Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One) for the fiscal year ended January 3, 2004 or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the transition period from to
Commission file number 0-20388
LITTELFUSE, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3795742
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
800 East Northwest Highway,
Des Plaines, Illinois 60016
(Address of principal executive offices) (Zip Code)
847/824-1188
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
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 [X] No [ ]
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 registrant's 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. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The aggregate market value of 21,359,097 shares of voting stock held by
non-affiliates of the registrant was approximately $462,638,041 based on the
last reported sale price of the registrant's Common Stock as reported on The
Nasdaq Stock Market on June 27, 2003.
As of March 12, 2004, the registrant had outstanding 22,059,993 shares
of Common Stock.
Portions of the following documents have been incorporated herein by
reference to the extent indicated herein:
Littelfuse, Inc. Proxy Statement dated March 26, 2004 (the "Proxy
Statement") --Part III.
Littelfuse, Inc. Annual Report to Stockholders for the year ended
January 3, 2004 (the "Annual Report to Stockholders") -- Parts II and
III.
PART I
ITEM 1. BUSINESS
GENERAL
Littelfuse, Inc. (the "Company" or "Littelfuse") is the world's leading
supplier of circuit protection products for the electronics industry. The
Company provides the broadest line of circuit protection solutions to worldwide
customers. 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 electronic market, the Company supplies leading manufacturers
such as Alcatel, Celestica, Compal, Delta, Flextronics, Fuji, GE, HP, Huawei,
Hughes, IBM, Intel, Jabil, Legend, LG, Matsushita, Motorola, Nokia, Palm,
Quanta, Samsung, Sanmina-SCI, Sanyo, Selectron, Siemens, Sony and Toshiba. In
the automotive market, the Company's customers include major automotive
manufacturers in North American, Europe and Asia such as BMW, DaimlerChrysler,
Ford Motor, General Motors, Honda Motor, Hyundia and Toyota. The Company also
supplies wiring harness manufacturers and auto parts suppliers worldwide,
including Alcoa Fujikawa, Auto Zone, Delphi, Lear, Pep Boys, Siemens VDO and
Yazaki. The Company also competes in the electrical fuse market with
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."
The Company manufactures many of its products on fully integrated
manufacturing and assembly equipment. The Company maintains product quality
through a rigorous quality assurance program with all sites certified under ISO
9001/TS16949 standards and its world headquarters certified under the ISO
9000:/TS16949 and ISO 14001 standards.
The Company's products are sold worldwide through a direct sales force
and manufacturers' representatives. For the year ended January 3, 2004,
approximately 55.9% of the Company's net sales were to customers outside the
United States (exports and foreign operations).
References herein to "2001" or "fiscal 2001" refer to the fiscal year
ended December 29, 2001. References herein to "2002" or "fiscal 2002" refer to
the fiscal year ended December 28, 2002. References herein to "2003" or "fiscal
2003" refer to the fiscal year ended January 3, 2004.
The Company's 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
currently available free of charge through the "Investor Relations" section of
the Company's 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.
1
BUSINESS ENVIRONMENT: CIRCUIT PROTECTION MARKET
The Company serves customers in three major product areas of the
circuit protection market: electronic, automotive and electrical. Net sales by
product area for the periods indicated are as follows:
<TABLE>
<CAPTION>
Fiscal Year
(in thousands)
-----------------------------------------------------
2003 2002 2001
-------- -------- --------
<S> <C> <C> <C>
Electronic $206,523 $150,838 $146,342
Automotive 98,327 98,235 91,061
Electrical 34,560 34,194 34,746
-------- -------- --------
Total $339,410 $283,267 $272,149
======== ======== ========
</TABLE>
ELECTRONIC PRODUCTS
Electronic circuit protection products are used to protect circuits in a
multitude of electronic systems. The Company's product offering includes a
complete line of overcurrent and overvoltage solutions including: (1) fuses and
protectors (2) positive temperature coefficient (PTC) resettables (3) varistors
(4) electrostatic discharge (ESD) suppressors (5) discrete transient voltage
suppression (TVS) diodes, TVS diode arrays and protection thyristors (6) gas
discharge tubes (7) power switching components (8) fuseholders, blocks and
other.
Electronic fuses and protectors are devices that contain an element which 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 Company's 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 following trademarked and brand names: PICO(R) II and NANO2
(R) SMF.
Resettables are positive temperature coefficient (PTC) polymer devices that
limit the current when an overcurrent condition exists and then reset themselves
once the overcurrent condition has cleared. The Company markets a line of
surface mount PTC devices used primarily for computer and peripheral
applications such as motherboards, disk drives, modems and printers.
Varistors are ceramic-based high-energy absorption devices that provide
transient overvoltage and surge suppression for automotive, telecommunication,
consumer electronics and industrial applications. The Company's product line
offers both radial leaded and multilayer surface mount products.
Electrostatic discharge (ESD) suppressors are polymer-based devices that protect
an electronic system from failure due to rapid transfer of electrostatic charge
to the circuit. The Company's PulseGuard(R) line of ESD suppressors is used in
PC and PC peripherals, digital consumer electronics and wireless applications.
2
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 OEMs, 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 Company's automotive fuse products are marketed under
the following trademarked brand names: ATO(R), MINI(R), MAXI(TM), MIDI(R),
MEGA(TM) and CablePro(TM).
A majority of the Company's North American automotive fuse sales are made to
wire harness manufacturers that incorporate the fuses into their products. The
remaining automotive fuse sales are made directly to automotive manufacturers
and through distributors who in turn sell most of their products to automotive
product wholesalers, such as warehouse distributors, discount stores and service
stations.
3
The Company has licensed its patented MINI(R) and MAXI(TM) automotive fuse
designs to Bussmann, a division of Cooper Industries. Bussmann is the Company's
largest domestic competitor. Additionally, the Company has entered into a
licensing agreement with Pacific Engineering Company, Ltd., a Japanese fuse
manufacturer, which produces and distributes the Company's patented MINI(R)
fuses to Asian automotive OEMs and wire harness manufacturers. See "Business --
Patents, Trademarks and Other Intellectual Property" and "Competition."
ELECTRICAL PRODUCTS
The Company entered the electrical fuse market in 1983 and manufactures and
sells a broad range of low-voltage and medium-voltage circuit protection
products to electrical distributors and their customers in the construction,
original equipment manufacturers ("OEM") and industrial maintenance and repair
operations ("MRO") markets.
Power fuses are used to protect circuits in various types of industrial
equipment and circuits in industrial plants, office buildings and residential
units. 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 Company's 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.
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, UK
and Dundalk, Ireland. The Product Technology Department maintains a staff of
engineers, chemists, material scientists and technicians whose primary
responsibility is the design and development of 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 typically ranges from a couple of weeks to 18 months based
on complexity of development with continuous efforts to reduce the development
cycle. During fiscal years 2003, 2002 and 2001, the Company expended $8.7
million, $8.3 million and $8.9 million, respectively, on 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
4
maintain the confidentiality of the Company's proprietary information and trade
secrets. This information, for business reasons, is not disclosed to the public.
As of January 3, 2004, the Company owned 160 patents in North America, 30
patents in the European Economic Community and 15 patents in other foreign
countries. The Company has also registered trademark protection for certain of
its brand names and logos. The 160 North American patents are in the following
product categories: 109 electronic, 29 automotive, 22 electrical fuse.
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 Company's patents are important in the operation of its
businesses, the Company believes that the loss by expiration or otherwise of any
one patent or group of patents would not materially affect its business.
The Company currently licenses its MINI(R) and MAXI(TM) automotive fuse
technology to Bussmann, a division of Cooper Industries and the Company's
largest domestic competitor. The license granted in 1987 is nonexclusive and
grants the Company the right to receive royalties of 4% of the licensee's
revenues from the sale of the licensed products with an annual minimum of
$25,000. This license expires upon the expiration of the licensed product
patents.
In addition, a second license covering the MINI(R) Fuse technology was granted
to Pacific Engineering Company, Ltd., a Japanese manufacturer that produces and
distributes the Company's patented automotive fuses to Asian-based automotive
OEMs and wire harness manufacturers. The license provides the Company with
royalties of 2.5% of the licensee's revenues from the sale of the licensed
products, with an annual minimum of $100,000. This second license expires on
April 6, 2006.
License royalties amounted to $409,000, $369,000 and $390,000 for fiscal 2003,
2002 and 2001, respectively.
MANUFACTURING
The Company performs the majority of its own fabrication and 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(TM) fuse product lines
are met through the Company's 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.
5
The principal raw materials for the Company's products include copper and copper
alloys, heat resistant plastics, zinc, melamine, glass, silver, raw silicon,
solder and various gases. The Company depends upon a sole source for several
heat resistant plastics and zinc. The Company believes that suitable alternative
heat resistant plastics and zinc are available from other sources at prices that
would not have a material adverse effect on the Company. 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, laboratories test new products, prototype
concepts and production run samples. The Company participates in "Just-in-Time"
delivery programs and 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 involving them in pre-engineering
product and process development.
MARKETING
The Company's domestic sales and marketing staff of over 25 people maintains
relations with major OEMs and distributors. The Company's sales, marketing and
engineering personnel interact directly with the OEM engineers to ensure
appropriate circuit protection and reliability within the parameters of the
OEM's circuit design. Internationally, the Company maintains a sales and
marketing staff of over 40 people and sales offices in The Netherlands, England,
France, Germany, Spain, Ireland, Singapore, Taiwan, Japan, Brazil, Hong Kong,
Korea and China. The Company also markets its products indirectly through a
worldwide organization of over 120 manufacturers' representatives and
distributes through an extensive network of electronic, automotive and
electrical distributors.
ELECTRONIC. The Company retains manufacturers' representatives to sell its
electronic products and to call on major domestic and international OEMs and
distributors. The Company distributes approximately one-third 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 manufacturers' representatives and 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 (including the United States manufacturing operations of
foreign-based OEMs) through both the engineering and purchasing departments of
these companies. Twenty-two manufacturers' representatives represent the
Company's 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 BMW, Volvo, Saab, Jaguar and other
OEMs, as well as aftermarket distributors. In the Asia-Pacific region, the
Company has licensed its automotive fuse technology to a Japanese firm, which
supplies the majority of the automotive fuses to the Japanese customers in the
region including Toyota, Honda and Nissan.
6
ELECTRICAL. The Company markets and sells its power fuses through manufacturers'
representatives across North America. These representatives sell power fuse
products through an electrical distribution network comprised of approximately
1,600 distributor buying locations. These distributors have customers that
include electrical contractors, municipalities, utilities and factories
(including both MRO and OEM).
The Company's 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 Company's products.
BUSINESS SEGMENT INFORMATION
The Company has three reportable business segments: The Americas, Europe and
Asia-Pacific. For information with respect to the Company's operations in its
three geographic areas for the fiscal year ended January 3, 2004, see "Item 8.
Financial Statements and Supplementary Data - Business Segment Information"
incorporated herein by reference.
CUSTOMERS
The Company sells to over 10,000 customers worldwide. No single customer
accounted for more than 10% of net sales during the last three years. During the
2003, 2002 and 2001 fiscal years, net sales to customers outside the United
States (exports and foreign operations) accounted for approximately 55.9%, 53.7%
and 51.9%, respectively, of the Company's total net sales.
COMPETITION
The Company's products compete with similar products of other manufacturers,
some of which have substantially greater financial resources than the Company.
In the electronics market, the Company's competitors include AVX, Bel Fuse,
Bourns, Cooper Electronics, EPCOS, Raychem Division of TYCO International, San-O
Industrial Corp., STMicroelectronics and Wickmann-Werke GmbH. In the automotive
fuse market, the Company's competitors, both in sales to automobile
manufacturers and in the aftermarket, include Bussmann Division of Cooper
Industries, Pudenz Division of Wickmann-Werke and MTA in Italy. The Company
licenses several of its automotive fuse designs to Bussmann. In the electrical
market, the Company's major competitors include Cooper Bussmann 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 January 3, 2004, was approximately $55.4
million, compared to $29.2 million at December 28, 2002. Substantially all of
the orders currently in backlog are scheduled for delivery in 2004.
7
EMPLOYEES
As of January 3, 2004, the Company employed 4,896 persons. Approximately 45
employees in Des Plaines, 1730 employees in Mexico, and 138 employees in Ireland
are covered by collective bargaining agreements. The Des Plaines agreement
expires in March 2005, the Mexico agreement expires February 2005 for 515
employees and February 2006 for 1,215 employees and the Ireland agreement
expires December 31, 2006. Overall, the Company has historically maintained
satisfactory employee relations and many of its employees have long experience
with the Company.
ENVIRONMENTAL REGULATION
The Company is subject to numerous federal, state and local regulations relating
to air and water quality, the disposal of hazardous waste materials, safety and
health. Compliance with applicable environmental regulations has not
significantly changed the Company's competitive position, capital spending or
earnings in the past and the Company does not presently anticipate that
compliance with such regulations will change its competitive position, capital
spending or earnings for the foreseeable future. The Company 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 of the Harris suppression products division.
Corrective steps are being taken to bring this facility into compliance with
Irish environmental laws, and 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.
RISKS AND UNCERTAINTIES
The Company's business is subject to several risks and uncertainties, including:
(a) the highly competitive nature of the Company's industry and the impact that
competitors' new products and pricing may have upon the Company, (b) risks
associated with the Company's ability to manufacture and deliver products in a
manner that is responsive to its customers' needs, (c) risks of business
interruption resulting from labor disputes and (d) the likelihood that revenues
may vary significantly from one accounting period to another due to a variety of
factors, including customers' buying decisions, the Company's product mix and
general market and economic conditions. Such factors, as well as shortfalls in
the Company's results of operations as compared with analysts' expectations,
capital market conditions and general economic conditions, may also cause
substantial volatility in the market price of the Company's common stock.
8
ITEM 2. PROPERTIES
LITTELFUSE FACILITIES
The Company's operations are located in 22 owned or leased facilities worldwide,
representing an aggregate of approximately 1,042,705 square feet. The U.S.
headquarters and largest manufacturing facility are located in Des Plaines,
Illinois, supported by the Company's new North American distribution center in
nearby Elk Grove Village, Illinois. The Company has additional North American
manufacturing facilities in Arcola, Illinois, and Irving, Texas, as well as two
plants in Mexico. The European headquarters and primary European distribution
center are in Utrecht, the Netherlands, with manufacturing plants in England,
Ireland and Switzerland. Asian operations include sales and distribution centers
located in Singapore, Taiwan, Japan and Korea, with manufacturing plants in
China 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 Company's facilities are adequate to
meet its requirements for the foreseeable future.
The following table provides certain information concerning the Company's
facilities:
<TABLE>
<CAPTION>
Lease
Size Lease/ Expiration
Location Use (sq.ft.) Own Date Primary Product
-------- --- -------- --- ---- ---------------
<S> <C> <C> <C> <C> <C>
Des Plaines, Illinois Administrative, 340,000 Owned -- Auto, Electronic,
Engineering, Electrical
Manufacturing,
Testing and Research
Irving, Texas Administrative, 101,000 Leased 2005 Electronic
Engineering,
Manufacturing,
Testing and Research
Brownsville, Texas Distribution 20,000 Leased 2009 Electronic
Matamoros, Mexico Manufacturing 77,500 Leased 2005 Electronic
Matamoros, Mexico Administrative, 14,000 Leased 2005 Electronic
Manufacturing
Arcola, Illinois Manufacturing 36,000 Owned -- Electrical
Piedras Negras, Mexico Manufacturing, 11,151 Leased 2004 Electronic and
Warehousing Electrical
</TABLE>
9
<TABLE>
<S> <C> <C> <C> <C> <C>
Piedras Negras, Mexico Warehousing 22,306 Leased 2006 Electronic and
Electrical
Swindon, England Manufacturing 55,000 Leased 2004 Electronic
Utrecht, the Netherlands Sales, 34,642 Owned -- Auto and Electronic
Administrative and
Distribution
Grenchen, Switzerland Manufacturing 11,000 Owned -- Auto
</TABLE>
<TABLE>
<CAPTION>
Lease
Size Lease/ Expiration
Location Use (sq.ft.) Own Date Primary Product
-------- --- -------- --- ---- ---------------
<S> <C> <C> <C> <C> <C>
Singapore Sales and 15,696 Leased 2006 Electronic & Auto
Distribution
Seoul, Korea Sales 4,589 Leased 2004 Electronic and Auto
Philippines Manufacturing 58,127 Owned -- Electronic
Suzhou, China Manufacturing 43,913 Owned -- Electronic
Suzhou, China Warehousing 26,039 Leased 2004 Electronic
Hong Kong, China Sales 2,000 Leased 2004 Electronic
Taipei, Taiwan Sales 255 Leased 2007 Electronic
Yokohama, Japan Sales 6,243 Leased 2004 Electronic
Yokohama, Japan Distribution 17,858 Leased 2005 Electronic
Sao Paulo, Brazil Sales 800 Leased 2004 Electronic & Auto
Dundalk, Ireland Manufacturing 120,000 Owned -- Electronic & Auto
</TABLE>
10
Properties with lease expirations in 2004 renew at various times throughout the
year. At this point, 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 Company's stockholders during the fourth
quarter of fiscal 2003.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Howard B. Witt 63 Chairman, President and Chief Executive Officer
Gordon Hunter 52 Chief Operating Officer
Kenneth R. Audino 60 Vice President, Organizational Development
and Total Quality Management
Philip G. Franklin 52 Vice President, Operations Support and Chief
Financial Officer
Mary S. Muchoney 58 Secretary
</TABLE>
Officers of Littelfuse are elected by the Board of Directors and serve at the
discretion of the Board.
Howard B. Witt was elected as the Chairman of the Board of the Company in May,
1993. He was promoted to President and Chief Executive Officer of the Company in
February, 1990. Prior to his appointment as President and Chief Executive
Officer, Mr. Witt served in several other key management positions since joining
the Company as Operations Manager in 1979. Mr. Witt serves as a Director of
Franklin Electric Co., Inc. and is a member of the Electronic Industries
Alliance Board of Directors. He also serves as a director of the Artisan Mutual
Fund.
Gordon Hunter, Chief Operating Officer, has the responsibility for global sales
and production. Mr. Hunter has been a member of the Board of Directors of the
Company since 2002, where he has served as Chairman of the Technology Committee.
Prior to joining Littelfuse, Mr. Hunter
11
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. His
experience includes 20 years with Raychem Corporation in the United States and
Europe, with responsibilities in sales, marketing, engineering and general
management.
Kenneth R. Audino, Vice President, Organizational Development and Total Quality
Management, is responsible for the Company's overall quality, reliability and
environmental compliance, quality systems, human resources and training efforts.
Mr. Audino joined Littelfuse as a Control Technician in 1964. From 1964 to 1977,
he progressed through several quality and reliability positions to Manager of
Reliability and Standards. In 1983, he became Managing Director of the European
Headquarters and later was named Corporate Director of Quality Assurance and
Reliability. He was promoted to his current position in 1998.
Philip G. Franklin, Vice President, Operations Support and Chief Financial
Officer, has responsibility for the treasury, investor relations, accounting,
information systems and global supply chain functions of the Company. Mr.
Franklin joined the Company in 1998 from OmniQuip International, a $450 million
construction equipment manufacturer which he helped take public.
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 American Society of Corporate Secretaries.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under "Quarterly Stock Prices" on page 40 of the
Annual Report to Stockholders is incorporated herein by reference. As of March
12, 2004, there were 186 holders of record of the Company's Common Stock and
approximately 5,000 beneficial holders of its Common Stock.
Shares of the Company's Common Stock are traded under the symbol "LFUS" on The
Nasdaq Stock Market.
The Company has not paid any cash dividends in its history. Future dividend
policy will be determined by the Board of Directors based upon their evaluation
of earnings, cash availability and general business prospects. Currently, there
are restrictions on the payment of dividends contained in the Company's credit
agreements which relate to the maintenance of a minimum net worth and certain
financial ratios.
12
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under "Selected Financial Data - Five Year Summary" on
page 40 of the Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 13 through 20 of the
Annual Report to Stockholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The information set forth under "Market Risk" on page 19 of the Annual Report to
Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Auditors and the Consolidated Financial Statements and
notes thereto of the Company set forth on pages 20 through 39 of the Annual
Report to Stockholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the Commission's rules and forms, and that such information is
accumulated and communicated to the Company's management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
As of the end of the period covered by this Annual Report on Form 10-K for
January 3, 2004, 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 are
effective to ensure that material information relating to the Company and its
consolidated subsidiaries has been made known to them by the employees of the
Company and its consolidated subsidiaries during the period preceding the filing
of this Report. There were no significant changes in the Company's internal
controls during the period covered by this Report that could materially affect
these controls or could reasonably be expected to materially affect the
Company's internal control reporting, disclosures and procedures subsequent to
the last day they were evaluated by the Chief Executive Officer and Chief
Financial Officer of the Company.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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. Please also refer to the information set forth
under "Executive Officers of the Registrant" in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Compensation of Executive Officers" in the
Proxy Statement is incorporated herein by reference, except for the sections
captioned "Reports of the Compensation Committee on Executive Compensation" and
"Company Performance."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under "Ownership of Littelfuse, Inc. Common Stock" in
the Proxy Statement is incorporated herein by reference.
STOCK PLAN DISCLOSURE
The following table represents the Company's equity compensation plans,
including both stockholder approved plans and non-stockholder approved plans.
The section entitled "Compensation of Directors" in the Proxy Statement,
contains a summary explanation of the Stock Plan for New Directors of
Littelfuse, Inc., which has been adopted without the approval of stockholders
and is incorporated herein by reference.
<TABLE>
<CAPTION>
Number of securities
Number of securities remaining available
to be issued upon Weighted-average for future issuance
exercise of exercise price of under equity
Plan Category outstanding options outstanding options compensation plans
------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
Equity compensation plans
approved by security holders 2,036,720 $23.55 759,870
Equity compensation plans not
approved by security holders 10,000 $23.48 15,000
Total 2,046,720 $23.55 774,870
</TABLE>
14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Relationships and Related Transactions"
in the Proxy Statement is incorporated herein by reference.
PART IV
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.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
(1) Financial Statements. The following financial statements
included in the Annual Report to Stockholders are incorporated
herein by reference.
(i) Report of Independent Auditors (page 20).
(ii) Consolidated Balance Sheet as of January 3, 2004, and
December 28, 2002 (page 21).
(iii) Consolidated Statements of Income for the years ended
January 3, 2004, December 28, 2002 and December 29,
2001 (page 22).
(iv) Consolidated Statements of Cash Flows for the years
ended January 3, 2004, December 28, 2002 and December
29, 2001 (page 23).
(v) Consolidated Statements of Shareholders' Equity for
the years ended January 3, 2004, December 28, 2002,
and December 29, 2001 (page 24).
(vi) Notes to Consolidated Financial Statements (pages
25-39).
(2) Financial Statement Schedules. The following financial
statement schedule is submitted herewith for the periods
indicated therein.
(i) Schedule II-Valuation and Qualifying Accounts and
Reserves
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been
omitted.
15
(3) Exhibits
See Exhibit Index on pages 19-21.
(b) Reports on Form 8-K
A current report on Form 8-K (Items 7 and 9 pursuant to Item
12) filed on October 22, 2003.
16
LITTELFUSE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Description Of Year Expenses (A) Year
----------- ------- -------- --- ----
<S> <C> <C> <C> <C>
Year ended January 3, 2004
Allowance for losses on
accounts receivable ................. $ 1,067 $ 50 $ 75 $ 1,042
======= ======= ======= =======
Reserves for sales discounts
and allowances ...................... $ 6,263 $ 165 $ $ 6,428
======= ======= ======= =======
Year ended December 28, 2002
Allowance for losses on
accounts receivable ................. $ 1,244 $ 373 $ 550 $ 1,067
======= ======= ======= =======
Reserves for sales discounts
and allowances ...................... $ 6,275 $ -- $ 12 $ 6,263
======= ======= ======= =======
Year ended December 29, 2001
Allowance for losses on
accounts receivable ................. $ 1,230 $ 332 $ 318 $ 1,244
======= ======= ======= =======
Reserves for sales discounts
and allowances ...................... $ 7,948 $ -- $ 1,673 $ 6,275
======= ======= ======= =======
</TABLE>
(A) Write-off of uncollectible accounts, net of recoveries and foreign currency
translation.
17
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/ Howard B. Witt
------------------
Howard B. Witt,
Chairman, President and
Chief Executive Officer
Date: March 18, 2004
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 indicated on March 18, 2004.
/s/ Howard B. Witt Chairman of the Board, President
------------------------------ and Chief Executive Officer
Howard B. Witt (Principal Executive Officer)
/s/ Gordon Hunter Chief Operating Officer, and
------------------------------ Director
Gordon Hunter
/s/ John P. Driscoll Director
------------------------------
John P. Driscoll
/s/ Anthony Grillo Director
------------------------------
Anthony Grillo
/s/ Bruce A. Karsh Director
------------------------------
Bruce A. Karsh
/s/ John E. Major Director
------------------------------
John E. Major
/s/ Ronald L. Schubel Director
------------------------------
Ronald L. Schubel
/s/ Philip G. Franklin Vice President, Operations Support
------------------------------ and Chief Financial Officer
Philip G. Franklin (Principal Financial Officer)
18
LITTELFUSE INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description of Exhibit
------ ----------------------
<S> <C>
2.1 Plan of Reorganization under Chapter 11 of the Bankruptcy Code of Old
Littelfuse (filed as exhibit 2.1 to the Company's Form 10 effective
September 16, 1992 (1934 Act File No. 0-20388) and incorporated
herein by reference).
3.1 Certificate of Incorporation, as amended to date (filed as 3.1 to the
Company's Form 10K for the fiscal year ended January 3, 1998 (1934
Act File No. 0-20388) and incorporated herein by reference).
3.1A Certificate of Designations of Series A Preferred Stock (filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K dated
December 1, 1995 (1934 Act File No. 0-20388) and incorporated herein
by reference).
3.2 Bylaws, as amended to date (filed as exhibit 2.1 to the Company's
Form 10-Q for the quarterly period ended June 29, 2002 (1934 Act File
No. 0-20388) and incorporated herein by reference).
4.1 Bank credit agreement among Littelfuse, Inc., as borrower, the
lenders named therein and the Bank of America N.A., as agent, dated
as of August 26, 2003 (filed as exhibit 4.1 to the Company's Form
10-Q for the quarterly period ended September 27, 2003 (1934 Act File
No. 0-20388) and incorporated herein by reference).
4.3 Stock Plan for Employees and Directors of Littelfuse, Inc., as
amended (filed as exhibit 4.3 to the Company's Form 10-Q for the
quarterly period ended March 30, 2002 (1934 Act File No. 0-20388) and
incorporated herein by reference).
4.4 Littelfuse, Inc. Retirement Plan dated January 1, 1992, as amended
and restated (filed as exhibit 4.4 to the Company's Form 10-K for the
fiscal year ended December 29, 2001 (1934 Act File No. 0-20388) and
incorporated herein by reference).
4.5 First Amendment to the Littelfuse, Inc. Retirement Plan (filed as
exhibit 4.5 to the Company's Form 10-K for the fiscal year ended
December 28, 2002 (1934 Act File No. 0-20388) and incorporated
herein by reference).
4.6 Littelfuse, Inc. 401(k) Savings Plan (filed as exhibit 4.8 to the
Company's Form 10-K for the fiscal year ended December 31, 1992 (1934
Act File No. 0-20388) and incorporated herein by reference).
</TABLE>
19
<TABLE>
<CAPTION>
Number Description of Exhibit
------ ----------------------
<S> <C>
4.7 Littelfuse Rights Plan Agreement, dated as of December 15, 1995,
between Littelfuse, Inc. and LaSalle National Bank, as Rights Agent,
together with Exhibits thereto, as amended (filed as exhibit 4.10 to
the Company's Form 10-Q for the quarterly period ended October 3,
1998 (1934 Act File No. 0-20388) and incorporated herein by
reference).
4.8 Note Purchase Agreement dated as of September 1, 1998, relating to
$60,000,000 principal amount of Littelfuse, Inc. 6.16% Senior Notes
due September 1, 2005. (filed as exhibit 4.11 to the Company's Form
10-K for the fiscal year ended January 2, 1999 (1934 Act File No.
0-20388) and incorporated herein by reference).
10.1 Employment Agreement dated as of August 8, 2003, between Littelfuse,
Inc. and Howard B. Witt (filed as exhibit 10.1 to the Company's Form
10-Q for the quarterly period ended September 27, 2003 (1934 Act File
No. 0-20388) and incorporated herein by reference).
10.2 Change of Control Employment Agreement dated as of August 8, 2003,
between Littelfuse, Inc. and Howard B. Witt (filed as exhibit 10.2 to
the Company's Form 10-Q for the quarterly period ended September 27,
2003 (1934 Act File No. 0-20388) and incorporated herein by
reference).
10.3 Patent License Agreement, dated as of July 28, 1995, between
Littelfuse, Inc. and Pacific Engineering Company, Ltd.(filed as
exhibit 10.3 to the Company's Form 10-K for the fiscal year ended
December 28, 1996 (1934 Act File No. 0-20388) and incorporated herein
by reference).
10.4 MINI(R) and MAXI(TM) License Agreement, dated as of June 21, 1989,
between Littelfuse, Inc. and Cooper Industries, Inc. (filed as
exhibit 4.6 to the Company's Form 10 effective September 16, 1992
(1934 Act File No. 0-20388) and incorporated herein by reference).
10.5 Patent License Agreement, dated as of January 1, 1987, between
Littelfuse, Inc. and Cooper Industries, Inc. (filed as exhibit 4.6 to
the Company's Form 10 effective September 16, 1992 (1934 Act File No.
0-20388) and incorporated herein by reference).
10.6 1993 Stock Plan for Employees and Directors of Littelfuse, Inc., as
amended (filed as exhibit 10.1 to the Company's Form 10-Q for the
quarterly period ended June 29, 2002 (1934 Act File No. 0-20388) and
incorporated herein by reference).
10.7 Littelfuse, Inc. Supplemental Executive Retirement Plan (filed as
exhibit 10.10 to the Company's Form 10-K for the year ended December
31, 1993 (1934 Act File No. 0-20388) and incorporated herein by
reference).
10.8 Littelfuse Deferred Compensation Plan for Non-employee Directors, as
amended (filed as exhibit 10.8 to the Company's Form 10-K for the
fiscal year ended January 2, 1999 (1934 Act File No. 0-20388) and
incorporated herein by reference).
10.9 Littelfuse Executive Loan Program (filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarterly period ended June 30, 1995
(1934 Act File No. 0-20388) and incorporated herein by reference).
</TABLE>
20
<TABLE>
<CAPTION>
Number Description of Exhibit
------ ----------------------
<S> <C>
10.10 Change of Control Employment Agreement dated as of November 3, 2003,
between Littelfuse, Inc. and Gordon Hunter.
10.12 Form of change of Control Employment Agreement dated as of September
1, 2001, between Littelfuse, Inc. and Mr. Franklin and Ms. Muchoney
(filed as exhibit 10.12 to the Company's Form 10-Q for the quarterly
period ended September 29, 2001 (1934 Act File No. 0-20388) and
incorporated herein by reference).
10.13 Form of change of Control Employment Agreement dated as of September
1, 2001, between Littelfuse, Inc. and Mr. Kenneth Audino (filed as
exhibit 10.13 to the Company's Form 10-Q for the quarterly period
ended September 29, 2001 (1934 Act File No. 0-20388) and incorporated
herein by reference).
10.14 Stock Plan for New Directors of Littelfuse, Inc. (filed as exhibit
10.1 to the Company's Form 10-Q for the quarterly period ended
September 28, 2002 (1934 Act File No. 0-20388) and incorporated
herein by reference).
13.1 Portions of Littelfuse Annual Report to Stockholders for the fiscal
year ended January 3, 2004.
14.1 Code of Ethics for Principal Executive and Financial Officers
22.1 Subsidiaries.
23.1 Consent of Independent Auditors.
31.1 Certification of Howard B. Witt, Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Philip Franklin, Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350.
</TABLE>
21
EXHIBIT 10.10
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 3rd day of November,
2003, by and between LITTELFUSE, INC., a Delaware corporation (hereinafter
referred to as the "Company"), and GORDON HUNTER (hereinafter referred to as the
"Executive");
W I T N E S S E T H:
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 believes that the protections provided to the
Executive in connection with a Change of Control will 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 benefitting 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's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment (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 termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on September 1, 2006.
Section 2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition in one or more transactions by any
individual, entity or group (hereinafter referred to collectively as a
"Person") within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (hereinafter referred to as the
"Exchange Act"), of beneficial ownership (within the meaning of, and
calculated in accordance with, Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding shares
of common stock of the Company (hereinafter referred to as the
"Outstanding Company Common Stock") or (ii) the combined voting power
of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (hereinafter referred to as
the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall
not constitute a Change of Control: (i) any acquisition directly from
the Company, (ii) any acquisition by the Company, (iii) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, (iv) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2 or
(v) any acquisition by Oaktree Capital Management, LLC, a California
limited liability company, or any of its Affiliates or Associates (as
used herein, the terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act); or
(b) Individuals who, as of the date hereof, constitute the
Board (hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Company (hereinafter referred to as a "Business Combination")
unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in
- 2 -
substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination, or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of
the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company within one year after a
Business Combination.
Section 3. Employment Period. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to remain as an employee
of the Company, 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 "Employment Period").
Section 4. Terms of Employment.
(a) Position and Duties. (i) During the Employment Period, (A) the
Executive's 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 Executive's services shall be performed
at the location where the Executive was employed immediately preceding the
Effective Date or any office or location less than 20 miles from such location.
(ii) During the Employment 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 Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment 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
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall
- 3 -
not thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment 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 Employment
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 Employment Period, an
annual bonus (hereinafter referred to as the "Annual Bonus") in cash at least
equal to the Executive's highest bonus under the Company's 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 end 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.
(iii) Incentive, Savings and Retirement Plans. During the Employment
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 Employment Period, the Executive
and/or the Executive's 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
- 4 -
programs) to the extent 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 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.
(v) Expenses. During the Employment 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, 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 Employment 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, 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 Employment 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, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment 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.
Section 5. Termination of Employment.
(a) Disability. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give written notice to
the Executive of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective on
the 30th day after delivery of such notice to the Executive (the "Disability
- 5 -
Effective Date"), provided that, within the 30 days after such delivery, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and reasonably acceptable to the
Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's 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 Executive's 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 of Directors of the Company 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 Executive's 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 a senior officer of the Company
or based upon the advice of 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 Executive's employment 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;
- 6 -
(ii) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's 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;
(iv) the Company's 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
Executive's employment otherwise than as expressly permitted by this
Agreement.
For purposes of this Section 5(c), any 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 12(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 Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of delivery of such notice, specifies
the termination date (which date shall be not more than 30 days after the
delivery of such notice). 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
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of delivery of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination, (iii) if the Executive's employment is terminated
by reason of death or Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as the case may be, and
(iv) if the Executive's employment is terminated by the Executive without Good
Reason, the last day of employment of the Executive with the Company.
- 7 -
Section 6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause or Disability or the Executive shall terminate his
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, plus (2) the product of (x) the higher of
(I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for
the most recently completed fiscal year during the Employment
Period, if any (such higher amount being hereinafter referred
to as the "Highest Annual Bonus") multiplied by (y) a
fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the
denominator of which is 365 plus (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum
of the amounts described in clauses (1), (2) and (3) are
hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two
multiplied by (2) the sum of (x) the Executive's Annual Base
Salary plus (y) the Highest Annual Bonus;
(ii) during the two years following the Date of Termination,
the Company shall continue to provide medical insurance benefits to the
Executive and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the medical
insurance benefits described in Section 4(b)(iv) hereof if the
Executive's employment had not been terminated; provided, however, that
if the Executive becomes reemployed with another employer and is
eligible to receive medical insurance benefits under another
employer-provided plan, the medical insurance benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility;
(iii) for a period of up to two (2) years after the Date of
Termination, the Company shall provide outplacement services to the
Executive for the purpose of assisting the Executive seek new
employment at a cost to the Company not to exceed fifteen percent (15%)
of the Executive's Annual Base Salary, payable directly to an
outplacement service provider; provided, however, that the Company
shall have no further obligations to pay for any such outplacement
services once the Executive has accepted employment with any third
party;
- 8 -
(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 (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 twelve (12) months after the Date of Termination;
(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"); and
(vi) notwithstanding anything to the contrary contained in any
employment agreement, benefit plan or other document, in the event the
Executive's employment shall be terminated during the Employment Period
by the Executive for Good Reason or by the Company other than for Cause
or Disability, on and after the Date of Termination the Executive shall
not be bound or prejudiced by any non-competition agreement benefitting
the Company or its subsidiaries.
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations by the Company to the Executive's 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 Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
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
Executive's 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 Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, 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 in a lump sum in cash within 30 days of the Date of Termination. 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 Disability Effective Date 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
- 9 -
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 Executive's employment
shall be terminated for Cause during the Employment Period, 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 Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates his employment during the
Employment Period, excluding a termination for Good Reason, 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 in a lump sum in cash within 30 days of the Date of
Termination 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. Nonexclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's 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 12(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 the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement.
Section 8. Full Settlement. The Company's 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. The
Company agrees to pay as incurred, to the fullest extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest by the Company, the Executive or others in which the Executive is
the prevailing party and which involves or relates to the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment from the due date thereof until paid
at the prime rate from time to time reported in The Wall Street Journal during
said period.
- 10 -
Section 9. 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
9) (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.
(b) Subject to the provisions of Section 9(c) hereof, all
determinations required to be made under this Section 9, 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 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
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
Section 9(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
- 11 -
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 Section 9(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 Company's 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 Section 9(c) hereof, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 9(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 Section 9(c) hereof,
- 12 -
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.
Section 10. 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 Executive's employment by 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 termination of the Executive's employment 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 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement. The
provisions of this Section 10 shall survive any termination of this Agreement or
any termination of the employment of the Executive with the Company.
Section 11. 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
Executive's 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 12. 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
- 13 -
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 (unless the Executive is
the President, in which case the
communication should be to the
attention of all of the Directors
of the Company other than the
Executive)
Facsimile: (847) 824-3864
Confirm: (847) 391-0304
If to the Executive:
Gordon Hunter
________________________
________________________
Facsimile: _____________
Confirm: _____________
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 Executive's or the Company's 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
- 14 -
terminate employment 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 of the Executive by 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 Executive's
employment 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 Employment Agreement as of the day and year first above written.
______________________________________
Gordon Hunter
LITTELFUSE, INC.
By
Its __________________________________
- 15 -
Exhibit 13.1
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The following discussion provides an analysis of the information contained in
the consolidated financial statements and accompanying notes beginning on page
21 for the three fiscal years ended January 3, 2004, December 28, 2002, and
December 29, 2001, respectively.
Results of Operations -- 2003 Compared with 2002
Sales increased 20% to $339.4 million in 2003 from $283.3 million in 2002. The
increase in sales was primarily in the Americas and Asia, driven by increased
demand for electronic products in the Asia region and sales from the Teccor
Electronics, Inc. ("Teccor") acquisition. Electronic sales increased $55.6
million or 37% to $206.5 million in 2003 compared to $150.9 million in 2002.
Excluding sales of Teccor products, electronic sales increased $14.6 million or
10% to $165.5 million in 2003 compared to $150.9 million in 2002, primarily due
to increased demand in Asia. Automotive sales were essentially flat compared to
the prior year as pricing pressure offset increased volume and strengthening of
the Euro against the U.S. Dollar. Electrical product sales increased $0.4
million or 1% to $34.6 million in 2003 compared to $34.2 million in 2002,
primarily due to modest improvements in commercial construction and industrial
activity in the North American market. International sales increased 24.6% to
$189.6 million or 55.9% of net sales in 2003 from $152.2 million or 53.7% of net
sales in 2002. The increase in international sales was primarily due to strong
demand for electronic products in Asia, the addition of Teccor and favorable
currency effects.
Gross profit was $104.4 million or 30.8% of sales in 2003 compared to $88.6
million or 31.3% of sales in 2002. The gross profit margin decreased as a result
of the addition of Teccor sales at lower margins than Littelfuse's base business
and the recognition of $3.1 million of Ireland restructuring charges in 2003.
Selling, general and administrative expenses increased $5.0 million to $68.6
million in 2003 from $63.6 million in 2002, primarily due to the addition of
Teccor. As a percentage of sales, selling, general and administrative expenses
decreased to 20.2% in 2003 from 22.4% in 2002 primarily reflecting Teccor's
lower selling, general and administrative expense percentage than Littelfuse's
base business. Research and development costs increased $0.4 million to $8.7
million, representing 2.6% of sales in 2003 as compared to 2.9% of sales in
2002. Total operating expenses, including intangible amortization, was 23.1% of
sales in 2003, compared to 25.7% of sales in 2002.
Operating income in 2003 increased 64.0% to $26.1 million or 7.7% of sales
compared to $15.9 million or 5.6% of sales in the prior year. The improvements
in operating income and operating margin were primarily due to higher sales and
the associated operating leverage.
Interest expense was $2.0 million in 2003 compared to $2.7 million in 2002 due
to lower average debt levels in 2003. Other expense, net, consisting of gains
and losses on the disposal of assets, interest income, royalties and foreign
currency items was $0.1 million compared to other income, net, of $1.8 million
in the prior year. The primary reasons for the more favorable 2002 results were
gains on asset sales, higher interest income and more favorable currency
effects.
Income before taxes was $24.0 million in 2003 compared to $15.0 million in 2002.
Income tax expense was $8.6 million in 2003 compared to $5.4 million in the
prior year. Net income in the current year was $15.3 million, compared to $9.6
million in the prior year. The Company's effective tax rate was 36.0% in both
2003 and 2002. Diluted earnings per share increased to $0.70 in 2003 compared to
$0.44 in 2002.
Results of Operations -- 2002 Compared with 2001
Sales increased 4% to $283.3 million in 2002 from $272.1 million in 2001.
Electronic sales increased $4.6 million or 3% to $150.9 million in 2002 compared
to $146.3 million in 2001. The increase in electronic sales was driven by
increased demand in the Asia region and sales from the Semitron Industries
acquisition, partially offset by weakness in Europe and North America. Excluding
sales of Semitron products, electronic sales in 2002 were flat as compared to
the prior year. Automotive sales increased $7.1 million or 8% to $98.2 million
in 2002 compared to $91.1 million in 2001, due to strength in vehicle production
in North America and strengthening of the Euro against the U.S. Dollar.
Electrical product sales decreased $0.5 million or 2% to $34.2 million in 2002
compared to $34.7 million in 2001, due to continued weakness in commercial
construction and lower levels of industrial activity in the North American
market. International sales increased 8% to $152.2 million or 53.7% of net sales
in 2002 from $141.3 million or 51.9% of net sales in 2001. The increase in
international sales was primarily due to strong demand for electronic products
in Asia.
Gross profit was $88.6 million or 31.3% of sales in 2002 compared to $85.6
million or 31.5% of sales in 2001. The gross profit margin was negatively
affected by increased price pressure for electronic products and the addition of
Semitron, which had been operating at approximately breakeven levels.
Selling, general and administrative expenses increased $1.4 million to $63.6
million in 2002, from $62.2 million in 2001, primarily due to 2002 restructuring
expense of $2.0 million partially offset by reductions in head count. As a
percentage of sales, selling, general and administrative expenses decreased to
22.4% in 2002 from 22.9% in 2001. Research and development costs decreased $0.5
million to $8.3 million, representing 2.9% of sales in 2002 as compared to 3.3%
of sales in 2001. Amortization of reorganization value and other intangibles was
$0.8 million or 0.3% of sales for 2002 compared to $6.0 million or 2.2% of sales
for the prior year. The decrease in amortization expense resulted from the
combination of the adoption of SFAS No. 142 and a natural drop off of patent
amortization. The adoption of SFAS No. 142 reduced amortization expense by $3.4
million in the year, and the net natural drop off of intangible amortization
provided an additional reduction of $1.8 million in the year. Total operating
expenses, including intangible amortization, was 25.7% of sales in 2002,
compared to 28.3% of sales in 2001.
Operating income in 2002 increased 87% to $15.9 million or 5.6% of sales
compared to $8.5 million or 3.1% of sales in the prior year. The improvement in
operating income was driven by lower restructuring charges and the reduction of
amortization expense discussed above.
Interest expense was $2.7 million in 2002 compared to $3.3 million in 2001 due
to lower average debt levels in 2002. Other income, net, consisting of gain on
the sale of certain non-core product lines, interest income, royalties and
foreign currency items was $1.8 million compared to other income, net, of $1.1
million in the prior year.
Income before taxes was $15.0 million in 2002 compared to $6.4 million in 2001.
Income tax expense was $5.4 million in 2002 compared to $2.3 million the prior
year. Net income in the current year was $9.6 million, compared to $4.1 million
in the prior year. The Company's effective tax rate was 36.0% in both 2002 and
2001. Diluted earnings per share increased to $0.44 in 2002 compared to $0.19 in
2001.
Liquidity and Capital Resources
The Company has historically financed capital expenditures through cash flows
from operations. Management expects that cash flows from operations and
available lines of credit will be sufficient to support both its operations and
its debt obligations for the foreseeable future.
The Company has a domestic unsecured revolving credit line of $50.0 million,
which matures on August 26, 2006. At January 3, 2004, there were no borrowings
against this credit line. The Company's subsidiary in Japan also has an
unsecured credit line of Yen 0.9 billion. At January 3, 2004, Yen 0.9 billion
was drawn on the credit line in Japan.
The Company's bank credit agreement requires maintenance of certain financial
ratios and a minimum net worth level. At January 3, 2004, the Company was in
compliance with these covenants. If the Company were to default on any of the
bank agreement debt covenants, and were unable to obtain a waiver from the
lenders, the debt would be callable by the lenders. The Company believes that
default of any of the debt covenants is unlikely for the foreseeable future
since it expects the results of operations to be within the minimum levels to
continue to be in compliance with the debt covenants.
The Company started 2003 with $27.8 million of cash. Net cash provided by
operations was $50.0 million in the year. Cash used in investing activities
included $14.0 million in purchases of property, plant and equipment, $44.6
million for the acquisition of Teccor and $8.8 million in net proceeds from the
sale of marketable securities. Cash used in financing activities included net
payments of long-term debt of $11.5 million partially offset by cash proceeds
from the exercise of stock options of $4.3 million. The effect of exchange rate
changes increased cash by $1.5 million. The net cash provided by operations and
financing activities, less investing activities plus the effect of exchange
rates, resulted in a $5.6 million net decrease in cash. This left the Company
with a cash balance of $22.1 million at the end of 2003.
Decreases in net working capital provided $13.5 million of cash flow in 2003.
The major factors contributing to lower working capital were a decrease in
inventory of $5.9 million, a $5.0 million increase in accounts payable and
accrued expenses and a $1.3 million reduction in prepaid and other items. Net
working capital (working capital less cash, marketable securities and the
current portion of long-term debt) as a percent of sales was 18.3% at year-end
2003 compared to 20.9% at year-end 2002 and 21.8% at year-end 2001. The days
sales was outstanding in accounts receivable decreased to 50 days at year-end
2003 compared to 54 days at year-end 2002 and 61 days at year-end 2001. Days
inventory outstanding was 71 days at year-end 2003 compared to 88 days at
year-end 2002 and 99 days at year-end 2001.
The ratio of current assets to current liabilities was 1.8 to 1 at year-end 2003
compared to 2.3 to 1 at year-end 2002 and 2.2 to 1 at year-end 2001. The ratio
of long-term debt to equity was 0.0 to 1 at year-end 2003 compared to 0.1 to 1
at year-end 2002 and 0.2 to 1 at year-end 2001.
The Company started 2002 with $34.5 million of cash. Net cash provided by
operations was $40.8 million in the year. Cash used in investing activities
included $8.4 million in purchases of property, plant and equipment, $15.0
million for the acquisition of Semitron Industries and $8.8 million in purchases
of marketable securities. Cash used in financing activities included cash
proceeds from the exercise of stock options of $1.6 million, offset by
repurchase of the Company's common stock for $3.6 million and net payments of
long-term debt of $13.0 million. The effect of exchange rate changes decreased
cash by $0.4 million. The net cash provided by operations and financing
activities, less investing activities plus the effect of exchange rates,
resulted in a $6.8 million net decrease in cash. This left the Company with a
cash balance of $27.8 million at the end of 2002.
Decreases in net working capital provided $11.8 million of cash flow in 2002.
The major factors contributing to lower working capital were a decrease in
inventory of $4.8 million, a $2.8 million reduction in accounts receivable, a
$3.3 million increase in accounts payable and accrued expenses and a $0.9
million reduction in prepaid and other items. Net working capital (defined as
working capital less cash, marketable securities and the current portion of
long-term debt) as a percent of sales was 20.9% at year-end 2002 compared to
21.8% at year-end 2001 and 20.0% at year-end 2000. The days sales outstanding in
accounts receivable decreased to 54 days at year-end 2002 compared to 61 days at
year-end 2001 and 58 days at year-end 2000. Days inventory outstanding was 88
days at year-end 2002 compared to 99 days at year-end 2001 and 109 days at
year-end 2000. The improvements in days sales outstanding and days inventory
outstanding are driven by increased focus on working capital management.
The Company's capital expenditures were $14.0 million in 2003, $8.4 million in
2002 and $14.1 million in 2001. The Company expects that capital expenditures in
2004 will be higher than 2003. The primary purposes for capital expenditures in
2004 will be for new product tooling, production equipment, facility expansion
and capital spending related to Teccor. As in 2003, the Company expects to
finance capital expenditures in 2004 through cash flow from operations.
The Company decreased total debt by $11.5 million in 2003 after decreasing debt
by $13.0 million in 2002 and $6.0 million in 2001. The Company is required to
repay $10.0 million of its Senior Notes in 2004. Separately, the Company has
$8.4 million in renewable foreign credit facilities outstanding at January 3,
2004, due in 2004. The Company's Board of Directors has authorized the Company
to repurchase shares of its common stock, from time to time, depending on market
conditions. The Company repurchased zero common shares in 2003, 225,800 common
shares for $3.6 million in 2002 and 50,000 common shares for $1.3 million in
2001.
Contractual Obligations
The following table summarizes contractual obligations and commitments, as of
January 3, 2004 (in thousands):
<TABLE>
<CAPTION>
Payment Due By Period
---------------------------------------------------------------
Less than More than
Contractual Obligations Total 1 year 1 - 3 years 3 - 5 years 5 years
----------------------- ----- ------ ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Long-term debt obligations $28,697 $18,496 $10,161 $ 40 $ --
Interest payments 1,513 1,111 402 -- --
Operating lease payments 8,830 3,764 4,009 1,057 --
Total $39,040 $23,371 $14,572 $ 1,097 $ --
</TABLE>
Critical Accounting Policies
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 the audited 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 Company's financial condition and results of operations
and their application requires management's subjective judgment in making
estimates about the effect of matters that are inherently uncertain.
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 customer's inability to meet its financial obligations, the
Company records a specific reserve for bad debt to reduce the related receivable
to the amount the Company reasonably believes is collectible. The Company also
records allowances for all other customers based on a variety of factors
including the length of time the receivables are past due, the financial health
of the customer, macroeconomic considerations and historical 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
Company's diverse customer base and lack of credit concentration, the Company
does not believe its estimates would be materially impacted by changes in its
assumptions.
Inventory: The Company performs a detailed assessment of inventory, which
includes a review of, among other factors, demand requirements, product life
cycle and development plans, component cost trends, product pricing and quality
issues. Based on the analysis, the Company records adjustments to inventory for
excessiveness, 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. Revisions to inventory adjustments
may be required if actual demand, component costs or product life cycles differ
from estimates. However, due to the Company's diverse product lines and end user
markets, the Company does not believe its estimates would be materially impacted
by changes in its assumptions.
Goodwill and Other Intangibles: Purchase accounting requires use of accounting
estimates and judgments to allocate the purchase price to the fair market value
of the assets purchased and liabilities assumed. The Company has accounted for
its acquisitions using the purchase method of accounting.
The Company determined the fair value of each of the business segments by
benchmarking acquisition multiples of comparable manufacturing and distribution
companies. This analysis is based upon comparable companies as determined by
management and data from sources of publicly available information available at
the time of preparation. In making these projections, the Company considered the
markets it was addressing, the competitive environment and its advantages. The
Company determined that the fair value of each of the reporting units exceeded
their carrying amounts and, therefore, no goodwill impairment existed. The
Company will continue to perform a goodwill impairment test on an annual basis
and on an interim basis, if certain conditions exist. Factors the Company
consider important which could result in changes to its estimates include
underperformance relative to historical or projected future operating results
and declines in acquisition and trading multiples. Due to the diverse end user
base and no-discretionary product demand, the Company does not believe its
future operating results will vary significantly relative to its historical and
projected future operating results.
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 Company's estimates of
future cash flows could be impacted if it underperforms relative to historical
or projected future operating results. However, due to the Company's diverse
product lines and end user markets, the Company does not believe its estimates
would be materially impacted by changes in its assumptions.
Other Contingencies: In the ordinary course of business, the Company is involved
in legal proceedings involving contractual and employment relations, product
liability claims, trademark rights and a variety of other matters. The Company
records contingent liabilities resulting from claims against it when it is
probable that a liability has been incurred and the amount of the loss is
reasonably estimable. The Company discloses contingent liabilities when there is
a reasonable possibility that the ultimate loss will exceed the recorded
liability. Estimating probable losses requires analysis of multiple factors, in
some cases including judgments about the potential actions of third party
claimants and courts. Therefore, actual losses in any future period are
inherently uncertain. Currently, the Company does not believe that any of its
pending legal proceedings or claims will have a material impact on its financial
position or results of operations. However, if actual or estimated probable
future losses exceed the Company's recorded liability for such claims, it would
record additional charges as other expense during the period in which the actual
loss or change in estimate occurred.
Market Risk
The Company is exposed to market risk from changes in interest rates, foreign
exchange rates and commodities.
The Company had long-term debt outstanding at January 3, 2004, in the form of
Senior Notes at fixed interest rates and a foreign line of credit at variable
rates. Since 70% of this debt has fixed interest rates, the Company's interest
expense is not materially sensitive to changes in interest rate levels.
A portion of the Company's operations consists of manufacturing and sales
activities in foreign countries. The Company has manufacturing facilities in
Mexico, U.K., Ireland, Switzerland, China and the Philippines. During 2003,
sales exported from the United States or manufactured abroad accounted for
55.9% percent of total sales. Substantially all sales in Europe are denominated
in Euros, U.S. Dollars and British Pound Sterling, and substantially all sales
in the Asia-Pacific region are denominated in U.S. Dollars, Japanese Yen and
South Korean Won.
The Company's identifiable foreign exchange exposures result from the purchase
and sale of products from affiliates, repayment of intercompany trade and loan
amounts and translation of local currency amounts in consolidation of financial
results. As international sales were slightly more than half of total sales, a
significant portion of the resulting accounts receivable is denominated in
foreign currencies. Changes in foreign currency exchange rates or weak economic
conditions in the foreign countries in which it manufactures and distributes
products could affect the Company's sales, accounts receivable values and
financial results. The Company uses netting and offsetting intercompany account
management techniques to reduce known foreign currency exposures where possible
and also considers the use of derivative instruments to hedge certain foreign
currency exposures deemed to be material. The Company has entered into cross
currency interest rate swaps, as discussed in Note 7 of the Notes to
Consolidated Financial Statements, designated as a cash flow hedge of the
foreign currency exchange rate risk associated with forecasted intercompany
sales transactions denominated in Japanese Yen.
The Company uses various metals in the production of its products, including
zinc, copper, silver and platinum. The Company's earnings are exposed to
fluctuations in the prices of these commodities. The Company does not currently
use derivative financial instruments to mitigate this commodity price risk.
Outlook
Sales in 2004 are expected to improve slightly in the automotive and electrical
markets. Sales in the electronics market are expected to show steady growth,
particularly in Asian markets. As these markets improve, the Company believes
its long-term growth strategy, which emphasizes development of new circuit
protection products and providing customers with solutions and technical support
in all major regions of the world, will drive sales growth in all of its
markets.
With the expectation of continued pricing pressure, the Company initiated a
manufacturing rationalization program in 2001 emphasizing consolidation of
plants and transfer of manufacturing to lower cost locations. The program
involved manufacturing plant closures in the U.S., U.K. and Korea and workforce
reductions in Ireland. The program is substantially completed as of January 3,
2004. The Company plans to initiate a new series of projects in 2004 to
consolidate and reduce costs in its global manufacturing and distribution
operations. These programs are expected to generate sufficient cost savings to
more than offset price erosion in 2004. The Company also plans to increase
research and development spending to accelerate new product development in order
to help to drive future sales growth. The benefits of incremental volume
improvements and cost savings are expected to have a favorable impact on
earnings in 2004.
The Company is working to expand its market share in the overvoltage circuit
protection market with the addition of products and technology through the
Semitron Industries, Harris Suppression Products and Teccor acquisitions and the
ability to offer customers total circuit protection solutions. The Company
remains committed to investing in new product development and technical
resources to provide customers with overcurrent and overvoltage circuit
protection solutions and expertise.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995 The statements in this section, the letter to shareholders and in the other
sections of this report which are not historical facts contained in this report
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, product demand and market acceptance risks, the effect of
economic conditions, the impact of competitive products and pricing, product
development and patent protection, commercialization and technological
difficulties, capacity and supply constraints or difficulties, exchange rate
fluctuations, actual purchases under agreements, the effect of the Company's
accounting policies, labor disputes, restructuring costs in excess of
expectations, pension plan asset returns less than assumed, integration of
acquisitions, and other risks which may be detailed in the Company's Securities
and Exchange Commission filings.
Report of Independent Auditors
The Board of Directors and Shareholders of Littelfuse, Inc.
We have audited the accompanying consolidated balance sheets of Littelfuse, Inc.
and subsidiaries as of January 3, 2004 and December 28, 2002, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended January 3, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 as of January 3, 2004 and December 28, 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 3, 2004, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 1 to the financial statements in the year ended December
28, 2002, the Company changed its method of accounting for goodwill.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Chicago, Illinois
February 3, 2004
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In Thousands) January 3, 2004 December 28, 2002
-------------- --------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,128 $ 27,750
Short-term investments -- 8,806
Accounts receivable, less allowances (2003 -- $7,470; 2002 - $7,330) 52,149 40,810
Inventories 52,598 44,533
Deferred income taxes 17,096 12,451
Prepaid expenses and other current assets 5,169 2,695
---------- ----------
Total current assets 149,140 137,045
Property, plant, and equipment:
Land 8,572 9,738
Buildings 38,531 32,733
Equipment 205,697 172,266
---------- ----------
252,800 214,737
Accumulated depreciation (154,321) (133,615)
---------- ----------
98,479 81,122
Intangible assets, net of amortization:
Patents and licenses 17 36
Distribution network 4,113 4,607
Trademarks 7,813 2,270
Goodwill 48,643 49,043
---------- ----------
60,586 55,956
Other assets 3,365 3,355
---------- ----------
Total assets $ 311,570 $ 277,478
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,206 $ 11,094
Accrued payroll 20,894 17,373
Accrued expenses 15,077 8,425
Accrued income taxes 13,715 4,416
Current portion of long-term debt 18,496 18,994
---------- ----------
Total current liabilities 83,388 60,302
Long-term debt, less current portion 10,201 20,252
Deferred income taxes -- 1,713
Accrued post-retirement benefits 4,564 9,027
Other long-term liabilities 1,215 473
Shareholders' equity:
Preferred stock, par value $.01 per share: 1,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, par value $.01 per share: 34,000,000 shares authorized;
shares issued and outstanding, 2003 - 22,002,119; 2002 - 21,759,065 220 218
Additional paid-in capital 75,859 71,918
Notes receivable - Common stock (3,550) (3,900)
Accumulated other comprehensive loss (3,042) (9,901)
Retained earnings 142,715 127,376
Total shareholders' equity 212,202 185,711
---------- ----------
Total liabilities and shareholders' equity $ 311,570 $ 277,478
---------- ----------
</TABLE>
See accompanying notes.
Consolidated Statements of Income
<TABLE>
<CAPTION>
(In Thousands, Except per Share Amounts)
Year Ended January 3, 2004 December 28, 2002 December 29, 2001
---------- --------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales $339,410 $283,267 $272,149
Cost of sales 234,984 194,644 186,557
-------- -------- --------
Gross profit 104,426 88,623 85,592
Selling, general and administrative expenses 68,579 63,591 62,197
Research and development expenses 8,694 8,334 8,883
Amortization of intangibles 1,072 767 5,972
-------- -------- --------
Operating income 26,081 15,931 8,540
Interest expense 2,045 2,653 3,291
Other expense (income), net 68 (1,753) (1,112)
-------- -------- --------
Income before income taxes 23,968 15,031 6,361
Income taxes 8,629 5,411 2,291
-------- -------- --------
Net income $ 15,339 $ 9,620 $ 4,070
-------- -------- --------
Net income per share:
Basic $ 0.70 $ 0.44 $ 0.20
Diluted $ 0.70 $ 0.44 $ 0.19
-------- -------- --------
Weighted-average shares and equivalent shares outstanding:
Basic 21,881 21,858 19,951
Diluted 22,004 21,971 21,731
-------- -------- --------
</TABLE>
See accompanying notes.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In Thousands)
Year Ended January 3, 2004 December 28, 2002 December 29, 2001
---------- --------------- ----------------- -----------------
<S> <C> <C> <C>
Operating activities
Net income $ 15,339 $ 9,620 $ 4,070
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 20,029 18,137 19,710
Amortization of intangibles 1,072 767 5,972
Provision for bad debts 50 356 308
Deferred income taxes (6,458) (575) (7,531)
Other (205) 651 (435)
Changes in operating assets and liabilities:
Accounts receivable 387 2,794 10,573
Inventories 5,865 4,762 11,873
Accounts payable and accrued expenses 12,584 3,296 (3,710)
Prepaid expenses and other 1,290 950 (520)
-------- -------- --------
Net cash provided by operating activities 49,953 40,758 40,310
Investing activities
Purchases of property, plant, and equipment, net (14,041) (8,360) (14,121)
Purchase of businesses, net of cash acquired (44,590) (15,031) (168)
Purchase of marketable securities (1,598) (13,747) --
Sale of marketable securities 10,404 4,941 --
-------- -------- --------
Net cash used in investing activities (49,825) (32,197) (14,289)
Financing activities
Proceeds from long-term debt 30,500 112 15,855
Payments of long-term debt (41,996) (13,130) (21,887)
Proceeds from exercise of stock options and warrants 4,291 1,614 10,519
Purchases of common stock and redemption of warrants -- (3,556) (1,256)
-------- -------- --------
Net cash provided by (used in) financing activities (7,205) (14,960) 3,231
Effect of exchange rate changes on cash 1,455 (378) (216)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (5,622) (6,777) 29,036
Cash and cash equivalents at beginning of year 27,750 34,527 5,491
-------- -------- --------
Cash and cash equivalents at end of year $ 22,128 $ 27,750 $ 34,527
-------- -------- --------
</TABLE>
See accompanying notes.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Notes Accumulated
Additional Receivable - Other
Common Paid-In Common Comprehensive Retained
(In Thousands) Stock Capital Stock Loss Earnings Total
-------------- ----- ------- ----- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 30, 2000 $198 $60,223 $(3,353) $ (7,874) $117,533 $166,727
Comprehensive income:
Net income for the year -- -- -- -- 4,070 4,070
Foreign currency translation adjustment -- -- -- (2,391) -- (2,391)
---- ------- ------- -------- -------- --------
Comprehensive income 1,679
Stock options and warrants exercised 21 10,593 (95) -- -- 10,519
Purchase of 50,000 shares of common stock -- (175) -- -- (1,081) (1,256)
---- ------- ------- -------- -------- --------
Balance at December 29, 2001 $219 $70,641 $(3,448) $ (10,265) $120,522 $177,669
Comprehensive income:
Net income for the year -- -- -- -- 9,620 9,620
Change in net unrealized loss on derivatives -- -- -- (231) -- (231)
Minimum pension liability adjustment,
net of tax -- -- -- (3,462) -- (3,462)
Foreign currency translation adjustment -- -- -- 4,057 -- 4,057
---- ------- ------- -------- -------- --------
Comprehensive income 9,984
Stock options and warrants exercised 1 2,065 (452) -- -- 1,614
Purchase of 225,800 shares of common stock (2) (788) -- -- (2,766) (3,556)
---- ------- ------- -------- -------- --------
Balance at December 28, 2002 $218 $71,918 $(3,900) $(9,901) $127,376 $185,711
Comprehensive income:
Net income for the year -- -- -- -- 15,339 15,339
Change in net unrealized loss on derivatives -- -- -- (770) -- (770)
Minimum pension liability adjustment,
net of tax -- -- -- 3,216 -- 3,216
Foreign currency translation adjustment -- -- -- 4,413 -- 4,413
---- ------- ------- -------- -------- --------
Comprehensive income -- -- -- -- -- 22,198
Payments on notes receivable -- -- 350 -- -- 350
Stock options and warrants exercised 2 3,941 -- -- -- 3,943
---- ------- ------- -------- -------- --------
Balance at January 3, 2004 $220 $75,859 $(3,550) $(3,042) $142,715 $212,202
---- ------- ------- -------- -------- --------
</TABLE>
See accompanying notes.
Notes to Consolidated Financial Statements
January 3, 2004 and December 28, 2002
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 Company's fiscal years ended January 3, 2004, December 28, 2002
and December 29, 2001, and contained 53, 52 and 52 weeks, respectively.
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. Certain amounts reported in previous
years have been reclassified to conform to the 2003 presentation.
Cash Equivalents All highly liquid investments, with a maturity of three months
or less when purchased, are considered to be cash equivalents.
Short-term Investments Short-term investments consist primarily of liquid debt
instruments purchased with maturity dates greater than three months. 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)." The amortized cost
of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest income.
Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in other
income or expense. 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 Company's financial instruments include
cash and cash equivalents, short-term investments, accounts receivable 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
customer's inability to meet its financial obligations to the Company.
Historically, credit losses have consistently been within management's
expectations and have not been a material amount. 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.
Inventories Inventories are stated at the lower of cost (first in, first out
method) or market, 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 provided under accelerated methods using useful lives of
21 years for buildings, 7 to 9 years for equipment, and 7 years for furniture
and fixtures. Tooling and computer software are depreciated using the
straight-line method over 5 years and 3 years, respectively.
Intangible Assets Prior to the adoption of the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" on December 30, 2001, reorganization value in excess of
amounts allocable to identifiable assets and trademarks was amortized using the
straight-line method over 20 years. Trade name is amortized using the
straight-line method over its estimated useful life of 10 years. Patents are
amortized using the straight-line method over their estimated useful lives,
which average approximately 10 years. The distribution network has been
amortized using an accelerated method over 20 years. Licenses have been
amortized using an accelerated method over their estimated useful lives, which
average approximately 9 years. Other intangible assets consisting principally of
goodwill were amortized over 10 to 20 years.
Revenue Recognition In accordance with the Staff Accounting Bulletin (SAB) No.
104, "Revenue Recognition," issued in December 2003, sales and associated costs
are recognized in accordance with customer shipping terms which is when the
transfer of title to the customer occurs. Such revenue is recognized when
collectibility is reasonably assured.
Advertising Costs The Company expenses advertising costs as incurred which
amounted to $1.2 million in 2003, $2.1 million in 2002 and $1.1 million in 2001.
Foreign Currency Translation The Company's foreign subsidiaries use the local
currency as their functional currency. Accordingly, assets and liabilities are
translated using exchange rates at the balance sheet date and revenues and
expenses are translated at weighted average rates. Adjustments from the
translation process are reflected as a component of shareholders' equity.
Derivative Instruments The Company recognizes derivatives as either assets or
liabilities on the Consolidated Balance Sheets and measures those instruments at
fair value. The accounting for changes in the fair value of a derivative depends
on the intended use and designation of the derivative instrument. For
derivatives designated as cash flow hedges, the effective portion of the
derivative's gain or loss is initially reported as a component of accumulated
other comprehensive income (loss) and subsequently reclassified into earnings
when the hedged exposure affects earnings. Derivative financial instruments
involve, to a varying degree, elements of market and credit risk not recognized
in the consolidated financial statements. The market risk associated with these
instruments resulting from interest rate movements is expected to offset the
market risk of the underlying transactions being hedged. The counterparties to
the agreements relating to the Company's cross currency rate instruments consist
of major international financial institutions with high credit ratings. The
Company does not believe that there is significant risk of non-performance by
these counterparties because the Company monitors the credit ratings of such
counterparties, and limits the financial exposure and amount of agreements
entered into with any one financial institution. While the notional amounts of
the derivative financial instruments provides one measure of the volume of these
transactions, they do not represent the amount of the Company's exposure to
credit risk. The amounts potentially subject to credit risk (arising from the
possible inability of counterparties to meet the terms of their contracts) are
generally limited to the amounts, if any, by which the counterparties'
obligations under the contracts exceed the obligations of the Company to the
counterparty.
Stock-Based Compensation As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), the Company accounts for stock option
grants to employees and directors in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," using the intrinsic
value method. Generally, the Company grants stock options for a fixed number of
shares with an exercise price equal to the market price of the underlying stock
at the date of grant and, accordingly, does not recognize compensation expense.
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 9 for additional information on
stock-based compensation.
The following table discloses our pro forma net income and diluted net income
per share had the valuation methods under SFAS 123 been used for our stock
option grants. The table also discloses the weighted average assumptions used in
estimating the fair value using the Black-Scholes option pricing method.
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 2003 2002 2001
---------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net income as reported $ 15,339 $ 9,620 $ 4,070
Stock option compensation
expense, net of tax (1,149) (1,022) (1,436)
-------- -------- --------
Pro forma net income $ 14,190 $ 8,598 $ 2,634
======== ======== ========
Basic net income per share
As reported $ 0.70 $ 0.44 $ 0.20
Pro forma $ 0.65 $ 0.39 $ 0.13
Diluted net income per share
As reported $ 0.70 $ 0.44 $ 0.19
Pro forma $ 0.65 $ 0.39 $ 0.13
Risk-free interest rate 3.45% 3.24% 5.11%
Expected dividend yield 0% 0% 0%
Expected stock price volatility 46.9% 41.4% 58.6%
Expected life of options 8 years 8 years 8 years
-------- -------- --------
</TABLE>
These pro forma amounts may not be representative of future disclosures because
the estimated fair value of the options is amortized to expense over the vesting
period and additional options may be granted in the future.
Use of Estimates The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Shipping and Handling Fees and Costs Amounts billed to customers in a sales
transaction represent fees earned for the goods provided and, accordingly,
amounts billed related to shipping and handling should be classified as revenue.
Costs incurred for shipping and handling of $4.3 million, $3.6 million and $3.1
million in 2003, 2002 and 2001, respectively, are classified in Selling,
General, and Administrative Expenses.
Accounting Pronouncements In June 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," which prohibits the amortization of goodwill and intangible
assets with indefinite useful lives. Statement 142 requires that these assets be
reviewed for impairment at least annually. Intangible assets with finite lives
will continue to be amortized over their estimated useful lives. Statement 142
also requires that goodwill included in the carrying value of equity method
investments no longer be amortized. The Company adopted the provisions of
Statement 142 as of December 30, 2001. The Company has tested goodwill for
impairment both as of the date of adoption of Statement No. 142 and September
27, 2003 and as of September 29, 2002 as prescribed in Statement 142 and
determined that there was no impairment. The effect of non-amortization of
goodwill had Statement 142 been effective at the beginning of each year is as
follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 2003 2002 2001
---------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net income as reported $ 15,339 $ 9,620 $ 4,070
Add back: Goodwill
amortization, net of tax -- -- 2,145
Adjusted net income $ 15,339 $ 9,620 $ 6,215
Basic net income per share
As reported $ 0.70 $ 0.44 $ 0.20
Goodwill amortization -- -- 0.11
Adjusted basic net income
per share $ 0.70 $ 0.44 $ 0.31
Diluted net income per share
As reported $ 0.70 $ 0.44 $ 0.19
Goodwill amortization -- -- 0.10
Adjusted diluted net income share $ 0.70 $ 0.44 $ 0.29
-------- -------- --------
</TABLE>
Restructuring Costs Included in the Company's operating results for the year
ended December 29, 2001 are restructuring charges of $6.3 million in cost of
sales. These charges were reported on a separate line entitled "Restructuring
expense" in the prior year's consolidated financial statements. During 2003
these charges were reclassified to cost of sales. The Company expects these
types of charges to be incurred in the future as part of the Company's on-going
cost reduction efforts. These charges resulted from the Company's plant closures
in the U.S. and the U.K., workforce reductions in Korea and the write-down of
manufacturing equipment. Restructuring charges for the closure of the U.S. and
the U.K. plants included $4.1 million of employee termination costs covering 462
technical, production, and production related employees. Restructuring of the
Korea manufacturing operations included $1.1 million of employee termination
costs covering 50 technical, production, administrative and support employees.
The remaining $1.1 million of the restructuring expense relates to the non-cash
write-down of manufacturing equipment. Restructuring charges incurred in 2001
were paid by December 29, 2001, Included in the Company's operating results for
the year ended December 28, 2002 are restructuring charges of $3.7 million,
consisting of $1.7 million of cost of sales and $2.0 million of selling, general
and administrative expense, respectively. These charges were reported on a
separate line entitled "Restructuring expense" in the prior year's consolidated
financial statements. During 2003 these charges were reclassified to cost of
sales and selling, general and administrative expenses. The Company expects
these types of charges to be incurred in the future as part of the Company's
on-going cost reduction efforts. These charges resulted from the Company's plant
closure in Korea, workforce reductions in Ireland and the write-down of
manufacturing equipment. Restructuring charges for the closure of the Korea
plant included $1.5 million of employee termination costs covering 62 technical,
production, administrative and support employees. Restructuring of the Ireland
manufacturing operations included $1.4 million of employee termination costs
covering 19 technical, production, administrative and support employees. The
remaining $0.8 million of the restructuring expense relates to the non-cash
write-down of manufacturing equipment. All restructuring liabilities that
existed at December 28, 2002 were paid during 2003. Included in the Company's
operating results for the year ended January 3, 2004 are restructuring charges
of $3.2 million in cost of sales related to employee termination costs. These
charges primarily result from the Company's planned workforce reduction of 29
production related employees in Ireland. Of the $3.2 million restructuring
charges accrued in 2003, $3.1 million was paid in 2003 and the remaining $0.1
million is expected to be paid in 2004.
2. Acquisition of Business
On July 7, 2003, the Company completed the acquisition of all of the outstanding
stock of Teccor Electronics, Inc. (`Teccor'), a subsidiary of Invensys plc for
$44.6 million in cash, plus a future payment of $5.0 million contingent on sales
of Teccor products reaching $107.0 million for calendar year 2005. Teccor
manufactures semiconductor products for the telecommunications and industrial
market segments, including transient voltage suppression devices and power
switching devices. The addition of Teccor's transient voltage suppression
products expands the Company's line of overvoltage products and strengthens its
position in the telecom and industrial market segments. The acquisition was
accounted for using the purchase method and the operations of Teccor are
included in the Company's operations from the date of acquisition. The
allocation of the purchase price resulted in no goodwill. The acquisition was
funded with cash on hand and borrowings under the Company's $50.0 million
revolving credit facility. The allocation of purchase price, net of cash, is as
follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Current assets $ 27,508
Property, plant and equipment 21,550
Intangible asset 6,100
Deferred tax assets 6,703
Current liabilities (9,985)
Purchase accounting liabilities (6,900)
Other long term liabilities (386)
--------
Total purchase price, net of cash $ 44,590
--------
</TABLE>
Purchase accounting liabilities are estimated to be $6.9 million and are
primarily for redundancy costs related to manufacturing operations and selling,
general and administrative functions. The Company began formulating the plan to
incur these costs as of the acquisition date. Included in this amount is $0.7
million to reflect the obligation of Teccor to remit to Invensys proceeds from
the sale of land. As of January 3, 2004, $0.7 million of restructuring payments
related to employee severance have been paid leaving a balance of $6.2 million
in purchase accounting liabilities at January 3, 2004. The remaining accrued
liabilities are expected to be paid by the end of the 2004 fiscal year.
The following unaudited pro forma consolidated financial information for the
Company has been prepared assuming the acquisition had occurred on December 30,
2001.
<TABLE>
<CAPTION>
(In thousands, except per share data)
For the year ended 2003 2002
------------------ ---- ----
<S> <C> <C>
Net revenues $375,797 $363,384
Net income from operations 23,211 9,773
Net income 13,179 4,920
Diluted net income per share $ 0.60 $ 0.22
-------- --------
</TABLE>
These unaudited pro forma results are presented for comparative purposes only.
The pro forma results are not necessarily indicative of what actual results
would have been had the acquisition been completed as of the beginning of the
respective periods, or of future results.
On July 16, 2002, the Company acquired Semitron Industries for $12.6 million and
40% of LC Fab Co. for $2.4 million in cash. Semitron Industries manufactures and
markets a broad line of transient voltage suppression devices that provide
circuit protection for products in numerous markets including computer,
telecommunications, automotive and consumer electronics. LC Fab Co. provides
semiconductor dies for assembly at Semitron Industries. Subsequent to the
acquisition, Semitron Industries has been renamed Littelfuse UK Limited. This
acquisition has been accounted for through the use of the purchase method of
accounting; accordingly, the accompanying financial statements include the
results of its operations since the acquisition date. The purchase price has
been allocated to the following net assets acquired based on fair value of such
assets: accounts receivable of $1.7 million, inventory of $1.9 million,
property, plant and equipment of $3.0 million, goodwill of $7.4 million and
liabilities assumed of $1.5 million. Purchase accounting liabilities recorded in
2002 consist of $0.2 million for transaction costs and $0.8 million for costs
associated with involuntary termination of employees in connection with the
integration of the business. Assuming that this acquisition had occurred at the
beginning of 2002 and 2001, unaudited pro forma sales of Littelfuse, Inc. would
have been $286.0 million in 2001 and $288.1 million in 2002 and pro forma
results of operations would not have differed materially from reported results
of operations. The pro forma results are not necessarily indicative of what
would have occurred if the acquisition had been consummated at the beginning of
each year, nor are they necessarily indicative of future consolidated operating
results.
3. Inventories
The components of inventories are as follows at January 3, 2004 and December 28,
2002 (in thousands):
<TABLE>
<CAPTION>
2003 2002
---- ----
<S> <C> <C>
Raw materials $11,783 $10,084
Work in process 16,224 11,615
Finished goods 24,591 22,834
------- -------
Total net inventory $52,598 $44,533
------- -------
</TABLE>
4. Intangible Assets
The Company recorded amortization expense of $1.1 million, $0.8 million and $6.0
million in 2003, 2002 and 2001, respectively. The details of intangible assets
and future amortization expense of existing intangible assets at January 3,
2004, are as follows (in thousands):
<TABLE>
<CAPTION>
As of January 3, 2004 As of December 28, 2002
----------------------------------- -------------------------------------
Gross Weighted Gross Weighted
Carrying Accumulated Average Carrying Accumulated Average
Value Amortization Useful Life Value Amortization Useful Life
-------- ------------ ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Patents and licenses $22,820 $22,803 8.0 $22,820 $22,784 8.0
Distribution network 13,440 9,327 20.0 13,440 8,833 20.0
Trademarks and tradenames 11,145 3,332 15.0 5,045 2,775 20.0
------- ------- ---- ------- ------- ----
Total $47,405 $35,462 12.3 $41,305 $34,392 12.8
</TABLE>
Estimated amortization expense related to intangible assets with definite lives
at January 3, 2004, is as follows (in thousands):
<TABLE>
<S> <C>
2004 $ 1,951
2005 1,934
2006 1,934
2007 1,934
2008 1,934
Thereafter 2,256
-------
$11,943
-------
</TABLE>
The amounts for goodwill by operating segment are as follows at January 3, 2004
and December 28, 2002 (in thousands):
<TABLE>
<CAPTION>
2003 2002
---- ----
<S> <C> <C>
Americas $36,492 $36,837
Europe 11,703 11,758
Asia 448 448
------- -------
Total goodwill $48,643 $49,043
------- -------
</TABLE>
5. Long-Term Obligations
The carrying amounts of long-term debt, which approximate fair value, are as
follows at January 3, 2004 and December 28, 2002 (in thousands):
<TABLE>
<CAPTION>
2003 2002
---- ----
<S> <C> <C>
6.16% Senior Notes, maturing 2005 $20,000 $30,000
Revolving credit facility -- --
Other obligations 8,697 9,096
Capital lease obligations -- 150
------- -------
28,697 39,246
Less: Current maturities 18,496 18,994
------- -------
$10,201 $20,252
------- -------
</TABLE>
The Company has unsecured domestic financing arrangements consisting of Senior
Notes with insurance companies and a credit agreement with banks that provides a
$50.0 million revolving credit facility. The Senior Notes require minimum annual
principal payments. No principal payments are required for borrowings against
the revolving line of credit until the line matures on August 26, 2006. At
January 3, 2004, the Company had available $50.0 million of borrowing capability
under the revolving credit facility at an interest rate of LIBOR plus 1.0%. The
bank credit agreement provides for letters of credit of up to $5.0 million as
part of the available line of credit. At January 3, 2004, the Company had $1.9
million of outstanding letters of credit.
The Company also has an unsecured bank line of credit in Japan that provides a
Yen 0.9 billion revolving credit facility at an interest rate of TIBOR plus 1.0%
(1.08% as of January 3, 2004. At January 3, 2004, the Company had an equivalent
of $8.4 million outstanding on the Yen facility.
The Senior Notes and bank credit agreement contain 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 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 January 3, 2004 and for the year then ended,
the Company was in compliance with these covenants.
Aggregate maturities of long-term obligations at January 3, 2004, are as follows
(in thousands):
<TABLE>
<S> <C>
2004 $18,496
2005 10,081
2006 80
2007 40
2008 and thereafter --
-------
$28,697
-------
</TABLE>
Interest paid on long-term debt approximated $2.1 million in 2003, $2.5 million
in 2002 and $3.1 million in 2001.
6. Short-term Investments
Short-term investments consist primarily of liquid debt instruments purchased
with remaining maturity dates greater than three months.
The following is a summary of short-term investments classified as
"available-for-sale" securities as of December 28, 2002 (in thousands):
<TABLE>
<S> <C>
Debt/equity securities:
Amortized cost $8,808
Gross unrealized gains 2
Gross unrealized losses 4
------
Estimated fair value $8,806
------
</TABLE>
Proceeds from the sales of short-term investments in 2003 were $10.4 million.
Realized gains and losses on the sales of securities are based on the specific
identification method and included in earnings. During 2003, realized gains on
sales of securities were not material to the results of operations and there
were no realized losses. During 2002, there were no realized gains, and losses
on sales of securities were not material to the results of operations.
7. Derivatives and Hedging
On June 11, 2002, the Company entered into cross-currency rate swaps, with a
notional amount of $11.6 million and a maturity date of September 5, 2005. The
cross-currency rate swaps convert a portion of the Company's U.S. Dollar fixed
rate debt to fixed rate Japanese Yen debt and have been designated as a cash
flow hedge of the variability of Yen cash flows attributable to the exchange
rate risk on forecasted intercompany sales of inventory to a Japanese
subsidiary. The notional amount outstanding at January 3, 2004, was $6.8 million
and the fair value of the outstanding cross-currency rate swap agreements was
recognized as a $1.1 million liability and as a charge to consolidated equity as
a component of other comprehensive income in the Consolidated Balance Sheet at
January 3, 2004. The notional amount outstanding at December 28, 2002, was $10.0
million and the fair value of the outstanding cross-currency rate swap
agreements was recognized as a $0.2 million liability and as a charge to
comprehensive loss as a component of other comprehensive loss in the
Consolidated Balance Sheet at December 28, 2002. There were no cross-currency
rate swaps outstanding as of December 29, 2001.
8. Benefit Plans
The Company has a 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 defined
benefit pension plans covering employees in the U.K., Ireland, Japan and the
Netherlands. The amount of these retirement benefits 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 Netherlands employees was $0.3 million,
$0.3 million and $0.2 million in 2003, 2002 and 2001, respectively.
The Company's contributions are made in amounts sufficient to satisfy legal
requirements and ensure funding to at least 90% of the ERISA Current Liability
amount. In 2004, the Company expects to make contributions to defined benefit
pension plans in the range of $0.5 million to $4.5 million.
Changes in actual return on pension plan assets are deferred and recognized over
a period of three years. The deferral of actual gains and losses affects the
calculated value of plan assets and therefore future pension expense. Charges to
record additional minimum pension liability reflected in accumulated other
comprehensive loss in the Consolidated Balance Sheet, net of tax were $0.3
million in 2003 and $3.5 million in 2002. Differences between total pension
expense of $3.6 million, $2.2 million and $1.8 million in 2003, 2002 and 2001,
respectively, were not material to the overall financial performance of the
Company. The increases in pension expense in 2003 and 2002 were primarily due to
lower asset investment returns than assumed and a decrease in the discount rate.
<TABLE>
<CAPTION>
U.S. Total Foreign
2003 2002 2003 2002
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 54,485 $47,764 $21,516 $ 15,819
Service cost 2,667 2,198 786 621
Interest cost 3,551 3,528 1,260 992
Plan participants' contributions -- -- 178 167
Net actuarial loss (gain) (2,152) 3,885 (22) 1,638
Benefits paid (2,903) (2,890) (708) (764)
Effect of exchange rate movements -- -- 4,469 3,043
-------- ------- ------- --------
Benefit obligation at end of year $ 55,648 $54,485 $27,479 $ 21,516
-------- ------- ------- --------
Change in plan assets at fair value
Fair value of plan assets at beginning of year $ 35,685 $43,139 $17,347 $ 16,919
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Actual return (loss) on plan assets 8,886 (4,564) 1,993 (2,113)
Employer contributions 3,000 -- 537 431
Plan participant contributions -- -- 178 167
Benefits paid (2,903) (2,890) (708) (764)
Effect of exchange rate movements -- -- 3,650 2,707
--------- -------- -------- ---------
Fair value of plan assets at end of year $ 44,668 $ 35,685 $ 22,997 $ 17,347
--------- -------- -------- ---------
Unfunded status $ (10,980) $(18,800) $ (4,482) $ (4,169)
Unrecognized prior service cost (benefit) 124 -- (142) (138)
Unrecognized transition asset -- -- (1,555) (1,401)
Unrecognized net actuarial loss (gain) 6,552 14,170 6,294 6,182
--------- -------- -------- ---------
Prepaid pension asset (obligation) $ (4,304) $ (4,630) $ 115 $ 474
--------- -------- -------- ---------
Amounts recognized in the Consolidated
Balance Sheet consist of:
Prepaid benefit cost $ -- $ -- $ 50 $ 29
Accrued benefit asset (obligation) (4,304) (8,154) (208) (856)
Accumulated other comprehensive income -- 2,291 273 1,171
--------- -------- -------- ---------
Net amount recognized $ (4,304) $ (5,863) $ 115 $ 344
--------- -------- -------- ---------
</TABLE>
The accumulated benefit obligation for the U.S. defined benefits plans was
$45,984 and $45,839 at January 3, 2004 and December 28, 2002, respectively. The
accumulated benefit obligation for the foreign plans was $22,787 and $17,751 at
January 3, 2004 and December 28, 2002, respectively.
<TABLE>
<CAPTION>
U.S. Foreign
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 2,667 $ 2,198 $ 2,327 $ 995 $ 796 $ 659
Interest cost 3,551 3,528 3,264 1,260 992 882
Expected return on plan assets (3,664) (4,112) (4,182) (1,243) (1,277) (1,129)
Amortization of prior service cost 10 46 66 (11) (11) --
Amortization of transition asset -- -- -- (102) (85) (81)
Amortization of losses 110 -- -- -- -- --
Recognized actuarial loss -- -- -- 253 -- --
Total cost of the plan for the year 2,674 1,660 1,475 1,152 415 331
Expected plan participants' contribution -- -- -- (208) (175) (159)
------- ------- ------- ------- ------ -------
Net periodic benefit cost $ 2,674 $ 1,660 $ 1,475 $ 944 $ 240 $ 172
------- ------- ------- ------- ------ -------
</TABLE>
Weighted average assumptions used to determine benefit obligations at year-end
2003, 2002 and 2001:
<TABLE>
<CAPTION>
U.S. Foreign
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.5% 6.8% 7.3% 5.5% 5.5% 6.0%
Compensation increase rate 4.5% 4.5% 4.5% 4.0% 4.0% 4.0%
Measurement dates 12/31/03 12/31/02 12/31/01 12/31/03 12/31/02 12/31/01
</TABLE>
Weighted average assumptions used to determine net periodic benefit cost for the
years 2003, 2002 and 2001:
<TABLE>
<CAPTION>
U.S. Foreign
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.8% 7.3% 7.5% 5.5% 6.0% 6.0%
Expected return on plan assets 9.0% 9.0% 9.0% 6.7% 6.8% 7.0%
Compensation increase rate 4.5% 4.5% 4.5% 4.0% 4.0% 4.0%
Measurement dates 1/1/03 1/1/02 1/1/01 1/1/03 1/1/02 1/1/01
</TABLE>
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 9.0% on domestic plan assets and 6.7% 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. Actual investment returns over the last three years have been
less than the assumed long-term rate of return and, should this trend continue,
net periodic benefit cost would increase. U.S. defined benefit pension assets
were invested as follows and were not materially different from the target asset
allocation:
<TABLE>
<CAPTION>
U.S. Asset Allocation
2003 2002
---- ----
<S> <C> <C>
Equity securities 74% 69%
Debt securities 26% 31%
--- ---
100% 100%
--- ---
</TABLE>
Defined Contribution Plans
The Company also maintains a 401(k) savings plan covering substantially all U.S.
employees. The Company matches 50% of the employee's annual contributions for
the first 4% of the employee's gross wages. Employees vest in the Company
contributions after two years of service. Company matching contributions
amounted to $0.5 million, $0.6 million and $0.6 million in 2003, 2002 and 2001,
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 $0.7 million,
$0.4 million and $1.9 million in 2003, 2002 and 2001, respectively.
9. Shareholders' Equity
Stock Options The Company has stock option plans authorizing the granting of
both incentive and nonqualified options and other stock rights of up to
4,425,000 shares of common stock to employees and directors. The stock options
issued prior to 2002 vest over a five-year period and are exercisable over a
ten-year period commencing from the date of vesting. The Company changed its
policy in 2002 where the stock options vest over a five-year period and are
exercisable over a ten-year period commencing from the date of the grant. This
change was not made to stock options already granted.
A summary of stock option information follows:
<TABLE>
<CAPTION>
2003 2002 2001
---- ---- ----
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,976,605 $23.73 1,902,905 $23.63 1,692,075 $ 22.53
Options granted
Option price equals market price 361,750 22.18 329,250 23.18 391,200 27.18
Option price less than market price 20,000 7.00 4,000 5.00 1,000 5.00
--------- ------ --------- ------ --------- --------
Total options granted 381,750 21.38 333,250 22.96 392,200 (27.12)
Exercised (169,015) 17.29 (99,580) 15.43 (116,170) 16.42
Forfeited (142,620) 27.64 (159,970) 26.02 (65,200) 29.06
--------- ------ --------- ------ --------- --------
Outstanding at end of year 2,046,720 $23.55 1,976,605 $23.73 1,902,905 $ 23.63
--------- ------ --------- ------ --------- --------
Exercisable at end of year 1,114,028 1,060,140 938,623
Available for future grant 774,870 1,004,500 164,400
Weighted-average value of options
granted during the year $13.71 $12.75 $ 18.31
Option price equals market price 13.25 12.69 18.29
Option price less than market price 23.89 20.97 20.72
------ ------ --------
</TABLE>
As of January 3, 2004, the Company had the following outstanding options:
<TABLE>
<CAPTION>
Weighted- Weighted-
Options Average Average Options
Exercise Price Outstanding Exercise Price Remaining Life Exercisable
-------------- ----------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
$3.69 to $ 5.00 28,100 $ 4.44 5.90 25,500
$7.00 to $11.16 79,200 9.96 10.75 59,200
$11.63 to $16.50 120,580 15.46 6.21 115,380
$17.81 to $25.50 1,172,210 21.91 9.69 588,178
$26.63 to $35.50 646,630 30.51 11.38 325,770
--------- ------ ----- -------
</TABLE>
Notes Receivable - Common Stock In 1995, the Company established the Executive
Loan Program under which certain management employees may obtain interest-free
loans from the Company to facilitate their exercise of stock options and payment
of the related income tax liabilities. Such loans, limited to 90% of the
exercise price plus related tax liabilities, have a five-year maturity, subject
to acceleration for termination of employment or death of the employee. Such
loans are classified as a reduction of shareholders' equity. The Company changed
its policy in 2002 such that management employees may no longer obtain such
loans.
Accumulated Other Comprehensive Loss At the end of the year the components of
accumulated other comprehensive loss were as follows (in thousands):
<TABLE>
<CAPTION>
January 3, December 28,
2004 2002
---- ----
<S> <C> <C>
Net unrealized loss on derivatives $(1,001) $ (231)
Minimum pension liability
adjustment, net of tax (246) (3,462)
Foreign currency translation
adjustment (1,795) (6,208)
------- -------
Total $(3,042) $(9,901)
------- -------
</TABLE>
Preferred Stock The Board of Directors may authorize the issuance from time to
time of preferred stock 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. In connection with the Rights
Plan, the Board of Directors has reserved, but not issued, 200,000 shares of
preferred stock.
Rights Plan In December 1995, the Company adopted a shareholder rights plan
providing for a dividend distribution of one preferred share purchase right for
each share of common stock outstanding on and after December 15, 1995. The
rights can be exercised only if an individual or group acquires or announces a
tender offer for 15% or more of the Company's common stock. If the rights first
become exercisable as a result of an announced tender offer, each right would
entitle the holder to buy 1/200th of a share of a new series of preferred stock
at an exercise price of $67.50. Once an individual or group acquires 15% or more
of the Company's common stock, each right held by such individual or group
becomes void and the remaining rights will then entitle the holder to purchase a
number of common shares having a market value of twice the exercise price of the
right. If the attempted takeover succeeds, each right will then entitle the
holder to purchase a number of the acquiring Company's common shares having a
market value of twice the exercise price of the right. After an individual or
group acquires 15% of the Company's common stock and before they acquire 50%,
the Company's Board of Directors may exchange the rights in whole or in part, at
an exchange ratio of one share of common stock or 1/100th of a share of a new
series of preferred stock per right. Before an individual or group acquires 15%
of the Company's common stock, or a majority of the Company's Board of Directors
are removed by written consent, whichever occurs first, the rights are
redeemable for $0.01 per right at the option of the Company's Board of
Directors. The Company's Board of Directors is authorized to reduce the 15%
threshold to no less than 10%. Each right will expire on December 15, 2005,
unless earlier redeemed by the Company.
10. Income Taxes
Federal, state, and foreign income tax expense (benefit) consists of the
following (in thousands):
<TABLE>
<CAPTION>
2003 2002 2001
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 10,346 $ (527) $ 5,187
State 339 249 (637)
Foreign 4,402 5,110 4,980
-------- ------- -------
Subtotal 15,087 4,832 9,530
Deferred:
Federal (6,897) 2,987 (7,379)
Foreign 439 (2,408) 140
Subtotal (6,458) 579 (7,239)
-------- ------- -------
Provision for income taxes $ 8,629 $ 5,411 $ 2,291
-------- ------- -------
</TABLE>
Domestic and foreign income (loss) before income taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
2003 2002 2001
---- ---- ----
<S> <C> <C> <C>
Domestic $ 6,808 $ 6,542 $ (10,030)
Foreign 17,160 8,489 16,391
------- ------- ---------
Income before income taxes $23,968 $15,031 $ 6,361
------- ------- ---------
</TABLE>
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):
<TABLE>
<CAPTION>
2003 2002 2001
---- ---- ----
<S> <C> <C> <C>
Tax expense at statutory
rate of 35% $ 8,389 $ 5,259 $2,226
State and local taxes (benefit),
net of federal tax benefit 220 162 (476)
Foreign income tax
rate differential 125 179 (615)
Foreign losses for which no
tax benefit is available -- 34 47
Other, net (105) (223) 1,109
------- ------- ------
Provision for income taxes $ 8,629 $ 5,411 $2,291
------- ------- ------
</TABLE>
Deferred income taxes are provided for the tax effects of temporary differences
between the financial reporting bases and the tax bases of the Company's assets
and liabilities. Significant components of the Company's deferred tax assets and
liabilities at January 3, 2004 and December 28, 2002, are as follows (in
thousands):
<TABLE>
<CAPTION>
2003 2002
---- ----
<S> <C> <C>
Deferred tax liabilities
Tax depreciation and amortization
in excess of book $ 1,572 $ 5,397
Other 1,340 89
------- -------
Total deferred tax liabilities 2,912 5,486
Deferred tax assets
Accrued expenses 16,324 13,229
Foreign tax credit carryforwards 2,782 2,995
AMT credit carryforwards 1,002 --
Foreign net operating loss carryforwards 2,666 1,785
------- -------
Gross deferred tax assets 22,774 18,009
Less: Valuation allowance (2,666) (1,785)
Total deferred tax assets 20,108 16,224
------- -------
Net deferred tax assets $17,196 $10,738
------- -------
</TABLE>
The deferred tax asset valuation allowance is related to deferred tax assets
from foreign net operating losses. The AMT credit carryforward and the net
operating loss carryforwards have no expiration date. The foreign tax credit
carryforwards expire between 2006 and 2008. The Company paid income taxes of
$2.7 million, $5.8 million and $8.4 million in 2003, 2002 and 2001,
respectively. U.S. income taxes were not provided for on a cumulative total of
approximately $37.5 million of undistributed earnings for certain non-U.S.
subsidiaries as of January 3, 2004, 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.
11. Business Segment Information
The Company designs, manufactures and sells circuit protection devices
throughout the world. The Company has three reportable geographic segments: The
Americas, Europe and Asia-Pacific. The circuit protection market in these
geographical segments is categorized into three major product areas: electronic,
automotive and electrical. The Company evaluates the performance of each
geographic segment based on its net income or loss. The Company also accounts
for intersegment sales as if the sales were to third parties.
The Company's reportable segments are the business units where the revenue is
earned and expenses are incurred. The Company has subsidiaries in The Americas,
Europe and Asia-Pacific where each region is measured based on its sales and
operating income or loss.
Information concerning the operations in these geographic segments for the
fiscal years ended 2003, 2002 and 2001 are as follows (in thousands):
<TABLE>
<CAPTION>
The Asia Combined Consolidated
Americas Europe Pacific Total Corporate Reconciliation Total
-------- ------ ------- ----- --------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 2003 $ 167,417 $61,098 $110,895 $ 339,410 $ -- $ -- $339,410
2002 $ 148,047 $51,233 $ 83,987 $ 283,267 $ -- $ -- $283,267
2001 $ 144,899 $51,430 $ 75,820 $ 272,149 $ -- $ -- $272,149
Intersegment revenues 2003 70,882 54,742 21,443 147,067 -- (147,067) --
2002 62,022 47,213 17,696 126,931 -- (126,931) --
2001 54,440 46,660 9,926 111,026 -- (111,026) --
Interest expense 2003 2,068 (25) 2 2,045 -- -- 2,045
2002 2,450 19 184 2,653 -- -- 2,653
2001 3,075 23 193 3,291 -- -- 3,291
Depreciation and 2003 16,442 1,541 2,350 20,333 768 -- 21,101
amortization 2002 13,256 2,853 2,028 18,137 767 -- 18,904
2001 12,176 4,035 1,723 17,934 7,748 -- 25,682
Other expense 2003 728 (91) (705) (68) -- -- (68)
(income), net 2002 1,385 888 (520) 1,753 -- -- 1,753
2001 635 688 (211) 1,112 -- -- 1,112
Income tax 2003 4,326 1,022 3,281 8,629 -- -- 8,629
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
expense (benefit) 2002 3,583 1,764 64 5,411 -- -- 5,411
2001 (2,831) 2,871 2,251 2,291 -- -- 2,291
Net income (loss) 2003 5,306 869 9,932 16,107 (768) -- 15,339
2002 2,626 3,235 8,270 14,131 (4,511) -- 9,620
2001 5,426 7,363 5,347 18,136 (14,066) -- 4,070
Identifiable assets 2003 273,952 33,637 47,798 355,387 82,919 (126,736) 311,570
2002 202,642 32,908 45,079 280,629 83,706 (86,857) 277,478
2001 191,626 35,568 41,643 268,837 83,048 (79,613) 272,272
Capital expenditures, net 2003 12,157 1,954 (70) 14,041 -- -- 14,041
2002 9,256 (2,516) 1,620 8,360 -- -- 8,360
2001 5,126 5,318 3,677 14,121 -- -- 14,121
---- ------- ------ ------ ------- ------ -------- -------
</TABLE>
Intersegment revenues and receivables are eliminated to reconcile to
consolidated totals. Restructuring charges are reflected in the corporate column
for the net income segmentation. Corporate identifiable assets consist primarily
of cash and intangible assets.
The Company's revenues by product areas for the years ended January 3, 2004,
December 28, 2002 and December 29, 2001, are as follows (in thousands):
<TABLE>
<CAPTION>
Revenues 2003 2002 2001
-------- ---- ---- ----
<S> <C> <C> <C>
Electronic $206,523 $150,838 $146,342
Automotive 98,327 98,235 91,061
Electrical 34,560 34,194 34,746
-------- -------- --------
Consolidated total $339,410 $283,267 $272,149
-------- -------- --------
</TABLE>
Revenue from no single customer of the Company amounts to 10% or more.
12. Lease Commitments
The Company leases certain office and warehouse space under non-cancelable
operating leases, as well as certain machinery and equipment. Rental expense
under these leases was approximately $3.4 million in 2003, $2.6 million in 2002
and $1.8 million in 2001. Future minimum payments for all non-cancelable
operating leases with initial terms of one year or more at January 3, 2004, are
as follows (in thousands):
<TABLE>
<S> <C>
2004 $3,654
2005 2,636
2006 1,312
2007 1,058
2008 89
2009 and thereafter 81
------
Total lease commitments $8,830
------
</TABLE>
13. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
(In thousands, except
per share amounts) 2003 2002 2001
--------------------- ---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income $ 15,339 $ 9,620 $ 4,070
-------- ------- -------
Denominator:
Denominator for basic
earnings per share -
Weighted-average shares 21,881 21,858 19,951
Effect of dilutive securities:
Warrants -- -- 1,565
Employee stock options 123 113 215
-------- ------- -------
Denominator for diluted
earnings per share -
Adjusted weighted-
average shares and
assumed conversions 22,004 21,971 21,731
Basic earnings per share $ 0.70 $ 0.44 $ 0.20
-------- ------- -------
Diluted earnings per share $ 0.70 $ 0.44 $ 0.19
-------- ------- -------
</TABLE>
Options to purchase 1,376,122, 1,434,718 and 814,735 shares of common stock were
outstanding at January 3, 2004, December 28, 2002 and December 29, 2001,
respectively, but were not included in the computation of diluted earnings per
share because the effect of including such options would have been
anti-dilutive.
Selected Financial Data
(in thousands, except per share data)
Five Year Summary
<TABLE>
<CAPTION>
2003* 2002 2001 2000 1999
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $339,410 $283,267 $272,149 $371,920 $296,367
Gross profit 104,426 88,623 85,592 150,648 117,255
Operating income 26,081 15,931 8,540 61,748 44,624
Net income 15,339 9,620 4,070 37,298 25,220
Net income per share - Diluted 0.70 0.44 0.19 1.69 1.16
Net working capital 62,120 59,181 62,486 74,503 60,008
Total assets 311,570 277,478 272,272 274,378 275,698
Long-term debt 10,201 20,252 30,402 41,397 55,460
-------- -------- -------- -------- --------
</TABLE>
*Results include Teccor. Refer to the Notes to Consolidated Financial Statements
for more information.
Quarterly Results of Operations (unaudited)
<TABLE>
<CAPTION>
2003 2002
4Q** 3Q** 2Q 1Q 4Q 3Q 2Q 1Q*
---- ---- -- -- -- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $101,963 $94,696 $72,789 $69,962 $69,274 $74,964 $73,900 $65,129
Gross profit 29,688 27,786 23,894 23,078 22,705 23,390 24,277 18,251
Operating income (loss) 7,459 7,069 6,322 5,231 4,071 5,835 6,867 (842)
Net income (loss) 4,191 4,073 3,852 3,223 2,540 3,667 4,025 (612)
Net income (loss) per share:
Basic 0.19 0.19 0.18 0.15 0.12 0.17 0.18 (0.03)
Diluted 0.19 0.19 0.18 0.15 0.12 0.17 0.18 (0.03)
-------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
*
Net loss in the first quarter of 2002 was due to restructuring charges related
primarily to reductions in force. Refer to the Notes to Consolidated Financial
Statements for additional information about these restructuring costs.
**
Results include Teccor. Refer to the Notes to Consolidated Financial Statements
for more information.
Quarterly Stock Prices
<TABLE>
<CAPTION>
2003 2002
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
-- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 30.12 27.19 23.06 19.02 19.70 24.60 28.25 28.47
Low 23.00 21.79 17.47 16.86 13.84 17.35 22.16 22.85
Close 28.69 22.33 21.66 17.82 17.23 17.36 23.13 24.77
----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
EXHIBIT 14.1
LITTELFUSE, INC.
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS
Littelfuse, Inc. (the "Company") seeks to promote ethical conduct in
its financial management and reporting. As a public company, it is essential
that the Company's filings with the Securities and Exchange Commission are
accurate, complete and understandable. The principal executive and financial
officers of the Company hold an essential role in this process. This Code of
Ethics applies to the principal executive officer, principal financial officer,
principal accounting officer and controller of the Company and other employees
of the Company performing similar functions as well as any other employee of the
Company who may be designated by the Board of Directors from time to time as
being subject to this Code of Ethics (each, a "Senior Officer").
1. Each Senior Officer shall:
(i) Act with honesty and integrity, avoiding
actual or apparent conflicts of interest in personal and
professional relationships.
(ii) Provide the Board of Directors with
information that is accurate, complete, timely and
understandable.
(iii) Comply with all laws, rules and regulations
of federal, state and local governments and regulatory
agencies.
(iv) Act in good faith with due care, competence
and diligence, without allowing his or her independent
judgment or conduct to be improperly influenced.
(v) Proactively promote ethical behavior within
the Company.
(vi) Promote responsible use of and control over
all Company assets and resources.
(vii) Provide full, fair, accurate, timely and
understandable information in all reports
and documents filed with, or submitted to, the Securities and
Exchange Commission or any other governmental entity and in
any other public communication made by the Company.
(viii) Promptly report any violations of this Code
of Ethics to the Chairman of the Audit Committee of the Board
of Directors.
2. Violations of this Code of Ethics may subject a Senior Officer
to disciplinary action, ranging from a reprimand to dismissal and possible
criminal prosecution.
3. Each Senior Officer shall certify each year that he or she has
not violated this Code of Ethics and is not aware of any violation of this Code
of Ethics by any other Senior Officer that has not been reported to the Chairman
of the Audit Committee of the Board of Directors.
4. This Code of Ethics may be amended by the Board of Directors.
- 2 -
Exhibit 22.1
SUBSIDIARIES
Littelfuse, S.A. de C.V.
Littelfuse do Brasil Ltda.
Littelfuse do Amazonia, Ltda.
Watseka LF, Inc.
Littelfuse, B.V.
Littelfuse, A.G.
Littelfuse Limited
Littelfuse Ireland Development Co., Ltd.
Littelfuse Ireland Limited
Littelfuse U.K. Ltd.
Littelfuse Ireland Holding Ltd.
REMPAT Holding B.V.
REMPAT Financial B.V.
Littelfuse Far East Pte Ltd.
Littelfuse HK Limited
Suzhou Littelfuse OVS Ltd.
Littelfuse KK
Littelfuse Triad Inc.
Littelfuse Phils Inc.
Littelfuse S&L, Inc.
Teccor Electronics, Inc.
Teccor Delaware, Inc.
Teccor GP, Inc.
Teccor Electronics L.P.
Teccor Electronics Mexico Holdings LLC
Teccor de Mexico s. de. R.L. de C.V.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Littelfuse, Inc. of our report dated February 3, 2004, included in the 2003
Annual Report to Shareholders of Littelfuse, Inc.
Our audits also included the financial statement schedule of Littelfuse, Inc.
listed in Item 15(a)(2). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, 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 consent to the incorporation by reference in the Registration Statements
(No. 33-55942, 33-64442, 333-03260 and 333-64285) on Form S-8 of our
report dated February 3, 2004, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule in this
Annual Report (Form 10-K) of Littelfuse, Inc., for the year ended December 31,
2003.
Chicago, Illinois
March 18, 2003 Ernst & Young LLP
EXHIBIT 31.1
FORM OF SECTION 302 CERTIFICATION
I, Howard B. Witt, certify that:
1. I have reviewed this annual report on Form 10-K of Littelfuse,
Inc.;
2. Based on my knowledge, this annual 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
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made know to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of the annual
report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record,
process, summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this annual report whether there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Dated: March 18, 2004
/s/ Howard B. Witt
--------------------
Howard B. Witt
Chairman, President & CEO
EXHIBIT 31.2
FORM OF SECTION 302 CERTIFICATION
I, Philip Franklin, certify that:
1. I have reviewed this annual report on Form 10-K of Littelfuse,
Inc.;
2. Based on my knowledge, this annual 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
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made know to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of the annual
report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record,
process, summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this annual report whether there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Dated: March 18, 2004
/s/ Philip Franklin
---------------------
Philip Franklin
Vice President, Operations Support
& CFO
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:
The Annual Report of Form 10-K for the year ended January 3, 2004 of the Company
fully complies, in all material respects, with the requirements of section 13
(a) or 15 (d) of the Securities Exchange Act of 1934, and information contained
in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Howard B. Witt /s/ Philip Franklin
-------------------------------- -----------------------------------
Chairman, President and Vice President, Operations Support and
Chief Executive Officer Chief Financial Officer