EX-13.1 2 c60888ex13-1.txt PORTIONS OF LITTELFUSE ANNUAL REPORT 1 EXHIBIT 13.1 Selected Financial Data Five Year Summary
Year Ended 2000 1999 1998 1997 1996 Net sales $371,920 $296,367 $269,540 $275,165 $241,446 Gross profit 150,648 117,255 100,199 111,131 98,288 Operating income 61,748 44,624 34,096 43,768 37,669 Net income 37,298 25,220 19,885 25,342 21,735 Net income per share - Diluted 1.69 1.16 0.86 1.07 0.91 Net working capital 74,503 60,008 46,685 41,548 31,343 Total assets 274,378 275,698 250,544 221,885 209,951 Long-term debt 41,397 55,460 70,061 40,385 44,556 Quarterly Results of Operations (unaudited) Year Ended 2000 1999 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q Net sales $82,883 $96,362 $97,356 $95,319 $82,009 $73,292 $72,094 $68,971 Gross profit 33,329 38,739 39,350 39,230 34,098 29,317 28,053 25,787 Operating income 11,545 16,271 16,730 17,202 13,162 11,538 10,862 9,062 Net income 6,710 9,728 10,647 10,213 7,604 6,588 6,005 5,023 Net income per share: Basic 0.34 0.49 0.54 0.51 0.39 0.34 0.31 0.25 Diluted 0.31 0.44 0.48 0.46 0.35 0.30 0.28 0.23 Quarterly Stock Prices Year Ended 2000 1999 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q High 33.88 51.13 50.63 39.50 25.00 22.88 22.25 20.50 Low 24.38 29.00 30.50 21.50 20.00 18.75 17.50 16.25 Close 28.63 29.69 49.00 36.69 24.27 22.13 20.50 17.69
2 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 22 for the three fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999, respectively. Current Year Highlights Sales increased 25% in 2000 to $371.9 million and earnings per share increased 45% to $1.69. The record increases in sales and earnings were driven by electronics, where sales were up 51% due to increased demand in telecom, datacom and wireless applications. Also contributing to the electronics sales growth was the successful integration of the Suppression Products Group, acquired in October 1999. Sales of suppression products accounted for just under half of the electronics sales growth in 2000. Results of Operations--2000 Compared with 1999 Sales increased 25% to $371.9 million in 2000 from $296.4 million in 1999. Electronic sales increased $78.6 million or 51% to $232.7 million in 2000 compared to $154.1 million in 1999. The strong electronics market, driven by communications demand and continued strength in the Asia-Pacific region, resulted in record electronics sales growth. Automotive sales decreased $1.3 million or 1% to $100.0 million in 2000 compared to $101.3 million in 1999, reflecting continued aftermarket weakness and the unfavorable translation effects of a weak Euro. Electrical sales decreased $1.8 million or 4% to $39.2 million in 2000 compared to $41.0 million in 1999. Led by Asia-Pacific and European electronics sales growth, international sales increased 32.0% to $180.1 million or 48.4% of net sales in 2000 from $136.5 million or 46.1% of net sales in 1999. Gross profit was $150.6 million or 40.5% of sales for 2000 compared to $117.3 million or 39.6% of sales for 1999. The gross profit increase resulted from successful worldwide cost reductions, increasing unit volumes during the year and an improved pricing environment compared to the prior year. Selling, general and administrative expenses increased $15.0 million, representing 19.1% of sales in 2000 compared to 18.9% of sales in 1999. This increase was due primarily to higher sales and marketing expenses to support growth in electronic sales. Research and development costs increased $1.7 million, representing 3.0% of sales in 2000 as compared to 3.2% of sales in 1999, due to continued focus on development of new products. Amortization of reorganization value and other intangibles was $6.7 million or 1.8% of sales for 2000 compared to $7.1 million or 2.4% of sales for the prior year. Total operating expenses, including intangible amortization, were 23.9% of sales in 2000, compared to 24.5% of sales in 1999. Operating income for 2000 increased 38% to $61.7 million or 16.6% of sales compared to $44.6 million or 15.1% of sales for the prior year as a result of the factors discussed above. Interest expense was $4.7 million for 2000 compared to $5.3 million for 1999 due to lower average debt levels. Other income, net, consisting of interest income, royalties, minority interest and foreign currency items was $1.9 million compared to other income of $1.3 million for the prior year. The increase in other income was due to foreign currency gains and a gain from the sale of a non-core product line. Income before taxes was $59.0 million in 2000 compared to $40.7 million in 1999. Income tax expense was $21.7 million in 2000 compared to $15.5 million for the prior year. Net income for the year was $37.3 million, compared to $25.2 million for the prior year. The Company's effective tax rate was 36.8 % in 2000 compared to 38.0 % in 1999. The lower effective tax rate in 2000 was due to the increase in foreign earnings as a percent to total earnings. Diluted earnings per share increased 45% to $1.69 in 2000 compared to $1.16 in 1999. 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. Electrical 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 from 43.0% of net sales in 1998. 3 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, which was 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 intangible 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 for 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 Korean subsidiaries. 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. 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 2000 with $1.9 million in cash. Net cash provided by operations was $48.7 million for the year. Cash used in investing activities included $22.0 million in property, plant and equipment. Cash used in financing activities included net payments of long-term debt of $16.8 million. This left the Company with $55.0 million of borrowing capability under the revolving loan facility as of December 30, 2000. The repurchase of the Company's common stock for $11.2 million was partially offset by cash proceeds from the exercise of stock options and conversion of warrants of $5.8 million. The effect of exchange rate changes decreased cash by $0.9 million. The net of cash provided by operations, less investing activities, less financing activities, plus the effect of exchange rates resulted in a $3.6 million net increase in cash. This left the Company with a cash balance of $5.5 million at the end of 2000. Increases in net working capital resulted in a $14.2 million use of cash in 2000. The major factors contributing to higher working capital were a $10.8 million increase in inventory and an $8.5 million decrease in accounts payable and accrued expenses, partially offset by a $5.0 million reduction in accounts receivable. The inventory increase was primarily the result of increased sales in 2000. The reduction in accounts receivable was the result of improved collections performance. The Company started 1999 with $28.0 million in 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 4 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. The Company's capital expenditures were $22.0 million in 2000, $20.0 million in 1999 and $21.3 million in 1998. The Company expects that capital expenditures will be approximately $23 to $25 million in 2001. The primary purposes for capital expenditures in 2001 will be for new product tooling and production equipment. As in 2000, capital expenditures in 2001 are expected to be financed by cash flow from operations. The Company decreased total debt by $16.8 million in 2000, after decreasing debt by $9.1 million in 1999 and increasing debt by $33.9 million in 1998. The Company is required to repay $10.0 million of long-term debt in 2001. In two separate 1,000,000 share authorizations in May and October of 2000, the Company's Board of Directors authorized the Company to repurchase up to 2,000,000 shares of its common stock or 2,000,000 of its warrants, or any combination not to exceed 2,000,000 shares of common stock or warrants, from time to time, depending on market conditions. The Company repurchased 369,000 common shares for $11.2 million in 2000, 707,500 common shares for $12.8 million in 1999 and 1,345,300 common shares for $26.8 million in 1998. As of December 30, 2000, the Company had over 1,600,000 shares remaining for repurchase under the Board of Directors authorization expiring in May of 2001. Earnings before interest, taxes, depreciation, amortization and other income and expense (EBITDA) increased 26% to $88.5 million in 2000 compared to $70.2 million in 1999 and $56.3 million in 1998. Net working capital (working capital less cash and the current portion of long-term debt), as a percent of sales was 20.0% at year-end 2000 compared to 20.2% at year-end 1999 and 17.3% at year-end 1998. The slight decrease in net working capital was due in part to the decrease in days sales outstanding in accounts receivable to approximately 58 days at year-end 2000 compared to 68 days at year-end 1999 and 61 days at year-end 1998. The improvement in accounts receivable was partially offset by higher days inventory outstanding of 109 days at year-end 2000 compared to 94 days at year-end 1999 and 81 days at year-end 1998. The ratio of current assets to current liabilities was 2.0 to 1 at year-end 2000 compared to 1.5 to 1 at year-end 1999 and 2.1 to 1 at year-end 1998. The ratio of long-term debt to equity was 0.2 to 1 at year-end 2000 compared to 0.4 to 1 at year-end 1999 and 0.6 to 1 at year-end 1998. Market Risk The Company is exposed to market risk from changes in interest rates, foreign exchange rates and commodity prices. The Company had long-term debt outstanding at December 30, 2000 in the form of Senior Notes at 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 2000, sales exported from the United States or manufactured and sold abroad accounted for 48.4% percent of total sales. Substantially all sales in Europe are denominated in Dutch Guilders, British Pound Sterling and Euros and substantially all sales in the Asia-Pacific region are denominated in United States Dollars, Japanese Yen and South Korean Won. The Company's identifiable foreign exchange exposures result from the purchase and sale of products from affiliates, repayment of intercompany trade and loan amounts and translation of local currency amounts in consolidation of financial results. 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. The Company utilizes netting and intercompany offsets to reduce known foreign currency expenses. The Company does not use any material 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. 5 Outlook Sales for 2001 are expected to start slowly, reflecting softness in the electronics market and decreased car builds in the automotive market. However, sales are expected to increase in the second half of the year fueled by recovery in the electronics market and ramp- up of new product sales. The Company will continue to emphasize implementation of cost reduction opportunities in 2001 to help offset a more challenging market environment and 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" 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, capacity and supply constraints or difficulties, interest and exchange rate fluctuations, commodity price 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. 6 Report of Independent Auditors The Board of Directors and Shareholders of Littelfuse, Inc. We have audited the consolidated statements of financial condition of Littelfuse, Inc. and subsidiaries as of December 30, 2000 and January 1, 2000, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 30, 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 December 30, 2000 and January 1, 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the Unites States. ERNST & YOUNG LLP Chicago, Illinois January 26, 2001 7 Year Ended December 30, 2000 Consolidated Statements of Financial Condition (In Thousands)
December 30, 2000 January 1, 2000 Assets Current assets: Cash and cash equivalents $ 5,491 $ 1,888 Accounts receivable, less allowances (2000 - $9,178; 1999 - $ 7,121) 53,152 59,583 Inventories 59,272 48,916 Deferred income taxes 4,664 5,265 Prepaid expenses and other current assets 4,115 3,485 Total current assets 126,694 119,137 Property, plant, and equipment: Land 8,687 8,370 Buildings 29,650 28,636 Equipment 174,837 157,296 213,174 194,302 Less: Allowances for depreciation and amortization 120,501 102,511 92,673 91,791 Intangible assets, net of amortization: Reorganization value in excess of amounts allocable to identifiable assets 30,913 33,943 Patents and licenses 2,087 4,356 Distribution network 5,440 5,918 Trademarks 2,775 3,022 Other 13,698 16,274 54,913 63,513 Other assets 98 1,257 $ 274,378 $ 275,698 Liabilities and shareholders' equity Current liabilities: Accounts payable $ 11,066 $ 19,075 Accrued payroll 18,548 14,167 Accrued expenses 9,224 14,596 Accrued income taxes 7,862 9,403 Current portion of long-term debt 17,070 20,974 Total current liabilities 63,770 78,215 Long-term debt, less current portion 41,397 55,460 Deferred income taxes 2,153 4,490 Other long-term liabilities 331 501 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, 2000 - 19,849,894; 1999 - 19,489,143 198 195 Additional paid-in capital 60,223 55,241 Notes receivable - Common stock (3,353) (2,909) Accumulated other comprehensive loss (7,874) (5,642) Retained earnings 117,533 90,147 166,727 137,032 $ 274,378 $ 275,698
See accompanying notes. 8 Consolidated Statements of Income (In Thousands, Except per Share Amounts)
Year Ended December 30, 2000 January 1, 2000 January 2, 1999 Net sales $ 371,920 $ 296,367 $ 269,540 Cost of sales 221,272 179,112 169,341 Gross profit 150,648 117,255 100,199 Selling, general and administrative expenses 71,083 56,098 50,936 Research and development expenses 11,152 9,455 8,387 Amortization of intangibles 6,665 7,078 6,780 Operating income 61,748 44,624 34,096 Interest expense 4,652 5,253 3,989 Other expense/(income), net (1,940) (1,306) 98 Income before income taxes 59,036 40,677 30,009 Income taxes 21,738 15,457 10,124 Net income $ 37,298 $ 25,220 $ 19,885 Net income per share: Basic $ 1.88 $ 1.29 $ 0.97 Diluted $ 1.69 $ 1.16 $ 0.86 Weighted-average shares and equivalent shares outstanding: Basic 19,834 19,572 20,474 Diluted 22,118 21,751 23,154
See accompanying notes 9 Consolidated Statements of Cash Flows
Year Ended December 30, 2000 January 1, 2000 January 2, 1999 Operating activities Net income $ 37,298 $ 25,220 $ 19,885 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 20,074 18,461 15,426 Amortization of intangibles 6,665 7,078 6,780 Provision for bad debts 275 614 626 Deferred income taxes (1,810) (3,922) (896) Other 337 (225) 326 Changes in operating assets and liabilities: Accounts receivable 4,978 (14,323) (3,218) Inventories (10,802) (8,850) 3,610 Accounts payable and accrued expenses (8,514) 14,915 (4,992) Prepaid expenses and other 186 (117) 1,757 Net cash provided by operating activities 48,687 38,851 39,304 Investing activities Purchases of property, plant, and equipment, net (21,958) (19,975) (21,320) Purchase of business, net of cash acquired -- (24,754) (2,751) Other (60) (56) (249) Net cash used in investing activities (22,018) (44,785) (24,320) Financing activities Proceeds (payments) of long-term debt, net (16,819) (9,132) 33,851 Proceeds from exercise of stock options and warrants 5,831 1,645 6,308 Purchases of common stock and redemption of warrants (11,203) (12,833) (26,803) Net cash provided by (used in) financing activities (22,191) (20,320) 13,356 Effect of exchange rate changes on cash (875) 181 (1,134) Increase (decrease) in cash and cash equivalents 3,603 (26,073) 27,206 Cash and cash equivalents at beginning of year 1,888 27,961 755 Cash and cash equivalents at end of year $ 5,491 $ 1,888 $ 27,961
See accompanying notes. 10 Consolidated Statements of Shareholders' Equity
Notes Accumulated Additional Receivable- Other Common Paid-In Common Comprehensive Retained Period from January 3, 1998 to December 30, 2000 Stock Capital Stock Income/(Loss) Earnings Total 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 Comprehensive income: Net income for the year -- -- -- -- 37,298 37,298 Foreign currency translation adjustment -- -- -- (2,232) -- (2,232) Comprehensive income 35,066 Stock options and warrants exercised 7 6,269 (444) -- -- 5,832 Purchase of 369,000 shares of common stock (4) (1,287) -- -- (9,912) (11,203) Balance at December 30, 2000 198 $ 60,223 $ (3,353) $ (7,874) $ 117,533 $ 166,727
See accompanying notes. 11 Notes to Consolidated Financial Statements December 30, 2000 and January 1, 2000 1. Summary of Significant Accounting Policies and Other Information Nature of Operations Littelfuse, Inc. and its subsidiaries (the Company) design, manufacture, and sell circuit protection devices for use in the automotive, electronic, and general industrial markets throughout the world. Fiscal Year The Company's fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999, each contained 52 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. 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 $59.9 million at December 30, 2000 and $53.2 million at January 1, 2000. If there are indicators that long-lived assets may be impaired, the Company assesses recoverability from future operations using undiscounted cash flows. 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 In accordance with the Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," issued in December 1999, sales and associated costs are recognized when products are shipped to customers. The adoption of SAB 101 did not have a material impact on the Company's earnings or financial position. Advertising Costs The Company expenses advertising costs as incurred which amounted to $2.1 million in 2000, $2.6 million in 1999 and $2.6 million in 1998. 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. Shipping and Handling Fees and Costs In September 2000, Emerging Issues Task Force (EITF) Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," concluded that all amounts billed to customers in a sales transaction represent fees earned for the goods provided and, accordingly, amounts billed related to shipping and 12 handling should be classified as revenue. The Company has adopted EITF 00-10 and has classified amounts billed related to shipping and handling in revenue. Costs incurred for shipping and handling of $3.9 million, $2.1 million, and $1.4 million in 2000, 1999, and 1998, respectively, are classified in Selling, General, and Administrative Expenses. Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) to establish accounting and reporting requirements for derivative instruments. This standard requires recognition of all derivative instruments in the statement of financial condition as either assets or liabilities, measured at fair value. This statement additionally requires changes in the fair value of derivatives to be recorded each period in current earnings or comprehensive income depending on the intended use of derivatives. The adoption of this new standard will not have a material impact on the Company's earnings or financial position. 2. Acquisition of Business and Liquidation 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 January 4, 1998, 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 sales of Littelfuse, Inc., assuming that this acquisition had occurred as of January 4, 1998, would have been $328.3 million in 1999 and $311.9 million in 1998 and pro forma results of operations would not have differed materially from reported results of operations. During fiscal 2000, the Company reduced its estimate of purchase accounting liabilities related to 1999 acquisitions by $1.6 million and, accordingly, goodwill was reduced by an equivalent amount. These changes primarily resulted from costs being less than originally anticipated. 3. Inventories The components of inventories are as follows at December 30, 2000, and January 1, 2000 (in thousands): 2000 1999 Raw materials $14,488 $12,684 Work in process 15,288 14,854 Finished goods 29,496 21,378 $59,272 $48,916 4. Long-Term Obligations The carrying amounts of long-term debt, which approximate fair value, are as follows at December 30, 2000, and January 1, 2000 (in thousands): 2000 1999 6.16% Senior Notes, maturing 2005 $50,000 $55,000 6.31% Senior Notes, maturing 2000 -- 9,000 Revolving credit facility -- 6,000 13 Other obligations 6,742 4,964 Capital lease obligations 1,725 1,470 58,467 76,434 Less: Current maturities 17,070 20,974 $41,397 $55,460 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 December 30, 2000, the Company had available $55.0 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 December 30, 2000 the Company had $1.6 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 December 30, 2000, are as follows (in thousands): 2001 $17,070 2002 11,108 2003 10,062 2004 10,062 2005 and thereafter 10,165 $58,467 Interest paid on long-term debt approximated $4.3 million in 2000, $4.9 million in 1999 and $3.8 million in 1998. 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. The Company also has a contributory 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. In 1998, the Company adopted SFAS No. 132, "Employers' Disclosure about Pensions and Other Post-retirement Benefits." The statement standardizes the disclosure requirements for pensions and other post-retirement benefits.
U.S. U.S. Ireland (In Thousands) 2000 1999 2000 Change in benefit obligation Benefit obligation at beginning of year $ 44,104 $ 45,487 $ 14,942 Service cost 1,952 2,264 425 Interest cost 3,154 3,015 936 Plan participants' contributions -- -- 193 Actuarial loss/(gain) (1,068) (4,760) -- Benefits paid (2,200) (1,902) (329) Effects of exchange rate movements -- -- (1,095) Benefit obligation at end of year $ 45,942 $ 44,104 $ 15,072 Change in plan assets at fair value Plan assets at beginning of year $ 47,511 $ 44,363 $ 16,566 Actual return on plan assets 711 5,050 1,461
14 Employer contributions -- -- 314 Plan participant contributions -- -- 193 Benefits paid (2,200) (1,902) (329) Effects of exchange rate movements -- -- (1,246) Fair value of plan assets at end of year $ 46,022 $ 47,511 $ 16,959 Funded status $ 80 $ 3,407 $ 1,887 Unrecognized prior service cost 112 178 -- Unrecognized net actuarial loss/(gain) (1,687) (3,910) (210) Unrecognized transition (asset)/obligation -- -- (1,435) Prepaid pension obligation $ (1,495) $ (325) $ 242 Weighted-average assumptions Discount 7.50% 7.50% 6.00% Expected return on plan assets 9.00% 9.00% 7.00% Salary growth rate 4.00% 4.50% 4.00% Components of net periodic benefit cost Service cost $ 1,952 $ 2,264 $ 618 Interest cost 3,154 3,015 936 Expected return on plan assets (4,002) (3,648) (1,223) Amortization of prior service cost 66 66 -- Amortization of transition (asset)/obligation -- -- (96) Recognized net actuarial loss -- 50 -- Total cost of the plan for the year $ 1,170 $ 1,747 $ 235 Expected plan participants' contribution -- -- 193 Net periodic benefit cost $ 1,170 $ 1,747 $ 42
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 $638,000, $1,058,000 and $852,000 in 2000, 1999 and 1998, 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 $667,000 in 2000, $632,000 in 1999 and $547,000 in 1998. 6. Shareholders' Equity Stock Purchase Warrants Warrants to purchase 1,953,383 shares of common stock at $4.18 per share were outstanding at December 30, 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 3,400,000 shares of common stock to employees and directors, including an additional 600,000 shares authorized in April, 2000. 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:
2000 1999 1998 Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price Outstanding at beginning of year 1,588,840 $ 18.02 1,428,910 $ 16.91 1,361,310 $ 14.28 Options granted 358,250 35.07 367,200 19.63 311,500 24.64 Option price equals market price 358,250 35.07 352,200 20.25 311,500 24.64 Option price less than market price -- -- 15,000 5.00 -- -- Total options granted 358,250 35.07 367,200 19.63 311,500 24.64 Exercised (217,465) 10.15 (144,870) 9.34 (153,480) 6.49 Forfeited (37,550) 22.25 (62,400) 21.98 (90,420) 15.31
15 Outstanding at end of year 1,692,075 $ 22.53 1,588,840 $ 18.02 1,428,910 $ 16.91 Exercisable at end of year 794,450 765,960 708,818 Available for future grant 952,940 216,440 517,340 Weighted-average value of options granted during the year $ 21.05 $ 12.04 $ 11.81 Option price equals market price 21.05 11.79 11.81 Option price less than market price -- 17.75 --
As of December 30, 2000, the Company had the following outstanding options:
Weighted- Weighted- Average Average Options Exercise Remaining Options Exercise Price Outstanding Price Life Exercisable $ 3.69 to $ 5.00 54,300 4.41 3.31 42,060 $ 7.50 to $11.16 134,500 10.28 2.82 134,500 $11.63 to $16.50 199,460 15.06 4.01 199,460 $17.81 to $25.50 870,235 21.57 6.71 372,032 $28.88 to $35.50 433,580 33.98 8.81 46,398
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 2000, 1999 and 1998 under the fair value method using the Black-Scholes option pricing model. The following assumptions were utilized in the valuation:
2000 1999 1998 Risk-free interest rate 5.16% 6.52% 5.59% Expected dividend yield 0% 0% 0% Expected stock price volatility 47.6% 41.0% 30.0% Expected life of options 8 years 8 years 8 years
Had compensation cost for the Company's stock options granted in 2000, 1999 and 1998 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:
2000 1999 1998 Pro forma net income (in thousands of dollars) $35,792 $24,341 $18,710 Pro forma basic net income per share $ 1.81 $ 1.24 $ 0.91 Pro forma diluted net income per share $ 1.62 $ 1.12 $ 0.81
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 16 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): 2000 1999 1998 Current: Federal $13,375 $10,078 $ 4,861 State 1,908 1,467 920 Foreign 8,265 6,180 5,239 23,548 17,725 11,020 Deferred: Federal (1,827) (1,875) (809) Foreign 17 (393) (87) (1,810) (2,268) (896) $21,738 $15,457 $10,124 Domestic and foreign income before income taxes is as follows (in thousands): 2000 1999 1998 Domestic $28,906 $22,846 $15,337 Foreign 30,130 17,831 14,672 $59,036 $40,677 $30,009 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):
2000 1999 1998 Tax expense at statutory rate of 35% $20,663 $14,237 $10,503 State and local taxes, net of federal tax benefit 1,179 904 598 Foreign income taxes (1,437) (735) 68 Sam Hwa Littelfuse, Inc. liquidation -- -- (1,055) Foreign losses for which no tax benefit is available 63 82 83 Other, net 1,270 969 (73) $21,738 $15,457 $10,124
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 December 30, 2000 and January 1, 2000, are as follows (in thousands): 2000 1999 Deferred tax liabilities Tax over book depreciation and amortization $2,097 $2,736 Prepaid expenses (10) 1,250 Other 989 887 Total deferred tax liabilities 3,076 4,873 Deferred tax assets Accrued expenses 5,586 5,648 Foreign net operating loss carryforwards 341 258 Gross deferred tax assets 5,927 5,906 Less: Valuation allowance (340) (258) Total deferred tax assets 5,587 5,648 Net deferred tax assets/(liabilities) $2,511 $775 17 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. 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 $23.2 million in 2000, $12.1 million in 1999 and $11.5 million in 1998. 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 electrical. The Company evaluates the performance of each geographic segment based on its net income or loss. The Company also accounts for intersegment sales as if the sales were to third parties. The Company's reportable segments are the business units where the revenue is earned and expenses are incurred. The Company has subsidiaries in The Americas, Europe, and Asia-Pacific where each region is measured based on its sales and operating income or loss. Information concerning the operations in these geographic segments for the year ended December 30, 2000, is as follows (in thousands):
The Asia- Combined Consolidated Americas Europe Pacific Total Corporate Reconciliation Total Revenues 2000 $ 214,907 $ 61,634 $ 95,379 $ 371,920 $ -- $ -- $ 371,920 1999 $ 172,122 $ 50,434 $ 73,811 $ 296,367 -- -- $ 296,367 Intersegment revenues 2000 44,599 38,185 6,523 89,307 -- (89,307) -- 1999 32,250 18,884 3,883 55,017 -- (55,017) -- Interest expense 2000 4,337 69 246 4,652 -- -- 4,652 1999 5,007 11 235 5,253 -- -- 5,253 Depreciation and 2000 11,563 2,810 4,213 18,586 8,153 -- 26,739 amortization 1999 10,831 1,969 3,700 16,500 9,039 -- 25,539 Other income (loss) 2000 2,754 (893) 79 1,940 -- -- 1,940 1999 883 500 (77) 1,306 -- -- 1,306 Income tax expense 2000 12,290 4,546 4,902 21,738 -- -- 21,738 1999 8,967 3,706 2,784 15,457 -- -- 15,457 Net income (loss) 2000 24,493 9,124 11,856 45,473 (8,175) -- 37,298 1999 21,007 8,156 5,101 34,264 (9,044) -- 25,220 Identifiable assets 2000 181,727 39,559 48,096 269,382 60,404 (55,408) 274,378 1999 191,997 36,228 39,112 267,337 66,076 (57,715) 275,698 Capital expenditures, net 2000 13,929 1,875 6,154 21,958 -- -- 21,958 1999 13,303 2,978 3,694 19,975 -- -- 19,975
Intersegment revenues and receivables are eliminated to reconcile to consolidated totals. Corporate identifiable assets consist primarily of cash and intangible assets. The Company's revenues by product areas for the year ended December 30, 2000 and January 1, 2000, are as follows (in thousands): Revenues 2000 1999 Electronic $232,677 $154,141 Automotive 100,036 101,270 Electrical 39,207 40,956 Consolidated Total $371,920 $296,367 18 No single customer of the Company accounted for 10% or more of the Company's revenues. 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 $1.5 million in 2000 and $0.9 million in 1999 and 1998. Future minimum payments for all noncancelable operating leases with initial terms of one year or more at December 30, 2000 are as follows (in thousands): 2001 1,163 2002 1,124 2003 298 2004 8 2005 and thereafter -- 2,593 10. Earnings per Share The following table sets forth the computation of basic and diluted earnings per share:
(In Thousands) 2000 1999 1998 Numerator: Net income $37,298 $25,220 $19,885 Denominator: Denominator for basic earnings per share - Weighted-average shares 19,834 19,572 20,474 Effect of dilutive securities: Warrants 1,871 1,970 2,311 Employee stock options 413 209 369 Denominator for diluted earnings per share - Adjusted weighted-average shares and assumed conversions 22,118 21,751 23,154 Basic earnings per share $ 1.88 $ 1.29 $ 0.97 Diluted earnings per share $ 1.69 $ 1.16 $ 0.86