UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the fiscal year ended December 27, 2008 |
Or
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Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the transition period
from to . |
Commission file number 0-20388
LITTELFUSE, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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36-3795742
(I.R.S. Employer Identification No.) |
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800 East Northwest Highway,
Des Plaines, Illinois
(Address of principal executive offices)
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60016
(Zip Code) |
847/824-1188
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange |
Title of Each Class
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On Which Registered |
Common Stock, $.01 par value
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Nasdaq Global Select Market |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated
filer þ | Accelerated
filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of 21,692,291 shares of voting stock held by non-affiliates of the
registrant was approximately $713,459,451 based on the last reported sale price of the registrants
Common Stock as reported on the Nasdaq Global Select Market on June 28, 2008.
As
of February 20, 2009, the registrant had outstanding 21,719,734 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Littelfuse, Inc. Proxy Statement for the 2009 Annual Meeting of Stockholders
(the Proxy Statement) are incorporated by reference into Part III of this Form 10-K.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K that are not historical facts are
intended to constitute forward-looking statements entitled to the safe-harbor provisions of the
Private Securities Litigation Reform Act of 1995 (PSRLA). These statements may involve risks and
uncertainties, including, but not limited to, risks relating to product demand and market
acceptance, economic conditions, the impact of competitive products and pricing, product quality
problems or product recalls, capacity and supply difficulties or constraints, coal mining
exposures, failure of an indemnification for environmental liability, exchange rate fluctuations,
commodity price fluctuations, the effect of our accounting policies, labor disputes, restructuring
costs in excess of expectations, pension plan asset returns being less than assumed, integration of
acquisitions and other risks that may be detailed in Item 1A. Risk Factors below and in our other
Securities and Exchange Commission filings.
PART I
ITEM 1. BUSINESS.
GENERAL
Littelfuse, Inc. and its subsidiaries (the company or Littelfuse) is the worlds leading
supplier of circuit protection products for the electronics industry, providing the broadest line
of circuit protection solutions to worldwide customers. In the electronics market, the company
supplies leading manufacturers such as Alcatel-Lucent, Celestica, Delta, Flextronics, Foxconn,
Hewlett-Packard, Huawei, IBM, Intel, Jabil, LG, Motorola, Nokia, Panasonic, Quanta, Samsung,
Sanmina-SCI, Seagate, Siemens and Sony.
The company is also the leading provider of circuit protection for the automotive industry and the
third largest producer of electrical fuses in North America. In the automotive market, the
companys end customers include major automotive manufacturers in North America, Europe and Asia
such as BMW, Chrysler, Daimler, Ford Motor, General Motors, Honda Motor, Hyundai and Toyota. The
company also supplies wiring harness manufacturers and auto parts suppliers worldwide, including
Alcoa Automotive, AutoZone, Delphi, Lear, Pep Boys, Siemens VDO, Sumitomo, Valeo and Yazaki. In the
electrical market, the company supplies representative customers such as Abbott, Carrier, Dow
Chemical, DuPont, GE, General Motors, Heinz, International Paper, John Deere, Lithonia Lighting,
Marconi, Merck, Otis Elevator, Poland Springs, Procter & Gamble, Rockwell and 3M. See Business
Environment: Circuit Protection Market.
Net sales by business unit segment for the periods indicated are as follows (in thousands):
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Fiscal Year |
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2008 |
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2007 |
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2006 |
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Electronics |
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$ |
342,489 |
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$ |
348,957 |
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$ |
365,418 |
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Automotive |
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126,867 |
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135,109 |
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123,620 |
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Electrical |
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61,513 |
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52,078 |
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45,821 |
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Total |
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$ |
530,869 |
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$ |
536,144 |
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$ |
534,859 |
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The company operates in three
geographic territories: the Americas; Europe; and Asia-Pacific. The
company manufactures products and sells to customers in all three territories. There has been and
continues to be a shift in the companys revenues, and consequently manufacturing, to the
Asia-Pacific region.
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Net sales in our three geographic territories, based upon the shipped to destination, are as
follows (in thousands):
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Fiscal Year |
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2008 |
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2007 |
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2006 |
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Americas |
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$ |
201,771 |
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$ |
204,305 |
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$ |
215,892 |
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Europe |
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118,559 |
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118,265 |
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111,652 |
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Asia-Pacific |
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210,539 |
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213,574 |
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207,315 |
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Total |
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$ |
530,869 |
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$ |
536,144 |
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$ |
534,859 |
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The companys products are sold worldwide through a direct sales force and manufacturers
representatives. For the year ended December 27, 2008, approximately 62.0% of the companys net
sales were to customers outside the United States (exports and foreign operations), including 19.4%
in Hong Kong.
The company manufactures many of its products on fully integrated manufacturing and assembly
equipment. The company maintains product quality through a Global Quality Management System with
all manufacturing sites certified under ISO 9001:2000. In addition, several of the Littelfuse
manufacturing sites are also certified under TS 16949 and ISO 14001.
References herein to 2006 or fiscal 2006 refer to the fiscal year ended December 30, 2006.
References herein to 2007 or fiscal 2007 refer to the fiscal year ended December 29, 2007.
References herein to 2008 or fiscal 2008 refer to the fiscal year ended December 27, 2008.
The companys annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and all amendments to those reports are available free of charge through the Investors
section of the companys Internet website (http://www.littelfuse.com), as soon as practicable after
such material is electronically filed with, or furnished to, the Securities and Exchange Commission
(the SEC), accessible via a link to the website maintained by the SEC. Except as otherwise
provided herein, such information is not incorporated by reference into this Annual Report on Form
10-K.
BUSINESS ENVIRONMENT: CIRCUIT PROTECTION MARKET
Electronic Products
Electronic circuit protection products are used to protect circuits in a multitude of electronic
systems. The companys product offering includes a complete line of overcurrent and overvoltage
solutions, including (i) fuses and protectors, (ii) positive temperature coefficient (PTC)
resettable fuses, (iii) varistors, (iv) polymer electrostatic discharge (ESD) suppressors, (v)
discrete transient voltage suppression (TVS) diodes, TVS diode arrays and protection thyristors,
(vi) gas discharge tubes, (vii) power switching components and (viii) fuseholders, blocks and
related accessories.
Electronic fuses and protectors are devices that contain an element that melts in an overcurrent
condition. Electronic miniature and subminiature fuses are designed to provide circuit protection
in the limited space requirements of electronic equipment. The companys fuses are used in a wide
variety of electronic products, including wireless telephones, consumer electronics, computers,
modems and telecommunications equipment. The company markets these products under the trademarked
brand names PICO(R) II and NANO2(R) SMF.
Resettable fuses are PTC polymer devices that limit the current when an overcurrent condition
exists and then reset themselves once the overcurrent condition has cleared. The companys product
line offers both radial leaded and surface mount products.
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Varistors are ceramic-based high-energy absorption devices that provide transient overvoltage and
surge suppression for automotive, telecommunication, consumer electronics and industrial
applications. The companys product line offers both radial leaded and multilayer surface mount
products.
Polymer ESD suppressors are polymer-based devices that protect an electronic system from failure
due to rapid transfer of electrostatic charge to the circuit. The companys PulseGuard(R) line of
ESD suppressors is used in PC and PC peripherals, digital consumer electronics and wireless
applications.
Discrete diodes, diode arrays and protection thyristors are fast switching silicon semiconductor
structures. Discrete diodes protect a wide variety of applications from overvoltage transients such
as ESD, inductive load switching or lightning, while diode arrays are used primarily as ESD
suppressors. Protection thyristors are commonly used to protect telecommunications circuits from
overvoltage transients such as those resulting from lightning. Applications include telephones,
modems, data transmission lines and alarm systems. The company markets these products under the
following trademarked brand names: TECCOR(R), SIDACtor(R) and Battrax(R).
Gas discharge tubes are very low capacitance devices designed to suppress any transient voltage
event that is greater than the breakover voltage of the device. These devices are primarily used in
telecom interface and conversion equipment applications as protection from overvoltage transients
such as lightning.
Power switching components are used to regulate energy to various type loads most commonly found in
industrial and home equipment. These components are easily activated from simple control circuits
or interfaced to computers for more complex load control. Typical applications include heating,
cooling, battery chargers and lighting.
In addition to the above products, the company is also a supplier of fuse holders (including
OMNI-BLOK(R)), fuse blocks and fuse clips primarily to customers that purchase circuit protection
devices from the company.
Automotive Products
Fuses are extensively used in automobiles, trucks, buses and off-road equipment to protect
electrical circuits and the wires that supply electrical power to operate lights, heating, air
conditioning, radios, windows and other controls. Currently, a typical automobile contains 30 to
100 fuses, depending upon the options installed. The fuse content per vehicle is expected to
continue to grow as more electronic features are included in automobiles. The company also supplies
fuses for the protection of electric and hybrid vehicles.
The company is a primary supplier of automotive fuses to United States, Asian and European
automotive original equipment manufacturers (OEM), automotive component parts manufacturers and
automotive parts distributors. The company also sells its fuses in the replacement parts market,
with its products being sold through merchandisers, discount stores and service stations, as well
as under private label by national firms. The company invented and owns most of the U.S. patents
related to the blade-type fuse, which is the standard and most commonly used fuse in the automotive
industry. The companys automotive fuse products are marketed under trademarked brand names,
including ATO(R), MINI(R), MAXI(TM), MIDI(R), MEGA(TM), MasterFuse(R), JCASE(R) and CablePro(TM).
A majority of the companys automotive fuse sales are made to main-fuse box and wire harness
manufacturers that incorporate the fuses into their products. The remaining automotive fuse sales
are made directly to automotive manufacturers, retailers who sell automotive parts and accessories
and distributors who in turn sell most of their products to wholesalers, service stations and
non-automotive OEMs.
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Electrical Products
The company entered the electrical market in 1983 and manufactures and sells a broad range of
low-voltage and medium-voltage circuit protection products as well as protection relays to
electrical distributors and their customers in the construction, OEM and industrial maintenance and
repair operations (MRO) markets.
Power fuses are used to protect circuits in various types of industrial equipment and in industrial
and commercial buildings. They are rated and listed under one of many Underwriters Laboratories
fuse classifications. Major applications for power fuses include protection from over-load and
short-circuit currents in motor branch circuits, heating and cooling systems, control systems,
lighting circuits and electrical distribution networks.
The companys POWR-GARD(R) product line features the Indicator(TM) series power fuse used in both
the OEM and MRO markets. The Indicator(TM) technology provides visual blown fuse indication at a
glance, reducing maintenance and downtime on production equipment. The Indicator(TM) product
offering is widely used in motor protection and industrial control panel applications.
Protection relays are used to protect personnel and equipment in industrial environments and
commercial buildings from excessive currents, over voltages and electrical shock hazards called
ground-faults. Major applications for protection relays include protection of motor, transformer
and power line distribution circuits. Ground fault relays are used to protect personnel and
equipment in wet environments such as underground mining or water treatment applications where
there is a greater risk for electricity to come in contact with water and create a shock hazard.
PRODUCT DESIGN AND DEVELOPMENT
The company employs scientific, engineering and other personnel to continually improve its existing
product lines and to develop new products at its research and engineering facilities in Des
Plaines, Illinois; Irving, Texas; Swindon, U.K.; and Duensen, Germany. The Product Technology
Department maintains a staff of engineers, chemists, material scientists and technicians whose
primary responsibility to design and develop new products.
Proposals for the development of new products are initiated primarily by sales and marketing
personnel with input from customers. The entire product development process usually ranges from a
few months to 18 months based on the complexity of development, with continuous efforts to reduce
the development cycle. During fiscal years 2008, 2007 and 2006, the company expended $24.1 million,
$21.7 million and $18.7 million, respectively, on research, product design and development.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The company generally relies on patent and trademark laws and license and nondisclosure agreements
to protect intellectual property and proprietary products. In cases where it is deemed necessary by
management, key employees are required to sign an agreement that they will maintain the
confidentiality of the companys proprietary information and trade secrets.
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As of December 27, 2008, the company owned 184 patents in North America, 106 patents in the
European Economic Community and 49 patents in other foreign countries. The company has also
registered trademark protection for certain of its brand names and logos. The 184 North American
patents are in the following product categories: 134 electronics; 35
automotive; and 15 electrical.
Patents and licenses are amortized over a period of 4-50 years, with a weighted average life of
11.9 years. Distribution networks are amortized over a period of 4-20 years, with a weighted
average life of 15.3 years. Trademarks and tradenames are amortized over a period of 5-20 years,
with a weighted average life of 14.9 years. The company recorded amortization expense of $3.9
million, $3.3 million, and $3.1 million in 2008, 2007, and
2006, respectively, related to intangible
assets.
New products are continually being developed to replace older products. The company regularly
applies for patent protection on such new products. Although, in the
aggregate, the companys patents
are important in the operation of its businesses, the company believes that the loss by expiration
or otherwise of any one patent or group of patents would not materially affect its business.
License royalties amounted to $0.2 million, $0.3 million and $0.4 million for fiscal 2008, 2007 and
2006, respectively, and are included in other expense (income), net on the Consolidated Statements
of Income.
MANUFACTURING
The company performs the majority of its own fabrication, stamps some of the metal components used
in its fuses, holders and switches from raw metal stock and makes its own contacts and springs. In
addition, the company fabricates silicon wafers for certain applications and performs its own
plating (silver, nickel, zinc, tin and oxides). All thermoplastic molded component requirements
used for such products as the ATO(R), MINI(R) and MAXI fuse product lines are met through the
companys in-house molding capabilities.
After components are stamped, molded, plated and readied for assembly, final assembly is
accomplished on fully automatic and semi-automatic assembly machines. Quality assurance and
operations personnel, using techniques such as statistical process control, perform tests, checks
and measurements during the production process to maintain the highest levels of product quality
and customer satisfaction.
The principal raw materials for the companys products include copper and copper alloys, heat
resistant plastics, zinc, melamine, glass, silver, raw silicon, solder and various gases. The
company uses a sole source for several heat resistant plastics and for zinc, but believes that
suitable alternative heat resistant plastics and zinc are available from other sources at
comparable prices. All of the other raw materials are purchased from a number of readily available
outside sources.
A computer-aided design and manufacturing system (CAD/CAM) expedites product development and
machine design and our laboratories test new products, prototype concepts and production run
samples. The company participates in just-in-time delivery programs with many of its major
suppliers and actively promotes the building of strong cooperative relationships with its suppliers
by utilizing early supplier involvement techniques and engaging them in pre-engineering product and
process development.
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MARKETING
The companys domestic sales and marketing staff of over 35 people maintain relationships with
major OEMs and distributors. The companys sales, marketing and engineering personnel interact
directly with OEM engineers to ensure appropriate circuit protection and reliability within the
parameters of the OEMs circuit design. Internationally, the company maintains a sales and
marketing staff of over 100 people with sales offices in the Netherlands, the U.K., Germany, Spain,
Ireland, Italy, Singapore, Taiwan, Japan, Brazil, Hong Kong, Korea, China and India. The company
also markets its products indirectly through a worldwide organization of over 60 manufacturers
representatives and distributes through an extensive network of electronics, automotive and
electrical distributors.
Electronics
The company uses manufacturers representatives to sell its electronics products and to call on
major domestic and international OEMs and distributors. The company sells approximately 20 percent
of its domestic products directly to OEMs, with the remainder sold through distributors nationwide.
In the Asia-Pacific region, the company maintains a direct sales staff and utilizes distributors in
Japan, Singapore, Korea, Taiwan, China, Malaysia, Thailand, Hong Kong, India, Indonesia,
Philippines, New Zealand and Australia. In Europe, the company maintains a direct sales force and
utilizes manufacturers representatives and distributors to support a wide array of customers.
Automotive
The company maintains a direct sales force to service all the major automotive OEMs and system
suppliers. Approximately 22 manufacturers representatives sell the companys products to
aftermarket fuse retailers such as AutoZone and Pep Boys. In Europe, the company uses both a direct
sales force and manufacturers representatives to distribute its products to OEMs, major system
suppliers and aftermarket distributors. In the Asia-Pacific region, the company uses both a direct
sales force and distributors to supply to major OEMs and system suppliers.
Electrical
The company markets and sells its power fuses and protection relays through approximately 37
manufacturers representatives across North America. These representatives sell power fuse products
through an electrical and industrial distribution network comprised of approximately 4,000
distributor buying locations. These distributors have customers that include electrical
contractors, municipalities, utilities and factories (including both MRO and OEM).
The companys field sales force (including regional sales managers and application engineers) and
manufacturers representatives call on both distributors and end-users (consulting engineers,
municipalities, utilities and OEMs) in an effort to educate these customers on the capabilities and
characteristics of the companys products.
BUSINESS SEGMENT INFORMATION
The company has three operating business unit
segments: Electronics; Automotive; and Electrical. For
information with respect to the companys operations in its three reportable business unit segments
for the fiscal year ended December 27, 2008, see Business Unit Segment Information included as part
of Item 8. Financial Statements and Supplementary Data, which is incorporated herein by
reference.
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CUSTOMERS
The company sells to over 10,000 customers worldwide. Net sales to Arrow Pemco Group were less than
10% for 2008 and 2007, respectively, but 10.6% for 2006. No other single customer accounted for
more than 10% of net sales during the last three years. During the 2008, 2007 and 2006, net sales
to customers outside the United States (exports and foreign operations) accounted for approximately
62.0%, 61.9% and 61.1%, respectively, of the companys total net sales.
COMPETITION
The companys products compete with similar products of other manufacturers, some of which have
substantially greater financial resources than the company. In the electronics market, the
companys competitors include AVX, Bel Fuse, Bourns, Cooper Industries, EPCOS, On Semiconductor,
STMicroelectronics and Tyco Electronics. In the automotive market, the companys competitors
include Cooper Industries, Pacific Engineering (a private company in Japan) and MTA (a private
company in Italy). In the electrical market, the companys major competitors include Cooper
Industries and Ferraz Shawmut. The company believes that it competes on the basis of innovative
products, the breadth of its product line, the quality and design of its products and the
responsiveness of its customer service in addition to price.
BACKLOG
The backlog of unfilled orders at December 27, 2008, was approximately $53.9 million, compared to
$77.2 million at December 29, 2007. Substantially all of the orders currently in backlog are
scheduled for delivery in 2009.
EMPLOYEES
As of December 27, 2008, the company employed approximately 6,300 employees. Approximately four
employees in the U.S., 1,022 employees in Mexico and 86 employees in Germany are covered by
collective bargaining agreements. The U.S. agreement expires on March 31, 2009, the Mexico
agreements expire February 28, 2010 for 484 employees and January 31, 2010 for 538 employees for
Matamoros and Piedras Negras, respectively, and the Germany agreement expires April 30, 2010 for 6
employees and is under discussion for 80 employees. Overall, the company has historically
maintained satisfactory employee relations, and many of its employees have long service with the
company.
ENVIRONMENTAL REGULATION
The company is subject to numerous foreign, federal, state and local regulations relating to air
and water quality, the disposal of hazardous waste materials, safety and health. Compliance with
applicable environmental regulations has not significantly changed the companys competitive
position, capital spending or earnings in the past and the company does not presently anticipate
that compliance with such regulations will change its competitive position, capital spending or
earnings for the foreseeable future.
9
The company employs an environmental engineer to monitor regulatory matters and believes that it is
currently in compliance in all material respects with applicable environmental laws and
regulations, except with respect to its facilities located in Ireland and Irving, Texas. The
Ireland facility was acquired in October 1999 in connection with the acquisition from Harris
Corporation of its suppression products division. Certain containment actions have been ongoing and
full disclosure with appropriate agencies in Ireland has been initiated. The company received an
indemnity from Harris Corporation with respect to these matters. The Irving, Texas facility lease
was assumed in July 2003 in connection with the acquisition of Teccor Electronics, Inc. The company
is taking the appropriate measures to bring this facility into compliance with Texas environmental
laws, and the company also received an indemnity from Invensys plc with respect to this matter.
Littelfuse GmbH (formerly known as Heinrich Industries, AG), which was acquired by the company in
May 2004, is responsible for maintaining coal mine shaft entrances. The company is compliant with
German regulations pertaining to the maintenance of the mines and has an accrual related to these
coal mine shafts based on an engineering study estimating the cost of remediating the dangers (such
as a shaft collapse) of abandoned coal mine shafts in Germany. The reserve is calculated based upon
the cost of remediating the shafts that the study deems most risky. Further information regarding
the coal mine liability reserve is provided in Note 10 of the Notes to Consolidated Financial
Statements included in this report.
ITEM 1A. RISK FACTORS.
Our business, financial condition and results of operations are subject to various risks and
uncertainties, including the risk factors we have identified below. These factors are not
necessarily listed in order of importance. We may amend or supplement the risk factors from time to
time by other reports that we file with the SEC in the future.
Our industry is subject to intense competitive pressures.
We operate in markets that are highly competitive. We compete on the basis of price, quality,
service and/or brand name across the industries and markets we serve. Competitive pressures could
affect the prices we are able to charge our customers or the demand for our products.
We may not always be able to compete on price, particularly when compared to manufacturers with
lower cost structures. Some of our competitors have substantially greater sales, financial and
manufacturing resources and may have greater access to capital than Littelfuse. As other companies
enter our markets or develop new products, competition may intensify further. Our failure to
compete effectively could materially adversely affect our business, financial condition and results
of operations.
We may be unable to manufacture and deliver products in a manner that is responsive to our
customers needs.
The end markets for our products are characterized by technological change, frequent new product
introductions and enhancements, changes in customer requirements and emerging industry standards.
The introduction of products embodying new technologies and the emergence of new industry standards
could render our existing products obsolete and unmarketable before we can recover any or all of
our research, development and commercialization expenses on capital investments. Furthermore, the
life cycles of our products may change and are difficult to estimate.
10
Our future success will depend upon our ability to manufacture and deliver products in a manner
that is responsive to our customers needs. We will need to develop and introduce new products and
product enhancements on a timely basis that keep pace with technological developments and emerging
industry standards and address increasingly sophisticated requirements of our customers. We invest
heavily in research and development without knowing that we will recover these costs. Our
competitors may develop products or technologies that will render our products non-competitive or
obsolete. If we cannot develop and market new products or product enhancements in a timely and
cost-effective manner, our business, financial condition and results of operations could be
materially adversely affected.
Our business may be interrupted by labor disputes or other interruptions of supplies.
A work stoppage could occur at certain of our facilities, most likely as a result of disputes under
collective bargaining agreements or in connection with negotiations of new collective bargaining
agreements. In addition, we may experience a shortage of supplies for various reasons, such as
financial distress, work stoppages, natural disasters or production difficulties that may affect
one of our suppliers. A significant work stoppage, or an interruption or shortage of supplies for
any reason, if protracted, could substantially adversely affect our business, financial condition
and results of operations.
Our revenues may vary significantly from period to period.
Our revenues may vary significantly from one accounting period to another due to a variety of
factors including:
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changes in our customers buying decisions; |
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changes in demand for our products; |
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our product mix; |
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our effectiveness in managing manufacturing processes; |
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costs and timing of our component purchases; |
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the effectiveness of our inventory control; |
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the degree to which we are able to utilize our available manufacturing capacity; |
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our ability to meet delivery schedules; |
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general economic and industry conditions; and |
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local conditions and events that may affect our production volumes, such as labor
conditions and political instability. |
The bankruptcy or insolvency of a major customer could adversely affect us.
Certain of our major customers, such as those in the automotive industry and to a lesser extent the
electronics industry, are suffering financial hardships due to current economic conditions. The
bankruptcy or insolvency of a major customer could result in lower sales revenue and cause a
material adverse effect on our business, financial condition and results of operations. In
addition, the bankruptcy or insolvency of a major U.S. auto manufacturer or significant supplier
likely could lead to substantial disruptions in the automotive supply base, resulting in lower
demand for our products, which likely would cause a decrease in sales revenue and have a
substantial adverse impact on our business, financial condition and results of operations.
11
Our ability to manage currency or commodity price fluctuations or shortages is limited.
As a resource-intensive manufacturing operation, we are exposed to a variety of market and asset
risks, including the effects of changes in foreign currency exchange rates, commodity prices and
interest rates. We have multiple sources of supply for the majority of our commodity requirements.
However, significant shortages that disrupt the supply of raw materials or result in price
increases could affect prices we charge our customers, our product costs, and the competitive
position of our products and services. We monitor and manage these exposures as an integral part of
our overall risk management program, which recognizes the unpredictability of markets and seeks to
reduce the potentially adverse effects on our results. Nevertheless, changes in currency exchange
rates, commodity prices and interest rates cannot always be predicted. In addition, because of
intense price competition and our high level of fixed costs, we may not be able to address such
changes even if they are foreseeable. Substantial changes in these rates and prices could have a
material adverse effect on our results of operations and financial condition. For additional
discussion of interest rate, currency or commodity price risk, see Item 7A. Quantitative and
Qualitative Disclosures about Market Risks.
Operations and supply sources located outside the United States, particularly in emerging
markets, are subject to greater risks.
Our operating activities outside the United States contribute significantly to our revenues and
earnings. Serving a global customer base and remaining competitive in the global market place may
require that we place more production in countries outside the United States, including emerging
markets, to capitalize on market opportunities and maintain a cost-efficient structure. In
addition, we source a significant amount of raw materials and other components from third-party
suppliers or joint-venture operations in low-cost countries. Our international operating activities
are subject to a number of risks generally associated with international operations, including
risks relating to the following:
|
|
|
general economic conditions; |
|
|
|
|
currency fluctuations and exchange restrictions; |
|
|
|
|
import and export duties and restrictions; |
|
|
|
|
the imposition of tariffs and other import or export barriers; |
|
|
|
|
compliance with regulations governing import and export activities; |
|
|
|
|
current and changing regulatory requirements; |
|
|
|
|
political and economic instability; |
|
|
|
|
potentially adverse income tax consequences; |
|
|
|
|
transportation delays and interruptions; |
|
|
|
|
labor unrest; |
|
|
|
|
natural disasters; |
|
|
|
|
terrorist activities; |
|
|
|
|
public health concerns; |
|
|
|
|
difficulties in staffing and managing multi-national operations; and |
|
|
|
|
limitations on our ability to enforce legal rights and remedies. |
Any of these factors could have a material adverse effect on our business, financial condition and
results of operations.
12
We may close, combine, sell or dispose certain subsidiaries, divisions or assets, which may
reduce our sales volume and result in restructuring costs.
We are a company that, from time to time, seeks to optimize its manufacturing capabilities and
efficiencies through restructurings, consolidations, plant closings or asset sales. We may make
further specific determinations to consolidate, close or sell additional facilities. Possible
adverse consequences related to such actions may include various charges for such items as idle
capacity, disposition costs, severance costs, impairments of goodwill and possibly an immediate
loss of revenues, in addition to normal or attendant risks and uncertainties. We may be
unsuccessful in any of our current or future efforts to restructure or consolidate our business.
Our plans to minimize or eliminate any loss of revenues during restructuring or consolidation may
not be achieved. These activities may have a material adverse effect upon our business, financial
condition or results of operations.
We engage in acquisitions and may encounter difficulties in integrating these businesses.
We are a company that, from time to time, seeks to grow through strategic acquisitions. We have in
the past acquired a number of businesses or companies and additional product lines and assets. We
intend to continue to expand and diversify our operations with additional acquisitions. The success
of these transactions depends on our ability to integrate the assets and personnel acquired in
these acquisitions. We may encounter difficulties in integrating acquisitions with our operations
and may not realize the degree or timing of the benefits that we anticipated from an acquisition.
Environmental liabilities could adversely impact our financial position.
Federal, state and local laws and regulations impose various restrictions and controls on the
discharge of materials, chemicals and gases used in our manufacturing processes or in our finished
goods. These environmental regulations have required us to expend a portion of our resources and
capital on relevant compliance programs. Under these laws and regulations, we could be held
financially responsible for remedial measures if our current or former properties are contaminated
or if we send waste to a landfill or recycling facility that becomes contaminated, even if we did
not cause the contamination. We may be subject to additional common law claims if we release
substances that damage or harm third parties. In addition, future changes in environmental laws or
regulations may require additional investments in capital equipment or the implementation of
additional compliance programs. Any failure to comply with new or existing environmental laws or
regulations could subject us to significant liabilities and could have material adverse effects on
our business, financial condition or results of operations.
In the conduct of our manufacturing operations, we have handled and do handle materials that are
considered hazardous, toxic or volatile under federal, state and local laws. The risk of accidental
release of such materials cannot be completely eliminated. In addition, we operate or own
facilities located on or near real property that was formerly owned and operated by others. Certain
of these properties were used in ways that involved hazardous materials. Contaminants may migrate
from, within or through these properties. These releases or migrations may give rise to claims.
Where third parties are responsible for contamination, the third parties may not have funds, or not
make funds available when needed, to pay remediation costs imposed upon us under environmental laws
and regulations.
13
We derive a substantial portion of our
revenues from customers in the automotive, consumer electronics and
communications industries, and we are susceptible to trends and factors affecting those industries
as well as the success of our customers products.
Net sales to the automotive, consumer electronics and communications industries represent a
substantial portion of our revenues. Factors negatively affecting these industries and the demand
for products also negatively affect our business, financial condition or results of operations. Any
adverse occurrence, including industry slowdown, recession, political instability, costly or
constraining regulations, armed hostilities, terrorism, excessive inflation, prolonged disruptions
in one or more of our customers production schedules or labor disturbances, that results in
significant decline in the volume of sales in these industries, or in an overall downturn in the
business and operations of our customers in these industries, could materially adversely affect our
business, financial condition or results of operations. For example, the automotive industry as
well as the consumer electronics market is highly cyclical in nature and sensitive to changes in
general economic conditions, consumer preferences and interest rates. In addition, the global
automotive industry has overall manufacturing capacity far exceeding demand. To the extent that
demand for certain of our customers products declines, the demand for our products may decline.
Reduced demand relating to general economic conditions, consumer preferences, interest rates or
industry over-capacity may have a material adverse effect upon our business, financial condition or
results of operations.
The inability to maintain access to capital markets may adversely affect our business and
financial results.
Our ability to invest in our businesses, make strategic acquisitions and refinance maturing debt
obligations may require access to the capital markets and sufficient bank credit lines to support
short-term borrowings. If we are unable to access the capital markets or bank credit facilities, we
could experience a material adverse affect on our business, financial condition and results of
operations.
Fixed costs may reduce operating results if our sales fall below expectations.
Our expense levels are based, in part, on our expectations for future sales. Many of our expenses,
particularly those relating to capital equipment and manufacturing overhead, are relatively fixed.
We might be unable to reduce spending quickly enough to compensate for reductions in sales.
Accordingly, shortfalls in sales could materially and adversely affect our operating results.
The volatility of our stock price could affect the value of an investment in our stock and our
future financial position.
The market price of our stock has fluctuated widely. Between December 29, 2007 and December 27,
2008, the closing sale price of our common stock ranged between a low of $11.48 and a high of
$39.21, experiencing greater volatility over that time than the broader markets. The volatility of
our stock price may be related to any number of factors, such as general economic conditions,
industry conditions, analysts expectations concerning our results of operations, or the volatility
of our revenues as discussed above under Our Revenues May Vary Significantly from Period to
Period. The historic market price of our common stock may not be indicative of future market
prices. We may not be able to sustain or increase the value of our common stock. Declines in the
market price of our stock could adversely affect our ability to retain personnel with stock
incentives, to acquire businesses or assets in exchange for stock and/or to conduct future
financing activities with or involving our common stock.
14
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
LITTELFUSE FACILITIES
The companys operations are located in 31 owned or leased facilities worldwide, representing an
aggregate of 2,027,095 square feet. The U.S. corporate headquarters and the largest manufacturing
facility currently are located in Des Plaines, Illinois. The company plans to close this
manufacturing plant in 2009 and relocate its corporate headquarters to Chicago, Illinois. The
company also has North American manufacturing facilities in Saskatoon, Canada, Irving, Texas and
two plants in Mexico. The European headquarters and primary European distribution center is in the
Netherlands, along with a manufacturing plant in Germany. Asia-Pacific operations include sales and
distribution centers located in Singapore, Taiwan, Japan, China and Korea, with manufacturing
plants in China, Taiwan and the Philippines. The company does not believe that it will encounter
any difficulty in renewing its existing leases upon the expiration of their current terms.
Management believes that the companys facilities are adequate to meet its requirements for the
foreseeable future.
The following table provides certain information concerning the companys facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease |
|
|
|
|
|
|
Size |
|
|
|
Expiration |
|
Primary |
Location |
|
Use |
|
(sq. ft.) |
|
Lease/Own |
|
Date |
|
Product |
Des Plaines, Illinois
|
|
Administrative, Engineering, Research and Testing
|
|
|
340,000 |
|
|
Owned
|
|
|
|
|
|
Auto, Electronics and Electrical |
Chicago, Illinois
|
|
Administrative, Engineering, Research and Testing
|
|
|
54,838 |
|
|
Leased
|
|
|
2024 |
|
|
Auto, Electronics and Electrical |
Campbell, California
|
|
Engineering
|
|
|
1,710 |
|
|
Leased
|
|
|
2011 |
|
|
Electronics |
Irving, Texas
|
|
Engineering, Manufacturing, Research and Testing
|
|
|
101,000 |
|
|
Leased
|
|
|
2010 |
|
|
Electronics |
Brownsville, Texas
|
|
Distribution
|
|
|
21,000 |
|
|
Leased
|
|
|
2009 |
|
|
Electronics |
Birmingham, Michigan
|
|
Sales
|
|
|
2,076 |
|
|
Leased
|
|
|
2011 |
|
|
Auto |
Matamoros, Mexico
|
|
Manufacturing
|
|
|
85,664 |
|
|
Leased
|
|
|
2010 |
|
|
Electronics |
Arcola, Illinois
|
|
Administrative
|
|
|
5,000 |
|
|
Leased
|
|
|
2009 |
|
|
Electrical |
Piedras Negras, Mexico
|
|
Administrative / Manufacturing
|
|
|
99,822 |
|
|
Leased
|
|
|
2015 |
|
|
Auto |
Piedras Negras, Mexico
|
|
Manufacturing
|
|
|
68,088 |
|
|
Leased
|
|
|
2012 |
|
|
Electrical |
Piedras Negras, Mexico
|
|
Manufacturing
|
|
|
164,785 |
|
|
Leased
|
|
|
2009 |
|
|
Auto |
Eagle Pass, Texas
|
|
Distribution
|
|
|
7,800 |
|
|
Leased
|
|
|
2011 |
|
|
Auto, Electronics and Electrical |
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease |
|
|
|
|
|
|
Size |
|
|
|
Expiration |
|
Primary |
Location |
|
Use |
|
(sq.
ft.) |
|
Lease/Own |
|
Date |
|
Product |
Swindon, U.K.
|
|
Administrative, Marketing and Sales
|
|
|
5,000 |
|
|
Leased
|
|
|
2012 |
|
|
Electronics |
Utrecht, the Netherlands
|
|
Administrative, Distribution and Sales
|
|
|
34,642 |
|
|
Owned
|
|
|
|
|
|
Auto and Electronics |
Essen, Germany
|
|
Administrative
|
|
|
8,009 |
|
|
Leased
|
|
|
2011 |
|
|
Electronics and Auto |
Essen, Germany
|
|
Leased to third party
|
|
|
2,433 |
|
|
Owned
|
|
|
|
|
|
|
Duensen, Germany
|
|
Manufacturing and Sales
|
|
|
43,966 |
|
|
Owned
|
|
|
|
|
|
Auto |
Singapore
|
|
Sales and Distribution
|
|
|
8,663 |
|
|
Leased
|
|
|
2009 |
|
|
Electronics |
Taipei, Taiwan
|
|
Sales
|
|
|
4,000 |
|
|
Leased
|
|
|
2009 |
|
|
Electronics |
Seoul, Korea
|
|
Sales
|
|
|
4,590 |
|
|
Leased
|
|
|
2009 |
|
|
Electronics and Auto |
Lipa City, Philippines
|
|
Manufacturing
|
|
|
116,046 |
|
|
Owned
|
|
|
|
|
|
Electronics |
Lipa City, Philippines
|
|
Manufacturing
|
|
|
22,733 |
|
|
Leased
|
|
|
2009 |
|
|
Electronics |
Dongguan, China
|
|
Manufacturing
|
|
|
264,695 |
|
|
Leased
|
|
|
2013 |
|
|
Electronics |
Suzhou, China
|
|
Manufacturing
|
|
|
143,458 |
|
|
Owned
|
|
|
|
|
|
Electronics |
Yang-Mei, Taiwan
|
|
Administrative / Manufacturing, Sales, and Distribution
|
|
|
40,080 |
|
|
Owned
|
|
|
|
|
|
Electronics |
Wuxi, China
|
|
Manufacturing
|
|
|
220,068 |
|
|
Owned
|
|
|
|
|
|
Electronics |
Hong
Kong, China
|
|
Sales
|
|
|
6,403 |
|
|
Leased
|
|
|
2009 |
|
|
Electronics |
Yokohama, Japan
|
|
Sales
|
|
|
6,726 |
|
|
Leased
|
|
|
2009 |
|
|
Electronics |
Sao Paulo, Brazil
|
|
Sales
|
|
|
800 |
|
|
Leased
|
|
|
2009 |
|
|
Electronics and Auto |
Dundalk, Ireland
|
|
Manufacturing
|
|
|
120,000 |
|
|
Owned
|
|
|
|
|
|
Electronics and Auto |
Saskatoon, Canada
|
|
Manufacturing
|
|
|
23,000 |
|
|
Leased
|
|
|
2009 |
|
|
Electrical |
Properties with lease expirations in 2009 renew at various times throughout the year. The company
does not anticipate any material impact as a result of such expirations.
ITEM 3. LEGAL PROCEEDINGS.
The company is not a party to any legal proceedings that it believes will have a material adverse
effect upon the conduct of its business or its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the companys stockholders during the fourth quarter of fiscal
2008.
16
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Shares of the companys common stock are traded under the symbol LFUS on the Nasdaq Global Select
Market. As of February 20, 2009, there were 144 holders of record of the companys common stock.
Stock Performance Graph
The following stock performance graph and related information shall not be deemed soliciting
material or filed with the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filings under the Securities Act of 1933 or Securities
Act of 1934, each as amended, except to the extent that the company specifically incorporates it by
reference into such filing.
The following stock performance graph compares the five-year cumulative total return on Littelfuse
common stock to the five-year cumulative total returns on the Russell 2000 Index and the Dow Jones
Electrical Components and Equipment Industry Group Index. The company believes that the Russell
2000 Index and the Dow Jones Electrical Components and Equipment Industry Group Index represent a
broad market index and peer industry group for total return performance comparison. The stock
performance shown on the graph below represents historical stock performance and is not necessarily
indicative of future stock price performance.
The Dow Jones Electrical Components and Equipment Industry Group Index includes the common stock of
American Superconductor Corp.; Amphenol Corp.; Anaren Microwave, Inc.; Arrow Electronics, Inc.;
Avnet, Inc.; AVX Corp.; Benchmark Electronics, Inc.; C&D Technologies, Inc.; Capstone Turbine
Corp.; Commscope, Inc.; CTS Corp.; Emerson; Fuelcell Energy, Inc.; General Cable Corp.; Hubbell
Inc. Class B; Jabil Circuit, Inc.; KEMET Corp.; Littelfuse, Inc.; Methode Electronics, Inc.; Molex,
Inc. and Molex, Inc. Class A; Park Electrochemical Corp.; Plexus Corp.; Plug Power, Inc.;
Power-One, Inc.; Powerwave Technologies, Inc.; Regal-Beloit Corp.; Sanmina Corp.; SPX Corp.;
Technitrol, Inc.; Thomas & Betts Corp.; Three-Five Systems, Inc.; Valence Technology, Inc.; Vicor
Corp.; and Vishay Intertechnology, Inc.

In the case of the Russell 2000 Index and the Dow Jones Electrical Components and Equipment
Industry Group Index, a $100 investment made on December 31, 2003 and reinvestment of all dividends
is assumed. In the case of the company, a $100 investment made on December 31, 2003 is assumed (the
company paid no dividends in 2004, 2005, 2006, 2007, or 2008). Returns are at December 31 of each
year, with the exception of 2004, 2006, 2007 and 2008 for the company, which are at January 1,
2005, December 30, 2006, December 29, 2007 and December 27, 2008, respectively, which in each case
was the last day of the companys respective fiscal year.
The company has not paid any cash dividends in its history. Future dividend policy will be
determined by the Board of Directors based upon its evaluation of earnings, cash availability and
general business prospects. Currently, there are restrictions on the payment of dividends contained
in the companys credit agreements that relate to the maintenance of a minimum net worth and
certain financial ratios.
The companys Board of Directors authorized the repurchase of up to 1,000,000 shares of the
companys common stock under a program for the period May 1, 2008 to April 30, 2009. The company
did not repurchase any shares of its common stock during the fourth quarter of fiscal 2008.
The table below provides information with respect to the companys quarterly stock prices during
fiscal 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
4Q |
|
3Q |
|
2Q |
|
1Q |
|
4Q |
|
3Q |
|
2Q |
|
1Q |
|
High |
|
$ |
31.98 |
|
|
$ |
37.55 |
|
|
$ |
39.21 |
|
|
$ |
34.29 |
|
|
$ |
37.28 |
|
|
$ |
37.65 |
|
|
$ |
44.99 |
|
|
$ |
41.45 |
|
Low |
|
|
11.48 |
|
|
|
29.28 |
|
|
|
32.89 |
|
|
|
26.90 |
|
|
|
30.48 |
|
|
|
31.00 |
|
|
|
33.69 |
|
|
|
30.16 |
|
Quarter close |
|
|
15.54 |
|
|
|
33.91 |
|
|
|
32.89 |
|
|
|
33.58 |
|
|
|
33.19 |
|
|
|
35.69 |
|
|
|
33.77 |
|
|
|
40.16 |
|
|
ITEM 6. SELECTED FINANCIAL DATA.
The information presented below provides selected financial data of the company during the past
five fiscal years and should be read in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes
to Consolidated Financial Statements set forth in Item 7 and Item 8, respectively, for the
respective years presented (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006* |
|
2005* |
|
2004* |
|
Net sales |
|
$ |
530,869 |
|
|
$ |
536,144 |
|
|
$ |
534,859 |
|
|
$ |
467,089 |
|
|
$ |
476,833 |
|
Gross profit |
|
|
143,669 |
|
|
|
171,537 |
|
|
|
161,263 |
|
|
|
144,552 |
|
|
|
173,797 |
|
Operating income |
|
|
8,495 |
|
|
|
51,309 |
|
|
|
28,858 |
|
|
|
26,966 |
|
|
|
57,003 |
|
Income from continuing operations |
|
|
8,016 |
|
|
|
36,835 |
|
|
|
23,236 |
|
|
|
16,582 |
|
|
|
36,361 |
|
Net income |
|
|
8,016 |
|
|
|
36,835 |
|
|
|
23,824 |
|
|
|
17,710 |
|
|
|
36,028 |
|
Per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic |
|
|
0.37 |
|
|
|
1.66 |
|
|
|
1.04 |
|
|
|
0.74 |
|
|
|
1.64 |
|
- Diluted |
|
|
0.37 |
|
|
|
1.64 |
|
|
|
1.03 |
|
|
|
0.73 |
|
|
|
1.61 |
|
Cash and cash equivalents |
|
|
70,937 |
|
|
|
64,943 |
|
|
|
56,704 |
|
|
|
21,947 |
|
|
|
28,583 |
|
Total assets |
|
|
538,928 |
|
|
|
491,365 |
|
|
|
464,966 |
|
|
|
403,931 |
|
|
|
425,769 |
|
Long-term debt, less current portion |
|
|
72,000 |
|
|
|
1,223 |
|
|
|
1,785 |
|
|
|
|
|
|
|
1,364 |
|
|
|
|
|
* |
|
Results reflect Efen GmbH as a discontinued operation. Refer to Note 6 of the Notes to
Consolidated Financial Statements for more information. |
17
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Littelfuse, Inc. and its subsidiaries (Littelfuse
or the company) design, manufacture, and sell
circuit protection devices for use in the electronics, automotive and electrical markets throughout
the world. The following Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) is designed to provide the reader with information that will assist in
understanding the companys Consolidated Financial Statements, the changes in certain key items in
those financial statements from year to year, and the primary factors that accounted for those
changes, as well as how certain accounting principles affect the Consolidated Financial Statements.
The discussion also provides information about the financial results of the various business
segments to provide a better understanding of how those segments and their results affect the
financial condition and results of operations of Littelfuse as a whole.
Business Segment Information
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131), establishes annual and interim reporting
standards for an enterprises operating segments and related disclosures about its products,
services, geographic areas and major customers. 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, as defined by
SFAS 131, is the companys President and Chief Executive Officer.
The company reports its operations by three
business unit segments: Electronics; Automotive; and
Electrical. The following table is a summary of the companys operating segments net sales by
business unit and geography (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2008 |
|
|
2007 |
|
|
2006* |
|
Business Unit |
|
|
|
|
|
|
|
|
|
|
|
|
Electronics |
|
$ |
342.5 |
|
|
$ |
348.9 |
|
|
$ |
365.5 |
|
Automotive |
|
|
126.9 |
|
|
|
135.1 |
|
|
|
123.6 |
|
Electrical |
|
|
61.5 |
|
|
|
52.1 |
|
|
|
45.8 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
530.9 |
|
|
$ |
536.1 |
|
|
$ |
534.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geography** |
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
201.8 |
|
|
$ |
204.3 |
|
|
$ |
216.0 |
|
Europe |
|
|
118.6 |
|
|
|
118.2 |
|
|
|
111.6 |
|
Asia-Pacific |
|
|
210.5 |
|
|
|
213.6 |
|
|
|
207.3 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
530.9 |
|
|
$ |
536.1 |
|
|
$ |
534.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amounts exclude Efen GmbH (Efen) since the date of the Littelfuse GmbH (formerly known as
Heinrich Industries, AG) acquisition. |
|
** |
|
Sales are defined based upon shipped to destination. |
Business unit segment information is described more fully in Note 15 of the Notes to Consolidated
Financial Statements. The following discussion provides an analysis of the information contained in
the Consolidated Financial Statements and accompanying notes beginning on page 37 at December 27,
2008 and December 29, 2007, and for the three fiscal years ended December 27, 2008, December 29,
2007 and December 30, 2006.
18
Results of Operations 2008 Compared with 2007
Net sales decreased slightly in the current year to $530.9 million compared to $536.1 million in
2007. These results reflected sales declines in the Automotive segment of $8.2 million or 6% to
$126.9 million, along with a decrease in sales in the Electronics segment of $6.4 million or 2% to
$342.5 million, largely offset by an increase in sales in the Electrical segment of $9.4 million or
18% to $61.5 million.
The decrease in automotive sales was due primarily to the weakened passenger car market across all
geographies, resulting in sharp declines in global car production, particularly in the fourth
quarter of 2008, as OEMs took extended plant shutdowns. The negative impact from declines in volume were partially
offset by favorable currency effects of $5.0 million, mainly due to the strong the euro, which
experienced a higher annual average translation rate of 1.475 in 2008 compared to 1.369 in 2007.
The decrease in electronics sales primarily reflected weaker demand as consumers continued to lose
confidence in the economy and cut back on spending, particularly in the fourth quarter of 2008. In
addition, many customers in Asia, particularly contract manufacturers and original design
manufacturers, had extensive plant shutdowns, and electronics distributors reduced inventories in
response to weak demand and the uncertain outlook for 2009. The negative impact from declines in
volume were partially offset by net favorable currency effects of $1.8 million, largely due to the
strength of the euro and to a lesser extent the yen, partially offset by the negative impact from
sales denominated in Korean won, which experienced a drop of more than 13% in the annual average
translation rate in 2008 compared to 2007.
The increase in electrical sales was due in part to new OEM business and price increases over the
prior year and improvements in the industrial market. In addition, current year sales include $3.9
million from Startco Engineering Ltd. (Startco), acquired at the beginning of the fourth quarter
of 2008, and $1.3 million from Shock Block Corporation (Shock Block), acquired during the first
quarter of 2008.
On a geographic basis, sales in the Americas decreased $2.5 million or 1% in 2008 compared to 2007
due to decreased automotive sales of $8.4 million and lower electronics sales of $3.5 million,
partially offset by increased electrical sales of $9.4 million. Automotive and electronics sales
declined sharply in the fourth quarter of 2008 as economic concerns led to a deterioration in
consumer confidence and reduced spending. As a result, the automotive OEMs sharply cut production
rates and shut down assembly lines for much of December and electronics distributors reduced
inventories. The electrical sales increase was due primarily to price increases over the prior year
and sales from newly-acquired companies.
Europe sales remained steady in 2008 compared to 2007, reflecting a modest increase of $0.4
million. Current year results reflected favorable currency effects of $9.6 million offset by lower
automotive sales due to a sharp decline in fourth quarter car production, which was down 22%
year-over-year, and lower electronics sales due to decreased demand from electronics distributors.
Asia-Pacific sales decreased $3.1 million or 1% in 2008 compared to the prior year mainly due to
lower electronics sales, which reflected weakness across all major end markets, from consumer
products to IT infrastructure spending for telecom equipment. This decrease was partially offset by
higher automotive sales, which reflected continued share gain in the growing Asian markets outside
of Japan. Current year results included unfavorable currency translation effects of $3.1 million
primarily due to a sharp decline in the Korean won.
19
Gross profit was $143.7 million or 27.1% of sales in 2008 compared to $171.5 million or 32.0% of
sales in 2007. The decline in gross profit margin percentage in 2008 reflected a $5.7 million
non-cash charge related to settlement of the Ireland pension plan, recorded in accordance with SFAS
No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
for Termination Benefits. The decrease also reflected a $3.2 million charge related to impairment
of certain manufacturing assets in China along with higher costs for transportation, materials and
utilities driven primarily by the increase in the price of oil and commodity metals for much of
2008. Higher costs related to plant transfer activities also contributed to the margin decline.
The company also recorded approximately $8.8 million of restructuring charges in cost of sales in
the current year, primarily due to the closure of the Matamoros, Mexico manufacturing facility,
along with severance and retention expense at the Irving, Texas, Des Plaines, Illinois and Swindon,
U.K. facilities, compared to $7.6 million of restructuring charges in the prior year primarily
related to the closure of the Des Plaines, Illinois manufacturing facility, along with severance
and retention expense in Ireland and Germany.
Total operating expense was $135.2 million or 25.5% of net sales for 2008 compared to $120.2
million or 22.4% of net sales for 2007. Fiscal year 2007 included an $8.0 million gain on the sale
of property in Ireland. In addition, selling, general and administrative expenses increased $3.9
million to $107.2 million in 2008 from $103.3 million in 2007 due primarily to currency effects.
Research and development costs increased $2.4 million to $24.1 million in 2008 compared to $21.7
million in 2007 due to increased spending on new product development for the electronics and
automotive markets.
Operating income was $8.5 million or 1.6% of net sales in 2008 compared to $51.3 million or 9.6% of
net sales in the prior year. The decrease in operating income in the current year was due primarily
to the special charges described above and higher costs due to transfer-related activities and
higher commodity prices.
Interest expense increased to $3.4 million in 2008 compared to $1.6 million for 2007 primarily due
to a $1.1 million charge to revalue an interest rate swap transaction recorded in accordance with
SFAS No. 157, Fair Value Measurement, as well as increased costs due to higher long-term debt
resulting from the $80 million term loan agreement the company entered into on September 29, 2008.
Other income, net, consisting of interest income, royalties, non-operating income and foreign
currency items, was $5.6 million in 2008 compared to $1.5 million in the prior year. The increase
reflected a net improvement of approximately $3.9 million in foreign currency translation effects
(primarily due to the strengthening of the US dollar against the Korean won, Philippine peso and
euro) and a $1.1 million credit related to an exemption from Japanese output taxes paid in 2007
that was recovered in 2008, partially offset by a $2.8 million non-cash charge related to marking
down the companys investment in Polytronics Technology Corporation Ltd. (Polytronics) to its
lower market value, recorded in accordance with SFAS No. 115 Accounting for Certain Investments in
Debt and Equity Securities, which requires that the value of securities held for resale be marked
to market if the loss is deemed other than temporary.
Income from continuing operations before income taxes was $10.6 million in 2008 compared to $51.3
million in 2007. Income tax expense was $2.6 million in 2008 compared to $14.5 million in the prior
year. The 2008 effective income tax rate was 24.5% compared to 28.2% in 2007. The decrease in the
2008 effective tax rate reflects the mix of income earned in lower tax jurisdictions partially
offset by a $1.1 million unfavorable impact from marking down the companys investment in
Polytronics for which no tax benefit is available.
20
Results of Operations 2007 Compared with 2006
Net sales increased slightly in 2007 to $536.1 million compared to $534.9 million in 2006. These
results were led by the Automotive segment, which had an increase in sales of $11.5 million or 9%
to $135.1 million, along with an increase in sales in the Electrical segment of $6.3 million or 14%
to $52.1 million, largely offset by a decrease in sales in the Electronics segment of $16.6 million
or 5% to $348.9 million. The increase in automotive sales was due to growth in the off-road truck
and bus product lines, new passenger vehicle products and favorable currency effects of $5.6
million, mainly due to the strengthening of the euro. Electrical sales increased primarily due to
price increases over the prior year and improvements in the industrial market. The decrease in
electronics sales reflected weaker distributor demand in the Americas and Asia-Pacific, partially
offset by favorable currency effects of $5.2 million, largely due to the strengthening of the euro.
On a geographic basis, sales in the Americas decreased $11.7 million or 5% in 2007 compared to
2006. Within the Americas, the electronics business declined $19.9 million, reflecting inventory
rationalization at distributors and weaker telecom demand. Automotive sales increased $0.9 million
due to growth in the off-road truck and bus product lines and new passenger vehicle products. The
electrical business increased $6.2 million due to price increases over the prior year and
improvements in the industrial market.
Europe sales increased $6.6 million or 6% in 2007
compared to 2006. The increase in European sales
was primarily due to increased automotive sales of $8.6 million, partially offset by a $2.0 million
decrease in electronics sales. The automotive sales increase reflected favorable
currency effects of $5.6 million due to the strengthening euro and growth in both the passenger
vehicle and off-road truck and bus product lines. Lower electronics sales were due to decreased
demand from electronics distributors, partially offset by favorable currency effects of $4.4
million due to the strengthening euro.
Asia-Pacific sales increased $6.3 million or 3% compared to the prior year. The increase in
Asia-Pacific sales was mainly the result of higher electronics sales due to improved demand for
digital consumer products. Automotive sales increased by $0.7 million reflecting continued share
gain in the growing Asian markets outside of Japan.
Gross profit was $171.5 million or 32.0% of sales in 2007 compared to $161.3 million or 30.2% of
sales in 2006. The gross profit margin percentage improvement resulted primarily from lower
restructuring charges in 2007 compared to 2006.
Selling, general and administrative expenses decreased $7.3 million to $103.3 million in 2007 from
$110.6 million in 2006, primarily due to lower employee bonus expense in 2007 and the recognition
of $5.3 million in higher restructuring and asset impairment charges in 2006. As a percentage of
net sales, selling, general and administrative expenses decreased to 19.3% in 2007 from 20.7% in
2006. Research and development costs increased $3.0 million to $21.7 million due to increased
spending on new product development for the electronics and automotive markets. In 2007, a gain of
$8.0 million was recognized on the sale of real estate in Ireland. Total operating expenses,
including the gain on Ireland property and intangible amortization, were 22.4% of net sales in
2007, compared to 24.8% of net sales in 2006.
Operating income in 2007 increased 77.8% to $51.3 million or 9.6% of sales compared to $28.9
million or 5.4% of sales in the prior year. The changes in operating income and operating margin
were due mainly to lower restructuring charges and decreased bonus expense in 2007 as described
above.
21
Other income, net, consisting of interest income, royalties, non-operating income and foreign
currency items, was $1.5 million in 2007 compared to $2.2 million in the prior year. The decrease
was primarily due to foreign currency effects.
Income from continuing operations before income taxes was $51.3 million in 2007 compared to $29.4
million in 2006. Income tax expense was $14.5 million in 2007 compared to $6.2 million in the prior
year. The 2007 effective income tax rate was 28.2% compared to 21.0% in 2006. The 2006 effective
tax rate reflects certain adjustments including a $1.4 million benefit resulting from a German tax
law change and recognition of a $1.8 million benefit related to net operating losses from an
acquired group of companies. Income from continuing operations was $36.8 million in 2007 compared
to $23.2 million in 2006. In 2006, the company sold the Efen business and accounted for this
business as a discontinued operation that reported income, net of taxes, of $0.6 million. Net
income in 2007 was $36.8 million compared to $23.8 million in the prior year.
Liquidity and Capital Resources
The company historically has financed capital expenditures through cash flows from operations.
Despite the recent adverse changes in market conditions, management expects that cash flows from
operations and available lines of credit will be sufficient to support both the companys
operations and its debt obligations for the foreseeable future.
Term Loan
On September 29, 2008, the company entered into a Loan Agreement with various lenders that provides
the company with a five-year term loan facility of up to $80.0 million for the purposes of (i)
refinancing certain existing indebtedness; (ii) funding working capital needs; and (iii) funding
capital expenditures and other lawful corporate purposes, including permitted acquisitions. The
Loan Agreement also contains an expansion feature, pursuant to which the company may from time to
time request incremental loans in an aggregate principal amount not to exceed $40.0 million. The
company had $80.0 million outstanding at December 27, 2008. Further information regarding this
arrangement is provided in Note 7 of the Notes to Consolidated Financial Statements included in
this report.
The Loan Agreement requires the company to meet certain financial tests, including a consolidated
leverage ratio and a consolidated interest coverage ratio. The Loan Agreement also contains
additional affirmative and negative covenants which, among other things, impose certain limitations
on the companys ability to merge with other companies, create liens on its property, incur
additional indebtedness, enter into transactions with affiliates except on an arms length basis,
dispose of property, or issue dividends or make distributions. At December 27, 2008, and for the
year then ended, the company was in compliance with these covenants. The new Loan Agreement does
not impact the existing debt covenants in the revolving credit facility described below.
Revolving Credit Facility
The company has an unsecured domestic financing arrangement consisting of a credit agreement with
banks that provides a $75.0 million revolving credit facility, with a potential increase of up to
$125.0 million upon request of the company and agreement with the lenders, which expires on July
21, 2011. At December 27, 2008, the company had available
$75.0 million of borrowing capacity
under the revolving credit facility at an interest rate of LIBOR plus 0.50% (0.97% as of December
27, 2008). The company also had $2.8 million available in letters of credit at December 27, 2008.
No amounts were outstanding under these letters of credit at December 27, 2008.
22
The domestic bank credit agreement contains covenants that, among other matters, impose limitations
on the incurrence of additional indebtedness, future mergers, sales of assets, payment of
dividends, and changes in control, as defined in the agreement. In addition, the company is
required to satisfy certain financial covenants and tests relating to, among other matters,
interest coverage, working capital, leverage and net worth. At December 27, 2008, and for the year
then ended, the company was in compliance with these covenants.
Other Obligations
The company has an unsecured bank line of credit in Japan that provides a 700 million yen (an
equivalent of $7.8 million at December 27, 2008) revolving credit facility at an interest rate of
TIBOR plus 0.625% (1.51% as of December 27, 2008). The revolving line of credit becomes due on July
21, 2011. The company had no outstanding borrowings on the yen facility at December 27, 2008.
The company had an unsecured bank line of credit in Taiwan that provided a 35.0 million Taiwanese
dollar revolving credit facility at an interest rate of two-years time deposit plus 0.145%. The
revolving line of credit was due on August 18, 2009. The company also had a foreign fixed rate
mortgage loan outstanding totaling approximately 32.0 million Taiwanese dollars with maturity dates
through August 2013. The company chose to repay the outstanding balances on both debt instruments
in June 2008, resulting in uses of cash totaling the equivalent of $1.7 million. As a result, the
line of credit was closed on June 28, 2008.
The company started 2008 with $64.9 million of cash. Net cash provided by operating activities in
2008 was approximately $40.6 million in the year and included $8.0 million in net income and $44.8
million in non-cash adjustments (primarily $32.2 million in depreciation and amortization, $6.0
million related to impairment of assets / investments and $5.7 million related to the Ireland
pension settlement), partially offset by $12.2 million in changes to operating assets and
liabilities. Further information regarding the impairments is provided in Notes 5 and 11, and
information regarding the pension settlement is provided in Note 12, of the Notes to Consolidated
Financial Statements included in this report.
Changes in various operating assets and liabilities (including short-term and long-term items) that
negatively impacted cash flows in 2008 consisted of decreases in accrued payroll and severance
($15.7 million), net decreases in accrued expenses ($6.6 million), increases in inventories ($6.6
million) and increases in prepaid expenses and other current assets ($6.4 million), partially
offset by decreases in accounts receivable ($23.1 million). Days sales outstanding in accounts
receivable declined to 43 days at year-end 2008, compared to 58 days at year-end 2007 and 60 days
at year-end 2006. The improvement in days sales outstanding was due primarily to the decline in
sales and corresponding accounts receivable balances during the fourth quarter of 2008 along with a
reduction in past-due electronics accounts. Days inventory outstanding was 63 days at year-end
2008, compared to 59 days at year-end 2007 and 67 days at year-end 2006. The increase in days
inventory outstanding in 2008 was due primarily to the decline in sales along with a temporary
planned increase of inventory balances in anticipation of plant transfers from our Des Plaines,
Illinois facility to our Piedras Negras, Mexico manufacturing facility.
Net cash used in investing activities in 2008 was approximately $94.3 million and included $51.3
million in purchases of property, plant and equipment (primarily related to the companys plant
expansion and new facilities in the Asia-Pacific region, along with manufacturing process
improvements, new facilities and product introductions in Mexico) and $47.5 million for the
acquisition of two businesses (Startco, acquired at the beginning of the fourth quarter of 2008,
and Shock Block, acquired during the first quarter of 2008), partially offset by $4.5 million in
cash receipts from the sale of two production facilities (one in Eltville, Germany related to the
Efen business, which discontinued its operations in 2006, and the other in Arcola, Illinois, which
transferred its operations to Mexico). Further information regarding the acquisitions of businesses
is provided in Note 2 of the Notes to Consolidated Financial Statements included in this report.
23
Net cash provided by financing activities in 2008 was approximately $62.0 million, which included
$66.6 million in net proceeds from debt and $1.9 million in cash proceeds from the exercise of
stock options, partially offset by $6.6 million in repurchases of the companys common stock. The
net proceeds from debt include $80.0 million in gross proceeds under the companys term loan
discussed above. Further information regarding the companys debt is provided in Note 7 of the
Notes to Consolidated Financial Statements included in this report.
The effect of exchange rate changes decreased cash by $2.3 million in 2008. The net cash provided
by operating activities and financing activities, less net cash used in investing plus the effect
of exchange rate changes, resulted in a $6.0 million increase in cash and cash equivalents in 2008.
This left the company with a cash balance of $70.9 million at the end of 2008.
The ratio of current assets to current liabilities was 3.1 to 1 at year-end 2008, compared to 2.4
to 1 at year-end 2007 and 2.3 to 1 at year-end 2006. The change in the current ratio at the end of
the 2008 compared to the prior year reflected decreased current liabilities in 2008, primarily
related to lower accrued severance associated with the closure of the Ireland facility and reduced
short-term debt due to repayment of all outstanding balances related to the companys revolving
credit facility. The carrying amounts of total debt increased $66.7 million in 2008, compared to a
decrease of $12.8 million in 2007 and $2.4 million in 2006, due to the $80 million loan agreement
the company executed in 2008. The ratio of long-term debt to equity was 0.2 to 1 at year-end 2008,
compared to 0.0 to 1 at year-end 2007 and 0.1 to 1 at year-end 2006. Further information regarding
the companys debt is provided in Note 7 of the Notes to Consolidated Financial Statements included
in this report.
The company started 2007 with $56.7 million of cash. Net cash provided by operating activities was
$59.9 million in the year. Net cash used in investing activities was $34.8 million and included
$40.5 million in purchases of property, plant and equipment and $4.5 million for the acquisition of
a business, partially offset by $8.6 million from the sale of real estate in Ireland. Net cash used
in financing activities was $22.3 million and included net payments of debt ($12.8 million) and
repurchases of the companys common stock ($16.4 million), partially offset by cash proceeds from
the exercise of stock options ($6.3 million) and the excess tax benefit on share-based compensation
($0.6 million). The effect of exchange rate changes increased cash by $5.4 million. The net cash
provided by operating activities, less net cash used in financing and investing activities plus the
effect of exchange rate changes, resulted in a $8.2 million net increase in cash. This left the
company with a cash balance of $64.9 million at the end of 2007.
Net operating assets (including short-term and long-term items) decreased
$5.5 million in
2007. The major factors contributing to the change in net operating assets were decreases in
inventories, partially offset by decreases in accrued payroll and increases in prepaid expenses and
other current assets. Days sales outstanding in accounts receivable decreased to 58 days at
year-end 2007 compared to 60 days at year-end 2006. The improvement in days sales outstanding was
due primarily to a reduction in past-due electronics accounts. Days inventory outstanding was 59
days at year-end 2007 compared to 67 days at year-end 2006. The improvement in days inventory
outstanding was the result of lean manufacturing and logistics initiatives and improved inventory
planning.
The ratio of current assets to current liabilities was 2.4 to 1 at year-end 2007, compared to 2.3
to 1 at year-end 2006 and 2.0 to 1 at year-end 2005. The ratio of long-term debt to equity was 0.0
to 1 at year-end 2007 compared to 0.1 to 1 at year-end 2006.
24
The companys capital expenditures were $51.3 million in 2008, $40.5 million in 2007 and $19.6
million in 2006. The company expects capital expenditures in 2009 will be approximately $27.0
million with the largest part related to completing construction of the new wafer fabrication
facility in China to support ongoing manufacturing transfers and new product introductions. The
company anticipates that cash from operating activities will be above the capital spending plan in
2009 and future capital expenditures will return to the historical average of approximately 5% of
sales beginning in 2010.
The companys Board of Directors has authorized the company to repurchase up to 1 million shares of
its common stock, from time to time, depending on market conditions. The company repurchased
218,000 common shares for $6.6 million in 2008, 500,000 common shares for $16.4 million in 2007,
and 329,000 common shares for $10.3 million in 2006.
Contractual Obligations
The following table summarizes
contractual obligations and commitments as of December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Total |
|
< 1 Year |
|
> 1 - < 3 Years |
|
> 3 - < 5 Years |
|
> 5 Years |
|
Term loan |
|
$ |
80,000 |
|
|
$ |
8,000 |
|
|
$ |
16,000 |
|
|
$ |
56,000 |
|
|
$ |
|
|
Interest payments |
|
|
15,957 |
|
|
|
3,925 |
|
|
|
7,211 |
|
|
|
4,821 |
|
|
|
|
|
Supplemental Executive
Retirement Plan |
|
|
1,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,922 |
|
Pension plan
funding |
|
|
1,935 |
|
|
|
1,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap |
|
|
1,056 |
|
|
|
1,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc swap |
|
|
680 |
|
|
|
680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease payments* |
|
|
38,538 |
|
|
|
6,498 |
|
|
|
7,859 |
|
|
|
4,259 |
|
|
|
19,922 |
|
|
Total |
|
$ |
140,088 |
|
|
$ |
22,094 |
|
|
$ |
31,070 |
|
|
$ |
65,080 |
|
|
$ |
21,844 |
|
|
|
|
|
* |
|
Included in Operating lease payments is future rental expense under a new lease agreement for
office space related to the companys U.S. corporate headquarters, which is being relocated in
Chicago, Illinois in the first quarter of 2009. The lease commences January 2009 and expires
December 2024. Refer to Note 16 of the Notes to Consolidated
Financial Statements for more information. |
Off-Balance Sheet Arrangements
As of December 27, 2008, the company did not have any off-balance sheet arrangements, as defined
under the U.S. Securities and Exchange Commission rules. Specifically, the company was not liable
for guarantees of indebtedness owed by third parties; the company was not directly liable for the
debt of any unconsolidated entity, and the company did not have any retained or contingent interest
in assets; and the company does not participate in transactions that generate relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance or special purpose entities. In June 2008 and October 2008, the company entered into
derivative financial instruments, as defined by SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). Further information regarding these arrangements
is provided in Note 8 of the Notes to Consolidated Financial Statements included in this report.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements (SFAS 157). SFAS 157 establishes a framework for measuring fair value by
providing a standard definition of fair value as it applies to assets and liabilities. SFAS 157,
which does not require any new fair value measurements, clarifies the application of other
accounting pronouncements that require or permit fair value measurements. SFAS 157 must be applied
prospectively beginning January 1, 2008. The impact of the adoption of SFAS 157 is more fully
described in Note 8 of the Notes to Consolidated Financial Statements included in this report.
25
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans an Amendment of FASB Statements No. 87, 88, 106, and 132(R)
(SFAS 158). SFAS 158 requires the recognition of the overfunded or underfunded status of a
defined benefit postretirement plan as an asset or a liability in the balance sheet, with changes
in the funded status recorded through comprehensive income in the year in which those changes
occur. The company adopted SFAS 158 at December 30, 2006. The impact of the adoption of SFAS 158 is
more fully described in Note 12 of the Notes to Consolidated Financial Statements included in this
report.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
permits entities to choose to measure many financial instruments and certain other items at fair
value at specified election dates. SFAS 159 is expected to expand the use of fair value
measurement, but does not eliminate disclosure requirements included in other accounting standards,
including those in SFAS 157. SFAS 159 is effective for fiscal years beginning after November 15,
2007. The adoption of SFAS 159 did not have a material impact on the companys Consolidated
Financial Statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier
adoption prohibited. SFAS 160 requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and separate from the parents equity.
The amount of net earnings attributable to the noncontrolling interest will be included in
consolidated net income on the face of the Consolidated Statements of Income. SFAS 160 also amends
certain of ARB No. 51s consolidation procedures for consistency with the requirements of SFAS
141(R) and includes expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The company is evaluating the impact of adopting SFAS 160 on its
Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), which
replaces SFAS No. 141, Business Combinations (SFAS 141). SFAS 141(R) retains the underlying
concepts of SFAS 141 in that all business combinations are still required to be accounted for at
fair value under the acquisition method of accounting, but SFAS 141(R) changed the method of
applying the acquisition method in a number of significant aspects. Acquisition costs generally
will be expensed as incurred; noncontrolling interests will be valued at fair value at the
acquisition date; in-process research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a
business combination generally will be expensed subsequent to the acquisition date; and changes in
deferred tax asset valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all
business combinations for which the acquisition date is on or after the beginning of the first
annual period subsequent to December 15, 2008, with the exception of the accounting for valuation
allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109,
Accounting for Income Taxes, such that adjustments made to valuation allowances on deferred taxes
and acquired tax contingencies associated with acquisitions that closed prior to the effective date
of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted. The
company is evaluating the impact of adopting SFAS 141(R) on its Consolidated Financial Statements.
26
In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161). The new standard requires enhanced disclosure about a companys
derivatives and hedging to help investors understand their impact on a companys financial
position, financial performance and cash flows. SFAS 161 is effective for periods beginning after
November 15, 2008, with early application encouraged. The company is evaluating the impact of
adopting SFAS 161 on its Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Certain of the accounting policies as discussed below require the application of significant
judgment by management in selecting the appropriate estimates and assumptions for calculating
amounts to record in the financial statements. Actual results could differ from those estimates and
assumptions, impacting the reported results of operations and financial position. Significant
accounting policies are more fully described in the Notes to Consolidated Financial Statements
included elsewhere in this Annual Report. Certain accounting policies, however, are considered to
be critical in that they are most important to the depiction of the companys financial condition
and results of operations and their application requires managements subjective judgment in making
estimates about the effect of matters that are inherently uncertain. The company believes the
following accounting policies are the most critical to aid in fully understanding and evaluating
its reported financial results, as they require managements most difficult, subjective or complex
judgments, resulting from the need to make estimates about the effect of matters that are
inherently uncertain. The company has reviewed these critical accounting policies and related
disclosures with the Audit Committee of its Board of Directors.
Net Sales
Revenue Recognition: The company recognizes revenue on product sales in the period in which the
sales process is complete. This generally occurs when products are shipped (FOB origin) to the
customer in accordance with the terms of the sale, the risk of loss has been transferred,
collectibility is reasonably assured and the pricing is fixed and determinable. 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 companys distribution channels are primarily through direct
sales and independent third party distributors.
Revenue & Billing: The company accepts orders from customers based on long term purchasing
contracts and written sales agreements. Contract pricing and selling agreement terms are based on
market factors, costs, and competition. Pricing normally is negotiated as an adjustment (premium or
discount) from the companys published price lists. The customer is invoiced when the companys
products are shipped to them in accordance with the terms of the sales agreement.
Returns & Credits: Some of the terms of the companys 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 to reduce its price to its buyer. If 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 and actual authorizations for the debit and recognizes these
debits as a reduction of revenue in accordance with the guidance of FASBs Emerging Issues Task
Force (EITF) Issue No. 01-09, paragraph 9 Accounting for Consideration Given by a Vendor to a
Customer.
27
The company has a return to stock policy whereby a customer with previous authorization from
Littelfuse management can return previously purchased goods for full or partial credit. The company
establishes an estimated allowance for these returns based on historic activity. Sales revenue and
cost of sales are reduced to anticipate estimated returns in accordance with SFAS No. 48, Revenue
Recognition When Right of Return Exists (SFAS 48).
The company properly meets all of the criteria of SFAS 48 for recognizing revenue when the right of
return exists under Staff Accounting Bulletin 104 (Revenue Recognition). Specifically, the company
meets those requirements because:
|
1. |
|
The companys selling price is fixed or determinable at the date of the sale. |
|
|
2. |
|
The company has policies and procedures to accept only credit worthy customers with
the ability to pay the company. |
|
|
3. |
|
The companys customers are obligated to pay the company under the contract and the
obligation is not contingent on the resale of the product. (All ship and debit and
returns to stock require specific circumstances and authorization.) |
|
|
4. |
|
The risk ownership transfers to the companys customers upon shipment and is not
changed in the event of theft, physical destruction or damage of the product. |
|
|
5. |
|
The company bills at the ship date and establishes a reserve to reduce revenue from
the in transit time until the product is delivered for FOB destination sales. |
|
|
6. |
|
The companys customers acquiring the product for resale have economic substance
apart from that provided by Littelfuse. All distributors are independent of the company. |
|
|
7. |
|
The company does not have any obligations for future performance to bring about
resale of the product by its customers. |
|
|
8. |
|
The company can reasonably estimate the amount of future returns. |
Volume Rebates: The company offers incentives to certain customers to achieve specific quarterly or
annual sales targets. If customers achieve their sales targets, they are entitled to rebates. The
company estimates the future cost of these rebates and recognizes this estimated cost as a
reduction to revenue as products are sold.
Allowance for Doubtful Accounts: The
company evaluates the collectibility of its trade receivables
based on a combination of factors. The company regularly analyzes its significant customer accounts
and, when the company becomes aware of a specific customers inability to meet its financial
obligations, the company records a specific reserve for bad debt to reduce the related receivable
to the amount the company reasonably believes is collectible. The company also records allowances
for all other customers based on a variety of factors including the length of time the receivables
are past due, the financial health of the customer, macroeconomic
considerations and past experience.
Historically, the allowance for doubtful accounts has been adequate to cover bad debts.
If circumstances related to specific customers change, the estimates of the recoverability of
receivables could be further adjusted.
Inventory
The company performs regular detailed assessments of inventory, which include a review of, among
other factors, demand requirements, product life cycle and development plans, component cost
trends, product pricing, shelf life and quality issues. Based on the analysis, the company records
adjustments to inventory for excess quantities, obsolescence or impairment when appropriate to
reflect inventory at net realizable value. Historically, inventory reserves have been adequate to
reflect inventory at net realizable values.
28
Goodwill and Other Intangible Assets
The company annually tests goodwill for impairment on the first day of our fiscal fourth quarter as
required by SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), or if there is an
event or change in circumstances that indicates the asset may be impaired. Management determined
the fair value of each of its business unit segments by using a discounted cash flow model (which
includes forecasted five-year income statement and working capital projections, a market-based
weighted average cost of capital and terminal values after five years) to estimate market value.
The company has defined its reportable segments as its reporting units for goodwill accounting.
As of the most recent annual test conducted on September 28, 2008, the company concluded the fair
value of each of the reporting units exceeded its carrying value of invested capital and therefore,
no goodwill impairment existed. Specifically, the Company noted that its headroom, defined as the
excess of fair value over the carrying value of invested capital, was 51%, 95% and 115% for its
electronics, automotive and electrical reporting units, respectively, at September 28, 2008.
Certain key assumptions used in the annual test included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics |
|
Automotive |
|
Electrical |
Discount rate |
|
|
14.4 |
% |
|
|
14.4 |
% |
|
|
14.4 |
% |
Long-term growth rate |
|
|
1.5 |
% |
|
|
2.5 |
% |
|
|
5.0 |
% |
In addition, the company performed a sensitivity test at September 28, 2008 that showed a 100 basis
point increase in its discount rate or a 100 basis point decrease in the long-term growth rate for
each reporting unit would not have changed the companys conclusion that no goodwill impairment
existed at September 28, 2008.
The goodwill of a reporting unit also must be tested between annual tests if an event occurs or
circumstances change that more likely than not reduce the fair value of the reporting unit below
its carrying value. As a result of the downturn in the U.S. and global economies, the Littelfuse
share price and market capitalization decreased in the fourth quarter. Throughout the fourth
quarter, management considered whether there were any indicators that the companys goodwill was
impaired.
The company concluded that no indicators of impairment were present and therefore an additional
impairment test during the fourth quarter was determined to not be required. The companys
conclusion was based on its review of its market capitalization throughout the fourth quarter plus
a reasonable control premium, when compared to the companys carrying value of its invested
capital. Throughout the fourth quarter, the companys fair value estimate based on its market
capitalization plus a reasonable control premium consistently exceeded its carrying value of
invested capital.
The companys conclusion that no impairment indicator was present also was based on its
expectations for fiscal 2009 when compared to the forecast presented in its September 28, 2008
goodwill impairment test. Given the companys headroom by reporting unit at its September 28, 2008
test date, the company performed a sensitivity test on its September 28, 2008 annual test showing
the impact of using the revised 2009 forecasts to determine if an indicator of impairment was
present in any of its reporting units. The company concluded that although the value of the entity
as a whole and each respective reporting unit had declined from its September 28, 2008 test date,
the decline in value did not indicate that any reporting units fair value would have fallen below
its carrying value of invested capital.
29
The company will continue to perform a goodwill impairment test as required on an annual basis and
on an interim basis, if certain conditions exist. Factors the company considers important, which
could result in changes to its estimates, include underperformance relative to historical or
projected future operating results and declines in acquisitions and trading multiples.
Long-Lived Assets
The company evaluates long-lived assets on an ongoing basis. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of the
related asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future undiscounted cash flows expected to be
generated by the asset. If the asset is determined to be impaired, the impairment recognized is
measured by the amount by which the carrying value of the asset exceeds its fair value. The
companys estimates of future cash flows from such assets could be impacted if it underperforms
relative to historical or projected future operating results.
Environmental Liabilities
Environmental liabilities are accrued based on estimates of the probability of potential future
environmental exposure. Expenses related to on-going maintenance of environmental sites are
expensed as incurred. If actual or estimated probable future losses exceed the companys recorded
liability for such claims, it would record additional charges as other expense during the period in
which the actual loss or change in estimate occurred.
Pension and Supplemental Executive Retirement Plan
Littelfuse has a number of company-sponsored defined benefit plans primarily in North America,
Europe and the Asia-Pacific region. Historically these plans have been accounted for using SFAS No.
87, Employers Accounting for Pensions (SFAS 87), and the company recognized the net unfunded
status of the plan on the balance sheet. The company adopted SFAS 158 effective December 30, 2006,
which requires the full unfunded status of the plan to be recognized. Actuarial gains and losses
and prior service costs and credits are now recognized as a component of accumulated other
comprehensive income. Accounting for pensions requires estimating the future benefit cost and
recognizing the cost over the employees expected period of employment with the company. Certain
assumptions are required in the calculation of pension costs and obligations. These assumptions
include the discount rate, salary scales and the expected long-term rate of return on plan assets.
The discount rate is intended to represent the rate at which pension benefit obligations could be
settled by purchase of an annuity contract. These assumptions are subject to change based on stock
and bond market returns and other economic factors. Actual results that differ from the companys
assumptions are accumulated and amortized over future periods and therefore, generally affect its
recognized expense and accrued liability in such future periods. While the company believes that
its assumptions are appropriate given current economic conditions and its actual experience,
significant differences in results or significant changes in the companys assumptions may
materially affect its pension obligations and related future expense. Further information regarding
these plans is provided in Note 12 of the Notes to Consolidated Financial Statements included in
this report.
30
Stock-based Compensation
Stock-based compensation expense is recorded for stock-option grants and performance-based
restricted stock awards based upon the fair values of the awards. The fair value of stock option
awards is estimated at the grant date using the Black-Scholes option pricing model, which includes
assumptions for volatility, expected term, risk-free interest rate and dividend yield. Expected
volatility is based on implied volatilities from traded options on Littelfuse stock, historical
volatility of Littelfuse stock and other factors. Historical data is used to estimate employee
termination experience and the expected term of the options. The risk-free interest rate is based
on the U.S. Treasury yield curve in effect at the time of grant. The company has not paid any cash
dividends in its history.
The performance-based restricted stock awards granted prior to 2008 vest in thirds over a
three-year period (following the three-year performance period), and are paid annually as they
vest, one half in the companys common stock and one half in cash. The performance-based restricted
stock awards granted in 2008 vest after a three-year performance period and are paid completely in
the companys common stock at the end of the performance period. The fair value of
performance-based restricted stock awards that are paid in common stock is measured at the market
price on the grant date, and the fair value of the portion paid in cash is measured at the current
market price of a share.
The number of shares issued is based on the company attaining certain financial performance goals
relating to return on net tangible assets (RONTA) for performance-based restricted stock granted
prior to 2008, or return on net assets (RONA) for performance-based restricted stock granted in
2008, as well as earnings before interest, taxes, depreciation and amortization (EBITDA) during
the three-year performance period after the grant date. Stock-based compensation expense for
performance-based restricted stock awards is based on the fair values and the companys current
estimate of the probable number of shares to be issued (based on the probable outcome at the end of
the performance period). As the companys estimate of the probable outcome changes in future
periods, stock-based compensation expense is adjusted accordingly.
Total stock-based compensation expense was $5.1 million and $5.0 million in 2008 and 2007,
respectively. Further information regarding this expense is provided in Note 13 of the Notes to
Consolidated Financial Statements included in this report.
Income Taxes
The company accounts for income taxes in accordance with SFAS No. 109 Accounting for Income
Taxes. Deferred taxes are recognized for the future effects of temporary differences between
financial and income tax reporting using tax rates in effect for the years in which the differences
are expected to reverse. The company recognizes deferred taxes for temporary differences, operating
loss carryforwards and tax credit carryforwards. 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. Federal and state income taxes are provided on the portion of foreign income that
is expected to be remitted to the U.S. and be taxable.
31
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN 48). FIN 48
addresses the determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under FIN 48, the company may recognize 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 should be
measured based on the largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification,
interest and penalties on income taxes, accounting in interim periods and requires increased
disclosures.
The company adopted the provisions of FIN 48 on December 31, 2006 and had no adjustments to the
retained earnings balance as a result of the implementation. Further information regarding income
taxes and the companys adoption of FIN 48, including a detailed reconciliation of current year
activity, is provided in Note 14 of the Notes to Consolidated Financial Statements included in this
report.
Outlook
The companys automotive and electronics markets weakened significantly in the fourth quarter of
2008 as a result of the sharp downturn in the global economy. The company believes this weakness
could continue through much of 2009. The electrical business, which held up well through most of
2008, has slowed recently and could be further impacted by declining non-residential construction
in 2009.
In 2005 the company initiated a phased transition to consolidate its manufacturing into fewer
facilities in low-cost locations in China, the Philippines and Mexico. These manufacturing transfer
programs remain on or ahead of schedule and are expected to generate at least $20 million in cost
savings in 2009 and significant additional savings in 2010.
In addition, the company recently began executing a plan which for 2009 is expected to reduce
operating expenses by approximately $15 million and manufacturing costs by approximately $8 million
over and above the $20 million in transfer-related savings. These cost savings are expected to
significantly reduce the companys breakeven point by the second quarter of 2009 and are expected
to position the company for much-improved profitability when the global economy recovers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The company is exposed to market risk from changes in interest rates, foreign exchange rates and
commodities.
Interest Rates
The company had $80 million in debt outstanding at December 27, 2008, in the form of a term loan,
which is described above in Item 7 under Liquidity and Capital Resources. In order to reduce
interest rate risk and effectively manage its exposure to fluctuations in the adjustable interest
rate of the loan, the company entered into a one-year interest rate swap transaction with JPMorgan
Chase Bank, N.A. on October 29, 2008. The interest rate swap is for a notional amount of $65
million and allows the company to pay a fixed annual rate of 2.85% on the notional amount and
requires JPMorgan Chase Bank, N.A. to pay a floating rate tied to the one-month U.S. dollar LIBOR. While the
remaining portion of this debt has a variable interest rate, the companys interest expense is not
materially sensitive to changes in interest rate levels since debt levels and potential interest
expense increases are insignificant relative to earnings.
32
Foreign Exchange Rates
The majority of the companys operations consist of manufacturing and sales activities in foreign
countries. The company has manufacturing facilities in Mexico, Canada, Germany, China, Taiwan and
the Philippines. During 2008, sales to customers outside the U.S. were 62.0% of total net sales.
Substantially all sales in Europe are denominated in euros and substantially all sales in the
Asia-Pacific region are denominated in U.S. dollars, Japanese yen, South Korean won, Chinese yuan
and Taiwanese dollars.
The companys foreign exchange exposures result primarily from sale of products in foreign
currencies, foreign currency denominated purchases, employee-related and other costs of running
operations in foreign countries and translation of balance sheet accounts denominated in foreign
currencies. The companys most significant long exposure is to the euro, with lesser long exposures
to the Canadian dollar, Japanese yen and Korean won. The companys most significant short exposures
are to the Mexican peso, Philippine peso and Chinese yuan. Changes in foreign exchange rates could
affect the companys sales, costs, balance sheet values and earnings. The company uses netting and
offsetting intercompany account management techniques to reduce known foreign currency exposures
where possible and also, from time to time, utilizes derivative instruments to hedge certain
foreign currency exposures deemed to be material.
Commodities
The company uses various metals in the manufacturing of its products, including copper, zinc, tin,
gold and silver. Prices of these commodities can and do fluctuate significantly, which can impact
the companys earnings. The most significant of these exposures is to copper, where at current
prices and volumes, a 10% price change would affect pre-tax profit by approximately $0.6 million.
During the second quarter of 2008, the company entered into a one-year swap agreement to mitigate
its exposure to fluctuations in the price of zinc. Further information regarding this commodity
contract is provided in Note 8 of the Notes to Consolidated Financial Statements.
The company purchases a particular type of silicon as a raw material for many of its semiconductor
products. Market demand for this commodity has fluctuated significantly during 2008. As a result,
there is a risk of market shortages for silicon in 2009. The company is taking actions to secure
adequate sources of supply to meet its expected future demand for this material.
The cost of oil has fluctuated dramatically during 2008. Consequently, there is a risk that a
return to high prices for oil and electricity in 2009 could have a significant impact on the
companys transportation and utility expenses.
While the company is exposed to significant changes in certain commodity prices and foreign
currency exchange rates, the company actively monitors these exposures and takes various actions to
mitigate any negative impacts of these exposures.
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
|
|
Index |
|
Page |
|
|
35 |
|
|
36 |
|
|
37 |
|
|
38 |
|
|
39 |
|
|
40 |
|
|
41 |
|
|
48 |
|
|
50 |
|
|
50 |
|
|
51 |
|
|
52 |
|
|
52 |
|
|
54 |
|
|
56 |
|
|
59 |
|
|
59 |
|
|
59 |
|
|
63 |
|
|
65 |
|
|
68 |
|
|
70 |
|
|
70 |
|
|
71 |
|
|
71 |
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Littelfuse, Inc.
We have audited the accompanying consolidated balance sheets of Littelfuse, Inc. and subsidiaries
(Company) as of December 27, 2008, and December 29, 2007, and the related consolidated statements
of income, shareholders equity, and cash flows for each of the three years in the period ended
December 27, 2008. Our audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Littelfuse, Inc. and subsidiaries at December 27,
2008 and December 29, 2007, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 27, 2008, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Littelfuse Inc. and subsidiaries internal control over financial reporting
as of December 27, 2008, based on criteria established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 25, 2009, expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 25, 2009
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Littelfuse, Inc.
We have audited Littelfuse, Inc.s internal control over financial reporting as of December 27,
2008, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Littelfuse,
Inc.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 Form 10-K. Our responsibility is to express an opinion on the
companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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.
A companys 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
companys 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 companys 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.
In our opinion, Littelfuse, Inc. maintained, in all material respects, effective internal control
over financial reporting as of December 27, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Littelfuse, Inc. and subsidiaries as of
December 27, 2008, and December 29, 2007, and the related consolidated statements of income,
shareholders equity, and cash flows for each of the three years in the period ended December 27,
2008, and our report dated February 25, 2009 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 25, 2009
36
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
(In thousands of USD) |
|
December 27, 2008 |
|
December 29, 2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
70,937 |
|
|
$ |
64,943 |
|
Accounts receivable, less allowances
(2008 $12,770; 2007 $12,997) |
|
|
62,126 |
|
|
|
85,607 |
|
Inventories |
|
|
66,679 |
|
|
|
58,845 |
|
Deferred income taxes |
|
|
11,693 |
|
|
|
10,986 |
|
Prepaid expenses and other current assets |
|
|
17,968 |
|
|
|
14,789 |
|
|
Total current assets |
|
|
229,403 |
|
|
|
235,170 |
|
Property, plant, and equipment: |
|
|
|
|
|
|
|
|
Land |
|
|
11,089 |
|
|
|
12,573 |
|
Buildings |
|
|
68,165 |
|
|
|
49,321 |
|
Equipment |
|
|
301,835 |
|
|
|
282,416 |
|
Accumulated depreciation |
|
|
(220,939 |
) |
|
|
(199,748 |
) |
|
Net property, plant and equipment |
|
|
160,150 |
|
|
|
144,562 |
|
Intangible assets, net of amortization: |
|
|
|
|
|
|
|
|
Patents, licenses and software |
|
|
8,077 |
|
|
|
9,231 |
|
Distribution network |
|
|
11,577 |
|
|
|
13,823 |
|
Customer lists, trademarks and tradenames |
|
|
2,954 |
|
|
|
1,192 |
|
Goodwill |
|
|
106,961 |
|
|
|
73,462 |
|
Investments |
|
|
3,436 |
|
|
|
6,544 |
|
Deferred income taxes |
|
|
15,235 |
|
|
|
6,141 |
|
Other assets |
|
|
1,135 |
|
|
|
1,240 |
|
|
Total assets |
|
$ |
538,928 |
|
|
$ |
491,365 |
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
18,854 |
|
|
$ |
27,889 |
|
Accrued payroll |
|
|
17,863 |
|
|
|
19,441 |
|
Accrued expenses |
|
|
17,220 |
|
|
|
11,595 |
|
Accrued severance |
|
|
8,393 |
|
|
|
21,092 |
|
Accrued income taxes |
|
|
2,570 |
|
|
|
4,484 |
|
Current portion of long-term debt |
|
|
8,000 |
|
|
|
12,086 |
|
|
Total current liabilities |
|
|
72,900 |
|
|
|
96,587 |
|
Long-term debt, less current portion |
|
|
72,000 |
|
|
|
1,223 |
|
Accrued severance |
|
|
7,200 |
|
|
|
8,912 |
|
Accrued post-retirement benefits |
|
|
41,637 |
|
|
|
18,371 |
|
Other long-term liabilities |
|
|
11,483 |
|
|
|
12,858 |
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per
share: 1,000,000 shares authorized; no
shares issued and outstanding |
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per
share: 34,000,000 shares authorized; shares
issued and outstanding, 2008 21,719,734;
2007 21,869,824 |
|
|
217 |
|
|
|
219 |
|
Additional paid-in capital |
|
|
124,384 |
|
|
|
118,765 |
|
Notes receivable from officers common stock |
|
|
|
|
|
|
(5 |
) |
Accumulated other comprehensive income (loss) |
|
|
(10,123 |
) |
|
|
17,361 |
|
Retained earnings |
|
|
219,230 |
|
|
|
217,074 |
|
|
Total shareholders equity |
|
|
333,708 |
|
|
|
353,414 |
|
|
Total liabilities and shareholders equity |
|
$ |
538,928 |
|
|
$ |
491,365 |
|
|
See accompanying notes.
37
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
(In thousands of USD, except per share amounts) |
|
December 27, 2008 |
|
|
December 29, 2007 |
|
|
December 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
530,869 |
|
|
$ |
536,144 |
|
|
$ |
534,859 |
|
Cost of sales |
|
|
387,200 |
|
|
|
364,607 |
|
|
|
373,596 |
|
|
Gross profit |
|
|
143,669 |
|
|
|
171,537 |
|
|
|
161,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
107,239 |
|
|
|
103,258 |
|
|
|
110,581 |
|
Research and development expenses |
|
|
24,069 |
|
|
|
21,700 |
|
|
|
18,708 |
|
Gain on sale of Ireland property |
|
|
|
|
|
|
(8,037 |
) |
|
|
|
|
Amortization of intangibles |
|
|
3,866 |
|
|
|
3,307 |
|
|
|
3,116 |
|
|
Operating income |
|
|
8,495 |
|
|
|
51,309 |
|
|
|
28,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
3,440 |
|
|
|
1,557 |
|
|
|
1,626 |
|
Other expense (income), net |
|
|
(5,568 |
) |
|
|
(1,536 |
) |
|
|
(2,174 |
) |
|
Income from continuing operations before
income taxes |
|
|
10,623 |
|
|
|
51,288 |
|
|
|
29,406 |
|
Income taxes |
|
|
2,607 |
|
|
|
14,453 |
|
|
|
6,170 |
|
|
Income from continuing operations |
|
|
8,016 |
|
|
|
36,835 |
|
|
|
23,236 |
|
Discontinued operations (net of tax expense
of $409) |
|
|
|
|
|
|
|
|
|
|
588 |
|
|
Net income |
|
$ |
8,016 |
|
|
$ |
36,835 |
|
|
$ |
23,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.37 |
|
|
$ |
1.66 |
|
|
$ |
1.04 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.37 |
|
|
$ |
1.66 |
|
|
$ |
1.07 |
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.37 |
|
|
$ |
1.64 |
|
|
$ |
1.03 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.37 |
|
|
$ |
1.64 |
|
|
$ |
1.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares and equivalent
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
21,722 |
|
|
|
22,231 |
|
|
|
22,305 |
|
Diluted |
|
|
21,826 |
|
|
|
22,394 |
|
|
|
22,434 |
|
|
See accompanying notes.
38
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
(In thousands of USD) |
|
December 27, 2008 |
|
December 29, 2007 |
|
December 30, 2006 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,016 |
|
|
$ |
36,835 |
|
|
$ |
23,824 |
|
Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
28,333 |
|
|
|
25,429 |
|
|
|
25,375 |
|
Impairment of assets |
|
|
3,169 |
|
|
|
767 |
|
|
|
4,374 |
|
Impairment of investments |
|
|
2,787 |
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
3,866 |
|
|
|
3,307 |
|
|
|
3,116 |
|
Provision for bad debts |
|
|
286 |
|
|
|
31 |
|
|
|
127 |
|
Gain on sale of property, plant and
equipment |
|
|
(511 |
) |
|
|
(8,037 |
) |
|
|
|
|
Stock-based compensation |
|
|
5,058 |
|
|
|
4,957 |
|
|
|
5,187 |
|
Deferred income taxes |
|
|
(3,947 |
) |
|
|
2,151 |
|
|
|
(8,341 |
) |
Pension settlement expenses (curtailment
gains) |
|
|
5,725 |
|
|
|
1,506 |
|
|
|
(322 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
23,080 |
|
|
|
(280 |
) |
|
|
2,843 |
|
Inventories |
|
|
(6,593 |
) |
|
|
9,112 |
|
|
|
1,240 |
|
Accounts payable and accrued expenses |
|
|
(3,129 |
) |
|
|
(5,307 |
) |
|
|
(10,329 |
) |
Accrued payroll and severance |
|
|
(15,705 |
) |
|
|
(3,046 |
) |
|
|
30,620 |
|
Accrued income taxes |
|
|
(3,462 |
) |
|
|
(3,071 |
) |
|
|
1,850 |
|
Prepaid expenses and other |
|
|
(6,398 |
) |
|
|
(4,414 |
) |
|
|
1,351 |
|
|
Net cash provided by operating activities |
|
|
40,575 |
|
|
|
59,940 |
|
|
|
80,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(51,288 |
) |
|
|
(40,501 |
) |
|
|
(19,613 |
) |
Purchase of businesses, net of cash acquired |
|
|
(47,465 |
) |
|
|
(4,507 |
) |
|
|
(37,841 |
) |
Sale of business and property, plant and
equipment |
|
|
4,479 |
|
|
|
|
|
|
|
14,901 |
|
Sale of Ireland property |
|
|
|
|
|
|
8,593 |
|
|
|
|
|
Deposit on sale of building |
|
|
|
|
|
|
1,607 |
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(94,274 |
) |
|
|
(34,808 |
) |
|
|
(42,553 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt |
|
|
190,500 |
|
|
|
89,200 |
|
|
|
43,273 |
|
Payments of debt |
|
|
(123,912 |
) |
|
|
(101,991 |
) |
|
|
(45,626 |
) |
Proceeds from exercise of stock options |
|
|
1,857 |
|
|
|
6,316 |
|
|
|
5,734 |
|
Notes receivable, common stock |
|
|
5 |
|
|
|
5 |
|
|
|
7 |
|
Purchases of common stock |
|
|
(6,623 |
) |
|
|
(16,433 |
) |
|
|
(10,262 |
) |
Excess tax benefit on share-based compensation |
|
|
172 |
|
|
|
610 |
|
|
|
468 |
|
|
Net cash provided by (used in) financing
activities |
|
|
61,999 |
|
|
|
(22,293 |
) |
|
|
(6,406 |
) |
Effect of exchange rate changes on cash |
|
|
(2,306 |
) |
|
|
5,400 |
|
|
|
2,801 |
|
|
Increase in cash and cash equivalents |
|
|
5,994 |
|
|
|
8,239 |
|
|
|
34,757 |
|
Cash and cash equivalents at beginning of year |
|
|
64,943 |
|
|
|
56,704 |
|
|
|
21,947 |
|
|
Cash and cash equivalents at end of year |
|
$ |
70,937 |
|
|
$ |
64,943 |
|
|
$ |
56,704 |
|
|
See accompanying notes.
39
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
Accum. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rec. |
|
Other |
|
|
|
|
|
|
Common |
|
Addl. Paid |
|
Common |
|
Comp. Inc. |
|
Retained |
|
|
(In thousands of USD) |
|
Stock |
|
in Capital |
|
Stock |
|
(Loss) |
|
Earnings |
|
Total |
|
Balance at January 1, 2006 |
|
$ |
222 |
|
|
$ |
99,078 |
|
|
$ |
(17 |
) |
|
$ |
(2,426 |
) |
|
$ |
180,209 |
|
|
$ |
277,066 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,824 |
|
|
|
23,824 |
|
Min. pension
liability adj.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,546 |
|
|
|
|
|
|
|
1,546 |
|
Unrealized gain on invest.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(467 |
) |
|
|
|
|
|
|
(467 |
) |
Foreign currency trans. adj. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,025 |
|
|
|
|
|
|
|
9,025 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,928 |
|
Payments on notes receivable |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
Adoption of SFAS 158* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,689 |
) |
|
|
|
|
|
|
(7,689 |
) |
Stock-based comp. SFAS 123(R) |
|
|
|
|
|
|
5,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,187 |
|
Purchase of 329,000 shares of
common stock |
|
|
(3 |
) |
|
|
(1,148 |
) |
|
|
|
|
|
|
|
|
|
|
(9,111 |
) |
|
|
(10,262 |
) |
Stock options exercised,
including tax impact of $779 |
|
|
2 |
|
|
|
5,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,428 |
|
|
Balance at December 30, 2006 |
|
$ |
221 |
|
|
$ |
108,543 |
|
|
$ |
(10 |
) |
|
$ |
(11 |
) |
|
$ |
194,922 |
|
|
$ |
303,665 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,835 |
|
|
|
36,835 |
|
Min. pension liability adj.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,123 |
|
|
|
|
|
|
|
4,123 |
|
Unrealized gain on invest.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668 |
|
|
|
|
|
|
|
668 |
|
Foreign currency trans. adj. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,581 |
|
|
|
|
|
|
|
12,581 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,207 |
|
Payments on notes receivable |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Stock-based comp. SFAS 123(R) |
|
|
|
|
|
|
4,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,957 |
|
Purchase of 500,000 shares of
common stock |
|
|
(5 |
) |
|
|
(1,745 |
) |
|
|
|
|
|
|
|
|
|
|
(14,683 |
) |
|
|
(16,433 |
) |
Stock options exercised,
including tax impact of $728 |
|
|
3 |
|
|
|
7,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,013 |
|
|
Balance at December 29, 2007 |
|
$ |
219 |
|
|
$ |
118,765 |
|
|
$ |
(5 |
) |
|
$ |
17,361 |
|
|
$ |
217,074 |
|
|
$ |
353,414 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,016 |
|
|
|
8,016 |
|
Change in net unrealized
gain on derivatives* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(403 |
) |
|
|
|
|
|
|
(403 |
) |
Min. pension liability adj.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,653 |
) |
|
|
|
|
|
|
(11,653 |
) |
Unrealized loss on invest.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,892 |
) |
|
|
|
|
|
|
(2,892 |
) |
Transfer of investment loss
to income* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,787 |
|
|
|
|
|
|
|
2,787 |
|
Foreign currency trans. adj. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,323 |
) |
|
|
|
|
|
|
(15,323 |
) |
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,468 |
) |
Payments on notes receivable |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Stock-based comp. SFAS 123(R) |
|
|
|
|
|
|
5,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,058 |
|
Purchase of 218,000 shares of
common stock |
|
|
(2 |
) |
|
|
(761 |
) |
|
|
|
|
|
|
|
|
|
|
(5,860 |
) |
|
|
(6,623 |
) |
Stock options exercised,
including tax impact of ($361) |
|
|
|
|
|
|
1,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,322 |
|
|
Balance at December 27, 2008 |
|
$ |
217 |
|
|
$ |
124,384 |
|
|
$ |
|
|
|
$ |
(10,123 |
) |
|
$ |
219,230 |
|
|
$ |
333,708 |
|
|
|
|
|
* |
|
Including related tax impact. |
See accompanying notes.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information
Nature of Operations: Littelfuse, Inc. and its subsidiaries (the company) design, manufacture,
and sell circuit protection devices for use in the automotive, electronic and electrical markets
throughout the world.
Fiscal Year: The companys fiscal years ended December 27, 2008, December 29, 2007, and December
30, 2006 and contained 52 weeks each.
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 companys Consolidated Financial Statements were prepared in accordance with
generally accepted accounting principles in the United States of America and include the assets,
liabilities, revenues 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 U.S. generally
accepted accounting principles 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 Equivalents: All highly liquid investments, with a maturity of three months or less when
purchased, are considered to be cash equivalents.
Investments: The company has determined that all of its investment securities are to be classified
as available-for-sale. Available-for-sale securities are carried at fair value with the unrealized
gains and losses reported in Shareholders Equity as a component of Accumulated Other
Comprehensive Income (Loss). Realized gains and losses and declines in unrealized value judged to
be other-than-temporary on available-for-sale securities are included in other expense (income),
net. The cost of securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in interest income.
Fair Value of Financial Instruments: The companys financial instruments include cash and cash
equivalents, accounts receivable, investments, derivative instruments and long-term debt. The
carrying values of such financial instruments approximate their estimated fair values.
Accounts Receivable: 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 customers inability to meet its financial obligations to the
company. Historically, credit losses have consistently been within managements 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 accounts receivable 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.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
Inventories: Inventories are stated at the lower of cost or market (first in, first out method),
which approximates current replacement cost. The company maintains excess and obsolete allowances
against inventory to reduce the carrying value to the expected net realizable value. These
allowances 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 21 years for buildings, seven to
nine years for equipment, seven years for furniture and fixtures, five years for tooling and three
years for computer equipment.
Goodwill: The company annually tests goodwill for impairment on the first day of our fiscal fourth
quarter as required by SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), or if
there is an event or change in circumstances that indicates the asset may be impaired. Management
determined the fair value of each of its business unit segments by using a discounted cash flow
model (which includes forecasted five-year income statement and working capital projections, a
market-based weighted average cost of capital and terminal values after five years) to estimate
market value. The company has defined its reportable segments as its reporting units for goodwill
accounting.
As of the most recent annual test conducted on September 28, 2008, the company concluded the fair
value of each of the reporting units exceeded its carrying value of invested capital and therefore,
no goodwill impairment existed. Specifically, the Company noted that its headroom, defined as the
excess of fair value over the carrying value of invested capital, was 51%, 95% and 115% for its
electronics, automotive and electrical reporting units, respectively, at September 28, 2008.
Certain key assumptions used in the annual test included:
|
|
|
|
|
|
|
|
|
Electronics |
|
Automotive |
|
Electrical |
Discount rate |
|
14.4% |
|
14.4% |
|
14.4% |
Long-term growth rate |
|
1.5% |
|
2.5% |
|
5.0% |
In addition, the company performed a sensitivity test at September 28, 2008 that showed a 100 basis
point increase in its discount rate or a 100 basis point decrease in the long-term growth rate for
each reporting unit would not have changed the companys conclusion that no goodwill impairment
existed at September 28, 2008.
The goodwill of a reporting unit also must be tested between annual tests if an event occurs or
circumstances change that more likely than not reduce the fair value of the reporting unit below
its carrying value. As a result of the downturn in the U.S. and global economies, the Littelfuse
share price and market capitalization decreased in the fourth quarter. Throughout the fourth
quarter, management considered whether there were any indicators that the companys goodwill was
impaired.
The company concluded that no indicators of impairment were present and therefore an additional
impairment test during the fourth quarter was determined to not be required. The companys
conclusion was based on its review of its market capitalization throughout the fourth quarter plus
a reasonable control premium, when compared to the companys carrying value of its invested
capital. Throughout the fourth quarter, the companys fair value estimate based on its market
capitalization plus a reasonable control premium consistently exceeded its carrying value of
invested capital.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
The companys conclusion that no impairment indicator was present also was based on its
expectations for fiscal 2009 when compared to the forecast presented in its September 28, 2008
goodwill impairment test. Given the companys headroom by reporting unit at its September 28, 2008
test date, the company performed a sensitivity test on its September 28, 2008 annual test showing
the impact of using the revised 2009 forecasts to determine if an indicator of impairment was
present in any of its reporting units. The company concluded that although the value of the entity
as a whole and each respective reporting unit had declined from its September 28, 2008 test date,
the decline in value did not indicate that any reporting units fair value would have fallen below
its carrying value of invested capital.
The company will continue to perform a goodwill impairment test as required on an annual basis and
on an interim basis, if certain conditions exist. Factors the company considers important, which
could result in changes to its estimates, include underperformance relative to historical or
projected future operating results and declines in acquisitions and trading multiples. Due to the
diverse end user base and non-discretionary product demand, the company does not believe its future
operating results will vary significantly relative to its historical and projected future operating
results.
Other Intangible Assets: Trademarks and tradenames are amortized using the straight-line method
over estimated useful lives that have a range of five to 20 years. Patents and licenses are
amortized using the straight-line method or an accelerated method over estimated useful lives that
have a range of four to 50 years. The distribution networks are amortized on either a straight-line
or accelerated basis over estimated useful lives that have a range of four to 20 years. Other
intangible assets are also tested for impairment when there is a significant event that may cause
the asset to be impaired.
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 companys
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: Accounting for pensions requires estimating the future
benefit cost and recognizing the cost over the employees expected period of employment with the
company. Certain assumptions are required in the calculation of pension costs and obligations.
These assumptions include the discount rate, salary scales and the expected long-term rate of
return on plan assets. The discount rate is intended to represent the rate at which pension benefit
obligations could be settled by purchase of an annuity contract. These assumptions are subject to
change based on stock and bond market returns and other economic factors. Actual results that
differ from the companys assumptions are accumulated and amortized over future periods and
therefore generally affect its recognized expense and accrued liability in such future periods.
While the company believes that its assumptions are appropriate given current economic conditions
and its actual experience, significant differences in results or significant changes in the
companys assumptions may materially affect its pension obligations and related future expense.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an Amendment
of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). SFAS 158 requires the recognition of
the overfunded or underfunded status of a defined benefit postretirement plan as an asset or a
liability in the balance sheet, with changes in the funded status recorded through comprehensive
income in the year in which those changes occur. The company adopted SFAS 158 on December 30, 2006.
The impact of the adoption of SFAS 158 is more fully described in Note 12 of the Notes to
Consolidated Financial Statements.
Reclassifications: Certain items in the 2007 and 2006 financial statements have been reclassified
to conform to the 2008 presentation.
Revenue Recognition: The company recognizes revenue on product sales in the period in which the
sales process is complete. This generally occurs when products are shipped (FOB origin) to the
customer in accordance with the terms of the sale, the risk of loss has been transferred,
collectibility is reasonably assured and the pricing is fixed and determinable. 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 companys distribution channels are primarily through direct
sales and independent third party distributors.
Revenue & Billing: The company accepts orders from customers based on long term purchasing
contracts and written sales agreements. Contract pricing and selling agreement terms are based on
market factors, costs, and competition. Pricing normally is negotiated as an adjustment (premium or
discount) from the companys published price lists. The customer is invoiced when the companys
products are shipped to them in accordance with the terms of the sales agreement.
Returns & Credits: Some of the terms of the companys 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 to reduce its price to its buyer. If 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 and actual authorizations for the debit and recognizes these
debits as a reduction of revenue in accordance with the guidance in Emerging Issues Task Force
(EITF) Issue No. 01-09, paragraph 9 Accounting for Consideration Given by a Vendor to a
Customer.
The company has a return to stock policy whereby a customer with prior authorization from
Littelfuse management can return previously purchased goods for full or partial credit. The company
establishes an estimated allowance for these returns based on historic activity. Sales revenue and
cost of sales are reduced to anticipate estimated returns in accordance with SFAS No. 48, Revenue
Recognition When Right of Return Exists (SFAS 48).
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
The company properly meets all of the criteria of SFAS 48 for recognizing revenue when the right of
return exists under Staff Accounting Bulletin (SAB) No. 104 (Revenue Recognition). Specifically,
the company meets those requirements because:
|
1. |
|
The companys selling price is fixed or determinable at the date of the sale. |
|
|
2. |
|
The company has policies and procedures to accept only credit worthy customers with
the ability to pay the company. |
|
|
3. |
|
The companys customers are obligated to pay the company under the contract and the
obligation is not contingent on the resale of the product. (All ship and debit and
returns to stock require specific circumstances and authorization.) |
|
|
4. |
|
The risk ownership transfers to the companys customers upon shipment and is not
changed in the event of theft, physical destruction or damage of the product. |
|
|
5. |
|
The company bills at the ship date and establishes a reserve to reduce revenue from
the in transit time until the product is delivered for FOB destination sales. |
|
|
6. |
|
The companys customers acquiring the product for resale have economic substance
apart from that provided by Littelfuse, and all distributors are independent of the
company. |
|
|
7. |
|
The company does not have any obligations for future performance to bring about
resale of the product by its customers. |
|
|
8. |
|
The company can reasonably estimate the amount of future returns. |
Volume Rebates: The company offers incentives to certain customers to achieve specific quarterly or
annual sales targets. If customers achieve their sales targets, they are entitled to rebates. The
company estimates the future cost of these rebates and recognizes this estimated cost as a
reduction to revenue as products are sold.
Allowance for Doubtful Accounts: The company evaluates the collectibility of its trade receivables
based on a combination of factors. The company regularly analyzes its significant customer accounts
and, when the company becomes aware of a specific customers inability to meet its financial
obligations, the company records a specific reserve for bad debt to reduce the related receivable
to the amount the company reasonably believes is collectible. The company also records allowances
for all other customers based on a variety of factors including the length of time the receivables
are past due, the financial health of the customer, macroeconomic
considerations and past
experience. Historically, the allowance for doubtful accounts has been adequate to cover bad debts.
If circumstances related to specific customers change, the estimates of the recoverability of
receivables could be further adjusted. However, due to the companys diverse customer base and lack
of credit concentration, the company does not believe its estimates would be materially impacted by
changes in its assumptions.
Advertising Costs: The company expenses advertising costs as incurred, which amounted to $2.3
million in 2008, $1.8 million in 2007, and $1.5 million in 2006, and are included as a component of
selling, general and administrative expenses.
Shipping and Handling Fees and Costs: Amounts billed to customers related to shipping and handling
are classified as revenue. Costs incurred for shipping and handling of $6.5 million, $5.7 million,
and $5.7 million in 2008, 2007, and 2006, respectively, are classified in selling, general and
administrative expenses.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
Restructuring Costs: The company incurred severance charges and plant closure expenses as part of
the companys on-going cost reduction efforts. These charges are included in cost of sales,
selling, general and administrative expenses, or research and development expenses depending on the
personnel being included in the charge. See Note 9 for additional information on restructuring
costs.
Foreign Currency Translation: The companys 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. The amount of foreign currency conversion gain recognized in the income statement
related to currency translation was $2.3 million, $2.9 million, and $2.1 million in 2008, 2007, and
2006, respectively and is included as a component of other expense (income), net. Adjustments from
the translation process are recognized in Shareholders Equity as a component of Accumulated
Other Comprehensive Income (Loss).
Stock-based Compensation: In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment
(SFAS 123(R)). SFAS 123(R) requires public companies to recognize compensation expense for the
cost of awards of equity compensation using a fair value method. The company adopted SFAS 123(R) on
January 1, 2006 (i.e., the first quarter of 2006) using the modified prospective method. The
company made the one-time election to adopt the transition method described in FASB Staff Position
(FSP) No. FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effect of
Share-Based Payment Awards. Under SFAS 123(R), benefits of tax deductions in excess of recognized
compensation expense are now reported as a financing cash flow, rather than an operating cash flow
as prescribed under the prior accounting rules. Prior to January 1, 2006, the company applied
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25)
to account for its stock-based compensation plans. Under APB 25, no compensation expense was
recognized for non-qualified stock option awards as long as the exercise price of the awards on the
date of grant was equal to the then current market price of the companys stock. However, the
company did recognize compensation expense in connection with the issuance of restricted stock.
On certain occasions, the company has granted stock options for a fixed number of shares with an
exercise price below that of the underlying stock on the date of the grant and recognizes
compensation expense accordingly. This compensation expense has not been material. See Note 13 for
additional information on stock-based compensation.
Income Taxes: The company accounts for income taxes in accordance with SFAS No. 109 Accounting for
Income Taxes. Deferred taxes are recognized for the future effects of temporary differences
between financial and income tax reporting using tax rates in effect for the years in which the
differences are expected to reverse. The company recognizes deferred taxes for temporary
differences, operating loss carryforwards and tax credit carryforwards. 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. Federal and state income taxes are provided on the
portion of foreign income that is expected to be remitted to the U.S. and be taxable.
The company adopted the provisions of FIN 48 on December 31, 2006 and had no adjustments to the
retained earnings balance as a result of the implementation. Further information regarding the
companys adoption of FIN 48, including a detailed reconciliation of current year activity is
provided in Note 14.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
Accounting Pronouncements: In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 establishes a framework for measuring fair value by providing
a standard definition of fair value as it applies to assets and liabilities. SFAS 157, which does
not require any new fair value measurements, clarifies the application of other accounting
pronouncements that require or permit fair value measurements. SFAS 157 must be applied
prospectively beginning January 1, 2008. The impact of the adoption of SFAS 157 is more fully
described in Note 8 of the Notes to Consolidated Financial Statements included in this report.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
permits entities to choose to measure many financial instruments and certain other items at fair
value at specified election dates. SFAS 159 is expected to expand the use of fair value
measurement, but does not eliminate disclosure requirements included in other accounting standards,
including those in SFAS 157. SFAS 159 is effective for fiscal years beginning after November 15,
2007. The adoption of SFAS 159 did not have a material impact on the companys Consolidated
Financial Statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier
adoption prohibited. SFAS 160 requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and separate from the parents equity.
The amount of net earnings attributable to the noncontrolling interest will be included in
consolidated net income on the face of the Consolidated Statements of Income. SFAS 160 also amends
certain of ARB No. 51s consolidation procedures for consistency with the requirements of SFAS
141(R) and includes expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The company is evaluating the impact of adopting SFAS 160 on its
Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), which
replaces SFAS No. 141, Business Combinations (SFAS 141). SFAS 141(R) retains the underlying
concepts of SFAS 141 in that all business combinations are still required to be accounted for at
fair value under the acquisition method of accounting, but SFAS 141(R) changed the method of
applying the acquisition method in a number of significant aspects. Acquisition costs generally
will be expensed as incurred; noncontrolling interests will be valued at fair value at the
acquisition date; in-process research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a
business combination generally will be expensed subsequent to the acquisition date; and changes in
deferred tax asset valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all
business combinations for which the acquisition date is on or after the beginning of the first
annual period subsequent to December 15, 2008, with the exception of the accounting for valuation
allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that
adjustments made to valuation allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also
apply the provisions of SFAS 141(R). Early adoption is not permitted. The company is evaluating the
impact of adopting SFAS 141(R) on its Consolidated Financial Statements.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161). The new standard requires enhanced disclosure about a companys
derivatives and hedging to help investors understand their impact on a companys financial
position, financial performance and cash flows. SFAS 161 is effective for periods beginning after
November 15, 2008, with early application encouraged. The company is evaluating the impact of
adopting SFAS 161 on its Consolidated Financial Statements.
2. Acquisition of Business
In June 2006, the company announced that it had signed a definitive agreement to acquire the assets
of Song Long Electronics Co., Ltd. (Song Long). On July 31, 2007, the company acquired the assets
of Song Long for approximately $5.5 million and acquisition costs of approximately $0.5 million, of
which approximately $0.8 million was paid in 2006. From July 31, 2007 and thereafter, the results
of operations of Song Long are included in the companys Consolidated Statements of Income. The
company funded the acquisition with cash and has continued to operate Song Longs electronics
business subsequent to the acquisition. The Song Long acquisition strengthens the companys
position in the circuit protection industry, moving operations closer to customers in the
Asia-Pacific region.
The acquisition was accounted for using the purchase method of accounting and the operations of
Song Long are included in the companys consolidated results from the date of the acquisition. At
the acquisition date, the purchase price allocations were based on preliminary estimates. These
estimates were subject to revision after the company completed final negotiation of working capital
adjustments to the purchase price and fair value analysis. During the fourth quarter of 2007, the
company completed the final negotiation, which resulted in an addition to the purchase price of
approximately $0.3 million of acquisition costs, the assumption of $1.5 million of accounts payable
and the holdback of $1.0 million subject to the fulfillment of certain contractual obligations by
the seller. These obligations were fulfilled and payments totaling $1.0 million were made during
the first quarter of 2008.
At June 28, 2008, the company completed its final purchase price allocations and determined that no
material value was obtained from other identifiable intangible assets. All Song Long goodwill and
assets are recorded in the Electronics business unit segment and reflected in the Asia-Pacific
geographical area. Pro forma financial information is not presented due to amounts not being
materially different than actual results. Goodwill for the acquisition is expected to be deductible
for tax purposes.
The following table sets forth the purchase price allocation for the acquisition of Song Long in
accordance with the purchase method of accounting with adjustments to record the acquired assets
and liabilities of Song Long at their estimated fair market or net realizable values.
|
|
|
|
|
Song Long purchase price allocation (in thousands): |
|
|
|
|
Inventory |
|
$ |
1,186 |
|
Property, plant and equipment |
|
|
1,290 |
|
Goodwill |
|
|
5,311 |
|
Current liabilities |
|
|
(1,500 |
) |
|
|
|
|
|
|
$ |
6,287 |
|
|
|
|
|
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition of Business, continued
On February 29, 2008, the company acquired Shock Block Corporation (Shock Block), a leading
manufacturer in ground fault technology located in Dallas, Texas, for $9.2 million less a holdback
of $0.9 million subject to the fulfillment of certain contractual obligations by the seller. From
February 29, 2008 and thereafter, the results of operations of Shock Block are included in the
companys Consolidated Statements of Income. The company primarily acquired customer lists and
intellectual property rights, including trademarks and tradenames. The customer lists were assigned
a useful life of seven years. The company funded the acquisition with cash and has continued to
operate Shock Blocks electrical business subsequent to the acquisition. The Shock Block
acquisition expands the companys portfolio of protection products for commercial and industrial
applications and strengthens the companys position in the circuit protection industry.
The acquisition was accounted for using the purchase method of accounting and the operations of
Shock Block are included in the companys consolidated results from the date of the acquisition.
The following table sets forth the preliminary purchase price allocations for Shock Blocks assets
in accordance with the purchase method of accounting with adjustments to record the acquired assets
at their estimated fair market or net realizable values.
|
|
|
|
|
Shock Block purchase price allocation (in thousands): |
|
|
|
|
Goodwill |
|
$ |
7,595 |
|
Customer lists |
|
|
2,442 |
|
Other assets, net |
|
|
91 |
|
Deferred tax liability |
|
|
(928 |
) |
|
|
|
|
|
|
$ |
9,200 |
|
|
|
|
|
All Shock Block goodwill and other assets are recorded in the Electrical business unit segment and
reflected in the Americas geographical area. Pro forma financial information is not presented due
to amounts not being materially different than actual results. Goodwill for the above acquisition
is not expected to be deductible for tax purposes.
On September 17, 2008, the company announced that it had signed a definitive agreement to acquire
the stock of Startco Engineering Ltd. (Startco), a leading manufacturer in ground-fault
protection products and custom-power distribution centers located in Saskatchewan, Canada. On
September 30, 2008, the company completed the purchase of Startco for approximately $38.9 million.
From September 30, 2008 and thereafter, the results of operations of Startco are included in the
companys Consolidated Statements of Income. The company funded the acquisition with proceeds from
a Loan Agreement discussed in Note 7.
The Startco acquisition strengthens the companys position in the industrial ground-fault
protection business and provides industrial power distribution design and manufacturing
capabilities that strengthen the companys position within the growing mining industry. The
acquisition was accounted for using the purchase method of accounting and the operations of Startco
are included in the companys consolidated results from the date of the acquisition.
The following table sets forth the preliminary purchase price allocations for Startcos assets in
accordance with the purchase method of accounting with adjustments to record the acquired assets at
their estimated fair market or net realizable values.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition of Business, continued
|
|
|
|
|
Startco purchase price allocation (in thousands): |
|
|
|
|
Cash |
|
$ |
701 |
|
Accounts receivable, net |
|
|
3,488 |
|
Inventories |
|
|
2,950 |
|
Property, plant and equipment |
|
|
5,000 |
|
Goodwill |
|
|
32,325 |
|
Other Assets |
|
|
32 |
|
Current liabilities |
|
|
(5,610 |
) |
|
|
|
|
|
|
$ |
38,886 |
|
|
|
|
|
All Startco goodwill and other assets are recorded in the Electrical business unit segment and
reflected in the Americas geographical area based on preliminary estimates of fair values during
the fourth quarter of 2008. These estimates are subject to revision after the company completes its
fair value analysis, which may result in an allocation to identifiable intangible assets. Pro forma
financial information is not presented due to amounts not being materially different than actual
results. Goodwill for the above acquisition is not expected to be deductible for tax purposes.
Pro forma financial information is not presented in the aggregate for the aforementioned
acquisitions due to amounts not being materially different than actual results.
3. Inventories
The components of inventories at December 27, 2008 and December 29, 2007 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Raw materials |
|
$ |
22,642 |
|
|
$ |
19,758 |
|
Work in process |
|
|
11,524 |
|
|
|
11,292 |
|
Finished goods |
|
|
32,513 |
|
|
|
27,795 |
|
|
|
|
|
|
|
|
Total |
|
$ |
66,679 |
|
|
$ |
58,845 |
|
|
|
|
|
|
|
|
4. Goodwill and Other Intangible Assets
The amounts for goodwill and changes in the carrying value by operating segment are as follows at
December 27, 2008 and December 29, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Additions* |
|
Adjust.** |
|
2007 |
|
Additions |
|
Adjust.*** |
|
2006 |
|
Electronics |
|
$ |
35,671 |
|
|
$ |
66 |
|
|
$ |
(707 |
) |
|
$ |
36,312 |
|
|
$ |
5,293 |
|
|
$ |
(223 |
) |
|
$ |
31,242 |
|
Automotive |
|
|
24,393 |
|
|
|
|
|
|
|
(771 |
) |
|
|
25,164 |
|
|
|
|
|
|
|
1,012 |
|
|
|
24,152 |
|
Electrical |
|
|
46,897 |
|
|
|
40,079 |
|
|
|
(5,168 |
) |
|
|
11,986 |
|
|
|
|
|
|
|
(120 |
) |
|
|
12,106 |
|
|
Total |
|
$ |
106,961 |
|
|
$ |
40,145 |
|
|
$ |
(6,646 |
) |
|
$ |
73,462 |
|
|
$ |
5,293 |
|
|
$ |
669 |
|
|
$ |
67,500 |
|
|
|
|
|
* |
|
Electrical additions include $32.3 million related to the Startco acquisition and $7.6 million
related to the Shock Block acquisition. |
|
** |
|
Adjustments reflect the impact of changes in exchange rates. |
|
*** |
|
Adjustments reflect the impact of changes in exchange rates as well as the partial reversal of
an unrecognized tax benefit. |
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Goodwill and Other Intangible Assets, continued
The company recorded amortization expense of $3.9 million, $3.3 million, and $3.1 million in 2008,
2007, and 2006, respectively. The details of other intangible assets and related future
amortization expense of existing intangible assets at December 27, 2008 and December 29, 2007 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 27, 2008 |
|
As of December 29, 2007 |
|
|
Weighted |
|
Gross |
|
|
|
|
|
Weighted |
|
Gross |
|
|
|
|
Average |
|
Carrying |
|
Accumulated |
|
Average |
|
Carrying |
|
Accumulated |
(in thousands) |
|
Useful Life |
|
Value* |
|
Amortization |
|
Useful Life |
|
Value |
|
Amortization |
|
Patents, licenses
and software |
|
|
11.9 |
|
|
$ |
34,121 |
|
|
$ |
26,044 |
|
|
|
11.7 |
|
|
$ |
34,156 |
|
|
$ |
24,925 |
|
Distribution network |
|
|
15.3 |
|
|
|
28,622 |
|
|
|
17,045 |
|
|
|
15.3 |
|
|
|
28,975 |
|
|
|
15,152 |
|
Customer lists,
trademarks and
tradenames |
|
|
14.9 |
|
|
|
8,142 |
|
|
|
5,188 |
|
|
|
18.2 |
|
|
|
5,832 |
|
|
|
4,640 |
|
|
Total |
|
|
|
|
|
$ |
70,885 |
|
|
$ |
48,277 |
|
|
|
|
|
|
$ |
68,963 |
|
|
$ |
44,717 |
|
|
|
|
|
* |
|
Increase to gross carrying value for customer lists, trademarks and tradenames reflects a $2.4
million addition related to the Shock Block acquisition. Decreases to gross carrying values for
distribution network and patents, licenses and software are primarily due to the impact of changes
in exchange rates. |
Estimated amortization expense related to intangible assets with definite lives at December 27,
2008 is as follows (in thousands):
|
|
|
|
|
2009 |
|
$ |
3,687 |
|
2010 |
|
|
3,524 |
|
2011 |
|
|
3,467 |
|
2012 |
|
|
2,733 |
|
2013 |
|
|
2,291 |
|
2014 and thereafter |
|
|
6,906 |
|
|
|
|
|
|
|
$ |
22,608 |
|
|
|
|
|
5. Investments
Included in investments are shares of Polytronics Technology Corporation Ltd. (Polytronics), a
Taiwanese company, and an immaterial investment (approximately
$0.5 million at December 27, 2008 and at December 29,
2007)
in Sumi Motherson, an Indian company, that were acquired as part of the Littelfuse GmbH (formerly known
as Heinrich Industries, AG) acquisition. The companys Polytronics shares held at the end of fiscal
2008 and 2007 represent approximately 8.0% and 8.2%, respectively of total Polytronics shares
outstanding. The fair value of the Polytronics investment was 2.1 million (approximately $2.9
million) at December 27, 2008 and
4.5 million
(approximately $6.0 million) at December 29, 2007.
Included in 2007 other comprehensive income (loss) was an unrealized gain of $1.1 million, net of
tax of $0.4 million, due to the increase in fair market value. The remaining movement year over
year was due to the impact of changes in exchange rates.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Investments, continued
The
investment in Polytronics stock has traded significantly below its
acquisition cost of 4.1
million (approximately $4.3 million) since June 2008 and has not traded above that amount during
the past six months. Given the current global economic conditions and severity of the decline in
market value of the stock, management concluded as of December 27, 2008 that it is more likely than
not the loss is other than temporary. Accordingly, SFAS No. 115 Accounting for Certain
Investments in Debt and Equity Securities, requires the cost basis of the security be adjusted
down to the fair value as of the measurement date with a resulting charge to earnings as a realized
loss. Consequently, the company recorded a realized loss on investment of 2.0 million
(approximately $2.8 million) to other (income) expense, net for the fiscal year ended December 27,
2008.
6. Discontinued Operations
In December 2005, the company announced its plan to sell the Efen business, which consisted of
production and sales facilities in Uebigau and Eltville, Germany and Kaposvar, Hungary. The company
obtained Efen as part of its acquisition of Littelfuse GmbH (formerly known as Heinrich Industries,
AG) in May 2004. Results of operations for Efen have been reclassified and presented as
discontinued operations for 2006.
In February 2006, the company sold the Efen product line for 9.5 million (approximately $11.6
million). In connection with the sale, an after tax gain of $0.1 million was recognized. The
results of Efen were no longer recorded in the Consolidated Statements of Income after the first
quarter of 2006.
Efens operating results are summarized as follows for the periods ending December 30, 2006 (in
thousands):
|
|
|
|
|
Net sales |
|
$ |
3,789 |
|
Income before taxes |
|
|
773 |
|
Income taxes |
|
|
324 |
|
Net income |
|
|
449 |
* |
|
|
|
* |
|
Additionally, for the period ended December 30, 2006, discontinued operations in the Consolidated
Statements of Income includes a gain on the sale of assets of $139 (net of tax of $85). |
7. Debt
The carrying amounts of long-term debt at December 27, 2008 and December 29, 2007 are as follows:
|
|
|
|
|
|
|
|
|
In thousands |
|
2008 |
|
|
2007 |
|
Term loan |
|
$ |
80,000 |
|
|
$ |
|
|
Revolving credit facility |
|
|
|
|
|
|
11,517 |
|
Other obligations |
|
|
|
|
|
|
1,792 |
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
13,309 |
|
Less: Current maturities |
|
|
8,000 |
|
|
|
12,086 |
|
|
|
|
|
|
|
|
Total |
|
$ |
72,000 |
|
|
$ |
1,223 |
|
|
|
|
|
|
|
|
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Debt, continued
Term Loan
On September 29, 2008, the company entered into a Loan Agreement with various lenders that provides
the company with a five-year term loan facility of up to $80.0 million for the purposes of (i)
refinancing certain existing indebtedness; (ii) funding working capital needs; and (iii) funding
capital expenditures and other lawful corporate purposes, including permitted acquisitions. The
Loan Agreement also contains an expansion feature, pursuant to which the company may from time to
time request incremental loans in an aggregate principal amount not to exceed $40.0 million. The
company had $80 million outstanding on the term loan at December 27, 2008.
At the companys option, any loan under the Loan Agreement bears interest at a rate equal to the
applicable rate, as determined in accordance with the pricing grid set forth in the Loan Agreement,
plus one of the following indexes: (i) LIBOR or (ii) the Base Rate (defined as the higher of (a)
the prime rate publicly announced from time to time by the Agent under the Loan Agreement and (b)
the federal funds rate plus 0.50%). Overdue amounts bear a fee of 2.0% per annum above the
applicable rate. The actual interest rate paid on the term loan was approximately 3.2% at December
27, 2008.
The Loan Agreement requires the company to meet certain financial tests, including a consolidated
leverage ratio and a consolidated interest coverage ratio. The Loan Agreement also contains
additional affirmative and negative covenants which, among other things, impose certain limitations
on the companys ability to merge with other companies, create liens on its property, incur
additional indebtedness, enter into transactions with affiliates except on an arms length basis,
dispose of property, or issue dividends or make distributions. At December 27, 2008, and for the
year then ended, the company was in compliance with these covenants. The new Loan Agreement does
not impact the existing debt covenants in the revolving credit facility described below.
Revolving Credit Facility
The company has an unsecured domestic financing arrangement consisting of a credit agreement with
banks that provides a $75.0 million revolving credit facility, with a potential increase of up to
$125.0 million upon request of the company and agreement with the lenders, which expires on July
21, 2011. At December 27, 2008, the company had available
$75.0 million of borrowing capacity
under the revolving credit facility at an interest rate of LIBOR plus 0.50% (0.97% as of December
27, 2008). The company also had $2.8 million and $2.5 million available in letters of credit at
December 27, 2008 and December 29, 2007, respectively. No amounts were outstanding under these
letters of credit at December 27, 2008 and December 29, 2007.
The domestic bank credit agreement contains covenants that, among other matters, impose limitations
on the incurrence of additional indebtedness, future mergers, sales of assets, payment of
dividends, and changes in control, as defined in the agreement. In addition, the company is
required to satisfy certain financial covenants and tests relating to, among other matters,
interest coverage, working capital, leverage and net worth. At December 27, 2008, and for the year
then ended, the company was in compliance with these covenants.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Debt, continued
Other Obligations
The company has an unsecured bank line of credit in Japan that provides a 700 million yen (an
equivalent of $7.8 million) revolving credit facility at an interest rate of TIBOR plus 0.625%
(1.51% as of December 27, 2008). The revolving line of credit becomes due on July 21, 2011. The
company had no outstanding borrowings on the yen facility at December 27, 2008 and December 29,
2007.
The company had an unsecured bank line of credit in Taiwan that provided a 35.0 million Taiwanese
dollar revolving credit facility at an interest rate of two-years time deposit plus 0.145%. The
revolving line of credit was due on August 18, 2009. The company also had a foreign fixed rate
mortgage loan outstanding totaling approximately 32.0 million Taiwanese dollars with maturity dates
through August 2013. The company chose to repay the outstanding balances on both debt instruments
in June 2008, resulting in uses of cash totaling the equivalent of $1.7 million. As a result, the
line of credit was closed on June 28, 2008. The company had the equivalent of $0.6 million
outstanding on the Taiwanese dollar facility and the equivalent of $1.2 million outstanding on the
foreign fixed rate mortgage loan outstanding at December 29, 2007.
Interest
paid on debt was approximately $3.4 million in 2008, $1.4 million in 2007, and $1.6 million in
2006. Aggregate maturities of obligations at December 27, 2008, are as follows (in thousands):
|
|
|
|
|
2009 |
|
$ |
8,000 |
|
2010 |
|
|
8,000 |
|
2011 |
|
|
8,000 |
|
2012 |
|
|
8,000 |
|
2013 |
|
|
48,000 |
|
2014 and thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
80,000 |
|
|
|
|
|
8. Financial Instruments, Derivatives and Fair Value Measures
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which
provides a standard definition of fair value as it applies to assets and liabilities, establishes a
framework for measuring fair value and expands disclosures about fair value measurements, but it
does not require any new fair value measurements. SFAS 157 clarifies the application of other
accounting pronouncements that require or permit fair value measurements and sets out a fair value
hierarchy that distinguishes between assumptions based on market data obtained from independent
sources (observable inputs) and those based on an entitys own assumptions (unobservable inputs).
Under SFAS 157, fair value measurements are disclosed by level within that hierarchy, with the
highest priority assigned to quoted prices in active markets for identical assets or liabilities
(Level 1), the next priority using observable prices that are based on inputs not quoted on active
markets, but corroborated by market data (Level 2) and the lowest priority assigned to unobservable
inputs (Level 3). SFAS 157 must be applied prospectively beginning January 1, 2008.
Derivative Transactions
The company is exposed to credit-related losses in the event of nonperformance by counterparties to
derivative financial instruments, but we do not expect any counterparties to fail to meet their
obligations given their high credit ratings. The company does not hold derivatives for trading or
speculative purposes.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Financial Instruments, Derivatives and Fair Value Measures, continued
Securities Available for Sale
Included in the companys investments are shares of Polytronics, a Taiwanese company whose shares
are traded on the Taiwan Stock Exchange, and which is designated as a Level 1 financial instrument
under SFAS 157. The fair value of this investment was $2.9 million at December 27, 2008 and $6.5
million at December 29, 2007, based on the quoted market price at the close of business
corresponding to each date. Unrealized gains (losses), net of taxes related to this investment are
included in other comprehensive income. The remaining movement in the fair value of this investment
is due to the impact of changes in exchange rates, which is included as a component of the currency
translation adjustments in other comprehensive income. As of December 27, 2008, management
evaluated the decline in market value and concluded that it is more likely than not that the loss
is other than temporary. As a result, the company recorded a realized loss on investment of
approximately $2.8 million to other (income) expense, net for the fiscal year ended December 27,
2008. Further information regarding this investment is provided in Note 5.
Commodity Risk Management
In June 2008, the company entered into an immaterial one-year swap agreement to manage its exposure
to fluctuations in the cost of zinc, which is used extensively in the manufacturing process of
certain products. The swap agreement is recognized in the Consolidated Balance Sheet at fair value
and is designated as a Level 2 financial instrument under SFAS 157. Fair value is determined based
on quoted futures prices for the underlying commodity. Furthermore, the swap agreement is
designated as a cash flow hedge in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133), with changes in the fair value included in other
comprehensive income to the extent the hedge is effective. The ineffective portion of changes in
the fair value is recognized immediately in the Consolidated Statements of Income. Amounts included
in other comprehensive income are reclassified into cost of sales in the period in which the hedged
transaction is recognized in earnings. As of December 27, 2008, the fair value of the swap
agreement was a $0.7 million liability that was included in accrued expenses on the Consolidated
Balance Sheet.
Interest Rate Swap Transaction
On October 29, 2008, the company entered into a one-year interest rate swap transaction with
JPMorgan Chase Bank, N.A. to manage its exposure to fluctuations in the adjustable interest rate of
the Loan Agreement. The swap agreement, designated as a Level 2 financial instrument under SFAS
157, is for a notional amount of $65.0 million and requires the company to pay a fixed annual rate
of 2.85% and JPMorgan Chase Bank, N.A. to pay a floating rate tied to the one-month U.S. dollar
LIBOR. Upon inception of the transaction, the company did not elect hedge accounting treatment as
the interest rate swap term was short-term in nature and was not deemed a material transaction. As
of December 27, 2008, the fair value of the swap agreement was a $1.1 million liability that was
included in accrued expenses on the Consolidated Balance Sheet. Changes in the fair value are
included as a component of interest expense in the Consolidated Statements of Income for the year
ending December 27, 2008.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Restructuring
During 2005, the company announced a downsizing of its Ireland operation and outsourcing of more of
its varistor manufacturing to lower cost Asian subcontractors. A liability of $4.9 million was
recorded related to redundancy costs for the manufacturing operation associated with this
downsizing. This restructuring impacted approximately 35 associates in various production and
support related roles. These costs were paid in 2005 and 2006. In the second quarter of 2006, an
additional $17.1 million, consisting of $20.0 million of accrued severance less a statutory rebate
of $2.9 million recorded as a current asset, was recorded as part of cost of sales related to the
closure of the entire facility. This restructuring is part of the companys strategy to expand
operations in Asia-Pacific in order to be closer to current and potential customers and take
advantage of lower manufacturing costs. This additional restructuring impacted approximately 131
employees. Restructuring charges are based upon each associates current salary and length of
service with the company. These costs will be paid through 2009. The additions in 2007 and 2008
primarily relate to retention costs that were incurred during the transition period. In both
instances, all charges related to the downsizing/closure of the
Ireland facility were recorded in
Other Operating Income (Loss) for business unit segment
reporting purposes. A summary of activity of this liability is as
follows:
|
|
|
|
|
Ireland restructuring (in thousands) |
|
|
|
|
|
Balance at December 30, 2006 |
|
$ |
22,608 |
|
Additions |
|
|
977 |
|
Payments |
|
|
(3,801 |
) |
Exchange rate impact |
|
|
1,977 |
|
|
Balance at December 29, 2007 |
|
|
21,761 |
|
Additions |
|
|
200 |
|
Payments |
|
|
(20,657 |
) |
Exchange rate impact |
|
|
347 |
|
|
Balance at December 27, 2008 |
|
$ |
1,651 |
|
|
During 2006, the company recorded a $5.0 million charge related to the downsizing of the Littelfuse
GmbH (formerly known as Heinrich Industries, AG) operations. Manufacturing related charges of $2.3
million were recorded as part of cost of sales and non-manufacturing related charges of $2.7
million were recorded as part of selling, general and administrative expenses. These charges were
primarily for redundancy costs to be paid through 2008. The additions in 2007 and 2008 primarily
relate to retention costs that were incurred during the transition period. All charges related to
this downsizing were recorded in Other Operating Income (Loss) for business unit segment reporting
purposes. This restructuring impacted approximately 52 associates in various technical, production,
administrative and support employees. A summary of activity of this liability is as follows:
|
|
|
|
|
Littelfuse GmbH restructuring (in thousands) |
|
|
|
|
|
Balance at December 30, 2006 |
|
$ |
4,363 |
|
Additions |
|
|
850 |
|
Payments |
|
|
(4,733 |
) |
|
Balance at December 29, 2007 |
|
|
480 |
|
Additions |
|
|
99 |
|
Payments |
|
|
(498 |
) |
|
Balance at December 27, 2008 |
|
$ |
81 |
|
|
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Restructuring, continued
During December 2006, the company announced the closure of its Irving, Texas facility and the
transfer of its semiconductor wafer manufacturing from Irving, Texas to Wuxi, China in a phased
transition from 2007 to 2010. A liability of $1.9 million was recorded related to redundancy costs
for the manufacturing operation associated with this downsizing. This charge was recorded as part
of cost of sales and included in Other Operating Income (Loss) for business unit segment
reporting purposes. The total cost expected to be incurred through 2010 is $6.5 million. The
additions in 2007 and 2008 primarily relate to retention costs that were incurred during the
transition period. The amounts not yet recognized primarily relate to retention costs that will be
incurred over the remaining closure period. This restructuring impacted approximately 180
associates in various production and support related roles and will be paid over the period 2007 to
2010. A summary of activity of this liability is as follows:
|
|
|
|
|
Irving restructuring (in thousands) |
|
|
|
|
|
Balance at December 30, 2006 |
|
$ |
1,890 |
|
Additions |
|
|
1,446 |
|
Payments |
|
|
(362 |
) |
|
Balance at December 29, 2007 |
|
|
2,974 |
|
Additions |
|
|
2,176 |
|
Payments |
|
|
(600 |
) |
|
Balance at December 27, 2008 |
|
$ |
4,550 |
|
|
During March 2007, the company announced the closure of its Des Plaines and Elk Grove, Illinois
facilities and the transfer of its manufacturing from Des Plaines, Illinois to the Philippines and
Mexico in a phased transition from 2007 to 2009. A liability of $3.5 million was recorded related
to redundancy costs for the manufacturing and distribution operations associated with this
downsizing. Manufacturing related charges of $3.0 million were recorded as part of cost of sales and
non-manufacturing related charges of $0.5 million were recorded as part of selling, general and
administrative expenses. All charges related to this downsizing were recorded in Other Operating
Income (Loss) for business unit segment reporting purposes. The total cost expected to be incurred
through 2009 is $7.1 million. The additions in 2007 and 2008 primarily relate to retention costs
that were incurred during the transition period. The amounts not yet recognized primarily relate to
retention costs that will be incurred over the remaining closure period. This restructuring impacts
approximately 307 associates in various production and support related roles and the costs relating
to the restructuring will be paid over the period 2007 to 2009. A summary of activity of this
liability is as follows:
|
|
|
|
|
Des Plaines restructuring (in thousands) |
|
|
|
|
|
Balance at December 30, 2006 |
|
$ |
102 |
|
Additions |
|
|
4,963 |
|
Payments |
|
|
(355 |
) |
|
Balance at December 29, 2007 |
|
|
4,710 |
|
Additions |
|
|
3,435 |
|
Payments |
|
|
(3,087 |
) |
|
Balance at December 27, 2008 |
|
$ |
5,058 |
|
|
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Restructuring, continued
In March 2008, the company announced the closure of its Matamoros, Mexico facility and the transfer
of its semiconductor assembly and test operation from Matamoros, Mexico to its Wuxi, China facility
and various subcontractors in the Asia-Pacific region in a phased transition over two years. A
total liability of $4.4 million was recorded related to redundancy costs for the manufacturing
operations associated with this downsizing, of which $0.4 million related to associates located at
the companys Irving, Texas facility and which are reflected in corresponding restructuring
liability above. This charge was recorded as part of cost of sales and included in Other
Operating Income (Loss) for business unit segment reporting purposes. The total cost expected to
be incurred through 2009 is $6.3 million. Amounts not yet recognized primarily relate to retention
costs that will be incurred over the remaining transition period. This restructuring impacts
approximately 950 associates in various production and support related roles and will be paid
through 2009. A summary of activity of this liability is as follows:
|
|
|
|
|
Matamoros restructuring (in thousands) |
|
|
|
|
|
Balance at December 29, 2007 |
|
$ |
|
|
Additions |
|
|
4,520 |
|
Payments |
|
|
(650 |
) |
Exchange rate impact |
|
|
(759 |
) |
|
Balance at December 27, 2008 |
|
$ |
3,111 |
|
|
In September 2008, the company announced the closure of its Swindon, U.K. facility, resulting in
restructuring charges of $0.8 million, consisting of $0.3 million that was recorded as part of cost
of sales and $0.5 million that was recorded as part of research and development expenses. These
charges, which impact 10 associates, were primarily for redundancy costs and will be paid through
2009. Restructuring charges are based upon each associates current salary and length of service
with the company. All charges related to the closure of the Swindon
facility were recorded in Other
Operating Income (Loss) for business unit segment reporting purposes. The total cost expected to
be incurred through 2009 is $1.1 million. Amounts not yet recognized primarily relate to retention
costs that will be incurred over the remaining transition period. A summary of activity of this
liability is as follows:
|
|
|
|
|
Swindon, U.K. restructuring (in thousands) |
|
|
|
|
|
Balance at December 29, 2007 |
|
$ |
|
|
Additions |
|
|
992 |
|
Payments |
|
|
(158 |
) |
|
Balance at December 27, 2008 |
|
$ |
834 |
|
|
In December 2008, the company announced a reduction in workforce at its Des Plaines, Illinois
corporate headquarters in a phased transition from 2008 to 2009. A liability of $0.9 million was
recorded associated with this downsizing. Manufacturing related
charges of $0.3 million were
recorded as part of cost of sales and non-manufacturing related
charges of $0.6 million were
recorded as part of selling, general and administrative expenses. All charges related to this
downsizing were recorded in Other Operating Income (Loss) for business unit segment reporting
purposes. The total cost expected to be incurred through 2009 is $1.4 million. The amounts not yet
recognized primarily relate to retention costs that will be incurred over the remaining closure
period. This restructuring impacts approximately 40 associates in various production and support
related roles and the costs relating to the restructuring will be paid in 2009.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Coal Mine Liability
Included in other long-term liabilities is an accrual related to a former coal mining operation at
Littelfuse GmbH (formerly known as Heinrich Industries, AG) for the amounts of 3.7 million ($5.2
million) and 4.0 million ($5.9 million) in 2008 and 2007, respectively. The accrual, which is not
discounted, is based on an engineering study estimating the cost of remediating the dangers (such
as a shaft collapse) of abandoned coal mine shafts in Germany.
11. Asset Impairments
During 2008, the company recorded a charge of approximately $3.2 million within cost of sales
related to asset impairments incurred primarily in China. The charge was associated mainly with the
discontinuation of equipment used to manufacture gas discharge tubes as the company has determined
to utilize a third party manufacturer for its production beginning in 2009. During 2007, the
company recorded a charge of approximately $0.8 million within cost of sales related to asset
impairments incurred primarily in China and Germany. During 2006, the company recorded a charge of
approximately $4.4 million for the write-down of Littelfuse GmbH (formerly known as Heinrich
Industries, AG) real estate and fixed assets. $2.7 million of this write-down was recorded to
reduce the carrying value of property located in Witten, Germany, consisting primarily of land and
buildings used for manufacturing and administrative offices, as a result of entering into
agreements to sell the property. The sale was completed in the fourth quarter of 2006. The
remaining $1.7 million charge related to a reduction in the carrying value of certain long-term
assets located at the same facility to record them at fair value in anticipation of their future
sale. $0.8 million of the total charge was recorded within cost of sales and $3.6 million within
selling, general and administrative expenses.
12. Benefit Plans
The
company has a company-sponsored defined benefit pension
plan covering substantially all of its North American
employees. The amount of the retirement benefit is based on years of service and final average pay.
The plan also provides post-retirement medical benefits to retirees and their spouses if the
retiree has reached age 62 and has provided at least ten years of service prior to retirement. Such
benefits generally cease once the retiree attains age 65. The company
also has company-sponsored defined benefit
pension plans covering employees in the U.K., Ireland, Germany, Japan, Taiwan and the Netherlands.
The amount of the retirement benefits provided under the plans is based on years of service and
final average pay. Liabilities resulting from the plan that covers employees in the Netherlands are
settled annually through the purchase of insurance contracts. Separate from the foreign pension
data presented below, net periodic expense for the plan covering the Netherlands employees was $0.2
million, $0.1 million, and $0.1 million in 2008, 2007, and 2006, respectively.
The companys contributions are made in amounts sufficient to satisfy legal requirements. The
minimum funding requirement, in accordance with the Employee Retirement Income Securities Act of
1974 (ERISA) Current Liability amount, is $1.9 million for 2009.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans, continued
Total pension expense was $9.8 million, $6.7 million, and $3.7 million in 2008, 2007, and 2006,
respectively. The increase in pension expense in 2008 was primarily due to the settlement of the
Ireland plan and the resulting settlement loss. The increase in pension expense in 2007 was largely
due to the wind down of the U.K. plan and the resulting settlement loss. Benefit plan related
information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
(in thousands) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
67,867 |
|
|
$ |
48,955 |
|
|
$ |
116,822 |
|
|
$ |
68,530 |
|
|
$ |
51,249 |
|
|
$ |
119,779 |
|
Service cost |
|
|
3,241 |
|
|
|
848 |
|
|
|
4,089 |
|
|
|
3,329 |
|
|
|
1,170 |
|
|
|
4,499 |
|
Interest cost |
|
|
4,294 |
|
|
|
2,150 |
|
|
|
6,444 |
|
|
|
4,069 |
|
|
|
2,371 |
|
|
|
6,440 |
|
Plan participant contributions |
|
|
|
|
|
|
126 |
|
|
|
126 |
|
|
|
|
|
|
|
288 |
|
|
|
288 |
|
Curtailment loss (gain) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(657 |
) |
|
|
(657 |
) |
Settlement loss (gain) |
|
|
|
|
|
|
(37,233 |
) |
|
|
(37,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain |
|
|
(2,644 |
) |
|
|
(517 |
) |
|
|
(3,161 |
) |
|
|
(4,599 |
) |
|
|
(4,235 |
) |
|
|
(8,834 |
) |
Benefits paid from the trust |
|
|
(3,523 |
) |
|
|
(979 |
) |
|
|
(4,502 |
) |
|
|
(3,462 |
) |
|
|
(5,337 |
) |
|
|
(8,799 |
) |
Benefits paid directly by company |
|
|
|
|
|
|
(922 |
) |
|
|
(922 |
) |
|
|
|
|
|
|
(864 |
) |
|
|
(864 |
) |
Other |
|
|
|
|
|
|
852 |
|
|
|
852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate movements |
|
|
|
|
|
|
(911 |
) |
|
|
(911 |
) |
|
|
|
|
|
|
4,970 |
|
|
|
4,970 |
|
|
Benefit obligation at end of year |
|
$ |
69,235 |
|
|
$ |
12,369 |
|
|
$ |
81,604 |
|
|
$ |
67,867 |
|
|
$ |
48,955 |
|
|
$ |
116,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning
of year |
|
$ |
61,324 |
|
|
$ |
40,077 |
|
|
$ |
101,401 |
|
|
$ |
56,563 |
|
|
$ |
35,498 |
|
|
$ |
92,061 |
|
Actual return on plan assets |
|
|
(19,420 |
) |
|
|
133 |
|
|
|
(19,287 |
) |
|
|
3,223 |
|
|
|
78 |
|
|
|
3,301 |
|
Employer contributions |
|
|
|
|
|
|
178 |
|
|
|
178 |
|
|
|
5,000 |
|
|
|
5,795 |
|
|
|
10,795 |
|
Plan participant contributions |
|
|
|
|
|
|
126 |
|
|
|
126 |
|
|
|
|
|
|
|
288 |
|
|
|
288 |
|
Benefits paid |
|
|
(3,523 |
) |
|
|
(979 |
) |
|
|
(4,502 |
) |
|
|
(3,462 |
) |
|
|
(5,337 |
) |
|
|
(8,799 |
) |
Settlement loss (gain) |
|
|
|
|
|
|
(37,233 |
) |
|
|
(37,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate movements |
|
|
|
|
|
|
(285 |
) |
|
|
(285 |
) |
|
|
|
|
|
|
3,755 |
|
|
|
3,755 |
|
Other |
|
|
(66 |
) |
|
|
|
|
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
38,315 |
|
|
|
2,017 |
|
|
|
40,332 |
|
|
|
61,324 |
|
|
|
40,077 |
|
|
|
101,401 |
|
|
Net amount recognized/unfunded status |
|
$ |
(30,920 |
) |
|
$ |
(10,352 |
) |
|
$ |
(41,272 |
) |
|
$ |
(6,543 |
) |
|
$ |
(8,878 |
) |
|
$ |
(15,421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated
Balance Sheet consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost |
|
$ |
|
|
|
$ |
365 |
|
|
$ |
365 |
|
|
$ |
|
|
|
$ |
2,950 |
|
|
$ |
2,950 |
|
Accrued benefit liability |
|
|
(30,920 |
) |
|
|
(10,717 |
) |
|
|
(41,637 |
) |
|
|
(6,543 |
) |
|
|
(11,828 |
) |
|
|
(18,371 |
) |
|
Net liability recognized |
|
$ |
(30,920 |
) |
|
$ |
(10,352 |
) |
|
$ |
(41,272 |
) |
|
$ |
(6,543 |
) |
|
$ |
(8,878 |
) |
|
$ |
(15,421 |
) |
|
Accumulated other comprehensive loss |
|
$ |
23,680 |
|
|
$ |
(1,693 |
) |
|
$ |
21,987 |
|
|
$ |
1,795 |
|
|
$ |
4,363 |
|
|
$ |
6,158 |
|
|
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans, continued
Amounts recognized in accumulated other comprehensive loss, pre-tax consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
(in thousands) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
|
Net actuarial loss |
|
$ |
23,604 |
|
|
$ |
(1,597 |
) |
|
$ |
22,007 |
|
|
$ |
1,709 |
|
|
$ |
5,438 |
|
|
$ |
7,147 |
|
Prior
service (cost) credit |
|
|
76 |
|
|
|
(96 |
) |
|
|
(20 |
) |
|
|
86 |
|
|
|
(102 |
) |
|
|
(16 |
) |
Net transition obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(973 |
) |
|
|
(973 |
) |
|
Net amount recognized /
occurring, pre-tax |
|
$ |
23,680 |
|
|
$ |
(1,693 |
) |
|
$ |
21,987 |
|
|
$ |
1,795 |
|
|
$ |
4,363 |
|
|
$ |
6,158 |
|
|
The estimated net actuarial loss which will be amortized from accumulated other comprehensive loss
into benefit cost in 2009 is $0.1 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
Foreign |
(in thousands) |
|
2008 |
|
2007 |
|
2006 |
|
2008 |
|
2007 |
|
2006 |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
3,241 |
|
|
$ |
3,329 |
|
|
$ |
3,192 |
|
|
$ |
848 |
|
|
$ |
1,170 |
|
|
$ |
1,124 |
|
Interest cost |
|
|
4,294 |
|
|
|
4,069 |
|
|
|
3,799 |
|
|
|
2,150 |
|
|
|
2,371 |
|
|
|
2,043 |
|
Expected return on plan assets |
|
|
(5,053 |
) |
|
|
(4,697 |
) |
|
|
(4,228 |
) |
|
|
(1,353 |
) |
|
|
(1,513 |
) |
|
|
(2,117 |
) |
Amortization of prior service cost |
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
|
|
(13 |
) |
|
|
(14 |
) |
|
|
(13 |
) |
Amortization of transition asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75 |
) |
|
|
(92 |
) |
|
|
(113 |
) |
Amortization of losses |
|
|
|
|
|
|
14 |
|
|
|
57 |
|
|
|
63 |
|
|
|
522 |
|
|
|
308 |
|
|
Total cost of the plan for the year |
|
|
2,492 |
|
|
|
2,725 |
|
|
|
2,830 |
|
|
|
1,620 |
|
|
|
2,444 |
|
|
|
1,232 |
|
Expected plan participantscontrib. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
2,492 |
|
|
|
2,725 |
|
|
|
2,830 |
|
|
|
1,620 |
|
|
|
2,444 |
|
|
|
1,232 |
|
Settlement loss (curtailment gain) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,725 |
|
|
|
1,506 |
|
|
|
(322 |
) |
|
Total expense for the year |
|
$ |
2,492 |
|
|
$ |
2,725 |
|
|
$ |
2,830 |
|
|
$ |
7,345 |
|
|
$ |
3,950 |
|
|
$ |
910 |
|
|
Weighted average assumptions used to determine net periodic benefit cost for the years 2008, 2007 and 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
Foreign |
|
|
2008 |
|
2007 |
|
2006 |
|
2008 |
|
2007 |
|
2006 |
|
Discount rate |
|
|
6.5 |
% |
|
|
6.0 |
% |
|
|
6.0 |
% |
|
|
5.2 |
% |
|
|
4.5 |
% |
|
|
4.2 |
% |
Expected return on plan assets |
|
|
8.5 |
% |
|
|
8.5 |
% |
|
|
8.5 |
% |
|
|
4.2 |
% |
|
|
4.0 |
% |
|
|
6.7 |
% |
Compensation increase rate |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
3.5 |
% |
|
|
3.5 |
% |
|
|
3.2 |
% |
Measurement dates |
|
|
1/01/08 |
|
|
|
1/01/07 |
|
|
|
1/01/06 |
|
|
|
1/01/08 |
|
|
|
1/01/07 |
|
|
|
1/01/06 |
|
|
The accumulated benefit obligation for the U.S. defined benefits plans was $63.0 million and $57.8 million at December
27, 2008 and December 29, 2007, respectively. The accumulated benefit obligation for the foreign plan was $12.9 million
and $44.5 million at December 27, 2008 and December 29, 2007, respectively. The significant change in domestic plan
assets in 2008 is due to the general economic slowdown during the latter half of 2008. The significant change in
foreign plan assets in 2008 is related to settlement of the companys Ireland pension plan.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans, continued
Weighted average assumptions used to determine benefit obligations at year-end 2008, 2007 and 2006
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
Foreign |
|
|
2008 |
|
2007 |
|
2006 |
|
2008 |
|
2007 |
|
2006 |
Discount rate |
|
|
6.4 |
% |
|
|
6.5 |
% |
|
|
6.0 |
% |
|
|
6.6 |
% |
|
|
5.2 |
% |
|
|
4.5 |
% |
Compensation increase rate |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.0 |
% |
|
|
3.5 |
% |
|
|
3.5 |
% |
Measurement dates |
|
|
12/31/08 |
|
|
|
12/31/07 |
|
|
|
12/31/06 |
|
|
|
12/31/08 |
|
|
|
12/31/07 |
|
|
|
12/31/06 |
|
Expected benefit
payments to be paid to participants for the fiscal year ending are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
Year |
|
U.S. |
|
Foreign |
2009 |
|
$ |
3,795 |
|
|
$ |
1,147 |
|
2010 |
|
|
4,348 |
|
|
|
2,246 |
|
2011 |
|
|
4,266 |
|
|
|
993 |
|
2012 |
|
|
4,150 |
|
|
|
1,735 |
|
2013 |
|
|
4,163 |
|
|
|
1,236 |
|
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 8.5% on domestic plan
assets and 4.2% on foreign 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. U.S. defined benefit pension assets were invested as follows and were not
materially different from the target asset allocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Asset Allocation |
|
Foreign Asset Allocation |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Equity securities |
|
|
68 |
% |
|
|
73 |
% |
|
|
33 |
% |
|
|
2 |
% |
Debt securities |
|
|
32 |
% |
|
|
27 |
% |
|
|
32 |
% |
|
|
83 |
% |
Property |
|
|
|
|
|
|
|
|
|
|
5 |
% |
|
|
0 |
% |
Cash |
|
|
|
|
|
|
|
|
|
|
30 |
% |
|
|
15 |
% |
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
Defined Contribution Plans
The company also maintains a 401(k) savings plan covering substantially all U.S. employees. The
company matches 50% of the employees annual contributions for the first 4% of the employees gross
wages. Employees vest in the company contributions after two years of service. Company matching
contributions amounted to $0.6 million in each of the years 2008, 2007 and 2006, respectively. The
company provides additional retirement benefits for certain key executives through its unfunded
defined contribution Supplemental Executive Retirement Plan. The charge to expense for this plan
amounted to $0.4 million, $0.3 million and $0.3 million in each of the years 2008, 2007 and 2006,
respectively.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Shareholders Equity
Equity Plans: The company has stock option plans authorizing the granting of both incentive and
nonqualified options and other stock rights of up to 5,925,000 shares of common stock to employees
and directors. The stock options granted prior to 2002 vest over a five-year period and are
exercisable over a ten-year period commencing from the date of vesting. The stock options granted
in 2002 through February 2005 vest over a five-year period and are exercisable over a ten-year
period commencing from the date of the grant. Stock options granted after February 2005 vest over a
three, four or five-year period and are exercisable over either a seven or ten-year period
commencing from the date of the grant.
The company also has performance share agreements under its equity-based compensation plans
pursuant to which a target amount of performance share awards are granted based on the company
attaining certain financial performance goals relating to return on net tangible assets (for
performance shares granted prior to 2008) or return on net assets (for performance shares granted
in 2008) and earnings before interest, taxes, depreciation and amortization over a three-year
performance period. The performance-based restricted stock awards granted prior to 2008 vest in
thirds over a three-year period (following the three-year performance period), and are paid
annually as they vest, one half in the companys common stock and one half in cash. The
performance-based restricted stock awards granted in 2008 vest after a three-year performance
period and are paid completely in the companys common stock at the end of the performance period.
The fair value of the performance-based restricted stock awards that are paid in common stock is
measured at the market price on the grant date, and the fair value of the portion paid in cash is
measured at the current market price of a share.
The following table provides a reconciliation of outstanding stock options for the fiscal year
ended December 27, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wtd. Average |
|
Aggregate |
|
|
Shares Under |
|
Wtd. Average |
|
Rem. Contract |
|
Intrinsic |
|
|
Option |
|
Price |
|
Life (Years) |
|
Value ($000s) |
|
Outstanding Dec. 29, 2007 |
|
|
2,010,104 |
|
|
$ |
31.19 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
290,640 |
|
|
|
33.20 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(55,711 |
) |
|
|
24.72 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(153,835 |
) |
|
|
33.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Dec. 27, 2008 |
|
|
2,091,198 |
|
|
|
31.47 |
|
|
|
5.3 |
|
|
$ |
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable Dec. 27, 2008 |
|
|
1,207,584 |
|
|
|
29.48 |
|
|
|
4.9 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during 2008, 2007, and 2006 was $0.5 million, $2.9
million, and $2.1 million, respectively.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Shareholders Equity, continued
The following table provides a reconciliation of nonvested performance share awards (including only
awards to be paid in the companys common stock) for the twelve month period ending December 27,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Grant-Date Fair |
|
|
Shares |
|
Value |
Nonvested December 29, 2007 |
|
|
49,167 |
|
|
$ |
35.51 |
|
Granted |
|
|
40,550 |
|
|
|
30.27 |
|
Vested |
|
|
(6,334 |
) |
|
|
25.07 |
|
Forfeited |
|
|
(18,000 |
) |
|
|
34.33 |
|
|
|
|
|
|
|
|
|
|
Nonvested December 27, 2008 |
|
|
65,383 |
|
|
|
33.60 |
|
|
|
|
|
|
|
|
|
|
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 December 27, 2008, the unrecognized compensation
cost for options and performance shares was $9.4 million before tax, and will be recognized over a
weighted-average period of 2.3 years. The following table shows total stock-based compensation
expense included in selling, general and administrative expenses in the Consolidated Statements of
Income during 2008, 2007 and 2006 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Pre-tax stock-based compensation |
|
$ |
5,058 |
|
|
$ |
4,957 |
|
|
$ |
5,187 |
|
Income tax |
|
|
(2,064 |
) |
|
|
(1,880 |
) |
|
|
(1,889 |
) |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, net |
|
$ |
2,994 |
|
|
$ |
3,077 |
|
|
$ |
3,298 |
|
|
|
|
|
|
|
|
|
|
|
The company uses the Black-Scholes option valuation model to determine the fair value of awards
granted. The weighted average fair value of and related assumptions for options granted were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
Weighted average fair value of
options granted |
|
$ |
11.65 |
|
|
$ |
14.05 |
|
|
$ |
13.90 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
3.31 |
% |
|
|
4.46 |
% |
|
|
4.89 |
% |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected stock price volatility |
|
|
34.8 |
% |
|
|
35.7 |
% |
|
|
39.0 |
% |
Expected life of options |
|
4.7 years |
|
|
4.7 years |
|
|
4.8 years |
|
Expected volatilities are based on both historical volatility of the companys stock price and
implied volatility of exchange-traded options on the companys stock. The expected life of options
is based on historical data for options granted by the company and the SEC simplified method. 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.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Shareholders Equity, continued
Accumulated Other Comprehensive Income (Loss): The components of accumulated other comprehensive
income (loss) at the end of fiscal year 2008 and 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 27, 2008 |
|
|
December 29, 2007 |
|
Minimum pension liability adjustment* |
|
$ |
(15,488 |
) |
|
$ |
(3,835 |
) |
Gain (loss) on investments** |
|
|
|
|
|
|
105 |
|
Gain (loss) on derivative instruments*** |
|
|
(403 |
) |
|
|
|
|
Foreign currency translation adjustment |
|
|
5,768 |
|
|
|
21,091 |
|
|
|
|
|
|
|
|
Total |
|
$ |
(10,123 |
) |
|
$ |
17,361 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
net of tax of $6,499 and $2,323 for 2008 and 2007, respectively. |
|
** |
|
net of tax of ($65) for 2007. |
|
*** |
|
net of tax of $247 for 2008. |
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.
14. Income Taxes
In June 2006, the FASB issued FIN 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN 48, the company may recognize 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 should be measured
based on the largest benefit that has a greater than fifty percent likelihood of being realized
upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest
and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The company adopted the provisions of FIN 48 on December 31, 2006 and had no adjustments to the
retained earnings balance as a result of the implementation. A reconciliation of the beginning and
ending amount of unrecognized tax benefits as of December 27,
2008 and December 29, 2007 is as
follows (in thousands):
|
|
|
|
|
Balance at December 31, 2006 |
|
$ |
8,311 |
|
Additions for tax positions of prior years |
|
|
121 |
|
Settlements |
|
|
(706 |
) |
Reductions based on lapse of statute |
|
|
(3,947 |
) |
|
|
|
|
Balance at December 29, 2007 |
|
|
3,779 |
|
Settlements |
|
|
(179 |
) |
Reductions based on lapse of statute |
|
|
(845 |
) |
|
|
|
|
Balance at December 27, 2008 |
|
$ |
2,755 |
|
|
|
|
|
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income Taxes, continued
The amount of unrecognized tax benefits at December 27, 2008 was approximately $2.8 million. Of
this total, approximately $1.4 million represents the amount of unrecognized tax benefits that, if
recognized, would favorably affect the effective income tax rate in future periods. The company
reasonably expects an approximate $2.1 million decrease in unrecognized tax benefits in the next 12
months due to settlements or lapse of tax statutes 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 U.S.
federal statute of limitations remains open for 2004 onward. Foreign and U.S. state statute of
limitations generally range from three to six years. The company is currently under examination in
several foreign jurisdictions.
The company recognizes accrued interest and penalties associated with uncertain tax positions as
part of income tax expense. As of December 27, 2008, the company had approximately $0.2 million of
accrued interest and penalties. Of this total, approximately $0.1 million represents the amount of
interest and penalties that, if recognized, would favorably affect the effective tax rate in future
periods.
Domestic and foreign income (loss) from continuing operations before income taxes is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Domestic |
|
$ |
(15,284 |
) |
|
$ |
2,149 |
|
|
$ |
2,655 |
|
Foreign |
|
|
25,907 |
|
|
|
49,139 |
|
|
|
26,751 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
$ |
10,623 |
|
|
$ |
51,288 |
|
|
$ |
29,406 |
|
|
|
|
|
|
|
|
|
|
|
Federal, state,
and foreign income tax (benefit) expense consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(215 |
) |
|
$ |
(1,871 |
) |
|
$ |
8,678 |
|
State |
|
|
268 |
|
|
|
1,146 |
|
|
|
144 |
|
Foreign |
|
|
6,501 |
|
|
|
13,027 |
|
|
|
5,689 |
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
6,554 |
|
|
|
12,302 |
|
|
|
14,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal and State |
|
|
(4,849 |
) |
|
|
2,033 |
|
|
|
(6,731 |
) |
Foreign |
|
|
902 |
|
|
|
118 |
|
|
|
(1,610 |
) |
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
(3,947 |
) |
|
|
2,151 |
|
|
|
(8,341 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
2,607 |
|
|
$ |
14,453 |
|
|
$ |
6,170 |
|
|
|
|
|
|
|
|
|
|
|
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income Taxes, continued
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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
Tax expense at statutory rate of 35% |
|
$ |
3,718 |
|
|
$ |
17,951 |
|
|
$ |
10,292 |
|
State and local taxes, net of federal tax benefit |
|
|
(322 |
) |
|
|
483 |
|
|
|
45 |
|
Foreign income tax rate differential |
|
|
(1,168 |
) |
|
|
(962 |
) |
|
|
(1,374 |
) |
Foreign losses for which no tax benefit is available |
|
|
1,068 |
|
|
|
32 |
|
|
|
203 |
|
Tax on unremitted earnings |
|
|
(257 |
) |
|
|
(140 |
) |
|
|
(276 |
) |
Domestic net operating loss carryover |
|
|
|
|
|
|
|
|
|
|
(1,780 |
) |
Contingent tax reserves |
|
|
(140 |
) |
|
|
(2,783 |
) |
|
|
(230 |
) |
Other, net |
|
|
(292 |
) |
|
|
(128 |
) |
|
|
(710 |
) |
|
Provision for income taxes |
|
$ |
2,607 |
|
|
$ |
14,453 |
|
|
$ |
6,170 |
|
|
Deferred income taxes are provided for the tax effects of temporary differences between the
financial reporting bases and the tax bases of the companys assets and liabilities. Significant
components of the companys deferred tax assets and liabilities at December 27, 2008 and December
29, 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
DEFERRED TAX ASSETS: |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
26,435 |
|
|
$ |
14,698 |
|
Foreign tax credit carryforwards |
|
|
6,962 |
|
|
|
|
|
R&D credit carryforwards |
|
|
518 |
|
|
|
|
|
AMT credit carryforwards |
|
|
1,318 |
|
|
|
1,502 |
|
Accrued restructuring |
|
|
3,744 |
|
|
|
9,348 |
|
Domestic and foreign net operating loss carryforwards |
|
|
3,659 |
|
|
|
6,627 |
|
Other |
|
|
391 |
|
|
|
|
|
|
Gross deferred tax assets |
|
|
43,027 |
|
|
|
32,175 |
|
Less: Valuation allowance |
|
|
(708 |
) |
|
|
(708 |
) |
|
Total deferred tax assets |
|
|
42,319 |
|
|
|
31,467 |
|
|
|
|
|
|
|
|
|
|
|
DEFERRED TAX LIABILITIES: |
|
|
|
|
|
|
|
|
Tax depreciation and amortization in excess of book |
|
|
15,391 |
|
|
|
13,920 |
|
Other |
|
|
|
|
|
|
420 |
|
|
Total deferred tax liabilities |
|
|
15,391 |
|
|
|
14,340 |
|
|
|
|
|
|
|
|
|
|
|
|
NET DEFERRED TAX ASSETS |
|
$ |
26,928 |
|
|
$ |
17,127 |
|
|
The deferred tax asset valuation allowance is related to deferred tax assets from foreign net
operating losses. The remaining domestic and foreign net operating losses either have no expiration
date or are expected to be utilized prior to expiration. The foreign tax credit carryforwards begin
to expire in 2015. The company paid income taxes of approximately $8.8 million, $16.7 million and
$10.0 million in 2008, 2007 and 2006, respectively. U.S. income taxes were not provided for on a
cumulative total of approximately $28 million of undistributed earnings for certain non-U.S.
subsidiaries as of December 27, 2008, and accordingly, no deferred tax liability has been
established relative to these earnings. The determination of the deferred tax liability associated
with the distribution of these earnings is not practicable. The company has two subsidiaries in
China and one subsidiary in the Philippines that are currently taxed at an income tax rate less
than the statutory income tax rate imposed in the jurisdictions. The tax holidays for these
subsidiaries are set to expire within the next four years.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Business Unit Segment Information
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131),
establishes annual and interim reporting standards for an enterprises operating segments and
related disclosures about its products, services, geographic areas and major customers. 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, as defined by SFAS 131, is the companys President and Chief Executive Officer
(CEO).
The
company reports its operations by the following business unit segments: Electronics;
Automotive; and Electrical.
|
|
Electronics. Provides circuit protection components and expertise to
leading global manufacturers of a wide range of electronic products
including mobile phones, computers, LCD TVs, telecommunications
equipment, medical devices, lighting products and white goods. The
Electronics business segment has the broadest product offering in the
industry including fuses and protectors, positive temperature
coefficient (PTC) resettable fuses, varistors, polymer electrostatic
discharge (ESD) suppressors, discreet transient voltage suppression
(TVS) diodes, TVS diode arrays and protection thyristors, gas
discharge tubes, power switching components and fuseholders, blocks
and related accessories. |
|
|
|
Automotive. Provides circuit protection products to the worldwide
automotive original equipment manufacturers (OEM) and parts
distributors of passenger automobiles, trucks, buses and off-road
equipment. The company also sells its fuses in the automotive
replacement parts market. Products include blade fuses, high current
fuses, battery cable protectors and varistors. |
|
|
|
Electrical. Provides circuit protection products and hazard
assessments for industrial and commercial customers. Products include
power fuses and other circuit protection devices that are used in
commercial and industrial buildings and large equipment such as HVAC
systems, elevators and machine tools. |
Each of the operating segments is directly responsible for sales, marketing and research and
development. Manufacturing, purchasing, logistics, customer service, finance, information
technology and human resources are shared functions that are allocated back to the three operating
segments. The CEO 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 asset information.
Sales, marketing and research and development expenses are charged directly into each operating
segment. All other functions are shared by the operating segments and expenses for these shared
functions are allocated to the operating segments and included in the operating results reported
below. The company does not report inter-segment revenue because the operating segments do not
record it. The company does not allocate interest and other income, interest expense, or taxes to
operating segments. Although the CEO uses operating income 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.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Business Unit Segment Information, continued
In accordance with SFAS 131, the company has provided this business unit segment information for
all comparable prior periods. Segment information is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
Electronics |
|
$ |
342,489 |
|
|
$ |
348,957 |
|
|
$ |
365,418 |
|
Automotive |
|
|
126,867 |
|
|
|
135,109 |
|
|
|
123,620 |
|
Electrical |
|
|
61,513 |
|
|
|
52,078 |
|
|
|
45,821 |
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
530,869 |
|
|
$ |
536,144 |
|
|
$ |
534,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Electronics |
|
$ |
1,745 |
|
|
$ |
19,814 |
|
|
$ |
37,819 |
|
Automotive |
|
|
2,216 |
|
|
|
18,900 |
|
|
|
13,700 |
|
Electrical |
|
|
15,471 |
|
|
|
11,989 |
|
|
|
9,936 |
|
Other* |
|
|
(10,937 |
) |
|
|
606 |
|
|
|
(32,597 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
|
8,495 |
|
|
|
51,309 |
|
|
|
28,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
3,440 |
|
|
|
1,557 |
|
|
|
1,626 |
|
Other expense (income), net |
|
|
(5,568 |
) |
|
|
(1,536 |
) |
|
|
(2,174 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income
taxes |
|
|
10,623 |
|
|
|
51,288 |
|
|
|
29,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Included in Other Operating income (loss) for 2008 are special items such as restructuring
charges related to the closure of the companys Matamoros, Mexico facility ($4.4 million see
Note 9) and Ireland pension settlement charge ($5.7 million see Note 12). Included in Other
Operating income (loss) for 2007 is the gain on sale of property in Ireland ($8.0 million),
partially offset by restructuring charges related to the closure of the companys Des Plaines,
Illinois facility ($3.5 million see Note 9) and related write-down of manufacturing assets ($1.9
million). Included in Other Operating income (loss) for 2006 are restructuring charges related
to the closure of the companys Ireland facility ($17.1 million see Note 9), Irving, Texas
facility ($1.9 million see Note 9), and the downsizing of the Littelfuse GmbH (formerly known as
Heinrich Industries, AG) operations ($4.3 million see Note 9) and related write-down of
manufacturing assets ($4.4 million). |
The companys revenues and identifiable assets (total assets less intangible assets and
investments) by geographical area for the fiscal years ended 2008, 2007 and 2006 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
201,771 |
|
|
$ |
204,305 |
|
|
$ |
215,892 |
|
Europe |
|
|
118,559 |
|
|
|
118,265 |
|
|
|
111,652 |
|
Asia-Pacific |
|
|
210,539 |
|
|
|
213,574 |
|
|
|
207,315 |
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
530,869 |
|
|
$ |
536,144 |
|
|
$ |
534,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets |
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
183,221 |
|
|
$ |
165,074 |
|
|
$ |
227,322 |
|
Europe |
|
|
79,312 |
|
|
|
136,881 |
|
|
|
159,639 |
|
Asia-Pacific |
|
|
170,471 |
|
|
|
164,730 |
|
|
|
148,526 |
|
|
|
|
|
|
|
|
|
|
|
Combined total |
|
|
433,004 |
|
|
|
466,685 |
|
|
|
535,487 |
|
Eliminations |
|
|
(27,081 |
) |
|
|
(79,572 |
) |
|
|
(169,900 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
405,923 |
|
|
$ |
387,113 |
|
|
$ |
365,587 |
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 27, 2008, approximately 62.0% of the companys net sales were to
customers outside the United States (exports and foreign operations) including 19.4% in Hong Kong.
Sales to Arrow Pemco Group were less than 10% for 2008 and 2007, respectively, but 10.6% for 2006.
No other single customer accounted for more than 10% of net sales during the last three years.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Lease Commitments
The company leases certain office and warehouse space as well as certain machinery and equipment
under non-cancelable operating leases. Rental expense under these leases was approximately $6.0
million in 2008, $4.4 million in 2007, and $5.3 million in 2006.
Rent expense is recognized on a straight-line basis over the term of the leases. The difference
between straight-line basis rent and the amount paid has been recorded as accrued lease
obligations. The company also has leases that have lease renewal provisions. As of December 27,
2008, all operating leases outstanding were with third parties. The company did not have any
capital leases as of December 27, 2008.
In February 2008, the company entered into an agreement to lease office space for its U.S.
headquarters, which will be located in Chicago, Illinois. The lease, with a stated commencement
date of January 1, 2009, expires December 31, 2024 and contains two five-year renewal options. In
addition, the lease contains leasehold improvement incentives and rent abatement for the first year
of the lease. The company expects to recognize rental expense for this lease on a straight-line
basis over the term of the lease, including base rent and all considerations received. Annual
rental expense under this lease will be approximately $1.4 million.
Future minimum payments for all non-cancelable operating leases with initial terms of one year or
more at December 27, 2008, are as follows (in thousands):
|
|
|
|
|
2009 |
|
$ |
6,498 |
|
2010 |
|
|
4,427 |
|
2011 |
|
|
3,431 |
|
2012 |
|
|
2,338 |
|
2013 |
|
|
1,922 |
|
2014 and thereafter |
|
|
19,922 |
|
|
|
|
|
|
|
$ |
38,538 |
|
|
|
|
|
17. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts) |
|
2008 |
|
2007 |
|
2006 |
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
8,016 |
|
|
$ |
36,835 |
|
|
$ |
23,236 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares |
|
|
21,722 |
|
|
|
22,231 |
|
|
|
22,305 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents |
|
|
104 |
|
|
|
163 |
|
|
|
129 |
|
Denominator for diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for weighted-average shares & assumed conversions |
|
|
21,826 |
|
|
|
22,394 |
|
|
|
22,434 |
|
Basic earnings per share |
|
$ |
0.37 |
|
|
$ |
1.66 |
|
|
$ |
1.04 |
|
Diluted earnings per share |
|
$ |
0.37 |
|
|
$ |
1.64 |
|
|
$ |
1.03 |
|
The following potential shares of common stock attributable to stock options were excluded from the
earnings per share calculation because their effect would be anti-dilutive: 1,322,540 in 2008;
906,215 in 2007; and 1,121,293 in 2006.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Selected Quarterly Financial Data (Unaudited)
The quarterly periods listed in the table below for 2008 are for the 13-weeks ending December 27,
2008, September 27, 2008, June 28, 2008 and March 29, 2008, respectively. The quarterly periods for
2007 are for the 13-weeks ending December 29, 2007, September 29, 2007, June 30, 2007 and March 31,
2007, respectively.
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
4Qa |
|
3Qb |
|
2Q |
|
1Qc |
|
4Q |
|
3Qd |
|
2Q |
|
1Qe |
|
Net sales |
|
$ |
105,887 |
|
|
$ |
141,448 |
|
|
$ |
149,826 |
|
|
$ |
133,708 |
|
|
$ |
134,966 |
|
|
$ |
140,215 |
|
|
$ |
129,149 |
|
|
$ |
131,814 |
|
Gross profit |
|
|
21,826 |
|
|
|
35,900 |
|
|
|
47,462 |
|
|
|
38,481 |
|
|
|
42,656 |
|
|
|
46,289 |
|
|
|
41,271 |
|
|
|
41,321 |
|
Operating income (loss) |
|
|
(13,108 |
) |
|
|
2,011 |
|
|
|
13,304 |
|
|
|
6,288 |
|
|
|
9,979 |
|
|
|
20,227 |
|
|
|
11,612 |
|
|
|
9,491 |
|
Net income (loss) |
|
|
(9,225 |
) |
|
|
3,988 |
|
|
|
9,141 |
|
|
|
4,112 |
|
|
|
7,938 |
|
|
|
14,294 |
|
|
|
8,382 |
|
|
|
6,221 |
|
Net income (loss)
per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
(0.42 |
) |
|
|
0.18 |
|
|
|
0.42 |
|
|
|
0.19 |
|
|
|
0.36 |
|
|
|
0.64 |
|
|
|
0.38 |
|
|
|
0.28 |
|
Diluted |
|
|
(0.42 |
) |
|
|
0.18 |
|
|
|
0.42 |
|
|
|
0.19 |
|
|
|
0.36 |
|
|
|
0.64 |
|
|
|
0.38 |
|
|
|
0.28 |
|
|
|
|
a |
|
In the fourth quarter of 2008, the company recorded a $3.2 million charge related to the
write-down of manufacturing assets and a $2.8 million charge from marking down the companys
investment in Polytronics to its lower market value. |
|
b |
|
In the third quarter of 2008, the company recorded a $5.7 million non-cash charge related to
settlement of the Ireland pension plan. |
|
c |
|
In the first quarter of 2008, the company recorded a $4.4 million restructuring charge related
to the closure of its Matamoros, Mexico facility and the corresponding transfer of manufacturing
operations to its Wuxi, China facility. |
|
d |
|
In the third quarter of 2007, the company recorded an $8.0 million gain on the sale of land in
Ireland. |
|
e |
|
In the first quarter of 2007, the company recorded a $3.5 million restructuring charge related
to the closure of its Des Plaines and Elk Grove, Illinois facilities and the transfer of its
manufacturing from Des Plaines, Illinois to the Philippines and Mexico. |
19. Subsequent Event
The company has undertaken several cost savings initiatives to reduce operating expenses for 2009,
including the decision to freeze additional pension benefits related to the U.S.-based Littelfuse,
Inc. Retirement Plan effective April 1, 2009, pending approval of a plan amendment by the Board of
Directors. Management estimates that pension expense for fiscal year 2009 would decrease by
approximately $1.7 million as a result of this decision.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Section 404 of the Sarbanes-Oxley Act of 2002 requires management to include in this Annual Report
on Form 10-K a report on managements assessment of the effectiveness of the companys internal
control over financial reporting, as well as an attestation report from the companys independent
registered accounting firm on the effectiveness of the companys internal control over financial
reporting.
71
Managements Report on Internal Control over Financial Reporting
The management of Littelfuse is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f).
Littelfuses internal control system was designed to provide reasonable assurance to its management
and the Board of Directors regarding the preparation and fair presentation of published financial
statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Littelfuses management assessed the effectiveness of the companys internal control over financial
reporting as of December 27, 2008, based upon the framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, the companys management concluded that, as of December 27, 2008, the
companys internal control over financial reporting is effective.
Littelfuses independent registered public accounting firm, Ernst & Young LLP, has audited the
effectiveness of the companys internal control over financial reporting as of December 27, 2008.
Their report appears on page 36.
Changes in Internal Control over Financial Reporting
There was no change in the Companys internal control over financial reporting that occurred during
the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
Disclosure Controls and Procedures
The company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the companys Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is accumulated and communicated to the
companys management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
As of December 27, 2008, the Chief Executive Officer and Chief Financial Officer of the company
evaluated the effectiveness of the disclosure controls and procedures of the company and concluded
that these disclosure controls and procedures were effective.
ITEM 9B. OTHER INFORMATION.
None.
72
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Executive Officers of the Registrant
The executive officers of the company are as follows:
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Gordon Hunter
|
|
|
57 |
|
|
Chairman of the Board of Directors, President and Chief Executive Officer |
|
|
|
|
|
|
|
Philip G. Franklin
|
|
|
57 |
|
|
Vice President, Operations Support, Chief Financial Officer and Treasurer |
|
|
|
|
|
|
|
Dal Ferbert
|
|
|
54 |
|
|
Vice President and General Manager of the Electrical Business Unit |
|
|
|
|
|
|
|
Dieter Roeder
|
|
|
52 |
|
|
Vice President and General Manager of the Automotive Business Unit |
|
|
|
|
|
|
|
David R. Samyn
|
|
|
48 |
|
|
Vice President and General Manager of the Electronics Business Unit |
|
|
|
|
|
|
|
David W. Heinzmann
|
|
|
45 |
|
|
Vice President of Global Operations |
|
|
|
|
|
|
|
Ryan
K. Stafford
|
|
|
41 |
|
|
General Counsel and Vice President, Human Resources |
|
|
|
|
|
|
|
Paul Dickinson
|
|
|
37 |
|
|
Vice President and General Manager,
Semiconductor Products |
|
|
|
|
|
|
|
Mary S. Muchoney
|
|
|
63 |
|
|
Corporate Secretary |
Officers of Littelfuse are elected by the Board of Directors and serve at the discretion of the
Board.
Gordon Hunter was elected as the Chairman of the Board of Directors of the company and President
and Chief Executive Officer effective January 1, 2005. Mr. Hunter served as Chief Operating Officer
of the company from November 2003 to January 2005. Mr. Hunter has been a member of the Board of
Directors of the company since June 2002, where he has served as Chairman of the Technology
Committee. Prior to joining Littelfuse, Mr. Hunter was employed with Intel Corporation, where he
was Vice President, Intel Communications Group, and General Manager, Optical Products Group,
responsible for managing the access and optical communications business segments, from 2002 to
2003. Mr. Hunter was CEO for Calmar Optcom during 2001. From 1997 to 2002, he also served as a Vice
President for Raychem Corporation. His experience includes 20 years with Raychem Corporation in the
United States and Europe, with responsibilities in sales, marketing, engineering and general
management.
Philip G. Franklin, Vice President, Operations Support, Chief Financial Officer and Treasurer,
joined the company in 1998 and is responsible for finance and accounting, investor relations,
mergers and acquisitions, information systems and customer service. Prior to Littelfuse, Mr. Franklin was
Vice President and Chief Financial Officer for OmniQuip International, a private equity sponsored
roll-up in the construction equipment industry, which he helped take public. Before that, Mr.
Franklin served as Chief Financial Officer for both Monarch Marking Systems, a subsidiary of
Pitney Bowes, and Hill Refrigeration, a company controlled by Sam Zell. Earlier in his career, he
worked in a variety of finance and general management positions at FMC Corporation.
Dal Ferbert, Vice President and General Manager, Electrical Business Unit, is responsible for the
management of daily operations, sales, marketing and strategic planning efforts of the Electrical
Business Unit (POWR-GARD Products). Mr. Ferbert joined the company in 1976 as a member of the
electronic distributor sales team. From 1980 to 1989 he served in the Materials Management
Department as a buyer and then Purchasing Manager. In 1990, he was promoted to National Sales
Manager of the Electrical Business Unit and then promoted to his current position in 2004.
73
Executive Officers of the Registrant, continued
Dieter Roeder, Vice President and General Manager, Automotive Business Unit, is responsible for
marketing, sales, product development and customer relationships for all automotive business units.
Mr. Roeder joined the company in 2005 leading the Automotive Business Units European sales team,
based in Germany, before he was promoted to his current position in August 2007. Prior to joining
the company, Mr. Roeder served as Director of Business Development Europe for TDS Automotive from
2002 to 2005. Before that, Mr. Roeder spent ten years with Raychem GmbH (later Tyco Electronics)
where he had various sales and marketing responsibilities within the European automotive industry.
David R. Samyn, Vice President and General Manager, Electronics Business Unit, is responsible for
marketing, sales, product development and manufacturing for all electronics customers and products.
Mr. Samyn joined the companys management team in January 2003 as General Manager of the
Electronics Business Unit. Prior to joining the company, Mr. Samyn served as Vice President
Global Sales with Airfiber, Inc., an optical wireless telecom company in San Diego, CA from 2001 to
2003. Before that, Mr. Samyn spent five years with ADC Telecommunications where he had global sales
and marketing responsibilities.
David W. Heinzmann, Vice President, Global Operations, is responsible for Littelfuses
manufacturing and supply chain groups for all three of the companys business units. Mr. Heinzmann
began his career at the company in 1985 and possesses a broad range of experience within the
organization. He has held positions as a Manufacturing Manager, Quality Manager, Plant Manager and
Product Development Manager. Mr. Heinzmann also served as Director of Global Operations of the
Electronics Business Unit from early 2000 through 2003. He served as Vice President and General
Manager, Automotive Business Unit, from 2004 through August 2007 and then was promoted to his
current position.
Ryan K. Stafford, General Counsel and Vice President, Human Resources, is responsible the companys
legal, compliance, internal audit and human resources functions. Mr. Stafford joined the companys
management team in January 2007. Prior to joining the company, Mr. Stafford served as Vice
President of China Operations for Tyco Engineered Products & Services from 2005 to 2006 and Vice
President and General Counsel of it from 2001 to 2005. He served as Associate General Counsel for
Grinnell Corporation from 1998 to 2001. Prior to that he was with the law firm Sulloway & Hollis
P.L.L.C.
Paul
Dickinson, Vice President and General Manager, Semiconductor Products, is responsible for the
marketing, sales, product development and strategic planning efforts of the companys semiconductor
products. Mr. Dickinson joined the company in 1993 and has held a broad range of positions with
responsibility for corporate and international accounting and finance. Most recently, Mr. Dickinson
served as Vice President, Corporate Development and Treasurer from 2005 through 2008, with
responsibility for corporate acquisition, strategy, treasury, tax and finance functions. Mr.
Dickinson was promoted to his current position in August 2008.
Mary S. Muchoney has served as Corporate Secretary since 1991, after joining Littelfuse in 1977.
She is responsible for providing all secretarial and administrative functions for the President and
Littelfuse Board of Directors. Ms. Muchoney is a member of the Society of Corporate Secretaries &
Governance Professionals, as well as honorary member of the Societys Silver Quill Society.
74
The information set forth under Election of Directors and Section 16(a) Beneficial Ownership
Reporting Compliance in the Proxy Statement is incorporated herein by reference. The company
maintains a code of conduct, which applies to all associates, executive officers and directors. The
companys code of conduct meets the requirements of a code of ethics as defined by Item 406 of
Regulation S-K and applies to our chief executive officer, chief financial officer and chief
accounting officer as well as all other executive officers and associates. The code of conduct is
available for public viewing on the companys web site at www.littelfuse.com under the heading
Investors Corporate Governance.
If the company makes substantive amendments to the code of conduct or grants any waiver to its
chief executive officer, chief financial officer or persons performing similar functions,
Littelfuse will disclose the nature of such amendment or waiver on its website or in a Current
Report on Form 8-K in accordance with applicable rules and regulations. The information contained
on or connected to the companys website is not incorporated by reference into this Form 10-K and
should not be considered part of this or any other report Littelfuse files or furnishes with the
SEC. There have been no material changes to the procedures by which security holders may recommend
nominees to the companys Board of Directors in 2008.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under Election of Directors Compensation of Directors and Executive
Compensation in the Proxy Statement is incorporated herein by reference, except the section
captioned Compensation Committee Report is hereby furnished and not filed with this Annual
Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The information set forth under Ownership of Littelfuse, Inc. Common Stock and Compensation Plan
Information in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information set forth under Certain Relationships and Related Transactions and Election of
Directors in the Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information set forth under Audit and Non-Audit Fees in the Proxy Statement is incorporated
herein by reference.
75
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) |
|
Financial Statements and Schedules |
|
(1) |
|
The following Financial Statements are filed as a part of this report: |
|
(i) |
|
Report of Independent Registered Public Accounting Firm (page 35). |
|
|
(ii) |
|
Consolidated Balance Sheets as of December 27, 2008 and December 29, 2007 (page
37). |
|
|
(iii) |
|
Consolidated Statements of Income for the years ended December 27, 2008,
December 29, 2007, and December 30, 2006 (page 38). |
|
|
(iv) |
|
Consolidated Statements of Cash Flows for the years ended December 27, 2008,
December 29, 2007, and December 30, 2006 (page 39). |
|
|
(v) |
|
Consolidated Statements of Shareholders Equity for the years ended December 27,
2008, December 29, 2007, and December 30, 2006 (page 40). |
|
|
(vi) |
|
Notes to Consolidated Financial Statements (pages 41-71). |
|
(2) |
|
The following Financial Statement Schedule is submitted herewith for the periods
indicated therein. |
|
(i) |
|
Schedule II-Valuation and Qualifying Accounts and Reserves (page 77). |
|
|
All other schedules for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under the related instructions or are
inapplicable and, therefore, have been omitted. |
|
(3) |
|
Exhibits. See Exhibit Index on pages 79-81. |
76
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands of USD)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
Beginning |
|
|
Costs and |
|
|
|
|
|
|
|
|
|
|
End of |
|
Description |
|
Of Year |
|
|
Expenses(1) |
|
|
Deductions(2) |
|
|
Other(3) |
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 27, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses on
accounts receivable |
|
$ |
738 |
|
|
$ |
286 |
|
|
$ |
77 |
|
|
$ |
(51 |
) |
|
$ |
896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for sales
discounts and allowances |
|
$ |
12,259 |
|
|
$ |
47,081 |
|
|
$ |
47,400 |
|
|
$ |
(66 |
) |
|
$ |
11,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 29, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses on
accounts receivable |
|
$ |
983 |
|
|
$ |
31 |
|
|
$ |
309 |
|
|
$ |
33 |
|
|
$ |
738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for sales
discounts and allowances |
|
$ |
16,520 |
|
|
$ |
45,970 |
|
|
$ |
50,424 |
|
|
$ |
193 |
|
|
$ |
12,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses on
accounts receivable |
|
$ |
2,165 |
|
|
$ |
127 |
|
|
$ |
1,383 |
|
|
$ |
74 |
|
|
$ |
983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for sales
discounts and allowances |
|
$ |
9,738 |
|
|
$ |
23,819 |
|
|
$ |
17,244 |
|
|
$ |
207 |
|
|
$ |
16,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes provision for doubtful accounts, sales returns, and
sales discounts granted to customers. |
|
(2) |
|
Represents uncollectible accounts written off, net of
recoveries and credits issued to customers. |
|
(3) |
|
Represents translation adjustments. |
77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
Littelfuse, Inc.
|
|
|
By |
/s/ Gordon Hunter
|
|
|
|
Gordon Hunter, |
|
|
|
Chairman of the Board of Directors,
President and Chief Executive Officer |
|
|
Date: February 25, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
date indicated.
|
|
|
/s/ Gordon Hunter
Gordon Hunter
|
|
Chairman of the Board of Directors, President and
Chief Executive Officer (Principal Executive Officer) |
|
|
|
/s/ Tzau-Jin Chung
Tzau-Jin Chung
|
|
Director |
|
|
|
/s/ John P. Driscoll
John P. Driscoll
|
|
Director |
|
|
|
/s/ Anthony Grillo
Anthony Grillo
|
|
Director |
|
|
|
/s/ John E. Major
John E. Major
|
|
Director |
|
|
|
/s/ William P. Noglows
William P. Noglows
|
|
Director |
|
|
|
/s/ Ronald L. Schubel
Ronald L. Schubel
|
|
Director |
|
|
|
/s/ Philip G. Franklin
Philip G. Franklin
|
|
Vice President, Operations Support, Chief Financial
Officer and Treasurer (Principal Financial and
Principal Accounting Officer) |
78
EXHIBIT INDEX
The following documents listed below that have been previously filed with the SEC (1934
Act File No. 0-20388) are incorporated herein by reference:
|
|
|
Exhibit No. |
|
Description |
|
|
|
3.1
|
|
Certificate of Incorporation, as amended to date (filed as
Exhibit 3(I) to the companys Form 10-K for the fiscal year
ended January 3, 1998). |
|
|
|
3.2
|
|
Certificate of Designations of Series A Preferred Stock (filed
as Exhibit 4.2 to the companys Current Report on Form 8-K
dated December 1, 1995). |
|
|
|
3.3
|
|
Bylaws, as amended to date (filed as Exhibit 3.1 to the
companys Current Report on Form 8-K dated October 26, 2007). |
|
|
|
10.1
|
|
Amendment to Non-Qualified Stock Option Agreement and
Agreement for Deferred Compensation between Littelfuse, Inc.
and Gordon Hunter (filed as Exhibit 10.27 to the companys
Form 10-K for the fiscal year ended December 31, 2005). |
|
|
|
10.2
|
|
Amended and Restated Employment Agreement dated as of December
31, 2007, between Littelfuse, Inc. and Gordon Hunter (filed as
Exhibit 10.1 to the companys Form 10-K for the fiscal year
ended December 29, 2007). |
|
|
|
10.3*
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and Gordon Hunter. |
|
|
|
10.4*
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and Philip G. Franklin. |
|
|
|
10.5*
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and David R. Samyn. |
|
|
|
10.6*
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and David W. Heinzmann. |
|
|
|
10.7*
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and Hugh Dalsen Ferbert. |
|
|
|
10.8*
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and Ryan K. Stafford. |
|
|
|
10.9
|
|
Summary of Director Compensation (filed as Exhibit 10.18 to
the companys Form 10-K for the fiscal year ended December 29,
2007). |
|
|
|
10.10
|
|
Littelfuse, Inc. 401(k) Savings Plan (filed as Exhibit 4.8 to
the companys Form 10-K for the fiscal year ended December 31,
1992). |
|
|
|
10.11
|
|
1993 Stock Plan for Employees and Directors of Littelfuse,
Inc., as amended (filed as Exhibit 10.1 to the companys Form
10-Q for the quarterly period ended July 2, 2005). |
|
|
|
10.12
|
|
Form of Non-Qualified Stock Option Agreement under the 1993
Stock Plan for Employees and Directors of Littelfuse, Inc. for
employees of the company (filed as Exhibit 99.1 to the
companys Current Report on Form 8-K dated November 8, 2004). |
|
|
|
10.13
|
|
Form of Performance Shares Agreement under the 1993 Stock Plan
for Employees and Directors of Littelfuse, Inc. (filed as
Exhibit 10.23 to the companys Form 10-K for the
fiscal year
ended January 1, 2005). |
79
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.14
|
|
Form of Non-Qualified Stock Option Agreement under the 1993
Stock Plan for Employees and Directors of Littelfuse, Inc. for
non-employee directors of the company (filed as Exhibit 10.24
to the companys Form 10-K for the fiscal year ended January
1, 2005). |
|
|
|
10.15
|
|
Stock Plan for New Directors of Littelfuse, Inc., as amended
(filed as Exhibit 10.2 to the companys Form 10-Q for the
quarterly period ended July 2, 2005). |
|
|
|
10.16
|
|
Stock Plan for Employees and Directors of Littelfuse, Inc., as
amended (filed as Exhibit 10.3 to the companys Form 10-Q for
the quarterly period ended July 2, 2005). |
|
|
|
10.17
|
|
Littelfuse, Inc. Equity Incentive Compensation Plan (filed as
Exhibit A to the companys Proxy Statement for Annual Meeting of
Stockholders held on May 5, 2006). |
|
|
|
10.18
|
|
Form of Non-Qualified Stock Option Agreement under the
Littelfuse, Inc. Equity Incentive Compensation Plan (filed as
Exhibit 99.4 to the companys Current Report on Form 8-K dated
May 5, 2006). |
|
|
|
10.19
|
|
Form of Performance Shares Agreement under the Littelfuse,
Inc. Equity Incentive Compensation Plan (filed as Exhibit 99.1
to the companys Current Report on Form 8-K dated March 12,
2008). |
|
|
|
10.20
|
|
Form of Stock Option Agreement under the Littelfuse, Inc.
Equity Incentive Compensation Plan (filed as Exhibit 99.1 to
the companys Current Report on Form 8-K dated April 25,
2008). |
|
|
|
10.21
|
|
Form of Restricted Stock Award Agreement under the Littelfuse,
Inc. Equity Incentive Compensation Plan (filed as Exhibit 99.2
to the companys Current Report on Form 8-K dated April 25,
2008). |
|
|
|
10.22
|
|
Littelfuse, Inc. Outside Directors Stock Option Plan (filed
as Exhibit B to the companys Proxy Statement for Annual
Meeting of Stockholders held on May 5, 2006). |
|
|
|
10.23
|
|
Form of Non-Qualified Stock Option Agreement under the
Littelfuse, Inc. Outside Directors Stock Option Plan (filed as
Exhibit 99.6 to the companys Current Report on Form 8-K dated
May 5, 2006). |
|
|
|
10.24
|
|
Littelfuse, Inc. Outside Directors Equity Plan (filed as
Exhibit A to the companys Proxy Statement for Annual Meeting
of Stockholders held on April 27, 2007). |
|
|
|
10.25
|
|
Form of Stock Option Award Agreement under the Littelfuse,
Inc. Outside Directors Equity Plan (filed as Exhibit 99.3 to
the companys Current Report on Form 8-K dated April 25,
2008). |
|
|
|
10.26
|
|
Form of Restricted Stock Unit Award Agreement under the
Littelfuse, Inc. Outside Directors Equity Plan (filed as
Exhibit 99.4 to the companys Current Report on Form 8-K
dated April 25, 2008). |
|
|
|
10.27
|
|
Amended and Restated Littelfuse, Inc. Supplemental Executive
Retirement Plan (filed as Exhibit 10.3 to the companys Form
10-K for the fiscal year ended December 29, 2007). |
|
|
|
10.28
|
|
Amended and Restated Littelfuse,
Inc. Deferred Compensation Plan for
Non-employee Directors (filed as Exhibit 10.4 to the companys
Form 10-K for the fiscal year ended December 29, 2007). |
|
|
|
10.29
|
|
Amended and Restated Littelfuse, Inc. Retirement Plan (filed
as Exhibit 10.13 to the companys Form 10-K for the
fiscal year ended December 29,
2007). |
|
|
|
10.30
|
|
Littelfuse, Inc. 2008 Annual Incentive Plan (filed as Exhibit
A to the companys Proxy Statement for Annual Meeting of
Stockholders held on April 25, 2008). |
80
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.31
|
|
Bank credit agreement among Littelfuse, Inc., as borrower, the
lenders named therein and the Bank of America N.A., as agent,
dated as of July 21, 2006 (filed as Exhibit 10.1 to the
companys Form 10-Q for the quarterly period ended September
30, 2006). |
|
|
|
10.32
|
|
First Amendment, dated as of September 29, 2008, to that
certain Credit Agreement, dated as of July 21, 2006, among
Littelfuse, Inc., the lenders named therein and Bank of
America, N.A., as agent (filed as Exhibit 10.2 to the
companys Form 10-Q for the quarterly period ended September
27, 2008). |
|
|
|
10.33
|
|
Loan Agreement, dated as of September 29, 2008, among
Littelfuse, Inc., the lenders named therein and JPMorgan Chase
Bank, N.A., as agent (filed as Exhibit 10.1 to the companys
Form 10-Q for the quarterly period ended September 27, 2008). |
|
|
|
14.1
|
|
Code of Conduct (filed as Exhibit 14.1 to the companys
Current Report on Form 8-K dated October 24, 2008). |
|
|
|
21.1*
|
|
Subsidiaries. |
|
|
|
23.1*
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
31.1*
|
|
Rule 13a-14(a)/15d-14(a) certification of Gordon Hunter. |
|
|
|
31.2*
|
|
Rule 13a-14(a)/15d-14(a)
certification of Philip G. Franklin. |
|
|
|
32.1+
|
|
Section 1350 certification. |
Exhibits 10.1 through 10.30 are management contracts or compensatory plans or arrangements.
|
|
|
* |
|
Filed with this Report. |
|
+ |
|
Furnished with this Report. |
81
Exhibit 10.3
CHANGE OF CONTROL AGREEMENT
for
Gordon Hunter
THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between
LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the Company), and the
executive named above (hereinafter referred to as the Executive);
WITNESSETH:
WHEREAS, the Board of Directors of the Company (hereinafter referred to as the Board) has
determined that it is in the best interests of the Company and its stockholders to provide the
Executive with certain protections against the uncertainties usually created by a Change of Control
(as such term is hereinafter defined); and
WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention
and energy to the business of the Company prior to and after a Change of Control, thereby
benefiting the Company and its stockholders;
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the
Executive hereby agree as follows:
Section 1. Certain Definitions. (a) The Effective Date shall mean the first date during
the Change of Control Period (as defined in Section 1(b) hereof) on which a Change of Control (as
defined in Section 2 hereof) occurs. Notwithstanding anything to the contrary contained in this
Agreement, if a Change of Control occurs and if the Executive separates from service with the
Company prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such separation from service (i) was at the direct or indirect
request of a third party who theretofore had taken any steps intended to effect a Change of Control
or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then for all
purposes of this Agreement the Effective Date shall mean the date immediately prior to the date
of such separation from service.
(b) The Change of Control Period shall mean the period commencing on January 1, 2009 and
ending on December 31, 2011.
Section 2. Change of Control. For the purpose of this Agreement, a Change of Control shall
mean:
(a) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), (a Person) of any of stock of the Company that, together with
stock held by such Person, constitutes more than 40% of the total fair market value or total voting
power of the stock of the Company. For purposes of this subsection (a), the following acquisitions
shall not constitute a Change of Control: (i) the acquisition of additional stock by a Person who
is considered to own more than 50% of the total
fair market value or total voting power of the stock of the Company, (ii) any acquisition in
which the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a
transaction which complies with subsection (c) of this Section 2. An increase in the percentage of
stock owned by any one Person as a result of a transaction in which the Company acquires its stock
in exchange for property will be treated as an acquisition of stock for purposes of this
subsection;
(b) The replacement of individuals who, as of the date hereof, constitute a majority of the
Board, during any twelve (12) month period by directors whose appointment or election is not
endorsed by a majority of the Board before the date of the appointment or election, provided that,
if the Company is not the relevant corporation for which no other corporation is a majority
shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection
(b) shall be applied instead with respect to the members of the board of the directors of such
relevant corporation for which no other corporation is a majority shareholder;
(c) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), during the 12-month period ending on the date of the most recent
acquisition by such person or persons, of ownership of stock of the Company possessing 30% or more
of the total voting power of the stock of the Company. For purposes of this subsection (c), the
following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional
control by a person or more than one person acting as a group who are considered to effectively
control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi) and (ii)
any acquisition pursuant to a transaction which complies with subsection (a) of this Section 2; or
(d) The acquisition by any individual person or more than one person acting as a group (within
the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a
related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the
12-month period ending on the date of the most recent acquisition by such person or persons, of
assets from the Company that have a total gross fair market value equal to or more than 40% of the
total gross fair market value of all of the assets of the Company immediately prior to such
acquisition(s). For purposes of this subsection (d), gross fair market value means the value of
the assets of the Company, or the value of the assets being disposed of, determined without regard
to any liabilities associated with such assets.
The above definition of Change of Control shall be interpreted by the Board, in good faith, to
apply in a similar manner to transactions involving partnerships and partnership interests, and to
comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official
guidance issued thereunder from time to time (Section 409A).
Section 3. Service Period. The Company hereby agrees to continue to retain the services of
the Executive, and the Executive hereby agrees to provide services to the Company and its
successors, subject to the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the second anniversary of such date (the Service Period).
2
Section 4. Terms of Service.
(a) Position and Duties. (i) During the Service Period, (A) the Executives position
(including status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the 120-day period immediately preceding
the Effective Date and (B) the Executives services shall be performed at the location where the
Executive was providing services to the Company or its affiliated companies immediately preceding
the Effective Date or any office or location less than 20 miles from such location.
(ii) During the Service Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the Executive hereunder, to
use the Executives reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Service Period it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C)
manage personal investments, so long as such activities do not significantly interfere with
the performance of the Executives responsibilities as an employee or service provider of
the Company in accordance with this Agreement.
(b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive
an annual base salary (hereinafter referred to as the Annual Base Salary), which shall be paid at
a monthly rate, equal to at least twelve times the highest monthly base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month period immediately preceding the month in
which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this
Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term
affiliated companies shall include any company controlled by, controlling or under common control
with the Company.
(ii) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter
referred to as the Annual Bonus) in cash at least equal to the Executives highest bonus
under the Companys incentive bonus program or any comparable bonus under any predecessor or
successor plan, for the last three full fiscal years prior to the Effective Date (annualized
in the event that the Executive was not employed by the Company for the whole of such fiscal
year) (hereinafter referred to as the Recent Annual Bonus). Each such Annual Bonus shall
be paid no later than the fifteenth day of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus. Any such deferral election shall be made not later
than the first day of the fiscal year for
3
which the Annual Bonus is paid, and shall be made in accordance with policies adopted
by the Company in compliance with Section 409A.
(iii) Incentive, Savings and Retirement Plans. During the Service Period, the
Executive shall be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Service Period, the Executive and/or the
Executives family, as the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies. In the event such plans, practices,
policies and programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and programs in effect
for the Executive at any time during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated companies, then
the Company shall provide individual insurance policies or reimburse the Executive, on at
least a monthly basis, to cover any difference in the benefits received by the Executive.
(v) Expenses. During the Service Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive and to the extent that
any resulting change in reimbursement or payment dates would comply with Section 409A, as in
effect generally at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Service Period, the Executive shall be entitled to
fringe benefits, including, without limitation, tax and financial planning services, payment
of club dues, and, if applicable, use of an automobile and payment of related expenses, in
accordance with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during
4
the 120-day period immediately preceding the Effective Date or, if more favorable to
the Executive and to the extent that any resulting change in reimbursement or payment dates
would comply with Section 409A, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Service Period, the Executive shall be
entitled to an office or offices of a size and with furnishings and other appointments, and
to exclusive personal secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its affiliated companies at
any time during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and to the extent that any resulting change in reimbursement or
payment dates would comply with Section 409A, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Service Period, the Executive shall be entitled to paid
vacation in accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by
applicable law or to the extent such participation would cause the applicable plan, practice,
policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.
Section 5. Separation from Service.
(a) Disability. If the Company determines in good faith that the Disability of the Executive
has occurred during the Service Period (pursuant to the definition of Disability set forth below),
it may terminate Executives service effective upon the date the Company provides written notice to
the Executive. For purposes of this Agreement, Disability shall mean the Executive is unable to
engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months; or, by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months, receiving income replacement benefits for a period of
not less than 3 months under an accident and health plan covering employees of the Company.
(b) Cause. The Company may terminate the Executives service during the Service Period for
Cause. For purposes of this Agreement, Cause shall mean:
(i) the willful and continued failure of the Executive to perform substantially the
Executives duties with the Company (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial
5
performance is delivered to the Executive by the Board which specifically identifies
the manner in which the Board believes that the Executive has not substantially performed
the Executives duties and such failure is not cured within sixty (60) calendar days after
receipt of such written demand; or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company.
For purposes of this provision, any act or failure to act on the part of the Executive in
violation or contravention of any order, resolution or directive of the Board shall be considered
willful unless such order, resolution or directive is illegal or in violation of the certificate
of incorporation or by-laws of the Company; provided, however, that no other act or failure to act
on the part of the Executive, shall be considered willful, unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the Executives action or
omission was in the best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the
Chief Executive Officer or General Counsel of the Company or based upon the advice of outside
counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii)
above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executives service may be terminated by the Executive for Good Reason.
For purposes of this Agreement, Good Reason shall mean:
(i) the Executive is not elected to, or is removed from, any elected office of the
Company which the Executive held immediately prior to the Effective Date;
(ii) the assignment to the Executive of any duties materially inconsistent in any
respect with the Executives position, authority, duties or responsibilities as contemplated
by Section 4(a) hereof, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the Executive;
(iii) any failure by the Company to comply with any of the provisions of this
Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
6
(iv) the Companys requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective Date; or
(v) any purported termination by the Company of the Executives employment otherwise
than as expressly permitted by this Agreement.
For purposes of this Section 5(c), a good faith determination of Good Reason made by the
Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for
Good Reason, shall be communicated by Notice of Termination to the other party hereto given in
accordance with Section 13(b) hereof. For purposes of this Agreement, a Notice of Termination
means a written notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executives service under the
provision so indicated, and (iii) specifies the termination date. To qualify as Good Reason, the
Executive must provide such notice within 90 days following the initial existence of the condition
described in (c)(i) through (v) above, upon notice of which the Company shall have 30 days during
which it may remedy the condition, in which case Good Reason shall not exist. The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executives or the Companys rights hereunder.
(e) Separation from Service. All references to separation from service, termination of
service and words of similar import shall have the same meaning as separation from service as
defined by Section 409A. By way of illustration, and without limiting the generality of the
foregoing, the following principals shall apply:
(i) The Executive shall not be considered to have separated from service so
long as the Executive is on military leave, sick leave, or other bona fide leave of absence
if the period of such leave does not exceed six months, or if longer, so long as the
Executive retains a right to reemployment with the Company under an applicable statute or by
contract.
(ii) Regardless of whether his employment has been formally terminated, the Executive
will be considered to have separated from service as of the date it is reasonably
anticipated that no further services will be performed by the Executive for the Company, or
that the level of bona fide services the Executive will perform after such date will
permanently decrease to no more than 20% of the average level of bona fide services
performed over the immediately preceding 36-month period (or the full period of employment
if the Executive has been employed for less than 36 months). For purposes of the preceding
test, during any paid leave of absence the Executive shall be considered to have been
performing services at the level commensurate with the amount of compensation received, and
unpaid leaves of absence shall be disregarded.
7
(iii) For purposes of determining whether the Executive has separated from service, all
services provided for the Company, or for any other entity that is part of a controlled
group that includes the Company as defined in Section 414(b) or (c) of the Internal Revenue
Code (Code), shall be taken into account, whether provided as an employee or as a
consultant or other independent contractor; provided that the Executive shall not be
considered to have not separated from service solely by reason of service as a non-employee
director of the Company or any other such entity.
Section 6. Obligations of the Company upon Separation.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the Service Period,
the Company causes the Executive to separate from service other than for Cause or Disability, or
the Executive shall voluntarily separate from service for Good Reason as described in Section 5(c),
the following provisions shall apply:
(i) The Company shall pay to the Executive the amounts set forth in Sections A
and B below.
|
A. |
|
The sum of the following (Accrued Obligations): |
|
(1) |
|
the Executives Annual Base Salary through the
separation from service to the extent not theretofore paid, payable on
the next regularly scheduled payroll date, plus |
|
|
(2) |
|
an amount, equal to the Executives highest
Annual Bonus or bonus paid under the Companys incentive bonus program
or any comparable bonus under any predecessor or successor plan, for
the last three fiscal years ending prior to the separation from service
(Highest Annual Bonus), multiplied by a fraction, the numerator of
which is the number of days in the fiscal year through the separation
from service, and the denominator of which is 365, payable in a lump
sum on the 30th day following the separation from service,
plus |
|
|
(3) |
|
any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon),
paid in accordance with the Executives deferral elections in effect
under any such deferral program, plus |
|
|
(4) |
|
any accrued but unpaid vacation pay, paid in a
lump sum on the 30th day following the separation from service. |
|
B. |
|
The amount equal to the product of (1) two multiplied by (2)
the sum of (x) the Executives Annual Base Salary plus (y) the Highest Annual
Bonus (the Lump Sum Severance), which shall be paid in a single lump sum
payment six months after the Executives separation from service;
provided that the Executive shall receive installment payments equal to
all 409A Severance Payments that would have been paid pursuant to Section |
8
|
|
|
5(d) of the Amended and Restated Employment Agreement, dated as of December
31, 2007, between the Executive and the Company (the Employment
Agreement), if the Executive had been terminated pursuant to said Section
5(d) prior to the Effective Date, paid at the same time that such 409A
Severance Payments would have been paid pursuant to said Section 5(d), and
the balance, if any, of the Lump Sum Severance shall be paid in a lump sum
on the first day that is at least six months after the Executives
separation from service; provided further that if the sum of such 409A
Severance Payments exceeds the Lump Sum Severance, the 409A Severance
Payments shall be reduced, in reverse order of payment, until the sum of the
409A Severance Payments equals the Lump Sum Severance; and provided further
that if the Executive dies at any time after the separation from service the
entire remaining unpaid balance of the Lump Sum Severance shall be paid to
his estate or designated beneficiary within 30 days after the date of his
death. |
(ii) The Company shall reimburse the Executive for the additional premium costs
incurred by the Executive, in excess of the active employee rate for the Executives peer
group, to continue group medical coverage for the Executive and/or the Executives family
under Section 4980B of the Code and applicable state laws (COBRA) for the maximum period
of time as permitted by law. The Executive shall submit to the Company satisfactory
evidence of premium costs incurred within 30 days following the date such costs were
incurred. Within 30 days following receipt of such evidence, the Company shall pay to the
Executive such reimbursement, plus additional severance pay in an amount such that the net
amount of such reimbursement and additional severance pay, after all applicable tax
withholding, equals the difference between the full COBRA premium and the premium charged to
active employees in Executives peer group. Following the end of COBRA coverage, the
Company shall reimburse the Executive for the additional premium costs incurred by the
Executive, in excess of the former employee COBRA rate for the Executives peer group, for
the purchase of an individual insurance policy providing medical coverage to the Executive
and/or the Executives family which is substantially similar to the coverage provided by the
Companys group medical plan. In no event shall the combined period of reimbursable
coverage under COBRA and any individual insurance policy exceed two years from separation
from service.
(iii) For a period of up to 2 years after the separation from service, the Company
shall provide monthly outplacement services to the Executive at reasonable levels as
provided to peer executives of the Company, for the purpose of assisting the Executive to
seek new employment; provided, however, that the Company shall have no further obligations
to provide such outplacement services once the Executive has accepted employment with any
third party.
(iv) Notwithstanding anything to the contrary set forth in any stock option plans
pursuant to which the Executive has been granted any stock options or other rights to
acquire securities of the Company or its Affiliates, as defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act (the Plans), any option or right granted to
the Executive under any of the Plans shall be exercisable by the Executive
9
until the earlier of (x) the date on which the option or right terminates in accordance
with the terms of its grant, or (y) the expiration of 12 months after the separation from
service.
(v) To the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive any other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such other amounts and
benefits shall hereinafter be referred to collectively as the Other Benefits).
(vi) Notwithstanding anything to the contrary contained in any employment agreement,
benefit plan or other document, in the event the Executives employment shall be terminated
during the Service Period by the Executive for Good Reason or by the Company other than for
Cause or Disability, on and after the separation from service the Executive shall not be
bound or prejudiced by any non-competition agreement benefiting the Company or its
subsidiaries.
(b) Death. If the Executive dies during the Service Period, this Agreement shall terminate
without further obligations by the Company to the Executives legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executives estate or beneficiary, as
applicable, at the time and in the form as provided in Paragraph 6(a)(i)(A) above. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executives estate and/or beneficiaries shall be entitled to
receive, benefits at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their beneficiaries at any time
during the 120-day period immediately preceding the Effective Date.
(c) Disability. If the Company causes the Executive to separate from service by reason of the
Executives Disability during the Service Period as set forth in Section 5(a), this Agreement shall
terminate without further obligations by the Company to the Executive under this Agreement, other
than for payment of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive at the time and in the form provided in
Paragraph 6(a)(i)(A). With respect to the provision of Other Benefits, the term Other Benefits
as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the
Executives separation from service to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other peer executives and
their families at any time during the 120-day period immediately preceding the Effective Date.
(d) Cause; Other than for Good Reason. If the Company causes the Executive to separate from
service for Cause during the Service Period as described in Section 5(b), this Agreement shall
terminate without further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the separation from service, payable
10
on the next regularly scheduled payroll date, (y) the amount of any compensation previously
deferred by the Executive (which shall be paid at the time and in the form it would otherwise have
been paid had this Agreement not applied), and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily separates from service during the Service Period,
excluding a termination for Good Reason as described in Section 5(c), this Agreement shall
terminate without further obligations of the Company to the Executive under this Agreement, other
than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive at the time and in the form
provided in Section 6(a)(i)(A) and the Company shall timely pay or provide the Other Benefits to
the Executive. In no event shall the Executive be liable to the Company for any damages caused by
such voluntary termination by the Executive nor shall the Executive be in any way restricted from
being employed by any other party after such voluntary termination.
Section 7. Code Section 409A Payment Limits. To the maximum extent possible, the provisions
of this Agreement shall be construed in such a manner that no amounts payable to the Executive are
subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code. If any
payment (whether cash or in-kind), including but not limited to reimbursements and Other Benefits,
would constitute a deferral of compensation under Section 409A and a payment date that complies
with Section 409A(a)(2) of the Code is not otherwise provided for such benefit either in this
Agreement or a Company program or policy, then such payment shall be made not later than 2 1/2 months
after the end of the calendar year in which the payment is no longer subject to a substantial risk
of forfeiture. Any receipts or other proof of expenses (if required) shall be submitted to the
Company by the Executive no later than one month after the end of the calendar year in which the
payment is no longer subject to a substantial risk of forfeiture. Notwithstanding any provision in
this Agreement to the contrary, if at the time of separation from service the Executive is a
specified employee within the meaning of Section 409A, any cash or in-kind payments which
constitute a deferral of compensation under Section 409A and which would otherwise become due
under this Agreement during the first 6 months (or such longer period as required by Section 409A)
after separation from service shall be delayed and all such delayed payments shall be paid in full
in the 7th month after the separation from service, and all subsequent payments shall be paid in
accordance with their original payment schedule. To the extent that any insurance premiums or
other benefit contributions constituting a deferral of compensation become subject to the above
delay, the Executive shall be responsible for paying such amounts directly to the insurer or other
third party and shall receive reimbursement from the Company for such amounts in the 7th month as
described above. The above specified employee delay shall not apply to any payments that are
excepted from coverage by Section 409A, such as those payments covered by the short-term deferral
exception described in Treasury Regulations Section 1.409A-1(b)(4).
Section 8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the
Executives continuing or future participation in any plan, program, policy or practice provided by
the Company or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 13(f) hereof, shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to his or her separation
11
from service shall be payable in accordance with such plan, policy, practice or program or
contract or agreement, except as explicitly modified by this Agreement.
Section 9. Full Settlement. The Companys obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment. To the extent that any amount due hereunder has become
subject to a bona fide dispute, payment of such amount may be delayed until no later than the end
of the first taxable year of the Executive in which the Company and the Executive enter into a
legally binding settlement of such dispute, the Company concedes that the amount is payable, or the
Company is required to make such payment pursuant to a final and nonappealable judgment or other
binding decision, as set forth in Treasury Regulation Section 1.409A-3(g), and any such payment
shall include interest on such delayed amount from the original due date thereof until paid at the
prime rate from time to time reported in The Wall Street Journal during said period, plus, to the
fullest extent permitted by law, the amount of all legal fees and expenses which the Executive
reasonably incurs as a result of any contest by the Company, the Executive or others in which the
Executive is the prevailing party.
Section 10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it shall be determined that
any payment or distribution by the Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section, except as
provided in the last sentence of this paragraph (a)) (hereinafter referred to collectively as a
Payment) would be subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively referred to as the
Excise Tax), then the Executive shall be entitled to receive an additional payment (a Gross-Up
Payment) in an amount such that, after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Regardless of whether the Executive is subject to an Excise
Tax, in the event that the Company fails to make any payment at the time or in the form required by
Section 6, and as a result it is subsequently determined that Executive is subject to the
additional tax and interest provided in Section 409A(a)(1)(B) of the Code with respect to any
portion of such payment (such additional tax, together with any interest and penalties thereon, are
hereinafter collectively referred to as the Section 409A Penalty) then Executive shall also be
entitled to receive an additional payment (a Section 409A Gross-Up) calculated in the same manner
as a Gross-Up Payment by substituting Section 409A Penalty for Excise Tax for all purposes of
this Section. The Section 409A Gross-Up shall be considered a Payment for purposes of calculation
of any Gross-Up Penalty.
12
(b) Subject to the provisions of paragraph (c) hereof, all determinations required to be made
under this Section, including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall
be made by Ernst & Young LLP or such other independent certified public accounting firm as may be
designated by the Executive (hereinafter referred to as the Accounting Firm) which shall provide
detailed supporting calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firms determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by the Company should have been
made (hereinafter referred to as the Underpayment) consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c)
hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company relating to
such claim,
(ii) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order effectively to contest such
claim, and
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(iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such representation and payment
of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the
Company shall control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to any imputed income
with respect to such advance. The Companys control of any such contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to
paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Companys complying with the requirements of paragraph
(c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph (c) hereof, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
(e) Anything else contained herein to the contrary notwithstanding, in no event shall any
Gross-Up Payment be paid to the Executive later than the last day of the year following the year in
which the Executive pays to the applicable taxing authority the Excise Tax with respect to which
the Gross-Up Payment is due. The preceding sentence is included solely in order to satisfy the
requirements of Section 409A, and is not to be construed to permit a delay in the time at which a
Gross-Up Payment would otherwise be paid.
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Section 11. Confidential Information. The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executives service with the Company or any of its
affiliated companies and which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement). After Executives
separation from service with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of this Section 11
constitute a basis for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement. The provisions of this Section 11 shall survive any termination of this
Agreement or the Executives separation of service with the Company.
Section 12. Successors. (a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executives legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession had taken place. As
used in this Agreement, the term Company shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
Section 13. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without reference to principles of conflict of
laws. This Agreement may not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
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(b) Each notice, request, demand, approval or other communication which may be or is required
to be given under this Agreement shall be in writing and shall be deemed to have been properly
given when delivered personally at the address set forth below for the intended party during normal
business hours at such address, when sent by facsimile or other electronic transmission to the
respective facsimile transmission numbers of the parties set forth below with telephone
confirmation of receipt, or when sent by recognized overnight courier or by the United States
registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
Littelfuse, Inc.
800 E. Northwest Highway
Des Plaines, Illinois 60016
Attention: All members of the Board of Directors
Facsimile: (847) 824-3864
Confirm: (847) 391-0304
If to the Executive, to the last address shown in the records of the Company.
Notices shall be given to such other addressee or address, or both, or by way of such other
facsimile transmission number, as a particular party may from time to time designate by written
notice to the other party hereto. Each notice, request, demand, approval or other communication
which is sent in accordance with this Section shall be deemed given and received for all purposes
of this Agreement as of two business days after the date of deposit thereof for mailing in a duly
constituted United States post office or branch thereof, one business day after deposit with a
recognized overnight courier service or upon confirmation of receipt of any facsimile transmission.
Notice given to a party hereto by any other method shall only be deemed to be given and received
when actually received in writing by such party.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such Federal,
state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or
regulation.
(e) The Executives or the Companys failure to insist upon strict compliance with any
provision of this Agreement or the failure to promptly assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the Executive to separate
from service for Good Reason pursuant to Section 5(c)(i)-(v) hereof, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under
any other written agreement between the Executive and the Company, the
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employment or other service of the Executive by or with the Company is at will and, subject
to Section 1(a) hereof and/or any other written agreement between the Executive and the Company,
prior to the Effective Date, the Executives employment and/or service and/or this Agreement may be
terminated by either the Executive or the Company at any time prior to the Effective Date upon
written notice to the other party, in which case the Executive shall have no further rights under
this Agreement. From and after the Effective Date, this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
(g) This Agreement may be executed in two or more counterparts, all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement on the
dates set forth below.
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Date: January 22, 2009
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EXECUTIVE
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LITTELFUSE, INC. |
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Date: ________________________________ |
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17
Exhibit 10.4
CHANGE OF CONTROL AGREEMENT
for
Philip G. Franklin
THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between
LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the Company), and the
executive named above (hereinafter referred to as the Executive);
WITNESSETH:
WHEREAS, the Board of Directors of the Company (hereinafter referred to as the Board) has
determined that it is in the best interests of the Company and its stockholders to provide the
Executive with certain protections against the uncertainties usually created by a Change of Control
(as such term is hereinafter defined); and
WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention
and energy to the business of the Company prior to and after a Change of Control, thereby
benefiting the Company and its stockholders;
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the
Executive hereby agree as follows:
Section 1. Certain Definitions.
(a) The Effective Date shall mean the first date during the Change of Control Period (as
defined in Section 1(b) hereof) on which a Change of Control (as defined in Section 2 hereof)
occurs. Notwithstanding anything to the contrary contained in this Agreement, if a Change of
Control occurs and if the Executive separates from service with the Company prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such
separation from service (i) was at the direct or indirect request of a third party who theretofore
had taken any steps intended to effect a Change of Control or (ii) otherwise arose in connection
with or in anticipation of a Change of Control, then for all purposes of this Agreement the
"Effective Date shall mean the date immediately prior to the date of such separation from service.
(b) The Change of Control Period shall mean the period commencing on January 1, 2009 and
ending on December 31, 2011.
Section 2. Change of Control. For the purpose of this Agreement, a Change of Control shall
mean:
(a) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), (a Person) of any of stock of the Company that, together with
stock held by such Person, constitutes more than 40% of the total fair market value or total voting
power of the stock of the Company. For purposes of this
subsection (a), the following acquisitions shall not constitute a Change of Control: (i) the
acquisition of additional stock by a Person who is considered to own more than 50% of the total
fair market value or total voting power of the stock of the Company, (ii) any acquisition in which
the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a
transaction which complies with subsection (c) of this Section 2. An increase in the percentage of
stock owned by any one Person as a result of a transaction in which the Company acquires its stock
in exchange for property will be treated as an acquisition of stock for purposes of this
subsection;
(b) The replacement of individuals who, as of the date hereof, constitute a majority of the
Board, during any twelve (12) month period by directors whose appointment or election is not
endorsed by a majority of the Board before the date of the appointment or election, provided that,
if the Company is not the relevant corporation for which no other corporation is a majority
shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection
(b) shall be applied instead with respect to the members of the board of the directors of such
relevant corporation for which no other corporation is a majority shareholder;
(c) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), during the 12-month period ending on the date of the most recent
acquisition by such person or persons, of ownership of stock of the Company possessing 30% or more
of the total voting power of the stock of the Company. For purposes of this subsection (c), the
following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional
control by a person or more than one person acting as a group who are considered to effectively
control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi) and (ii)
any acquisition pursuant to a transaction which complies with subsection (a) of this Section 2; or
(d) The acquisition by any individual person or more than one person acting as a group (within
the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a
related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the
12-month period ending on the date of the most recent acquisition by such person or persons, of
assets from the Company that have a total gross fair market value equal to or more than 40% of the
total gross fair market value of all of the assets of the Company immediately prior to such
acquisition(s). For purposes of this subsection (d), gross fair market value means the value of
the assets of the Company, or the value of the assets being disposed of, determined without regard
to any liabilities associated with such assets.
The above definition of Change of Control shall be interpreted by the Board, in good faith, to
apply in a similar manner to transactions involving partnerships and partnership interests, and to
comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official
guidance issued thereunder from time to time (Section 409A).
Section 3. Service Period. The Company hereby agrees to continue to retain the services of
the Executive, and the Executive hereby agrees to provide services to the Company and its
successors, subject to the terms and conditions of this Agreement, for the period
2
commencing on the Effective Date and ending on the second anniversary of such date (the
Service Period).
Section 4. Terms of Service.
(a) Position and Duties.
(i) During the Service Period, (A) the Executives position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the Effective Date and
(B) the Executives services shall be performed at the location where the Executive was
providing services to the Company or its affiliated companies immediately preceding the
Effective Date or any office or location less than 20 miles from such location.
(ii) During the Service Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the Executive hereunder, to
use the Executives reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Service Period it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C)
manage personal investments, so long as such activities do not significantly interfere with
the performance of the Executives responsibilities as an employee or service provider of
the Company in accordance with this Agreement.
(b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive an
annual base salary (hereinafter referred to as the Annual Base Salary), which shall be paid at a
monthly rate, equal to at least twelve times the highest monthly base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month period immediately preceding the month in
which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this
Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term
affiliated companies shall include any company controlled by, controlling or under common control
with the Company.
(i) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter
referred to as the Annual Bonus) in cash at least equal to the Executives highest bonus
under the Companys incentive bonus program or any comparable bonus under any predecessor or
successor plan, for the last three full fiscal years prior to the
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Effective Date (annualized in the event that the Executive was not employed by the
Company for the whole of such fiscal year) (hereinafter referred to as the Recent Annual
Bonus). Each such Annual Bonus shall be paid no later than the fifteenth day of the third
month of the fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. Any
such deferral election shall be made not later than the first day of the fiscal year for
which the Annual Bonus is paid, and shall be made in accordance with policies adopted by the
Company in compliance with Section 409A.
(ii) Incentive, Savings and Retirement Plans. During the Service Period, the Executive
shall be entitled to participate in all incentive, savings and retirement plans, practices,
policies and programs applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by the Company and
its affiliated companies for the Executive under such plans, practices, policies and
programs as in effect at any time during the 120-day period immediately preceding the
Effective Date or if more favorable to the Executive, those provided generally at any time
after the Effective Date to other peer executives of the Company and its affiliated
companies.
(iii) Welfare Benefit Plans. During the Service Period, the Executive and/or the
Executives family, as the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies. In the event such plans, practices,
policies and programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and programs in effect
for the Executive at any time during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated companies, then
the Company shall provide individual insurance policies or reimburse the Executive, on at
least a monthly basis, to cover any difference in the benefits received by the Executive.
(iv) Expenses. During the Service Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive and to the extent that
any resulting change in reimbursement or payment dates would comply with Section 409A, as in
effect generally at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
4
(v) Fringe Benefits. During the Service Period, the Executive shall be entitled to
fringe benefits, including, without limitation, tax and financial planning services, payment
of club dues, and, if applicable, use of an automobile and payment of related expenses, in
accordance with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the Executive and
to the extent that any resulting change in reimbursement or payment dates would comply with
Section 409A, as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vi) Office and Support Staff. During the Service Period, the Executive shall be
entitled to an office or offices of a size and with furnishings and other appointments, and
to exclusive personal secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its affiliated companies at
any time during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and to the extent that any resulting change in reimbursement or
payment dates would comply with Section 409A, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated companies.
(vii) Vacation. During the Service Period, the Executive shall be entitled to paid
vacation in accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by
applicable law or to the extent such participation would cause the applicable plan, practice,
policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.
Section 5. Separation from Service.
(a) Disability. If the Company determines in good faith that the Disability of the Executive
has occurred during the Service Period (pursuant to the definition of Disability set forth below),
it may terminate Executives service effective upon the date the Company provides written notice to
the Executive. For purposes of this Agreement, Disability shall mean the Executive is unable to
engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months; or, by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months, receiving income replacement benefits for a period of
not less than 3 months under an accident and health plan covering employees of the Company.
5
(b) Cause. The Company may terminate the Executives service during the Service Period for
Cause. For purposes of this Agreement, Cause shall mean:
(i) the willful and continued failure of the Executive to perform substantially the
Executives duties with the Company (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board which specifically identifies the manner in which
the Board believes that the Executive has not substantially performed the Executives duties
and such failure is not cured within sixty (60) calendar days after receipt of such written
demand; or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company.
For purposes of this provision, any act or failure to act on the part of the Executive in
violation or contravention of any order, resolution or directive of the Board shall be considered
willful unless such order, resolution or directive is illegal or in violation of the certificate
of incorporation or by-laws of the Company; provided, however, that no other act or failure to act
on the part of the Executive, shall be considered willful, unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the Executives action or
omission was in the best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the
Chief Executive Officer or General Counsel of the Company or based upon the advice of outside
counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii)
above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executives service may be terminated by the Executive for Good Reason.
For purposes of this Agreement, Good Reason shall mean:
(i) the Executive is not elected to, or is removed from, any elected office of the
Company which the Executive held immediately prior to the Effective Date;
(ii) the assignment to the Executive of any duties materially inconsistent in any
respect with the Executives position, authority, duties or responsibilities as contemplated
by Section 4(a) hereof, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the Executive;
6
(iii) any failure by the Company to comply with any of the provisions of this
Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iv) the Companys requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective Date; or
(v) any purported termination by the Company of the Executives employment otherwise
than as expressly permitted by this Agreement.
For purposes of this Section 5(c), a good faith determination of Good Reason made by the
Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for
Good Reason, shall be communicated by Notice of Termination to the other party hereto given in
accordance with Section 13(b) hereof. For purposes of this Agreement, a Notice of Termination
means a written notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executives service under the
provision so indicated, and (iii) specifies the termination date. To qualify as Good Reason, the
Executive must provide such notice within 90 days following the initial existence of the condition
described in (c)(i) through (v) above, upon notice of which the Company shall have 30 days during
which it may remedy the condition, in which case Good Reason shall not exist. The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executives or the Companys rights hereunder.
(e) Separation from Service. All references to separation from service, termination of
service and words of similar import shall have the same meaning as separation from service as
defined by Section 409A. By way of illustration, and without limiting the generality of the
foregoing, the following principals shall apply:
(i) The Executive shall not be considered to have separated from service so
long as the Executive is on military leave, sick leave, or other bona fide leave of absence
if the period of such leave does not exceed six months, or if longer, so long as the
Executive retains a right to reemployment with the Company under an applicable statute or by
contract.
(ii) Regardless of whether his employment has been formally terminated, the Executive
will be considered to have separated from service as of the date it is reasonably
anticipated that no further services will be performed by the Executive for the Company, or
that the level of bona fide services the Executive will perform after such date will
permanently decrease to no more than 20% of the average level of bona fide services
performed over the immediately preceding 36-month period (or the full period of
7
employment if the Executive has been employed for less than 36 months). For purposes
of the preceding test, during any paid leave of absence the Executive shall be considered to
have been performing services at the level commensurate with the amount of compensation
received, and unpaid leaves of absence shall be disregarded.
(iii) For purposes of determining whether the Executive has separated from service, all
services provided for the Company, or for any other entity that is part of a controlled
group that includes the Company as defined in Section 414(b) or (c) of the Internal Revenue
Code (Code), shall be taken into account, whether provided as an employee or as a
consultant or other independent contractor; provided that the Executive shall not be
considered to have not separated from service solely by reason of service as a non-employee
director of the Company or any other such entity.
Section 6. Obligations of the Company upon Separation.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the Service Period,
the Company causes the Executive to separate from service other than for Cause or Disability, or
the Executive shall voluntarily separate from service for Good Reason as described in Section 5(c),
the following provisions shall apply:
(i) The Company shall pay to the Executive the amounts set forth in Sections A
and B below.
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A. |
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The sum of the following (Accrued Obligations): |
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(1) |
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the Executives Annual Base Salary through the
separation from service to the extent not theretofore paid, payable on
the next regularly scheduled payroll date, plus |
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(2) |
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an amount, equal to the Executives highest
Annual Bonus or bonus paid under the Companys incentive bonus program
or any comparable bonus under any predecessor or successor plan, for
the last three fiscal years ending prior to the separation from service
(Highest Annual Bonus), multiplied by a fraction, the numerator of
which is the number of days in the fiscal year through the separation
from service, and the denominator of which is 365, payable in a lump
sum on the 30th day following the separation from service, plus |
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(3) |
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any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon),
paid in accordance with the Executives deferral elections in effect
under any such deferral program, plus |
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(4) |
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any accrued but unpaid vacation pay, paid in a
lump sum on the 30th day following the separation from service. |
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B. |
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The amount equal to the product of (1) two multiplied by (2)
the sum of (x) the Executives Annual Base Salary plus (y) the Highest Annual
Bonus, which shall be paid in a lump sum on the 30th day following
the separation from service. |
(ii) The Company shall credit, as of the separation from service, the account of the
Executive under the Littelfuse, Inc. Supplemental Executive Retirement Plan or any
successor plan (hereinafter referred to as the SERP) with an amount equal to the sum of
the two respective amounts which would be credited to the account of the Executive under the
SERP on the two Valuation Dates (as such term is defined in the SERP) next succeeding the
separation from service assuming (A) the Executive would not incur a separation from service
until said second Valuation Date (hereinafter said period from the separation from service
until said second Valuation Date is referred to as the Assumed Service Period), (B) the
Compensation (as such term is defined in the SERP) of the Executive during each fiscal year
during the Assumed Service Period would be equal to the amount of the Compensation of the
Executive during the most recently ended Plan Year (as such term is defined in the SERP)
prior to the separation from service, and (C) the Company would continue the SERP up to and
including said second Valuation Date; provided, however, that if the Executive would reach
age 62 prior to the expiration of the Assumed Service Period, no amounts shall be credited
to the Account of the Executive under the SERP for any Valuation Date occurring after the
date that the Executive would reach age 62; and provided further that nothing contained
herein shall be construed to alter the time or form of payment of the Executives benefit
under the SERP.
(iii) The Company shall reimburse the Executive for the additional premium costs
incurred by the Executive, in excess of the active employee rate for the Executives peer
group, to continue group medical coverage for the Executive and/or the Executives family
under Section 4980B of the Code and applicable state laws (COBRA) for the maximum period
of time as permitted by law. The Executive shall submit to the Company satisfactory
evidence of premium costs incurred within 30 days following the date such costs were
incurred. Within 30 days following receipt of such evidence, the Company shall pay to the
Executive such reimbursement, plus additional severance pay in an amount such that the net
amount of such reimbursement and additional severance pay, after all applicable tax
withholding, equals the difference between the full COBRA premium and the premium charged to
active employees in Executives peer group. Following the end of COBRA coverage, the
Company shall reimburse the Executive for the additional premium costs incurred by the
Executive, in excess of the former employee COBRA rate for the Executives peer group, for
the purchase of an individual insurance policy providing medical coverage to the Executive
and/or the Executives family which is substantially similar to the coverage provided by the
Companys group medical plan. In no event shall the combined period of reimbursable
coverage under COBRA and any individual insurance policy exceed two years from separation
from service.
(iv) For a period of up to 2 years after the separation from service, the Company shall
provide monthly outplacement services to the Executive at reasonable levels as provided to
peer executives of the Company, for the purpose of assisting the
9
Executive to seek new employment; provided, however, that the Company shall have no
further obligations to provide such outplacement services once the Executive has accepted
employment with any third party.
(v) Notwithstanding anything to the contrary set forth in any stock option plans
pursuant to which the Executive has been granted any stock options or other rights to
acquire securities of the Company or its Affiliates, as defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act (the Plans), any option or right granted to
the Executive under any of the Plans shall be exercisable by the Executive until the earlier
of (x) the date on which the option or right terminates in accordance with the terms of its
grant, or (y) the expiration of 12 months after the separation from service.
(vi) To the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive any other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such other amounts and
benefits shall hereinafter be referred to collectively as the Other Benefits).
(vii) Notwithstanding anything to the contrary contained in any employment agreement,
benefit plan or other document, in the event the Executives employment shall be terminated
during the Service Period by the Executive for Good Reason or by the Company other than for
Cause or Disability, on and after the separation from service the Executive shall not be
bound or prejudiced by any non-competition agreement benefiting the Company or its
subsidiaries, and any provisions contained in the SERP which would penalize the Executive
for being employed by a competitor, including, without limitation, Section 3.6(c) thereof,
shall not apply in any respect to the Executive and, effective as of the separation from
service, the Company waives any right to enforce any such provisions against the Executive.
(b) Death. If the Executive dies during the Service Period, this Agreement shall terminate
without further obligations by the Company to the Executives legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executives estate or beneficiary, as
applicable, at the time and in the form as provided in Paragraph 6(a)(i)(A) above. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executives estate and/or beneficiaries shall be entitled to
receive, benefits at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their beneficiaries at any time
during the 120-day period immediately preceding the Effective Date.
(c) Disability. If the Company causes the Executive to separate from service by reason of the
Executives Disability during the Service Period as set forth in Section 5(a), this Agreement shall
terminate without further obligations by the Company to the Executive under this Agreement, other
than for payment of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive at the time and
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in the form provided in Paragraph 6(a)(i)(A). With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the
Executive shall be entitled after the Executives separation from service to receive, disability
and other benefits at least equal to the most favorable of those generally provided by the Company
and its affiliated companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date.
(d) Cause; Other than for Good Reason. If the Company causes the Executive to separate from
service for Cause during the Service Period as described in Section 5(b), this Agreement shall
terminate without further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the separation from service, payable on the next
regularly scheduled payroll date, (y) the amount of any compensation previously deferred by the
Executive (which shall be paid at the time and in the form it would otherwise have been paid had
this Agreement not applied), and (z) Other Benefits, in each case to the extent theretofore unpaid.
If the Executive voluntarily separates from service during the Service Period, excluding a
termination for Good Reason as described in Section 5(c), this Agreement shall terminate without
further obligations of the Company to the Executive under this Agreement, other than for payment of
Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all
Accrued Obligations shall be paid to the Executive at the time and in the form provided in Section
6(a)(i)(A) and the Company shall timely pay or provide the Other Benefits to the Executive. In no
event shall the Executive be liable to the Company for any damages caused by such voluntary
termination by the Executive nor shall the Executive be in any way restricted from being employed
by any other party after such voluntary termination.
Section 7. Code Section 409A Payment Limits. To the maximum extent possible, the provisions
of this Agreement shall be construed in such a manner that no amounts payable to the Executive are
subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code. If any
payment (whether cash or in-kind), including but not limited to reimbursements and Other Benefits,
would constitute a deferral of compensation under Section 409A and a payment date that complies
with Section 409A(a)(2) of the Code is not otherwise provided for such benefit either in this
Agreement or a Company program or policy, then such payment shall be made not later than 2 1/2 months
after the end of the calendar year in which the payment is no longer subject to a substantial risk
of forfeiture. Any receipts or other proof of expenses (if required) shall be submitted to the
Company by the Executive no later than one month after the end of the calendar year in which the
payment is no longer subject to a substantial risk of forfeiture. Notwithstanding any provision in
this Agreement to the contrary, if at the time of separation from service the Executive is a
specified employee within the meaning of Section 409A, any cash or in-kind payments which
constitute a deferral of compensation under Section 409A and which would otherwise become due
under this Agreement during the first 6 months (or such longer period as required by Section 409A)
after separation from service shall be delayed and all such delayed payments shall be paid in full
in the 7th month after the separation from service, and all subsequent payments shall be paid in
accordance with their original payment schedule. To the extent that any insurance premiums or
other benefit contributions constituting a deferral of compensation become subject to the above
delay, the Executive shall be responsible for paying such amounts directly to the insurer or other
third party and shall
11
receive reimbursement from the Company for such amounts in the 7th month as described above.
The above specified employee delay shall not apply to any payments that are excepted from coverage
by Section 409A, such as those payments covered by the short-term deferral exception described in
Treasury Regulations Section 1.409A-1(b)(4).
Section 8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the
Executives continuing or future participation in any plan, program, policy or practice provided by
the Company or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 13(f) hereof, shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to his or her separation from service
shall be payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement.
Section 9. Full Settlement. The Companys obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment. To the extent that any amount due hereunder has become
subject to a bona fide dispute, payment of such amount may be delayed until no later than the end
of the first taxable year of the Executive in which the Company and the Executive enter into a
legally binding settlement of such dispute, the Company concedes that the amount is payable, or the
Company is required to make such payment pursuant to a final and nonappealable judgment or other
binding decision, as set forth in Treasury Regulation Section 1.409A-3(g), and any such payment
shall include interest on such delayed amount from the original due date thereof until paid at the
prime rate from time to time reported in The Wall Street Journal during said period, plus, to the
fullest extent permitted by law, the amount of all legal fees and expenses which the Executive
reasonably incurs as a result of any contest by the Company, the Executive or others in which the
Executive is the prevailing party.
Section 10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it shall be determined that
any payment or distribution by the Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section, except as
provided in the last sentence of this paragraph (a)) (hereinafter referred to collectively as a
Payment) would be subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively referred to as the
Excise Tax), then the Executive shall be entitled to receive an additional payment (a Gross-Up
Payment) in an amount such that, after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with
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respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Regardless of
whether the Executive is subject to an Excise Tax, in the event that the Company fails to make any
payment at the time or in the form required by Section 6, and as a result it is subsequently
determined that Executive is subject to the additional tax and interest provided in Section
409A(a)(1)(B) of the Code with respect to any portion of such payment (such additional tax,
together with any interest and penalties thereon, are hereinafter collectively referred to as the
Section 409A Penalty) then Executive shall also be entitled to receive an additional payment (a
Section 409A Gross-Up) calculated in the same manner as a Gross-Up Payment by substituting
Section 409A Penalty for Excise Tax for all purposes of this Section. The Section 409A
Gross-Up shall be considered a Payment for purposes of calculation of any Gross-Up Penalty.
(b) Subject to the provisions of paragraph (c) hereof, all determinations required to be made
under this Section, including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall
be made by Ernst & Young LLP or such other independent certified public accounting firm as may be
designated by the Executive (hereinafter referred to as the Accounting Firm) which shall provide
detailed supporting calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firms determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by the Company should have been
made (hereinafter referred to as the Underpayment) consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c)
hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Executive shall:
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(i) give the Company any information reasonably requested by the Company relating to
such claim,
(ii) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order effectively to contest such
claim, and
(iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such representation and payment
of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the
Company shall control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to any imputed income
with respect to such advance. The Companys control of any such contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to
paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Companys complying with the requirements of paragraph
(c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph (c) hereof, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
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(e) Anything else contained herein to the contrary notwithstanding, in no event shall any
Gross-Up Payment be paid to the Executive later than the last day of the year following the year in
which the Executive pays to the applicable taxing authority the Excise Tax with respect to which
the Gross-Up Payment is due. The preceding sentence is included solely in order to satisfy the
requirements of Section 409A, and is not to be construed to permit a delay in the time at which a
Gross-Up Payment would otherwise be paid.
Section 11. Confidential Information. The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executives service with the Company or any of its
affiliated companies and which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement). After Executives
separation from service with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of this Section 11
constitute a basis for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement. The provisions of this Section 11 shall survive any termination of this
Agreement or the Executives separation of service with the Company.
Section 12. Successors. (a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executives legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession had taken place. As
used in this Agreement, the term Company shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
Section 13. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without reference to principles of conflict of
laws. This Agreement may not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) Each notice, request, demand, approval or other communication which may be or is required
to be given under this Agreement shall be in writing and shall be deemed to have been properly
given when delivered personally at the address set forth below for the intended party during normal
business hours at such address, when sent by facsimile or other electronic transmission to the
respective facsimile transmission numbers of the parties set forth below with
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telephone confirmation of receipt, or when sent by recognized overnight courier or by the
United States registered or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Company:
Littelfuse, Inc.
800 E. Northwest Highway
Des Plaines, Illinois 60016
Attention: President
Facsimile: (847) 824-3864
Confirm: (847) 391-0304
If to the Executive, to the last address shown in the records of the Company.
Notices shall be given to such other addressee or address, or both, or by way of such other
facsimile transmission number, as a particular party may from time to time designate by written
notice to the other party hereto. Each notice, request, demand, approval or other communication
which is sent in accordance with this Section shall be deemed given and received for all purposes
of this Agreement as of two business days after the date of deposit thereof for mailing in a duly
constituted United States post office or branch thereof, one business day after deposit with a
recognized overnight courier service or upon confirmation of receipt of any facsimile transmission.
Notice given to a party hereto by any other method shall only be deemed to be given and received
when actually received in writing by such party.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such Federal,
state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or
regulation.
(e) The Executives or the Companys failure to insist upon strict compliance with any
provision of this Agreement or the failure to promptly assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the Executive to separate
from service for Good Reason pursuant to Section 5(c)(i)-(v) hereof, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under
any other written agreement between the Executive and the Company, the employment or other service
of the Executive by or with the Company is at will and, subject to Section 1(a) hereof and/or any
other written agreement between the Executive and the Company, prior to the Effective Date, the
Executives employment and/or service and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date upon written notice to the other
party, in which case the Executive shall have no further
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rights under this Agreement. From and after the Effective Date, this Agreement shall
supersede any other agreement between the parties with respect to the subject matter hereof.
(g) This Agreement may be executed in two or more counterparts, all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement on the
dates set forth below.
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Date: January 22, 2009
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17
Exhibit 10.5
CHANGE OF CONTROL AGREEMENT
for
David R. Samyn
THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between
LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the Company), and the
executive named above (hereinafter referred to as the Executive);
WITNESSETH:
WHEREAS, the Board of Directors of the Company (hereinafter referred to as the Board) has
determined that it is in the best interests of the Company and its stockholders to provide the
Executive with certain protections against the uncertainties usually created by a Change of Control
(as such term is hereinafter defined); and
WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention
and energy to the business of the Company prior to and after a Change of Control, thereby
benefiting the Company and its stockholders;
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the
Executive hereby agree as follows:
Section 1. Certain Definitions. (a) The Effective Date shall mean the first date during the
Change of Control Period (as defined in Section 1(b) hereof) on which a Change of Control (as
defined in Section 2 hereof) occurs. Notwithstanding anything to the contrary contained in this
Agreement, if a Change of Control occurs and if the Executive separates from service with the
Company prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such separation from service (i) was at the direct or indirect
request of a third party who theretofore had taken any steps intended to effect a Change of Control
or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then for all
purposes of this Agreement the Effective Date shall mean the date immediately prior to the date
of such separation from service.
(b) The Change of Control Period shall mean the period commencing on January 1, 2009 and
ending on December 31, 2011.
Section 2. Change of Control. For the purpose of this Agreement, a Change of Control shall
mean:
(a) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), (a Person) of any of stock of the Company that, together with
stock held by such Person, constitutes more than 40% of the total fair market value or total voting
power of the stock of the Company. For purposes of this subsection (a), the following acquisitions
shall not constitute a Change of Control: (i) the acquisition of additional stock by a Person who
is considered to own more than 50% of the total
fair market value or total voting power of the stock of the Company, (ii) any acquisition in
which the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a
transaction which complies with subsection (c) of this Section 2. An increase in the percentage of
stock owned by any one Person as a result of a transaction in which the Company acquires its stock
in exchange for property will be treated as an acquisition of stock for purposes of this
subsection;
(b) The replacement of individuals who, as of the date hereof, constitute a majority of the
Board, during any twelve (12) month period by directors whose appointment or election is not
endorsed by a majority of the Board before the date of the appointment or election, provided that,
if the Company is not the relevant corporation for which no other corporation is a majority
shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection
(b) shall be applied instead with respect to the members of the board of the directors of such
relevant corporation for which no other corporation is a majority shareholder;
(c) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), during the 12-month period ending on the date of the most recent
acquisition by such person or persons, of ownership of stock of the Company possessing 30% or more
of the total voting power of the stock of the Company. For purposes of this subsection (c), the
following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional
control by a person or more than one person acting as a group who are considered to effectively
control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi) and (ii)
any acquisition pursuant to a transaction which complies with subsection (a) of this Section 2; or
(d) The acquisition by any individual person or more than one person acting as a group (within
the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a
related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the
12-month period ending on the date of the most recent acquisition by such person or persons, of
assets from the Company that have a total gross fair market value equal to or more than 40% of the
total gross fair market value of all of the assets of the Company immediately prior to such
acquisition(s). For purposes of this subsection (d), gross fair market value means the value of
the assets of the Company, or the value of the assets being disposed of, determined without regard
to any liabilities associated with such assets.
The above definition of Change of Control shall be interpreted by the Board, in good faith,
to apply in a similar manner to transactions involving partnerships and partnership interests, and
to comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official
guidance issued thereunder from time to time (Section 409A).
Section 3. Service Period. The Company hereby agrees to continue to retain the services of
the Executive, and the Executive hereby agrees to provide services to the Company and its
successors, subject to the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the second anniversary of such date (the Service Period).
2
Section 4. Terms of Service.
(a) Position and Duties. (i) During the Service Period, (A) the Executives position
(including status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the 120-day period immediately preceding
the Effective Date and (B) the Executives services shall be performed at the location where the
Executive was providing services to the Company or its affiliated companies immediately preceding
the Effective Date or any office or location less than 20 miles from such location.
(ii) During the Service Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the Executive hereunder, to
use the Executives reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Service Period it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C)
manage personal investments, so long as such activities do not significantly interfere with
the performance of the Executives responsibilities as an employee or service provider of
the Company in accordance with this Agreement.
(b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive an
annual base salary (hereinafter referred to as the Annual Base Salary), which shall be paid at a
monthly rate, equal to at least twelve times the highest monthly base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month period immediately preceding the month in
which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this
Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies shall include any company controlled by, controlling or under common control
with the Company.
(ii) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter
referred to as the Annual Bonus) in cash at least equal to the Executives highest bonus
under the Companys incentive bonus program or any comparable bonus under any predecessor or
successor plan, for the last three full fiscal years prior to the Effective Date (annualized
in the event that the Executive was not employed by the Company for the whole of such fiscal
year) (hereinafter referred to as the Recent Annual Bonus). Each such Annual Bonus shall
be paid no later than the fifteenth day of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus. Any such deferral election shall be made not later
than the first day of the fiscal year for
3
which the Annual Bonus is paid, and shall be made in accordance with policies adopted
by the Company in compliance with Section 409A.
(iii) Incentive, Savings and Retirement Plans. During the Service Period, the
Executive shall be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Service Period, the Executive and/or the
Executives family, as the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies. In the event such plans, practices,
policies and programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and programs in effect
for the Executive at any time during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated companies, then
the Company shall provide individual insurance policies or reimburse the Executive, on at
least a monthly basis, to cover any difference in the benefits received by the Executive.
(v) Expenses. During the Service Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive and to the extent that
any resulting change in reimbursement or payment dates would comply with Section 409A, as in
effect generally at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Service Period, the Executive shall be entitled to
fringe benefits, including, without limitation, tax and financial planning services, payment
of club dues, and, if applicable, use of an automobile and payment of related expenses, in
accordance with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during
4
the 120-day period immediately preceding the Effective Date or, if more favorable to
the Executive and to the extent that any resulting change in reimbursement or payment dates
would comply with Section 409A, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Service Period, the Executive shall be
entitled to an office or offices of a size and with furnishings and other appointments, and
to exclusive personal secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its affiliated companies at
any time during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and to the extent that any resulting change in reimbursement or
payment dates would comply with Section 409A, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Service Period, the Executive shall be entitled to paid
vacation in accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by
applicable law or to the extent such participation would cause the applicable plan, practice,
policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.
Section 5. Separation from Service.
(a) Disability. If the Company determines in good faith that the Disability of the Executive
has occurred during the Service Period (pursuant to the definition of Disability set forth below),
it may terminate Executives service effective upon the date the Company provides written notice to
the Executive. For purposes of this Agreement, Disability shall mean the Executive is unable to
engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months; or, by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months, receiving income replacement benefits for a period of
not less than 3 months under an accident and health plan covering employees of the Company.
(b) Cause. The Company may terminate the Executives service during the Service Period for
Cause. For purposes of this Agreement, Cause shall mean:
(i) the willful and continued failure of the Executive to perform substantially the
Executives duties with the Company (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial
5
performance is delivered to the Executive by the Board which specifically identifies
the manner in which the Board believes that the Executive has not substantially performed
the Executives duties and such failure is not cured within sixty (60) calendar days after
receipt of such written demand; or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company.
For purposes of this provision, any act or failure to act on the part of the Executive in
violation or contravention of any order, resolution or directive of the Board shall be considered
willful unless such order, resolution or directive is illegal or in violation of the certificate
of incorporation or by-laws of the Company; provided, however, that no other act or failure to act
on the part of the Executive, shall be considered willful, unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the Executives action or
omission was in the best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the
Chief Executive Officer or General Counsel of the Company or based upon the advice of outside
counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii)
above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executives service may be terminated by the Executive for Good Reason.
For purposes of this Agreement, Good Reason shall mean:
(i) the Executive is not elected to, or is removed from, any elected office of the
Company which the Executive held immediately prior to the Effective Date;
(ii) the assignment to the Executive of any duties materially inconsistent in any
respect with the Executives position, authority, duties or responsibilities as contemplated
by Section 4(a) hereof, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the Executive;
(iii) any failure by the Company to comply with any of the provisions of this
Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
6
(iv) the Companys requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective Date; or
(v) any purported termination by the Company of the Executives employment otherwise
than as expressly permitted by this Agreement.
For purposes of this Section 5(c), a good faith determination of Good Reason made by the
Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for
Good Reason, shall be communicated by Notice of Termination to the other party hereto given in
accordance with Section 13(b) hereof. For purposes of this Agreement, a Notice of Termination
means a written notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executives service under the
provision so indicated, and (iii) specifies the termination date. To qualify as Good Reason, the
Executive must provide such notice within 90 days following the initial existence of the condition
described in (c)(i) through (v) above, upon notice of which the Company shall have 30 days during
which it may remedy the condition, in which case Good Reason shall not exist. The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executives or the Companys rights hereunder.
(e) Separation from Service. All references to separation from service, termination of
service and words of similar import shall have the same meaning as separation from service as
defined by Section 409A. By way of illustration, and without limiting the generality of the
foregoing, the following principals shall apply:
(i) The Executive shall not be considered to have separated from service so
long as the Executive is on military leave, sick leave, or other bona fide leave of absence
if the period of such leave does not exceed six months, or if longer, so long as the
Executive retains a right to reemployment with the Company under an applicable statute or by
contract.
(ii) Regardless of whether his employment has been formally terminated, the Executive
will be considered to have separated from service as of the date it is reasonably
anticipated that no further services will be performed by the Executive for the Company, or
that the level of bona fide services the Executive will perform after such date will
permanently decrease to no more than 20% of the average level of bona fide services
performed over the immediately preceding 36-month period (or the full period of employment
if the Executive has been employed for less than 36 months). For purposes of the preceding
test, during any paid leave of absence the Executive shall be considered to have been
performing services at the level commensurate with the amount of compensation received, and
unpaid leaves of absence shall be disregarded.
7
(iii) For purposes of determining whether the Executive has separated from service, all
services provided for the Company, or for any other entity that is part of a controlled
group that includes the Company as defined in Section 414(b) or (c) of the Internal Revenue
Code (Code), shall be taken into account, whether provided as an employee or as a
consultant or other independent contractor; provided that the Executive shall not be
considered to have not separated from service solely by reason of service as a non-employee
director of the Company or any other such entity.
Section 6. Obligations of the Company upon Separation.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the Service Period,
the Company causes the Executive to separate from service other than for Cause or Disability, or
the Executive shall voluntarily separate from service for Good Reason as described in Section 5(c),
the following provisions shall apply:
(i) The Company shall pay to the Executive the amounts set forth in Sections A
and B below.
A. The sum of the following (Accrued Obligations):
(1) the Executives Annual Base Salary through the separation from service
to the extent not theretofore paid, payable on the next regularly scheduled
payroll date, plus
(2) an amount, equal to the Executives highest Annual Bonus or bonus paid
under the Companys incentive bonus program or any comparable bonus under
any predecessor or successor plan, for the last three fiscal years ending
prior to the separation from service (Highest Annual Bonus), multiplied by
a fraction, the numerator of which is the number of days in the fiscal year
through the separation from service, and the denominator of which is 365,
payable in a lump sum on the 30th day following the separation
from service, plus
(3) any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon), paid in accordance with the
Executives deferral elections in effect under any such deferral program,
plus
(4) any accrued but unpaid vacation pay, paid in a lump sum on the 30th day
following the separation from service.
B. The amount equal to the product of (1) two multiplied by (2) the sum of (x)
the Executives Annual Base Salary plus (y) the Highest Annual Bonus, which shall be
paid in a lump sum on the 30th day following the separation from service.
(iii) The Company shall reimburse the Executive for the additional premium costs
incurred by the Executive, in excess of the active employee rate for the Executives
8
peer group, to continue group medical coverage for the Executive and/or the Executives
family under Section 4980B of the Code and applicable state laws (COBRA) for the maximum
period of time as permitted by law. The Executive shall submit to the Company satisfactory
evidence of premium costs incurred within 30 days following the date such costs were
incurred. Within 30 days following receipt of such evidence, the Company shall pay to the
Executive such reimbursement, plus additional severance pay in an amount such that the net
amount of such reimbursement and additional severance pay, after all applicable tax
withholding, equals the difference between the full COBRA premium and the premium charged to
active employees in Executives peer group. Following the end of COBRA coverage, the
Company shall reimburse the Executive for the additional premium costs incurred by the
Executive, in excess of the former employee COBRA rate for the Executives peer group, for
the purchase of an individual insurance policy providing medical coverage to the Executive
and/or the Executives family which is substantially similar to the coverage provided by the
Companys group medical plan. In no event shall the combined period of reimbursable
coverage under COBRA and any individual insurance policy exceed two years from separation
from service.
(iv) For a period of up to 2 years after the separation from service, the Company shall
provide monthly outplacement services to the Executive at reasonable levels as provided to
peer executives of the Company, for the purpose of assisting the Executive to seek new
employment; provided, however, that the Company shall have no further obligations to provide
such outplacement services once the Executive has accepted employment with any third party.
(v) Notwithstanding anything to the contrary set forth in any stock option plans
pursuant to which the Executive has been granted any stock options or other rights to
acquire securities of the Company or its Affiliates, as defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act (the Plans), any option or right granted to
the Executive under any of the Plans shall be exercisable by the Executive until the earlier
of (x) the date on which the option or right terminates in accordance with the terms of its
grant, or (y) the expiration of 12 months after the separation from service.
(vi) To the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive any other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such other amounts and
benefits shall hereinafter be referred to collectively as the Other Benefits).
(vii) Notwithstanding anything to the contrary contained in any employment agreement,
benefit plan or other document, in the event the Executives employment shall be terminated
during the Service Period by the Executive for Good Reason or by the Company other than for
Cause or Disability, on and after the separation from service the Executive shall not be
bound or prejudiced by any non-competition agreement benefiting the Company or its
subsidiaries.
(b) Death. If the Executive dies during the Service Period, this Agreement shall terminate
without further obligations by the Company to the Executives legal representatives
9
under this Agreement, other than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to the Executives estate or
beneficiary, as applicable, at the time and in the form as provided in Paragraph 6(a)(i)(A) above.
With respect to the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(b) shall include, without limitation, and the Executives estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable benefits provided by
the Company and affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the Effective Date.
(c) Disability. If the Company causes the Executive to separate from service by reason of the
Executives Disability during the Service Period as set forth in Section 5(a), this Agreement shall
terminate without further obligations by the Company to the Executive under this Agreement, other
than for payment of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive at the time and in the form provided in
Paragraph 6(a)(i)(A). With respect to the provision of Other Benefits, the term Other Benefits
as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the
Executives separation from service to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other peer executives and
their families at any time during the 120-day period immediately preceding the Effective Date.
(d) Cause; Other than for Good Reason. If the Company causes the Executive to separate from
service for Cause during the Service Period as described in Section 5(b), this Agreement shall
terminate without further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the separation from service, payable on the next
regularly scheduled payroll date, (y) the amount of any compensation previously deferred by the
Executive (which shall be paid at the time and in the form it would otherwise have been paid had
this Agreement not applied), and (z) Other Benefits, in each case to the extent theretofore unpaid.
If the Executive voluntarily separates from service during the Service Period, excluding a
termination for Good Reason as described in Section 5(c), this Agreement shall terminate without
further obligations of the Company to the Executive under this Agreement, other than for payment of
Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all
Accrued Obligations shall be paid to the Executive at the time and in the form provided in Section
6(a)(i)(A) and the Company shall timely pay or provide the Other Benefits to the Executive. In no
event shall the Executive be liable to the Company for any damages caused by such voluntary
termination by the Executive nor shall the Executive be in any way restricted from being employed
by any other party after such voluntary termination.
Section 7. Code Section 409A Payment Limits. To the maximum extent possible, the provisions
of this Agreement shall be construed in such a manner that no amounts payable to the Executive are
subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code. If any
payment (whether cash or in-kind), including but not limited to reimbursements and Other Benefits,
would constitute a deferral of compensation under Section 409A and a
10
payment date that complies with Section 409A(a)(2) of the Code is not otherwise provided for
such benefit either in this Agreement or a Company program or policy, then such payment shall be
made not later than 2 1/2 months after the end of the calendar year in which the payment is no longer
subject to a substantial risk of forfeiture. Any receipts or other proof of expenses (if required)
shall be submitted to the Company by the Executive no later than one month after the end of the
calendar year in which the payment is no longer subject to a substantial risk of forfeiture.
Notwithstanding any provision in this Agreement to the contrary, if at the time of separation from
service the Executive is a specified employee within the meaning of Section 409A, any cash or
in-kind payments which constitute a deferral of compensation under Section 409A and which would
otherwise become due under this Agreement during the first 6 months (or such longer period as
required by Section 409A) after separation from service shall be delayed and all such delayed
payments shall be paid in full in the 7th month after the separation from service, and all
subsequent payments shall be paid in accordance with their original payment schedule. To the
extent that any insurance premiums or other benefit contributions constituting a deferral of
compensation become subject to the above delay, the Executive shall be responsible for paying such
amounts directly to the insurer or other third party and shall receive reimbursement from the
Company for such amounts in the 7th month as described above. The above specified employee delay
shall not apply to any payments that are excepted from coverage by Section 409A, such as those
payments covered by the short-term deferral exception described in Treasury Regulations Section
1.409A-1(b)(4).
Section 8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the
Executives continuing or future participation in any plan, program, policy or practice provided by
the Company or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 13(f) hereof, shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to his or her separation from service
shall be payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement.
Section 9. Full Settlement. The Companys obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment. To the extent that any amount due hereunder has become
subject to a bona fide dispute, payment of such amount may be delayed until no later than the end
of the first taxable year of the Executive in which the Company and the Executive enter into a
legally binding settlement of such dispute, the Company concedes that the amount is payable, or the
Company is required to make such payment pursuant to a final and nonappealable judgment or other
binding decision, as set forth in Treasury Regulation Section 1.409A-3(g), and any such payment
shall include interest on such delayed amount from the original due date thereof until paid at the
prime rate from time to time reported in The Wall Street Journal during said period, plus, to the
fullest extent permitted by law, the
11
amount of all legal fees and expenses which the Executive reasonably incurs as a result of any
contest by the Company, the Executive or others in which the Executive is the prevailing party.
Section 10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it shall be determined that
any payment or distribution by the Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section, except as
provided in the last sentence of this paragraph (a)) (hereinafter referred to collectively as a
Payment) would be subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively referred to as the
Excise Tax), then the Executive shall be entitled to receive an additional payment (a Gross-Up
Payment) in an amount such that, after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Regardless of whether the Executive is subject to an Excise
Tax, in the event that the Company fails to make any payment at the time or in the form required by
Section 6, and as a result it is subsequently determined that Executive is subject to the
additional tax and interest provided in Section 409A(a)(1)(B) of the Code with respect to any
portion of such payment (such additional tax, together with any interest and penalties thereon, are
hereinafter collectively referred to as the Section 409A Penalty) then Executive shall also be
entitled to receive an additional payment (a Section 409A Gross-Up) calculated in the same manner
as a Gross-Up Payment by substituting Section 409A Penalty for Excise Tax for all purposes of
this Section. The Section 409A Gross-Up shall be considered a Payment for purposes of calculation
of any Gross-Up Penalty.
(b) Subject to the provisions of paragraph (c) hereof, all determinations required to be made
under this Section, including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall
be made by Ernst & Young LLP or such other independent certified public accounting firm as may be
designated by the Executive (hereinafter referred to as the Accounting Firm) which shall provide
detailed supporting calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firms determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by the Company should have been
made (hereinafter referred to as the Underpayment) consistent with the calculations
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required to be made hereunder. In the event that the Company exhausts its remedies pursuant to
paragraph (c) hereof and the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company relating to
such claim,
(ii) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order effectively to contest such
claim, and
(iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such representation and payment
of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the
Company shall control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to any imputed income
with respect to such advance. The Companys
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control of any such contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to
paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Companys complying with the requirements of paragraph
(c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph (c) hereof, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
(e) Anything else contained herein to the contrary notwithstanding, in no event shall any
Gross-Up Payment be paid to the Executive later than the last day of the year following the year in
which the Executive pays to the applicable taxing authority the Excise Tax with respect to which
the Gross-Up Payment is due. The preceding sentence is included solely in order to satisfy the
requirements of Section 409A, and is not to be construed to permit a delay in the time at which a
Gross-Up Payment would otherwise be paid.
Section 11. Confidential Information. The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executives service with the Company or any of its
affiliated companies and which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement). After Executives
separation from service with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of this Section 11
constitute a basis for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement. The provisions of this Section 11 shall survive any termination of this
Agreement or the Executives separation of service with the Company.
Section 12. Successors. (a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executives legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
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Company to assume expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such succession had taken place.
As used in this Agreement, the term Company shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
Section 13. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without reference to principles of conflict of
laws. This Agreement may not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) Each notice, request, demand, approval or other communication which may be or is required
to be given under this Agreement shall be in writing and shall be deemed to have been properly
given when delivered personally at the address set forth below for the intended party during normal
business hours at such address, when sent by facsimile or other electronic transmission to the
respective facsimile transmission numbers of the parties set forth below with telephone
confirmation of receipt, or when sent by recognized overnight courier or by the United States
registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
Littelfuse, Inc.
800 E. Northwest Highway
Des Plaines, Illinois 60016
Attention: President
Facsimile: (847) 824-3864
Confirm: (847) 391-0304
If to the Executive, to the last address shown in the records of the Company.
Notices shall be given to such other addressee or address, or both, or by way of such other
facsimile transmission number, as a particular party may from time to time designate by written
notice to the other party hereto. Each notice, request, demand, approval or other communication
which is sent in accordance with this Section shall be deemed given and received for all purposes
of this Agreement as of two business days after the date of deposit thereof for mailing in a duly
constituted United States post office or branch thereof, one business day after deposit with a
recognized overnight courier service or upon confirmation of receipt of any facsimile transmission.
Notice given to a party hereto by any other method shall only be deemed to be given and received
when actually received in writing by such party.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such Federal,
state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or
regulation.
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(e) The Executives or the Companys failure to insist upon strict compliance with any
provision of this Agreement or the failure to promptly assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the Executive to separate
from service for Good Reason pursuant to Section 5(c)(i)-(v) hereof, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under
any other written agreement between the Executive and the Company, the employment or other service
of the Executive by or with the Company is at will and, subject to Section 1(a) hereof and/or any
other written agreement between the Executive and the Company, prior to the Effective Date, the
Executives employment and/or service and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date upon written notice to the other
party, in which case the Executive shall have no further rights under this Agreement. From and
after the Effective Date, this Agreement shall supersede any other agreement between the parties
with respect to the subject matter hereof.
(g) This Agreement may be executed in two or more counterparts, all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement on the
dates set forth below.
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Date: January 22, 2009
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LITTELFUSE, INC. |
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Date: ________________________________ |
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16
Exhibit 10.6
CHANGE OF CONTROL AGREEMENT
for
David W. Heinzmann
THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between
LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the Company), and the
executive named above (hereinafter referred to as the Executive);
WITNESSETH:
WHEREAS, the Board of Directors of the Company (hereinafter referred to as the Board) has
determined that it is in the best interests of the Company and its stockholders to provide the
Executive with certain protections against the uncertainties usually created by a Change of Control
(as such term is hereinafter defined); and
WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention
and energy to the business of the Company prior to and after a Change of Control, thereby
benefiting the Company and its stockholders;
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the
Executive hereby agree as follows:
Section 1. Certain Definitions. (a) The Effective Date shall mean the first date during the
Change of Control Period (as defined in Section 1(b) hereof) on which a Change of Control (as
defined in Section 2 hereof) occurs. Notwithstanding anything to the contrary contained in this
Agreement, if a Change of Control occurs and if the Executive separates from service with the
Company prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such separation from service (i) was at the direct or indirect
request of a third party who theretofore had taken any steps intended to effect a Change of Control
or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then for all
purposes of this Agreement the Effective Date shall mean the date immediately prior to the date
of such separation from service.
(b) The Change of Control Period shall mean the period commencing on January 1, 2009 and
ending on December 31, 2011.
Section 2. Change of Control. For the purpose of this Agreement, a Change of Control shall
mean:
(a) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), (a Person) of any of stock of the Company that, together with
stock held by such Person, constitutes more than 40% of the total fair market value or total voting
power of the stock of the Company. For purposes of this
subsection (a), the following acquisitions shall not constitute a Change of Control: (i) the
acquisition of additional stock by a Person who is considered to own more than 50% of the total
fair market value or total voting power of the stock of the Company, (ii) any acquisition in which
the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a
transaction which complies with subsection (c) of this Section 2. An increase in the percentage of
stock owned by any one Person as a result of a transaction in which the Company acquires its stock
in exchange for property will be treated as an acquisition of stock for purposes of this
subsection;
(b) The replacement of individuals who, as of the date hereof, constitute a majority of the
Board, during any twelve (12) month period by directors whose appointment or election is not
endorsed by a majority of the Board before the date of the appointment or election, provided that,
if the Company is not the relevant corporation for which no other corporation is a majority
shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection
(b) shall be applied instead with respect to the members of the board of the directors of such
relevant corporation for which no other corporation is a majority shareholder;
(c) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), during the 12-month period ending on the date of the most recent
acquisition by such person or persons, of ownership of stock of the Company possessing 30% or more
of the total voting power of the stock of the Company. For purposes of this subsection (c), the
following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional
control by a person or more than one person acting as a group who are considered to effectively
control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi) and (ii)
any acquisition pursuant to a transaction which complies with subsection (a) of this Section 2; or
(d) The acquisition by any individual person or more than one person acting as a group (within
the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a
related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the
12-month period ending on the date of the most recent acquisition by such person or persons, of
assets from the Company that have a total gross fair market value equal to or more than 40% of the
total gross fair market value of all of the assets of the Company immediately prior to such
acquisition(s). For purposes of this subsection (d), gross fair market value means the value of
the assets of the Company, or the value of the assets being disposed of, determined without regard
to any liabilities associated with such assets.
The above definition of Change of Control shall be interpreted by the Board, in good faith,
to apply in a similar manner to transactions involving partnerships and partnership interests, and
to comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official
guidance issued thereunder from time to time (Section 409A).
Section 3. Service Period. The Company hereby agrees to continue to retain the services of
the Executive, and the Executive hereby agrees to provide services to the Company and its
successors, subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the second anniversary of such date (the
Service Period).
2
Section 4. Terms of Service.
(a) Position and Duties. (i) During the Service Period, (A) the Executives position
(including status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the 120-day period immediately preceding
the Effective Date and (B) the Executives services shall be performed at the location where the
Executive was providing services to the Company or its affiliated companies immediately preceding
the Effective Date or any office or location less than 20 miles from such location.
(ii) During the Service Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the Executive hereunder, to
use the Executives reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Service Period it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C)
manage personal investments, so long as such activities do not significantly interfere with
the performance of the Executives responsibilities as an employee or service provider of
the Company in accordance with this Agreement.
(b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive an
annual base salary (hereinafter referred to as the Annual Base Salary), which shall be paid at a
monthly rate, equal to at least twelve times the highest monthly base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month period immediately preceding the month in
which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this
Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term
affiliated companies shall include any company controlled by, controlling or under common control
with the Company.
(ii) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter
referred to as the Annual Bonus) in cash at least equal to the Executives highest bonus
under the Companys incentive bonus program or any comparable bonus under any predecessor or
successor plan, for the last three full fiscal years prior to the Effective Date (annualized
in the event that the Executive was not employed by the Company for the whole of such fiscal
year) (hereinafter referred to as the Recent Annual Bonus). Each such Annual Bonus shall
be paid no later than the fifteenth day of the
third month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus. Any such deferral election shall be made not later than the first day of the fiscal
year for
3
which the Annual Bonus is paid, and shall be made in accordance with policies
adopted by the Company in compliance with Section 409A.
(iii) Incentive, Savings and Retirement Plans. During the Service Period, the
Executive shall be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Service Period, the Executive and/or the
Executives family, as the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies. In the event such plans, practices,
policies and programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and programs in effect
for the Executive at any time during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated companies, then
the Company shall provide individual insurance policies or reimburse the Executive, on at
least a monthly basis, to cover any difference in the benefits received by the Executive.
(v) Expenses. During the Service Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive and to the extent that
any resulting change in reimbursement or payment dates would comply with Section 409A, as in
effect generally at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Service Period, the Executive shall be entitled to
fringe benefits, including, without limitation, tax and financial planning services,
payment of club dues, and, if applicable, use of an automobile and payment of related
expenses, in accordance with the most favorable plans, practices, programs and policies of
the Company and its affiliated companies in effect for the Executive at any time during
4
the 120-day period immediately preceding the Effective Date or, if more favorable to the
Executive and to the extent that any resulting change in reimbursement or payment dates
would comply with Section 409A, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Service Period, the Executive shall be
entitled to an office or offices of a size and with furnishings and other appointments, and
to exclusive personal secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its affiliated companies at
any time during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and to the extent that any resulting change in reimbursement or
payment dates would comply with Section 409A, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Service Period, the Executive shall be entitled to paid
vacation in accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by
applicable law or to the extent such participation would cause the applicable plan, practice,
policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.
Section 5. Separation from Service.
(a) Disability. If the Company determines in good faith that the Disability of the Executive
has occurred during the Service Period (pursuant to the definition of Disability set forth below),
it may terminate Executives service effective upon the date the Company provides written notice to
the Executive. For purposes of this Agreement, Disability shall mean the Executive is unable to
engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months; or, by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months, receiving income replacement benefits for a period of
not less than 3 months under an accident and health plan covering employees of the Company.
(b) Cause. The Company may terminate the Executives service during the Service Period for
Cause. For purposes of this Agreement, Cause shall mean:
(i) the willful and continued failure of the Executive to perform substantially the
Executives duties with the Company (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial
5
performance is
delivered to the Executive by the Board which specifically identifies the manner in which
the Board believes that the Executive has not substantially performed the Executives duties
and such failure is not cured within sixty (60) calendar days after receipt of such written
demand; or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company.
For purposes of this provision, any act or failure to act on the part of the Executive in
violation or contravention of any order, resolution or directive of the Board shall be considered
willful unless such order, resolution or directive is illegal or in violation of the certificate
of incorporation or by-laws of the Company; provided, however, that no other act or failure to act
on the part of the Executive, shall be considered willful, unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the Executives action or
omission was in the best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the
Chief Executive Officer or General Counsel of the Company or based upon the advice of outside
counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii)
above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executives service may be terminated by the Executive for Good Reason.
For purposes of this Agreement, Good Reason shall mean:
(i) the Executive is not elected to, or is removed from, any elected office of the
Company which the Executive held immediately prior to the Effective Date;
(ii) the assignment to the Executive of any duties materially inconsistent in any
respect with the Executives position, authority, duties or responsibilities as contemplated
by Section 4(a) hereof, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the Executive;
(iii) any failure by the Company to comply with any of the provisions of this
Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
6
(iv) the Companys requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective Date; or
(v) any purported termination by the Company of the Executives employment otherwise
than as expressly permitted by this Agreement.
For purposes of this Section 5(c), a good faith determination of Good Reason made by the
Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for
Good Reason, shall be communicated by Notice of Termination to the other party hereto given in
accordance with Section 13(b) hereof. For purposes of this Agreement, a Notice of Termination
means a written notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executives service under the
provision so indicated, and (iii) specifies the termination date. To qualify as Good Reason, the
Executive must provide such notice within 90 days following the initial existence of the condition
described in (c)(i) through (v) above, upon notice of which the Company shall have 30 days during
which it may remedy the condition, in which case Good Reason shall not exist. The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executives or the Companys rights hereunder.
(e) Separation from Service. All references to separation from service, termination of
service and words of similar import shall have the same meaning as separation from service as
defined by Section 409A. By way of illustration, and without limiting the generality of the
foregoing, the following principals shall apply:
(i) The Executive shall not be considered to have separated from service so
long as the Executive is on military leave, sick leave, or other bona fide leave of absence
if the period of such leave does not exceed six months, or if longer, so long as the
Executive retains a right to reemployment with the Company under an applicable statute or by
contract.
(ii) Regardless of whether his employment has been formally terminated, the Executive
will be considered to have separated from service as of the date it is reasonably
anticipated that no further services will be performed by the Executive for the Company, or
that the level of bona fide services the Executive will perform after such date will
permanently decrease to no more than 20% of the average level of bona fide services
performed over the immediately preceding 36-month period (or the full period of employment
if the Executive has been employed for less than 36 months). For purposes of the preceding
test, during any paid leave of absence the Executive shall be considered
to have been performing services at the level commensurate with the amount of
compensation received, and unpaid leaves of absence shall be disregarded.
7
(iii) For purposes of determining whether the Executive has separated from service, all
services provided for the Company, or for any other entity that is part of a controlled
group that includes the Company as defined in Section 414(b) or (c) of the Internal Revenue
Code (Code), shall be taken into account, whether provided as an employee or as a
consultant or other independent contractor; provided that the Executive shall not be
considered to have not separated from service solely by reason of service as a non-employee
director of the Company or any other such entity.
Section 6. Obligations of the Company upon Separation.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the Service Period,
the Company causes the Executive to separate from service other than for Cause or Disability, or
the Executive shall voluntarily separate from service for Good Reason as described in Section 5(c),
the following provisions shall apply:
(i) The Company shall pay to the Executive the amounts set forth in Sections A
and B below.
A. The sum of the following (Accrued Obligations):
(1) the Executives Annual Base Salary through the separation from service
to the extent not theretofore paid, payable on the next regularly scheduled
payroll date, plus
(2) an amount, equal to the Executives highest Annual Bonus or bonus paid
under the Companys incentive bonus program or any comparable bonus under
any predecessor or successor plan, for the last three fiscal years ending
prior to the separation from service (Highest Annual Bonus), multiplied by
a fraction, the numerator of which is the number of days in the fiscal year
through the separation from service, and the denominator of which is 365,
payable in a lump sum on the 30th day following the separation
from service, plus
(3) any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon), paid in accordance with the
Executives deferral elections in effect under any such deferral program,
plus
(4) any accrued but unpaid vacation pay, paid in a lump sum on the 30th day
following the separation from service.
B. The amount equal to the product of (1) two multiplied by (2) the sum of (x)
the Executives Annual Base Salary plus (y) the Highest Annual Bonus, which shall be
paid in a lump sum on the 30th day following the separation from service.
(iii) The Company shall reimburse the Executive for the additional premium costs
incurred by the Executive, in excess of the active employee rate for the Executives
8
peer group, to continue group medical coverage for the Executive and/or the Executives family
under Section 4980B of the Code and applicable state laws (COBRA) for the maximum period
of time as permitted by law. The Executive shall submit to the Company satisfactory
evidence of premium costs incurred within 30 days following the date such costs were
incurred. Within 30 days following receipt of such evidence, the Company shall pay to the
Executive such reimbursement, plus additional severance pay in an amount such that the net
amount of such reimbursement and additional severance pay, after all applicable tax
withholding, equals the difference between the full COBRA premium and the premium charged to
active employees in Executives peer group. Following the end of COBRA coverage, the
Company shall reimburse the Executive for the additional premium costs incurred by the
Executive, in excess of the former employee COBRA rate for the Executives peer group, for
the purchase of an individual insurance policy providing medical coverage to the Executive
and/or the Executives family which is substantially similar to the coverage provided by the
Companys group medical plan. In no event shall the combined period of reimbursable
coverage under COBRA and any individual insurance policy exceed two years from separation
from service.
(iv) For a period of up to 2 years after the separation from service, the Company shall
provide monthly outplacement services to the Executive at reasonable levels as provided to
peer executives of the Company, for the purpose of assisting the Executive to seek new
employment; provided, however, that the Company shall have no further obligations to provide
such outplacement services once the Executive has accepted employment with any third party.
(v) Notwithstanding anything to the contrary set forth in any stock option plans
pursuant to which the Executive has been granted any stock options or other rights to
acquire securities of the Company or its Affiliates, as defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act (the Plans), any option or right granted to
the Executive under any of the Plans shall be exercisable by the Executive until the earlier
of (x) the date on which the option or right terminates in accordance with the terms of its
grant, or (y) the expiration of 12 months after the separation from service.
(vi) To the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive any other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such other amounts and
benefits shall hereinafter be referred to collectively as the Other Benefits).
(vii) Notwithstanding anything to the contrary contained in any employment agreement,
benefit plan or other document, in the event the Executives employment shall be terminated
during the Service Period by the Executive for Good Reason or by the Company other than for
Cause or Disability, on and after the separation from service the Executive shall not be
bound or prejudiced by any non-competition agreement benefiting the Company or its
subsidiaries.
(b) Death. If the Executive dies during the Service Period, this Agreement shall terminate
without further obligations by the Company to the Executives legal representatives
9
under this
Agreement, other than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executives estate or beneficiary, as
applicable, at the time and in the form as provided in Paragraph 6(a)(i)(A) above. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executives estate and/or beneficiaries shall be entitled to
receive, benefits at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their beneficiaries at any time
during the 120-day period immediately preceding the Effective Date.
(c) Disability. If the Company causes the Executive to separate from service by reason of the
Executives Disability during the Service Period as set forth in Section 5(a), this Agreement shall
terminate without further obligations by the Company to the Executive under this Agreement, other
than for payment of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive at the time and in the form provided in
Paragraph 6(a)(i)(A). With respect to the provision of Other Benefits, the term Other Benefits
as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the
Executives separation from service to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other peer executives and
their families at any time during the 120-day period immediately preceding the Effective Date.
(d) Cause; Other than for Good Reason. If the Company causes the Executive to separate from
service for Cause during the Service Period as described in Section 5(b), this Agreement shall
terminate without further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the separation from service, payable on the next
regularly scheduled payroll date, (y) the amount of any compensation previously deferred by the
Executive (which shall be paid at the time and in the form it would otherwise have been paid had
this Agreement not applied), and (z) Other Benefits, in each case to the extent theretofore unpaid.
If the Executive voluntarily separates from service during the Service Period, excluding a
termination for Good Reason as described in Section 5(c), this Agreement shall terminate without
further obligations of the Company to the Executive under this Agreement, other than for payment of
Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all
Accrued Obligations shall be paid to the Executive at the time and in the form provided in Section
6(a)(i)(A) and the Company shall timely pay or provide the Other Benefits to the Executive. In no
event shall the Executive be liable to the Company for any damages caused by such voluntary
termination by the Executive nor shall the Executive be in any way restricted from being employed
by any other party after such voluntary termination.
Section 7. Code Section 409A Payment Limits. To the maximum extent possible, the provisions
of this Agreement shall be construed in such a manner that no amounts payable to the Executive are
subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the
Code. If any payment (whether cash or in-kind), including but not limited to reimbursements
and Other Benefits, would constitute a deferral of compensation under Section 409A and a
10
payment date that complies with Section 409A(a)(2) of the Code is not otherwise provided for such benefit
either in this Agreement or a Company program or policy, then such payment shall be made not later
than 2 1/2 months after the end of the calendar year in which the payment is no longer subject to a
substantial risk of forfeiture. Any receipts or other proof of expenses (if required) shall be
submitted to the Company by the Executive no later than one month after the end of the calendar
year in which the payment is no longer subject to a substantial risk of forfeiture.
Notwithstanding any provision in this Agreement to the contrary, if at the time of separation from
service the Executive is a specified employee within the meaning of Section 409A, any cash or
in-kind payments which constitute a deferral of compensation under Section 409A and which would
otherwise become due under this Agreement during the first 6 months (or such longer period as
required by Section 409A) after separation from service shall be delayed and all such delayed
payments shall be paid in full in the 7th month after the separation from service, and all
subsequent payments shall be paid in accordance with their original payment schedule. To the
extent that any insurance premiums or other benefit contributions constituting a deferral of
compensation become subject to the above delay, the Executive shall be responsible for paying such
amounts directly to the insurer or other third party and shall receive reimbursement from the
Company for such amounts in the 7th month as described above. The above specified employee delay
shall not apply to any payments that are excepted from coverage by Section 409A, such as those
payments covered by the short-term deferral exception described in Treasury Regulations Section
1.409A-1(b)(4).
Section 8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the
Executives continuing or future participation in any plan, program, policy or practice provided by
the Company or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 13(f) hereof, shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to his or her separation from service
shall be payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement.
Section 9. Full Settlement. The Companys obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment. To the extent that any amount due hereunder has become
subject to a bona fide dispute, payment of such amount may be delayed until no later than the end
of the first taxable year of the Executive in which the Company and the Executive enter into a
legally binding settlement of such dispute, the Company concedes that the amount is payable, or the
Company is required to make such payment pursuant to a final and nonappealable judgment or other
binding decision, as set forth in Treasury Regulation Section 1.409A-3(g), and any such payment
shall include interest on such delayed
amount from the original due date thereof until paid at the prime rate from time to time
reported in The Wall Street Journal during said period, plus, to the fullest extent permitted by
law, the
11
amount of all legal fees and expenses which the Executive reasonably incurs as a result of
any contest by the Company, the Executive or others in which the Executive is the prevailing party.
Section 10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it shall be determined that
any payment or distribution by the Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section, except as
provided in the last sentence of this paragraph (a)) (hereinafter referred to collectively as a
"Payment) would be subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax), then the Executive shall be entitled to receive an additional payment (a Gross-Up
Payment) in an amount such that, after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Regardless of whether the Executive is subject to an Excise
Tax, in the event that the Company fails to make any payment at the time or in the form required by
Section 6, and as a result it is subsequently determined that Executive is subject to the
additional tax and interest provided in Section 409A(a)(1)(B) of the Code with respect to any
portion of such payment (such additional tax, together with any interest and penalties thereon, are
hereinafter collectively referred to as the Section 409A Penalty) then Executive shall also be
entitled to receive an additional payment (a Section 409A Gross-Up) calculated in the same manner
as a Gross-Up Payment by substituting Section 409A Penalty for Excise Tax for all purposes of
this Section. The Section 409A Gross-Up shall be considered a Payment for purposes of calculation
of any Gross-Up Penalty.
(b) Subject to the provisions of paragraph (c) hereof, all determinations required to be made
under this Section, including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall
be made by Ernst & Young LLP or such other independent certified public accounting firm as may be
designated by the Executive (hereinafter referred to as the Accounting Firm) which shall provide
detailed supporting calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firms determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder,
it is
possible that Gross-Up Payments which will not have been made by the Company should have been
made (hereinafter referred to as the Underpayment) consistent with the calculations
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required to
be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c)
hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company relating to
such claim,
(ii) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order effectively to contest such
claim, and
(iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such representation and payment
of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the
Company shall control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to such advance. The Companys
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control
of any such contest shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to
paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Companys complying with the requirements of paragraph
(c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph (c) hereof, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
(e) Anything else contained herein to the contrary notwithstanding, in no event shall any
Gross-Up Payment be paid to the Executive later than the last day of the year following the year in
which the Executive pays to the applicable taxing authority the Excise Tax with respect to which
the Gross-Up Payment is due. The preceding sentence is included solely in order to satisfy the
requirements of Section 409A, and is not to be construed to permit a delay in the time at which a
Gross-Up Payment would otherwise be paid.
Section 11. Confidential Information. The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executives service with the Company or any of its
affiliated companies and which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement). After Executives
separation from service with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of this Section 11
constitute a basis for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement. The provisions of this Section 11 shall survive any termination of this
Agreement or the Executives separation of service with the Company.
Section 12. Successors. (a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executives legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
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Company to assume expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession had taken place. As
used in this Agreement, the term Company shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
Section 13. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without reference to principles of conflict of
laws. This Agreement may not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) Each notice, request, demand, approval or other communication which may be or is required
to be given under this Agreement shall be in writing and shall be deemed to have been properly
given when delivered personally at the address set forth below for the intended party during normal
business hours at such address, when sent by facsimile or other electronic transmission to the
respective facsimile transmission numbers of the parties set forth below with telephone
confirmation of receipt, or when sent by recognized overnight courier or by the United States
registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
Littelfuse, Inc.
800 E. Northwest Highway
Des Plaines, Illinois 60016
Attention: President
Facsimile: (847) 824-3864
Confirm: (847) 391-0304
If to the Executive, to the last address shown in the records of the Company.
Notices shall be given to such other addressee or address, or both, or by way of such other
facsimile transmission number, as a particular party may from time to time designate by written
notice to the other party hereto. Each notice, request, demand, approval or other communication
which is sent in accordance with this Section shall be deemed given and received for all purposes
of this Agreement as of two business days after the date of deposit thereof for mailing in a duly
constituted United States post office or branch thereof, one business day after deposit with a
recognized overnight courier service or upon confirmation of receipt of any facsimile transmission.
Notice given to a party hereto by any other method shall only be deemed to be given and received
when actually received in writing by such party.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such Federal,
state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or
regulation.
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(e) The Executives or the Companys failure to insist upon strict compliance with any
provision of this Agreement or the failure to promptly assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the Executive to separate
from service for Good Reason pursuant to Section 5(c)(i)-(v) hereof, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under
any other written agreement between the Executive and the Company, the employment or other service
of the Executive by or with the Company is at will and, subject to Section 1(a) hereof and/or any
other written agreement between the Executive and the Company, prior to the Effective Date, the
Executives employment and/or service and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date upon written notice to the other
party, in which case the Executive shall have no further rights under this Agreement. From and
after the Effective Date, this Agreement shall supersede any other agreement between the parties
with respect to the subject matter hereof.
(g) This Agreement may be executed in two or more counterparts, all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement on the
dates set forth below.
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Date: January 22, 2009
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LITTELFUSE, INC. |
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16
Exhibit 10.7
CHANGE OF CONTROL AGREEMENT
for
Hugh Dalsen Ferbert
THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between
LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the Company), and the
executive named above (hereinafter referred to as the Executive);
WITNESSETH:
WHEREAS, the Board of Directors of the Company (hereinafter referred to as the Board) has
determined that it is in the best interests of the Company and its stockholders to provide the
Executive with certain protections against the uncertainties usually created by a Change of Control
(as such term is hereinafter defined); and
WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention
and energy to the business of the Company prior to and after a Change of Control, thereby
benefiting the Company and its stockholders;
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the
Executive hereby agree as follows:
Section 1. Certain Definitions. (a) The Effective Date shall mean the first date during the
Change of Control Period (as defined in Section 1(b) hereof) on which a Change of Control (as
defined in Section 2 hereof) occurs. Notwithstanding anything to the contrary contained in this
Agreement, if a Change of Control occurs and if the Executive separates from service with the
Company prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such separation from service (i) was at the direct or indirect
request of a third party who theretofore had taken any steps intended to effect a Change of Control
or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then for all
purposes of this Agreement the Effective Date shall mean the date immediately prior to the date
of such separation from service.
(b) The Change of Control Period shall mean the period commencing on January 1, 2009 and
ending on December 31, 2011.
Section 2. Change of Control. For the purpose of this Agreement, a Change of Control shall
mean:
(a) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), (a Person) of any of stock of the Company that, together with
stock held by such Person, constitutes more than 40% of the total fair market value or total voting
power of the stock of the Company. For purposes of this subsection (a), the following acquisitions
shall not constitute a Change of Control: (i) the acquisition of additional stock by a Person who
is considered to own more than 50% of the total
fair market value or total voting power of the stock of the Company, (ii) any acquisition in
which the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a
transaction which complies with subsection (c) of this Section 2. An increase in the percentage of
stock owned by any one Person as a result of a transaction in which the Company acquires its stock
in exchange for property will be treated as an acquisition of stock for purposes of this
subsection;
(b) The replacement of individuals who, as of the date hereof, constitute a majority of the
Board, during any twelve (12) month period by directors whose appointment or election is not
endorsed by a majority of the Board before the date of the appointment or election, provided that,
if the Company is not the relevant corporation for which no other corporation is a majority
shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection
(b) shall be applied instead with respect to the members of the board of the directors of such
relevant corporation for which no other corporation is a majority shareholder;
(c) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), during the 12-month period ending on the date of the most recent
acquisition by such person or persons, of ownership of stock of the Company possessing 30% or more
of the total voting power of the stock of the Company. For purposes of this subsection (c), the
following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional
control by a person or more than one person acting as a group who are considered to effectively
control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi) and (ii)
any acquisition pursuant to a transaction which complies with subsection (a) of this Section 2; or
(d) The acquisition by any individual person or more than one person acting as a group (within
the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a
related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the
12-month period ending on the date of the most recent acquisition by such person or persons, of
assets from the Company that have a total gross fair market value equal to or more than 40% of the
total gross fair market value of all of the assets of the Company immediately prior to such
acquisition(s). For purposes of this subsection (d), gross fair market value means the value of
the assets of the Company, or the value of the assets being disposed of, determined without regard
to any liabilities associated with such assets.
The above definition of Change of Control shall be interpreted by the Board, in good faith,
to apply in a similar manner to transactions involving partnerships and partnership interests, and
to comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official
guidance issued thereunder from time to time (Section 409A).
Section 3. Service Period. The Company hereby agrees to continue to retain the services of
the Executive, and the Executive hereby agrees to provide services to the Company and its
successors, subject to the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the second anniversary of such date (the Service Period).
2
Section 4. Terms of Service.
(a) Position and Duties. (i) During the Service Period, (A) the Executives position
(including status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the 120-day period immediately preceding
the Effective Date and (B) the Executives services shall be performed at the location where the
Executive was providing services to the Company or its affiliated companies immediately preceding
the Effective Date or any office or location less than 20 miles from such location.
(ii) During the Service Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the Executive hereunder, to
use the Executives reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Service Period it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C)
manage personal investments, so long as such activities do not significantly interfere with
the performance of the Executives responsibilities as an employee or service provider of
the Company in accordance with this Agreement.
(b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive an
annual base salary (hereinafter referred to as the Annual Base Salary), which shall be paid at a
monthly rate, equal to at least twelve times the highest monthly base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month period immediately preceding the month in
which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this
Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term
affiliated companies shall include any company controlled by, controlling or under common control
with the Company.
(ii) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter
referred to as the Annual Bonus) in cash at least equal to the Executives highest bonus
under the Companys incentive bonus program or any comparable bonus under any predecessor or
successor plan, for the last three full fiscal years prior to the Effective Date (annualized
in the event that the Executive was not employed by the Company for the whole of such fiscal
year) (hereinafter referred to as the Recent Annual Bonus). Each such Annual Bonus shall
be paid no later than the fifteenth day of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus. Any such deferral election shall be made not later
than the first day of the fiscal year for
3
which the Annual Bonus is paid, and shall be made in accordance with policies adopted
by the Company in compliance with Section 409A.
(iii) Incentive, Savings and Retirement Plans. During the Service Period, the
Executive shall be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Service Period, the Executive and/or the
Executives family, as the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies. In the event such plans, practices,
policies and programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and programs in effect
for the Executive at any time during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated companies, then
the Company shall provide individual insurance policies or reimburse the Executive, on at
least a monthly basis, to cover any difference in the benefits received by the Executive.
(v) Expenses. During the Service Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive and to the extent that
any resulting change in reimbursement or payment dates would comply with Section 409A, as in
effect generally at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Service Period, the Executive shall be entitled to
fringe benefits, including, without limitation, tax and financial planning services, payment
of club dues, and, if applicable, use of an automobile and payment of related expenses, in
accordance with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during
4
the 120-day period immediately preceding the Effective Date or, if more favorable to
the Executive and to the extent that any resulting change in reimbursement or payment dates
would comply with Section 409A, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Service Period, the Executive shall be
entitled to an office or offices of a size and with furnishings and other appointments, and
to exclusive personal secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its affiliated companies at
any time during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and to the extent that any resulting change in reimbursement or
payment dates would comply with Section 409A, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Service Period, the Executive shall be entitled to paid
vacation in accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by
applicable law or to the extent such participation would cause the applicable plan, practice,
policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.
Section 5. Separation from Service.
(a) Disability. If the Company determines in good faith that the Disability of the Executive
has occurred during the Service Period (pursuant to the definition of Disability set forth below),
it may terminate Executives service effective upon the date the Company provides written notice to
the Executive. For purposes of this Agreement, Disability shall mean the Executive is unable to
engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months; or, by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months, receiving income replacement benefits for a period of
not less than 3 months under an accident and health plan covering employees of the Company.
(b) Cause. The Company may terminate the Executives service during the Service Period for
Cause. For purposes of this Agreement, Cause shall mean:
(i) the willful and continued failure of the Executive to perform substantially the
Executives duties with the Company (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial
5
performance is delivered to the Executive by the Board which specifically identifies
the manner in which the Board believes that the Executive has not substantially performed
the Executives duties and such failure is not cured within sixty (60) calendar days after
receipt of such written demand; or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company.
For purposes of this provision, any act or failure to act on the part of the Executive in
violation or contravention of any order, resolution or directive of the Board shall be considered
willful unless such order, resolution or directive is illegal or in violation of the certificate
of incorporation or by-laws of the Company; provided, however, that no other act or failure to act
on the part of the Executive, shall be considered willful, unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the Executives action or
omission was in the best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the
Chief Executive Officer or General Counsel of the Company or based upon the advice of outside
counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii)
above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executives service may be terminated by the Executive for Good Reason.
For purposes of this Agreement, Good Reason shall mean:
(i) the Executive is not elected to, or is removed from, any elected office of the
Company which the Executive held immediately prior to the Effective Date;
(ii) the assignment to the Executive of any duties materially inconsistent in any
respect with the Executives position, authority, duties or responsibilities as contemplated
by Section 4(a) hereof, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the Executive;
(iii) any failure by the Company to comply with any of the provisions of this
Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
6
(iv) the Companys requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective Date; or
(v) any purported termination by the Company of the Executives employment otherwise
than as expressly permitted by this Agreement.
For purposes of this Section 5(c), a good faith determination of Good Reason made by the
Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for
Good Reason, shall be communicated by Notice of Termination to the other party hereto given in
accordance with Section 13(b) hereof. For purposes of this Agreement, a Notice of Termination
means a written notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executives service under the
provision so indicated, and (iii) specifies the termination date. To qualify as Good Reason, the
Executive must provide such notice within 90 days following the initial existence of the condition
described in (c)(i) through (v) above, upon notice of which the Company shall have 30 days during
which it may remedy the condition, in which case Good Reason shall not exist. The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executives or the Companys rights hereunder.
(e) Separation from Service. All references to separation from service, termination of
service and words of similar import shall have the same meaning as separation from service as
defined by Section 409A. By way of illustration, and without limiting the generality of the
foregoing, the following principals shall apply:
(i) The Executive shall not be considered to have separated from service so
long as the Executive is on military leave, sick leave, or other bona fide leave of absence
if the period of such leave does not exceed six months, or if longer, so long as the
Executive retains a right to reemployment with the Company under an applicable statute or by
contract.
(ii) Regardless of whether his employment has been formally terminated, the Executive
will be considered to have separated from service as of the date it is reasonably
anticipated that no further services will be performed by the Executive for the Company, or
that the level of bona fide services the Executive will perform after such date will
permanently decrease to no more than 20% of the average level of bona fide services
performed over the immediately preceding 36-month period (or the full period of employment
if the Executive has been employed for less than 36 months). For purposes of the preceding
test, during any paid leave of absence the Executive shall be considered to have been
performing services at the level commensurate with the amount of compensation received, and
unpaid leaves of absence shall be disregarded.
7
(iii) For purposes of determining whether the Executive has separated from service, all
services provided for the Company, or for any other entity that is part of a controlled
group that includes the Company as defined in Section 414(b) or (c) of the Internal Revenue
Code (Code), shall be taken into account, whether provided as an employee or as a
consultant or other independent contractor; provided that the Executive shall not be
considered to have not separated from service solely by reason of service as a non-employee
director of the Company or any other such entity.
Section 6. Obligations of the Company upon Separation.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the Service Period,
the Company causes the Executive to separate from service other than for Cause or Disability, or
the Executive shall voluntarily separate from service for Good Reason as described in Section 5(c),
the following provisions shall apply:
(i) The Company shall pay to the Executive the amounts set forth in Sections A
and B below.
A. The sum of the following (Accrued Obligations):
(1) the Executives Annual Base Salary through the separation from service
to the extent not theretofore paid, payable on the next regularly scheduled
payroll date, plus
(2) an amount, equal to the Executives highest Annual Bonus or bonus paid
under the Companys incentive bonus program or any comparable bonus under
any predecessor or successor plan, for the last three fiscal years ending
prior to the separation from service (Highest Annual Bonus), multiplied by
a fraction, the numerator of which is the number of days in the fiscal year
through the separation from service, and the denominator of which is 365,
payable in a lump sum on the 30th day following the separation
from service, plus
(3) any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon), paid in accordance with the
Executives deferral elections in effect under any such deferral program,
plus
(4) any accrued but unpaid vacation pay, paid in a lump sum on the 30th day
following the separation from service.
B. The amount equal to the product of (1) two multiplied by (2) the sum of (x)
the Executives Annual Base Salary plus (y) the Highest Annual Bonus, which shall be
paid in a lump sum on the 30th day following the separation from service.
(iii) The Company shall reimburse the Executive for the additional premium costs
incurred by the Executive, in excess of the active employee rate for the Executives
8
peer group, to continue group medical coverage for the Executive and/or the Executives
family under Section 4980B of the Code and applicable state laws (COBRA) for the maximum
period of time as permitted by law. The Executive shall submit to the Company satisfactory
evidence of premium costs incurred within 30 days following the date such costs were
incurred. Within 30 days following receipt of such evidence, the Company shall pay to the
Executive such reimbursement, plus additional severance pay in an amount such that the net
amount of such reimbursement and additional severance pay, after all applicable tax
withholding, equals the difference between the full COBRA premium and the premium charged to
active employees in Executives peer group. Following the end of COBRA coverage, the
Company shall reimburse the Executive for the additional premium costs incurred by the
Executive, in excess of the former employee COBRA rate for the Executives peer group, for
the purchase of an individual insurance policy providing medical coverage to the Executive
and/or the Executives family which is substantially similar to the coverage provided by the
Companys group medical plan. In no event shall the combined period of reimbursable
coverage under COBRA and any individual insurance policy exceed two years from separation
from service.
(iv) For a period of up to 2 years after the separation from service, the Company shall
provide monthly outplacement services to the Executive at reasonable levels as provided to
peer executives of the Company, for the purpose of assisting the Executive to seek new
employment; provided, however, that the Company shall have no further obligations to provide
such outplacement services once the Executive has accepted employment with any third party.
(v) Notwithstanding anything to the contrary set forth in any stock option plans
pursuant to which the Executive has been granted any stock options or other rights to
acquire securities of the Company or its Affiliates, as defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act (the Plans), any option or right granted to
the Executive under any of the Plans shall be exercisable by the Executive until the earlier
of (x) the date on which the option or right terminates in accordance with the terms of its
grant, or (y) the expiration of 12 months after the separation from service.
(vi) To the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive any other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such other amounts and
benefits shall hereinafter be referred to collectively as the Other Benefits).
(vii) Notwithstanding anything to the contrary contained in any employment agreement,
benefit plan or other document, in the event the Executives employment shall be terminated
during the Service Period by the Executive for Good Reason or by the Company other than for
Cause or Disability, on and after the separation from service the Executive shall not be
bound or prejudiced by any non-competition agreement benefiting the Company or its
subsidiaries.
(b) Death. If the Executive dies during the Service Period, this Agreement shall terminate
without further obligations by the Company to the Executives legal representatives
9
under this Agreement, other than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to the Executives estate or
beneficiary, as applicable, at the time and in the form as provided in Paragraph 6(a)(i)(A) above.
With respect to the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(b) shall include, without limitation, and the Executives estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable benefits provided by
the Company and affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the Effective Date.
(c) Disability. If the Company causes the Executive to separate from service by reason of the
Executives Disability during the Service Period as set forth in Section 5(a), this Agreement shall
terminate without further obligations by the Company to the Executive under this Agreement, other
than for payment of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive at the time and in the form provided in
Paragraph 6(a)(i)(A). With respect to the provision of Other Benefits, the term Other Benefits
as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the
Executives separation from service to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other peer executives and
their families at any time during the 120-day period immediately preceding the Effective Date.
(d) Cause; Other than for Good Reason. If the Company causes the Executive to separate from
service for Cause during the Service Period as described in Section 5(b), this Agreement shall
terminate without further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the separation from service, payable on the next
regularly scheduled payroll date, (y) the amount of any compensation previously deferred by the
Executive (which shall be paid at the time and in the form it would otherwise have been paid had
this Agreement not applied), and (z) Other Benefits, in each case to the extent theretofore unpaid.
If the Executive voluntarily separates from service during the Service Period, excluding a
termination for Good Reason as described in Section 5(c), this Agreement shall terminate without
further obligations of the Company to the Executive under this Agreement, other than for payment of
Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all
Accrued Obligations shall be paid to the Executive at the time and in the form provided in Section
6(a)(i)(A) and the Company shall timely pay or provide the Other Benefits to the Executive. In no
event shall the Executive be liable to the Company for any damages caused by such voluntary
termination by the Executive nor shall the Executive be in any way restricted from being employed
by any other party after such voluntary termination.
Section 7. Code Section 409A Payment Limits. To the maximum extent possible, the provisions
of this Agreement shall be construed in such a manner that no amounts payable to the Executive are
subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code. If any
payment (whether cash or in-kind), including but not limited to reimbursements and Other Benefits,
would constitute a deferral of compensation under Section 409A and a
10
payment date that complies with Section 409A(a)(2) of the Code is not otherwise provided for
such benefit either in this Agreement or a Company program or policy, then such payment shall be
made not later than 2 1/2 months after the end of the calendar year in which the payment is no longer
subject to a substantial risk of forfeiture. Any receipts or other proof of expenses (if required)
shall be submitted to the Company by the Executive no later than one month after the end of the
calendar year in which the payment is no longer subject to a substantial risk of forfeiture.
Notwithstanding any provision in this Agreement to the contrary, if at the time of separation from
service the Executive is a specified employee within the meaning of Section 409A, any cash or
in-kind payments which constitute a deferral of compensation under Section 409A and which would
otherwise become due under this Agreement during the first 6 months (or such longer period as
required by Section 409A) after separation from service shall be delayed and all such delayed
payments shall be paid in full in the 7th month after the separation from service, and all
subsequent payments shall be paid in accordance with their original payment schedule. To the
extent that any insurance premiums or other benefit contributions constituting a deferral of
compensation become subject to the above delay, the Executive shall be responsible for paying such
amounts directly to the insurer or other third party and shall receive reimbursement from the
Company for such amounts in the 7th month as described above. The above specified employee delay
shall not apply to any payments that are excepted from coverage by Section 409A, such as those
payments covered by the short-term deferral exception described in Treasury Regulations Section
1.409A-1(b)(4).
Section 8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the
Executives continuing or future participation in any plan, program, policy or practice provided by
the Company or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 13(f) hereof, shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to his or her separation from service
shall be payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement.
Section 9. Full Settlement. The Companys obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment. To the extent that any amount due hereunder has become
subject to a bona fide dispute, payment of such amount may be delayed until no later than the end
of the first taxable year of the Executive in which the Company and the Executive enter into a
legally binding settlement of such dispute, the Company concedes that the amount is payable, or the
Company is required to make such payment pursuant to a final and nonappealable judgment or other
binding decision, as set forth in Treasury Regulation Section 1.409A-3(g), and any such payment
shall include interest on such delayed amount from the original due date thereof until paid at the
prime rate from time to time reported in The Wall Street Journal during said period, plus, to the
fullest extent permitted by law, the
11
amount of all legal fees and expenses which the Executive reasonably incurs as a result of any
contest by the Company, the Executive or others in which the Executive is the prevailing party.
Section 10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it shall be determined that
any payment or distribution by the Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section, except as
provided in the last sentence of this paragraph (a)) (hereinafter referred to collectively as a
Payment) would be subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively referred to as the
Excise Tax), then the Executive shall be entitled to receive an additional payment (a Gross-Up
Payment) in an amount such that, after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Regardless of whether the Executive is subject to an Excise
Tax, in the event that the Company fails to make any payment at the time or in the form required by
Section 6, and as a result it is subsequently determined that Executive is subject to the
additional tax and interest provided in Section 409A(a)(1)(B) of the Code with respect to any
portion of such payment (such additional tax, together with any interest and penalties thereon, are
hereinafter collectively referred to as the Section 409A Penalty) then Executive shall also be
entitled to receive an additional payment (a Section 409A Gross-Up) calculated in the same manner
as a Gross-Up Payment by substituting Section 409A Penalty for Excise Tax for all purposes of
this Section. The Section 409A Gross-Up shall be considered a Payment for purposes of calculation
of any Gross-Up Penalty.
(b) Subject to the provisions of paragraph (c) hereof, all determinations required to be made
under this Section, including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall
be made by Ernst & Young LLP or such other independent certified public accounting firm as may be
designated by the Executive (hereinafter referred to as the Accounting Firm) which shall provide
detailed supporting calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firms determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by the Company should have been
made (hereinafter referred to as the Underpayment) consistent with the calculations
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required to be made hereunder. In the event that the Company exhausts its remedies pursuant to
paragraph (c) hereof and the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company relating to
such claim,
(ii) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order effectively to contest such
claim, and
(iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such representation and payment
of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the
Company shall control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to any imputed income
with respect to such advance. The Companys
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control of any such contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to
paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Companys complying with the requirements of paragraph
(c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph (c) hereof, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
(e) Anything else contained herein to the contrary notwithstanding, in no event shall any
Gross-Up Payment be paid to the Executive later than the last day of the year following the year in
which the Executive pays to the applicable taxing authority the Excise Tax with respect to which
the Gross-Up Payment is due. The preceding sentence is included solely in order to satisfy the
requirements of Section 409A, and is not to be construed to permit a delay in the time at which a
Gross-Up Payment would otherwise be paid.
Section 11. Confidential Information. The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executives service with the Company or any of its
affiliated companies and which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement). After Executives
separation from service with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of this Section 11
constitute a basis for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement. The provisions of this Section 11 shall survive any termination of this
Agreement or the Executives separation of service with the Company.
Section 12. Successors. (a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executives legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
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Company to assume expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such succession had taken place.
As used in this Agreement, the term Company shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
Section 13. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without reference to principles of conflict of
laws. This Agreement may not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) Each notice, request, demand, approval or other communication which may be or is required
to be given under this Agreement shall be in writing and shall be deemed to have been properly
given when delivered personally at the address set forth below for the intended party during normal
business hours at such address, when sent by facsimile or other electronic transmission to the
respective facsimile transmission numbers of the parties set forth below with telephone
confirmation of receipt, or when sent by recognized overnight courier or by the United States
registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
Littelfuse, Inc.
800 E. Northwest Highway
Des Plaines, Illinois 60016
Attention: President
Facsimile: (847) 824-3864
Confirm: (847) 391-0304
If to the Executive, to the last address shown in the records of the Company.
Notices shall be given to such other addressee or address, or both, or by way of such other
facsimile transmission number, as a particular party may from time to time designate by written
notice to the other party hereto. Each notice, request, demand, approval or other communication
which is sent in accordance with this Section shall be deemed given and received for all purposes
of this Agreement as of two business days after the date of deposit thereof for mailing in a duly
constituted United States post office or branch thereof, one business day after deposit with a
recognized overnight courier service or upon confirmation of receipt of any facsimile transmission.
Notice given to a party hereto by any other method shall only be deemed to be given and received
when actually received in writing by such party.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such Federal,
state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or
regulation.
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(e) The Executives or the Companys failure to insist upon strict compliance with any
provision of this Agreement or the failure to promptly assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the Executive to separate
from service for Good Reason pursuant to Section 5(c)(i)-(v) hereof, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under
any other written agreement between the Executive and the Company, the employment or other service
of the Executive by or with the Company is at will and, subject to Section 1(a) hereof and/or any
other written agreement between the Executive and the Company, prior to the Effective Date, the
Executives employment and/or service and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date upon written notice to the other
party, in which case the Executive shall have no further rights under this Agreement. From and
after the Effective Date, this Agreement shall supersede any other agreement between the parties
with respect to the subject matter hereof.
(g) This Agreement may be executed in two or more counterparts, all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement on the
dates set forth below.
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Date: January 22, 2009
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EXECUTIVE
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LITTELFUSE, INC. |
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Date: ________________________________ |
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16
Exhibit 10.8
CHANGE OF CONTROL AGREEMENT
for
Ryan K. Stafford
THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between
LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the Company), and the
executive named above (hereinafter referred to as the Executive);
WITNESSETH:
WHEREAS, the Board of Directors of the Company (hereinafter referred to as the Board) has
determined that it is in the best interests of the Company and its stockholders to provide the
Executive with certain protections against the uncertainties usually created by a Change of Control
(as such term is hereinafter defined); and
WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention
and energy to the business of the Company prior to and after a Change of Control, thereby
benefiting the Company and its stockholders;
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the
Executive hereby agree as follows:
Section 1. Certain Definitions. (a) The Effective Date shall mean the first date during the
Change of Control Period (as defined in Section 1(b) hereof) on which a Change of Control (as
defined in Section 2 hereof) occurs. Notwithstanding anything to the contrary contained in this
Agreement, if a Change of Control occurs and if the Executive separates from service with the
Company prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such separation from service (i) was at the direct or indirect
request of a third party who theretofore had taken any steps intended to effect a Change of Control
or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then for all
purposes of this Agreement the Effective Date shall mean the date immediately prior to the date
of such separation from service.
(b) The Change of Control Period shall mean the period commencing on January 1, 2009 and
ending on December 31, 2011.
Section 2. Change of Control. For the purpose of this Agreement, a Change of Control shall
mean:
(a) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), (a Person) of any of stock of the Company that, together with
stock held by such Person, constitutes more than 40% of the total fair market value or total voting
power of the stock of the Company. For purposes of this subsection (a), the following acquisitions
shall not constitute a Change of Control: (i) the acquisition of additional stock by a Person who
is considered to own more than 50% of the total
fair market value or total voting power of the stock of the Company, (ii) any acquisition in
which the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a
transaction which complies with subsection (c) of this Section 2. An increase in the percentage of
stock owned by any one Person as a result of a transaction in which the Company acquires its stock
in exchange for property will be treated as an acquisition of stock for purposes of this
subsection;
(b) The replacement of individuals who, as of the date hereof, constitute a majority of the
Board, during any twelve (12) month period by directors whose appointment or election is not
endorsed by a majority of the Board before the date of the appointment or election, provided that,
if the Company is not the relevant corporation for which no other corporation is a majority
shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection
(b) shall be applied instead with respect to the members of the board of the directors of such
relevant corporation for which no other corporation is a majority shareholder;
(c) The acquisition by any one person or more than one person acting as a group (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated
company (as defined in Section 4), during the 12-month period ending on the date of the most recent
acquisition by such by such person or persons, of ownership of stock of the Company possessing 30%
or more of the total voting power of the stock of the Company. For purposes of this subsection
(c), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of
additional control by a person or more than one person acting as a group who are considered to
effectively control the Company within the meaning of Treasury Regulation Section
1.409A-3(i)(5)(vi) and (ii) any acquisition pursuant to a transaction which complies with
subsection (a) of this Section 2; or
(d) The acquisition by any individual person or more than one person acting as a group (within
the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a
related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the
12-month period ending on the date of the most recent acquisition by such by such person or
persons, of assets from the Company that have a total gross fair market value equal to or more than
40% of the total gross fair market value of all of the assets of the Company immediately prior to
such acquisition(s). For purposes of this subsection (d), gross fair market value means the
value of the assets of the Company, or the value of the assets being disposed of, determined
without regard to any liabilities associated with such assets.
The above definition of Change of Control shall be interpreted by the Board, in good faith,
to apply in a similar manner to transactions involving partnerships and partnership interests, and
to comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official
guidance issued thereunder from time to time (Section 409A).
Section 3. Service Period. The Company hereby agrees to continue to retain the services of
the Executive, and the Executive hereby agrees to provide services to the Company and its
successors, subject to the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the second anniversary of such date (the Service Period).
2
Section 4. Terms of Service.
(a) Position and Duties. (i) During the Service Period, (A) the Executives position
(including status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the 120-day period immediately preceding
the Effective Date and (B) the Executives services shall be performed at the location where the
Executive was providing services to the Company or its affiliated companies immediately preceding
the Effective Date or any office or location less than 20 miles from such location.
(ii) During the Service Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the Executive hereunder, to
use the Executives reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Service Period it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C)
manage personal investments, so long as such activities do not significantly interfere with
the performance of the Executives responsibilities as an employee or service provider of
the Company in accordance with this Agreement.
(b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive an
annual base salary (hereinafter referred to as the Annual Base Salary), which shall be paid at a
monthly rate, equal to at least twelve times the highest monthly base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month period immediately preceding the month in
which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this
Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term
affiliated companies shall include any company controlled by, controlling or under common control
with the Company.
(ii) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter
referred to as the Annual Bonus) in cash at least equal to the Executives highest bonus
under the Companys incentive bonus program or any comparable bonus under any predecessor or
successor plan, for the last three full fiscal years prior to the Effective Date (annualized
in the event that the Executive was not employed by the Company for the whole of such fiscal
year) (hereinafter referred to as the Recent Annual Bonus). Each such Annual Bonus shall
be paid no later than the fifteenth day of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus. Any such deferral election shall be made not later
than the first day of the fiscal year for
3
which the Annual Bonus is paid, and shall be made in accordance with policies adopted
by the Company in compliance with Section 409A.
(iii) Incentive, Savings and Retirement Plans. During the Service Period, the
Executive shall be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Service Period, the Executive and/or the
Executives family, as the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies. In the event such plans, practices,
policies and programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and programs in effect
for the Executive at any time during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated companies, then
the Company shall provide individual insurance policies or reimburse the Executive, on at
least a monthly basis, to cover any difference in the benefits received by the Executive.
(v) Expenses. During the Service Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive and to the extent that
any resulting change in reimbursement or payment dates would comply with Section 409A, as in
effect generally at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Service Period, the Executive shall be entitled to
fringe benefits, including, without limitation, tax and financial planning services, payment
of club dues, and, if applicable, use of an automobile and payment of related expenses, in
accordance with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during
4
the 120-day period immediately preceding the Effective Date or, if more favorable to
the Executive and to the extent that any resulting change in reimbursement or payment dates
would comply with Section 409A, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Service Period, the Executive shall be
entitled to an office or offices of a size and with furnishings and other appointments, and
to exclusive personal secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its affiliated companies at
any time during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and to the extent that any resulting change in reimbursement or
payment dates would comply with Section 409A, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Service Period, the Executive shall be entitled to paid
vacation in accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by
applicable law or to the extent such participation would cause the applicable plan, practice,
policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.
Section 5. Separation from Service.
(a) Disability. If the Company determines in good faith that the Disability of the Executive
has occurred during the Service Period (pursuant to the definition of Disability set forth below),
it may terminate Executives service effective upon the date the Company provides written notice to
the Executive. For purposes of this Agreement, Disability shall mean the Executive is unable to
engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months; or, by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months, receiving income replacement benefits for a period of
not less than 3 months under an accident and health plan covering employees of the Company.
(b) Cause. The Company may terminate the Executives service during the Service Period for
Cause. For purposes of this Agreement, Cause shall mean:
(i) the willful and continued failure of the Executive to perform substantially the
Executives duties with the Company (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial
5
performance is delivered to the Executive by the Board which specifically identifies
the manner in which the Board believes that the Executive has not substantially performed
the Executives duties and such failure is not cured within sixty (60) calendar days after
receipt of such written demand; or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company.
For purposes of this provision, any act or failure to act on the part of the Executive in
violation or contravention of any order, resolution or directive of the Board shall be considered
willful unless such order, resolution or directive is illegal or in violation of the certificate
of incorporation or by-laws of the Company; provided, however, that no other act or failure to act
on the part of the Executive, shall be considered willful, unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the Executives action or
omission was in the best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the
Chief Executive Officer or General Counsel of the Company or based upon the advice of outside
counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii)
above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executives service may be terminated by the Executive for Good Reason.
For purposes of this Agreement, Good Reason shall mean:
(i) the Executive is not elected to, or is removed from, any elected office of the
Company which the Executive held immediately prior to the Effective Date;
(ii) the assignment to the Executive of any duties materially inconsistent in any
respect with the Executives position, authority, duties or responsibilities as contemplated
by Section 4(a) hereof, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the Executive;
(iii) any failure by the Company to comply with any of the provisions of this
Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
6
(iv) the Companys requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective Date; or
(v) any purported termination by the Company of the Executives employment otherwise
than as expressly permitted by this Agreement.
For purposes of this Section 5(c), a good faith determination of Good Reason made by the
Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for
Good Reason, shall be communicated by Notice of Termination to the other party hereto given in
accordance with Section 13(b) hereof. For purposes of this Agreement, a Notice of Termination
means a written notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executives service under the
provision so indicated, and (iii) specifies the termination date. To qualify as Good Reason, the
Executive must provide such notice within 90 days following the initial existence of the condition
described in (c)(i) through (v) above, upon notice of which the Company shall have 30 days during
which it may remedy the condition, in which case Good Reason shall not exist. The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executives or the Companys rights hereunder.
(e) Separation from Service. All references to separation from service, termination of
service and words of similar import shall have the same meaning as separation from service as
defined by Section 409A. By way of illustration, and without limiting the generality of the
foregoing, the following principals shall apply:
(i) The Executive shall not be considered to have separated from service so
long as the Executive is on military leave, sick leave, or other bona fide leave of absence
if the period of such leave does not exceed six months, or if longer, so long as the
Executive retains a right to reemployment with the Company under an applicable statute or by
contract.
(ii) Regardless of whether his employment has been formally terminated, the Executive
will be considered to have separated from service as of the date it is reasonably
anticipated that no further services will be performed by the Executive for the Company, or
that the level of bona fide services the Executive will perform after such date will
permanently decrease to no more than 20% of the average level of bona fide services
performed over the immediately preceding 36-month period (or the full period of employment
if the Executive has been employed for less than 36 months). For purposes of the preceding
test, during any paid leave of absence the Executive shall be considered to have been
performing services at the level commensurate with the amount of compensation received, and
unpaid leaves of absence shall be disregarded.
7
(iii) For purposes of determining whether the Executive has separated from service, all
services provided for the Company, or for any other entity that is part of a controlled
group that includes the Company as defined in Section 414(b) or (c) of the Internal Revenue
Code (Code), shall be taken into account, whether provided as an employee or as a
consultant or other independent contractor; provided that the Executive shall not be
considered to have not separated from service solely by reason of service as a non-employee
director of the Company or any other such entity.
Section 6. Obligations of the Company upon Separation.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the Service Period,
the Company causes the Executive to separate from service other than for Cause or Disability, or
the Executive shall voluntarily separate from service for Good Reason as described in Section 5(c),
the following provisions shall apply:
(i) The Company shall pay to the Executive the amounts set forth in Sections A
and B below.
A. The sum of the following (Accrued Obligations):
(1) the Executives Annual Base Salary through the separation from service
to the extent not theretofore paid, payable on the next regularly scheduled
payroll date, plus
(2) an amount, equal to the Executives highest Annual Bonus or bonus paid
under the Companys incentive bonus program or any comparable bonus under
any predecessor or successor plan, for the last three fiscal years ending
prior to the separation from service (Highest Annual Bonus), multiplied by
a fraction, the numerator of which is the number of days in the fiscal year
through the separation from service, and the denominator of which is 365,
payable in a lump sum on the 30th day following the separation
from service, plus
(3) any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon), paid in accordance with the
Executives deferral elections in effect under any such deferral program,
plus
(4) any accrued but unpaid vacation pay, paid in a lump sum on the 30th day
following the separation from service.
B. The amount equal to the product of (1) two multiplied by (2) the sum of (x)
the Executives Annual Base Salary plus (y) the Highest Annual Bonus, which shall be
paid in a lump sum on the 30th day following the separation from service.
(iii) The Company shall reimburse the Executive for the additional premium costs
incurred by the Executive, in excess of the active employee rate for the Executives
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peer group, to continue group medical coverage for the Executive and/or the Executives
family under Section 4980B of the Code and applicable state laws (COBRA) for the maximum
period of time as permitted by law. The Executive shall submit to the Company satisfactory
evidence of premium costs incurred within 30 days following the date such costs were
incurred. Within 30 days following receipt of such evidence, the Company shall pay to the
Executive such reimbursement, plus additional severance pay in an amount such that the net
amount of such reimbursement and additional severance pay, after all applicable tax
withholding, equals the difference between the full COBRA premium and the premium charged to
active employees in Executives peer group. Following the end of COBRA coverage, the
Company shall reimburse the Executive for the additional premium costs incurred by the
Executive, in excess of the former employee COBRA rate for the Executives peer group, for
the purchase of an individual insurance policy providing medical coverage to the Executive
and/or the Executives family which is substantially similar to the coverage provided by the
Companys group medical plan. In no event shall the combined period of reimbursable
coverage under COBRA and any individual insurance policy exceed two years from separation
from service.
(iv) For a period of up to 2 years after the separation from service, the Company shall
provide monthly outplacement services to the Executive at reasonable levels as provided to
peer executives of the Company, for the purpose of assisting the Executive to seek new
employment; provided, however, that the Company shall have no further obligations to provide
such outplacement services once the Executive has accepted employment with any third party.
(v) Notwithstanding anything to the contrary set forth in any stock option plans
pursuant to which the Executive has been granted any stock options or other rights to
acquire securities of the Company or its Affiliates, as defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act (the Plans), any option or right granted to
the Executive under any of the Plans shall be exercisable by the Executive until the earlier
of (x) the date on which the option or right terminates in accordance with the terms of its
grant, or (y) the expiration of 12 months after the separation from service.
(vi) To the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive any other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such other amounts and
benefits shall hereinafter be referred to collectively as the Other Benefits).
(vii) Notwithstanding anything to the contrary contained in any employment agreement,
benefit plan or other document, in the event the Executives employment shall be terminated
during the Service Period by the Executive for Good Reason or by the Company other than for
Cause or Disability, on and after the separation from service the Executive shall not be
bound or prejudiced by any non-competition agreement benefiting the Company or its
subsidiaries.
(b) Death. If the Executive dies during the Service Period, this Agreement shall terminate
without further obligations by the Company to the Executives legal representatives
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under this Agreement, other than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to the Executives estate or
beneficiary, as applicable, at the time and in the form as provided in Paragraph 6(a)(i)(A) above.
With respect to the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(b) shall include, without limitation, and the Executives estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable benefits provided by
the Company and affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the Effective Date.
(c) Disability. If the Company causes the Executive to separate from service by reason of the
Executives Disability during the Service Period as set forth in Section 5(a), this Agreement shall
terminate without further obligations by the Company to the Executive under this Agreement, other
than for payment of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive at the time and in the form provided in
Paragraph 6(a)(i)(A). With respect to the provision of Other Benefits, the term Other Benefits
as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the
Executives separation from service to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other peer executives and
their families at any time during the 120-day period immediately preceding the Effective Date.
(d) Cause; Other than for Good Reason. If the Company causes the Executive to separate from
service for Cause during the Service Period as described in Section 5(b), this Agreement shall
terminate without further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the separation from service, payable on the next
regularly scheduled payroll date, (y) the amount of any compensation previously deferred by the
Executive (which shall be paid at the time and in the form it would otherwise have been paid had
this Agreement not applied), and (z) Other Benefits, in each case to the extent theretofore unpaid.
If the Executive voluntarily separates from service during the Service Period, excluding a
termination for Good Reason as described in Section 5(c), this Agreement shall terminate without
further obligations of the Company to the Executive under this Agreement, other than for payment of
Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all
Accrued Obligations shall be paid to the Executive at the time and in the form provided in Section
6(a)(i)(A) and the Company shall timely pay or provide the Other Benefits to the Executive. In no
event shall the Executive be liable to the Company for any damages caused by such voluntary
termination by the Executive nor shall the Executive be in any way restricted from being employed
by any other party after such voluntary termination.
Section 7. Code Section 409A Payment Limits. To the maximum extent possible, the provisions
of this Agreement shall be construed in such a manner that no amounts payable to the Executive are
subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code. If any
payment (whether cash or in-kind), including but not limited to reimbursements and Other Benefits,
would constitute a deferral of compensation under Section 409A and a
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payment date that complies with Section 409A(a)(2) of the Code is not otherwise provided for
such benefit either in this Agreement or a Company program or policy, then such payment shall be
made not later than 2 1/2 months after the end of the calendar year in which the payment is no longer
subject to a substantial risk of forfeiture. Any receipts or other proof of expenses (if required)
shall be submitted to the Company by the Executive no later than one month after the end of the
calendar year in which the payment is no longer subject to a substantial risk of forfeiture.
Notwithstanding any provision in this Agreement to the contrary, if at the time of separation from
service the Executive is a specified employee within the meaning of Section 409A, any cash or
in-kind payments which constitute a deferral of compensation under Section 409A and which would
otherwise become due under this Agreement during the first 6 months (or such longer period as
required by Section 409A) after separation from service shall be delayed and all such delayed
payments shall be paid in full in the 7th month after the separation from service, and all
subsequent payments shall be paid in accordance with their original payment schedule. To the
extent that any insurance premiums or other benefit contributions constituting a deferral of
compensation become subject to the above delay, the Executive shall be responsible for paying such
amounts directly to the insurer or other third party and shall receive reimbursement from the
Company for such amounts in the 7th month as described above. The above specified employee delay
shall not apply to any payments that are excepted from coverage by Section 409A, such as those
payments covered by the short-term deferral exception described in Treasury Regulations Section
1.409A-1(b)(4).
Section 8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the
Executives continuing or future participation in any plan, program, policy or practice provided by
the Company or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 13(f) hereof, shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to his or her separation from service
shall be payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement.
Section 9. Full Settlement. The Companys obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment. To the extent that any amount due hereunder has become
subject to a bona fide dispute, payment of such amount may be delayed until no later than the end
of the first taxable year of the Executive in which the Company and the Executive enter into a
legally binding settlement of such dispute, the Company concedes that the amount is payable, or the
Company is required to make such payment pursuant to a final and nonappealable judgment or other
binding decision, as set forth in Treasury Regulation Section 1.409A-3(g), and any such payment
shall include interest on such delayed amount from the original due date thereof until paid at the
prime rate from time to time reported in The Wall Street Journal during said period, plus, to the
fullest extent permitted by law, the
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amount of all legal fees and expenses which the Executive reasonably incurs as a result of any
contest by the Company, the Executive or others in which the Executive is the prevailing party.
Section 10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it shall be determined that
any payment or distribution by the Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section, except as
provided in the last sentence of this paragraph (a)) (hereinafter referred to collectively as a
Payment) would be subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively referred to as the
Excise Tax), then the Executive shall be entitled to receive an additional payment (a Gross-Up
Payment) in an amount such that, after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Regardless of whether the Executive is subject to an Excise
Tax, in the event that the Company fails to make any payment at the time or in the form required by
Section 6, and as a result it is subsequently determined that Executive is subject to the
additional tax and interest provided in Section 409A(a)(1)(B) of the Code with respect to any
portion of such payment (such additional tax, together with any interest and penalties thereon, are
hereinafter collectively referred to as the Section 409A Penalty) then Executive shall also be
entitled to receive an additional payment (a Section 409A Gross-Up) calculated in the same manner
as a Gross-Up Payment by substituting Section 409A Penalty for Excise Tax for all purposes of
this Section. The Section 409A Gross-Up shall be considered a Payment for purposes of calculation
of any Gross-Up Penalty.
(b) Subject to the provisions of paragraph (c) hereof, all determinations required to be made
under this Section, including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall
be made by Ernst & Young LLP or such other independent certified public accounting firm as may be
designated by the Executive (hereinafter referred to as the Accounting Firm) which shall provide
detailed supporting calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firms determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by the Company should have been
made (hereinafter referred to as the Underpayment) consistent with the calculations
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required to be made hereunder. In the event that the Company exhausts its remedies pursuant to
paragraph (c) hereof and the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company relating to
such claim,
(ii) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order effectively to contest such
claim, and
(iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such representation and payment
of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the
Company shall control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to any imputed income
with respect to such advance. The Companys
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control of any such contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to
paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Companys complying with the requirements of paragraph
(c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph (c) hereof, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
(e) Anything else contained herein to the contrary notwithstanding, in no event shall any
Gross-Up Payment be paid to the Executive later than the last day of the year following the year in
which the Executive pays to the applicable taxing authority the Excise Tax with respect to which
the Gross-Up Payment is due. The preceding sentence is included solely in order to satisfy the
requirements of Section 409A, and is not to be construed to permit a delay in the time at which a
Gross-Up Payment would otherwise be paid.
Section 11. Confidential Information. The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executives service with the Company or any of its
affiliated companies and which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement). After Executives
separation from service with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of this Section 11
constitute a basis for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement. The provisions of this Section 11 shall survive any termination of this
Agreement or the Executives separation of service with the Company.
Section 12. Successors. (a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executives legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
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Company to assume expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such succession had taken place.
As used in this Agreement, the term Company shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
Section 13. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without reference to principles of conflict of
laws. This Agreement may not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) Each notice, request, demand, approval or other communication which may be or is required
to be given under this Agreement shall be in writing and shall be deemed to have been properly
given when delivered personally at the address set forth below for the intended party during normal
business hours at such address, when sent by facsimile or other electronic transmission to the
respective facsimile transmission numbers of the parties set forth below with telephone
confirmation of receipt, or when sent by recognized overnight courier or by the United States
registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
Littelfuse, Inc.
800 E. Northwest Highway
Des Plaines, Illinois 60016
Attention: President
Facsimile: (847) 824-3864
Confirm: (847) 391-0304
If to the Executive, to the last address shown in the records of the Company.
Notices shall be given to such other addressee or address, or both, or by way of such other
facsimile transmission number, as a particular party may from time to time designate by written
notice to the other party hereto. Each notice, request, demand, approval or other communication
which is sent in accordance with this Section shall be deemed given and received for all purposes
of this Agreement as of two business days after the date of deposit thereof for mailing in a duly
constituted United States post office or branch thereof, one business day after deposit with a
recognized overnight courier service or upon confirmation of receipt of any facsimile transmission.
Notice given to a party hereto by any other method shall only be deemed to be given and received
when actually received in writing by such party.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such Federal,
state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or
regulation.
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(e) The Executives or the Companys failure to insist upon strict compliance with any
provision of this Agreement or the failure to promptly assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the Executive to separate
from service for Good Reason pursuant to Section 5(c)(i)-(v) hereof, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under
any other written agreement between the Executive and the Company, the employment or other service
of the Executive by or with the Company is at will and, subject to Section 1(a) hereof and/or any
other written agreement between the Executive and the Company, prior to the Effective Date, the
Executives employment and/or service and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date upon written notice to the other
party, in which case the Executive shall have no further rights under this Agreement. From and
after the Effective Date, this Agreement shall supersede any other agreement between the parties
with respect to the subject matter hereof.
(g) This Agreement may be executed in two or more counterparts, all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement on the
dates set forth below.
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Date: January 22, 2009
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LITTELFUSE, INC. |
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Date: ________________________________ |
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Exhibit 21.1
SUBSIDIARIES
Concord Holding (BVI) Co., Ltd. British Virgin Islands
Concord Semiconductor (Wuxi) Company China
Dongguan Littelfuse Electronics Co., Ltd. China
Dongguan Wickmann Electrical Products Co. China
H.I. Immobilien Management GmbH Germany
H.I. Verwaltungs GmbH Germany
LF Consorcio S. De R.L. de C.V. Mexico
Littelfuse Automotive GmbH Germany
Littelfuse Concord Semiconductor, Inc. Taiwan
Littelfuse da Amazonia, Ltda. Brazil
Littelfuse do Brasil Ltda. Brazil
Littelfuse Europe Holding, B.V. Netherlands
Littelfuse Far East Pte. Ltd. Singapore
Littelfuse GmbH Germany
Littelfuse GP, Inc. Delaware
Littelfuse HK Limited Hong Kong
Littelfuse Holding GmbH Germany
Littelfuse I L.P. Delaware
Littelfuse Ireland Development Co., Ltd. Ireland
Littelfuse Ireland Holding Ltd. Ireland
Littelfuse Ireland Limited Ireland
Littelfuse KK Japan
Littelfuse Phils, Inc. Philippines
Littelfuse Triad, Inc. Korea
Littelfuse U.K. Ltd. United Kingdom
Littelfuse, B.V. Netherlands
Littelfuse, S.A. de C.V. Mexico
Rempat Financial B.V. Netherlands
Rempat Holding B.V. Netherlands
Startco Engineering Ltd.
SurgX Corporation Delaware
Suzhou Littelfuse OVS Ltd. China
Teccor de Mexico S.A. de. R.L. de C.V. Mexico
Teccor Delaware, Inc. Delaware
Teccor Electronics Mexico Holdings LLC Delaware
Teccor Electronics, Inc. Delaware
Wickmann-Werke GmbH Germany
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements (Form S-8 No.
333-64285, Form S-8 No. 333-134699 and Form S-8 No. 333-134700) pertaining to the 1993 Stock Plan
for Employees and Directors of Littelfuse, Inc., the Littelfuse Inc. Outside Directors Stock
Option Plan, and the Littelfuse Inc. Equity Incentive Compensation Plan of our reports dated
February 25, 2009, with respect to the consolidated financial statements and schedule of
Littelfuse, Inc. and the effectiveness of internal control over financial reporting of Littelfuse,
Inc., included in this Annual Report (Form 10-K) for the year ended December 27, 2008.
Chicago, Illinois
February 25, 2009
EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, Gordon Hunter, certify that:
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I have reviewed this Annual Report on Form 10-K of Littelfuse Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
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4. |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, 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;
(c) evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
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The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions): |
(a) all significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and report
financial information; and
(b) any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting.
Dated: February 25, 2009
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/s/ GORDON HUNTER
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Gordon Hunter |
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Chairman, President and
Chief Executive Officer |
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EXHIBIT 31.2
SECTION 302 CERTIFICATION
I, Philip G. Franklin, certify that:
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1. |
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I have reviewed this Annual Report on Form 10-K of Littelfuse Inc.; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
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4. |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f))for the registrant and have: |
(a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, 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;
(c) evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
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5. |
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The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions): |
(a) all significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and report
financial information; and
(b) any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting.
Dated: February 25, 2009
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/s/ PHILIP G. FRANKLIN
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Philip G. Franklin |
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Vice President, Operations Support,
Chief Financial Officer and Treasurer |
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EXHIBIT 32.1
LITTELFUSE, INC.
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350,
Chapter 63 of title 18, United States Code), each of the undersigned officers of Littelfuse, Inc.
(the Company) does hereby certify that to his knowledge:
The Annual Report of the Company on Form 10-K for the fiscal year ended December 27, 2008 (the
Report) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934, and the information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
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/s/ GORDON HUNTER
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/s/ PHILIP G. FRANKLIN |
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Philip G. Franklin
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Chairman, President and
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Vice President, Operations Support, |
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Chief Executive Officer
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Chief Financial Officer and Treasurer |
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