Item 1. Business
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 “2020”, “fiscal 2020” or “fiscal year 2020” refer to the fiscal year ended December 26, 2020. 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. 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 a variety of transportation, industrial, and electronics end markets. 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.
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• Electronics Segment : Consists of one of the broadest product offerings in the industry, including fuses and fuse accessories, positive temperature coefficient (“PTC”) resettable fuses, polymer electrostatic discharge (“ESD”) suppressors, varistors, reed switch based magnetic sensing, gas discharge tubes; semiconductor products such as discrete transient voltage suppressor (“TVS”) diodes, TVS diode arrays, protection and switching thyristors, metal-oxide-semiconductor field effect transistors (“MOSFETs”) and silicon carbide diodes; and insulated gate bipolar transistors (“IGBT”) technologies. The segment covers a broad range of end markets, including industrial motor drives and power conversion, automotive electronics, electric vehicle and related infrastructure, power supplies, data centers and telecommunications, medical devices, alternative energy, building and home automation, appliances, and mobile electronics.
• 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 for internal combustion engine, hybrid and electric vehicles including blade fuses, battery cable protectors, resettable fuses, high-current fuses, and high-voltage fuses. Commercial vehicle products include fuses, switches, relays, and power distribution modules used in applications serving a number of end markets, including heavy truck, construction, agriculture and material handling. Automotive sensor products include a wide range of automotive and commercial vehicle products designed to monitor the passenger compartment occupant's safety and environment as well as the vehicle’s powertrain.
• Industrial Segment: Consists of power fuses, protection relays and controls, temperature sensor and other circuit protection products for use in various industrial applications such as oil, gas, mining, renewables and energy storage, electric vehicle infrastructure, non-residential construction, HVAC systems, industrial safety, power conversion, elevators and other industrial equipment.
Strategy
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.
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 themes 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
• Hartland Controls: 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.
• 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 operations of U.S. Sensor are included in the Electronics segment.
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• 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 currently included in the Industrial 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.
• 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.
• 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.
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) 2020 2019 2018
Electronics $ 937.7 $ 961.1 $ 1,124.3
Automotive 395.8 428.5 479.8
Industrial 112.2 114.3 114.4
Total $ 1,445.7 $ 1,503.9 $ 1,718.5
Net sales in the Company’s three geographic regions, based upon the shipped-to destination, are as follows:
Fiscal Year
(in millions) 2020 2019 2018
Asia-Pacific $ 670.5 $ 656.8 $ 753.3
Americas 457.8 508.4 578.6
Europe 317.4 338.7 386.6
Total $ 1,445.7 $ 1,503.9 $ 1,718.5
The Company’s products are sold worldwide through distributors, direct sales forces and manufacturers’ representatives in certain regions. For the fiscal year 2020, approximately 73% of the Company’s net sales were to customers outside the United States (“U.S.”), including approximately 30% 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.
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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.
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, MOSFETs and silicon carbide diodes; and IGBT technologies.
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, MOSFETs, rectifiers and fast recovery diodes, IGBTs and wide band gap devices. The 2018 acquisition of IXYS expanded the Company's 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 appliances, 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 ever-greater sophistication in electrical architecture and safety system, as well as market growth, development, and penetration of hybrid and electric vehicles.
The Company's automotive sensor business includes a wide range of automotive and commercial vehicle products designed to monitor passenger occupants, including comfort and convenience, safety and environment as well as applications in the vehicle’s powertrain. Products are primarily sold to Tier One automotive suppliers, primarily for use in passenger car applications.
The Company’s commercial vehicle business includes a variety of products including power distribution modules, low and high current switches, relays, battery management products, ignition key switches, and trailer connectors. These products are used in applications serving a number of end markets, including heavy truck, construction, agriculture and material handling. Products are sold directly to a mix of OEMs, Tier One suppliers, aftermarket channels, as well as through general distribution. The Company expects to grow its commercial vehicle business through expanding the end markets and geographies it serves, and by expanding its product portfolio through organic and inorganic investments.
Industrial Segment
The Company designs and sells a broad range of power fuses and holders, protection relays and controls, temperature sensors and other circuit protection products for use in various industrial applications such as oil and gas, mining, renewable and energy storage, electric vehicle and related infrastructure, non-residential construction, HVAC systems, industrial safety, power conversion. These products are used to protect personnel and equipment from excessive currents, over voltages, and electrical shock hazards.
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Products are sold through electrical distributors, electronics distribution channel partnerships and directly to OEM's. The Company expects to grow this business through expanding the end markets and geographies it serves, growing its sales through electronics distribution channel partnerships, and expanding its product portfolio through organic and inorganic investments.
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 2020, 2019, and 2018, the Company expended $52.5 million, $80.0 million, and $87.3 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.
SALES and MARKETING
The Company goes to market through selling organizations consisting of worldwide 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 all of the Company’s products. The distributors provide fulfillment for a majority of customers including those partnered with electronic manufacturing services ("EMS"). The Company has sales offices and direct sales channels in a number of countries around the world.
Electronics Segment
Our Electronics segment products are used across a variety of applications. While certain of our products require less design support for our customers, many of our products are incorporated into applications with complex design technical support requirements. Most Electronics segment products are sold through our direct salesforce or through our channel distribution
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partners. The fulfillment of these products is primarily through our broad line distribution partners, including global distributors such as Arrow Electronics, Inc., Future Electronics and TTI, Inc, regional and high service distributors, including Digi-Key and Mouser, as well as directly to OEM's..
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. In selected areas, the Company also uses distributors to service smaller customers and to provide supply chain fulfillment for certain customers.
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 through direct and indirect worldwide sales representatives. These products are primarily sold via electronic, electrical and industrial distribution channels to various end customers including electrical contractors, factories, municipalities, utilities and OEMs.
CUSTOMERS
The Company directly sells to over 6,000 customers and distributors worldwide. Sales to Arrow Electronics, Inc., which were reported in our Electronics, Automotive and Industrial segments, were 10.4%, 10.7% and 10.7% of consolidated net sales in 2020, 2019, and 2018, respectively. No other single customer accounted for more than 10% of net sales during any of the last three years. During fiscal 2020, 2019, and 2018, net sales to customers outside the U.S. accounted for approximately 73%, 71%, and 70%, respectively, of the Company’s total net sales.
CYBERSECURITY
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 day-to-day control. We oversee the services provided by the third-party service providers. We continually evaluate ourselves for appropriate business continuity and disaster recovery planning, with test scenarios that include simulations and penetration tests. Our networks are monitored by intrusion detection services, and our systems and applications are routinely tested for vulnerabilities and are operated with an appropriate patch management program. We employ a skilled IT workforce to implement our cybersecurity programs and to handle specific security responsibilities. Our IT workforce is trained to address security and compliance-related issues as they arise.
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, Bourns Inc., TDK, 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 (Meccanotecnica Codognese), 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 26, 2020 was approximately $709.9 million, compared to $477.6 million at December 28, 2019 with the increase primarily driven by the Electronics and Automotive segments. Substantially all the orders currently in backlog are scheduled for delivery in 2021.
HUMAN CAPITAL MANAGEMENT
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A passion for engineering excellence and an innovative spirit have been a part of what it means to work at Littelfuse since our founding in 1927. We hire bright minds who want to make a big impact and are committed to improve the safety, reliability and performance of our customers’ products. As our human capital is critical to our success, we strive to make Littelfuse a diverse, inclusive and safe workplace, provide competitive compensation, benefits, and health and wellness programs, offer appropriate training and promote community involvement.
Employee Data
At December 26, 2020, we had approximately 12,200 full-time, part-time and temporary employees; of which 54% are female and 46% are male; and of which 46%, 40% and 14% are located in North America, Asia and Europe, respectively. Approximately 25% of the Company’s total workforce was employed under collective bargaining agreements as of December 26, 2020. Overall, the Company has historically maintained satisfactory employee relations and considers employee relations to be good.
Core Values
Littelfuse core values – Customer Focus, Teamwork, Results Driven, Integrity and Innovation – guide conversations, decisions, and interactions for our business. Together, they are the foundation of our working relationships both internally and externally and we ask each of our associates to exemplify these high standards every day.
Diversity and Inclusion
As part of driving sustainable success, we seek out, value and celebrate diversity in every aspect of our work with customers, stakeholders, suppliers and each other. Our commitment to diversity and equity empowers our associates to innovate, deliver bold solutions and drive growth with the multifaceted insight that comes from true community. We believe that when everyone is included, everyone wins.
We recently formed a Diversity, Inclusion and Belonging Council. The focus of the Council is to enhance the diversity across our stakeholders through bold solutions, to drive sustainable success across the company. In addition, we also have a number of employee resource groups, each sponsored by a member of our executive leadership team, that enhance our inclusive and diverse culture. One example is our Women’s Initiative Network (WiN). WiN was established to provide a forum to inspire and accelerate associate advancement and development through networking, mentoring, coaching and education.
Health, Safety and Wellness
In response to the COVID-19 pandemic, Littelfuse has prioritized the health and safety of our associates and their families. In an effort to protect the health and safety of our associates, the Company has taken proactive steps in our facilities globally to implement safety procedures including hygiene and disinfection protocols, social distancing, and providing personal protective equipment to associates. Littelfuse also sponsors certain wellness programs designed to help associates achieve physical, emotional, financial and work well-being goals.
Compensation and Benefits
We provide compensation and benefits programs designed to be both competitive and equitable, in order to attract, retain and motivate highly-qualified associates. The components of our compensation program vary by region and employee-type, and include items such as base salary, bonus, and health and wellness programs.
Training and Development
To deliver results for our customers, colleagues and stakeholders, we strive for continuous improvement and operational excellence. An important component of continuous improvement is providing our associates with appropriate training opportunities. Our training programs cover topics including job-skills, enterprise six-sigma, Lean manufacturing, and ethics and compliance. All global associates are required to take our annual Code of Conduct training, which is made available in local languages for our global workforce.
Community Involvement
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Littelfuse encourages and sponsors, as appropriate, employees to donate their time and other resources to better the communities in which we have locations and operate. Causes we support include but are not limited to the well-being of people, education, community improvement and environmental stewardship.
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.
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.