China or other countries in which the Company or the Company’s suppliers, contract manufacturers and customers operate could result in social, economic, and labor instability.

Any of these factors could have a material adverse effect on the Company’s consolidated results of operations, financial position and cash flows.
 
Environmental liabilities could adversely impact the Company’s financial position.
 
Foreign, federal, state and local laws and regulations impose various restrictions and controls on the discharge of materials, chemicals and gases used in the Company’s manufacturing processes or in its finished goods. These environmental regulations have required the Company to expend a portion of its resources and capital on relevant compliance programs. Under these laws and regulations, the Company could be held financially responsible for remedial measures if its current or former properties are contaminated or if it sends waste to a landfill or recycling facility that becomes contaminated, even if the Company did not cause the contamination. The Company may be subject to additional common law claims if it releases substances that damage or harm third parties. In addition, future changes in environmental laws or regulations may require additional investments in capital equipment or the implementation of additional compliance programs. Any failure to comply with new or existing environmental laws or regulations could subject the Company to significant liabilities and could have a material adverse effect on its consolidated results of operations, financial position and cash flows.
 
In the conduct of manufacturing operations, the Company has handled and does handle materials that are considered hazardous, toxic or volatile under federal, state, and local laws. The risk of accidental release of such materials cannot be completely eliminated. In addition, the Company operates or owns facilities located on or near real property that was formerly owned and operated by others. Certain of these properties were used in ways that involved hazardous materials. Contaminants may migrate from, within

11





or through these properties. These releases or migrations may give rise to claims. Where third parties are responsible for contamination, the third parties may not have funds, or not make funds available when needed, to pay remediation costs imposed upon the Company under environmental laws and regulations.
 
The Company is responsible for the maintenance of discontinued coal mining operations in Germany. The risk of environmental remediation exists, and the Company is in the process of remediating the mines considered to be the most at risk.


3) Financial Risks:
 
Reorganization activities may lead to additional costs and material adverse effects.
 
In the past, the Company has taken actions to restructure and optimize its production and manufacturing capabilities and efficiencies through relocations, consolidations, plant closings or asset sales. In the future, the Company may take additional restructuring actions including the consolidating, closing or selling of additional facilities. These actions could result in impairment charges and various charges for such items as idle capacity, disposition costs and severance costs, in addition to normal or attendant risks and uncertainties. The Company may be unsuccessful in any of its current or future efforts to restructure or consolidate its business. Plans to minimize or eliminate any loss of revenues during restructuring or consolidation may not be achieved. These activities may have a material adverse effect upon the Company’s business, financial condition and results of operations.
 
 
The Company’s ability to manage currency or commodity price fluctuations or supply shortages is limited.
 
As a resource-intensive manufacturing operation, the Company is exposed to a variety of market and asset risks, including the effects of changes in commodity prices, foreign currency exchange rates, and interest rates. The Company has multiple sources of supply for the majority of its commodity requirements. However, significant shortages that disrupt the supply of raw materials or result in price increases could affect prices the Company charges its customers, its product costs, and the competitive position of its products and services. The Company monitors and manages these exposures as an integral part of its overall risk management program, which recognizes the unpredictability of markets and seeks to reduce the potentially adverse effects on its results. Nevertheless, changes in currency exchange rates, commodity prices and interest rates cannot always be predicted. In addition, because of intense price competition and the Company’s high level of fixed costs, it may not be able to address such changes even if they are foreseeable. Substantial changes in these rates and prices could have a material adverse effect on the Company’s results of operations and financial condition. In addition, significant portions of its revenues and earnings are exposed to changes in foreign currency rates. As it operates in multiple foreign currencies, changes in those currencies relative to the U.S. dollar will impact its revenues and expenses. The impact of possible currency devaluation in countries experiencing high inflation rates or significant exchange fluctuations can impact the Company’s results and financial guidance. For additional discussion of interest rate, currency or commodity price risk, see Item 7A, Quantitative and Qualitative Disclosures about Market Risk.

 
The Company’s effective tax rate could materially increase as a consequence of various factors, including interpretations and administrative guidance in regard to the Tax Act (defined below), U.S. and/or international tax legislation, mix of the Company’s earnings by jurisdiction, and U.S. and non-U.S. jurisdictional tax audits.
 
On December 22, 2017, the U.S. enacted legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). Although certain administrative guidance has been issued, the appropriate application of many provisions of the Tax Act remain uncertain. As discussed more fully in Note 14, Income Taxes, of the Notes to Consolidated Financial Statements included in this Annual Report, adjustments to income tax expense may be necessary in future periods if provisions of the Tax Act, and their interaction with other provisions of the U.S. Internal Revenue Code, are interpreted differently than interpretations made by the Company, whether through issuance of additional administrative guidance, or through further review of the Tax Act by the Company and its advisors. Such adjustments could have a material adverse effect on the Company’s future effective tax rate and cash flows.
The Company is subject to taxes in the U.S. and numerous non-U.S. jurisdictions. Therefore, it is subject to changes in tax laws in each of these jurisdictions. Certain European jurisdictions, including Germany and the Netherlands, have enacted or will enact tax legislation based upon directives from the European Union. Such legislation could potentially deny tax deductions for certain expenses and/or subject to tax the income earned in certain low tax jurisdictions. Although the Company believes such legislation will not adversely impact its future effective tax rate, there can be no assurance that its analysis, based upon the currently available information, is correct. The Company’s income tax rate in certain non-U.S. jurisdictions, including the Philippines, is substantially lower than the U.S. statutory tax rate. Legislative proposals have been made from time to time to reduce these tax benefits, in some cases with the tax increase phased in over a multi-year transition period. The Philippines is currently contemplating such

12





legislation which could adversely impact the Company's future effective tax rate. The outcome of these and other legislative developments, including changes to interpretations of recently enacted legislation, could have a material adverse effect on the Company’s future effective tax rate and cash flows.
The Organization for Economic Co-operation and Development is working with a group of more than 100 countries to seek agreement to modify the international tax system before the end of 2020 to address the influence of the digital economy. This effort could result in a significant change to the tax treatment of multinationals, subjecting them to tax in additional jurisdictions, modifying the methods by which they allocate profits among jurisdictions, and subjecting them to a global or country by country minimum level of tax. The outcome of this effort could have a material adverse effect on the Company’s effective tax rate and cash flows.
The Company has three subsidiaries in China which benefit from lower tax rates due to “tax holidays” which apply for three-year periods, subject to extension. The tax holiday for two of these subsidiaries expired at the end of 2019 (one will seek an extension and the tax holiday benefits for the other is not material). The tax holiday for the third subsidiary will expire the end of 2020 and it will seek an extension. There can be no assurance that such extensions will be granted.
The tax rates applicable in the jurisdictions within which the Company operates vary widely. Therefore, the Company’s effective tax rate may be adversely affected by changes in the mix of its earnings by jurisdiction.
The Company’s tax returns are subject to examination by various U.S. and non-U.S. tax authorities, including the U.S. Internal Revenue Service. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for income taxes. However, there can be no assurance as to the outcome of these examinations.
A decline in expected profitability of the Company or individual reporting units of the Company could result in the impairment of assets, including goodwill and other long-lived assets.
 
The Company holds material amounts of goodwill and other long-lived assets on its balance sheet. A decline in expected profitability, particularly if there is a decline in the global economy, could call into question the recoverability of the Company’s related goodwill and other long-lived tangible and intangible assets and require the write-down or write-off of these assets. Such an occurrence could have a material adverse effect on the Company’s consolidated results of operations, financial position and cash flows.
 
A significant fluctuation between the U.S. dollar and other currencies could adversely impact the Company's revenue and earnings.
 
Although the Company's financial results are reported in U.S. dollars, the majority of the Company’s operations consist of manufacturing and sales activities in foreign countries. The Company’s most significant net long exposure is to the euro. The Company’s most significant net short exposures are to the Chinese renminbi, Mexican peso, and Philippine peso. Changes in foreign exchange rates could have an adverse effect on the Company's results of operations, financial position and cash flows.
 
The Company’s revenues may vary significantly from period to period.
 
The Company’s revenues may vary significantly from one period to another due to a variety of factors including:
 
changes in customers’ buying decisions;
changes in demand for its products;
changes in its distributor inventory stocking;
the Company’s product mix;
the Company’s effectiveness in managing manufacturing processes;
costs and timing of its component purchases;
the effectiveness of its inventory control;
the degree to which it is able to utilize its available manufacturing capacity;
the Company’s ability to meet delivery schedules;
general economic and industry conditions;
local conditions and events that may affect its production volumes, such as labor conditions and political instability; and
seasonality of certain product lines.





13





The bankruptcy or insolvency of a major customer could adversely affect the Company.
 
The bankruptcy or insolvency of a major customer could result in lower sales revenue and cause a material adverse effect on the Company’s consolidated results of operations, financial position and cash flows. In addition, the bankruptcy or insolvency of a major auto manufacturer or significant supplier likely could lead to substantial disruptions in the automotive supply base, resulting in lower demand for the Company’s products, which would likely cause a decrease in sales revenue and have a substantial adverse impact on the Company’s consolidated results of operations, financial position and cash flows.


The inability to maintain access to capital markets may adversely affect the Company’s business and financial results.
 
The Company’s ability to invest in its businesses, make strategic acquisitions, and refinance maturing debt obligations may require access to the capital markets and sufficient bank credit lines to support short-term borrowings. If the Company is unable to access the capital markets or bank credit facilities, it could experience a material adverse effect on its consolidated results of operations, financial position and cash flows.
 

Fixed costs may reduce operating results if sales fall below expectations.
 
The Company’s expense levels are based, in part, on its expectations for future sales. Many of the Company’s expenses, particularly those relating to capital equipment and manufacturing overhead, are relatively fixed. The Company might not be able to reduce spending quickly enough to compensate for reductions in sales. Accordingly, shortfalls in sales could materially and adversely affect the Company’s consolidated results of operations, financial position and cash flows.
 

The volatility of the Company’s stock price could affect the value of an investment in the Company’s stock and future financial position.
 
The market price of the Company’s stock can fluctuate widely. Between December 29, 2018 and December 28, 2019, the closing sale price of the Company’s common stock ranged between a low of $149.80 and a high of $206.00. The volatility of the stock price may be related to any number of factors, such as volatility in the financial markets, general macroeconomic conditions, industry conditions, market expectations concerning the Company’s results of operations, or the volatility of its revenues as discussed above under “The Company’s Revenues May Vary Significantly from Period to Period.” The historic market price of the Company’s common stock may not be indicative of future market prices. The Company may not be able to sustain or increase the value of its common stock. Declines in the market price of the Company’s stock could adversely affect the Company’s ability to retain personnel with stock incentives, to acquire businesses or assets in exchange for stock and/or to conduct future financing activities with or involving the Company’s common stock.

The Company is exposed to, and may be adversely affected by, potential security breaches or other disruptions to its information technology systems and data security.
 
The Company relies on its information technology systems and networks in connection with many of its business activities. Some of these networks and systems are managed directly by the Company, while others are managed by third-party service providers and are not under the Company’s direct control. The Company’s operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to its business, customers, dealers, suppliers, employees, and other sensitive matters. As with most companies, the Company has experienced cyber-attacks, attempts to breach its systems, and other similar incidents, none of which have been material. Any future cyber incidents could, however, materially disrupt operational systems; result in loss of trade secrets or other proprietary or competitively sensitive information; compromise personally identifiable information regarding employees or customers or other third parties; and jeopardize the security of the Company’s facilities. A cyber incident could be caused by malicious outsiders using sophisticated methods to circumvent firewalls, encryption, and other security defenses. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventative measures. Information technology security threats, including security breaches, computer malware, and other cyber-attacks are increasing in both frequency and sophistication and could create financial liability, subject the Company to legal or regulatory sanctions or damage the Company’s reputation with customers, dealers, suppliers, and other stakeholders. The Company continuously seeks to maintain a robust program of information security and controls, but the impact of a material information technology event could have a material adverse effect on the Company’s competitive position, reputation, results of operations, financial position and cash flows.
 

14





Customer demands and regulations related to conflict-free minerals may force the Company to incur additional expenses.
 
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires disclosure of use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries and efforts to prevent the use of such minerals. In the semiconductor industry, these minerals are most commonly found in metals. As there may be only a limited number of suppliers offering “conflict free” metals, the Company cannot be certain that it will be able to obtain necessary metals in sufficient quantities or at competitive prices. Also, the Company may face challenges with its customers and suppliers if it is unable to sufficiently verify that the metals used in its products are “conflict free.”
  
ITEM 1B. UNRESOLVED STAFF COMMENTS. 
None.
 

ITEM 2. PROPERTIES. 

The Company’s engineering and research and development, manufacturing, sales, and distribution centers are located in approximately 69 owned or leased facilities worldwide with primary operations in China, Germany, Italy, Japan, Lithuania, Mexico, Netherlands, Philippines, South Korea, United Kingdom, and the U.S. totaling approximately 3.5 million square feet. The Company’s owned facilities include approximately 2.0 million square feet and the Company’s leased facilities include approximately 1.5 million square feet. The Company’s corporate headquarters is located in the U.S. in Chicago, Illinois.
 
The Company believes its facilities are adequate to meet its requirements for the foreseeable future.
 
ITEM 3. LEGAL PROCEEDINGS.
 
The Company is not a party to any material legal proceedings, other than routine litigation incidental to its business.
 
ITEM 4. MINE SAFETY DISCLOSURES.
 
Not applicable.

Information about our Executive Officers.
 
The executive officers of the Company are as follows:
 
Name
Age
Position
David W. Heinzmann
56
President and Chief Executive Officer
Meenal A. Sethna
50
Executive Vice President and Chief Financial Officer
Ryan K. Stafford
52
Executive Vice President, Chief Legal and Human Resources Officer and Corporate Secretary
Matthew J. Cole
48
Senior Vice President, Business Development and Strategy
Alexander Conrad
54
Senior Vice President and General Manager, Passenger Vehicle Business
Deepak Nayar
60
Senior Vice President and General Manager, Electronics and Industrial Business
Michael P. Rutz
48
Senior Vice President and General Manager, Semiconductor Products
 
David W. Heinzmann, President and Chief Executive Officer and a member of the Board of Directors. Mr. Heinzmann began his career at Littelfuse in 1985 as a manufacturing engineer and has held positions of increasing responsibility since that time, including Vice President, Global Operations, from 2007 to 2014, and Chief Operating Officer from 2014 until assuming his current position in 2017.
 
Meenal A. Sethna, Executive Vice President and Chief Financial Officer. Ms. Sethna joined Littelfuse in 2015 as Senior Vice President of Finance until assuming her current position in 2016. Prior to joining Littelfuse, Ms. Sethna served from 2011 to 2015 as Vice President and Corporate Controller of Illinois Tool Works Inc., a diversified manufacturer of specialized industrial equipment, consumables, and related service businesses. Ms. Sethna is a Certified Public Accountant in Illinois.
 

15





Ryan K. Stafford, Executive Vice President, Chief Legal and Human Resources Officer and Corporate Secretary. Mr. Stafford joined Littelfuse as its first General Counsel in 2007 and became Corporate Secretary in 2017. Prior to joining Littelfuse, Mr. Stafford served in a number of roles at Tyco International Ltd., including Vice President of China Operations and Vice President & General Counsel for its Engineered Products & Services Business Segment.
 
Matthew J. Cole, Senior Vice President, Business Development and Strategy. Mr. Cole joined Littelfuse in 2015 as Senior Vice President and General Manager, Industrial Business Unit, and held that position until assuming his current position in February 2019. Prior to joining Littelfuse, Mr. Cole served from 2009 to 2015 as Vice President and General Manager of the Advanced Measurement Technology division of AMETEK, a global leader in electronic instruments and electromechanical devices.

Alexander Conrad, Senior Vice President and General Manager, Passenger Vehicle Business. Mr. Conrad joined Littelfuse in 2005 as Sales Manager, Germany & Eastern Europe. He then held various positions of increasing responsibility at Littelfuse including Sales Director EMEA; Global Director of Sales; Managing Director, Passenger Car Products from 2013 to 2014; and Vice President, Passenger Car Products, from 2015 until assuming his current position in July 2018.


Deepak Nayar, Senior Vice President and General Manager, Electronics and Industrial Business. Mr. Nayar joined Littelfuse in 2005 as Business Line Director of the Electronics Business Unit. He then held various positions of increasing responsibility at Littelfuse including Vice President, Global Sales, Electronics Business Unit, and from 2011 until assuming his current position in February 2019, Senior Vice President, Electronics Business Unit.
 
Michael P. Rutz, Senior Vice President and General Manager, Semiconductor Products. Mr. Rutz joined Littelfuse in 2014 as Vice President of Supply Chain and Operational Excellence. Mr. Rutz then served as Senior Vice President of Global Operations from 2015 until assuming his current position in February 2019. Prior to joining Littelfuse, Mr. Rutz served from 2011 to 2014 as Senior Vice President Global Supply Chain at WMS Industries Inc., a Chicago-based manufacturer of equipment and software for the gaming industry. 
 

16





PART II 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
 
 Shares of the Company’s common stock are traded under the symbol “LFUS” on the NASDAQ Global Select MarketSM.
 
Number of Holders
 
As of February 18, 2020, there were 69 holders of record of the Company’s common stock.
 
Dividend Policy
 
The future dividend policy will be determined by the Board of Directors based upon its evaluation of earnings, cash availability, and general business prospects. Currently, there are restrictions on the payment of dividends contained in the Company’s credit agreements that relate to the maintenance of certain financial ratios. However, the Company expects to continue paying cash dividends on a quarterly basis for the foreseeable future.
 
Recent Sales of Unregistered Securities
 
There were no sales of unregistered securities by us or affiliates during the fiscal year ended December 28, 2019.
 
Purchases of Equity Securities
 
On May 2, 2018, the Company announced that the Company’s Board of Directors had authorized the repurchase of up to 1,000,000 shares of the Company’s common stock under a program for the period May 1, 2018 to April 30, 2019 (the "2018 program"). On May 1, 2019, the Company announced that the Company's Board of Directors had authorized a new program to repurchase up to 1,000,000 shares of the Company's common stock for the period May 1, 2019 to April 30, 2020 (the "2019 program"). As of April 30, 2019, 528,112 shares remained available for repurchases under the 2018 program. During the fiscal year ended December 28, 2019, the Company repurchased 579,916 shares of its common stock totaling $95.0 million. There were 500,000 shares remaining available for purchase under the 2019 program as of December 28, 2019.
 
 The table below presents shares of the Company’s common stock which were acquired by the Company during fiscal year ended December 28, 2019:
 
Period
Total number of shares purchased
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced plans or programs
 
Maximum number of shares that may yet be purchased under the plans or programs
2018 Program
 
 
 
 
 
 
 
December 30 through January 26
66,796

 
$
169.11

 
66,796

 
541,232

January 27 through February 23
13,120

 
$
172.16

 
13,120

 
528,112

February 24 through March 30

 

 

 
528,112

March 31 through April 30

 

 

 
528,112

2019 Program
 
 
 
 
 
 
 
May 1 through May 25
90,301

 
$
170.53

 
90,301

 
909,699

May 26 through June 29
97,913

 
$
169.09

 
97,913

 
811,786

June 30 through July 27
49,816

 
$
171.13

 
49,816

 
761,970

July 28 through August 24
230,000

 
$
156.75

 
230,000

 
531,970

August 25 through September 28
31,970

 
$
154.80

 
31,970

 
500,000

Total
579,916

 
$
163.88

 
579,916

 
500,000






17





Stock Performance Graph
 
The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.
 
The following stock performance graph compares the five-year cumulative total return on Littelfuse common stock to the five-year cumulative total returns on the Russell 1000 Index and the Dow Jones Electrical Components and Equipment Industry Group Index. The Company believes that the Russell 1000 Index and the Dow Jones Electrical Components and Equipment Industry Group Index represent a broad market index and peer industry group for total return performance comparison. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance. 
https://cdn.kscope.io/1a21e077b532f7ba7754bf40c7146156-stockperformancegraphv3.jpg
 
12/14
 
12/15
 
12/16
 
12/17
 
12/18
 
12/19
Littelfuse, Inc.
$
100

 
$
112

 
$
160

 
$
211

 
$
184

 
$
207

Russell 1000
100

 
101

 
113

 
138

 
131

 
172

Dow Jones US Electrical Components & Equipment
100

 
94

 
114

 
146

 
128

 
158

 

18





The Dow Jones Electrical Components and Equipment Industry Group Index includes the common stock of A. O. Smith Corp.; AAON, Inc.; American Superconductor Corp.; AMETEK, Inc.; Amphenol Corp.; Arrow Electronics, Inc.; Avnet, Inc.; AVX Corp.; Capstone Turbine Corp.; CTS Corp.; General Cable Corp.; Hubbell Inc. Class B; Jabil Circuit, Inc.; KEMET Corp.; Littelfuse, Inc.; Methode Electronics, Inc.; Plexus Corp.; Powerwave Technologies, Inc.; Regal-Beloit Corp.; Vicor Corp.; and Vishay Intertechnology, Inc. 

For Littelfuse, Inc. and all indexes noted above, a $100 investment made on December 27, 2014 and reinvestment of all dividends is assumed. Returns for the Company’s fiscal years presented above are as of the last day of the respective fiscal year which was January 2, 2016, December 31, 2016, December 30, 2017, December 29, 2018, and December 28, 2019 for the fiscal years 2015, 2016, 2017, 2018, and 2019, respectively.


ITEM 6. SELECTED FINANCIAL DATA.
 
The information presented below provides selected financial data of the Company during the past five fiscal years and should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data, for the respective years presented:
 
(in thousands, except per share data)
 
2019
 
2018
 
2017
 
2016
 
2015
Net sales
 
$
1,503,873

 
$
1,718,468

 
$
1,221,534

 
$
1,056,159

 
$
867,864

Gross profit
 
541,449

 
652,541

 
506,533

 
413,117

 
330,499

Operating income
 
192,791

 
225,049

 
218,511

 
130,644

 
104,157

Net income
 
139,082

 
164,565

 
119,519

 
104,488

 
80,866

Per share of common stock:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
 
 
 
 
 
 
 
 
 
- Basic
 
5.66

 
6.62

 
5.27

 
4.63

 
3.58

- Diluted
 
5.60

 
6.52

 
5.21

 
4.60

 
3.56

Cash dividends paid
 
1.82

 
1.60

 
1.40

 
1.24

 
1.08

Cash and cash equivalents
 
531,139

 
489,733

 
429,676

 
275,124

 
328,786

Total assets
 
2,559,898

 
2,614,306

 
1,740,102

 
1,491,194

 
1,065,475

Short-term debt
 
10,000

 
10,000

 
6,250

 
6,250

 
87,000

Long-term debt, less current portion
 
669,158

 
684,730

 
489,361

 
447,892

 
83,753

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
The following discussion of the Company's financial condition and results of operations should be read together with the Consolidated Financial Statements and notes to those statements included in Item 8 of Part II of this Annual Report on Form 10-K.

BUSINESS
 
For a description of the Company’s business, segments and product offerings, see Item 1, Business.
 
2019 EXECUTIVE OVERVIEW

Net sales decreased by $214.6 million, or 12.5%, in 2019 compared to 2018. The decrease was primarily driven by lower volume across the Electronics and Automotive segments and $25.0 million or 1.5% of unfavorable changes in foreign exchange rates, partially offset by higher volume in the Industrial segment. The Company recognized net income of $139.1 million, or $5.60 per diluted share, in 2019 compared to net income of $164.6 million, or $6.52 per diluted share in 2018. The decrease in net income reflects lower operating income in the Electronics and Automotive segments, partially offset by lower non-segment charges compared to prior year primarily due to the IXYS acquisition.

The Company continues to take actions to improve its cost structure and drive the synergies from the integration of IXYS. The Company expects to realize cost savings from the restructuring activities taken during 2019 including the reorganization of certain

19





manufacturing, selling and administrative functions across all segments and the closure of a European manufacturing facility in the automotive sensors business within the Automotive segment.

Net cash provided by operating activities was $245.3 million for the year ended December 28, 2019 as compared to $331.8 million for the year ended December 29, 2018. The decrease in net cash provided by operating activities was primarily driven by lower earnings and higher working capital levels primarily due to the timing of supplier payments, payroll year-end cut off and higher annual incentive compensation payments in 2019.
 
During the fiscal year 2019, the Company repurchased 579,916 shares of its common stock totaling $95.0 million. During the fiscal year 2018, the Company repurchased 391,972 shares of its common stock totaling $67.9 million. From September 30, 2018 until December 28, 2019, the Company repurchased 971,888 shares of its common stock at an average price of $167.65 totaling $162.9 million.
 

OUTLOOK
 
Vision and Strategy
 
The Company works with its customers to design and develop technologies that help them build safer, more reliable and more efficient products for a safer, greener and increasingly connected world in virtually every market that uses electrical energy; for example, automotive and commercial vehicles, industrial applications like renewable energy and storage, motor drives and power conversion, data and telecommunications, medical devices, consumer electronics and appliances. Built upon that framework, the Company’s strategy is centered on growing its circuit protection, power control and sensor platforms.
 
The Company’s strategic plan is focused on increasing shareholder value by driving profitable sales growth, earnings per share growth, strong cash flow generation, and deploying capital consistent with its long-term capital allocation priorities. The Company pursues the following major strategic initiatives, which are summarized below, along with more specific areas of focus.
 
Strategic Objective
 
2020 and Future Priorities
Double digit sales growth
 
Grow through increased product content with existing customers and increased market share
 
 
Expand portfolio into new and underpenetrated geographies and end markets
 
 
Increase innovation capabilities and investments
 
 
Expand presence in products and applications that are converging across business segments
 
 
Targeted mergers and acquisitions
 
 
 
 
EPS growth
 
Focus on higher profitability growth opportunities
 
 
Improve operating margins through operational excellence
 
 
Disciplined approach to balancing costs with long-term strategic investments
 
 
 
 
Cash flow and liquidity
 
Disciplined management of working capital
 
 
Deployment of capital consistent with capital allocation priorities
 
 
Mergers and acquisitions that align with strategy and financial metrics
 
 
Grow dividend in line with earnings
 
 
Opportunistic share repurchases
 
The Company’s strategy is to generate profitable sales growth. In order to accomplish this, the Company is focusing on accelerating organic growth by increasing its content and share gains, enhancing technology efforts to drive innovation, capitalizing on cross segment opportunities, and gaining traction in underpenetrated geographies and markets. The Company will continue to make targeted strategic acquisitions that align to its strategy and financial metrics to support new business, products, markets, and technologies while leveraging existing customers and targeting new customers.

Management believes that profitable growth through a combination of organic growth and strategic acquisitions is critical to the Company’s competitiveness, while enhancing value the Company delivers to its customers and other stakeholders. In addition,

20





the Company continues to implement initiatives across all platforms to enhance productivity while managing its cost structure to align with business conditions, including integration of operations and streamlining administrative and support activities to drive improved operating margins.
 
The Company seeks to deploy its capital consistent with capital allocation priorities. Priorities for capital deployment, over time, include investments to drive increased organic growth, targeted acquisitions that align to the Company’s strategic and financial metrics and returning capital to shareholders through dividends and opportunistic share repurchases.
 
The Company uses several key indicators to gauge progress toward achieving these objectives. These indicators include organic sales growth, operating margins, cash flow from operations and capital expenditures. Through cycles, the Company targets double-digit long-term (2017-2021) sales growth, split between 5-7% average annual accelerated organic sales growth and 5-7% average annual accelerated growth from strategic acquisitions, while targeting operating margins between 17% and 19% and double-digit earnings per share growth. Cash flow from operations less capital expenditures is targeted to approximate or exceed net income but in any given year can be significantly impacted by the timing of non-recurring or infrequent expenditures.


Significant Accounting Policies and Critical Estimates
 
Critical Accounting Policies and Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s most critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The Company has identified the following as its most critical accounting policies and judgments. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made, and therefore, actual results may differ from these estimates under different assumptions or conditions. The Company has reviewed these critical accounting policies and related disclosures with the Audit Committee of its Board of Directors. Significant accounting policies are more fully described in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
 
Revenue Recognition
 
 On December 31, 2017, the Company adopted new guidance on revenue from contracts with customers using the modified retrospective method. The adoption did not have a significant impact on the Company’s consolidated financial statements.
 
Revenue Disaggregation
 
The following table disaggregates the Company’s revenue by primary business units for the fiscal years ended December 28, 2019 and December 29, 2018
 
 
Fiscal Year Ended December 28, 2019
(in thousands)
 
Electronics
Segment
 
Automotive
Segment
 
Industrial
Segment
 
 
Total
Electronics – Semiconductor
 
$
563,572

 
$

 
$

 
$
563,572

Electronics – Passive Products and Sensors
 
397,508

 

 

 
397,508

Passenger Car Products
 

 
218,560

 

 
218,560

Commercial Vehicle Products
 

 
111,972

 

 
111,972

Automotive Sensors
 

 
98,001

 

 
98,001

Industrial Products
 

 

 
114,260

 
114,260

Total
 
$
961,080

 
$
428,533

 
$
114,260

 
$
1,503,873

 

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Fiscal Year Ended December 29, 2018
(in thousands)
 
Electronics
Segment
 
Automotive
Segment
 
Industrial
Segment
 
 
Total
Electronics – Semiconductor
 
$
648,967

 
$

 
$

 
$
648,967

Electronics – Passive Products and Sensors
 
475,329

 

 

 
475,329

Passenger Car Products
 

 
240,501

 

 
240,501

Commercial Vehicle Products
 

 
121,562

 

 
121,562

Automotive Sensors
 

 
117,728

 

 
117,728

Industrial Products
 

 

 
114,381

 
114,381

Total
 
$
1,124,296

 
$
479,791

 
$
114,381

 
$
1,718,468


See Note 16, 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 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 has 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. This is similar to the Company’s prior practice and therefore the effect of the new guidance is immaterial.

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 historic activity, electronic distributor inventory levels and actual authorizations for the debit and recognizes these debits as a reduction of revenue.






22





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 historic 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.

Allowance for Doubtful Accounts:

The Company evaluates the collectability of its trade receivables based on a combination of factors. The Company regularly analyzes its significant customer accounts and, when the Company becomes aware of a specific customer’s inability to meet its financial obligations, the Company records a specific reserve for bad debt to reduce the related receivable to the amount the Company reasonably believes is collectible. The Company also records allowances for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and past experience. Historically, the allowance for doubtful accounts has been adequate to cover bad debts. If circumstances related to specific customers change, the estimates of the recoverability of receivables could be further adjusted.

Inventory
 
The Company performs regular detailed assessments of inventory, which include a review of, among other factors, demand requirements, product life cycle and development plans, component cost trends, product pricing, shelf life, and quality issues. Based on the analysis, the Company records adjustments to inventory for excess quantities, obsolescence or impairment when appropriate to reflect inventory at net realizable value. Historically, inventory reserves have been adequate to reflect inventory at net realizable values.
 
Goodwill
 
The Company’s methodology for allocating the purchase price of acquisitions is based on established valuation techniques that reflect the consideration of a number of factors, including valuations performed by third-party appraisers when appropriate. Goodwill is measured as the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed. Based on its current organization structure, the Company has seven reporting units for which cash flows are determinable and to which goodwill has been allocated.
 
The Company annually tests goodwill for impairment 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. The Company also performs an interim review for indicators of impairment each quarter to assess whether an interim impairment review is required for any reporting unit. As part of its interim reviews, management analyzes potential changes in the value of individual reporting units based on each reporting unit’s operating results for the period compared to expected results as of the prior year’s annual impairment test. In addition, management considers how other key assumptions, including discount rates and expected long-term growth rates, used in the last annual impairment test, could be impacted by changes in market conditions and economic events. Based on the interim assessments, management concluded that no events or changes in circumstances indicated that it was more likely than not that the fair value for any reporting unit had declined below its carrying value.
 
Quantitative Assessment for Impairment
 
For the seven reporting units with goodwill, the Company compares the estimated fair value of each reporting unit to its carrying value. If the carrying value of a reporting unit exceeded the estimated fair value, the difference between the estimated fair value and carrying value is recorded as the amount of the goodwill impairment charge. The results of the goodwill impairment test as of September 30, 2019 indicated that the estimated fair values for each of the seven reporting units exceeded their respective carrying values. Accordingly, there were no goodwill impairment charges recorded as part of the Company’s 2019 annual goodwill impairment test.
 
As part of its impairment test for these reporting units, the Company engaged a third-party appraisal firm to assist in the Company’s determination of the estimated fair values. This determination included estimating the fair value of each reporting unit using both

23





the income and market approaches. The income approach requires management to estimate a number of factors for each reporting unit, including projected operating results, economic projections, anticipated future cash flows, discount rates and the allocation of shared or corporate items. The market approach estimates fair values using comparable marketplace fair value data from within a comparable industry grouping. The Company weighted both the income and market approach equally to estimate the concluded fair value of each reporting unit. The determination of fair value requires the Company to make significant estimates and assumptions, which primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in which the Company competes; the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization and capital expenditures.
 
Goodwill Impairment Assumptions
 
Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the fair value of the reporting units. Future declines in the overall market value of the Company’s equity may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying value.
 
One measure of the sensitivity of the amount of goodwill impairment charges to key assumptions is the amount by which each reporting unit “passed” (fair value exceeds the carrying value) the goodwill impairment test. All seven of the reporting units passed the goodwill impairment test, with fair values that exceeded the carrying values by between 40% and 268% of their respective estimated fair values. As of the most recent annual test conducted on September 30, 2019, the Company noted that the excess of fair value over the carrying value, was 217%, 42%, 137%, 213%, 40%, 89%, and 268% for its reporting units: Electronics-Passive Products and Sensors, Electronics-Semiconductor, Passenger Car Products, Commercial Vehicle Products, Automotive Sensors, Relays, and Power Fuse, respectively. Relatively small changes in the Company’s key assumptions would not have resulted in any reporting units failing the goodwill impairment test.
 
Generally, changes in estimates of expected future cash flows would have a similar effect on the estimated fair value of the reporting unit. That is, a 1.0% decrease in estimated annual future cash flows would decrease the estimated fair value of the reporting unit by approximately 1.0%. The estimated long-term net sales growth rate can have a significant impact on the estimated future cash flows, and therefore, the fair value of each reporting unit. A 1.0% decrease in the long-term net sales growth rate would have resulted in no reporting units failing the goodwill impairment test. Of the other key assumptions that impact the estimated fair values, most reporting units have the greatest sensitivity to changes in the estimated discount rate. The estimated discount rate was 9.7% for the Electronics-Semiconductor, Passenger Car Products and Commercial Vehicle Products reporting units, and 10.7% for the Electronics-Passive Products and Sensor reporting unit and 11.7% for the Automotive Sensors, Power Fuse and Relays reporting units. A 1.0% increase in the estimated discount rates would have resulted in no reporting units failing the annual goodwill impairment test. The Company believes that its estimates of future cash flows and discount rates are reasonable, but future changes in the underlying assumptions could differ due to the inherent uncertainty in making such estimates. Additionally, price deterioration or lower volume could have a significant impact on the fair values of the reporting units.
 
Long-Lived Assets
 
The Company evaluates the recoverability of other long-lived assets, including property, plant and equipment and certain identifiable intangible assets, whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Factors which could trigger an impairment review include significant underperformance relative to historical or projected operating results, significant changes in the manner of use of the assets or the strategy for the overall business, a significant decrease in the market value of the assets or significant negative industry or economic trends. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying value of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying value over its fair value. During the year-ended December 28, 2019, the Company recognized non-cash impairment charges of $0.3 million for certain machinery and equipment related to the closure of a European manufacturing facility in the automotive sensors business within the Automotive segment. During the year ended December 29, 2018, the Company recognized non-cash impairment charges of $1.6 million and $0.5 million related to a building for sale and the Custom Products reporting unit trade name, respectively, associated with the exit of the Custom business within the Industrial Segment. During the year ended December 30, 2017, the Company recognized a loss of $2.9 million related to certain machinery and equipment in the Electronics and Automotive segments due to changes in the expected use of these certain assets.



24





Environmental Liabilities
 
Environmental liabilities are accrued based on estimates of the probability of potential future environmental exposure. Costs related to on-going maintenance of environmental sites are expensed as incurred. If actual or estimated probable future losses exceed the Company’s recorded liability for such claims, it would record additional charges as other expense during the period in which the actual loss or change in estimate occurred. The Company evaluates its reserve for coal mine remediation annually utilizing a third-party expert.
 
Pension and Supplemental Executive Retirement Plan
 
The Company records annual income and expense amounts relating to its pension and postretirement benefits plans based on calculations which include various actuarial assumptions including discount rates, expected long-term rates of return and compensation increases. The Company reviews its actuarial assumptions on an annual basis as of the fiscal year-end balance sheet date (or more frequently if a significant event requiring remeasurement occurs) and modifies the assumption based on current rates and trends when it is appropriate to do so. The effects of modifications are recognized immediately on the Consolidated Balance Sheets but are generally amortized into operating earnings over future periods, with the deferred amount recorded in accumulated other comprehensive income (loss). The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience, market conditions and input from its actuaries and investment advisors. The Company maintains several pension plans in international locations. The expected returns on plan assets and discount rates are determined based on each plan’s investment approach, local interest rates and plan participant profiles. The weighted-average
discount rates for the Company’s defined benefit plans primarily in Europe and the Asia-Pacific regions at December 28, 2019 and December 29, 2018 were 2.3% and 3.1%, respectively.

A 50 basis point change in the discount rates at December 28, 2019 would have the following effect on the projected benefit obligation:
 
(in millions)
0.5%
Increase
 
0.5%
Decrease
Projected benefit obligation
$
(8.9
)
 
$
9.7


Equity-based Compensation
 
Equity-based compensation expense is recorded for stock-option awards and restricted share units based upon the fair values of the awards. The fair value of stock-option awards is estimated at the grant date using the Black-Scholes option pricing model, which includes assumptions for volatility, expected term, risk-free interest rate and dividend yield. Expected volatility is based on implied volatilities from traded options on Littelfuse stock, historical volatility of Littelfuse stock and other factors. Historical data is used to estimate employee termination experience and the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company initiated a quarterly cash dividend in 2010 and expects to continue making cash dividend payments in the foreseeable future. The fair value of restricted share units is determined based on the Company's stock price on the grant date reduced by the present value of expected dividends through the vesting period.
 
Total equity-based compensation expense for all equity compensation plans was $19.9 million, $28.2 million, and $17.3 million in 2019, 2018, and 2017, respectively. Further information regarding this expense is provided in Note 12, Stock-Based Compensation, of the Notes to Consolidated Financial Statements included in this Annual Report.

Income Taxes
 
The Company accounts for income taxes using the liability method. Deferred taxes are recognized for the future effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. The Company recognizes deferred taxes for temporary differences, operating loss carryforwards and tax credit and other tax attribute carryforwards (excluding carryforwards where usage has been determined to be remote). Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. U.S. state and non-U.S. income taxes are provided on the portion of non-U.S. income that is expected to be remitted to the U.S. and be taxable (and non-U.S. income taxes are provided on the portion of non-U.S. income that is expected to be remitted to an upper-tier non-U.S. entity). Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

25





Deferred income taxes are not provided on the excess of the investment value for financial reporting over the tax basis of investments in those non-U.S. subsidiaries for which such excess is considered to be permanently reinvested in those operations. Management regularly evaluates whether non-U.S. earnings are expected to be permanently reinvested. This evaluation requires judgment about the future operating and liquidity needs of the Company and its non-U.S. subsidiaries. Changes in economic and business conditions, non-U.S. or U.S. tax laws (such as the Tax Act), or the Company’s financial situation could result in changes to these judgments and the need to record additional tax liabilities.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
On December 22, 2017, the U.S. enacted legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). Among other things, the Tax Act reduces the U.S. corporate federal income tax rate from 35% to 21%, adds base broadening provisions which limit deductions and address excessive international tax planning, imposes a one-time tax (the “Toll Charge”) on accumulated earnings of certain non-U.S. subsidiaries and enables repatriation of earnings of non-U.S. subsidiaries free of U.S. federal income tax. Other than the Toll Charge (which, except for the IXYS impact, was applicable to the Company for 2017), the provisions are generally applicable to the Company in 2018 and beyond.
 
In accordance with the guidance provided in SEC Staff Accounting Bulletin (“SAB”) No. 118, in the fourth quarter of 2017 the Company recorded a charge of $47.0 million as a provisional reasonable estimate of the impact of the Tax Act, including $49.0 million for the Toll Charge net of $2.0 million for other net tax benefits. In the fourth quarter of 2018, within the measurement period outlined in SAB No. 118, the Company finalized its estimates of the impact of the Tax Act as of December 29, 2018 and recorded a charge of $3.2 million, including $2.3 million for the Toll Charge and $0.9 million for the net impact of other items. In addition, the Company recorded $7.0 million for the Toll Charge associated with IXYS as part of the IXYS acquisition purchase price allocation. This was reflected in the opening balance sheet as an increase to goodwill and other long-term liabilities.

One of the base broadening provisions of the Tax Act is the global intangible low-taxed income provisions ("GILTI"). In accordance with guidance issued by the FASB staff, the Company has adopted an accounting policy to treat any GILTI inclusions as a period cost if and when incurred. Thus, for the fiscal years ended December 28, 2019 and December 29, 2018, deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.
 
Further information regarding income taxes, including a detailed reconciliation of current year activity, is provided in Note 14, Income Taxes, of the Notes to Consolidated Financial Statements included in this Annual Report.

Off-Balance Sheet Arrangements

The Company does not have off-balance sheet arrangements as defined under SEC rules. 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.


26






In the financial review that follows, the Company discusses its consolidated results of operations, financial position, cash flows and certain other information. This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and related notes.
 
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 28, 2019 AS COMPARED TO THE YEAR ENDED DECEMBER 29, 2018
 

The fiscal year 2019 included approximately $21.9 million of non-segment charges, of which $8.9 million of charges are acquisition- related and integration charges primarily related to the IXYS acquisition and other contemplated acquisitions, and $13.0 million of restructuring charges primarily related to employee termination costs. See Note 8, Restructuring, Impairment and Other Charges, for further discussion.


The fiscal year 2018 included approximately $88.7 million of non-segment charges, of which $82.9 million of charges are primarily related to the IXYS acquisition as described in Note 2, Acquisitions and Dispositions, of the Notes to Consolidated Financial Statements included in this Annual Report. These charges include $36.9 million of purchase accounting inventory step-up charges, $18.7 million in acquisition-related and integration costs primarily related to legal, accounting and other expenses, $12.4 million in backlog amortization costs, $8.3 million of employee termination costs and other restructuring charges, $4.5 million of stock compensation expense recognized immediately upon close for converted IXYS options related to prior service periods, and $2.1 million change in control expense related to IXYS. In addition, there were $5.8 million of employee termination costs, impairment and other restructuring charges and acquisition-related expenses for other contemplated acquisitions, which included charges associated with the exit of the Custom business in the second quarter within the Industrial segment.

 
Fiscal year 2019 also included approximately $5.2 million in foreign currency exchange losses primarily attributable to changes in the value of the euro, Chinese renminbi, and Japanese Yen against the U.S. dollar, while fiscal year 2018 also included approximately $0.9 million in foreign currency exchange gains primarily attributable to changes in the value of the euro, Mexico peso, Philippine peso and Chinese renminbi against the U.S. dollar.
 
 
Fiscal Year
 
 
 
 
(in thousands, except % change)
2019
 
2018
 
Change
 
% Change
Net sales
$
1,503,873

 
$
1,718,468

 
$
(214,595
)
 
(12.5
)%
Gross profit
541,449

 
652,541

 
(111,092
)
 
(17.0
)%
Operating expenses
348,658

 
427,492

 
(78,834
)
 
(18.4
)%
Operating income
192,791

 
225,049

 
(32,258
)
 
(14.3
)%
Other income, net
(583
)
 
(1,599
)
 
1,016

 
(63.5
)%
Income before income taxes
165,884

 
204,942

 
(39,058
)
 
(19.1
)%
Income taxes
26,802

 
40,377

 
(13,575
)
 
(33.6
)%
Net income
139,082

 
164,565

 
(25,483
)
 
(15.5
)%
 
Net Sales
 
Net sales for 2019 of $1,503.9 million decreased $214.6 million, or 12.5%, compared to the prior year primarily due to lower volume across the Electronics and Automotive segments driven by electronics distribution partners and end customers reducing excess inventories, a decline in global auto production and a decline in global end market demand, and $25.0 million or 1.5% of unfavorable changes in foreign exchange rates. 

Gross Profit
 
Gross profit was $541.4 million, or 36.0% of net sales, in 2019, compared to $652.5 million, or 38.0% of net sales, in 2018. The decrease in gross profit is primarily due to lower volumes across the Electronics and Automotive segments driven by electronics distribution partners and end customers reducing excess inventories, a decline in global auto production and a decline in global

27





end market demand, unfavorable price and product mix, and costs related to restructuring activities taken during 2019. In 2018 the IXYS purchase accounting inventory step-up charge of $36.9 million negatively impacted the 2018 gross margin by 2.1%.
 
Operating Expenses
 
Total operating expenses were $348.7 million, or 23.2% of net sales, for 2019 compared to $427.5 million, or 24.9% of net sales, for 2018. The decrease in operating expenses of $78.8 million was primarily due to lower annual incentive compensation expenses, reduced backlog amortization expense of $12.4 million, lower acquisition-related and integration costs of $11.3 million, global cost saving initiatives, and $4.5 million stock compensation expense and $2.1 million of change in control expense related to the 2018 IXYS acquisition.
 
Operating Income
 
Operating income for 2019 was $192.8 million, a decrease of $32.3 million or 14.3% compared to $225.0 million for 2018. The decrease in operating income is primarily due to lower gross profit across the Electronics and Automotive segments, partially offset by lower operating expenses noted above and the $36.9 million purchase accounting inventory step-up charges in 2018. Operating margins decreased from 13.1% in 2018 to 12.8% in 2019 primarily driven by lower gross profit margin discussed above.

Income Before Income Taxes
 
Income before income taxes for 2019 was $165.9 million, or 11.0% of net sales compared to $204.9 million, or 11.9% of net sales, for 2018. In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was unfavorably impacted by foreign exchange losses of $5.2 million during the fiscal year ended December 28, 2019 compared to foreign exchange gains of $0.9 million during the fiscal year ended December 29, 2018, and decreases of $1.0 million in other income primarily due to the impairment charges of $7.3 million for certain other investments and a $2.6 million loss on the disposal of a business within the Electronics segment during the fiscal year 2019, partially offset by unrealized investment gains associated with our equity investments and higher interest income.


Income Taxes
 
Income tax expense for 2019 was $26.8 million, or an effective tax rate of 16.2% compared to income tax expense of $40.4 million, or an effective tax rate of 19.7%, for 2018. The 2019 income tax expense includes a benefit of $3.3 million from the recognition of previously unrecognized tax benefits (and the reversal of the related accrued interest) due to a lapse in the statute of limitations.
The 2018 income tax expense includes a charge of $3.2 million associated with finalizing the 2017 provisional reasonable estimate, including $2.3 million for the Toll Charge and $0.9 million for the net impact of other items. Additionally, our tax rates are lower than the applicable U.S. statutory tax rate primarily due to income earned in lower tax jurisdictions, partially offset by the impact of taxes on unremitted earnings, the GILTI tax provisions and non-U.S. losses and expenses with no tax benefit.


Segment Information
 
The Company reports its operations by the following segments: Electronics, Automotive and Industrial. Segment information is described more fully in Note 16, Segment Information, of the Notes to Consolidated Financial Statements included in this Annual Report.
 
The following table is a summary of the Company’s net sales by segment:
 
 
Fiscal Year
 
 
 
 
(in millions)
2019
 
2018
 
Change
 
% Change
Electronics
$
961.1

 
$
1,124.3

 
$
(163.2
)
 
(14.5
)%
Automotive
428.5

 
479.8

 
(51.3
)
 
(10.7
)%
Industrial
114.3

 
114.4

 
(0.1
)
 
(0.1
)%
Total
$
1,503.9


$
1,718.5


$
(214.6
)
 
(12.5
)%
 


28





Electronics Segment
 
The Electronics segment net sales decreased $163.2 million, or 14.5%, in 2019 compared to 2018 primarily due to lower volume across all businesses due to electronics distribution partners and end customer reducing excess inventories, a decline in global end market demand, and unfavorable changes in foreign exchange rates of $13.5 million.
 
Automotive Segment
 
Net sales in the Automotive segment decreased $51.3 million, or 10.7%, in 2019 compared to 2018 due to lower volume across all businesses primarily from a decline in global auto production, declines in commercial vehicle end market demand, and unfavorable changes in foreign exchange rates of $10.9 million.

Industrial Segment
 
The Industrial segment net sales decreased slightly by $0.1 million, or 0.1%, in 2019 compared to 2018 primarily due to the exit of the Custom business during the second quarter of 2018 and unfavorable changes in foreign exchange rates of $0.6 million, partially offset by higher volume across all businesses.
 


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:
 
 
Fiscal Year
 
 
 
 
(in millions)
2019
 
2018
 
Change
 
% Change
Asia-Pacific
$
656.8

 
$
753.3

 
$
(96.5
)
 
(12.8
)%
Americas
508.4

 
578.6

 
(70.2
)
 
(12.1
)%
Europe
338.7

 
386.6

 
(47.9
)
 
(12.4
)%
Total
$
1,503.9

 
$
1,718.5

 
$
(214.6
)
 
(12.5
)%
 
Asia-Pacific
 
Asia-Pacific net sales decreased $96.5 million, or 12.8%, in 2019 compared to 2018. The decrease in net sales was primarily due to lower volume across all businesses within the Electronics segment and the Automotive segment, and unfavorable changes in foreign exchange rates of $6.8 million.

 
Americas
 
Net sales in the Americas decreased $70.2 million, or 12.1%, in 2019 compared to 2018 primarily due to lower volume across all businesses within the Electronics segment and the Automotive segment, the exit of the Custom business within Industrial segment during the second quarter of 2018 and unfavorable changes in foreign exchange rates of $0.8 million, partially offset by higher volume in the power fuse and relay business within Industrial segments.
 
Europe
 
European net sales decreased $47.8 million, or 12.4%, in 2019 compared to 2018. The decrease in net sales was primarily due to lower volume across all businesses within the Electronics segment and the Automotive segment, and unfavorable changes in foreign exchange rates of $17.4 million, partially offset by higher volume in the power fuse business within the Industrial segment.




29





RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 29, 2018 AS COMPARED TO THE YEAR ENDED DECEMBER 30, 2017
 
The following table summarizes the Company’s consolidated results of operations for periods presented. The fiscal year 2018 includes approximately $88.7 million of non-segment charges, of which $82.9 million of charges are primarily related to the IXYS acquisition as described in Note 2, Acquisitions and Dispositions, of the Notes to Consolidated Financial Statements included in this Annual Report. These charges include $36.9 million of purchase accounting inventory step-up charges, $18.7 million in acquisition-related and integration costs primarily related to legal, accounting and other expenses, $12.4 million in backlog amortization costs, $8.3 million of employee termination costs and other restructuring charges, $4.5 million of stock compensation expense recognized immediately upon close for converted IXYS options related to prior service periods, and $2.1 million change in control expense related to IXYS. In addition, there were $5.8 million of employee termination costs, impairment and other restructuring charges and acquisition-related expenses for other contemplated acquisitions and included charges associated with the exit of the Custom business in the second quarter within the Industrial segment.
 
The fiscal year 2017 includes approximately $10.3 million of non-segment charges. These included acquisition-related and integration costs related to legal, accounting and other expenses associated with completed or pending acquisitions of approximately $8.0 million, including $1.6 million of purchase accounting inventory charges related to the Company’s 2017 acquisition of U.S. Sensor as described in Note 2, Acquisitions and Dispositions, of the Notes to Consolidated Financial Statements included in this Annual Report, and $2.2 million of charges related to restructuring and production transfers in the Company’s Asia operations.
 
Fiscal year 2018 also included approximately $0.9 million in foreign currency exchange gains primarily attributable to changes in the value of the euro, Mexico peso, Philippine peso and Chinese renminbi against the U.S. dollar, while fiscal year 2017 also included approximately $2.4 million in foreign currency exchange losses primarily attributable to changes in the value of the euro, Philippine peso and Chinese renminbi against the U.S. dollar.

 
 
Fiscal Year
 
 
 
 
(in thousands, except % change)
2018
 
2017
 
Change
 
% Change
Net sales
$
1,718,468

 
$
1,221,534

 
$
496,934

 
40.7
 %
Gross profit
652,541

 
506,533

 
146,008

 
28.8
 %
Operating expenses
427,492

 
288,022

 
139,470

 
48.4
 %
Operating income
225,049

 
218,511

 
6,538

 
3.0
 %
Other income, net
(1,599
)
 
(1,282
)
 
(317
)
 
24.7
 %
Income before income taxes
204,942

 
204,037

 
905

 
0.4
 %
Income taxes
40,337

 
84,518

 
(44,181
)
 
(52.3
)%
Net income
164,565

 
119,519

 
45,046

 
37.7
 %
 
Net Sales
 
Net sales for 2018 of $1,718.5 million increased $496.9 million, or 40.7%, compared to the prior year with increases of $378.2 million and $6.5 million resulting from incremental net sales related to the IXYS and U.S. Sensor acquisitions, respectively, $16.7 million of favorable changes in foreign exchange rates, and volume growth across all three segments.

Gross Profit
 
Gross profit was $652.5 million, or 38% of net sales, in 2018, compared to $506.5 million, or 41.5% of net sales, in 2017. The increase in gross profit reflects the IXYS acquisition and volume growth and expense leverage across all segments. The decrease in gross margin is primarily due to the purchase accounting inventory charges of $36.9 million, which negatively impacted gross margin by 2.1 percentage points, and an unfavorable mix of products from the IXYS acquisition, which historically had lower gross margins.

 Operating Expenses
 
Total operating expenses were $427.5 million, or 24.9% of net sales, for 2018 compared to $288.0 million, or 23.6% of net sales, for 2017. The increase in operating expenses of $139.5 million was primarily due to the incremental operating expenses related

30





to the IXYS and U.S. Sensor acquisitions, an increase in amortization expense of $27.5 million resulting from the acquisition of IXYS as well as higher acquisition-related and integration costs of $12.1 million. Total operating expenses as a percent of net sales increased from 23.6% in 2017 to 24.9% in 2018 primarily due to the higher amortization expense and acquisition-related and integration charges noted above.
 
Operating Income
 
Operating income for 2018 was $225.0 million, an increase of $6.5 million or 3.0% compared to $218.5 million for 2017. The increase in operating income is primarily due to the acquisition of IXYS and volume growth in the Electronics and Industrial segments, partially offset by $36.9 million of purchase accounting inventory charges, higher acquisition-related and integration charges and amortization expense. Operating margins decreased from 17.9% in 2017 to 13.1% in 2018 driven by the purchase accounting inventory charges, higher amortization expense and acquisition-related and integration charges that negatively impacted margins by 2.1%, 1.6% and 0.7%, respectively.
 
Income Before Income Taxes
 
Income before income taxes for 2018 was $204.9 million, or 11.9% of net sales compared to $204.0 million, or 16.7% of net sales, for 2017. In addition to the factors impacting comparative results for operating income discussed above, income before income taxes was unfavorably impacted by higher interest expense of $9.2 million mainly resulting from increased borrowings, partially offset by increases in foreign exchange gains of $3.2 million.

Income Taxes
 
Income tax expense for 2018 was $40.4 million, or an effective tax rate of 19.7% compared to income tax expense of $84.5 million, or an effective tax rate of 41.4%, for 2017. The 2018 income tax expense includes a charge of $3.2 million associated with finalizing the 2017 provisional reasonable estimate, including $2.3 million for the Toll Charge and $0.9 million for the net impact of other items. The 2017 income tax expense includes a charge of $47 million as a provisional reasonable estimate of the impact of the Tax Act, including $49 million for the Toll Charge net of $2 million for other net tax benefits. Additionally, our tax rates are lower than the applicable U.S. statutory tax rate primarily due to income earned in lower tax jurisdictions, partially offset by the impact of taxes on unremitted earnings, and, with respect to 2018, the impact of the GILTI provisions of the Tax Act and non-U.S. losses and expenses with no tax benefit.

Segment Information
 
The Company reports its operations by the following segments: Electronics, Automotive and Industrial. Segment information is described more fully in Note 16, Segment Information, of the Notes to Consolidated Financial Statements included in this Annual Report.
 
The following table is a summary of the Company’s net sales by segment:
 
 
Fiscal Year
 
 
 
 
(in millions)
2018
 
2017
 
Change
 
% Change
Electronics
$
1,124.3

 
$
661.9

 
$
462.4

 
69.9
%
Automotive
479.8

 
453.2

 
26.6

 
5.9
%
Industrial
114.4

 
106.4

 
8.0

 
7.5
%
Total
$
1,718.5

 
$
1,221.5

 
$
497.0

 
40.7
%

Electronics Segment
 
The Electronics segment net sales increased $462.4 million, or 69.9%, in 2018 compared to 2017 due to incremental net sales related to the IXYS and U.S. Sensor acquisitions of $378.2 million and $6.5 million, respectively, volume growth driven by the continued strong demand across various end markets and geographies, and favorable foreign exchange impacts of $6.5 million.






31





Automotive Segment
 
Net sales in the Automotive segment increased $26.6 million, or 5.9%, in 2018 compared to 2017 due to volume growth across all businesses primarily led by the commercial vehicle and sensor businesses, and favorable foreign exchange impacts of $9.8 million.

Industrial Segment
 
The Industrial segment net sales increased $8.0 million, or 7.5%, in 2018 compared to 2017 primarily due to volume growth in the power fuse and relay businesses and favorable foreign exchange impacts of $0.4 million, partially offset by a decline in sales from the exit of the Custom business during 2018.

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:
 
 
Fiscal Year
 
 
 
 
(in millions)
2018
 
2017
 
Change
 
% Change
Asia-Pacific
$
753.3

 
$
541.1

 
$
212.2

 
39.2
%
Americas
578.6

 
436.5

 
142.1

 
32.6
%
Europe
386.6

 
243.9

 
142.7

 
58.5
%
Total
$
1,718.5

 
$
1,221.5

 
$
497.0

 
40.7
%
 
Asia-Pacific
 
Asia-Pacific net sales increased $212.2 million, or 39.2%, in 2018 compared to 2017. The increase in net sales was primarily due to incremental net sales related to the IXYS acquisition of $173.9 million and volume growth across all segments as well as favorable foreign exchange impacts of $3.7 million.

Americas
 
Net sales in the Americas increased $142.1 million, or 32.6%, in 2018 compared to 2017 driven by incremental net sales related to the IXYS and U.S. Sensor acquisitions of $90.7 million and $5.5 million, respectively, volume growth across all segments and favorable foreign exchange impacts of $0.4 million.
 
Europe
 
European net sales increased $142.7 million, or 58.5%, in 2018 compared to 2017. The increase in net sales was primarily due to incremental net sales related to the IXYS acquisition of $113.6 million with volume growth across the Electronics and Automotive segments as well as favorable foreign exchange impacts of $12.6 million. 


Liquidity and Capital Resources
 
Cash and cash equivalents were $531.1 million as of December 28, 2019, an increase of $41.4 million as compared to December 29, 2018.
 
As of December 28, 2019, $333.2 million of the Company's $531.1 million cash and cash equivalents was held by non-U.S. subsidiaries. Of the $333.2 million, at least $165 million can be repatriated with minimal tax consequences, although in certain cases a non-U.S. withholding tax would be payable but subsequently refunded. With respect to the remaining $168.2 million, the Company has recognized deferred tax liabilities on approximately $78.5 million as of December 28, 2019 because the amounts are not considered to be permanently reinvested, and the Company may access additional amounts through loans and other means. Repatriation of some non-U.S. cash balances is restricted by local laws. Management regularly evaluates whether foreign earnings are expected to be permanently reinvested. This evaluation requires judgment about the future operating and liquidity needs of the Company and its foreign subsidiaries. Changes in economic and business conditions, non-U.S. or U.S. tax laws could result in changes to these judgments and the need to record additional tax liabilities.

32






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.
 
Revolving Credit Facility/Term Loan
 
On March 4, 2016, the Company entered into a five-year credit agreement (“Credit Agreement”) with a group of lenders for up to $700.0 million. The Credit Agreement consisted of an unsecured revolving credit facility (“Revolving Credit Facility”) of $575.0 million and an unsecured term loan credit facility (“Term Loan”) of up to $125.0 million. In addition, the Company had the ability, from time to time, to increase the size of the Revolving Credit Facility and the Term Loan by up to an additional $150.0 million, in the aggregate, in each case in minimum increments of $25.0 million, subject to certain conditions and the agreement of participating lenders.
 
On October 13, 2017, the Company amended the Credit Agreement to increase the Revolving Credit Facility from $575.0 million to $700.0 million and increase the Term Loan from $125.0 million to $200.0 million and to extend the expiration date from March 4, 2021 to October 13, 2022. The Credit Agreement also includes the option for the Company to increase the size of the Revolving Credit Facility and the Term Loan by up to an additional $300.0 million, in the aggregate, subject to the satisfaction of certain conditions set forth in the Credit Agreement. Term Loans may be made in up to two advances. The first advance of $125.0 million occurred on October 13, 2017 and the second advance of $75.0 million occurred on January 16, 2018. For the Term Loan, the Company is required to make quarterly principal payments of 1.25% of the original term loan ($2.5 million quarterly) through maturity, with the remaining balance due on October 13, 2022. The Company paid $10.0 million of principal payments on the Term Loan for the fiscal year ended December 28, 2019.

Outstanding borrowings under the Credit Agreement bear interest, at the Company’s option, at either LIBOR fixed for interest periods of one, two, three or six-month periods plus 1.00% to 2.00%, or at the bank’s Base Rate, as defined, plus 0.00% to 1.00%, based upon the Company’s Consolidated Leverage Ratio, as defined. The Company is also required to pay commitment fees on unused portions of the credit agreement ranging from 0.15% to 0.25%, based on the Consolidated Leverage Ratio, as defined in the agreement. The credit agreement includes representations, covenants and events of default that are customary for financing transactions of this nature. The effective interest rate on outstanding borrowings under the credit facility was 3.20% at December 28, 2019.

As of December 28, 2019, the Company had no amounts outstanding in letters of credit and had available $353.4 million of borrowing capacity under the Revolving Credit Facility.

Senior Notes
 
On December 8, 2016, the Company entered into a Note Purchase Agreement, pursuant to which the Company issued and sold €212 million aggregate principal amount of senior notes in two series. The funding date for the Euro denominated senior notes occurred on December 8, 2016 for €117 million in aggregate amount of 1.14% Senior Notes, Series A, due December 8, 2023 (“Euro Senior Notes, Series A due 2023”), and €95 million in aggregate amount of 1.83% Senior Notes, Series B due December 8, 2028 (“Euro Senior Notes, Series B due 2028”) (together, the “Euro Senior Notes”). Interest on the Euro Senior Notes is payable semiannually on June 8 and December 8, commencing June 8, 2017.
 
On December 8, 2016, the Company entered into a Note Purchase Agreement, pursuant to which the Company issued and sold $125 million aggregate principal amount of senior notes in two series. On February 15, 2017, $25 million in aggregate principal amount of 3.03% Senior Notes, Series A, due February 15, 2022 (“U.S. Senior Notes, Series A due 2022”), and $100 million in aggregate principal amount of 3.74% Senior Notes, Series B, due February 15, 2027 (“U.S. Senior Notes, Series B due 2027”) (together, the “U.S. Senior Notes due 2022 and 2027”) were funded. Interest on the U.S. Senior Notes due 2022 and 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” and with the Euro Senior Notes and the U.S. Senior Notes due 2022 and

33





2027, the “Senior Notes”) were funded. Interest on the U.S. Senior Notes due 2025 and 2030 is payable semiannually on February 15 and August 15, commencing August 15, 2018.
 
The Company was in compliance with its debt covenants as of December 28, 2019 and expects to remain in compliance based on management’s estimates of operating and financial results for 2020 and the foreseeable future. As of December 28, 2019, 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
 
During the year ended December 29, 2018, the Company paid $306.5 million, net of cash acquired, for the acquisition of IXYS. Pursuant to the Securities Purchase Agreement, the Company paid $9.0 million for the acquisition of the remaining 38% outstanding common stock of Monolith during the year ended December 29, 2018. The Company financed the cash portion of the IXYS acquisition with a combination of cash on hand and borrowings under the credit facility.

During the year ended December 30, 2017, the Company paid $38.5 million, net of cash acquired, for the acquisitions of U.S Sensor and Monolith. The Company financed these acquisitions with a combination of cash on hand and borrowings under the credit facility.
 
 
Cash Flow Overview
 
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.
 
The following describes the Company’s cash flows for the twelve months ended December 28, 2019 and December 29, 2018:
 
 
Fiscal Year
(in millions)
2019
 
2018
Net cash provided by operating activities
$
245.3

 
$
331.8

Net cash used in investing activities
(56.4
)
 
(382.3
)
Net cash (used in) provided by financing activities
(146.3
)
 
121.9

Effect of exchange rate changes on cash and cash equivalents
(1.2
)
 
(11.4
)
Increase in cash and cash equivalents
41.4


60.0

Cash and cash equivalents at beginning of year
489.7

 
429.7

Cash and cash equivalents at end of year
$
531.1


$
489.7

 
Cash Flow from Operating Activities

Net cash provided by operating activities was $245.3 million for 2019, compared to $331.8 million during 2018. The decrease in net cash provided by operating activities was primarily driven by lower earnings and higher working capital levels primarily due to the timing of supplier payments, payroll year-end cut off and higher annual incentive compensation payments in 2019.

Cash Flow from Investing Activities
 
Net cash used in investing activities was $56.5 million for 2019, compared to $382.3 million during 2018. Net cash used for the acquisition of IXYS was $306.5 million and $9.0 million for the acquisition of the remaining 38% outstanding common stock of Monolith in 2018. Capital expenditures were $61.9 million, representing a decrease of $12.9 million compared to 2018. The Company also received proceeds of $6.2 million in 2019 primarily as a result of the sale of a property within the Industrial segment.
 
Cash Flow from Financing Activities
 
Net cash used in financing activities was $146.3 million for 2019 compared to net cash provided by financing activities of $121.9 million for 2018. The Company repurchased 579,916 shares of its common stock during fiscal 2019 totaling $95.0 million, but made payments of $99.4 million related to settled share repurchases. The Company made payments of $10.0 million on the term

34





loan in 2019 as compared to $310.0 million of proceeds from the credit facility, term loan and senior notes payable and $102.5 million of payments on the credit facility and term loan during 2018.
 
The following describes the Company’s cash flows for the twelve months ended December 29, 2018 and December 30, 2017:
 
 
Fiscal Year
(in millions)
2018
 
2017
Net cash provided by operating activities
$
331.8

 
$
269.2

Net cash used in investing activities
(382.3
)
 
(96.1
)
Net cash provided by (used in) financing activities
121.9

 
(24.7
)
Effect of exchange rate changes on cash and cash equivalents
(11.4
)
 
6.2

Increase (decrease) in cash and cash equivalents
60.0