LITTELFUSE INC /DE 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index Page Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements (PCAOB ID Number 248 ) 43 Report of Independent Registered Public Accounting Firm – Internal Control Over Financial Reporting 45 Consolidated Financial Statements Consolidated Balance Sheets 46 Consolidated Statements of Net Income 47 Consolidated Statements of Comprehensive Income 48 Consolidated Statements of Cash Flows 49 Consolidated Statements of Equity 50 Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies and Other Information 51 2. Acquisitions 57 3. Inventories 60 4. Property, Plant, and Equipment 60 5. Goodwill and Other Intangible Assets 61 6. Accrued Liabilities 63 7. Lease Commitments 63 8. Restructuring, Impairment and Other Charges 64 9. Debt 66 10. Fair Value of Assets and Liabilities 68 11. Benefit Plans 70 12. Stock-Based Compensation 75 13. Other Comprehensive Income (Loss) 77 14. Income Taxes 78 15. Earnings Per Share 81 16. Segment Information 81 17. Selected Quarterly Financial Data (Unaudited) 84 18. Related Party Transactions 85 42 Table of Contents Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Littelfuse, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Littelfuse, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of January 1, 2022 and December 26, 2020, the related consolidated statements of net income , comprehensive income, equity, and cash flows for each of the three years in the period ended January 1, 2022, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 1, 2022 and December 26, 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2022, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of January 1, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 17, 2022 expressed an unqualified opinion. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of January 1, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 17, 2022, expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Business Acquisition – Carling Technologies – Valuation of acquired Intangible Assets As discussed in Note 2, the Company acquired Carling Technologies, Inc., on November 30, 2021 for a total purchase price of approximately $314 million, net of cash acquired. The Company allocated the purchase price, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of $125.9 million. We identified the valuation of acquired intangible assets as a critical audit matter. The principal considerations for our determination that the valuation of acquired intangible assets is a critical audit matter are (i) the significant judgment by management when determining assumptions used in the fair value measurement of acquired intangible assets (ii) the high degree of auditor judgment and subjectivity in performing procedures and evaluating 43 Table of Contents management’s significant assumptions relating to revenue growth, royalty rates, and customer attrition rates and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Our audit procedures related to the valuation of the acquired intangible assets included the following, among others: – we tested the design and operating effectiveness of the controls over the Company’s acquisition and valuation process, including review of the valuation model, significant assumptions used, and the completeness and accuracy of the underlying data used – we tested the forecasted revenues and cash flows by assessing the reasonableness of management’s forecasts compared to historical results and forecasted industry trends – with the assistance of our valuation specialists, we assessed the royalty, customer attrition, and revenue growth rates by developing a range of independent estimates and comparing those to the rates selected by management. We also involved our valuation specialists to evaluate the assumptions and methodologies used in valuing the intangible assets. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2014. Southfield, Michigan February 17, 2022 44 Table of Contents Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Littelfuse, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Littelfuse, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of January 1, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 1, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended January 1, 2022, and our report dated February 17, 2022 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Carling Technologies, Inc., a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 5% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended January 1, 2022. As indicated in Management’s Report, Carling Technologies, Inc. was acquired during 2021. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Carling Technologies, Inc. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Southfield, Michigan February 17, 2022 45 Table of Contents LITTELFUSE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) January 1, 2022 December 26, 2020 ASSETS Current assets: Cash and cash equivalents $ 478,473 $ 687,525 Short-term investments 28 54 Trade receivables, less allowances of $ 59,232 and $ 45,237 , respectively 275,192 232,760 Inventories 445,671 258,002 Prepaid income taxes and income taxes receivable 2,035 3,029 Prepaid expenses and other current assets 68,812 35,939 Total current assets 1,270,211 1,217,309 Net property, plant, and equipment 437,889 344,178 Intangible assets, net of amortization 407,126 291,887 Goodwill 929,790 816,812 Investments 39,211 30,547 Deferred income taxes 13,127 11,224 Right of use assets, net 29,616 17,615 Other assets 24,734 18,021 Total assets $ 3,151,704 $ 2,747,593 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 222,039 $ 145,984 Accrued liabilities 159,689 110,478 Accrued income taxes 27,905 19,186 Current portion of long-term debt 25,000 — Total current liabilities 434,633 275,648 Long-term debt, less current portion 611,897 687,034 Deferred income taxes 81,289 50,134 Accrued post-retirement benefits 37,037 45,802 Non-current operating lease liabilities 22,305 12,950 Other long-term liabilities 71,023 67,252 Shareholders’ equity: Common stock, par value $ 0.01 per share: 34,000,000 shares authorized; shares issued, 26,350,763 and 26,131,544 , respectively 260 259 Additional paid-in capital 946,588 907,858 Treasury stock, at cost: 1,664,711 and 1,644,283 shares, respectively ( 248,120 ) ( 242,366 ) Accumulated other comprehensive loss ( 73,463 ) ( 91,157 ) Retained earnings 1,268,124 1,034,048 Littelfuse, Inc. shareholders’ equity 1,893,389 1,608,642 Non-controlling interest 131 131 Total equity 1,893,520 1,608,773 Total liabilities and equity $ 3,151,704 $ 2,747,593 See accompanying Notes to Consolidated Financial Statements. 46 Table of Contents LITTELFUSE, INC. CONSOLIDATED STATEMENTS OF NET INCOME Fiscal Year Ended (in thousands, except per share data) January 1, 2022 December 26, 2020 December 28, 2019 Net sales $ 2,079,928 $ 1,445,695 $ 1,503,873 Cost of sales 1,308,002 944,523 957,578 Gross profit 771,926 501,172 546,295 Selling, general, and administrative expenses 275,457 204,507 220,448 Research and development expenses 65,940 52,538 79,997 Amortization of intangibles 42,729 40,039 40,026 Restructuring, impairment, and other charges 2,158 41,716 13,033 Total operating expenses 386,284 338,800 353,504 Operating income 385,642 162,372 192,791 Interest expense 18,527 21,077 22,266 Foreign exchange loss (gain) 17,158 ( 14,875 ) 5,224 Other expense (income), net 8,932 ( 5,083 ) ( 583 ) Income before income taxes 341,025 161,253 165,884 Income taxes 57,219 31,267 26,802 Net income $ 283,806 $ 129,986 $ 139,082 Income per share: Basic $ 11.54 $ 5.33 $ 5.66 Diluted $ 11.38 $ 5.29 $ 5.60 Weighted average shares and equivalent shares outstanding: Basic 24,603 24,371 24,576 Diluted 24,932 24,592 24,818 See accompanying Notes to Consolidated Financial Statements. 47 Table of Contents LITTELFUSE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended (in thousands) January 1, 2022 December 26, 2020 December 28, 2019 Net income $ 283,806 $ 129,986 $ 139,082 Other comprehensive income (loss): Pension and postemployment adjustments, net of tax 22,213 ( 16,095 ) ( 8,087 ) Foreign currency translation adjustments ( 4,519 ) 31,761 ( 812 ) Comprehensive income $ 301,500 $ 145,652 $ 130,183 See accompanying Notes to Consolidated Financial Statements. 48 Table of Contents LITTELFUSE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended (in thousands) January 1, 2022 December 26, 2020 December 28, 2019 OPERATING ACTIVITIES Net income $ 283,806 $ 129,986 $ 139,082 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 55,906 56,139 52,477 Amortization of intangibles 42,729 40,039 40,026 Non-cash pension settlement charges 19,855 — — Impairment charges — 36,078 322 Deferred revenue ( 2,570 ) ( 593 ) ( 318 ) Non-cash inventory charges 8,397 — — Stock-based compensation 19,611 18,129 19,046 (Gain) loss on investments and other assets ( 8,907 ) ( 4,663 ) 4,854 Deferred income taxes ( 8,020 ) ( 3,214 ) ( 1,147 ) Other 20,275 ( 18,230 ) 6,638 Changes in operating assets and liabilities: Trade receivables ( 10,234 ) ( 25,588 ) 28,497 Inventories ( 104,555 ) ( 12,425 ) 22,094 Accounts payable 40,481 28,820 ( 22,574 ) Accrued liabilities and income taxes 30,793 6,765 ( 54,242 ) Prepaid expenses and other assets ( 14,223 ) 6,788 10,573 Net cash provided by operating activities 373,344 258,031 245,328 INVESTING ACTIVITIES Acquisitions of businesses, net of cash acquired ( 423,633 ) — ( 775 ) Purchases of property, plant, and equipment ( 90,562 ) ( 56,191 ) ( 61,895 ) Proceeds from sale of property, plant, and equipment 15,425 4,758 6,213 Other ( 390 ) — — Net cash used in investing activities ( 499,160 ) ( 51,433 ) ( 56,457 ) FINANCING ACTIVITIES Proceeds of revolving credit facility — 240,000 — Payments of revolving credit facility ( 30,000 ) ( 110,000 ) — Payments of term loan and other loans ( 2,619 ) ( 145,000 ) ( 10,000 ) Net proceeds related to stock-based award activities 13,365 18,744 7,800 Cash dividends paid ( 49,730 ) ( 46,839 ) ( 44,689 ) Purchases of common stock — ( 22,927 ) ( 99,387 ) Debt issuance costs — ( 1,786 ) — Net cash used in financing activities ( 68,984 ) ( 67,808 ) ( 146,276 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 9,889 ) 17,596 ( 1,189 ) (Decrease) increase in cash, cash equivalents, and restricted cash ( 204,689 ) 156,386 41,406 Cash, cash equivalents, and restricted cash at beginning of period 687,525 531,139 489,733 Cash, cash equivalents, and restricted cash at end of period $ 482,836 $ 687,525 $ 531,139 Supplementary Cash Flow Information Reconciliation of cash and cash equivalents: Cash and cash equivalents $ 478,473 $ 687,525 $ 531,139 Restricted cash included in prepaid expenses and other current assets $ 2,718 $ — $ — Restricted cash included in other assets $ 1,645 $ — $ — Cash paid during the period for interest $ 17,420 $ 20,095 $ 21,240 Cash paid during the period for income taxes, net of refunds $ 55,561 $ 27,619 $ 40,518 Capital expenditures, not yet paid $ 11,872 $ 6,126 $ 11,110 See accompanying Notes to Consolidated Financial Statements. 49 Table of Contents LITTELFUSE, INC. CONSOLIDATED STATEMENTS OF EQUITY Littelfuse, Inc. Shareholders’ Equity (in thousands, except share and per share data) Common Stock Addl. Paid in Capital Treasury Stock Accum. Other Comp. Inc. (Loss) Retained Earnings Non-controlling Interest Total Balance at December 29, 2018 $ 254 $ 835,828 $ ( 116,454 ) $ ( 97,924 ) $ 856,507 $ 131 $ 1,478,342 Net income — — — — 139,082 — 139,082 Other comprehensive income (loss), net of tax ( 8,899 ) ( 8,899 ) Stock-based compensation — 19,046 — — — — 19,046 Withheld 25,940 shares on restricted share units for withholding taxes — ( 4,957 ) — — — ( 4,957 ) Stock options exercised 2 13,122 — — — — 13,124 Repurchases of common stock — — ( 95,036 ) — — — ( 95,036 ) Cash dividends paid ($ 1.82 per share) — — — — ( 44,688 ) — ( 44,688 ) Balance at December 28, 2019 $ 256 $ 867,996 $ ( 216,447 ) $ ( 106,823 ) $ 950,901 $ 131 $ 1,496,014 Net income — — — — 129,986 — 129,986 Other comprehensive income (loss), net of tax 15,666 15,666 Stock-based compensation — 18,129 — — — — 18,129 Withheld 20,250 shares on restricted share units for withholding taxes — — ( 2,992 ) — — — ( 2,992 ) Stock options exercised 3 21,733 — — — — 21,736 Repurchases of common stock — — ( 22,927 ) — — — ( 22,927 ) Cash dividends paid ($ 1.92 per share) — — — — ( 46,839 ) — ( 46,839 ) Balance at December 26, 2020 $ 259 $ 907,858 $ ( 242,366 ) $ ( 91,157 ) $ 1,034,048 $ 131 $ 1,608,773 Net income — — — — 283,806 — 283,806 Other comprehensive income (loss), net of tax 17,694 17,694 Stock-based compensation — 19,611 — — — — 19,611 Withheld 20,428 shares on restricted share units for withholding taxes — — ( 5,754 ) — — — ( 5,754 ) Stock options exercised 1 19,119 — — — — 19,120 Cash dividends paid ($ 2.02 per share) — — — — ( 49,730 ) — ( 49,730 ) Balance at January 1, 2022 $ 260 $ 946,588 $ ( 248,120 ) $ ( 73,463 ) $ 1,268,124 $ 131 $ 1,893,520 See accompanying Notes to Consolidated Financial Statements. 50 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies and Other Information Nature of Operations Littelfuse, Inc. and subsidiaries (the “Company”) is an industrial technology manufacturing company empowering a sustainable, connected, and safer world. Across more than 15 countries, and with approximately 17,000 global associates, the company partners with customers to design and deliver innovative, reliable solutions. Serving over 100,000 end customers, the company’s products are found in a variety of industrial, transportation and electronics end markets – everywhere, every day. Fiscal Year References herein to “2021”, “fiscal 2021” or “fiscal year 2021” refer to the fiscal year ended January 1, 2022. 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. The Company operates on a 52-53 week fiscal year (4-4-5 basis) ending on the Saturday closest to December 31. Therefore, the financial results of certain fiscal years and the associated 14 week quarters will not be exactly comparable to the prior 52 week fiscal years and the associated quarters having only 13 weeks. As a result of using this convention, the fiscal year 2021 contained 53 weeks while each of fiscal 2020 and fiscal 2019 contained 52 weeks. Basis of Presentation The Consolidated Financial Statements include the accounts of Littelfuse, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company’s Consolidated Financial Statements were prepared in accordance with generally accepted accounting principles in the United States of America ("U.S.") and include the assets, liabilities, sales and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company exercises control. Use of Estimates The process of preparing financial statements in conformity with generally accepted accounting principles in the U.S. requires management to make estimates and assumptions that affect the amounts of assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses and the accompanying notes. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in its evaluation, as considered necessary. Actual results could differ from those estimates. Cash, Cash Equivalents and Restricted Cash All highly liquid investments, with an original maturity of three months or less when purchased, are considered to be cash equivalents. The Company maintains several pools including multicurrency notional pools and physical pools internationally and a zero balance account ("ZBA") structure in the U.S. In the notional pools, actual cash balances are not physically converted and are not commingled between participating legal entities. The Company will classify any overdraft balances within accrued expenses and other current liabilities on the Consolidated Balance Sheets. The following table provides a reconciliation of cash, cash equivalents and restricted cash at January 1, 2022 and December 26, 2020 reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows. (in millions) 2021 2020 Cash and cash equivalents $ 478,473 $ 687,525 Restricted cash included in prepaid expenses and other current assets 2,718 — Restricted cash included in other assets 1,645 $ — Total cash, cash equivalents and restricted cash $ 482,836 $ 687,525 Short-Term and Long-Term Investments 51 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of January 1, 2022, the Company has an investment in Polytronics Technology Corporation Ltd. (“Polytronics”). The Company’s Polytronics shares held at the end of fiscal 2021 and 2020 represent approximately 6.8 % and 7.2 % of total Polytronics shares outstanding, respectively. The Polytronics investment is carried at fair value. The fair value of the Polytronics investment was € 23 million (approximately $ 26.1 million) at January 1, 2022 and € 15.7 million (approximately $ 19.2 million) at December 26, 2020. As a result of the Company’s acquisition of IXYS, the Company has equity ownerships in various investments that are accounted for under the equity method. The Company owns 45 % of the outstanding equity of Powersem GmbH, a module manufacturer based in Germany, approximately 19 % of the outstanding equity of EB Tech Ltd., a company with expertise in radiation technology based in South Korea, and approximately 24 % of the outstanding common shares of Automated Technology, Inc., a supplier located in the Philippine s that provides assemb ly and test services. All equity-level investments are less than majority owned. The Company recognized $ 1.3 million gains from its equity method investment for the fiscal year ended January 1, 2022. The Company recognized no gains and losses from its equity method investments for the fiscal year ended December 26, 2020. The balance of these equity method investments was $ 12.4 million and $ 11.4 million as of the fiscal years ended January 1, 2022 and December 26, 2020, respectively. See Note 18, Related Party Transactions, for further discussion. The Company does not have any remaining book value of investments accounted for under the cost method as of January 1, 2022. As of December 26, 2020, the Company had a net book value of $ 0.5 million. During the fiscal year ended January 1, 2022, the Company impaired the remaining book value of these investments and recorded an impairment charge of $ 0.5 million, and during the fiscal year ended December 26, 2020, the Company recorded $ 0.1 million in Other expense (income), net in the Consolidated Statements of Net Income. See Note 10, Fair Value of Assets and Liabilities, for further discussion. The Company has investments related to its non-qualified Supplemental Retirement and Savings Plan. The Company maintains accounts for participants through which participants make investment elections. The investment securities are subject to the claims of the Company’s creditors. The investment securities are all mutual funds. The investment securities are measured at net asset value. As of January 1, 2022 and December 26, 2020, the investment securities balance was $ 15.0 million and $ 13.2 million, respectively, related to the plan and are included in Other assets on the Consolidated Balance Sheets. Trade Receivables The Company performs credit evaluations of customers’ financial condition and generally does not require collateral. Credit losses are provided for in the financial statements based upon specific knowledge of a customer’s inability to meet its financial obligations to the Company. Historically, credit losses have consistently been within management’s expectations and have not been a material amount. A receivable is considered past due if payments have not been received within agreed upon invoice terms. Write-offs are recorded at the time a customer receivable is deemed uncollectible. The Company also maintains allowances against trade receivables for the settlement of rebates and sales discounts to customers. These allowances are based upon specific customer sales and sales discounts as well as actual historical experience. Inventories Inventories are stated at the lower of cost or net realizable value, which approximates current replacement cost. Cost is principally determined using the first-in, first-out method. The Company maintains excess and obsolete reserves against inventory to reduce the carrying value to the expected net realizable value. These reserves are based upon a combination of factors including historical sales volume, market conditions, lower of cost or market analysis and expected realizable value of the inventory. Property, Plant, and Equipment Land, buildings, and equipment are carried at cost. Depreciation is calculated using the straight-line method with useful lives of up to 21 years for buildings, three to ten years for equipment, seven years for furniture and fixtures, five years for tooling and three years for computer equipment. Leasehold improvements are depreciated over the lesser of their useful life or the lease term. Maintenance and repair costs are charged to expense as incurred. Major overhauls that extend the useful lives of existing assets are capitalized. Goodwill 52 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company annually tests goodwill for impairment on the first day of its fiscal fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company compares each reporting unit’s fair value, estimated based on comparable company market valuations and expected future discounted cash flows to be generated by the reporting unit, to its carrying value. The results of the annual goodwill impairment test as of September 26, 2021 indicated that the estimated fair values for each of the seven reporting units exceeded their respective carrying values. As of the most recent annual test conducted on September 26, 2021, the Company noted that the excess of fair value over the carrying value, was 380 %, 104 %, 255 %, 217 %, 95 %, 144 %, and 231 % for its reporting units; Electronics-Passive Products and Sensors, Electronics-Semiconductor, Passenger Car Products, Commercial Vehicle Products, Automotive Sensors, Relays, and Power Fuse, respectively. Relatively small changes in the Company’s key assumptions would not have resulted in any reporting units failing the goodwill impairment test. See Note 5, Goodwill and Other Intangible Assets, for additional information. 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 Transportation 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. In addition, 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 January 1, 2022, the automotive sensors reporting unit had $ 9.2 million of remain ing goodwill. The Company also performs an interim review for indicators of impairment each quarter to assess whether an interim impairment review is required for any reporting unit. As part of its interim reviews, management analyzes potential changes in the value of individual reporting units based on each reporting unit’s operating results for the period compared to expected results as of the prior year’s annual impairment test. In addition, management considers how other key assumptions, including discount rates and expected long-term growth rates, used in the last annual impairment test, could be impacted by changes in market conditions and economic events. Based on the interim assessments as of January 1, 2022, 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. Long-Lived Assets Customer relationships, trademarks and tradenames are amortized using the straight-line method over estimated useful lives that have a range of 5 to 20 years. Patents, licenses and software are amortized using the straight-line method or an accelerated method over estimated useful lives that have a range of 5 to 17 years. The distribution networks are amortized on either a straight-line or accelerated basis over estimated useful lives that have a range of 4 to 10 years. Land use rights are amortized using the straight-line method over 50 years which is the term of the land use rights. The Company assesses potential impairments to its long-lived assets if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its estimated fair value based upon the most recent information available. Estimated fair market value is generally measured by discounting estimated future cash flows. Long-lived assets, other than goodwill and other intangible assets, that are held for sale are recorded at the lower of carrying value or the fair market value less the estimated cost to sell. Environmental Liabilities Environmental liabilities are accrued based on engineering studies estimating the cost of remediating sites. Expenses related to on-going maintenance of environmental sites are expensed as incurred. If actual or estimated probable future losses exceed the Company’s recorded liability for such claims, the Company would record additional charges during the period in which the actual loss or change in estimate occurred. Pension and Other Post-retirement Benefits The Company records annual income and expense amounts relating to its pension and post-retirement benefits plans based on calculations which include various actuarial assumptions including discount rates, expected long-term rates of return and compensation increases. The Company reviews its actuarial assumptions on an annual basis as of the fiscal year-end balance sheet date (or more frequently if a significant event requiring remeasurement occurs) and modifies the assumption based on 53 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS current rates and trends when it is appropriate to do so. The effects of modifications are recognized immediately on the Consolidated Balance Sheets, but are generally amortized into operating earnings over future periods, with the deferred amount recorded in accumulated other comprehensive income (loss). The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience, market conditions and input from its actuaries and investment advisors. Revenue Recognition Revenue Disaggregation The following table disaggregates the Company’s revenue by primary business units for the fiscal years ended January 1, 2022 and December 26, 2020: Fiscal Year Ended January 1, 2022 (in thousands) Electronics Segment Transportation Segment (1) Industrial Segment Total Electronics – Semiconductor $ 678,861 $ — $ — $ 678,861 Electronics – Passive Products and Sensors 621,883 — — 621,883 Passenger Car Products — 266,020 — 266,020 Commercial Vehicle Products — 160,300 — 160,300 Automotive Sensors — 101,738 — 101,738 Industrial Products — — 251,126 251,126 Total $ 1,300,744 $ 528,058 $ 251,126 $ 2,079,928 Fiscal Year Ended December 26, 2020 (in thousands) Electronics Segment Transportation Segment (1) Industrial Segment Total Electronics – Semiconductor $ 522,352 $ — $ — $ 522,352 Electronics – Passive Products and Sensors 415,410 — — 415,410 Passenger Car Products — 200,455 — 200,455 Commercial Vehicle Products — 101,324 — 101,324 Automotive Sensors — 93,985 — 93,985 Industrial Products — — 112,169 112,169 Total $ 937,762 $ 395,764 $ 112,169 $ 1,445,695 (1) Formerly known as Automotive segment . See Note 16, Segment Information, for net sales by segment and countries. The Company recognizes revenue on product sales in the period in which the Company satisfies its performance obligation and control of the product is transferred to the customer. The Company’s sales arrangements with customers are predominately short term in nature and generally provide for transfer of control at the time of shipment as this is the point at which title and risk of loss of the product transfers to the customer. At the end of each period, for those shipments where title to the products and the risk of loss and rewards of ownership do not transfer until the product has been received by the customer, the Company adjusts revenues and cost of sales for the delay between the time that the products are shipped and when they are received by the customer. The amount of revenue recorded reflects the consideration to which the Company expects to be entitled in exchange for goods and may include adjustments for customer allowance, rebates and price adjustments. The Company’s distribution channels are primarily through direct sales and independent third-party distributors. The Company has elected the practical expedient under Accounting Standards Codification ("ASC") 340-40-25-4 to expense commissions when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year. Revenue and Billing 54 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company generally accepts orders from customers through receipt of purchase orders or electronic data interchange based on written sales agreements and purchasing contracts. Contract pricing and selling agreement terms are based on market factors, costs, and competition. Pricing is often negotiated as an adjustment (premium or discount) from the Company’s published price lists. The customer is invoiced when the Company’s products are shipped to them in accordance with the terms of the sales agreement. As the Company’s standard payment terms are less than one year, the Company has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company also elected the practical expedient provided in ASC 606-10-25-18B to treat all product shipping and handling activities as fulfillment activities, and therefore recognize the gross revenue associated with the contract, inclusive of any shipping and handling revenue. Ship and Debit Program Some of the terms of the Company’s sales agreements and normal business conditions provide customers (distributors) the ability to receive price adjustments on products previously shipped and invoiced. This practice is common in the industry and is referred to as a “ship and debit” program. This program allows the distributor to debit the Company for the difference between the distributors’ contracted price and a lower price for specific transactions. Under certain circumstances (usually in a competitive situation or large volume opportunity), a distributor will request authorization for pricing allowances to reduce its price. When the Company approves such a reduction, the distributor is authorized to “debit” its account for the difference between the contracted price and the lower approved price. The Company establishes reserves for this program based on historic activity, electronic distributor inventory levels and actual authorizations for the debit and recognizes these debits as a reduction of revenue. Return to Stock The Company has a return to stock policy whereby certain customers, with prior authorization from the Company's management, can return previously purchased goods for full or partial credit. The Company establishes an estimated allowance for these returns based on historic activity. Sales revenue and cost of sales are reduced to anticipate estimated returns. Volume Rebates The Company offers volume-based sales incentives to certain customers to encourage greater product sales. If customers achieve their specific quarterly or annual sales targets, they are entitled to rebates. The Company estimates the projected amount of rebates that will be achieved by the customer and recognizes this estimated cost as a reduction to revenue as products are sold. Allowance for Doubtful Accounts The Company 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. If circumstances related to specific customers change, the estimates of the recoverability of receivables could be further adjusted. As of January 1, 2022 and December 26, 2020, the Company’s allowance for doubtful accounts was $ 1.9 million and $ 1.4 million, respectively. Additionally, the Company had $ 2.1 million and $ 1.0 million of trade receivables greater than 90 days past due as of January 1, 2022 and December 26, 2020, respectively. Advertising Costs The Company expenses advertising costs as incurred, which amounted to $ 2.1 million , $ 2.1 million, and $ 2.7 million in fiscal years 2021, 2020 and 2019, respectively, and are included as a component of selling, general, and administrative expenses. Shipping and Handling Fees and Costs 55 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts billed to customers related to shipping and handling are classified as revenue. Costs incurred for shipping and handling of $ 15.4 million, $ 11.1 million, and $ 11.0 million in f iscal years 2021, 2020, and 2019, respectively, are classified in selling, general, and administrative expenses. Foreign Currency Translation / Remeasurement The Company’s foreign subsidiaries use the local currency or the U.S. dollar as their functional currency, as appropriate. Assets and liabilities are translated using exchange rates at the balance sheet date, and revenues and expenses are translated at weighted average rates. Adjustments from the translation process are recognized in Shareholders’ equity as a component of Accumulated other comprehensive income (loss). The amount of foreign currency gain or loss from remeasurement recognized in the Consolidated Statements of Net Income was a loss of $ 17.2 million in fiscal year 2021, a gain of $ 14.9 million in fiscal year 2020, and a loss of $ 5.2 million in fiscal year 2019. Stock-Based Compensation The Company recognizes compensation expense for the cost of awards of equity compensation using a fair value method. Benefits of tax deductions in excess of recognized compensation expense are reported as operating cash flows. See Note 12, Stock-Based Compensation , for additional information on stock-based compensation. Coal Mining Liability Included in other long-term liabilities is an accrual related to former coal mining operations at Littelfuse GmbH (formerly known as Heinrich Industries, AG) for the amounts of € 1.9 million ($ 2.1 million) and € 2.3 million ($ 2.9 million) at January 1, 2022 and December 26, 2020, respectively. Management, in conjunction with an independent third-party, performs an annual evaluation of the former coal mining operations in order to develop an estimate of the probable future obligations in regard to remediating the dangers (such as a shaft collapse) of abandoned coal mine shafts in the former coal mining operations. Management accrues for costs associated with such remediation efforts based on management's best estimate when such costs are probable and reasonably able to be estimated. The ultimate determination can only be done after respective investigations because the concrete conditions are mostly unknown at this time. Other Expense (Income), Net Other expense (income), net generally consists of interest income, royalties, change in fair value of available-for-sale securities, pension non-service costs and settlements and other non-operating expense (income). Income Taxes 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 enacted tax rates in effect for the years in which the differences are expected to reverse. The Company recognizes deferred taxes for temporary differences, operating loss carryforwards, and tax credit and other tax attribute carryforwards (excluding carryforwards where usage has been determined to be remote). Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. U.S. state and non-U.S. income taxes are provided on the portion of non-U.S. income that is expected to be remitted to the U.S. and be taxable (and non-U.S. income taxes are provided on the portion of non-U.S. income that is expected to be remitted to an upper-tier non-U.S. entity). Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Deferred U.S. income taxes and non-U.S. taxes are not provided on the excess of the investment value for financial reporting over the tax basis of investments in those non-U.S. subsidiaries for which such excess is considered to be permanently reinvested in those operations. Management regularly evaluates whether non-U.S. earnings are expected to be permanently reinvested. This evaluation requires judgment about the future operating and liquidity needs of the Company and its non-U.S. subsidiaries. Changes in economic and business conditions, 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. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. 56 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 2017 Tax Cuts and Jobs Act (the "Tax Act"), among other things, imposed a one-time tax (the “Toll Charge”) on accumulated earnings of certain non-U.S. subsidiaries and included base broadening provisions commonly referred to as the global intangible low-taxed income provisions ("GILTI"). The Company elected to pay the 2017 Littelfuse Toll Charge over the eight-year period prescribed by the Tax Act. The long-term portion of this Toll Charge which remains payable as of January 1, 2022, totaling $ 17.8 million, is recorded in Other long-term liabilities, and the anticipated 2022 annual installment payment of $ 3.0 million is included in Accrued income taxes , on the Consolidated Balance Sheet as of January 1, 2022. 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 January 1, 2022 , December 26, 2020 and December 28, 2019, 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 expen se. Fair Value Measurements Certain assets and liabilities are required to be recorded at fair value on a recurring basis. Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company records the fair value of its available-for-sale securities and pension plan assets on a recurring basis. Assets measured at fair value on a nonrecurring basis include long-lived assets held and used, long-lived assets held for sale, goodwill and other intangible assets. The fair value of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. The three-tier value hierarchy, which prioritizes valuation methodologies based on the reliability of the inputs, is: Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 – Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 – Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. Recently Adopted Accounting Standards In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes" as part of its initiative to reduce complexity in the accounting standards. The guidance is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The adoption of ASU 2019-12 did not have a material impact on our Consolidated Financial Statements. Recently Issued Accounting Standards In October 2021, the FASB issued ASU No. 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers". The standard requires an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The guidance is effective for fiscal years beginning after December 15, 2022 with early adoption permitted. The Company does not expect a material impact from the adoption of this guidance on the Company's Consolidated Financial Statements. In November 2021, the FASB issued ASU No. 2021-10, " Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance". The standard, requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: 1) Information about the nature of the transactions and the related accounting policy used to account for the transactions; 2) The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; 3) Significant terms and conditions of the transactions, including commitments and contingencies. The guidance is effective for fiscal years beginning after December 15, 2021 with early adoption permitted. The Company does not expect a material impact from the adoption of this guidance on the Company's Consolidated Financial Statements. 57 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Acquisitions The Company accounts for acquisitions using the acquisition method in accordance with ASC 805, “Business Combinations,” in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition. The operating results of the acquired business are included in the Company’s Consolidated Financial Statements from the date of the acquisition. Carling Technologies On November 30, 2021, the Company completed the previously announced acquisition of Carling Technologies, Inc. (“Carling”), pursuant to the Stock Purchase Agreement, dated as of October 19, 2021. Founded in 1920, Carling has a leading position in switching and circuit protection technologies with a strong global presence in commercial vehicle, marine and datacom/telecom infrastructure markets. At the time of acquisition, Carling had annualized sales of approximately $ 170 million. The business is headquartered in Plainville, Connecticut, with offices and facilities located around the world and is reported as part of the commercial vehicle business within our Transportation segment. The purchase price for Carling Technologies was approximately $ 315 million subject to change for a working capital adjustment. The acquisition was funded with cash on hand. The total purchase consideration of $ 313.6 million, net of cash, has been allocated, on a preliminary basis, to assets acquired and liabilities assumed, as of the completion of the acquisition, based on preliminary estimated fair values. The purchase consideration is subject to change for the final working capital adjustments. The purchase price allocation is preliminary because the evaluations necessary to assess the fair values of the net assets acquired are still in process. The primary areas that are not yet finalized relate to the completion of the valuations of certain property, plant and equipment, intangible assets and acquired income tax assets and liabilities. As a result, these allocations are subject to change during the purchase price allocation period as the valuations are finalized. The following table summarizes the preliminary purchase price allocation of the fair value of assets acquired and liabilities assumed in the Carling acquisition: (in thousands) Purchase Price Allocation Total purchase consideration: Cash, net of cash acquired $ 313,583 Allocation of consideration to assets acquired and liabilities assumed: Trade receivables, net 25,503 Inventories 57,450 Other current assets 3,454 Property, plant, and equipment 64,301 Intangible assets 125,890 Goodwill 92,366 Other non-current assets 4,104 Current liabilities ( 21,723 ) Other non-current liabilities ( 37,762 ) $ 313,583 All Carling goodwill, other assets and liabilities were recorded in the Transportation segment and are primarily reflected in the Americas, Europe and Asia-Pacific geographic areas. The goodwill resulting from this acquisition consists largely of the Company’s expected future product sales and synergies from combining Carling’s products and technology with the Company’s existing commercial vehicle products portfolio. Goodwill resulting from the Carling acquisition is not expected to be deductible for tax purposes. Included in the Company’s Consolidated Statements of Net Income for the fiscal year ended January 1, 2022 are net sales of $ 15.3 million, and a loss before income taxes of $ 1.2 million, since the November 30, 2021 acquisition of Carling. As required by purchase accounting rules, the Company recorded a $ 6.4 million step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation. The step-up is being amortized as a non-cash charge to cost of goods sold during the fourth quarter of 2021 and first quarter of 2022, as the acquired inventory is sold, and reflected as other non-segment 58 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS costs. The Company recognized a non-cash charge of $ 1.6 million to cost of goods sold during the fiscal year ended January 1, 2022. For the fiscal year ended January 1, 2022, the Company incurred approximately $ 4.5 million of legal and professional fees related to the Carling acquisition recognized as Selling, general, and administrative expenses . These costs were reflected as other non-segment costs. Hartland Controls On January 28, 2021, the Company acquired Hartland Controls ("Hartland"), a manufacturer and leading supplier of electrical components used primarily in heating, ventilation, air conditioning ("HVAC") and other industrial and control systems applications. At the time of acquisition, Hartland had annualized sales of approximately $ 70 million. The purchase price for Hartland was $ 111.0 million and the operations of Hartland are included in the Industrial segment. The total purchase consideration of $ 108.5 million, net of cash, cash equivalents, and restricted cash has been allocated to assets acquired and liabilities assumed, as of the completion of the acquisition, based on estimated fair values. As of January 1, 2022, the Company had restricted cash of $ 1.7 million in an escrow account for general indemnification purposes. The following table summarizes the final purchase price allocation of the fair value of assets acquired and liabilities assumed in the Hartland acquisition: (in thousands) Purchase Price Allocation Total purchase consideration: Cash, net of cash acquired, and restricted cash $ 108,516 Allocation of consideration to assets acquired and liabilities assumed: Trade receivables, net 12,915 Inventories 35,808 Other current assets 2,224 Property, plant, and equipment 6,296 Intangible assets 39,660 Goodwill 38,502 Other non-current assets 3,782 Current liabilities ( 24,861 ) Other non-current liabilities ( 5,810 ) $ 108,516 All Hartland goodwill, other assets and liabilities were recorded in the Industrial segment and are primarily reflected in the Americas and Asia-Pacific geographic areas. The goodwill resulting from this acquisition consists largely of the Company’s expected future product sales and synergies from combining Hartland’s products and technology with the Company’s existing industrial products portfolio. Goodwill resulting from the Hartland acquisition is not expected to be deductible for tax purposes. Included in the Company’s Consolidated Statements of Net Income for the fiscal year ended January 1, 2022 are net sales of $ 100.5 million and a loss before income taxes of $ 2.8 million since the January 28, 2021 acquisition of Hartland. The Company recorded a $ 6.8 million step-up of inventory to its fair value as of the acquisition date based on the valuation. The step-up was fully amortized as a non-cash charge to cost of goods sold during the first and second quarters of 2021, as the acquired inventory was sold, and is reflected as other non-segment costs. For the fiscal year ended January 1, 2022, the Company recognized a charge of $ 6.8 million for the amortization of this fair value inventory step-up. For the fiscal year ended January 1, 2022, the Company incurred approximately $ 0.8 million of legal and professional fees related to the Hartland acquisition recognized as Selling, general, and administrative expenses . These costs were reflected as other non-segment costs. Pro Forma Results 59 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company, Hartland and Carling as though the acquisition had occurred as of December 29, 2019. The pro forma amounts presented are not necessarily indicative of either the actual consolidated results had the Hartland and Carling acquisitions occurred as of December 29, 2019 or of future consolidated operating results. For the Fiscal Year Ended (in thousands, except per share amounts) January 1, 2022 December 26, 2020 Net sales $ 2,257,390 $ 1,662,896 Income before income taxes 357,090 141,491 Net income 296,030 115,078 Net income per share — basic 12.03 4.72 Net income per share — diluted 11.87 4.68 Pro forma results presented above primarily reflect the following adjustments: For the Fiscal Year Ended (in thousands) January 1, 2022 December 26, 2020 Amortization (a) $ ( 8,770 ) $ ( 12,669 ) Depreciation ( 64 ) 253 Transaction costs (b) 5,381 ( 5,381 ) Amortization of inventory step-up (c) 8,398 ( 13,156 ) Income tax (expense) benefit of above items ( 1,021 ) 6,706 (a) The amortization adjustment for the twelve months ended January 1, 2022 and December 26, 2020 primarily reflects incremental amortization resulting from the measurement of intangibles at their fair values. (b) The transaction cost adjustments reflect the reversal of certain legal and professional fees from the twelve months ended January 1, 2022 and recognition of those fees during the twelve months ended December 26, 2020. (c) The amortization of inventory step-up adjustment reflects the reversal of the amount recognized during the twelve months ended January 1, 2022 and the recognition of the amortization during the twelve months ended December 26, 2020. The inventory step-up is amortized over four months for both acquisitions. For the fiscal year ended January 1, 2022 and December 26, 2020, the Company recorded $ 6.2 million and $ 0.8 million of acquisition-related expenses associated with completed and contemplated acquisitions within Selling, general and administrative expenses in the Consolidated Statements of Net Income. 3. Inventories The components of inventories at January 1, 2022 and December 26, 2020 are as follows: (in thousands) 2021 2020 Raw materials $ 168,409 $ 85,394 Work in process 117,506 92,783 Finished goods 195,656 114,641 Inventory reserves ( 35,900 ) ( 34,816 ) Total $ 445,671 $ 258,002 4. Property, Plant, and Equipment The components of net property, plant, and equipment at January 1, 2022 and December 26, 2020 are as follows: 60 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 2021 2020 Land $ 23,470 $ 22,851 Building 151,297 123,497 Equipment 779,559 678,220 Accumulated depreciation and amortization ( 516,437 ) ( 480,390 ) Total $ 437,889 $ 344,178 The Company recorded depreciation expense of $ 55.9 million, $ 56.1 million, and $ 52.5 million for the fiscal years ended January 1, 2022, December 26, 2020, and December 28, 2019, respectively. 5. Goodwill and Other Intangible Assets The amounts for goodwill and changes in the carrying value by segment are as follows: (in thousands) Electronics Transportation Industrial Total Gross goodwill as of December 28, 2019 $ 650,796 $ 131,321 $ 47,266 $ 829,383 Accumulated impairment losses as of December 28, 2019 — — ( 8,794 ) ( 8,794 ) Net goodwill as of December 28, 2019 $ 650,796 $ 131,321 $ 38,472 $ 820,589 Changes during 2020: Impairments ( 33,841 ) ( 33,841 ) Foreign currency translation adjustments 25,529 4,451 84 30,064 Gross goodwill as of December 26, 2020 676,325 138,354 47,551 862,230 Accumulated impairment losses as of December 26, 2020 — ( 36,423 ) ( 8,995 ) ( 45,418 ) Net goodwill as of December 26, 2020 $ 676,325 $ 101,931 $ 38,556 $ 816,812 Changes during 2021: Additions (a) — 96,307 38,502 134,809 Foreign currency translation adjustments ( 16,080 ) ( 6,106 ) 179 ( 22,007 ) Gross goodwill as of January 1, 2022 660,245 228,555 86,232 975,032 Accumulated impairment losses as of January 1, 2022 — ( 36,177 ) ( 9,065 ) ( 45,242 ) Net goodwill as of January 1, 2022 $ 660,245 $ 192,378 $ 77,167 $ 929,790 (a) The additions primarily resulted from the acquisitions of Carling and Hartland. The Company tests its goodwill annually for impairment on the first day of its fiscal fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. 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 Transportation 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. In addition, during the second quarter of 2020, certain customers notified the Company of the ir decision to delay future programs along with a customer canceling their existing program. The goodwill impairment charge was determined using Level 3 inputs, including discounted cash flow analysis and comparable marketplace fair value data. As of January 1, 2022, the automotive sensors reporting unit had $ 9.2 million of remaining goodwill. The components of intangible assets at January 1, 2022 and December 26, 2020 are as follows: 61 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of January 1, 2022 (in thousands) Gross Carrying Value Accumulated Amortization Net Book Value Land use rights $ 19,542 $ 1,906 $ 17,636 Patents, licenses and software 164,556 101,307 63,249 Distribution network 43,361 40,591 2,770 Customer relationships, trademarks, and tradenames 487,710 164,239 323,471 Total $ 715,169 $ 308,043 $ 407,126 As of December 26, 2020 (in thousands) Gross Carrying Value Accumulated Amortization Net Book Value Land use rights $ 10,280 $ 2,007 $ 8,273 Patents, licenses and software 137,210 92,868 44,342 Distribution network 43,910 38,980 4,930 Customer relationships, trademarks, and tradenames 372,064 137,722 234,342 Total $ 563,464 $ 271,577 $ 291,887 During the year ended January 1, 2022, the Company recorded additions to other intangible assets of $ 165.6 million, for acquisitions during 2021, the components of which were as follows: 2021 (in thousands, except weighted average useful life) Weighted Average Useful Life (Years) Amount Land use rights 50 $ 9,590 Patents, developed technology 9.8 $ 31,659 Customer relationships, trademarks, and tradenames 13.0 124,301 Total $ 165,550 For intangible assets with definite lives, the Company recorded amortization expense of $ 42.7 million, $ 40.0 million, and $ 40.0 million in 2021, 2020, and 2019, respectively. Estimated annual amortization expense related to intangible assets with definite lives at January 1, 2022 is as follows: (in thousands) Amount 2022 $ 50,035 2023 45,569 2024 42,151 2025 41,776 2026 33,245 2027 and thereafter 194,350 Total $ 407,126 62 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Accrued Liabilities The components of accrued liabilities at January 1, 2022 and December 26, 2020 are as follows: (in thousands) 2021 2020 Employee-related liabilities $ 92,018 $ 50,689 Operating lease liability 9,018 6,811 Interest 4,402 4,517 Professional services 4,299 3,321 Other non-income taxes 4,280 2,126 Restructuring liability 2,944 4,195 Current benefit liability 1,248 2,751 Deferred revenue 1,105 2,959 Other customer reserves 702 3,858 Other 39,673 29,251 Total $ 159,689 $ 110,478 Employee-related liabilities consist primarily of payroll, sales commission, bonus, employee benefit accruals and workers’ compensation. Bonus accruals include amounts earned pursuant to the Company’s primary employee incentive compensation plans. Other accrued liabilities include miscellaneous operating accruals and other client-related liabilities. 7. Lease Commitments Under ASC 842, a contract contains a lease if there is an identified asset and the Company has the right to control the asset. The Company determines whether a contract contains a lease at contract inception. The Company leases office and production space under various non-cancellable operating leases that expire no later than 2031. Certain real estate leases include one or more options to renew. The exercise of lease renewal options is at the Company's sole discretion. Options to extend the lease are included in the lease term when it is reasonably certain the Company will exercise the option. The Company also has production equipment, office equipment and vehicles under operating leases. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option that is reasonably certain of exercise. Certain leases include rental payments adjusted periodically for inflation. The lease agreements do not contain any material residual value guarantee or material restrictive covenants. The Company has elected to use the available practical expedient to account for the lease and non-lease components of its leases as a single component. As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities. The Company does not have a published credit rating because it has no publicly traded debt; therefore, the Company is generating its incremental borrowing rate ('IBR"), using a synthetic credit rating model that compares its credit quality to other rated companies based on certain financial metrics and ratios. The reference rate will be based on the yield curve of companies with similar credit quality based on the metrics and adjusted for currency in regions where we have significant operations. All leases with an initial term of 12 months or less that do not include an option to extend or purchase the underlying asset that the Company is reasonably certain to exercise (“short-term leases”) are not recorded on the Consolidated Balance Sheets. Short-term lease expenses are recognized on a straight-line basis over the lease term. The following table presents the classification of ROU assets and lease liabilities as of January 1, 2022 and December 26, 2020: 63 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Leases (in thousands) Consolidated Balance Sheet Classification January 1, 2022 December 26, 2020 Assets Operating ROU assets Right of use assets, net $ 29,616 $ 17,615 Liabilities Current operating lease liabilities Accrued liabilities $ 9,018 $ 6,811 Non-current operating lease liabilities Non-current operating lease liabilities 22,305 12,950 Total lease liabilities $ 31,323 $ 19,761 The following table represents the lease costs for 2021 and 2020: Leases (in thousands) Consolidated Statements of Net Income Classification Fiscal Year Ended January 1, 2022 Fiscal Year Ended December 26, 2020 Short-term lease expenses Cost of sales, SG&A expenses $ 345 $ 512 Variable lease expenses Cost of sales, SG&A expenses 1,165 1,307 Operating lease rent expenses Cost of sales, SG&A expenses 9,929 8,591 Total operating lease costs Cost of sales, SG&A expenses $ 11,439 $ 10,410 The Company leases certain office and warehouse space as well as certain machinery and equipment under non-cancellable operating leases. Rent expense under these leases was $ 11.4 million, $ 10.4 million , and $ 10.1 million in 2021, 2020, and 2019, respectively. Maturity of Lease Liabilities as of January 1, 2022 (in thousands) Operating leases 2022 $ 10,080 2023 7,840 2024 7,323 2025 3,135 2026 1,322 2027 and thereafter 4,607 Total lease payments $ 34,307 Present value of lease liabilities $ 31,323 Operating Lease Term and Discount Rate Fiscal Year Ended January 1, 2022 Fiscal Year Ended December 26, 2020 Weighted-average remaining lease term (years) 4.79 3.41 Weighted-average discount rate 4.27 % 5.06 % Cash Flow Information related to Leases (in thousands) Fiscal Year Ended January 1, 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash flow payments for operating leases $ ( 10,150 ) Leased assets obtained in exchange for operating lease liabilities 20,217 Other Information (in thousands) Net gain from sale and leaseback transaction ( 4,058 ) 8. Restructuring, Impairment and Other Charges 64 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company recorded restructuring, impairment and other charges for fiscal years 2021, 2020, and 2019 as follows: Fiscal Year Ended January 1, 2022 (in thousands) Electronics Transportation Industrial Total Employee terminations $ 1,124 $ 404 $ 347 $ 1,875 Other restructuring charges — 283 — 283 Total restructuring charges 1,124 687 347 2,158 Total $ 1,124 $ 687 $ 347 $ 2,158 Fiscal Year Ended December 26, 2020 (in thousands) Electronics Transportation Industrial Total Employee terminations $ 2,540 $ 682 $ 2,231 $ 5,453 Other restructuring charges — 175 10 185 Total restructuring charges 2,540 857 2,241 5,638 Impairment — 33,841 2,237 36,078 Total $ 2,540 $ 34,698 $ 4,478 $ 41,716 Fiscal Year Ended December 28, 2019 (in thousands) Electronics Transportation Industrial Total Employee terminations $ 5,313 $ 4,251 $ 795 $ 10,359 Other restructuring charges 188 1,714 450 2,352 Total restructuring charges 5,501 5,965 1,245 12,711 Impairment — 322 — 322 Total $ 5,501 $ 6,287 $ 1,245 $ 13,033 2021 For the year ended January 1, 2022, the Company recorded total restructuring charges of $ 2.2 million, primarily for employee termination costs. These charges primarily related to the reorganization of certain manufacturing, selling and administrative functions within the Electronics and Transportation segments. 2020 For the year ended December 26, 2020, the Company recorded total restructuring charges of $ 5.6 million, primarily for employee termination costs. These charges primarily related to the reorganization of certain manufacturing, selling and administrative functions across all segments and the previously announced consolidation of a manufacturing facility within the Industrial segment. The Company also recognized $ 36.1 million of impairment charges, which included a $ 33.8 million goodwill impairment charge associated with the automotive sensors reporting unit within the Transportation segment in the second quarter of 2020 and a $ 2.2 million impairment charge related to the land and building associated with the Company’s previously announced consolidation of a manufacturing facility within the Industrial segment in the first quarter of 2020. See Note 5, Goodwill and Other Intangible Assets for further discussion regarding the goodwill impairment charge. 2019 For the year ended December 28, 2019, the Company recorded total restructuring charges of $ 12.7 million for employee termination costs and other restructuring charges. These charges primarily related to the reorganization of operations and selling, general and administrative functions as well as the integration of IXYS within the Electronics segment and the reorganization of operations in the automotive sensors and commercial vehicle products businesses within the Transportation segment. In April 2019, we announced the closure of a European manufacturing facility in the automotive sensors business within the Transportation segment. The Company recorded $ 1.7 million of employee termination costs and $ 1.4 million of other restructuring and impairment charges associated with this plant closure. The restructuring reserves as of January 1, 2022 and December 26, 2020 are $ 2.9 million and $ 4.2 million, respectively. The restructuring reserves are included within accrued liabilities. Payments associated with employee terminations reflected in the above table were substantially completed by January 1, 2022. The Company anticipates that the remaining payments associated with employee terminations will be completed in fiscal 2022. 65 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Debt The carrying amounts of debt at January 1, 2022 and December 26, 2020 are as follows: (in thousands) 2021 2020 Revolving Credit Facility $ 100,000 $ 130,000 Euro Senior Notes, Series A due 2023 132,444 142,679 Euro Senior Notes, Series B due 2028 107,540 115,850 U.S. Senior Notes, Series A due 2022 25,000 25,000 U.S. Senior Notes, Series B due 2027 100,000 100,000 U.S. Senior Notes, Series A due 2025 50,000 50,000 U.S. Senior Notes, Series B due 2030 125,000 125,000 Other — 2,619 Unamortized debt issuance costs ( 3,087 ) ( 4,114 ) Total debt 636,897 687,034 Less: Current maturities ( 25,000 ) — Total long-term debt $ 611,897 $ 687,034 Interest paid on all Company debt was approximatel y $ 17.4 million, $ 20.1 million, and $ 21.2 million in fiscal year 2021, 2020, and 2019, respectively. Revolving Credit Facility On March 25, 2020, the company borrowed $ 100.0 million from its existing revolving credit facility to preserve financial flexibility and enhance liquidity, given the increasing levels of uncertainty related to COVID-19. 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 April 3, 2020, the Company amended its existing 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 o ne 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 $ 30.0 million on the amended revolving credit facility during the fiscal year ended January 1, 2022. The balance under the facility was $ 100.0 million as of January 1, 2022. Outstanding borrowings under the amended 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. The Company is also required to pay commitment fees on unused portions of the credit agreement ranging from 0.125 % to 0.20 %, based on the Consolidated Leverage Ratio, as defined in the agreement. The credit agreement includes representations, covenants and events of default that are customary for financing transactions of this natu re. The effective interest rate on outstanding borrowings under the credit facility was 1.35 % at January 1, 2022. As of January 1, 2022, the Company had no outstanding in letters of credit and had available $ 600.0 million of borrowing capacity under the revolving credit facility. At January 1, 2022, the Company was in compliance with all covenants under the credit agreement. Senior Notes On December 8, 2016, the Company entered into a Note Purchase Agreement, pursuant to which the Company issued and sold € 212 million aggregate principal amount of senior notes in two series. The funding date for the Euro denominated senior notes occurred on December 8, 2016 for € 117 million in aggregate amount of 1.14 % Senior Notes, Series A, due December 8, 2023 (“Euro Senior Notes, Series A due 2023”), and € 95 million in aggregate amount of 1.83 % Senior Notes, Series B due December 66 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8, 2028 (“Euro Senior Notes, Series B due 2028”) (together, the “Euro Senior Notes”). Interest on the Euro Senior Notes is payable semiannually on June 8 and December 8, commencing June 8, 2017. On December 8, 2016, the Company entered into a Note Purchase Agreement, pursuant to which the Company issued and sold $ 125 million aggregate principal amount of senior notes in two series. On February 15, 2017, $ 25 million in aggregate principal amount of 3.03 % Senior Notes, Series A, due February 15, 2022 (“U.S. Senior Notes, Series A due 2022”), and $ 100 million in aggregate principal amount of 3.74 % Senior Notes, Series B, due February 15, 2027 (“U.S. Senior Notes, Series B due 2027”) (together, the “U.S. Senior Notes due 2022 and 2027”) were funded. Interest on the U.S. Senior Notes due 2022 and 2027 is payable semiannually on February 15 and August 15, commencing August 15, 2017. On November 15, 2017, the Company entered into a Note Purchase Agreement pursuant to which the Company issued and sold $ 175 million in aggregate principal amount of senior notes in two series. On January 16, 2018, $ 50 million aggregate principal amount of 3.48 % Senior Notes, Series A, due February 15, 2025 (“U.S. Senior Notes, Series A due 2025”) and $ 125 million in aggregate principal amount of 3.78 % Senior Notes, Series B, due February 15, 2030 (“U.S. Senior Notes, Series B due 2030”) (together, the “U.S. Senior Notes due 2025 and 2030” and with the Euro Senior Notes and the U.S. Senior Notes 2022 and 2027, the “Senior Notes”) were funded. Interest on the U.S. Senior Notes due 2025 and 2030 will be payable on February 15 and August 15, commencing on August 15, 2018. The Senior Notes have not been registered under the Securities Act, or applicable state securities laws. The Senior Notes are general unsecured senior obligations and rank equal in right of payment with all existing and future unsecured unsubordinated indebtedness of the Company. The Senior Notes are subject to certain customary covenants, including limitations on the Company’s ability, with certain exceptions, to engage in mergers, consolidations, asset sales and transactions with affiliates, to engage in any business that would substantially change the general business of the Company, and to incur liens. In addition, the Company is required to satisfy certain financial covenants and tests relating to, among other matters, interest coverage and leverage. At January 1, 2022, the Company was in compliance with all covenants under the Senior Notes. The Company may redeem the Senior Notes upon the satisfaction of certain conditions and the payment of a make-whole amount to noteholders, and are required to offer to repurchase the Senior Notes at par following certain events, including a change of control. Debt Issuance Costs During fiscal year 2020, the Company paid debt issuance costs of $ 1.8 million in relation to the amended the Credit Agreement on April 3, 2020 which, along with the remaining balance of debt issuance costs of the previous credit facility, are being amortized over the life of the amended Credit Agreement. Debt Maturities Scheduled maturities of the Company’s long-term debt for each of the five years succeeding January 1, 2022 and thereafter are summarized as follows: (in thousands) Scheduled Maturities 2022 $ 25,000 2023 132,444 2024 — 2025 150,000 2026 — 2027 and thereafter 332,540 $ 639,984 67 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Fair Value of Assets and Liabilities For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, the Company classifies each fair value measurement as follows: Level 1 —Valuations based on unadjusted quoted prices for identical assets or liabilities in active markets; Level 2 —Valuations based upon quoted prices for similar instruments, prices for identical or similar instruments in markets that are not active, or model-derived valuations, all of whose significant inputs are observable, and Level 3 —Valuations based upon one or more significant unobservable inputs. Following is a description of the valuation methodologies used for instruments measured at fair value and their classification in the valuation hierarchy. Cash Equivalents Cash equivalents primarily consist of money market funds, which are held with an institution with sound credit rating and are highly liquid. The Company classified cash equivalents as Level 1 and are valued at cost, which approximates fair value. Investments in Equity Securities Investments in equity securities listed on a national market or exchange are valued at the last sales price and classified within Level 1 of the valuation hierarchy. Such securities are further detailed in Note 1, Summary of Significant Accounting Policies and Other Information . Other Investments The Company has certain convertible debt and convertible preferred stock investments that are accounted for under the cost method reflected in Investments and Other assets in the Consolidated Balance Sheets. During the fiscal year ended January 1, 2022, the Company impaired the remaining book value of these investments and recorded an impairment charge of $ 0.5 million, and during the fiscal year ended December 26, 2020, the Company recorded $ 0.1 million in Other expense (income), net in the Consolidated Statements of Net Income. As o fJanuary 1, 2022 and December 26, 2020, the balances of these investments were zero and $ 0.5 million, respectively. The fair value of these investments are measured on a nonrecurring basis using Level 3 inputs under the fair value hierarchy. The Company's accounting and finance management determines the valuation policies and procedures for Level 3 fair value measurements and is responsible for the development and determination of unobservable inputs. Defined Benefit Plan Assets / Non-qualified Supplemental Retirement and Savings Plan Investments See Note 11, Benefit Plans, for description of valuation methodologies and investment balances for defined benefit plan assets and investments related to the Company’s Non-Qualified Supplemental Retirement and Savings Plan. Foreign currency exchange forward contract There were no changes during 2021 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. On October 30, 2019, the Company entered a foreign currency exchange forward contract to mitigate the currency fluctuation risk between the Chinese renminbi and U.S dollar. The foreign currency contract was not designated as a hedge instrument and was marked to market on a monthly basis. The notional value of the forward contracts at December 28, 2019 was $ 16.0 million and expired on May 5, 2020. On March 23, 2020, the Company unwound the foreign currency exchange forward contract entered on October 30, 2019 and recognized a gain of $ 0.2 million within Other expense (income), net during the fiscal year 2020. The fair value of the foreign currency forward contract was valued using market exchange rates and classified as a Level 2 input under the fair value hierarchy. As of January 1, 2022 and December 26, 2020, the Company held no non-financial assets or liabilities that are required to be measured at fair value on a recurring basis. 68 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents assets measured at fair value by classification within the fair value hierarchy as of January 1, 2022: Fair Value Measurements Using (in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash Equivalents $ 12,475 $ — $ — $ 12,475 Investments in equity securities 26,070 — — 26,070 Mutual funds 15,021 — — 15,021 Total: $ 53,566 $ — $ — $ 53,566 The following table presents assets measured at fair value by classification within the fair value hierarchy as of December 26, 2020: Fair Value Measurements Using (in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash Equivalents $ 73,461 $ — $ — $ 73,461 Investments in equity securities 19,186 — — 19,186 Mutual funds 13,249 — — 13,249 Total: $ 105,896 $ — $ — $ 105,896 In addition to the methods and assumptions used for the financial instruments recorded at fair value as discussed above, the following methods and assumptions are used to estimate the fair value of other financial instruments that are not marked to market on a recurring basis. The Company’s other financial instruments include cash and cash equivalents, short-term investments, trade receivables and its long-term debt. Due to their short-term maturity, the carrying amounts of cash and cash equivalents, short-term investments and trade receivables approximate their fair values. The Company’s revolving and term loan debt facilities’ fair values approximate book value at January 1, 2022 and December 26, 2020, as the rates on these borrowings are variable in nature. The carrying value and estimated fair values of the Company’s Euro Senior Notes, Series A and Series B and USD Senior Notes, Series A and Series B, as of January 1, 2022 and December 26, 2020 were as follows: January 1, 2022 December 26, 2020 (in thousands) Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Euro Senior Notes, Series A due 2023 $ 132,444 $ 134,119 $ 142,679 $ 144,323 Euro Senior Notes, Series B due 2028 107,540 110,837 115,850 123,588 USD Senior Notes, Series A due 2022 25,000 25,055 25,000 25,437 USD Senior Notes, Series B due 2027 100,000 104,828 100,000 109,552 USD Senior Notes, Series A due 2025 50,000 51,720 50,000 53,474 USD Senior Notes, Series B due 2030 125,000 131,837 125,000 138,036 The Company recognized impairment charges of $ 1.9 million for the land and building and $ 0.3 million for a certain patent as a result of the Company’s announcement to consolidate a manufacturing facility within the Industrial segment during the first quarter of 2020. See Note 8, Restructuring, Impairment and Other Charges, for further discussion. The fair value of the land and building was valued using a real estate appraisal and classified as a Level 3 input under the fair value hierarchy. 69 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value as of the measurement date, net book value as of the end of the year and related 2020 goodwill impairment for assets measured at fair value on a nonrecurring basis subsequent to initial recognition during the years ended December 26, 2020 were as follows: Fiscal Year Ended December 26, 2020 December 26, 2020 (in thousands) Impairment Charge Estimated Fair Value Measurement (Level 3) Carrying Value Goodwill $ 33,841 $ 8,953 $ 9,832 See Note 5, Goodwill and Other Intangible Assets for further discussion regarding goodwill impairment charges. 11. Benefit Plans The Company has Company-sponsored and mandatory defined benefit pension plans covering employees in the United Kingdom ("U.K."), Germany, the Philippines, China, Japan, Mexico, Italy and France. The amount of the retirement benefits provided under the plans is generally based on years of service and final average pay. On April 7, 2020, the Company entered into a definitive agreement to purchase a group annuity contract, under which an insurance company is required to directly pay and administer pension payments to certain of the Company’s U.K. pension plan participants, or their designated beneficiaries. Due to the signing of the group annuity contract being a significant change in one of the U.K. pension plans, the liabilities of the plan were remeasured as of April 6, 2020 resulting in an increase of $ 13.4 million (£ 10.9 million) to both the net pension liability to bring the pension benefit obligation to the purchase price of the group annuity contract, and unamortized actuarial loss within other comprehensive income (loss) during the second quarter of 2020. Additionally, the Company made a cash contribution of $ 10.4 million (£ 8.4 million) under this agreement during the second quarter of 2020. The Company completed the buy-out of this U.K. pension plan during the fourth quarter of 2021 and as a result recorded a non-cash pension settlement charge of $ 19.9 million (£ 14.9 million), inclusive of the accelerated recognition of prior service cost of $ 0.5 million (£ 0.4 million). The purchase of this group annuity contract reduced the Company’s outstanding pension benefit obligation by $ 47.1 million, representing 35 % of the total obligations of the Company’s qualified pension plans. Benefit plan related information is as follows for the years 2021 and 2020: (in thousands) 2021 2020 Change in benefit obligation: Benefit obligation at beginning of year $ 148,992 $ 116,921 Service cost 2,785 2,462 Interest cost 1,761 2,173 Net actuarial (gain) loss ( 11,016 ) 25,306 Benefits paid from the plan assets ( 3,121 ) ( 2,808 ) Benefits paid directly by the Company ( 2,692 ) ( 2,302 ) (Settlements) and Curtailments ( 48,927 ) 102 Acquisitions 1,797 — Effect of exchange rate movements ( 3,218 ) 7,462 Plan amendment and other 209 ( 324 ) Benefit obligation at end of year $ 86,570 $ 148,992 Change in plan assets at fair value: Fair value of plan assets at beginning of year $ 100,478 $ 78,502 Actual (loss) return on plan assets ( 2,824 ) 7,053 Employer contributions 2,150 12,918 Benefits paid from the plan assets ( 3,121 ) ( 2,808 ) Settlements ( 47,111 ) — Effect of exchange rate movements ( 1,247 ) 4,813 Fair value of plan assets at end of year 48,325 100,478 Net amount unfunded status $ ( 38,245 ) $ ( 48,514 ) 70 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts recognized in the Consolidated Balance Sheets as of January 1, 2022 and December 26, 2020 consist of the following: (in thousands) 2021 2020 Amounts recognized in the Consolidated Balance Sheets consist of: Noncurrent assets $ 40 $ 39 Current benefit liability ( 1,248 ) ( 2,751 ) Noncurrent benefit liability ( 37,037 ) ( 45,802 ) Net liability recognized $ ( 38,245 ) $ ( 48,514 ) The amounts included in accumulated other comprehensive loss in the Consolidated Balance Sheets, excluding tax effects, that have not yet been recognized as components of net periodic benefit costs as of January 1, 2022 and December 26, 2020 were as following: (in thousands) 2021 2020 Net actuarial loss $ 9,221 $ 37,285 Prior service cost 3,340 3,937 Total $ 12,561 $ 41,222 The pre-tax amounts recognized in other comprehensive income (loss) in 2021 were as follows: (in thousands) 2021 Amortization of: Prior service cost $ 179 Net actuarial loss 1,136 Amount arising during the period: Prior service cost ( 209 ) Net actuarial loss 6,734 Net settlement loss and accelerated prior service costs 19,855 Foreign currency adjustments 966 Total $ 28,661 In the fourth quarter of 2021, the Company recorded a non-cash pension settlement charge of $ 19.9 million (£ 14.9 million), inclusive of the accelerated recognition of prior service cost of $ 0.5 million (£ 0.4 million). In addition, the net actuarial loss and change in benefit obligation arising during 2021 as compared to 2020 were also impacted by higher discount rates in 2021 as compared to 2020. The components of net periodic benefits costs for the fiscal years 2021, 2020, and 2019 are as follows: (in thousands) 2021 2020 2019 Components of net periodic benefit cost: Service cost $ 2,785 $ 2,462 $ 2,040 Interest cost 1,761 2,173 3,169 Expected return on plan assets ( 1,458 ) ( 1,972 ) ( 3,187 ) Amortization of prior service and net actuarial loss 1,315 963 243 Net periodic benefit cost 4,403 3,626 2,265 Net settlement loss 19,855 236 260 Total expense for the year $ 24,258 $ 3,862 $ 2,525 71 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Weighted average assumptions used to determine net periodic benefit cost for the fiscal years 2021, 2020, and 2019 are as follows: 2021 2020 2019 Discount rate 1.2 % 2.3 % 3.1 % Expected return on plan assets 1.4 % 3.7 % 4.5 % Compensation increase rate 4.9 % 4.7 % 4.6 % The accumulated benefit obligation for the plans was $ 75.7 million and $ 137.7 million as of January 1, 2022 and December 26, 2020, respectively. The following table provides a summary of under-funded or unfunded pension benefit plans with projected benefit obligations in excess of plan assets as of January 1, 2022 and December 26, 2020: (in thousands) 2021 2020 Projected benefit obligation $ 86,228 $ 148,992 Fair value of plan assets 47,942 100,439 The following table provides a summary of under-funded or unfunded pension benefit plans with accumulated benefit obligations in excess of plan assets as of January 1, 2022 and December 26, 2020: (in thousands) 2021 2020 Accumulated benefit obligation $ 68,643 $ 130,453 Fair value of plan assets 39,060 92,248 Weighted average assumptions used to determine benefit obligations as of January 1, 2022, December 26, 2020 and December 28, 2019 are as follows: 2021 2020 2019 Discount rate 3.1 % 1.2 % 2.3 % Compensation increase rate 4.8 % 4.9 % 4.7 % Expected benefit payments to be paid to participants for the fiscal year ending are as follows: (in thousands) Expected Benefit Payments 2022 $ 3,514 2023 3,652 2024 3,561 2025 4,068 2026 4,320 2027-2031 and thereafter 26,449 The Company expects to make approximately $ 2.6 million of contributions to the plans and pay $ 1.8 million of benefits directly in 2022. The Company also sponsors certain post-employment plans in foreign countries and other statutory benefit plans. For the fiscal year ended January 1, 2022, December 26, 2020, and December 28, 2019, the Company recorded $ 2.1 million, $ 2.0 million, $ 1.4 million expense, respectively, in Cost of Sales and Other expense (income), net within the Consolidated Statements of Net Income. As of January 1, 2022 and December 26, 2020, the Company reported benefit liabilities of $ 4.1 million and $ 3.5 million for these plans, of which $ 1.5 million and $ 1.2 million was recorded in Accrued liabilities and $ 2.6 million and $ 2.3 million was recorded in Other long-term liabilities on the Consolidated Balance Sheets, respectively. For the fiscal year ended January 1, 2022 and December 26, 2020, the pre-tax amounts recognized in other comprehensive income (loss) for these plans 72 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS were $ 0.3 million and $ 0.1 million, respectively. For the fiscal year ended January 1, 2022 and December 26, 2020, the amount reclassified from accumulated other comprehensive income (loss) were $ 0.7 million and $ 0.7 million, respectively. Defined Benefit Plan Assets Based upon analysis of the target asset allocation and historical returns by type of investment, the Company has assumed that the expected long-term rate of return will be 1.4 % on plan assets. Assets are invested to maximize long-term return taking into consideration timing of settlement of the retirement liabilities and liquidity needs for benefits payments. Pension plan assets were invested as follows, and were not materially different from the target asset allocation: Asset Allocation 2021 2020 Cash and cash equivalents, and other 15 % 7 % Equity securities 19 % 9 % Fixed income securities 66 % 31 % Bulk annuity contract — % 53 % 100 % 100 % The Company segregated its plan assets by the following major categories and level for determining their fair value as of January 1, 2022 and December 26, 2020. All plan assets that are valued using the net asset value per share (“NAV”) practical expedient have not been included within the fair value hierarchy but are separately disclosed. Cash and cash equivalents – Carrying value approximates fair value. As such, these assets were classified as Level 1. The Company also invests in certain short-term investments which are valued using the amortized cost method. Lastly, the Company has certain pooled pension funds that have short-term investments with third party mutual funds that are valued at unit value per share at measurement date. As such, these assets were classified as Level 2. Equity – The values of individual equity securities were based on quoted prices in active markets. As such, these assets are classified as Level 1. The Company has certain pooled pension funds which have mutual funds with underlying investments in certain equity securities that are not quoted on active markets; therefore, they were classified as Level 2. Fixed income – Fixed income securities are typically priced based on a last trade basis and are exchange-traded. Accordingly, the Company classified fixed income securities as Level 1. The Company has certain pooled pension funds which have mutual funds with underlying investments in fixed income securities and funds priced based on a valuation model rather than a last trade basis and are not exchange-traded. As such, they were classified as Level 2. The Company also invests in certain fixed income funds which are valued at NAV. Insurance Contracts and other – This category includes pooled pension funds which have mutual funds with underlying investments in other assets and liabilities including alternatives priced based on a valuation model and are not exchange-traded. These were classified as Level 2. This category includes also insurance contracts that are valued by the re-insurer with the valuation inputs being not highly observable or traded on an open market. Accordingly, insurance contracts were categorized as Level 3. Lastly, this category includes other assets and liabilities including futures or swaps. Bulk Annuity Contract – Bulk annuity contract includes a U.K insurance policy issued by an authorized U.K. life insurer. This bulk annuity contract is valued by the re-insurer with the valuation inputs being not highly observable or traded on an open market. Accordingly, this contract was categorized as Level 3. The Company has no bulk annuity contract pension assets as of January 1, 2022. For any Level 2 and Level 3 plan assets, management reviews significant investments on a periodic basis including investigation of unusual fluctuations in price or returns and obtaining an understanding of the pricing methodology to assess the reliability of third-party pricing estimates. The valuation methodologies described above may generate a fair value calculation that may not be indicative of net realizable value or future fair values. While the Company believes the valuation methodologies used are appropriate, the use of different methodologies or assumptions in calculating fair value could result in different amounts. The Company invests in assets in which valuation is determined by NAV. The Company believes that the NAV is representative of fair value at the reporting 73 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS date, as there are no significant restrictions on redemption of these investments or other reasons to indicate that the investment would be redeemed at an amount different than the NAV. The following table presents the Company’s pension plan assets measured at fair value by classification within the fair value hierarchy as of January 1, 2022: Fair Value Measurements Using (in thousands) Level 1 Level 2 Level 3 NAV Total Insurance contracts and other $ — $ 1,917 $ 343 $ — $ 2,260 Cash and cash equivalents 384 4,632 — — 5,016 Equities 2,559 6,604 — — 9,163 Fixed income 5,999 20,280 — 5,607 31,886 Total pension plan assets $ 8,942 $ 33,433 $ 343 $ 5,607 $ 48,325 The following table presents the Company’s pension plan assets measured at fair value by classification within the fair value hierarchy as of December 26, 2020: Fair Value Measurements Using (in thousands) Level 1 Level 2 Level 3 NAV Total Insurance contracts and other $ — $ 1,880 $ 685 $ — $ 2,565 Cash and cash equivalents 654 3,868 — — 4,522 Equities 1,719 6,904 — — 8,623 Fixed income 6,164 19,433 — 6,078 31,675 Bulk annuity contract 53,093 53,093 Total pension plan assets $ 8,537 $ 32,085 $ 53,778 $ 6,078 $ 100,478 The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during 2021 due to the following: (in thousands) Level 3 Balance at December 26, 2020 $ 53,778 Level 3 assets transferred in from Level 1 and 2 assets valued at NAV: Settlements ( 47,111 ) Actual loss on plan assets ( 4,943 ) Benefits paid from the plan assets ( 1,238 ) Foreign currency adjustments ( 143 ) Balance at January 1, 2022 $ 343 Defined Contribution Plan The Company also maintains a 401(k) savings plan covering substantially all U.S. employees. The Company matches 100 % of the employee’s annual contributions for the first 4 % of the employee’s eligible compensation. The Company may provide an additional discretionary match to participants and made discretionary matches of 2 % of the employee’s eligible compensation for each of the fiscal year ended January 1, 2022, December 26, 2020 and December 28, 2019. Employees are immediately vested in their contributi ons plus actual earnings thereon, as well as the Company contributions. Company matching contributions amounted to $ 5.0 million, $ 4.6 million, and $ 5.6 million in 2021, 2020, and 2019, respectively. Non-qualified Supplemental Retirement and Savings Plan The Company has a non-qualified Supplemental Retirement and Savings Plan which provides additional retirement benefits for certain management employees and named executive officers by allowing participants to defer a portion of their annual compensation. The Company maintains accounts for participants through which participants make investment elections. The investments are subject to the claims of the Company’s creditors and the Company is responsible for the payment of all benefits 74 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS under the plan from its general assets. As of January 1, 2022, there was $ 15.0 million of marketable securities related to the plan included in Other assets and $ 15.0 million of accrued compensation benefits included in Other long-term liabilities . The marketable securities are classified as Level 1 under the fair value hierarchy as they are maintained in mutual funds with readily determinable fair value. The Company made matching contributions to the plan of $ 0.2 million, $ 0.5 million, and $ 0.4 million in 2021, 2020, and 2019, respectively. 12. Stock-Based Compensation Equity Plans : The Company has equity-based compensation plans authorizing the granting of stock options, restricted shares, restricted share units, and other stock rights to employees and directors. As of January 1, 2022, there were 0.8 million shares available for issuance of future awards under the Company’s equity-based compensation plans. Stock options generally vest over a three -year period and are exercisable over either a seven or ten-year period commencing from the date of the grant. Restricted shares and share units granted by the Company generally vest over three years. Stock options and restricted share units may have accelerated vesting upon meeting certain qualified conditions. The following table provides a reconciliation of outstanding stock options for the fiscal year ended January 1, 2022. Shares Under Option Weighted Average Price Weighted Average Remaining Contract Life (Years) Aggregate Intrinsic Value (000’s) Outstanding December 26, 2020 666,949 $ 148.01 Granted 57,928 267.66 Exercised ( 151,015 ) 126.61 Forfeited ( 10,636 ) 151.93 Outstanding January 1, 2022 563,226 165.98 4.7 $ 83,749 Exercisable January 1, 2022 240,030 148.66 3.7 39,850 The following table provides a reconciliation of non-vested restricted share and share unit awards ("RSU") for the fiscal year ended January 1, 2022. Shares Weighted Average Grant-Date Fair Value Nonvested December 26, 2020 172,002 $ 152.25 Granted 63,237 264.69 Vested ( 72,904 ) 162.59 Forfeited ( 5,676 ) 162.85 Nonvested January 1, 2022 156,659 192.44 The total intrinsic value of options exercised during 2021, 2020, and 2019 was $ 23.8 million, $ 20.6 million, and $ 12.5 million, respectively. The total fair value of the vested RSU shares was $ 18.9 million, $ 9.5 million, and $ 15.5 million for 2021, 2020, and 2019, respectively. The total amount of share-based liabilities paid was $ 1.3 million, $ 0.5 million and $ 0.9 million for 2021, 2020, and 2019, respectively. The Company recognizes compensation cost of all share-based awards as an expense on a straight-line basis over the vesting period of the awards. At January 1, 2022, the unrecognized compensation cost for options and restricted shares was $ 21.9 million before tax, and will be recognized over a weighted average period of 1.8 years. Compensation cost included as a component of cost of sales, research and development and selling, general, and administrative expenses for all equity compensation plans discussed above was $ 21.4 million, $ 19.1 million, and $ 19.9 million for 2021, 2020, and 2019, respectively. The total related income tax benefit recognized in the Consolidated Statements of Net Income w as $ 3.3 million , $ 3.1 million and $ 3.3 million for 2021, 2020, and 2019, respectively. 75 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company uses the Black-Scholes option valuation model to determine the fair value of stock option awards granted. The weighted average fair value of and related assumptions for options granted are as follows: 2021 2020 2019 Weighted average fair value of options granted $ 74.04 $ 38.09 $ 47.63 Assumptions: Risk-free interest rate 0.66 % 0.30 % 2.33 % Expected dividend yield 0.72 % 1.27 % 0.86 % Expected stock price volatility 35.0 % 33.0 % 27.0 % Expected life of options (years) 4.4 4.7 4.4 Expected volatilities are based on the historical volatility of the Company’s stock price. The expected life of options is based on historical data for options granted by the Company. The risk-free rates are based on yields available at the time of grant on U.S. Treasury bonds with maturities consistent with the expected life assumption. Historical nonvested forfeiture information is the basis for the forfeiture rate assumptions. The fair value of RSU 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. Preferred Stock : The Board of Directors may authorize the issuance of preferred stock from time to time in one or more series with such designations, preferences, qualifications, limitations, restrictions, and optional or other special rights as the Board may fix by resolution. Share Repurchase Program On April 26, 2019, the Company's Board of Directors authorized 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"). On April 29, 2020, the Company announced that the 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. On April 28, 2021, the Company announced that the Board of Directors authorized a new three-year program to repurchase up to $ 300 million in the aggregate of shares of the Company’s common stock for the period May 1, 2021 to April 30, 2024 to replace its previous 2020 program. There are $ 300 million in the aggregate of shares available for purchase under the new program as of January 1, 2022. During the fiscal year 2021, the Company did not repurchase any shares of its common stock. During 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. 76 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. Other Comprehensive Income (Loss) Changes in other comprehensive income (loss) by component for fiscal years 2021, 2020, and 2019 were as follows: Fiscal Year Ended January 1, 2022 December 26, 2020 December 28, 2019 (in thousands) Pre-tax Tax Net of tax Pre-tax Tax Net of tax Pre-tax Tax Net of tax Defined benefit pension plan and other adjustments $ 27,481 $ ( 5,268 ) $ 22,213 $ ( 19,513 ) $ 3,418 $ ( 16,095 ) $ ( 9,149 ) $ 1,062 $ ( 8,087 ) Foreign currency translation adjustments (1) ( 6,967 ) 2,448 ( 4,519 ) 34,707 ( 2,946 ) 31,761 ( 1,476 ) 664 ( 812 ) Total change in other comprehensive income (loss) $ 20,514 $ ( 2,820 ) $ 17,694 $ 15,194 $ 472 $ 15,666 $ ( 10,625 ) $ 1,726 $ ( 8,899 ) (1) The tax shown above within the foreign currency translation adjustments is the U.S. tax associated with the foreign currency translation adjustments of earnings of non-U.S. subsidiaries which have been previously taxed in the U.S. and are not permanently reinvested. Accumulated Other Comprehensive Income (Loss) (“AOCI”) : The following table sets forth the changes in the components of AOCI by component for fiscal years 2021, 2020, and 2019: (in thousands) Pension and postretirement liability and reclassification adjustments Foreign currency translation adjustments Accumulated other comprehensive income (loss) Balance at December 29, 2018 $ ( 9,959 ) $ ( 87,965 ) $ ( 97,924 ) 2019 activity ( 8,087 ) ( 812 ) ( 8,899 ) Balance at December 28, 2019 ( 18,046 ) ( 88,777 ) ( 106,823 ) 2020 activity ( 16,095 ) 31,761 15,666 Balance at December 26, 2020 ( 34,141 ) ( 57,016 ) ( 91,157 ) 2021 activity 22,213 ( 4,519 ) 17,694 Balance at January 1, 2022 ( 11,928 ) ( 61,535 ) ( 73,463 ) Due to the signing of the group annuity contract being a significant change in the U.K. pension plan, the liabilities of the plan were remeasured as of April 6, 2020 resulting in an increase of $ 13.4 million to unamortized actuarial loss within other comprehensive income (loss). In the fourth quarter of 2021, the Company recorded a non-cash pension settlement charge of $ 19.9 million (£ 14.9 million), inclusive of the accelerated recognition of prior service cost of $ 0.5 million (£ 0.4 million). See Note 11, Benefits Plans for further discussion. Amounts reclassified from accumulated other comprehensive income (loss) to earnings for fiscal years 2021, 2020, and 2019 were as follows: Fiscal Year Ended (in thousands) January 1, 2022 December 26, 2020 December 28, 2019 Pension and postemployment and other plans: Amortization of prior service, net actuarial loss, and other $ 2,006 $ 1,694 $ 372 Net settlement loss and accelerated prior service costs 19,855 236 260 Total $ 21,861 $ 1,930 $ 632 The Company recognizes the amortization of prior service costs and net settlement loss in other expense (income), net within the Consolidated Statements of Net Income. 77 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Income Taxes The 2017 Tax Cuts and Jobs Act (the "Tax Act"), among other things, imposed a one-time tax (the “Toll Charge”) on accumulated earnings of certain non-U.S. subsidiaries and included base broadening provisions commonly referred to as the global intangible low-taxed income provisions ("GILTI"). T he Company elected to pay the 2017 Littelfuse Toll Charge over the eight-year period prescribed by the Tax Act. The long-term portion of this Toll Charge which remains payable as of January 1, 2022, totaling $ 17.8 million, is recorded in Other long-term liabilities, and the anticipated 2022 annual installment payment of $ 3.0 million is included in Accrued income taxes , on the Consolidated Balance Sheet as of January 1, 2022. 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 January 1, 2022, December 26, 2020 and December 28, 2019, 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. Domestic and foreign income (loss) before income taxes is as follows: (in thousands) 2021 2020 2019 Domestic $ 13,746 $ ( 16,732 ) $ ( 11,970 ) Foreign 327,279 177,985 177,854 Income before income taxes $ 341,025 $ 161,253 $ 165,884 Federal, state and foreign income tax expense (benefit) consists of the following: (in thousands) 2021 2020 2019 Current: Federal $ 4,832 $ 437 $ ( 3,495 ) State 1,401 203 834 Foreign 59,006 33,841 30,610 Subtotal 65,239 34,481 27,949 Deferred: Federal and State ( 9,658 ) ( 5,354 ) 1,839 Foreign 1,638 2,140 ( 2,986 ) Subtotal ( 8,020 ) ( 3,214 ) ( 1,147 ) Provision for income taxes $ 57,219 $ 31,267 $ 26,802 The current federal tax benefit for 2019 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. A reconciliation between income taxes computed on income before income taxes at the federal statutory rate and the provision for income taxes is provided below: 78 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 2021 2020 2019 Tax expense at statutory rate of 21% $ 71,615 $ 33,863 $ 34,836 Non-U.S. income tax rate differential ( 31,414 ) ( 19,730 ) ( 22,457 ) Non-U.S. losses and expenses with no tax benefit 7,820 2,774 6,570 Tax on unremitted earnings 7,585 3,955 2,136 Certain changes in unrecognized tax benefits and related accrued interest 4,263 2,160 ( 1,468 ) Net impact associated with the GILTI tax provisions ( 238 ) 3,731 6,469 State and local taxes, net of federal tax benefit ( 172 ) ( 584 ) 1,080 Tax impact of non-deductible goodwill impairment charge — 5,642 — Other, net ( 2,240 ) ( 544 ) ( 364 ) Provision for income taxes $ 57,219 $ 31,267 $ 26,802 Deferred income taxes are provided for the tax effects of temporary differences between the financial reporting bases and the tax bases of the company’s assets and liabilities. Significant components of the company’s deferred tax assets and liabilities at January 1, 2022 and December 26, 2020, are as follows: (in thousands) 2021 2020 Deferred tax assets: Accrued expenses and reserves $ 36,168 $ 31,123 Domestic and non-U.S. net operating loss carryforwards 27,818 24,763 Domestic and non-U.S. interest expense carryforwards 16,089 10,352 Excess of tax basis over the book basis for intangible assets and goodwill 5,636 — Capitalized expenses 4,878 4,178 U.S. research and other general business tax credit carryforwards 1,104 3,724 U.S. foreign tax credit carryforwards 980 772 Other 183 117 Gross deferred tax assets 92,856 75,029 Less: Valuation allowance ( 34,869 ) ( 13,131 ) Total deferred tax assets 57,987 61,898 Deferred tax liabilities: Excess of book basis over the tax basis for intangible assets and goodwill 98,046 76,472 Tax on unremitted earnings 15,467 14,223 Unrealized foreign currency exchange gains 73 5,719 Excess of book basis over the tax basis for property, plant, and equipment 12,563 4,394 Total deferred tax liabilities 126,149 100,808 Net deferred tax liabilities $ 68,162 $ 38,910 The deferred tax asset valuation allowance is mainly related to certain U.S. and non-U.S. net operating loss and non-U.S. interest expense carryforwards which are not expected to be realized. The remaining U.S. and non-U.S. net operating loss and interest expense carryforwards either have no expiration date or are expected to be utilized prior to expiration. No deferred tax asset nor valuation allowance has been recorded for certain U.S. and non-U.S. net operating loss carryforwards for which the possibility of usage has been determined to be remote. The Company paid income taxes of $ 58.2 million, $ 35.2 million, and $ 47.6 million in 2021, 2020, and 2019, respectively, and received income tax refunds of $ 2.6 million, $ 7.6 million , and $ 7.1 million in 2021, 2020, and 2019, respectively. Deferred income taxes are not provided on the excess of the investment value for financial reporting over the tax basis of investments in those non-U.S. subsidiaries for which such excess is considered to be permanently reinvested in those operations. The Company believes the determination of the amount of such deferred income taxes is impractical as it would depend upon income tax laws and circumstances at the time of the hypothetical distributions or dispositions. As of January 1, 79 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022, unremitted earnings of the Company’s non-U.S. subsidiaries were approximately $ 884 million. A distribution of such earnings will generally not be subject to U.S. federal income tax. The Company recognized deferred tax liabilities of $ 15.5 million ($ 15.3 million for non-U.S. taxes net of related U.S. foreign tax credits, and $ 0.2 million for U.S. state taxes) as of January 1, 2022 and $ 14.2 million ($ 13.9 million for non-U.S. taxes net of related U.S. foreign tax credits, and $ 0.3 million for U.S. state taxes) as of December 26, 2020, related to taxes on certain non-U.S. earnings which are not considered to be permanently reinvested. The Company has two subsidiaries in China which benefit from lower tax rates due to “tax holidays” which apply for three-year periods. The tax holiday for one of the subsidiaries expires at the end of 2022, and for the other subsidiary the tax holiday will expire at the end of 2023. Together, the tax holidays contributed $ 7.8 million in tax benefits, or $ 0.31 per diluted share, during 2021. Future year tax benefits will depend upon the Company’s ability to obtain extensions, after the three-year periods expire. There can be no assurance that future extensions will be granted. A reconciliation of the beginning and ending amount of unrecognized tax benefits as of January 1, 2022, December 26, 2020, and December 28, 2019 is as follows: (in thousands) Unrecognized Tax Benefits Balance at December 28, 2019 $ 16,721 Additions for tax positions taken in the current year 700 Decreases due to a lapse in the statute of limitations ( 103 ) Other 119 Balance at December 26, 2020 17,437 Additions for tax positions related to pre-acquisition periods of acquired subsidiaries 3,260 Additions for tax positions taken in the current year 1,587 Additions for tax positions taken in the prior year 1,100 Other 61 Balance at January 1, 2022 23,445 The January 1, 2022 total in the table above represents the net amount of tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. Of this amount, only an insignificant amount may be recognized in 2022 based upon the possible lapse in the statute of limitations. None of the positions included in unrecognized tax benefits are related to tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The company recognizes accrued interest and pe nalties associated with uncertain tax positions as part of income tax expense. The company recognized such interest expense of $ 1.6 million, $ 1.6 million (net of a $ 0.6 million decrease due to a lapse in the statute of limitations), and $ 1.3 million (net of a $ 0.6 million decrease due to a lapse in the statute of limitations) in 2021, 2020, and 2019, respectively. Accrued interest for such matters included in Other long-term liabilities within the Consolidated Balance Sheets was $ 10.4 million and $ 8.8 million as of January 1, 2022 and December 26, 2020, respec tively. The U.S. federal statute of limitations remains open for the Company for the 2017 tax year (with respect to the Toll Charge) and later years. Non-U.S. and U.S. state statutes of limitations generally range from three to seven years, although certain jurisdictions do not have a statute expiration. Tax examinations occur from time to time, including examinations currently in process in Korea, the Netherlands, the Philippines, and certain U.S. states. The company does not expect to recognize a significant amount of additional tax expense as a result of concluding these examinations. During 2021, the Company received a notice of assessment for approximately $ 3 million from the Canadian tax authorities. The Company has objected to and appealed the assessment, and does not expect to recognize a significant amount of additional tax expense upon conclusion of such appeal. 80 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: (in thousands, except per share amounts) 2021 2020 2019 Numerator: Net income as reported $ 283,806 $ 129,986 $ 139,082 Denominator: Weighted average shares outstanding Basic 24,603 24,371 24,576 Effect of dilutive securities 329 221 242 Diluted 24,932 24,592 24,818 Earnings Per Share: Basic earnings per share $ 11.54 $ 5.33 $ 5.66 Diluted earnings per share $ 11.38 $ 5.29 $ 5.60 Potential shares of common stock attributable to stock options and restricted shares excluded from the earnings per share calculation because their effect would be anti-dilutive were 20,139 , 222,526 , and 129,658 shares in 2021, 2020, and 2019, respectively. During the fiscal year 2021, the Company did not repurchase any shares of its common stock. During 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. See Note 12 Stock-Based Compensation for further discussion. 16. Segment Information The Company and its subsidiaries design, manufacture and sell component, modules and subassemblies to empower the long-term structural themes of sustainability, connectivity and safety. The Company reports its operations by the following segments: Electronics, Transportation, and Industrial. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. The CODM is the Company’s President and Chief Executive Officer (“CEO”). The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest and taxes, but does not evaluate the operating segments using discrete balance sheet information. Sales, marketing, and research and development expenses are charged directly into each operating segment. Purchasing, logistics, customer service, finance, information technology, and human resources are shared functions that are allocated back to the three operating segments. The Company does not report inter-segment revenue because the operating segments do not record it. Certain expenses, determined by the CODM to be strategic in nature and not directly related to segments current results, are not allocated but identified as “Other”. Additionally, the Company does not allocate interest and other income, interest expense, or taxes to operating segments. These costs are not allocated to the segments, as management excludes such costs when assessing the performance of the segments. Although the CODM uses operating income (loss) to evaluate the segments, operating costs included in one segment may benefit other segments. Except as discussed above, the accounting policies for segment reporting are the same as for the Company as a whole. • Electronics Segment : Consists of one of the broadest product offerings in the industry, including fuses and fuse accessories, positive temperature coefficient (“PTC”) resettable fuses, polymer electrostatic discharge (“ESD”) suppressors, varistors, reed switch based magnetic sensing, gas discharge tubes; semiconductor products such as discrete transient voltage suppressor (“TVS”) diodes, TVS diode arrays, protection and switching thyristors, silicon and silicon carbide metal-oxide-semiconductor field effect transistors (“MOSFETs”) and diodes; and insulated gate bipolar transistors (“IGBT”) technologies. The segment covers a broad range of end markets, including industrial motor drives and power conversion, automotive electronics, electric vehicle and related infrastructure, power supplies, data centers and telecommunications, medical devices, alternative energy and energy storage, building and home automation, appliances, and mobile electronics. 81 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • Transportation Segment: Formerly known as Automotive segment . The term “Transportation” represents a more comprehensive description of the Company’s broad range of products, and the applications and end markets it serves. Consists of a wide range of circuit protection, power control and sensing technologies for global original equipment manufacturers (“OEMs”), Tier-one suppliers and parts and aftermarket distributors in passenger vehicle, heavy duty truck, off-road vehicles, material handling, agricultural, construction and other commercial vehicle end markets. Passenger vehicle products are used in internal combustion engine, hybrid and electric vehicles including blade fuses, battery cable protectors, resettable fuses, high-current fuses, high-voltage fuses, and sensor products designed to monitor the occupant’s safety and environment as well as the vehicle’s powertrain. Commercial vehicle products include fuses, switches, circuit breakers, relays, and power distribution modules and units used in applications serving a number of end markets, including heavy-duty truck, construction, agriculture, material handling and marine. • Industrial Segment: Consists of industrial circuit protection (industrial fuse), industrial controls (protection relay, contactors, transformers) and temperature sensors for use in various applications such as renewable energy and energy storage systems, electric vehicle infrastructure, HVAC systems, industrial safety, non-residential construction, MRO, mining and industrial automation. The Company has provided this segment information for all comparable prior periods. Segment information is summarized as follows: (in thousands) 2021 2020 2019 Net sales Electronics $ 1,300,744 $ 937,762 $ 961,080 Transportation 528,058 395,764 428,533 Industrial 251,126 112,169 114,260 Total net sales $ 2,079,928 $ 1,445,695 $ 1,503,873 Depreciation and amortization Electronics $ 61,512 $ 62,702 $ 60,345 Transportation 29,015 28,995 27,922 Industrial 8,108 4,481 4,236 Other — — — Total depreciation and amortization $ 98,635 $ 96,178 $ 92,503 Operating income (loss) Electronics $ 309,633 $ 152,695 $ 145,594 Transportation 65,979 41,655 46,719 Industrial 22,621 11,996 22,407 Other (a) ( 12,591 ) ( 43,974 ) ( 21,929 ) Total operating income 385,642 162,372 192,791 Interest expense 18,527 21,077 22,266 Foreign exchange loss (gain) 17,158 ( 14,875 ) 5,224 Other expense (income), net 8,932 ( 5,083 ) ( 583 ) Income before income taxes $ 341,025 $ 161,253 $ 165,884 (a) Included in “Other” Operating income (loss) for 2021 was $ 8.4 million of purchase accounting inventory step-up charges, $ 7.0 million of legal and professional fees and other integration expenses related to Carling, Hartland and other contemplated acquisitions, and $ 2.2 million of restructuring, impairment and other charges, primarily related to employee termination costs. See Note 8, Restructuring, Impairment and Other Charges, for further discussion. In addition, there was a gain of $ 5.0 million recorded for the sale of buildings within the Electronics segment. Included in “Other” Operating income (loss) for 2020 is $ 2.3 million of 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 82 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS associated with the automotive sensors reporting unit within the Transportation 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. Included in “Other” Operating income (loss) for 2019 is $ 8.9 million of acquisition-related and integration charges related to the IXYS acquisition and other contemplated acquisitions. In addition, there were $ 13.0 million of restructuring charges primarily related to employee termination costs. The Company’s net sales, long-lived assets and additions to long-lived assets by country for the fiscal years ended 2021, 2020, and 2019 are as follows: (in thousands) 2021 2020 2019 Net sales U.S. $ 639,381 $ 392,544 $ 440,461 China 620,211 438,000 416,385 Other countries (a) 820,336 615,151 647,027 Total net sales $ 2,079,928 $ 1,445,695 $ 1,503,873 Long-lived assets U.S. $ 57,923 $ 46,132 $ 58,081 China 122,867 85,876 88,306 Mexico 107,283 70,125 73,096 Germany 39,055 37,976 36,025 Philippines 74,918 66,994 51,738 Other countries 35,843 37,075 37,371 Total long-lived assets $ 437,889 $ 344,178 $ 344,617 Additions to long-lived assets U.S. $ 7,690 $ 4,170 $ 5,864 China 26,396 10,074 10,400 Mexico 28,707 9,977 13,827 Germany 8,519 5,600 4,017 Philippines 19,342 19,612 22,944 Other countries 5,654 1,775 9,314 Total additions to long-lived assets $ 96,308 $ 51,208 $ 66,366 (a) Each country included in other countries are less than 10% of net sales. For the year ended January 1, 2022, approximately 69 % of the Company’s net sales were to customers outside the U.S. (exports and foreign operations), including approximately 30 % to China. For the year ended December 26, 2020, approximately 73 % of the Company's net sales were to customers outside the U.S. (exports and foreign operations), including approximately 30 % to China. For the year ended December 28, 2019, approximately 71 % of the Company's net sales were to customers outside the U.S. (exports and foreign operations), including approximately 28 % to China. Sales to Arrow Electronics, Inc., which were included in the Electronics, Transportation, and Industrial segments, were 10.7 %, 10.4 %, and 10.7 % of consolidated net sales in 2021, 2020, and 2019 respectively. No other single customer accounted for more than 10% of net sales during the last three years. 83 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. Selected Quarterly Financial Data (Unaudited) The quarterly periods for 2021 are for the 14-weeks ended January 1, 2022, 13-weeks ended September 25, 2021, June 26, 2021, and March 27, 2021, respectively. The quarterly periods for 2020 are for the 13-weeks ended December 26, 2020, September 26, 2020, June 27, 2020, and March 28, 2020, respectively. (in thousands, except per share data) 2021 2020 4Q (a) 3Q (b ) 2Q (c) 1Q (d) 4Q (e) 3Q (f) 2Q (g) 1Q (h) Net sales $ 553,065 $ 539,581 $ 523,488 $ 463,794 $ 400,696 $ 391,566 $ 307,337 $ 346,096 Gross profit 199,492 214,572 197,396 160,466 138,083 138,831 99,902 124,356 Operating income (loss) 92,797 120,107 96,257 76,481 65,014 64,558 ( 11,950 ) 44,750 Net income (loss) 51,944 92,054 82,095 57,713 58,977 55,356 ( 8,991 ) 24,644 Net income (loss) per share Basic $ 2.11 $ 3.74 $ 3.34 $ 2.35 $ 2.41 $ 2.27 $ ( 0.37 ) $ 1.01 Diluted $ 2.08 $ 3.69 $ 3.30 $ 2.32 $ 2.39 $ 2.25 $ ( 0.37 ) $ 1.00 (a) In the fourth quarter of 2021, the Company recorded non-cash pension settlement charge of 19.9 million, $ 4.1 million gain related to a sale of building, $ 3.6 million in acquisition-related and integration costs, $ 1.6 million for purchase accounting inventory adjustments associated with the acquisition of Carling, $ 0.7 million charge for an asset retirement obligation related to the disposal of a business in 2019, $ 0.2 million in restructuring, impairment and other charges, and $ 0.2 million increase in coal mining reserves. (b) In the third quarter of 2021, the Company recorded $ 2.0 million in acquisition-related and integration costs, $ 0.8 million in restructuring, impairment and other charges and $ 0.1 million charge for an asset retirement obligation related to the disposal of a business in 2019. (c) In the second quarter of 2021, the Company recorded $ 3.3 million for purchase accounting inventory adjustments associated with the acquisition of Hartland, and $ 1.0 million loss recorded during the second quarter of 2021 for a total year-to-date gain of $ 0.9 million from the sale of a building within the Electronics segment, $ 0.8 million in employee termination costs and other restructuring charges, $ 0.5 million in acquisition-related and integration costs, and $ 0.5 million of impairment charges on certain other investments. (d) In the first quarter of 2021, the Company recorded the Company recorded $ 3.5 million for purchase accounting inventory adjustments associated with the acquisition of Hartland, $ 1.9 million gain related to a sale of building, $ 0.8 million in acquisition-related and integration costs, and $ 0.4 million in restructuring, impairment and other charges. (e) In the fourth quarter of 2020, the Company recorded $ 0.7 million in acquisition-related and integration costs and $ 0.8 million in restructuring, impairment and other costs. (f) In the third quarter of 2020, the Company recorded $ 1.3 million in restructuring, impairment and other charges, $ 0.3 million in acquisition-related and integration costs, and $ 0.1 million of impairment charges on certain other investments. (g) In the second quarter of 2020, the Company recorded a goodwill impairment charge of $ 33.8 million associated with the automotive sensors reporting unit within the Transportation segment, $ 1.8 million in employee termination costs and other restructuring charges, $ 1.8 million increase to coal mining reserve, $ 0.2 million charge for an asset retirement obligation related to the disposal of a business in 2019, and $ 0.1 million in acquisition-related and integration costs. (h) In the first quarter of 2020, the Company recorded $ 4.0 million in restructuring, impairment and other charges and $ 1.2 million in acquisition-related and integration costs. 84 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. Related Party Transactions As a result of the Company’s acquisition of IXYS, the Company has equity ownerships in various investments that are accounted for under the equity method. The following is a description of the investments and related party transactions. Powersem GmbH: The Company owns 45 % of the outstanding equity of Powersem GmbH (“Powersem”), a module manufacturer based in Germany. EB-Tech Co., Ltd.: The Company owns approximately 19 % of the outstanding equity of EB-Tech Co., Ltd. (“EB Tech”), a company with expertise in radiation technology based in South Korea. Automated Technology (Phil), Inc. : The Company owns approximately 24 % of the outstanding common shares of Automated Technology (Phil), Inc. (“ATEC”), a supplier located in the Philippines that provides assembly and test services. One member of the Company's Board of Directors serves on the Board of Directors of ATEC. Fiscal Year Ended January 1, 2022 December 26, 2020 (in millions) Powersem EB Tech ATEC Powersem EB Tech ATEC Sales to related party $ 0.2 $ — $ — $ 1.5 $ — $ — Purchase of material/services from related party 3.0 0.4 12.6 2.7 — 8.7 Accounts receivable balance — — — 0.1 — — Accounts payable balance $ — $ — $ 1.8 $ 0.1 $ — $ 0.2 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.