-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T50JYhCapLN3uFVWSdbp/g2JQr3bEL0SCK0fryQD4obLqzjs2JmOrF1VI5id5FNC xBWUtr6H161E9YQsYtcJPw== 0000889331-00-000002.txt : 20000322 0000889331-00-000002.hdr.sgml : 20000322 ACCESSION NUMBER: 0000889331-00-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LITTELFUSE INC /DE CENTRAL INDEX KEY: 0000889331 STANDARD INDUSTRIAL CLASSIFICATION: SWITCHGEAR & SWITCHBOARD APPARATUS [3613] IRS NUMBER: 363795742 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20388 FILM NUMBER: 574630 BUSINESS ADDRESS: STREET 1: 800 E NORTHWEST HWY CITY: DES PLAINES STATE: IL ZIP: 60016 BUSINESS PHONE: 7088241188 MAIL ADDRESS: STREET 1: 800 E. NORTHWEST HWY CITY: DES PLAINES STATE: IL ZIP: 60016 10-K 1 FORM 10-K 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 1, 2000 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, and Warrants to purchase shares of 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 ] The aggregate market value of 18,334,779 shares of voting stock held by non-affiliates of the registrant was approximately $659,760,197 based on the last reported sale price of the registrant's Common Stock, $.01 par value, as reported on The Nasdaq Stock Market on March 10, 2000. As of March 10, 2000, the registrant had outstanding 19,574,337 shares of Common Stock, $.01 par value, and Warrants to purchase 2,461,309 shares of Common Stock, $.01 par value. Portions of the following documents have been incorporated herein by reference to the extent indicated herein: Littelfuse, Inc. Proxy Statement dated March 20, 2000 (the "Proxy Statement") --Part III. Littelfuse, Inc. Annual Report to Stockholders for the year ended January 1, 2000 (the "Annual Report") - -- Parts II and III. Part I ITEM 1. BUSINESS General Littelfuse, Inc. (the "Company" or "Littelfuse") is a leading manufacturer and seller of fuses and other circuit protection devices for use in the electronic, automotive and general industrial markets. Management believes the Company is ranked first in market share in both the electronic and automotive markets and third in the power fuse market in North America. Management believes the Company, together with its licensees, is also first in market share in both the electronic and automotive markets worldwide. In the electronic market, leading manufacturers such as Canon, Compaq, Dell Computer, IBM, LG Electronics, Lucent Technologies, Motorola, Nokia, Nortel, Panasonic, Samsung, Sharp and Sony obtain a substantial portion of their electronic circuit protection requirements from the Company. In the automotive market, the Company or its licensees have customer relationships with all leading automobile manufacturers throughout the world. Littelfuse provides substantially all of the automotive fuse requirements for vehicles manufactured domestically by General Motors and is the primary supplier for Ford, Daimler Chrysler and all Japanese and most European auto manufacturer transplants. The Company also competes in the power fuse market selling to companies such as the Allen Bradley division of Rockwell International and Reliance Electric. See "Business Environment: Circuit Protection Market." The Company manufactures its products on fully integrated manufacturing and assembly equipment, much of which is designed and built by its own engineers. The Company fabricates and assembles a majority of its products and maintains product quality through a rigorous quality assurance program with all sites certified under ISO 9000 standards and its world headquarters now certified under the QS9000 standards. The Company's products are sold worldwide through a direct sales force and manufacturers' representatives. In the Asia-Pacific region, the Company has licensed its automotive fuse technology to a Japanese firm that supplies automotive fuses to Pacific Rim customers. For the year ended January 1, 2000, approximately 46% of the Company's net sales were to customers outside the United States (exports and foreign operations). References herein to "1997" or "fiscal 1997" refer to the calendar year ended January 3, 1998. References herein to "1998" or "fiscal 1998" refer to the fiscal year ended January 2, 1999. References herein to "1999" or "fiscal 1999" refer to the fiscal year ended January 1, 2000. Business Environment: Circuit Protection Market The circuit protection market can be broadly categorized into five major product areas: electronic, automotive, industrial (power), high voltage and residential. The Company sells products designed for the electronic, automotive and industrial areas. The Company entered the circuit protection market in 1927 with the development and introduction of the first small, fast-acting fuse capable of protecting sensitive test meters. Since that time, the Company has diversified its involvement in the circuit protection market to become a leader in the production of electronic and automotive fuses. The Company also entered the power fuse market in 1983 with a broad line of fuses, including several proprietary products. The Company believes it is a market leader in circuit protection devices, offering the broadest line of products in the industry and the global presence to serve major markets throughout the world. Electronic Products. Electronic circuit protection products are used to protect power circuits in a multitude of electronic systems and fall into five major categories: (1) fuses, (2) resettables (3) electrostatic discharge suppressors (4) thyristors and (5) metal-oxide varistors. Electronics fuses are devices which contain an element which melts in an overcurrent condition. Resettables are positive temperature coefficient (PTC) polymer devices that limit the current when an overcurrent condition exists and let current pass again after the cause of the overcurrent is removed. Electrostatic discharge (ESD) suppressors are polymer based devices that shunt transient high voltage energy away from circuitry. Thyristors are fast switching silicon semiconductor structures commonly used to protect telecommunications circuits from overvoltage transients such as those resulting from lightning. Metal-oxide varistors are ceramic based devices designed to absorb high energy transients in order to maintain the circuit voltage at safe levels. Applications for electronic products include telecommunications equipment, computers and computer peripherals, power supplies, test and medical instrumentation, and consumer electronic products. 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, windshield wipers, radios, windows and controls. Currently, a typical automobile contains 30 to 70 fuses, depending upon the options installed. The market for automotive fuses is expected to grow in the coming years as more electronic features are included in automobiles, and as the development of electric, hybrid and fuel cell vehicles increases. Certain new vehicles, such as the Cadillac Seville, Ford 150 series truck, Jeep Grand Cherokee and the Jaguar, contain as many as 50 to 90 fuses and this higher fuse count is expected to spread to other vehicles. Power Products. Power fuses include both current limiting and non-current limiting devices used to protect electrical systems against overcurrents. Power fuses are rated and listed under one of many Underwriters' Laboratories fuse classifications. The three main end user market segments for power fuses include original equipment manufacturers ("OEMs"), industrial maintenance and repair operations ("MROs") and new commercial and industrial construction. 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. Littelfuse Products General. The Company is a leading manufacturer and seller of fuses, varistors and other circuit protection devices for use in the electronic, automotive and general industrial markets. The Company's products are marketed under the general trademarked names of Littelfuse(R) and, where appropriate, Slo-Blo(R) Fuse as well as the trademarked names of certain of its products listed below in the description of the Company's electronic, automotive and power fuse products. Product Sales. Net sales of the Company's products by industry category for the periods indicated are as follows: Fiscal Year (in thousands) ----------------------------------------------------------------- -------------------- --------------------- ---------------------- 1999 1998 1997 -------------------- --------------------- ---------------------- -------------------- --------------------- ---------------------- Electronic $154,141 $133,085 $135,032 Automotive 101,270 96,686 102,139 Industrial (Power) 40,956 39,769 37,994 -------------------- --------------------- ---------------------- ==================== ===================== ====================== Total $296,367 $269,540 $275,165 ==================== ===================== ======================
Electronic Products. The Company manufactures and sells a wide range of electronic circuit protection products, including miniature and subminiature fuses, protectors and resettables. Electronic miniature and subminiature fuses are designed to provide circuit protection in the limited space requirements of electronic equipment. The Company entered the resettable device market in late 1996. The Company entered the ESD suppressor market in late 1998 and the varistor and thyristor market in 1999. The Company's electronic circuit protection products are marketed under the following trademarked and brand names: PICO(R) II Fuse is a very fast-acting subminiature fuse with axial leads which can be automatically inserted into a circuit board. It is used in consumer electronics, computers, medical instruments, power supplies and telecommunication line cards. It was originally developed for the aerospace industry where extremely small size and high reliability were prime requisites. This fuse is encapsulated with an epoxy coating which protects the fuse from adverse environmental conditions. It can stand up under the rough treatment found in high speed automated circuit board assembly processes used by many different manufacturers. 2AG fuses are a miniature version of the standard 1/4" diameter by 1-1/4" long glass bodied fuses manufactured for more than 40 years. The fuse occupies about 1/3 of the space but still provides the performance of the larger sized product. The Company has developed a strong market in the telecommunications industry for a leaded version of the 2AG fuse. These fuses are used in business and personal telephone systems, answering machines and other equipment connected to phone lines. They are used to protect the system from lightning surges and accidental contact with power lines. These fuses also are used extensively in electronic ballasts for lighting. NANO2 (R) SMF Fuse is a fourth generation surface mount fuse product line. The compact size (.240" x .100" x .100") of this rectangular shaped fuse is very attractive to design engineers. In addition, the flat side design permits efficient pick and placement by automated assembly equipment. The NANO2 (R) SMF Fuse is used where space considerations are critical, including laptop computers, camcorders and battery chargers. ALF(TM) II or "1206" SMF, and the "0603" SMF are very fast acting thin film surface mount fuses measuring only .12 inch x .06 inch and .06 inch X .03 inch, respectively. The subminiature size assures additional space savings in surface mount applications. They are completely compatible with common soldering systems used in surface mount assembly applications, the ALF(TM) is available on 8mm reels for use with automatic placement equipment. Applications include hard disk drives, PC main boards, digital cameras, CD-ROMs and cellular telephones. SMTelecom(TM) is the first surface mount fuse to comply with UL 1459 and UL 1950 third edition power cross requirements for telecommunications. The new SMTelecom(TM) Fuse protects all phone line connected equipment against current surges resulting from power cross, power induction and lightning strikes. It is rated for 250 volts with a 600 volt short circuit rating. Four current ratings are offered, from 0.75 to 1.5 amperes. Applications include modems, fax machines, desktop telephones, answering machines and line cards. Surface Mount PTC is the first in Littelfuse's line of PTC devices. Its dimensions of 0.200" x 0.290" x 0.120" are ideal for circuit board applications where space is at a premium. It also is available in 0.340" x 0.250" x 0.10" and 0.179" x 0.127" x 0.02" configurations. This polymer surface mount PTC has the ability to reset itself once the fault or overcurrent condition has cleared. This new product is used primarily for computer and peripheral applications such as motherboards, disk drives, PC cards, modems, printers, etc. PulseGuard(R), an ESD suppressor, is a polymer based surface mount or connector style device that utilizes a variable voltage material to shunt high voltage ESD energy away from circuitry without affecting data signals. The PulseGuard(R) characteristics and available packages provide for protection of integrated circuitry in applications such as PCs and PC peripherals. Metal Oxide Varistors (MOVs) are high energy absorption products that provide transient overvoltage and surge suppression for electronic, telecommunication and industrial applications. MOVs are available in a radial leaded package, used in applications such as hand-held electronic devises, cellular telephones and medical instruments. A surface mount, multilayer package is also available for circuit board applications where space is at a premium. UltraMOV(TM) is a series of radial leaded varistors intended for AC line applications requiring high peak surge current rating and high energy absorption capability. Applications include Uniterruptable Power Supplies (UPS), circuit breakers, AC appliance/controls and consumer electronics. The Company also markets a series of industrial MOVs designed to provide surge suppression in the AC mains outdoors and distribution panels of buildings. Applications include industrial heavy motors, HVAC and motor/generator applications. Automotive Products. The Company is a primary supplier of automotive fuses to United States, Japanese 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. Management believes that it currently is the leading worldwide supplier of automotive fuses for new vehicle production and a leader for the aftermarket/replacement market. The Company invented and owns all 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 believes that, together with its licensees, it supplies substantially all of the blade type fuses used in the North American and Japanese markets and a majority in the European market. The Company's automotive fuse products are marketed under the following trademarked and brand names: AUTOFUSE(R) or ATO(R), a standard blade type fuse, is used in automobiles produced worldwide and designed to provide superior circuit protection in a small, heat resistant package for low ampere applications. MINI(R) Fuse, smaller than its predecessor AUTOFUSE(R), is offered in a range from two amps to 30 amps and is designed to permit more fuses in the same amount of space than prior products. MAXI(TM) Fuse, a larger version of the AUTOFUSE(R), replaces the commonly used low technology fusible wire or fusible links in automobile electrical harnesses and is offered in a range from 20 amps to 80 amps. MIDI(R) Fuse is a bolt down version of the MAXI(TM) fuse. This style is preferred by some European customers in the 50 to 100 amp range. Its primary use is for heating, air conditioning and motor control circuits. J-CASE(R) Fuse, is a cartridge version of the Maxi(TM) fuse. Its primary use is for branch circuit protection and protection of circuits with inductive loads. MEGA(R)Fuse, a higher current fuse with ratings of 100 to 200 amps, is used for protection of battery cables. Over half of the Company's North American automotive (blade type) 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. The Company believes it currently has adequate production capacity to meet the anticipated increased demand for automotive fuses referred to in "Business Environment: Circuit Protection Market -- Automotive Fuses." Any required expenditures for additional machinery and equipment are expected to be funded by cash flow from operations. 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) automotive fuses to the Pacific Rim manufacturing operations of Japanese based automobile manufacturers. See "Competition" and "Business -- Patents, Trademarks and Other Intellectual Property." Power Products. The Company entered the power fuse market in 1983 and manufactures and sells a broad range of low-voltage circuit protection products to electrical distributors and their customers in the construction, OEM and 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. The Company's power fuse products are marketed under the following classifications: Class L fuses are commonly used as the first line of electrical protection in building service entrance equipment of high capacity electrical systems. Other applications include switchboard mains and feeders, distribution equipment and branch circuit protection for large motors. Class R fuses are commonly used downstream from Class L fuses in a variety of branch circuit applications. Both time delay and fast acting versions cover a range of applications including main feeder, motor, transformer and solenoids. The Company's RK5 INDICATOR fuse series has won numerous product awards and wide recognition by industrial plant personnel. These fuses have an integrated blown fuse indicator that turns from clear to dark once a fuse has blown. This reduces troubleshooting time significantly and helps improve safety. Class J fuses are less than half the size of Class R to provide substantial space savings. Applications for Class J are similar to Class R. Additional applications include back up protection for circuit breakers and protection for both IEC and NEMA rated devices. The Company has also introduced an indicating J line of fuses with indication functionality like the RK5 INDICATOR fuse. Class CC fuses, Littelfuse's KLDR (for transformer protection) and CCMR (for motor branch circuit protection) provide protection formerly supplied by fuses 10 times larger. Littelfuse was the first to the market with these products and is the only company with a CCMR rated up to 60 amps. Semiconductor fuses, designed for supplementary protection of semiconducting devices, are used in electronic equipment and power equipment, such as variable speed drives, power rectifiers, UPS systems and DC power suppliers. Midget fuses, in seven different series, provide supplementary overcurrent protection in such diverse applications as control circuits, control power transformers, solenoids, street lighting and computers. Medium voltage fuses, designed for general and back-up protection, protect motors, transformers and motor controllers. The medium voltage fuse line was expanded in 1998 with the purchase of the product line and assets of a medium voltage fuse manufacturer allowing for very short delivery times of these products. Other Products. In addition to the above products, the Company supplies switches, and circuit breakers to the automotive industry and to appliance and general electronics manufacturers. The Company is also a supplier of fuse holders (including OMNI-BLOK(R)), fuse blocks (including Powr-Blok(R) power distribution systems) and fuse clips primarily to customers that purchase circuit protection devices from the Company. Product Design and Development The Company employs scientific, engineering and other personnel to improve its existing product lines and to develop new products at its research and engineering facility in Des Plaines, Illinois. The Engineering Department consists of approximately 60 engineers, chemists, metallurgists, fusologists and technicians. This department is primarily responsible for 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 6 to 18 months with continuous efforts to reduce the development cycle. During the fiscal years ended January 1, 2000, January 2, 1999, and January 3, 1998, the Company expended approximately $9.5 million, $8.4 million and $7.9 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 its rights in its trade secrets and its proprietary products. In cases where it is deemed necessary by management, key employees are required to sign an agreement that they will maintain the confidentiality of the Company's proprietary information and trade secrets. This information, for business reasons, is not disclosed to the public. As of January 1, 2000, the Company owned 112 patents in North America, 22 patents in the European Economic Community and 34 patents in other foreign countries. The Company has also registered trademark protection for certain of its brand names and logos. The 112 North American patents are in the following categories: 47 Electronic, 16 Resettable, 23 Automotive, 19 Power Fuse and 7 miscellaneous. 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. Each 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 Pacific Rim operations of Pacific Rim-based automotive 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 $250,000, $286,000 and $332,000 for fiscal 1999, 1998 and 1997, respectively. Manufacturing Much of the Company's manufacturing equipment is custom designed by its engineers, and the Company performs the majority of its own fabrication. The Company stamps most of the metal components used in its fuses, holders and switches from raw metal stock and makes its own contacts and springs. However, the Company does depend upon a single source for a substantial portion of its stamped metal end caps for one family of electronic fuses. The Company believes that alternative stamping sources are available at prices which would not have a material adverse effect on the Company. The Company also performs its own plating (silver, nickel, zinc, tin and oxides). In addition, all thermoplastic molded component requirements used for such products as the AUTOFUSE(R), MINI(R) and MAXI(TM) 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. The principal raw materials for the Company's products include copper and copper alloys, heat resistant plastics, zinc, melamine, glass, silver, solder, sulphate chipboard and linerboard. The Company depends upon a sole source for several heat resistant plastics. The Company believes that suitable alternative heat resistant plastics are available from other sources at prices which 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, while reliability and high power laboratories test new products, prototype concepts and production run samples. The Company participates in "Just-in-Time" delivery programs with many of its major suppliers and actively promotes the building of strong cooperative relationships with its suppliers by involving them in pre-engineering product and process development. The Company also sponsors an annual major supplier conference and conducts a vendor certification program. Marketing The Company's domestic sales staff of over 70 people maintains relations with major OEMs and distributors. The Company's sales and engineering personnel interact directly with the OEM engineers to ensure maximum circuit protection and reliability within the parameters of the OEM design. Internationally, the Company maintains a sales staff of over 30 people and sales offices in The Netherlands, England, Ireland, Singapore, 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 43% 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 one or more manufacturers' representatives in Japan, Singapore, Korea, Taiwan, China, Malaysia, Thailand, Philippines and Australia. The Company also maintains an engineering facility in Japan. In Europe, the Company maintains a direct sales force to call on OEMs exclusively and utilizes manufacturers' representatives to approach distributors and smaller OEMs. Unlike its domestic representatives, these manufacturers' representatives purchase inventory from the Company to facilitate delivery and reduce financial risks associated with currency exchange rate fluctuations. Automotive. The Company sells automotive fuses to OEMs through a direct sales force in Detroit consisting of four employees. Salespersons 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, Pep Boys, and K-Mart. In Europe, the Company uses both a direct sales force and manufacturers' representatives to distribute its products to Mercedes Benz, 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 manufacturing operations in the region including Toyota, Honda and Nissan. Additionally, the Company has a direct sales staff in Korea to call on major OEMs in that market. Power. 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 1,800 distributor buying locations. These distributors have customers that include electrical contractors, municipalities, utilities and factories (including both MRO and OEM). Some of the manufacturers' representatives have consigned inventory in order to facilitate rapid customer delivery. The Company's field sales force (including 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 1, 2000, 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 except for its Japanese stocking representative which accounted for 10.2% and 11% in 1998 and 1997, respectively. The Japanese stocking representative serves over 100 customers in the Asia-Pacific electronic market. During the 1999, 1998 and 1997 fiscal years, net sales to customers outside the United States (exports and foreign operations) accounted for approximately 46.1%, 43.0% and 40.6%, respectively, of the Company's total net sales. Competition The Company's products compete with similar products of other manufacturers, many of which have substantially greater financial resources than the Company. In the electronic fuse market, the Company's competitors are Bussmann, a division of Cooper Industries, Bel Fuse, Inc., Raychem Division of TYCO International, San-O Industrial Corp. and Wickmann-Werke GmbH. In the circuit protection market, the Company's competitors are Bourns, Raychem Division of TYCO International, AVX, Maida, Panasonic and Siemens. In the fuseholder portion of this market, the Company's principal competitor is Schurter, Inc. In the automotive fuse market, the Company's competitors, both in sales to automobile manufacturers and in the aftermarket, are Bussmann and Pudenz Division of Wickmann-Werke. The Company licenses several of its automotive fuse designs to Bussmann. In the power fuse market, the Company's major competitors include Bussmann and Ferraz Shawmut. The Company believes that it competes primarily on the basis of innovative products, the breadth of available product lines, the quality and design of its products and the responsiveness of its customer service rather than through price competition. Backlog The Company does not consider backlog to be a predictive measure of results due to the Company's short delivery time. The Company manufactures high volume products based on its demand forecasts and manufactures low volume products based on customer orders. The Company attempts to ship such products to the customer within five business days of the date of the order. Generally, orders which request delivery within three weeks of the date of the order are filled on time from available stock or current production. Employees During 1999, the Company employed approximately 3,256 persons. Approximately 54 employees in Des Plaines and 694 employees in Mexico are covered by collective bargaining agreements. The Des Plaines agreement expires March 31, 2002 and the Mexico agreement expires January 31, 2001. The Company has not experienced any work stoppage or other form of labor dispute within the last 20 years. The Company believes that its employee relations are excellent and that its employees, many of whom have long experience with the Company, represent a valuable resource. The Company emphasizes employee training and development and has established Quality Improvement Process (QIP) training for its employees worldwide so as to promote product quality and customer satisfaction. Year 2000 For information relating to Year 2000 see "Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations - Year 2000" incorporated herein by reference. 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 facility located in Ireland. This facility was recently acquired 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. ITEM 2. PROPERTIES Littelfuse Facilities The Company's operations are located in 19 owned or leased facilities worldwide, containing approximately 702,000 square feet. The U.S. headquarters and principal fabrication and distribution facility is located in Des Plaines, Illinois, supported by two additional plants in Illinois and one in Mexico. European headquarters and the primary European distribution center is in Utrecht, The Netherlands, with manufacturing plants in England, Ireland and Switzerland. Asia Pacific operations include a distribution center located in Singapore, with manufacturing plants in Korea, 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: Lease Expir- Size Lease/ Ation Industry Location Use (sq.ft.) Own Date Focus Des Plaines, Illinois Administrative, 340,000 Owned -- Auto, Electronic, Power Engineering, Manufacturing, Testing and Research Centralia, Illinois Manufacturing 45,200 Owned -- Electronic Arcola, Illinois Manufacturing 36,000 Owned -- Power Livonia, Michigan Administrative 1,200 Leased 2004 Auto Piedras Negras, Mexico Manufacturing 50,031 Leased 2000 Auto, Electronic, Power Piedras Negras, Mexico Manufacturing 12,594 Leased 2003 Electronic and Power Piedras Negras, Mexico Manufacturing 22,711 Leased 2002 Electronic and Power Washington, Manufacturing, 60,000 Owned -- Electronic, Auto, Other England Sales and Distribution Utrecht, The Netherlands Warehousing 8,680 Leased 2001 Auto, Electronic, Other
Lease Expir- Size Lease/ Ation Industry Location Use (sq.ft.) Own Date Focus Utrecht, The Netherlands Sales, 12,000 Owned -- Auto, Electronic, Other Administrative and Engineering Grenchen, Switzerland Manufacturing 11,000 Owned -- Auto Singapore Sales and 9,827 Leased 2002 Electronic and Auto Distribution Seoul, Korea Sales and 29,175 Owned -- Electronic and Auto Manufacturing Philippines Manufacturing 10,200 Leased 2000 Electronic Suzhou, China Manufacturing 40,000 Owned -- Electronic Hong Kong, China Sales 3,079 Leased 2002 Electronic Yokohama, Japan Engineering 8,811 Leased 2000 Electronic Sao Paulo, Brazil Sales and Distribution 1,200 Leased 2000 Electronic, Auto Dundalk, Ireland Manufacturing 120,000 Owned -- Electronic, Auto
ITEM 3. Legal Proceedings The Company is not a party to any legal proceedings which 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 1999. Executive Officers of the Registrant The executive officers of the Company are as follows: Name Age Position Howard B. Witt 59 Chairman, President and Chief Executive Officer Kenneth R. Audino 56 Vice President, Organizational Development and Total Quality Management William S. Barron 57 Vice President, Marketing and Sales Philip G. Franklin 48 Vice President, Treasurer and Chief Financial Officer Lloyd J. Turner 56 Vice President, Operations Hans Ouwehand 53 Vice President, European Operations Mary S. Muchoney 54 Secretary
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 with the Company, including Operations Manager from March 1979 to January 1986, Vice President-Manufacturing Operations from January 1986 to January 1988, and Executive Vice President with full operating responsibilities for all U.S. activities from January 1988 to February 1990. Prior to joining Littelfuse, Mr. Witt was a division president of Keene Corporation from 1974 to 1979. Mr. Witt serves as a Director of Franklin Electric Co., Inc. and Material Sciences Corporation and is a member of the Electronic Industries Association Board of Governors. He also serves as a director of the Artisan Mutual Fund. 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. William S. Barron, Vice President, Sales and Marketing, is responsible for the Company's overall sales and marketing. Mr. Barron joined Littelfuse in March 1991. From August 1981 to March 1991, Mr. Barron served as Director of Sales and Marketing of Cinch Manufacturing, a division of TRW, and the General Manager of one of its domestic divisions. Philip G. Franklin, Vice President, Treasurer and Chief Financial Officer, has responsibility for the treasury, investor relations, financial control, financial reporting and information systems 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. Lloyd J. Turner, Vice President, Operations, has responsibility for manufacturing operations and related support functions. Mr. Turner joined Littelfuse in October 1988, as Director of Manufacturing Operations after having served as an Operations Manager with Texas Instruments from November 1984 to September 1988. He was promoted to his current position in 1991. Hans Ouwehand, Vice President, European Operations, has responsibility for all sales, marketing, manufacturing and engineering activities in Europe. Mr. Ouwehand joined Littelfuse in 1984 as Sales Manager, Europe, Electronics Division. He was later promoted to the position of European Sales and Marketing Manager for all Littelfuse products and in 1986 to the position of General Manager-European Operations. Prior to joining Littelfuse, his industrial background included research and development work with Sperry Rand and sales and product management with Lameris Medical Instruments. 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 Price" on page 40 of the Annual Report to Stockholders is incorporated herein by reference. It is also included in Exhibit 13.1 as filed with the SEC. As of March 10, 2000, there were 236 holders of record of the Company's Common Stock and in excess of 2,700 beneficial holders of its Common Stock. Since September 22, 1992, shares of the Common Stock have been traded in the over-the-counter market and quotations are reported using 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 bank credit agreement which relate to the maintenance of certain restricted payment ratios. 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. It is also included in Exhibit 13.1 as filed with the SEC. 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 20 through 23 of the Annual Report to Stockholders is incorporated herein by reference. It is also included in Exhibit 13.1 as filed with the SEC. ITEM 7A. Quantitative and Qualitative Disclosures about Market Risks The information set forth under "Market Risk" on page 23 of the Annual Report to Stockholders is incorporated herein by reference. It is also included in Exhibit 13.1 as filed with the SEC. 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 24 through 35 of the Annual Report to Stockholders are incorporated herein by reference. They are also included in Exhibit 13.1 as filed with the SEC. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 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. The information set forth under "Executive Officers of the Registrant" in Part I of this Report is incorporated herein by reference. 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. 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. 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 36) (ii) Consolidated Statements of Financial Condition as of January 1, 2000 and January 2, 1999 (pages 24 and 25). (iii) Consolidated Statements of Income for the years ended January 1, 2000, January 2, 1999 and January 3, 1998 (page 26). (iv) Consolidated Statements of Cash Flows for the years ended January 1, 2000, January 2, 1999 and January 3, 1998 (page 27). (v) Consolidated Statements of Shareholders' Equity for the years ended January 1, 2000, January 2, 1999 and January 3, 1998. (page 28). (vi) Notes to Consolidated Financial Statements (pages 29-35). (2) Financial Statement Schedules. The following financial statement schedules are 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. (3) Exhibits See Exhibit Index on pages 21-23, incorporated herein by reference. (b) Reports on Form 8-K There were no reports on Form 8-K during the fourth quarter of 1999. LITTELFUSE, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In Thousands) Additions Balance at Charged to Balance at Beginning Costs and Deductions End of Description Of Year Expenses (A) Year ---------- ---------- ---------- ------- Year ended January 1, 2000 Allowance for losses on accounts receivable . . . . . . $ 1,103 $ 614 $ 147 $ 1,570 ======= ======= ======= ======= Reserves for sales discounts and allowances . . . . . . . . $ 4,782 $ 769 $ -- $ 5,551 ======= ======= ========= ======= Year ended January 2, 1999 Allowance for losses on accounts receivable . . . . . . $ 1,118 $ 626 $ 641 $ 1,103 ======= ======= ======= ======= Reserves for sales discounts and allowances . . . . . . . . $ 4,781 $ 1 $ -- $ 4,782 ======= ======== ========= ======= Year ended January 3, 1998 Allowance for losses on accounts receivable . . . . . . $ 896 $ 410 $ 188 $ 1,118 ======== ======= ======= ======= Reserves for sales discounts and allowances . . . . . . . . $ 4,161 $ 620 $ -- $ 4,781 ======= ====== ========= =======
(A) Write-off of uncollectible accounts, net of recoveries and foreign currency translation. 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 20, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /s/ Howard B. Witt Chairman of the Board, President Howard B. Witt and Chief Executive Officer /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/ John J. Nevin Director John J. Nevin /s/ Philip G. Franklin Vice President, Treasurer Philip G. Franklin and Chief Financial Officer (Principal Financial Officer) LITTELFUSE INC. INDEX TO EXHIBITS Sequentialc) Page Number Number Description of Exhibit a) 2.1 Plan of Reorganization under Chapter 11 of the Bankruptcy Code of Old Littelfuse. 3.1 Certificate of Incorporation (as amended to date). 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 4.1 Second amended restated bank credit agreement among Littelfuse, Inc., as borrower, the lenders named therein and the First National Bank of Chicago, as agent, dated as of September 1, 1998. 4.2 Registration Rights Agreement, dated as of December 27, 1991, between Littelfuse, Inc. and The Toronto-Dominion Bank Trust Company, as agent. 4.3 Warrant Agreement, dated as of December 27, 1991, between Littelfuse, Inc., and LaSalle National Trust, N.A., as warrant agent, together with form of Warrant. (filed as exhibit 4.3A to the Company's Form 10-Q for the quarterly period ended June 28, 1997 (1934 Act File No. -20388) and incorporated herein by reference), as amended. 4.4 Stock Plan for Employees and Directors of Littelfuse, Inc., as amended d) 4.5 Form of Stock Option Agreement 4.6 Specimen Common Stock certificate. 4.7 Littelfuse, Inc. Retirement Plan dated January 1, 1992, as amended and restated.d)
____________ a) All of the exhibits, (except those filed herewith or specifically noted as being incorporated by reference from a different filing under the Securities as of 1933 or Securities act of 1934) were filed as exhibits to the Company's Form 10 as filed with the Securities and Exchange Commission which became effective on September 16, 1992 (1934 Act File No. 0-20388) and are incorporated herein by reference. b) Filed herewith. c) This information appears only in the manually signed copy of the report. d) Indicates an employee benefit plan, management contract or compensatory plan or arrangement in which a named executive officer participates. Sequentialc) Page Number Description of Exhibit a) Number 4.8 Littelfuse, Inc. 401(k) Savings Plan.d) 4.9 Note Purchase Agreement, dated as of August 31, 1993, relating to $45,000,000 principal amount of Littelfuse, Inc. 6.31% Senior Notes due August 31, 2000. 4.10 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. 4.11 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. b)4.12 Form of Restricted Share Agreement 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 10K for the year ended December 28, 1996) 10.4 MINI(R) and MAXITM License Agreement, dated as of June 21, 1989, between Littelfuse, Inc. and Cooper Industries, Inc. 10.5 Patent License Agreement, dated as of January 1, 1987, between Littelfuse, Inc. and Cooper Industries, Inc. 10.6 1993 Stock Plan for Employees and Directors of Littelfuse, Inc., as amended d) 10.7 Littelfuse, Inc. Supplemental Executive Retirement Plan.d) 10.8 Littelfuse Deferred Compensation Plan for Non-employee Directors, as amended.d)
Sequentialc) Page Number Number Description of Exhibit a) 10.9 Littelfuse Executive Loan Program (filed as Exhibit 10.2 to the Company's Form 10Q for the quarterly period ended June 30, 1995 (1934 Act File No. 0-20388) and incorporated herein by reference.)d) 10.10 Employment Agreement dated as of September 1, 1996 between Littelfuse, Inc. and Howard B. Witt. d) 10.11 Change of Control Employment Agreement dated as of September 1, 1996 between Littelfuse, Inc. and Howard B. Witt. d) 10.12 Form of change of Control Employment Agreement dated as of September 1, 1996 between Littelfuse, Inc. and Messrs. Anderson, Audino, Barron, Krueger and Turner. d) 10.13 Form of change of Control Employment Agreement dated as of January 4, 1999 between Littelfuse, Inc. and Mr. Franklin. d) b)13.1 Portions of Littelfuse Annual Report to Stockholders for the fiscal year ended January 1, 2000. b)22.1 Subsidiaries. b)23.1 Consent of Independent Auditors.
Exhibit 22.1 SUBSIDIARIES Littelfuse, S.A. de C.V. Littelfuse FSC Littelfuse Do Brasil Ltda. Watseka LF, Inc. Littelfuse, B.V. Littelfuse, A.G. Littelfuse Limited Harris Ireland Development Co., Ltd. Harris Ireland Limited Joyrush Investments Ltd. REMPAT Holding B.V. REMPAT Financial B.V. Littelfuse Far East Pte Ltd. Littelfuse HK Limited Littelfuse Holdings Pte Ltd. Suzhou Littelfuse OVS Ltd. Littelfuse KK Littelfuse Triad Inc. Littelfuse Phils Inc. EX-27 2 FDS --
5 0000889331 Littelfuse, Inc. 1,000 USD Year Jan-01-2000 Jan-03-1999 Jan-01-2000 1 1,888 0 59,583 7,121 48,916 119,137 194,302 18,461 275,698 78,215 0 0 0 195 0 275,698 296,367 296,367 179,112 0 0 0 5,253 40,677 15,457 0 0 0 0 25,220 1.29 1.16
EX-4 3 EXHIBIT 4.12 - FORM OF RESTRICTED SHARES AGREEMENT EXHIBIT 4.12 RESTRICTED SHARES AGREEMENT THIS RESTRICTED SHARES AGREEMENT is entered into as of , between (the "Recipient") and LITTELFUSE, INC., a Delaware corporation (the "Corporation"), with reference to the following facts: A. Pursuant to the 1993 Stock Plan for Employees and Directors of Littelfuse, Inc. (the "Plan"), the Corporation is authorized to grant awards of rights ("Restricted Units") to acquire shares of its Common Stock, $.01 par value (the "Common Stock"), on a restricted basis as provided in the Plan to officers, directors and employees of the Corporation or any Subsidiary as a reward for past performance or as an incentive for future performance. B. The Corporation desires to grant Restricted Units to the Recipient. NOW, THEREFORE, IN CONSIDERATION of the foregoing facts and other good and valuable consideration, the parties hereto hereby agree as follows: 1. Grant of Restricted Units. The Corporation hereby grants to the Recipient Restricted Units entitling the Recipient to acquire up to shares of the Common Stock (hereinafter referred to as the "Maximum Restricted Shares Amount"), subject in all respects to the provisions of the Plan and the terms and conditions set forth herein. 2. Number of Restricted Shares Deemed Earned. (a) The number of shares of the Common Stock which the Recipient shall be entitled to be issued or paid for in cash pursuant to this Agreement shall be determined pursuant to the following formula (hereinafter said shares shall be referred to as the "Restricted Shares" and said number of shares resulting from said formula shall be referred to as the "Earned Restricted Shares Amount"): (i) The Recipient shall be deemed to have earned no Restricted Shares in the event that EBITDA Growth is less than 10% or Average RONTA is less than 14%. (ii) The Recipient shall be deemed to have earned 20% of the Maximum Restricted Shares Amount if EBITDA Growth is equal to or greater than 10% but less than 11%, and Average RONTA is equal to or greater than 14% but less than 15%. For each full percentage point above the EBITDA Growth minimum of 10%, the recipient will earn an incremental 8% of the Maximum Restricted Shares Amount, up to a maximum of an additional 40% of the Maximum Restricted Shares Amount. Additionally, for each full percentage point above the Average RONTA minimum of 14%, the recipient will earn an incremental 8% of the Maximum Restricted Shares Amount up to a maximum of an additional 40% of the Maximum Restricted Shares Amount. Therefore, the Maximum Restricted Shares Amount is earned only when EBITDA Growth is equal to or greater than 15% and Average RONTA is equal to or greater than 19%. The chart attached hereto as Exhibit A illustrates the application of the foregoing formula. (b) As used herein, the term "EBITDA" shall mean the consolidated net income of the Corporation for each of the 1999, 2000 and 2001 fiscal years of the Corporation (hereinafter said three (3) year period is referred to as the "Performance Period"); provided, however, that in calculating said consolidated net income, no deductions shall be made for any interest, taxes, depreciation or amortization. (c) As used herein, the term "EBITDA Growth" shall mean the compound annual growth rate in EBITDA from fiscal year 1998 through fiscal year 2001 defined mathematically as follows (but expressed as a percentage): EBITDA Growth = (fiscal year 2001 EBITDA / fiscal year 1998 EBITDA)1/3 - 1 (d) As used herein, the term "RONTA" shall mean the percentage return on net tangible assets for the Corporation for each of the fiscal years of the Corporation during the Performance Period, calculated for each such fiscal year by dividing the consolidated net income of the Corporation for such fiscal year by the average of the amounts of (x) the total assets minus the total intangible assets minus the total current liabilities of the Corporation at the beginning of such fiscal year and (y) the total assets minus the total intangible assets minus the total current liabilities of the Corporation at the end of such fiscal year; provided, however, that current liabilities shall not include the current portion of long term debt for purposes of this calculation. (e) As used herein, the term "Average RONTA" shall mean the average RONTA for each of the three fiscal years of the Corporation during the Performance Period. (f) To the extent applicable, all calculations of EBITDA and RONTA, and the components thereof, shall be made in accordance with generally accepted accounting principles consistently applied. (g) In the event that the Corporation shall amend its financial statements for any of its fiscal years 1999, 2000 or 2001 at any time after March 15, 2002, and before January 2, 2005, so that any of the items used to calculate EBITDA or RONTA for any of those fiscal years are materially changed, the Committee, in its discretion, may make appropriate adjustments to the number of Restricted Shares deemed earned pursuant to Section 2 hereof. (h) In the event that the Corporation or any Subsidiary shall be a party to any merger or consolidation or acquisition of assets, shall sell all or substantially all of its assets or enter into any other transaction which, in the good faith opinion of the Committee, will have a material effect (either positive or negative) on EBITDA or RONTA during the Performance Period or the ability of the Recipient to obtain the economic benefit contemplated by this Agreement, the Committee shall appropriately and reasonably adjust the formula contained in Section 2(a) to provide the Recipient with substantially the same opportunity to obtain substantially the same economic benefit that the Recipient would have if said transaction had not been entered into, said adjustment to be evidenced in a writing delivered by the Corporation to the Recipient. (g) In the event that at anytime from and after the date hereof to and including January 2, 2002, there shall occur any changes in the outstanding Common Stock by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations, exchanges of shares, separations, reorganizations, liquidations and the like, the Committee shall appropriately and reasonably adjust the Maximum Restricted Shares Amount, the Earned Restricted Shares Amount, the number of any earned but unissued Restricted Shares and/or the amount of any earned but unpaid Restricted Payments. 3. Issuance of Restricted Shares. In the event that the Recipient is deemed to have earned any Restricted Shares pursuant to the provisions of Section 2 hereof, a certificate or certificates representing that number of shares of the Common Stock which is equal to one-half (1/2) of the Earned Restricted Shares Amount shall be issued in the Recipient's name as of March 15, 2002, and as soon as reasonably practical after the delivery by the Recipient to the Corporation of a stock power signed in blank by the Recipient with respect to such Restricted Shares and in a form which is acceptable to the Corporation which may be used by the Corporation to cancel such Restricted Shares in accordance with the provisions of the Plan and this Agreement. Upon issuance of the certificate or certificates for such Restricted Shares, the Recipient shall be a stockholder with respect to such Restricted Shares and shall have all the rights of a stockholder with respect to such Restricted Shares, including but not limited to, the right to vote such Restricted Shares and to receive dividends and other distributions paid with respect to such Restricted Shares. The certificate or certificates representing such Restricted Shares, together with the executed stock power, shall be held in custody by the Corporation or an agent therefor pursuant to the provisions of the Plan for the account of the Recipient. 4. Payment of Cash in Lieu of Issuance of Restricted Shares. In the event that the Recipient is deemed to have earned any Restricted Shares pursuant to the provisions of Section 2 hereof, the Corporation shall pay to the Recipient on each of January 2, 2003, 2004 and 2005 an amount in cash (in lieu of the issuance of Restricted Shares) equal to the product of (i) one-sixth (1/6th) of the Earned Restricted Shares Amount multiplied by (ii) the Market Price of the Common Stock on such date (hereinafter referred to as a "Restricted Payment"). As used herein, the term "Market Price" shall mean (x) if the Common Stock is Duly Listed, the closing price of the Common Stock on the date in question as reported on either a national securities exchange or on The Nasdaq Stock Market or, if there were no sales on that date, on the next preceding day on which there were sales or (y) if the Common Stock is not Duly Listed, the fair market value of the Common Stock on the date in question as determined by the Committee in good faith. 5. Restrictions. The Restricted Units awarded pursuant to this Agreement and any Restricted Shares or Restricted Payments which may be deemed to be earned or owing with respect thereto shall be subject to the following terms and conditions (the "Restrictions"): (i) the Recipient shall not be entitled to delivery of a certificate representing the Restricted Shares until the Restrictions pertaining thereto shall be terminated pursuant to either Sections 6 or 7 hereof; (ii) none of the Restricted Units may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of; (iii) none of the Restricted Shares may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of until the Restrictions pertaining thereto shall be terminated pursuant to either Sections 6 or 7 hereof; (iv) all of the Restricted Units shall be forfeited and cancelled and all rights of the Recipient to such Restricted Units and any Restricted Shares or Restricted Payments which may be deemed to be earned or owing with respect thereto shall terminate without further obligation on the part of the Corporation in the event that the Recipient ceases to be an Employee for any reason prior to January 2, 2002, for any reason; (v) all of the Restricted Shares which are issued pursuant to Section 3 hereof shall be forfeited and cancelled and the Recipient shall have no further rights whatsoever with respect thereto in the event the Recipient ceases to be an Employee prior to January 2, 2003, for any reason other than a reason set forth in Section 7 hereof; (vi) two-thirds (2/3rds) of any Restricted Shares which are issued pursuant to Section 3 hereof shall be forfeited and cancelled and the Recipient shall have no further rights whatsoever with respect thereto in the event the Recipient ceases to be an Employee prior to January 2, 2004, for any reason other than a reason described in Section 7 hereof; (vii) one-third (1/3rd) of any Restricted Shares which are issued pursuant to Section 3 hereof shall be forfeited and cancelled and the Recipient shall have no further rights whatsoever with respect thereto in the event the Recipient ceases to be an Employee prior to January 2, 2005, for any reason other than a reason described in Section 7 hereof; (viii) any right of the Recipient to receive any Restricted Payments pursuant to Section 4 hereof shall be forfeited and cancelled and the Recipient shall have no further rights whatsoever with respect thereto in the event the Recipient ceases to be an Employee prior to the applicable payment date for such Restricted Payment for any reason other than a reason described in Section 7 hereof. 6. Vesting of Restricted Shares. The Restrictions respecting the Restricted Shares issued pursuant to Section 3 hereof which have not theretofore been forfeited and cancelled pursuant to Section 5 hereof shall terminate with respect to one-third (1/3rd) of such Restricted Shares on each of January 2, 2003, January 2, 2004 and January 2, 2005. 7. Termination of Restrictions upon Certain Events. The Restrictions shall terminate with respect to all of the Restricted Shares and the Restricted Payments which have not theretofore been forfeited and cancelled pursuant to Section 5 hereof upon the first to occur of the following events: (i) the death of the Recipient; (ii) the Total Disability of the Recipient; (iii) the termination of the employment of the Recipient pursuant to an Eligible Retirement; or (iv) the occurrence of a Change in Control. 8. Issuance of Stock Certificate for Vested Restricted Shares. Upon the termination of the Restrictions respecting any Restricted Shares pursuant to Section 6 hereof, the Corporation shall promptly cause a stock certificate representing such Restricted Shares to be delivered to the Recipient, free and clear of all Restrictions. 9. Accelerated Delivery of Stock Certificate and Payment of Restricted Payments. Upon the termination of the Restrictions respecting any Restricted Shares pursuant to Section 7 hereof, the Corporation shall promptly cause a stock certificate representing such Restricted Shares to be delivered to the Recipient, free and clear of all Restrictions, and shall promptly pay in cash an amount equal to the product of (i) 1/2 (if such termination occurs on or prior to January 2, 2003), 1/3 (if such termination occurs after January 2, 2003, and on or prior to January 2, 2004) or 1/6 (if such termination occurs after January 2, 2004) of the Earned Restricted Shares Amount multiplied by (ii) the Market Price of the Common Stock on the date of such termination. 10. Compliance with Law. No Restricted Shares shall be issued pursuant to this Agreement unless said issuance is in compliance with applicable federal and state tax and securities laws. 10.1. Certificate Legends. The certificates for Restricted Shares issued pursuant to this Agreement shall bear any legends deemed necessary or appropriate by the Corporation. 10.2. Representations of the Recipient. At the request of the Corporation, the Recipient will deliver to the Corporation such signed representations as may be necessary, in the opinion of counsel satisfactory to the Corporation, for compliance with applicable federal and state securities laws. 10.3. Resale. In addition to the restrictions contained in the Plan, the Recipient's ability to transfer Restricted Shares issued pursuant to this Agreement or securities acquired in lieu thereof or in exchange therefor may be restricted under federal or state securities laws. The Recipient shall not resell or offer for resale such Restricted Shares or securities unless they have been registered or qualified for resale under all applicable federal and state securities laws or an exemption from such registration or qualification is available in the opinion of counsel satisfactory to the Corporation. 11. Notice. Every notice or other communication relating to this Agreement shall be in writing and shall be mailed or delivered to the party for whom it is intended at such address as may from time to time be designated by such party in a notice mailed or delivered to the other party as herein provided; provided, however, that unless and until some other address be so designated, all notices or communications by the Recipient to the Corporation shall be mailed or delivered to the Corporation to the attention of its Secretary at 800 E. Northwest Highway, Des Plaines, Illinois 60016, and all notices or communications by the Corporation to the Recipient may be given to the Recipient personally or may be mailed to the Recipient at the most recent address which the Recipient has provided in writing to the Corporation. 12. Tax Treatment. The Recipient acknowledges that the tax treatment respecting the Restricted Shares issued pursuant to this Agreement or any events or transactions with respect thereto may be dependent upon various factors or events which are not determined by the Plan or this Agreement. The Corporation makes no representations to the Recipient with respect to and hereby disclaims all responsibility as to such tax treatment. 13. Withholding Taxes. The Corporation shall have the right to deduct from the amount of any Restricted Payment an amount sufficient to satisfy any federal, state or local withholding tax requirement. The Corporation shall have the right to require the Recipient to remit to the Corporation an amount sufficient to satisfy any federal, state or local withholding tax requirement prior to the issuance or delivery of any Restricted Shares to the Recipient. The Corporation will notify the Recipient of the amount of the withholding tax which must be paid under federal and, where applicable, state and local law. Upon receipt of such notice, the Recipient shall promptly remit to the Corporation the amount specified in such notice. No amounts of income received by the Recipient pursuant to this Agreement shall be considered compensation for purposes of any pension or retirement plan, insurance plan or any other employee benefit plan of the Corporation or any subsidiary. 14. Effect on SERP. The Corporation and the Recipient agree that neither the value of any shares of Common Stock issued, nor the amount of any cash paid, to the Recipient pursuant to this Agreement shall be included in the definition of "Compensation" under the Littelfuse, Inc. Supplemental Executive Retirement Plan. 15. Change in Control. The Corporation and the Recipient agree that Oaktree Capital Management, LLC and its affiliates shall be deemed to be exempt from the provisions of subparagraph (d) of the definition of "Change in Control" under the Plan. IN WITNESS WHEREOF, the Corporation and the Recipient have executed this Restricted Shares Agreement effective as of the date first set forth above. LITTELFUSE, INC. RECIPIENT: By_________________________________ __________________________________ Its_________________________________ EXHIBIT A ------------- ------------- ------------- -------------- ------------- ------------- 15% and over 60% 68% 76% 84% 92% 100% ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- >14< 15% 52% 60% 68% 76% 84% 92% - ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- EBITDA >13< 14% 44% 52% 60% 68% 76% 84% - GROWTH ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- >12< 13% 36% 44% 52% 60% 68% 76% - ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- >11< 12% 28% 36% 44% 52% 60% 68% - ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- >10< 11% 20% 28% 36% 44% 52% 60% - ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- >14< 15% >15< 16% >16< 17% >17< 18% >18< 19% 19% and - - - - - over AVERAGE RONTA
EX-13 4 13.1 - PORTIONS OF LITTELFUSE, INC. ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations THE FOLLOWING DISCUSSION PROVIDES AN ANALYSIS OF THE INFORMATION CONTAINED IN THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES BEGINNING ON PAGE 24 FOR THE THREE FISCAL YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3, 1998, RESPECTIVELY. CURRENT YEAR HIGHLIGHTS Sales increased 10% in 1999 to $296.4 million and diluted earnings per share increased 35% to $1.16. Strengthening electronic demand contributed significantly to the sales growth and successful cost reduction programs as well as higher unit volume increased gross margin and earnings. During the year, the Company completed its acquisition of the Suppression Products Group. This acquisition of overvoltage products complements the current line of overcurrent products to broaden the Company's offering of circuit protection. RESULTS OF OPERATIONS--1999 COMPARED WITH 1998 Sales increased 10% to $296.4 million in 1999 from $269.5 million in 1998. Of the $26.9 million sales increase during 1999, $8.0 million was attributable to sales of suppression products since the date of the acquisition. Electronic sales increased $21.1 million or 16% to $154.1 million in 1999 compared to $133.1 million in 1998, due primarily to strength in the Asia-Pacific region. Automotive sales increased $4.6 million or 5% to $101.3 million in 1999 compared to $96.7 million in 1998 reflecting growth in the OEM markets in all regions of the world. Power fuse sales increased $1.2 million or 3% to $41.0 million in 1999 compared to $39.8 million in 1998. Led by Asia-Pacific and European sales growth, international sales increased by 18% in 1999 to 46.1% of net sales in 1999 from 43.0% of net sales in 1998. Gross profit was $117.3 million or 39.6% of sales for 1999 compared to $100.2 million or 37.2% of sales for 1998. The gross margin increase resulted from successful worldwide cost reductions, increasing unit volumes during the year and firming of selling prices in the last half of 1999. Selling, general and administrative expenses increased $5.2 million to 18.9% of sales in 1999 in line with 18.9% of sales in 1998. Research and development costs increased $1.1 million to 3.2% of sales in 1999 as compared to 3.1% of sales in 1998 due to continued focus on development of new products. Amortization of reorganization value and other intangibles was $7.1 million or 2.4% of sales for 1999 compared to $6.8 million or 2.5% of sales for the prior year. Total operating expenses, including intangibles amortization, were 24.5% of sales for both years. Operating income for 1999 increased to $44.6 million or 15.1% of sales compared to $34.1 million or 12.6% of sales for the prior year as a result of the factors discussed above. Interest expense was $5.3 million for 1999 compared to $4.0 million for 1998 due to higher average debt levels. Other income, net, consisting of interest income, royalties, minority interest and foreign currency items was $1.3 million compared to other expense of $0.1 million for the prior year. The increase in other income was primarily the result of higher interest income in the year. Income before taxes was $40.7 million in 1999 compared to $30.0 million in 1998. Income tax expense was $15.5 million in 1999 compared to $10.1 million the prior year. Net income for the year was $25.2 million, compared to $19.9 million for the prior year. The Company's effective tax rate was 38.0% in 1999 compared to 33.7% in 1998. The lower effective tax rate in 1998 was due to a one-time benefit related to the liquidation of one of the Company's subsidiaries in Korea. Diluted earnings per share increased 35% to $1.16 in 1999 compared to $0.86 in 1998. A 6% decline in average shares outstanding in 1999 as compared to the prior year, due to the Company's repurchase of common stock, contributed favorably to the increase in earnings per share. 1998 COMPARED WITH 1997 Sales decreased 2% to $269.5 million in 1998 from $275.2 million in 1997. The gross margin was 37.2% compared to 40.4% the prior year and operating income was 12.7% of net sales compared to 15.9% the prior year. Net income decreased 22% to $19.9 million in 1998 from $25.3 million in 1997 and diluted earnings per share decreased 20% to $0.86 in 1998 from $1.07 in 1997. Sales decreased $5.6 million during 1998. Sales declined both in the automotive and electronic markets, with a modest increase in power fuse sales. Automotive sales decreased $5.5 million or 5% to $96.7 million in 1998 compared to $102.1 million in 1997. Automotive sales were down domestically as a result of the continued phase-out of electromechanical products and the absence of any product fixes by the automotive OEM's in 1998. Electronic sales decreased $1.9 million or 1% to $133.1 million in 1998 compared to $135.0 million in 1997. The electronics business was down due in part to continued inventory reductions at North American distributors, weakness in Japan and greater than historical selling price declines. Power fuse sales increased $1.8 million or 5% to $39.8 million in 1998 compared to $38.0 million in 1997. Led by European sales increases, international sales increased by 4% in 1998 to 43.0% of net sales in 1998 from 40.6% of net sales in 1997. On a constant currency basis, electronic and power fuse sales increased 3% and 5%, respectively, automotive sales decreased 4% and consolidated sales were flat. Gross profit was $100.2 million or 37.2% of sales for 1998 compared to $111.1 million or 40.4% of sales for 1997. The gross margin decline resulted from greater than historical selling price reductions, lower volumes than anticipated and costs associated with the introduction of new products in 1998. Selling, general and administrative expenses decreased $1.3 million to 18.9% of sales in 1998 as compared to 19.0% of sales in 1997 as a result of the decline in sales and favorable expense control during 1998. Research and development costs increased $0.5 million to 3.1% of sales in 1998 as compared to 2.9% of sales in 1997 due to the continued development of new products. Amortization of reorganization value and other intangibles was $6.8 million or 2.5% of sales for 1998 compared to $7.2 million or 2.6% of sales in the prior year. Total operating expenses, including intangibles amortization, were 24.5% of sales for both years. Operating income for 1998 was $34.1 million or 12.7% of sales compared to $43.8 million or 15.9% of sales the prior year. The decline in operating margin resulted from decreases in gross margin. Interest expense was $4.0 million for 1998 compared to $4.1 million for 1997. Other expense, net, consisting of royalties, minority interest adjustments and foreign currency items was $0.1 million compared to other income of $1.0 million the prior year. Also included in other expense in 1998 were charges related to the liquidation of Sam Hwa Littelfuse amounting to approximately $0.4 million. Income before taxes was $30.0 million in 1998 compared to $40.7 million in 1997. Income tax expense was $10.1 million in 1998 compared to $15.3 million the prior year. The Company's effective tax rate was 33.7% in 1998 compared to 37.7% in 1997. The decrease in income tax expense resulted from lower income before taxes as well as a one-time benefit of $1.1 million related to the liquidation of Sam Hwa Littelfuse. Net income for the year was $19.9 million in 1998 compared to $25.3 million the prior year. Diluted earnings per share decreased to $0.86 in 1998 compared to $1.07 in 1997. LIQUIDITY AND CAPITAL RESOURCES Assuming no material adverse changes in market conditions, management expects that the Company will have sufficient cash from operations to support both its operations and its debt obligations for the foreseeable future. The Company started 1999 with $28.0 million of cash. Net cash provided by operations was $38.9 million for the year. Cash used in investing activities included $20.0 million in property, plant and equipment and $24.8 million for the Harris Corporation's Suppression Products Group acquisition. Cash used in financing activities included net payments of long-term debt of $9.1 million. The Company utilized borrowings under its revolving loan facility to finance the purchase of Harris Corporation's Suppression Products Group and had $6.0 million of this short-term debt remaining as of January 1, 2000. This left the Company with $49.0 million of borrowing capability under the revolving loan facility as of January 1, 2000. The repurchase of the Company's common stock for $12.8 million was partially offset by cash proceeds from the exercise of stock options and conversion of warrants of $1.6 million. The effect of exchange rate changes increased cash by $0.2 million. The net of cash provided by operations, less investing activities, less financing activities, plus the effect of exchange rates resulted in a $26.1 million net decrease in cash. This left the Company with a cash balance of $1.9 million at the end of 1999. Net working capital used $8.4 million of cash flow from operations in 1999. Increases in accounts receivable of $14.3 million, inventory of $8.9 million and other asset and liability changes of $0.1 million were offset by an increase in accounts payable and accrued expenses of $14.9 million. Contributing to the increase in working capital in 1999 was an increase in sales as well as some information systems migration difficulties, which the Company is addressing. Increased focus has been placed on working capital management and improvements are expected in 2000. The Company started 1998 with $0.8 million of cash. Net cash provided by operations was $39.3 million for the year. Cash used to invest in property, plant and equipment was $21.3 million, to invest in product acquisitions for electrostatic discharge devices and medium voltage power fuses was $2.8 million and to make a non-compete payment was $0.2 million. Cash provided by financing activities included net proceeds of long-term debt of $33.9 million due to a $60.0 million private placement of new senior notes and renegotiation of the existing bank credit agreement. The available $55.0 million revolving loan facility was unused as of January 2, 1999. The purchase of the Company's common stock for $26.8 million was partially offset by cash proceeds from the exercise of stock options and conversion of warrants of $6.3 million. The effect of exchange rate changes decreased cash by $1.1 million. The net of cash provided by operations, less investing activities, less financing activities, plus the effect of exchange rates resulted in a $27.2 million net increase in cash. This left the Company with a cash balance of $28.0 million at the end of 1998. Net working capital used $2.8 million of cash flow from operations for 1998. Lower inventory and prepaid and other items were the primary cash providers, offset by an increase in accounts receivable and a decrease in accounts payable. The Company's capital expenditures were $20.0 million in 1999, $21.3 million in 1998 and $18.9 million in 1997. The Company expects that capital expenditures will be approximately $22.0 to $23.0 million in 2000. The primary purposes for capital expenditures in 2000 will be for new product tooling and production equipment. As in 1999, capital expenditures in 2000 are expected to be financed by cash flow from operations. The Company decreased total debt by $9.1 million in 1999, after increasing debt by $33.9 million in 1998 and decreasing debt by $5.2 million in 1997. The Company is required to repay $15.0 million of long-term debt in 2000. In May of 1999, the Company's Board of Directors authorized the Company to repurchase up to 1,000,000 shares of its common stock or 1,000,000 of its warrants, or any combination not to exceed 1,000,000 shares of common stock or warrants, from time to time, depending on market conditions. The Company repurchased 707,500 common shares for $12.8 million in 1999, 1,345,000 common shares for $26.8 million in 1998 and 210,000 warrants and 205,000 common shares for $8.6 million in 1997. As of January 1, 2000, the Company had over 800,000 shares remaining for repurchase under the Board of Directors authorization expiring in May of 2000. Earnings before interest, taxes, depreciation, amortization and other income and expense (EBITDA) increased 25% to $70.2 million in 1999 from $56.3 million in 1998. EBITDA decreased 12% to $56.3 million in 1998 from $64.1 million in 1997. Net working capital (working capital less cash and the current portion of long-term debt) as a percent of sales was 20.2% at year-end 1999 compared to 17.3% at year-end 1998 and to 15.1% at year-end 1997. The increase in net working capital was due in part to the increase in days sales outstanding in accounts receivable to approximately 68 days at year-end 1999 compared to 61 days at year-end 1998 and 55 days at year-end 1997. The increase in days sales outstanding in 1999 was due primarily to difficulties experienced with the migration to new information systems as indicated above. Additionally, the trend towards a higher percentage of international sales with longer standard terms than domestic sales has contributed to the increase in days sales outstanding over the last several years. The ratio of current assets to current liabilities was 1.5 to 1 at year-end 1999 compared to 2.1 to 1 at year-end 1998 and 1.6 to 1 at year-end 1997. The ratio of long-term debt to equity was 0.5 to 1 at year-end 1999 compared to 0.6 to 1 at year-end 1998 and 0.3 to 1 at year-end 1997. 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 1, 2000 in the form of Senior Notes and lines of credit at both variable and fixed interest rates. Since substantially all of the debt has fixed interest rates, the Company's interest expense is not 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, England, Ireland, Switzerland, South Korea, China and the Philippines. During 1999, sales exported from the United States or manufactured abroad accounted for 46.1% of total sales. Substantially all sales in Europe are denominated in Dutch Guilders, British Pounds Sterling, United States Dollars and Euros and substantially all sales in the Asia-Pacific region are denominated in United States Dollars 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. 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 and financial results. Other than utilizing netting and offsetting intercompany account management techniques to reduce known exposures, the Company does not use derivative financial instruments to mitigate its foreign currency risk at the present time. The Company uses various metals in the production of its products, including zinc, copper and silver. 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. YEAR 2000 As of July 3, 1999, the Company had completed 100% of the remediation phase for its mission critical information technology, operating equipment systems and external interface exposures. The Company has not experienced any difficulties with its information technology, operating equipment systems, or external interfaces related to the year 2000 transition. In addition, the Company has not experienced any difficulties with its significant suppliers. The Company believes that the foregoing statements are in conformity with the Year 2000 Information and Readiness Disclosure Act (Public Law 105-271, 112 Stat. 2386), and all of the foregoing statements are designated as Year 2000 Readiness Disclosures thereunder. The protection of this act does not apply to federal securities fraud. OUTLOOK Continued sales growth is expected in 2000, fueled in part by sales of products introduced in 1999 and 2000 and continued increases in electronic product sales. A full year of sales in 2000 of suppression products resulting from the acquisition of the Suppression Products Group in October of 1999 is expected to contribute to increases over 1999. The Company will continue to identify and implement cost reduction opportunities in 2000. These efforts are expected to help offset selling price pressure from customers. The development of new products, global expansion, and reinvestment continue to be the Company's long-term growth strategy. The Company intends to continue its commitment to funding research and development, international market development, and investments in capital equipment and operations improvements. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The statements under "Outlook," "Year 2000" and the other statements 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, year 2000 issues discussed above, capacity and supply constraints or difficulties, exchange rate fluctuations, actual purchases under agreements, the effect of the Company's accounting policies, 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 Littelfuse, Inc. We have audited the consolidated statements of financial condition of Littelfuse, Inc. and subsidiaries as of January 1, 2000, and January 2, 1999, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended January 1, 2000. 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 1, 2000 and January 2, 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 1, 2000, in conformity with accounting principles generally accepted in the Unites States. /s/ Ernst & Young LLP Chicago, Illinois February 11, 2000 Littelfuse, Inc. and Subsidiaries Consolidated Statements of Financial Condition January 1, 2000 January 2, 1999 ------------------------------------ (In Thousands) Assets Current assets: Cash and cash equivalents $ 1,888 $ 27,961 Accounts receivable, less allowances (1999 - $ 7,121; 1998 - $5,885) 59,583 41,382 Inventories 48,916 36,209 Deferred income taxes 5,265 2,456 Prepaid expenses and other current assets 3,485 3,090 ------------------------------------ ------------------------------------ Total current assets 119,137 111,098 Property, plant, and equipment: Land 8,370 6,753 Buildings 28,636 25,682 Equipment 157,296 131,136 ------------------------------------ 194,302 163,571 Less: Allowances for depreciation and amortization 102,511 85,783 ------------------------------------ ------------------------------------ 91,791 77,788 Intangible assets, net of amortization: Reorganization value in excess of amounts allocable to identifiable assets 33,943 37,814 Patents and licenses 4,356 6,522 Distribution network 5,918 6,412 Trademarks 3,022 3,275 Other 16,274 5,940 ------------------------------------ 63,513 59,963 Other assets 1,257 1,695 ------------------------------------ $275,698 $250,544 ====================================
Littelfuse, Inc. and Subsidiaries Consolidated Statements of Financial Condition (continued) January 1, 2000 January 2, 1999 ------------------------------------ (In Thousands) Liabilities and shareholders' equity Current liabilities: Accounts payable $ 19,075 $ 9,926 Accrued payroll 14,167 12,555 Accrued expenses 14,596 7,929 Accrued income taxes 9,403 6,042 Current portion of long-term debt 20,974 15,515 ------------------------------------ ------------------------------------ Total current liabilities 78,215 51,967 Long-term debt, less current portion 55,460 70,061 Deferred income taxes 4,490 3,951 Other long-term liabilities 501 41 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, 1999 - 19,489,143; 1998 - 20,023,520 195 200 Additional paid-in capital 55,241 55,537 Notes receivable - Common stock (2,909) (2,772) Accumulated other comprehensive loss (5,642) (3,726) Retained earnings 90,147 75,285 ------------------------------------ 137,032 124,524 ------------------------------------ $275,698 $250,544 ==================================== See accompanying notes.
Littelfuse, Inc. and Subsidiaries Consolidated Statements of Income Year ended Year ended Year ended January 1, January 2, January 3, 2000 1999 1998 -------------------------------------------------------- (In Thousands, Except per Share Amounts) Net sales $296,367 $269,540 $275,165 Cost of sales 179,112 169,341 164,034 -------------------------------------------------------- -------------------------------------------------------- Gross profit 117,255 100,199 111,131 Selling, general and administrative expenses 56,098 50,936 52,226 Research and development expenses 9,455 8,387 7,927 Amortization of intangibles 7,078 6,780 7,210 -------------------------------------------------------- Operating income 44,624 34,096 43,768 Interest expense 5,253 3,989 4,103 Other expense/(income), net (1,306) 98 (987) -------------------------------------------------------- -------------------------------------------------------- Income before income taxes 40,677 30,009 40,652 Income taxes 15,457 10,124 15,310 ======================================================== Net income $ 25,220 $ 19,885 $ 25,342 ======================================================== ======================================================== Net income per share: Basic $ 1.29 $ 0.97 $ 1.28 Diluted $ 1.16 $ 0.86 $ 1.07 ======================================================== Weighted-average shares and equivalent shares outstanding: Basic 19,572 20,474 19,824 Diluted 21,751 23,154 23,623 ======================================================== See accompanying notes.
Littelfuse, Inc. and Subsidiaries Consolidated Statements of Shareholders' Equity Period from December 28, 1996 to January 1, 2000 Notes Accumulated Additional Receivable - Other Common Paid-In Common Stock Comprehensive Retained Stock Capital Income/(Loss) Earnings Total ----------------------------------------------------------------------------------- (In Thousands) ----------------------------------------------------------------------------------- Balance at December 28, 1996 198 54,569 (1,470) (870) 56,195 108,622 Comprehensive income: Net income for the year - - - - 25,342 25,342 Foreign currency translation adjustment - - - (3,897) - (3,897) ----------------- Comprehensive income 21,445 Stock options and warrants exercised 3 2,567 (490) - - 2,080 Purchase of 205,000 shares of common stock (2) (720) - - (4,044) (4,766) Redemption of 210,250 warrants - (3,876) - - - (3,876) ----------------------------------------------------------------------------------- Balance at January 3, 1998 199 52,540 (1,960) (4,767) 77,493 123,505 Comprehensive income: Net income for the year - - - - 19,885 19,885 Foreign currency translation adjustment - - - 1,041 - 1,041 ----------------- Comprehensive income 20,926 Stock options and warrants exercised 15 7,693 (812) - - 6,896 Purchase of 1,345,300 shares of common stock (14) (4,696) - - (22,093) (26,803) ----------------------------------------------------------------------------------- Balance at January 2, 1999 200 $55,537 $(2,772) $(3,726) $75,285 $124,524 Comprehensive income: Net income for the year - - - - 25,220 25,220 Foreign currency translation adjustment - - - (1,916) - (1,916) ----------------- Comprehensive income 23,304 Stock options and warrants exercised 2 2,172 (137) - - 2,037 Purchase of 707,500 shares of common stock (7) (2,468) - - (10,358) (12,833) =================================================================================== Balance at January 1, 2000 195 $55,241 $(2,909) $(5,642) $90,147 $137,032 =================================================================================== See accompanying notes
Littelfuse, Inc. and Subsidiaries Consolidated Statements of Cash Flows Year ended Year ended Year ended January 1, January 2, January 3, 2000 1999 1998 ------------------------------------------- (In Thousands) Operating activities Net income $25,220 $19,885 $25,342 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 18,461 15,426 13,184 Amortization of intangibles 7,078 6,780 7,210 Provision for bad debts 614 626 410 Deferred income taxes (3,922) (896) 215 Other (225) 326 (159) Changes in operating assets and liabilities: Accounts receivable (14,323) (3,218) (3,331) Inventories (8,850) 3,610 (8,281) Accounts payable and accrued expenses 14,915 (4,992) 1,950 Prepaid expenses and other (117) 1,757 217 ------------------------------------------- Net cash provided by operating activities 38,851 39,304 36,757 Investing activities Purchases of property, plant, and equipment, net (19,975) (21,320) (18,936) Purchase of business, net of cash acquired (24,754) (2,751) (5,268) Other (56) (249) (357) ------------------------------------------- Net cash used in investing activities (44,785) (24,320) (24,561) Financing activities Proceeds (payments) of long-term debt, net (9,132) 33,851 (5,192) Proceeds from exercise of stock options and warrants 1,645 6,308 1,055 Purchases of common stock and redemption of warrants (12,833) (26,803) (8,642) ------------------------------------------- Net cash provided by (used in) financing activities (20,320) 13,356 (12,779) Effect of exchange rate changes on cash 181 (1,134) (89) ------------------------------------------- ------------------------------------------- Increase (decrease) in cash and cash equivalents (26,073) 27,206 (672) Cash and cash equivalents at beginning of year 27,961 755 1,427 --------------- =========================================== Cash and cash equivalents at end of year $1,888 $27,961 $ 755 =========================================== See accompanying notes.
Littelfuse, Inc. and Subsidiaries Notes to Consolidated Financial Statements January 1, 2000 and January 2, 1999 1. Summary of Significant Accounting Policies and Other Information Nature of Operations Littelfuse, Inc. and its subsidiaries (the Company) design, manufacture, and sell fuses and other circuit protection devices for use in the automotive, electronic, and general industrial markets throughout the world. The Company also manufactures and supplies relays, switches and circuit breakers. Fiscal Year The Company's fiscal years ended January 1, 2000 and January 2, 1999, contained 52 weeks. The Company's fiscal year ended January 3, 1998, contained 53 weeks. Principles of Consolidation The consolidated financial statements include the accounts of Littelfuse, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Cash Equivalents All highly liquid investments, with a maturity of three months or less when purchased, are considered to be cash equivalents. Fair Value of Financial Instruments The Company's financial instruments include cash and cash equivalents, accounts receivable, and long-term debt. The carrying values of such financial instruments approximate their estimated fair values. 1. Summary of Significant Accounting Policies and Other Information (continued) 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 and consistently have been within management's expectations. Inventories Inventories are stated at the lower of cost (first in, first out method) or market, which approximates current replacement cost. 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 Reorganization value in excess of amounts allocable to identifiable assets and trademarks are amortized using the straight-line method over 20 years. Patents are amortized using the straight-line method over their estimated useful lives, which average approximately 10 years. The distribution network is amortized using an accelerated method over 20 years. Licenses are amortized using an accelerated method over their estimated useful lives, which average approximately 9 years. Other intangible assets consist principally of goodwill that is being amortized over 10 to 20 years. Accumulated amortization of these intangible assets was $53.2 million at January 1, 2000 and $46.1 million at January 2, 1999. If there are indicators that an asset may be impaired, the Company assesses recoverability from future operations using undiscounted cash flows of the related business as a measure. Under this approach, the carrying value of the intangible asset would be reduced to a fair value if the Company's best estimate for expected undiscounted future cash flows of the related business would be less than the carrying amount of the intangible asset over its remaining amortization period. Revenue Recognition Sales and associated costs are recognized when products are shipped to customers. Advertising Costs The Company expenses advertising costs as incurred which amounted to $2.6 million in 1999, $2.6 million in 1998 and $2.8 million in 1997. 1. Summary of Significant Accounting Policies and Other Information (continued) Foreign Currency Translation The financial statements of foreign entities have been translated in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation," and, accordingly, unrealized foreign currency translation adjustments are reflected as a component of shareholders' equity. Stock-Based Compensation Under the provisions of 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." 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. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. Comprehensive Income In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. The Company adopted SFAS 130 for fiscal 1998. The Company has chosen to disclose comprehensive income, which encompasses net income and foreign currency translation adjustments, in the consolidated statements of shareholders' equity. Prior years have been restated to conform to SFAS 130 requirements. 1. Summary of Significant Accounting Policies and Other Information (continued) Business Segment Disclosure In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards for the way in which public business enterprises report information about operating segments in annual financial statements and interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company adopted SFAS 131 for fiscal 1998. (See Note 8.) Reclassifications Certain amounts in the 1997 financial statements have been reclassified to conform with the 1999 and 1998 financial statement presentation. 2. Acquisition of Business and Liquidation On May 30, 1997, the Company invested $5.3 million in exchange for a 97% interest in Samjoo Elec. Ind. Co. Ltd., a Korean fuse manufacturer, now doing business as Littelfuse Triad. 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. Goodwill arising from this acquisition of approximately $2.9 million is being amortized over 20 years. Pro forma results of operations, assuming this acquisition had occurred as of December 29, 1996, would not differ materially from reported results of operations. During the year ended January 2, 1999, the Company made two acquisitions for approximately $2.8 million. The acquisitions have been accounted for through the use of the purchase method of accounting; accordingly, the accompanying financial statements include the results of operations since the acquisition dates. Goodwill arising from these acquisitions of approximately $2.6 million is being amortized over 10 years. Pro forma results of operations, assuming these acquisitions had occurred as of December 29, 1996, would not differ materially from reported results of operations. In March 1998, the Company consolidated its Korean operations into Littelfuse Triad. Pursuant to the consolidation, the Company incurred costs of approximately $400,000 to liquidate Sam Hwa Littelfuse, Inc. On October 19, 1999, the Company acquired Harris Corporation's Suppression Products Group for $ 24.8 million in cash. The Suppression Products Group manufactures and markets a broad line of transient voltage suppression devices that provide circuit protection for products in numerous markets including consumer, computer, telecommunications, automotive, office equipment, industrial and power transmission. 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 $7.4 million, inventory of $4.6 million, property, plant and equipment of $12.7 million, other assets of $0.4 million, goodwill of $4.8 million and liabilities assumed of $5.1 million. Purchase accounting liabilities recorded during 1999 consist of $0.5 million for transaction costs and $5.7 million for costs associated with exiting a product line and involuntary termination of employees in connection with the integration of the business. Goodwill arising from this acquisition of approximately $ 11.0 million is being amortized over 20 years. Pro forma results of operations, assuming that this acquisition had occurred as of January 4, 1998, pro forma sales of Littelfuse, Inc. would have been $328.3 million in 1999 and $311.9 million in 1998 and pro forma results of operations would not differ materially from reported results of operations. 3. Inventories The components of inventories are as follows at January 1, 2000, and January 2, 1999 (in thousands): 1999 1998 --------------------------------------- --------------------------------------- Raw materials $ 12,684 $ 9,800 Work in process 14,854 5,338 Finished goods 21,378 21,071 --------------------------------------- ======================================= $48,916 $36,209 =======================================
4. Long-Term Obligations The carrying amounts of long-term debt, which approximate fair value, are as follows at January 1, 2000, and January 2, 1999 (in thousands): 1999 1998 ------------------------------------ ------------------------------------ 6.16% Senior Notes, maturing 2005 $55,000 $60,000 6.31% Senior Notes, maturing 2000 9,000 18,000 Revolving credit facility 6,000 - Other obligations 4,964 5,539 Capital lease obligations 1,470 2,037 ------------------------------------ 76,434 85,576 Less: Current maturities 20,974 15,515 ==================================== $55,460 $70,061 ====================================
The Company has unsecured financing arrangements consisting of Senior Notes with insurance companies and a credit agreement with banks that provides a $55.0 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 31, 2002. At January 1, 2000, the Company had available $49.0 million of borrowing capability under the revolving credit facility at an interest rate of LIBOR plus 0.375%. The bank credit agreement provides for letters of credit of up to $8.0 million as part of the available credit line. At January 1, 2000 the Company had $1.8 million of outstanding letters of credit. 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. Aggregate maturities of long-term obligations at January 1, 2000, are as follows (in thousands): 2000 $20,974 2001 14,475 2002 10,063 2003 10,063 2004 and thereafter 20,859 ================== $76,434 ==================
Interest paid on long-term debt approximated $4.9 million in 1999, $3.8 million in 1998 and $4.0 million in 1997. 5. 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 monthly 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's contributions are made in amounts sufficient to satisfy ERISA funding requirements. In 1998, the Company adopted SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits." The statement standardizes the disclosure requirements for pensions and other postretirement benefits. 1999 1998 ------------------------------------ (In Thousands) Change in benefit obligation Benefit obligation at beginning of year $45,487 $41,649 Service cost 2,264 1,942 Interest cost 3,015 2,822 Actuarial loss/(gain) (4,760) 1,155 Benefits paid (1,902) (2,081) ==================================== Benefit obligation at end of year $44,104 $45,487 ==================================== Change in plan assets at fair value Plan assets at beginning of year $44,363 $39,703 Actual return on plan assets 5,050 6,041 Employer contributions - 700 Benefits paid (1,902) (2,081) ==================================== Fair value of plan assets at end of year $47,511 $44,363 ==================================== Funded status $ 3,407 $ (1,124) Unrecognized prior service cost 178 245 Unrecognized net actuarial loss/(gain) (3,910) 2,301 ==================================== Prepaid pension obligation $ (325) $ 1,422 ==================================== Weighted-average assumptions Discount 7.50% 6.75% Expected return on plan assets 9.00% 9.00% Salary growth rate 4.50% 4.50% Components of net periodic benefit cost Service cost $ 2,264 $ 1,942 Interest cost 3,015 2,822 Expected return on plan assets (3,648) (3,243) Amortization of prior service cost 66 65 Recognized net actuarial loss 50 151 ==================================== Net periodic benefit cost $ 1,747 $ 1,737 ====================================
The Company also has a defined-benefit pension plan covering most of its Ireland employees as a result of its acquisition of the Suppression Products Group in October, 1999. The amount of the retirement benefit is based on years of service and final average monthly pay. The plan also provides death benefits to the plan participants. As of January 3, 1998 the Ireland pension plan had assets in the amount of $11.1 million and liabilities in the amount of $10.4 million. The Company is in the process of obtaining a more current actuarial valuation of the Ireland plan. 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 $1,058,000, $852,000 and $853,000 in 1999, 1998 and 1997, respectively. 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 $632,000 in 1999, $547,000 in 1998 and $523,000 in 1997. 6. Shareholders' Equity Stock Split On April 29, 1997, the Company's Board of Directors approved a two-for-one stock split to stockholders of record on May 20, 1997, payable June 10, 1997, in the form of a stock dividend. All prior years' number of shares and per share amounts have been restated to reflect the stock split. Stock Purchase Warrants Warrants to purchase 2,461,309 shares of common stock at $4.18 per share were outstanding at January 1, 2000. The warrants are exercisable at the option of the holder at any time prior to December 27, 2001, and are not callable by the Company. Stock Options The Company has stock option plans authorizing the granting of both incentive and nonqualified options and other stock rights of up to 2,800,000 shares of common stock to employees and directors. The stock options vest over a five-year period and are exercisable over a ten- year period commencing from the date of vesting. A summary of stock option information follows: 1999 1998 1997 ------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Weighted-Average Exercise Price Exercise Price Exercise Price Options Options Options ------------------------------------------------------------------------------------- Outstanding at beginning of year 1,428,910 $16.91 1,361,310 $14.28 1,257,380 $10.95 Granted 367,200 19.63 311,500 24.64 274,300 25.29 Option price equals market price 352,200 20.25 311,500 24.64 274,300 25.29 Option price less than market price 15,000 5.00 - - - - Exercised (144,870) 9.34 (153,480) 6.49 (156,170) 6.70 Forfeited (62,400) 21.98 (90,420) 15.31 (14,200) 15.69 ===================================================================================== Outstanding at end of year 1,588,840 $18.02 1,428,910 $16.91 1,361,310 $14.28 ===================================================================================== ===================================================================================== Exercisable at end of year 765,960 708,818 671,126 Available for future grant 216,440 517,340 138,420 Weighted-average value of options granted during the year $12.04 $11.81 $11.16 Option price equals market price 11.79 11.81 11.16 Option price less than market price 17.75 - -
As of January 1, 2000, the Company had the following outstanding options: Weighted- Weighted- Exercise Options Average Average Options Price Outstanding Exercise Price Remaining Life Exercisable - ----------------------------------------------------------------------------------------------------------- $3.688 to $5.00 147,700 $ 4.00 3.00 129,500 $7.50 to $11.155 185,100 10.20 3.92 182,700 $11.625 to $16.50 235,600 14.84 5.03 201,920 $17.813 to $25.50 930,240 21.52 8.27 215,520 $28.875 to $34.125 90,200 28.93 7.56 36,320
Disclosure of pro forma information regarding net income and net income per share is required by SFAS 123 and has been determined as if the Company had accounted for its stock options granted in 1999, 1998, and 1997 under the fair value method using the Black-Scholes option pricing model. The following assumptions were utilized in the valuation: 1999 1998 1997 ------------------------------------------------------ Risk-free interest rate 6.52% 5.59% 6.63% Expected dividend yield 0% 0% 0% Expected stock price volatility 41.0% 30.0% 19.5% Expected life of options 8 years 8 years 8 years
Had compensation cost for the Company's stock options granted in 1999, 1998, and 1997 been determined based on the fair value at the dates of grant, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated: 1999 1998 1997 ------------------------------------------------ Pro forma net income (in thousands of dollars) $24,341 $18,710 $24,621 Pro forma basic net income per share $ 1.24 $ 0.91 $ 1.24 Pro forma diluted net income per share $ 1.12 $ 0.81 $ 1.04
The pro forma effect on net income for 1999, 1998, and 1997 is not representative of the pro forma effect on net income in future years as the pro forma disclosures reflect only the fair value of stock options granted in those years and do not reflect the fair value of outstanding options granted prior to 1996. 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 shareholder's equity. 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 and warrants. 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 $.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. 7. Income Taxes Federal, state, and foreign income tax expense (credit) consists of the following (in thousands): 1999 1998 1997 ------------------------------------------------------ Current: Federal $ 10,078 $ 4,861 $ 7,845 State 1,467 920 1,859 Foreign 6,180 5,239 5,391 ------------------------------------------------------ ------------------------------------------------------ 17,725 11,020 15,095 Deferred: Federal (1,875) (809) 5 Foreign (393) (87) 210 ------------------------------------------------------ ------------------------------------------------------ (2,268) (896) 215 ====================================================== $15,457 $10,124 $15,310 ======================================================
Domestic and foreign income before income taxes is as follows (in thousands): 1999 1998 1997 ------------------------------------------------------ Domestic $22,846 $15,337 $26,494 Foreign 17,831 14,672 14,158 ------------------------------------------------------ ====================================================== $40,677 $30,009 $40,652 ======================================================
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): 1999 1998 1997 ------------------------------------------------------ Tax expense at statutory rate of 35% $14,237 $10,503 $14,228 State and local taxes, net of federal tax benefit 904 598 1,208 Foreign income taxes (735) 68 (705) Sam Hwa Littelfuse, Inc. liquidation - (1,055) - Foreign losses for which no tax benefit is available 82 83 974 Other, net 969 (73) (395) ------------------------------------------------------ ====================================================== $15,457 $10,124 $15,310 ======================================================
Deferred income taxes are provided for the tax effects of temporary differences between the financial reporting bases and the tax bases of the Company's assets and liabilities. Significant components of the Company's deferred tax assets and liabilities at January 1, 2000 and January 2, 1999, are as follows (in thousands): 1999 1998 ------------------------------------ Deferred tax liabilities Tax over book depreciation and amortization $2,736 $4,289 Prepaid expenses 1,250 1,265 Other 887 416 ------------------------------------ ------------------------------------ Total deferred tax liabilities 4,873 5,970 Deferred tax assets Accrued expenses 5,648 3,899 Foreign net operating loss carryforwards 258 174 Other - 578 ------------------------------------ Gross deferred tax assets 5,906 4,651 Less: Valuation allowance (258) (174) ------------------------------------ Total deferred tax assets 5,648 4,477 ==================================== ==================================== Net deferred tax assets / (liabilities) $775 ($1,493) ====================================
The deferred tax asset valuation allowance is related to deferred tax assets from foreign net operating losses. The net operating loss carryforwards have no expiration date. Certain foreign net operating loss carryforwards and the related valuation allowance are no longer available due to the liquidation of Sam Hwa Littelfuse, Inc. The Company received a one-time tax benefit associated with the liquidation of approximately $1.1 million for the year ended January 2, 1999. The Company paid income taxes of $12.1 million in 1999, $11.5 million in 1998 and $14.0 million in 1997. 8. 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 power fuses. 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 year ended January 1, 2000, is as follows (in thousands): Combined Consolidated The Americas Europe Asia-Pacific Total Corporate Reconciliation Total ----------------------------------------------------------------------------------------------------- Revenues 1999 $172,122 $50,434 $73,811 $296,367 $ - $ - $296,367 1998 164,211 44,835 60,494 269,540 - - 269,540 Intersegment revenues 1999 32,250 18,884 3,883 55,017 - (55,017) - 1998 30,297 10,024 263 40,584 - (40,584) - Interest expense 1999 5,007 11 235 5,253 - - 5,253 1998 3,724 17 248 3,989 - - 3,989 Depreciation and amortization 1999 10,831 1,969 3,700 16,500 9,039 - 25,539 1998 8,495 1,459 3,417 13,371 8,835 - 22,206 Other income (loss) 1999 883 500 (77) 1,306 - - 1,306 1998 506 68 (672) (98) - - (98) Income tax expense 1999 8,967 3,706 2,784 15,457 - - 15,457 1998 4,412 3,896 1,816 10,124 - - 10,124 Net income (loss) 1999 21,007 8,156 5,101 34,264 (9,044) 25,220 1998 18,970 7,692 2,058 28,720 (8,835) - 19,885 Identifiable assets 1999 191,997 36,228 39,112 267,337 66,076 (57,715) 275,698 1998 130,981 24,282 42,658 197,921 89,619 (36,996) 250,544 Capital expenditures 1999 13,303 2,978 3,694 19,975 - - 19,975 1998 15,269 2,344 3,707 21,320 - - 21,320
Intersegment revenues and receivables are eliminated to reconcile to consolidated totals. Corporate identifiable assets consist primarily of cash and intangible assets. 8. Business Segment Information (continued) The Company's revenues by product areas for the year ended January 1, 2000 and January 2, 1999, are as follows (in thousands): Revenues 1999 1998 ------------------------------------- Electronic $154,141 $133,086 Automotive 101,270 96,685 Power 40,956 39,769 ===================================== Consolidated Total $296,367 $269,540 =====================================
Revenues from no single customer of the Company amount to 10% or more. 9. Lease Commitments The Company leases certain office and warehouse space under noncancelable operating leases, as well as certain machinery and equipment. Rental expense under these leases was approximately $0.9 million in 1999 and 1998, respectively and $1.3 million in 1997. Future minimum payments for all noncancelable operating leases with initial terms of one year or more at January 1, 2000 are as follows (in thousands): 2000 $481 2001 297 2002 145 2003 44 2004 and thereafter - ------------------ $967 ==================
10. Earnings per Share The following table sets forth the computation of basic and diluted earnings per share: 1999 1998 1997 ------------------------------------------------------ (In Thousands) Numerator: Net income $25,220 $19,885 $25,342 ====================================================== Denominator: Denominator for basic earnings per share - Weighted-average shares 19,572 20,474 19,824 Effect of dilutive securities: Warrants 1,970 2,311 3,335 Employee stock options 209 369 464 ====================================================== Denominator for diluted earnings per share - Adjusted weighted-average shares and assumed conversions 21,751 23,154 23,623 ====================================================== Basic earnings per share $ 1.29 $ 0.97 $ 1.28 ====================================================== Diluted earnings per share $ 1.16 $ 0.86 $ 1.07 ======================================================
EX-23 5 CONSENT OF INDEPENDENT AUDITORS 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 11, 2000, included in the 1999 Annual Report to Stockholders of Littelfuse, Inc. Our audits also included the financial statement schedule of Littelfuse, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, with respect to which the date is February 11, 2000, 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, 33-95020, 333-03260 and 333-64285) on Form S-8 of our report dated February 11, 2000, 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 included in this Annual Report (Form 10-K) of Littelfuse, Inc. Ernst & Young LLP Chicago, Illinois March 20, 2000 -----END PRIVACY-ENHANCED MESSAGE-----