What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-18 compared with 2020-02-21 · 260 added, 165 removed, 350 unchanged (55% of the section changed)

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Net sales decreased by $58.2 million, or 3.9%, in 2020 compared to 2019.

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 decrease was primarily driven by production disruptions during the first half of 2020 due to temporary closures of several of the company’s manufacturing facilities and reduced demand due to customer shutdowns, resulting from government directives due to the impact of COVID-19.

This was partially offset by volume increases across all of the company’s businesses in the second half of 2020, led by higher production levels, increased demand from work-from-home and stay-at-home trends, and higher demand in a number of other end markets that the Company sells into, such as passenger vehicles, and $7.7 million or 0.5% of favorable changes in foreign exchange rates.

The Company recognized net income of $130.0 million, or $5.29 per diluted share, in 2020 compared to net income of $139.1 million, or $5.60 per diluted share in 2019.

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

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.

The decrease in net income is primarily due to the second quarter goodwill impairment charge of $33.8 million, lower sales in the first half of 2020 driven by COVID-19 production disruptions partially offset by a net increase in foreign exchange gains of $20.1 million and operating expense cost reductions.

The Company continues to take actions to improve its cost structure.

The Company expects to realize cost savings from the restructuring activities taken during 2019 and 2020, including the reorganization of certain research and development, selling and administrative functions across all segments.

The Company is also in process of several restructuring activities across its manufacturing and supply chain footprint, including the consolidation of a manufacturing facility within the Industrial Segment, which is expected to be completed in the first half of 2021.

Net cash provided by operating activities was $258.0 million for the year ended December 26, 2020 as compared to $245.3 million for the year ended December 28, 2019.

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.

The increase in net cash provided by operating activities was primarily due to lower annual incentive payments and reductions in net working capital partially offset by lower earnings largely due to the impact of COVID-19.

On April 3, 2020, the Company amended the Credit Agreement to effect certain changes, including, among others:

(i) eliminating the $200.0 million unsecured term loan credit facility, the remaining outstanding balance ($140.0 million) of which was repaid in full on April 3, 2020 through the revolving credit facility;

(ii) making certain financial and non-financial covenants less restrictive on the Company;

(iii) modifying performance-based interest rate margins and undrawn fees;

and (iv) extending the maturity date to April 3, 2025.

The amended Credit Agreement also allows the Company to increase the size of the revolving credit facility or enter into one or more tranches of term loans if there is no event of default and the Company is in compliance with certain financial covenants.

The Company made payments of $110.0 million on the amended revolving credit facility during the fiscal year ended December 26, 2020.

The balance under the facility was $130.0 million as of December 26, 2020.

On April 7, 2020, the Company entered into a definitive agreement to purchase a group annuity contract, under which an insurance company will be required to directly pay and administer pension payments to certain of the Company’s UK pension plan participants, or their designated beneficiaries.

The purchase of this group annuity contract will reduce the Company’s outstanding pension benefit obligation by approximately $55 million, representing approximately 37% of the total obligations of the Company’s qualified pension plans, and will be funded with pension plan assets and additional cash on hand.

In connection with this transaction, the Company will record a one-time non-cash settlement charge in the second half of 2021 currently estimated between $18 million and $22 million, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan.

The actual settlement charge could differ from this estimate due to final data and plan wind-up expenses.

On January 28, 2021, the Company acquired Hartland Controls, a manufacturer and leading supplier of electrical components used primarily in heating, ventilation, air conditioning (HVAC) and other industrial and control systems applications with annualized sales of approximately $70 million.

The cash purchase price for Hartland Controls was approximately $113 million and the operations of Hartland Controls will be included in the Industrial segment.

Impact of COVID-19 on Business

The Company continued to manage through the COVID-19 impacts throughout the year, with significant improvement to its financial results in the second half of 2020 compared to the first half of 2020.

Our manufacturing facilities generally operated at normal capacity levels during the second half of the year as production disruptions were minimal.

The effects from COVID-19 are continuing to drive increased costs, from spending on personal protective equipment ("PPE"), additional personnel and employee transportation costs, and manufacturing inefficiencies, as well as an increase in freight costs for our products due to the transportation capacity constraints across the world.

This was partially offset during 2020 by the receipt of cash subsidies from international government COVID-19 relief programs.

The Company’s priorities continue to be first, on our associates, their families and the communities in which we operate;

second, our customers;

and third, long-term financial health of the company.

In an effort to protect the health and safety of our employees, the Company enacted numerous proactive, aggressive actions at its facilities globally in the first quarter of 2020, and implemented a number of safety procedures including hygiene and disinfection protocols, social distancing and wearing PPE.

The Company expects these actions will continue for the foreseeable future.

During 2020, governments around the world enacted various measures in an effort to contain COVID-19 and slow its spread.

These measures included orders to close all businesses not deemed “essential”, isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities, which disrupted certain of our operating locations in around the world in the first half of 2020.

During the second half of 2020, all of our manufacturing facilities were operational and were generally running at normal capacity levels.

The Company continues to work with customers to meet production requirements for their products, many of which are considered essential, including healthcare and medical devices, transportation, communication and energy infrastructure.

The Company anticipates that the global health crisis caused by COVID-19 may continue to negatively impact its business activity for the foreseeable future.

It is currently difficult to estimate the magnitude of the COVID-19 disruption, if future disruptions will occur due to a resurgence in COVID-19 cases and its impact on our employees, customers, suppliers and

The Company will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and other stakeholders, or as required by federal, state, or local authorities.

It is not clear what the potential effects any such alterations or modifications may have on our business and operations, including the effects on our customers, employees, and prospects, or on our financial results for the fiscal year 2021.

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 closely collaborates with its customers to design and manufacture innovative and reliable solutions for a safer, connected, and more sustainable world in virtually every market that uses electrical energy;

for example, transportation applications like passenger and commercial vehicles, including eMobility, industrial applications like renewables and energy storage, HVAC and industrial automation and safety, motor drives and power conversion, and electronics applications like data centers and telecommunications, medical devices, home and building automation, appliances, and mobile and consumer electronics.

Built upon that framework, the secular growth themes of a safer, connected, and more sustainable world, drive increased product content opportunities.

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

Strategic Objectives 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

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● Targeted mergers and acquisitions

Focus on higher profitability growth opportunities

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

Cash flow and liquidity ● Disciplined management of working capital

● Deployment of capital consistent with capital allocation priorities

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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.

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.

In addition, 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 has entered the last year of its current five-year growth strategy which is defined below.

As such, the Company will host a virtual investor and analyst event on February 23, 2021 to share the specific details of its new five-year strategic plan, which reinforces the Company’s continued commitment to profitable growth building on its achievements from its previous five-year plans.

The Company uses several key indicators to gauge progress toward achieving these objectives.

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Fiscal Year Ended December 26, 2020

(in thousands)

(in thousands) Electronics

Segment Automotive

Segment Industrial

Electronics – Semiconductor $ 522,352 $ — $ — $ 522,352

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Industrial Products — — 112,169 112,169

Total $ 937,762 $ 395,764 $ 112,169 $ 1,445,695

Fiscal Year Ended December 28, 2019

(in thousands)

(in thousands) Electronics

Segment Automotive

Segment Industrial

Electronics – Semiconductor $ 539,820 $ — $ — $ 539,820

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Industrial Products — — 114,260 114,260

Total $ 961,080 $ 428,533 $ 114,260 $ 1,503,873

During the fourth quarter of 2020, the Company transferred a business previously reported within the Electronics-Semiconductor reporting unit to the Electronics-Passive Products and Sensors reporting units.

This transfer aligns with how this business will be managed and is complimentary with existing electronics passive products and sensors and markets into which they sell.

The 2019 disaggregated revenue table has been reclassified to reflect this change.

This transfer had no impact to the Electronics segment results.

See Note 16, Segment Information, for net sales by segment and countries.

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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’s sales 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.

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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

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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.

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.

Return to Stock

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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.

The Company currently measures the expected credit losses based on our historical credit loss experience.

The Company has not experienced significant recent or historical credit losses and is not forecasting any significant credit losses which would require adjustments to our methodology.

If current conditions and supportable forecasts indicate that our historical loss experience is not reasonable and no longer supportable, the Company may adjust its historical credit loss experience and to reflect these conditions and forecasts.

The Company regularly analyzes its significant customer accounts and, when the Company becomes aware of a 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 analyzes 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 historical collection and loss experience.

Historically, the allowance for doubtful accounts has been adequate to cover bad debts.

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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.

Historically, inventory reserves have been adequate to reflect inventory at net realizable value.

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.

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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.

During the second quarter of 2020, the Company recorded a non-cash charge of $33.8 million to recognize the impairment of goodwill in the automotive sensors reporting unit within the Automotive segment.

The goodwill impairment charge was due to reductions in the estimated fair value for the automotive sensors reporting unit based on lower expectations for future revenue, profitability and cash flows as compared to the expectations of the 2019 annual goodwill impairment test.

These lower future expectations were driven by projected extended declines in end market demand due to the COVID-19 pandemic.

during the second quarter of 2020, certain customers notified the Company of their decision to delay future programs along with a customer canceling an existing program.

As of December 26, 2020, the automotive sensors reporting unit had $9.8 million of remaining goodwill.

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.

If the carrying value of a reporting unit exceeds 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 27, 2020 indicated that the estimated fair values for each of the seven reporting units exceeded their respective carrying values.

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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

the income and market approaches.

This determination included estimating the fair value of each reporting unit using both 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.

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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.

All seven of the reporting units passed the goodwill impairment test, with fair values that exceeded the carrying values between 44% and 218% of their respective estimated fair values.

As of the most recent annual test conducted on September 27, 2020, the Company noted that the excess of fair value over the carrying value was 218%, 44%, 160%, 137%, 59%, 139%, and 210% for its reporting units:

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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.

The estimated discount rate was 10.2% for the Electronics-Passive Products and Sensor and the Electronics-Semiconductor reporting units, 9.2% for the Passenger Car Products and Commercial Vehicle Products reporting units, 11.2% for the Automotive Sensors reporting unit, 12.2% for the Relays reporting unit and 11.2% for the Power Fuse reporting unit.

A 1.0% increase in the estimated discount rates would have resulted in no reporting units failing the annual goodwill impairment test.

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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.

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.

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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.

During the first quarter of 2020, the Company recognized a $2.2 million impairment charge related to the land and building associated with the Company’s announced consolidation of a manufacturing facility within the Industrial segment.

For 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.

Environmental Liabilities

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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.

The weighted-average discount rates for the Company’s defined benefit plans primarily in Europe and the Asia-Pacific regions at December 26, 2020 and December 28, 2019 were 1.2% and 2.3%, respectively.

A 50 basis point change in the discount rates at December 26, 2020 would have the following effect on the projected benefit obligation:

(in millions) 0.5%

Increase 0.5%

Projected benefit obligation $ (11.3) $ 12.4

The actual settlement charge could differ from this estimate due to final data and plan wind-up expenses.

Equity-based Compensation

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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.

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.

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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 Company initiated a quarterly cash dividend in 2010 and expects to continue making cash dividend payments for 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.

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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.

The Company accounts for income taxes using the liability method.

The Company accounts for income taxes using the asset and 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.

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Changes in economic and business conditions, non-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.

tax laws, 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.

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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.

Among other things, the Tax Act reduced the U.S.

corporate federal income tax rate from 35% to 21%, added base broadening provisions which limit deductions and address excessive international tax planning, imposed a one-time tax (the “Toll Charge”) on accumulated earnings of certain non-U.S.

subsidiaries and enabled 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 the fourth quarter of 2018, within the measurement period outlined in SEC Staff Accounting Bulletin (“SAB”) No.

118, the Company finalized its estimates of the impact of the Tax Act 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.

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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.

Thus, for the fiscal years ended December 26, 2020, 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.

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RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 26, 2020 AS COMPARED TO THE YEAR ENDED DECEMBER 28, 2019

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.

The fiscal year 2020 included approximately $44.0 million of non-segment charges, of which $2.3 million of charges are acquisition-related and integration charges related to the IXYS acquisition and other contemplated acquisitions.

In addition, there were $41.7 million of restructuring, impairment and other charges, primarily related to the goodwill impairment charge of $33.8 million recorded in the second quarter associated with the automotive sensors reporting unit within the Automotive segment, employee termination costs of $5.5 million, $2.2 million of impairment charges recorded in the first quarter associated with the announced consolidation of a manufacturing facility within the Industrial segment and other restructuring charges of $0.2 million.

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.

(in thousands, except % change)

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.

Fiscal year 2020 also included approximately $14.9 million in foreign currency exchange gains primarily attributable to changes in the value of the Euro, Philippine peso, and Chinese renminbi against the U.S.

dollar, while fiscal year 2019 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.

(in thousands, except % change) 2020 2019 Change % Change

Net sales $ 1,445,695 $ 1,503,873 $ (58,178) (3.9) %

Cost of sales 944,523 957,578 (13,055) (1.4) %

Gross profit 501,172 546,295 (45,123) (8.3) %

Operating expenses 338,800 353,504 (14,704) (4.2) %

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Income before income taxes 161,253 165,884 (4,631) (2.8) %

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.

Income taxes 31,267 26,802 4,465 16.7 %

Net income 129,986 139,082 (9,096) (6.5) %

Net sales of $1,445.7 million decreased $58.2 million, or 3.9%, for 2020 compared to the prior year primarily due to lower volume in the Automotive and Electronics segments which had net sales decreases of $32.7 million and $23.4 million, respectively, partially offset by $7.7 million or 0.5% of favorable changes in foreign exchange rates.

These decreases were primarily driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 and a decline in global auto production driven by the temporary closures of customer manufacturing facilities during the first half of 2020.

These sales declines were partially offset by increases in customer demand for consumer devices for work from home needs and strength in various end market demand across all businesses in the second half of the year.

All businesses within the Automotive segment experienced lower sales in 2020 due to the production disruptions in the first half of 2020 mentioned above, which was partially offset in the second half of the year, driven by stronger end market demand.

Cost of Sales

Cost of sales was $944.5 million, or 65.3% of net sales, in 2020, compared to $957.6 million, or 63.7% of net sales, in 2019.

The decrease in cost of sales was primarily due to lower volume in the Electronics and Automotive segments driven by the factors discussed above.

As a percent of net sales, cost of sales increased 1.6% driven by higher freight costs of $5.6 million, additional costs associated with government-directed plant shutdowns and supply chain constraints, supplies and other costs due to the impact of COVID-19, and unfavorable product mix.

Gross profit was $501.2 million, or 34.7% of net sales, in 2020, compared to $546.3 million, or 36.3% of net sales, in 2019.

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

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%.

The decrease of $45.1 million in gross profit reflected lower volume across all segments driven by the disruption across all segments due to temporary closures of manufacturing facilities in the first half of the year resulting from government directives due to the impact of COVID-19.

The decrease in gross margin of 1.6% was primarily from the lower volume mentioned previously, unfavorable price and product mix primarily in the Industrial segment.

Additionally, higher freight cost of $5.6 million, costs associated with government-directed plant shutdowns and supply chain constraints, supplies and other costs due to the impact of COVID-19 negatively impacted gross margins.

Operating Expenses

Total operating expenses were $338.8 million, or 23.4% of net sales, for 2020 compared to $353.5 million, or 23.5% of net sales, for 2019.

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.

The decrease in operating expenses of $14.7 million is primarily due to lower research and development expenses of $27.5 million, or 1.7% of net sales, a reduction in discretionary expenses including travel and marketing expenses and a $6.6 million reduction in acquisition-related and integration charges, partially offset by the second quarter goodwill impairment charge of $33.8 million, or 2.3% of net sales, in the automotive sensors reporting unit within the Automotive segment and impairment charges of $2.2 million related to the Company’s first quarter announcement to consolidate a manufacturing facility within the Industrial segment.

Operating Income

Operating income for 2020 was $162.4 million, a decrease of $30.4 million or 15.8% compared to $192.8 million for 2019.

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.

The decrease in operating income is primarily due to lower gross margin across all segments and the $33.8 million goodwill impairment charge noted above partially offset by a reduction in operating expenses described above.

Operating margins decreased from 12.8% in 2019 to 11.2% in 2020 primarily driven by the factors mentioned above.

The second quarter goodwill impairment charge of $33.8 million negatively impacted the 2020 operating margin by 2.3% which was partially offset by the lower operating expenses and cost reductions noted above.

Income Before Income Taxes

Income before income taxes for 2020 was $161.3 million, or 11.2% of net sales compared to $165.9 million, or 11.0% of net sales, for 2019.

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.

In addition to the factors impacting comparative results for operating income discussed above, income before income taxes benefited from foreign exchange gains of $14.9 million during the fiscal year ended December 26, 2020 compared to foreign exchange losses of $5.2 million during the fiscal year ended December 28, 2019.

Additionally, the increase in other income of $4.5 million was primarily due to the 2019 fiscal year 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 and $1.7 million increase in unrealized investment gains associated with our equity investments, partially offset by lower interest income of $2.0 million and a $1.2 million increase in coal mining reserves in 2020 versus 2019.

Income tax expense for 2020 was $31.3 million, or an effective tax rate of 19.4% compared to income tax expense of $26.8 million, or an effective tax rate of 16.2% for 2019.

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.

The Company’s 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.

Changes in the amount of these items from year to year impact the effective tax rates.

In addition, the 2020 income tax expense included the impact of the goodwill impairment charge of $33.8 million that was recorded in the second quarter of 2020, the substantial majority of which related to non-U.S.

entities and did not result in a tax benefit, and the 2019 income tax expense included 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 impact of the items discussed above resulted in an increase in the effective tax rate in 2020, as compared to the effective tax rate in 2019.

Further information regarding these items is provided in Note 14, Income Taxes , of the Notes to Consolidated Financial Statements included in this Annual Report.

Segment Information

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The following table is a summary of the Company’s net sales by segment:

(in millions)

(in millions) 2020 2019 Change % Change

Electronics $ 937.7 $ 961.1 $ (23.4) (2.4) %

Automotive 395.8 428.5 (32.7) (7.6) %

Industrial 112.2 114.3 (2.1) (1.9) %

Total $ 1,445.7 $ 1,503.9 $ (58.2) (3.9) %

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 .

Net sales for the Electronics segment decreased $23.4 million, or 2.4%, in 2020 compared to 2019 primarily due to declines in net sales for the semiconductor and electronics products businesses of $17.5 million and $5.9 million, respectively, driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 during the first half of the year.

These declines were partially offset by increases in customer demand for consumer devices for work from home needs and strength in various end markets during the second half of the year along with favorable changes in foreign exchange rates of $3.6 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 .

Net sales in the Automotive segment decreased $32.7 million, or 7.6%, in 2020 compared to 2019 due to decreased volume in passenger car products, commercial vehicle products, and automotive sensors businesses of $18.1 million, $10.6 million, and $4.0 million, respectively, driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 and a decline in global auto production driven by the temporary closures of customer manufacturing facilities during the first half of 2020.

These sales declines were partially offset by increases in end market demand across all businesses in the second half of 2020 and favorable changes in foreign exchange rates of $4.1 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.

The Industrial segment net sales decreased slightly by $2.1 million, or 1.9%, in 2020 compared to 2019 primarily due to decreased volume across all businesses driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 in the first half of 2020, partially offset by the transfer of the temperature sensor product line in the third quarter of 2020 previously reported in the Electronics segment.

Geographic Net Sales Information

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The following table is a summary of the Company’s net sales by geography:

(in millions)

Asia-Pacific net sales decreased $96.5 million , or 12.8% , in 2019 compared to 2018 .

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.

(in millions) 2020 2019 Change % Change

Asia-Pacific $ 670.5 $ 656.8 $ 13.7 2.1 %

Americas 457.8 508.4 (50.6) (10.0) %

Europe 317.4 338.7 (21.3) (6.3) %

Total $ 1,445.7 $ 1,503.9 $ (58.2) (3.9) %

Asia-Pacific net sales increased $13.7 million, or 2.1%, in 2020 compared to 2019.

The increase in net sales was primarily due to higher volume in the semiconductor business within the Electronics segment and favorable changes in foreign exchange rates of $2.2 million, partially offset by lower volume in the passenger car products business within the Automotive segment due to the production disruption associated with temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 in the first half of 2020.

Net sales in the Americas decreased $50.6 million, or 10.0%, in 2020 compared to 2019 primarily due to lower volume across all segments driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19, the temporary closures of customer manufacturing facilities during the first half of 2020 and unfavorable changes in foreign exchange rates of $0.3 million.

These sales declines were partially offset by increases in end market demand across all businesses in the second half of the year.

European net sales decreased $21.3 million, or 6.3%, in 2020 compared to 2019.

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.

The decrease in net sales was primarily due to lower volume in the semiconductor business within the Electronics segment, lower volume in passenger car products and commercial vehicle products businesses within the Automotive segment driven by the production disruption due to temporary closures of manufacturing facilities resulting from government directives due to the impact of COVID-19 and the temporary closures of customer manufacturing facilities during the first half of 2020, partially offset by increased volume in the second half of 2020 due to higher end market demand in Electronics and Automotive businesses and favorable changes in foreign exchange rates of $5.8 million.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 28, 2019 AS COMPARED TO THE YEAR ENDED DECEMBER 29, 2018

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.

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.

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.

(in thousands, except % change)

(in thousands, except % change) 2019 2018 Change % Change

Net sales $ 1,503,873 $ 1,718,468 $ (214,595) (12.5) %

Cost of sales 957,578 1,065,053 (107,475) (10.1) %

Gross profit 546,295 653,415 (107,120) (16.4) %

Operating expenses 353,504 428,366 (74,862) (17.5) %

2 unchanged sentences

Income before income taxes 165,884 204,942 (39,058) (19.1) %

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.

Income taxes 26,802 40,377 (13,575) (33.6) %

Net income 139,082 164,565 (25,483) (15.5) %

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.

Cost of Sales

Cost of sales was $957.6 million, or 63.7% of net sales, in 2019, compared to $1,065.0 million, or 62.0% of net sales, in 2018.

The $107.5 million decrease in cost of sales is 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 global end market demand.

As a percent of net sales, cost of sales increased 1.7 percentage points driven by unfavorable expense leverage associated with the lower net sales in Electronics and Automotive segments.

Gross profit was $546.3 million, or 36.3% of net sales, in 2019, compared to $653.4 million, or 38.0% of net sales, in 2018.

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.

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 end market demand, unfavorable price and product mix.

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 $353.5 million, or 23.5% of net sales, for 2019 compared to $428.4 million, or 24.9% of net sales, for 2018.

The increase in operating expenses of $139.5 million was primarily due to the incremental operating expenses related

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.

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 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.

Operating income for 2019 was $192.8 million, a decrease of $32.3 million or 14.3% compared to $225.0 million for 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 higher interest expense of $9.2 million mainly resulting from increased borrowings, partially offset by increases in foreign exchange gains of $3.2 million.

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 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 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.

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.

4 unchanged sentences

The following table is a summary of the Company’s net sales by segment:

(in millions)

(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) %

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.

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 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.

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 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.

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

1 unchanged sentence

The following table is a summary of the Company’s net sales by geography:

(in millions)

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.

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.

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.

(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 net sales decreased $96.5 million, or 12.8%, in 2019 compared to 2018.

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.

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.

Liquidity and Capital Resources

21 unchanged sentences

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 .

For the Term Loan, the Company was 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 $5.0 million of principal payments on the term loan before the Company amended the Credit Agreement on April 3, 2020 as discussed below.

On March 25, 2020, the company borrowed $100.0 million from the revolving credit facility to preserve financial flexibility and enhance liquidity, given the increasing levels of uncertainty related to COVID-19.

On April 3, 2020, the Company amended the Credit Agreement to effect certain changes, including, among others:

(ii) making certain financial and non-financial covenants less restrictive on the Company;

(iii) modifying performance-based interest rate margins and undrawn fees;

and (iv) extending the maturity date to April 3, 2025.

The Company made payments of $110.0 million on the amended revolving credit facility during the fiscal year ended December 26, 2020.

The balance under the facility was $130.0 million as of December 26, 2020.

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 1.25% to 2.00%, or at the bank’s Base Rate, as defined, plus 0.25% to 1.00%, based upon the Company’s Consolidated Leverage Ratio, as defined.

18 unchanged sentences

Senior Notes due 2025 and 2030” and with the Euro Senior Notes and the U.S.

Senior Notes due 2022 and

2027, the “Senior Notes”) were funded.

Senior Notes due 2022 and 2027, the “Senior Notes”) were funded.

Interest on the U.S.

2 unchanged sentences

As of December 26, 2020, 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.

The cash purchase price for Hartland Controls was approximately $113 million and the operations of Hartland Controls will be included in the Industrial segment.

The Company funded the acquisition with cash on hand.

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.

The Company financed the cash portion of the IXYS acquisition with a combination of cash on hand and borrowings under the Senior Notes and credit facility.

Cash Flow Overview

5 unchanged sentences

Net cash used in investing activities (51.4) (56.4)

Net cash (used in) provided by financing activities

Net cash used in financing activities (67.8) (146.3)

Effect of exchange rate changes on cash and cash equivalents 17.6 (1.2)

4 unchanged sentences

Net cash provided by operating activities was $258.0 million for 2020, compared to $245.3 million during 2019.

The increase in net cash provided by operating activities was primarily due to lower annual incentive payments and favorable changes in net working capital partially offset by lower earnings largely due to the impact of COVID-19.

Cash Flow from Investing Activities

Net cash used in investing activities was $51.4 million for 2020, compared to $56.4 million during 2019.

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 $56.2 million, representing a decrease of $5.7 million compared to 2019.

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.

The Company also received proceeds of $4.8 million and $6.2 million, respectively, in 2020 and 2019 primarily as a result of the sale of properties 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

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 .

Net cash used in financing activities was $67.8 million for 2020 compared to $146.3 million for 2019.

The Company made principal payments of $5.0 million and $10.0 million on the term loan during fiscal year 2020 and 2019, respectively.

During fiscal year 2020, the company borrowed $100.0 million from its revolving credit facility to preserve financial flexibility and enhance liquidity, given the increasing levels of uncertainty related to COVID-19.

On April 3, 2020, the Company amended the Credit Agreement to eliminate the $200.0 million unsecured term loan credit facility, with the remaining outstanding balance of $140.0 million repaid in full on April 3, 2020 through a new borrowing of $140.0 million under the recently amended revolving credit facility.

The Company made payments of $110.0 million on the amended revolving credit facility during the fiscal year 2020.

The balance under the facility was $130.0 million as of December 26, 2020.

For the fiscal year 2020 and 2019, the Company repurchased 175,110 and 579,916 shares of its common stock totaling $22.9 million and $95.0 million, respectively, but made payments of $99.4 million related to settled share repurchases during the fiscal year 2019.

Additionally, dividends paid increased $2.2 million from $44.7 million for the fiscal year 2019 to $46.8 million for the fiscal year 2020.

The following describes the Company’s cash flows for the twelve months ended December 28, 2019 and December 29, 2018:

2 unchanged sentences

Net cash used in investing activities (56.4) (382.3)

Net cash provided by (used in) financing activities

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 (decrease) in cash and cash equivalents

Increase in cash and cash equivalents 41.4 60.0

Cash and cash equivalents at beginning of year 489.7 429.7

2 unchanged sentences

Net cash provided by operating activities was $245.3 million for 2019, compared to $331.8 million during 2018.

The increase in net cash provided by operating activities was primarily driven by higher earnings and favorable working capital management that more than offset higher payments related to cash taxes and acquisition and integration costs.

Cash Flow from Investing Activities

Net cash used in investing activities was $56.4 million for 2019, compared to $382.3 million during 2019.

Net cash used for the acquisition of IXYS was $306.5 million in 2018 compared to acquisitions of $38.5 million in 2017 related to the acquisition of a majority stake in Monolith for $14.2 million and the acquisition of U.S.

Sensor for $24.3 million.

Capital expenditures were $74.8 million , representing an increase of $8.8 million compared to 2017.

The Company also received proceeds of $9.6 million in 2018 primarily as a result of the sale of a building.

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 provided by financing activities was $121.9 million for 2018 compared to net cash used in financing activities of $24.7 million for 2017.

The Company had $310.0 million of proceeds from the credit facility, term loan and senior notes payable partially offset by payments of $102.5 million on credit facility and the term loan in 2018 as compared to $149.4 million of proceeds from the credit facility, term loan and senior notes payable and $134.7 million of payments on credit facility and the term loan during 2017.

The Company repurchased 391,972 shares of its common stock during fiscal 2018 totaling $63.6 million.

Cash dividends paid totaled $44.7 million , $40.0 million and $31.8 million for 2019 , 2018 and 2017 , respectively.

On January 29, 2020, the Board of Directors of the Company declared a quarterly cash dividend of $0.48 per share, payable on March 5, 2020 to stockholders of record as of February 20, 2020.

Capital Resources

The Company expends capital to support its operating and strategic plans.

Such expenditures include strategic acquisitions, investments to maintain capital assets, develop new products or improve existing products, and to enhance capacity or productivity.

Many of the associated projects have long lead-times and require commitments in advance of actual spending.

Share Repurchase Program

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 .

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 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.

C ontractual Obligations and Commitments

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Payments Due By Period

(in thousands)

(in thousands) Total Less than

1 Year 1 to 3

Years Greater

Long-term debt (a)

$ 691,148 $ — $ 170,298 $ 180,000 $ 340,850

Interest payments (b)

100,473 16,048 30,806 24,639 28,980

Operating lease payments (c)

21,688 7,660 10,114 3,612 302

Income Tax Obligation (d)

23,754 3,000 7,579 13,175 —

Purchase obligations (e)

18,214 15,089 1,008 1,008 1,109

Total $ 855,277 $ 41,797 $ 219,805 $ 222,434 $ 371,241

(a) Excludes offsetting issuance costs of $4.1 million.

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subsidiaries including the U.K., Germany, the Philippines, China, Japan, Mexico, Italy and France.

At December 28, 2019 , the Company had a net unfunded status of $38.4 million .

At December 26, 2020, the Company

had a net unfunded status of $48.5 million.

The Company expects to make approximately $2.2 million of contributions to the plans in 2021.

For additional information, see Note 11, Benefit Plans , of the Notes to Consolidated Financial Statements.

The Company has a non-qualified Supplemental Retirement and Savings Plan which provides additional retirement benefits for certain management employees and named executive officers by allowing participants to defer a portion of their annual compensation.

As of December 28, 2019 , there was $10.5 million of accrued compensation benefits included in Other long-term liabilities .

For additional information, see Note 11, Benefit Plans , of the Notes to Consolidated Financial Statements.

As of December 28, 2019 , the Company recognized various accruals related to employee compensation including its annual incentive program that are expected to be paid in 2020 .

Due to the uncertainty with respect to the cash outflows, the preceding table excludes unrecognized tax benefits of $16.7 million .

The Company does not expect to make significant payments of these liabilities within the next year.

For additional information, see Note 14, Income Taxes , of the Notes to Consolidated Financial Statements.

Cash dividends paid totaled $46.8 million, $44.7 million and $40.0 million for 2020, 2019 and 2018, respectively.

On January 21, 2021, the Board of Directors of the Company declared a quarterly cash dividend of $0.48 per share, payable on March 4, 2021 to stockholders of record as of February 18, 2021.

Capital Resources

The Company expends capital to support its operating and strategic plans.

Such expenditures include strategic acquisitions, investments to maintain capital assets, develop new products or improve existing products, and to enhance capacity or productivity.

Many of the associated projects have long lead-times and require commitments in advance of actual spending.

Share Repurchase Program

The Company’s Board of Directors 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 ("2018 program").

On April 26, 2019, the Company's Board of Directors authorized to a 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 ("2019 program") to replace its previous expired 2018 program.

On April 23, 2020, the Company's Board of Directors authorized a new program to repurchase up to 1,000,000 shares of the Company's common stock for the period May 1, 2020 to April 30, 2021 (the "2020 program") to replace its previous expired 2019 program.

There are 1,000,000 shares remaining available for purchase under the 2020 program as of December 26, 2020.

During the fiscal year 2020, 2019, and 2018, the Company repurchased 175,110, 579,916, and 391,972 shares of its common stock totaling $22.9 million, $95.0 million, and $67.9 million, respectively.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis