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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K/A
Amendment No. 1
(Mark One)
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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for the fiscal year ended January 2, 2010 |
Or
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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for the transition period from to . |
Commission file number 0-20388
LITTELFUSE, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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36-3795742
(I.R.S. Employer Identification No.) |
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8755 W. Higgins Road, Suite 500, Chicago, Illinois
(Address of principal executive offices)
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60631
(Zip Code) |
773/628-1000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange On Which Registered |
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Common Stock, $.01 par value
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Nasdaq Global Select Market |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and small reporting company in Rule 12b-2 of the Exchange
Act (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of 21,734,131 shares of voting stock held by non-affiliates of the
registrant was approximately $448,809,805 based on the last reported sale price of the registrants
Common Stock as reported on the Nasdaq Global Select Market on June 27, 2009.
As of February 19, 2010, the registrant had outstanding 21,838,250 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Littelfuse, Inc. Proxy Statement for the 2009 Annual Meeting of Stockholders
(the Proxy Statement) are incorporated by reference into Part III of this Form 10-K.
EXPLANATORY
NOTE
Littelfuse, Inc. (the Company, we, us or our) is
filing this Amendment No. 1 on Form 10-K/A to our Annual Report on
Form 10-K for the year ended January 2, 2010, originally filed with the
Securities and Exchange Commission (the SEC) on February 26, 2010 (the Original Form 10-K),
in response to a comment received from the SEC regarding the dating of the certifications of our
principal executive officer and principal financial officer required by Section 906 of the Sarbanes-Oxley
Act. In addition, we are concurrently filing a Form 10-Q/A for the period ended April 3, 2010 for the same purpose.
In response to the SECs comment, this Form 10-K/A sets forth the Original Form 10-K in
its entirety with the exception of the exhibit index set forth in Part IV, Item 15(b), which
has been amended and restated in its entirety to contain the currently-dated certifications
from our principal executive officer and principal financial officer, as required by Sections 302
and 906 of the Sarbanes-Oxley Act of 2002.
Other than the revision discussed above, this Form 10-K/A speaks as of the original
filing date of the Original Form 10-K and has not been updated to reflect other events
occurring subsequent to the original filing date. This includes forward-looking statements
and all other sections of this Form 10-K/A that were not revised, which should be read in their
historical context.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K that are not historical facts are
intended to constitute forward-looking statements entitled to the safe-harbor provisions of the
Private Securities Litigation Reform Act of 1995 (PSRLA). These statements may involve risks and
uncertainties, including, but not limited to, risks relating to product demand and market
acceptance, economic conditions, the impact of competitive products and pricing, product quality
problems or product recalls, capacity and supply difficulties or constraints, coal mining
exposures, failure of an indemnification for environmental liability, exchange rate fluctuations,
commodity price fluctuations, the effect of our accounting policies, labor disputes, restructuring
costs in excess of expectations, pension plan asset returns being less than assumed, integration of
acquisitions and other risks that may be detailed in Item 1A. Risk Factors below and in our other
Securities and Exchange Commission filings.
PART I
ITEM 1. BUSINESS.
GENERAL
Littelfuse, Inc. and its subsidiaries (the company or Littelfuse) is the worlds leading
supplier of circuit protection products for the electronics industry, providing the broadest line
of circuit protection solutions to worldwide customers. In the electronics market, the company
supplies leading manufacturers such as Alcatel-Lucent, Celestica, Delta, Flextronics, Foxconn,
Hewlett-Packard, Huawei, IBM, Intel, Jabil, LG, Motorola, Nokia, Panasonic, Quanta, Samsung,
Sanmina-SCI, Seagate, Siemens and Sony.
The company is also the leading provider of circuit protection for the automotive industry and the
third largest producer of electrical fuses in North America. In the automotive market, the
companys end customers include major automotive manufacturers in North America, Europe and Asia
such as BMW, Chrysler, Ford Motor Company, General Motors, Hyundai Group, and Volkswagen. The
company also supplies wiring harness manufacturers and auto parts suppliers worldwide, including
Advance Auto Parts, Continental, Delphi, Lear, Leoni, Pep Boys, Sumitomo, Valeo, Wal-Mart, and
Yazaki. In the electrical market, the company supplies representative customers such as Abbott,
Acuity Brands, Dow Chemical, DuPont, GE, General Motors, Heinz, International Paper, John Deere,
Marconi, Merck, Poland Springs, Procter & Gamble, Rockwell, United Technologies and 3M. Through the
companys electrical business, the company supplies industrial ground fault circuit protection in
mining and other large industrial operations to customers such as Potash Corporation, Mosaic,
Agrium, and Cameco. See Business Environment: Circuit Protection Market.
Net sales by business unit segment for the periods indicated are as follows (in thousands):
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Fiscal Year |
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2009 |
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2008 |
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2007 |
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Electronics |
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$ |
262,984 |
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$ |
342,489 |
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$ |
348,957 |
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Automotive |
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98,530 |
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126,867 |
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135,109 |
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Electrical |
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68,633 |
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61,513 |
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52,078 |
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Total |
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$ |
430,147 |
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$ |
530,869 |
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$ |
536,144 |
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The company operates in three geographic territories: the Americas; Europe; and Asia-Pacific. The
company manufactures products and sells to customers in all three territories. There has been and
continues to be a shift in the companys revenues, and consequently manufacturing, to the
Asia-Pacific region.
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Net sales in our three geographic territories, based upon the shipped to destination, are as
follows (in thousands):
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Fiscal Year |
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2009 |
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2008 |
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2007 |
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Americas |
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$ |
166,137 |
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$ |
201,771 |
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$ |
204,305 |
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Europe |
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83,449 |
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118,559 |
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118,265 |
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Asia-Pacific |
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180,561 |
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210,539 |
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213,574 |
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Total |
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$ |
430,147 |
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$ |
530,869 |
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$ |
536,144 |
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The companys products are sold worldwide through a direct sales force and manufacturers
representatives. For the year ended January 2, 2010, approximately 67.5% of the companys net sales
were to customers outside the United States (exports and foreign operations), including 20.3% in
Hong Kong.
The company manufactures many of its products on fully integrated manufacturing and assembly
equipment. The company maintains product quality through a Global Quality Management System with
all manufacturing sites certified under ISO 9001:2000. In addition, several of the Littelfuse
manufacturing sites are also certified under TS 16949 and ISO 14001.
References herein to 2007 or fiscal 2007 refer to the fiscal year ended December 29, 2007.
References herein to 2008 or fiscal 2008 refer to the fiscal year ended December 27, 2008.
References herein to 2009 or fiscal 2009 refer to the fiscal year ended January 2, 2010. The
company operates on a 4-4-5 fiscal calendar that normally keeps the number of weeks constant
during the quarter. As a result of using this convention, fiscal year 2009 contains 53 weeks
whereas fiscal 2008 and fiscal 2007 contained 52 weeks.
The companys annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and all amendments to those reports are available free of charge through the Investors
section of the companys Internet website (http://www.littelfuse.com), as soon as practicable after
such material is electronically filed with, or furnished to, the Securities and Exchange Commission
(the SEC), accessible via a link to the website maintained by the SEC. Except as otherwise
provided herein, such information is not incorporated by reference into this Annual Report on Form
10-K.
BUSINESS ENVIRONMENT: CIRCUIT PROTECTION MARKET
Electronic Products
Electronic circuit protection products are used to protect circuits in a multitude of electronic
systems. The companys product offering includes a complete line of overcurrent and overvoltage
solutions, including (i) fuses and protectors, (ii) positive temperature coefficient (PTC)
resettable fuses, (iii) varistors, (iv) polymer electrostatic discharge (ESD) suppressors, (v)
discrete transient voltage suppression (TVS) diodes, TVS diode arrays and protection thyristors,
(vi) gas discharge tubes, (vii) power switching components and (viii) fuseholders, blocks and
related accessories.
Electronic fuses and protectors are devices that contain an element that melts in an overcurrent
condition. Electronic miniature and subminiature fuses are designed to provide circuit protection
in the limited space requirements of electronic equipment. The companys fuses are used in a wide
variety of electronic products, including wireless telephones, consumer electronics, computers,
modems and telecommunications equipment. The company markets these products under the trademarked
brand names PICO(R) II and NANO2(R) SMF.
Resettable fuses are PTC polymer devices that limit the current when an overcurrent condition
exists and then reset themselves once the overcurrent condition has cleared. The companys product
line offers both radial leaded and surface mount products.
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Varistors are ceramic-based high-energy absorption devices that provide transient overvoltage and
surge suppression for automotive, telecommunication, consumer electronics and industrial
applications. The companys product line offers both radial leaded and multilayer surface mount
products.
Polymer ESD suppressors are polymer-based devices that protect an electronic system from failure
due to rapid transfer of electrostatic charge to the circuit. The companys PulseGuard(R) line of
ESD suppressors is used in PC and PC peripherals, digital consumer electronics and wireless
applications.
Discrete diodes, diode arrays and protection thyristors are fast switching silicon semiconductor
structures. Discrete diodes protect a wide variety of applications from overvoltage transients such
as ESD, inductive load switching or lightning, while diode arrays are used primarily as ESD
suppressors. Protection thyristors are commonly used to protect telecommunications circuits from
overvoltage transients such as those resulting from lightning. Applications include telephones,
modems, data transmission lines and alarm systems. The company markets these products under the
following trademarked brand names: TECCOR(R), SIDACtor(R) and Battrax(R).
Gas discharge tubes are very low capacitance devices designed to suppress any transient voltage
event that is greater than the breakover voltage of the device. These devices are primarily used in
telecom interface and conversion equipment applications as protection from overvoltage transients
such as lightning.
Power switching components are used to regulate energy to various type loads most commonly found in
industrial and home equipment. These components are easily activated from simple control circuits
or interfaced to computers for more complex load control. Typical applications include heating,
cooling, battery chargers and lighting.
In addition to the above products, the company is also a supplier of fuse holders (including
OMNI-BLOK(R)), fuse blocks and fuse clips primarily to customers that purchase circuit protection
devices from the company.
Automotive Products
Fuses are extensively used in automobiles, trucks, buses and off-road equipment to protect
electrical circuits and the wires that supply electrical power to operate lights, heating, air
conditioning, radios, windows and other controls. Currently, a typical automobile contains 30 to
100 fuses, depending upon the options installed. The fuse content per vehicle is expected to
continue to grow as more electronic features are included in automobiles. The company also supplies
fuses for the protection of electric and hybrid vehicles.
The company is a primary supplier of automotive fuses to United States, Asian and European
automotive original equipment manufacturers (OEM), automotive component parts manufacturers and
automotive parts distributors. The company also sells its fuses in the replacement parts market,
with its products being sold through merchandisers, discount stores and service stations, as well
as under private label by national firms. The company invented and owns most of the U.S. patents
related to the blade-type fuse, which is the standard and most commonly used fuse in the automotive
industry. The companys automotive fuse products are marketed under trademarked brand names,
including ATO(R), MINI(R), MAXI(TM), MIDI(R), MEGA(TM), MasterFuse(R), JCASE(R) and CablePro(TM).
A majority of the companys automotive fuse sales are made to main-fuse box and wire harness
manufacturers that incorporate the fuses into their products. The remaining automotive fuse sales
are made directly to automotive manufacturers, retailers who sell automotive parts and accessories
and distributors who in turn sell most of their products to wholesalers, service stations and
non-automotive OEMs.
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Electrical Products
The company entered the electrical market in 1983 and manufactures and sells a broad range of
low-voltage and medium-voltage circuit protection products as well as protection relays to
electrical distributors and their customers in the construction, OEM and industrial maintenance,
repair and operating supplies (MRO) markets.
Power fuses are used to protect circuits in various types of industrial equipment and in industrial
and commercial buildings. They are rated and listed under one of many Underwriters Laboratories
fuse classifications. Major applications for power fuses include protection from over-load and
short-circuit currents in motor branch circuits, heating and cooling systems, control systems,
lighting circuits and electrical distribution networks.
The companys POWR-GARD(R) product line features the Indicator(TM) series power fuse used in both
the OEM and MRO markets. The Indicator(TM) technology provides visual blown fuse indication at a
glance, reducing maintenance and downtime on production equipment. The Indicator(TM) product
offering is widely used in motor protection and industrial control panel applications.
Protection relays are used to protect personnel and equipment in industrial environments and
commercial buildings from excessive currents, over voltages and electrical shock hazards called
ground-faults. Major applications for protection relays include protection of motor, transformer
and power line distribution circuits. Ground fault relays are used to protect personnel and
equipment in wet environments such as underground mining or water treatment applications where
there is a greater risk for electricity to come in contact with water and create a shock hazard.
PRODUCT DESIGN AND DEVELOPMENT
The company employs scientific, engineering and other personnel to continually improve its existing
product lines and to develop new products at its research and engineering facilities in Champaign
and Chicago, Illinois, Canada, China, Germany, the Philippines, and Mexico. The Product &
Development Technology departments maintain a staff of engineers, chemists, material scientists and
technicians whose primary responsibility is to design and develop new products.
Proposals for the development of new products are initiated primarily by sales and marketing
personnel with input from customers. The entire product development process usually ranges from a
few months to 18 months based on the complexity of development, with continuous efforts to reduce
the development cycle. During fiscal years 2009, 2008 and 2007, the company expended $18.1 million,
$24.1 million and $21.7 million, respectively, on research, product design and development (R&D).
During 2009, the company continued moving R&D operations to lower cost locations closer to its
customers. R&D operations are now in Canada, China, Germany, the Philippines, and Mexico as well as
the United States.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The company generally relies on patent and trademark laws and license and nondisclosure agreements
to protect intellectual property and proprietary products. In cases where it is deemed necessary by
management, key employees are required to sign an agreement that they will maintain the
confidentiality of the companys proprietary information and trade secrets.
As of January 2, 2010, the company owned 204 patents in North America, 106 patents in the European
Union and 59 patents in other foreign countries. The company has also registered trademark
protection for certain of its brand names and logos. The 204 North American patents are in the
following product categories: 141
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electronics; 45 automotive; and 18 electrical. Patents and licenses are amortized over a period of 4-12 years,
with a weighted average life of 11.9 years. Distribution networks are amortized over a period of
4-20 years, with a weighted average life of 14.6 years. Trademarks and tradenames are amortized
over a period of 5-20 years, with a weighted average life of 14.7 years. The company recorded
amortization expense of $5.0 million, $3.9 million, and $3.3 million in 2009, 2008, and 2007,
respectively, related to intangible assets.
New products are continually being developed to replace older products. The company regularly
applies for patent protection on such new products. Although, in the aggregate, the companys
patents are important in the operation of its businesses, the company believes that the loss by
expiration or otherwise of any one patent or group of patents would not materially affect its
business.
License royalties amounted to $0.1 million, $0.2 million and $0.3 million for fiscal 2009, 2008 and
2007, respectively, and are included in other expense (income), net on the Consolidated Statements
of Income.
MANUFACTURING
The company performs the majority of its own fabrication, stamps some of the metal components used
in its fuses, holders and switches from raw metal stock and makes its own contacts and springs. In
addition, the company fabricates silicon wafers for certain applications and performs its own
plating (silver, nickel, zinc, tin and oxides). All thermoplastic molded component requirements
used for such products as the ATO(R), MINI(R) and MAXI(TM) fuse product lines are met through the
companys in-house molding capabilities.
After components are stamped, molded, plated and readied for assembly, final assembly is
accomplished on fully automatic and semi-automatic assembly machines. Quality assurance and
operations personnel, using techniques such as statistical process control, perform tests, checks
and measurements during the production process to maintain the highest levels of product quality
and customer satisfaction.
The principal raw materials for the companys products include copper and copper alloys, heat
resistant plastics, zinc, melamine, glass, silver, raw silicon, solder and various gases. The
company uses a sole source for several heat resistant plastics and for zinc, but believes that
suitable alternative heat resistant plastics and zinc are available from other sources at
comparable prices. All of the other raw materials are purchased from a number of readily available
outside sources.
A computer-aided design and manufacturing system (CAD/CAM) expedites product development and
machine design and our laboratories test new products, prototype concepts and production run
samples. The company participates in just-in-time delivery programs with many of its major
suppliers and actively promotes the building of strong cooperative relationships with its suppliers
by utilizing early supplier involvement techniques and engaging them in pre-engineering product and
process development.
MARKETING
The companys domestic sales and marketing staff of over 35 people maintain relationships with
major OEMs and distributors. The companys sales, marketing and engineering personnel interact
directly with OEM engineers to ensure appropriate circuit protection and reliability within the
parameters of the OEMs circuit design. Internationally, the company maintains a sales and
marketing staff of over 100 people with sales offices in the Netherlands, the U.K., Germany, Spain,
Italy, Singapore, Taiwan, Japan, Brazil, Hong Kong, Korea, China and India. The company also
markets its products indirectly through a worldwide organization of over 60 manufacturers
representatives and distributes through an extensive network of electronics, automotive and
electrical distributors.
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Electronics
The company uses manufacturers representatives to sell its electronics products domestically and
to call on major domestic and international OEMs and distributors. The company sells approximately
20 percent of its domestic products directly to OEMs, with the remainder sold through distributors
nationwide.
In the Asia-Pacific region, the company maintains a direct sales staff and utilizes distributors in
Japan, Singapore, Korea, Taiwan, China, Malaysia, Thailand, Hong Kong, India, Indonesia,
Philippines, New Zealand and Australia. In Europe, the company maintains a direct sales force and
utilizes manufacturers representatives and distributors to support a wide array of customers.
Automotive
The company maintains a direct sales force to service all the major automotive OEMs and system
suppliers domestically. Approximately 23 manufacturers representatives sell the companys products
to aftermarket fuse retailers such as OReilly Auto Parts and Pep Boys. In Europe, the company uses
both a direct sales force and manufacturers representatives to distribute its products to OEMs,
major system suppliers and aftermarket distributors. In the Asia-Pacific region, the company uses
both a direct sales force and distributors to supply to major OEMs and system suppliers.
Electrical
The company markets and sells its power fuses and protection relays through approximately 42
manufacturers representatives across North America. These representatives sell power fuse products
through an electrical and industrial distribution network comprised of approximately 2,500
distributor buying locations. These distributors have customers that include electrical
contractors, municipalities, utilities and factories (including both MRO and OEM).
The companys field sales force (including regional sales managers and application engineers) and
manufacturers representatives call on both distributors and end-users (consulting engineers,
municipalities, utilities and OEMs) in an effort to educate these customers on the capabilities and
characteristics of the companys products.
BUSINESS SEGMENT INFORMATION
The company has three operating business unit segments: Electronics; Automotive; and Electrical.
For information with respect to the companys operations in its three reportable business unit
segments for the fiscal year ended January 2, 2010, see Business Unit Segment Information included
as part of Item 8. Financial Statements and Supplementary Data, which is incorporated herein by
reference.
CUSTOMERS
The company sells to approximately 4,000 direct customers worldwide. No single customer accounted
for more than 10% of net sales during the last three years. During fiscal 2009, 2008 and 2007, net
sales to customers outside the United States (exports and foreign operations) accounted for
approximately 67.5%, 62.0% and 61.9%, respectively, of the companys total net sales.
COMPETITION
The companys products compete with similar products of other manufacturers, some of which have
substantially greater financial resources than the company. In the electronics market, the
companys competitors include AVX, Bel Fuse, Bourns, Cooper Industries, EPCOS, On Semiconductor,
STMicroelectronics and Tyco Electronics. In the automotive market, the companys competitors
include Cooper Industries, Pacific
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Engineering (a private company in Japan) and MTA (a private
company in Italy). In the electrical market, the
companys major competitors include Cooper Industries and Ferraz Shawmut. The company believes that
it competes on the basis of innovative products, the breadth of its product line, the quality and
design of its products and the responsiveness of its customer service in addition to price.
BACKLOG
The backlog of unfilled orders at January 2, 2010, was approximately $59.0 million, compared to
$53.9 million at December 27, 2008. Substantially all of the orders currently in backlog are
scheduled for delivery in 2010.
EMPLOYEES
As of January 2, 2010, the company employed approximately 5,500 employees. Approximately 810
employees in Mexico and 65 employees in Germany are covered by collective bargaining agreements.
The Mexico agreements consist of two separate collective bargaining agreements one for
approximately 160 employees in Matamoros and one covering approximately 650 in Piedras Negras. The
Matamoros agreement expires February 28, 2012. The Piedras Negras agreement expires January 31,
2012.
In Germany the company has two separate collective bargaining agreements, one for 61 associates in
Dünsen, expiring Dec 31, 2010, and the second for 4 associates in Essen, expiring March 31, 2012.
Previously in 2009 a collective bargaining agreement covered approximately 30 employees at the
companys Des Plaines facility. These expired on March 31, 2009 and currently no U.S. based
employees are subject to a collective bargaining agreement.
Overall, the company has historically maintained satisfactory employee relations, and many of its
employees have long service with the company.
ENVIRONMENTAL REGULATION
The company is subject to numerous foreign, federal, state and local regulations relating to air
and water quality, the disposal of hazardous waste materials, safety and health. Compliance with
applicable environmental regulations has not significantly changed the companys competitive
position, capital spending or earnings in the past and the company does not presently anticipate
that compliance with such regulations will change its competitive position, capital spending or
earnings for the foreseeable future.
The company employs an environmental engineer to monitor regulatory matters and believes that it is
currently in compliance in all material respects with applicable environmental laws and
regulations, except with respect to its facilities located in Ireland and Irving, Texas. The
Ireland facility was acquired in October 1999 in connection with the acquisition from Harris
Corporation of its suppression products division. Certain containment actions have been ongoing and
full disclosure with appropriate agencies in Ireland has been initiated. The company received an
indemnity from Harris Corporation with respect to these matters. The Irving, Texas facility lease
was assumed in July 2003 in connection with the acquisition of Teccor Electronics, Inc. The company
is taking the appropriate measures to bring this facility into compliance with Texas environmental
laws, and the company also received an indemnity from Invensys plc with respect to this matter.
Littelfuse GmbH, which was acquired by the company in May 2004, is responsible for maintaining
closed coal mines from legacy acquisitions. The company is compliant with German regulations
pertaining to the maintenance of the mines and has an accrual related to certain of these coal mine
shafts based on an engineering study estimating the cost of remediating the dangers (such as a
shaft collapse) of certain of these closed coal
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mine shafts in Germany. The reserve is calculated based upon the cost of remediating the shafts that the study
deems most risky. Further information regarding the coal mine liability reserve is provided in Note
10 of the Notes to Consolidated Financial Statements included in this report.
ITEM 1A. RISK FACTORS.
Our business, financial condition and results of operations are subject to various risks and
uncertainties, including the risk factors we have identified below. These factors are not
necessarily listed in order of importance. We may amend or supplement the risk factors from time to
time by other reports that we file with the SEC in the future.
Our industry is subject to intense competitive pressures.
We operate in markets that are highly competitive. We compete on the basis of price, quality,
service and/or brand name across the industries and markets we serve. Competitive pressures could
affect the prices we are able to charge our customers or the demand for our products.
We may not always be able to compete on price, particularly when compared to manufacturers with
lower cost structures. Some of our competitors have substantially greater sales, financial and
manufacturing resources and may have greater access to capital than Littelfuse. As other companies
enter our markets or develop new products, competition may intensify further. Our failure to
compete effectively could materially adversely affect our business, financial condition and results
of operations.
We may be unable to manufacture and deliver products in a manner that is responsive to our
customers needs.
The end markets for our products are characterized by technological change, frequent new product
introductions and enhancements, changes in customer requirements and emerging industry standards.
The introduction of products embodying new technologies and the emergence of new industry standards
could render our existing products obsolete and unmarketable before we can recover any or all of
our research, development and commercialization expenses on capital investments. Furthermore, the
life cycles of our products may change and are difficult to estimate.
Our future success will depend upon our ability to manufacture and deliver products in a manner
that is responsive to our customers needs. We will need to develop and introduce new products and
product enhancements on a timely basis that keep pace with technological developments and emerging
industry standards and address increasingly sophisticated requirements of our customers. We invest
heavily in research and development without knowing that we will recover these costs. Our
competitors may develop products or technologies that will render our products non-competitive or
obsolete. If we cannot develop and market new products or product enhancements in a timely and
cost-effective manner, our business, financial condition and results of operations could be
materially adversely affected.
Our business may be interrupted by labor disputes or other interruptions of supplies.
A work stoppage could occur at certain of our facilities, most likely as a result of disputes under
collective bargaining agreements or in connection with negotiations of new collective bargaining
agreements. In addition, we may experience a shortage of supplies for various reasons, such as
financial distress, work stoppages, natural disasters or production difficulties that may affect
one of our suppliers. A significant work stoppage, or an interruption or shortage of supplies for
any reason, if protracted, could substantially adversely affect our business, financial condition
and results of operations. The transfer of our manufacturing operations and changes in our
distribution model could disrupt operations for a limited time.
10
Our revenues may vary significantly from period to period.
Our revenues may vary significantly from one accounting period to another due to a variety of
factors including:
|
|
|
changes in our customers buying decisions; |
|
|
|
|
changes in demand for our products; |
|
|
|
|
our product mix; |
|
|
|
|
our effectiveness in managing manufacturing processes; |
|
|
|
|
costs and timing of our component purchases; |
|
|
|
|
the effectiveness of our inventory control; |
|
|
|
|
the degree to which we are able to utilize our available manufacturing capacity; |
|
|
|
|
our ability to meet delivery schedules; |
|
|
|
|
general economic and industry conditions; and |
|
|
|
|
local conditions and events that may affect our production volumes, such as labor
conditions and political instability. |
The bankruptcy or insolvency of a major customer could adversely affect us.
Certain of our major customers, such as those in the automotive industry and to a lesser extent the
electronics industry, are suffering financial hardships due to current economic conditions. The
bankruptcy or insolvency of a major customer could result in lower sales revenue and cause a
material adverse effect on our business, financial condition and results of operations. In
addition, the bankruptcy or insolvency of a major U.S. auto manufacturer or significant supplier
likely could lead to substantial disruptions in the automotive supply base, resulting in lower
demand for our products, which likely would cause a decrease in sales revenue and have a
substantial adverse impact on our business, financial condition and results of operations.
Our ability to manage currency or commodity price fluctuations or shortages is limited.
As a resource-intensive manufacturing operation, we are exposed to a variety of market and asset
risks, including the effects of changes in foreign currency exchange rates, commodity prices and
interest rates. We have multiple sources of supply for the majority of our commodity requirements.
However, significant shortages that disrupt the supply of raw materials or result in price
increases could affect prices we charge our customers, our product costs, and the competitive
position of our products and services. We monitor and manage these exposures as an integral part of
our overall risk management program, which recognizes the unpredictability of markets and seeks to
reduce the potentially adverse effects on our results. Nevertheless, changes in currency exchange
rates, commodity prices and interest rates cannot always be predicted. In addition, because of
intense price competition and our high level of fixed costs, we may not be able to address such
changes even if they are foreseeable. Substantial changes in these rates and prices could have a
material adverse effect on our results of operations and financial condition. For additional
discussion of interest rate, currency or commodity price risk, see Item 7A. Quantitative and
Qualitative Disclosures about Market Risks.
Operations and supply sources located outside the United States, particularly in emerging
markets, are subject to greater risks.
Our operating activities outside the United States contribute significantly to our revenues and
earnings. Serving a global customer base and remaining competitive in the global market place
required the company to place our production in countries outside the United States, including
emerging markets, to capitalize on market opportunities and maintain a cost-efficient structure. In
addition, we source a significant amount of raw materials and other components from third-party
suppliers in low-cost countries. Our international operating
11
activities are subject to a number of risks generally associated with international operations, including risks relating to the
following:
|
|
|
general economic conditions; |
|
|
|
|
currency fluctuations and exchange restrictions; |
|
|
|
|
import and export duties and restrictions; |
|
|
|
|
the imposition of tariffs and other import or export barriers; |
|
|
|
|
compliance with regulations governing import and export activities; |
|
|
|
|
current and changing regulatory requirements; |
|
|
|
|
political and economic instability; |
|
|
|
|
potentially adverse income tax consequences; |
|
|
|
|
transportation delays and interruptions; |
|
|
|
|
labor unrest; |
|
|
|
|
natural disasters; |
|
|
|
|
terrorist activities; |
|
|
|
|
public health concerns; |
|
|
|
|
difficulties in staffing and managing multi-national operations; and |
|
|
|
|
limitations on our ability to enforce legal rights and remedies. |
Any of these factors could have a material adverse effect on our business, financial condition and
results of operations.
We are in the process of relocating our manufacturing operations and changing our distribution
and customer service model.
We are a company that, from time to time, seeks to optimize its manufacturing capabilities and
efficiencies through restructurings, consolidations, plant closings or asset sales. We may make
further specific determinations to consolidate, close or sell additional facilities. Possible
adverse consequences related to such actions may include various charges for such items as idle
capacity, disposition costs, severance costs, impairments of goodwill and possibly an immediate
loss of revenues, in addition to normal or attendant risks and uncertainties. We may be
unsuccessful in any of our current or future efforts to restructure or consolidate our business.
Our plans to minimize or eliminate any loss of revenues during restructuring or consolidation may
not be achieved. These activities may have a material adverse effect upon our business, financial
condition or results of operations.
We engage in acquisitions and may encounter difficulties in integrating these businesses.
We are a company that, from time to time, seeks to grow through strategic acquisitions. We have in
the past acquired a number of businesses or companies and additional product lines and assets. We
intend to continue to expand and diversify our operations with additional acquisitions. The success
of these transactions depends on our ability to integrate the assets and personnel acquired in
these acquisitions. We may encounter difficulties in integrating acquisitions with our operations
and may not realize the degree or timing of the benefits that we anticipated from an acquisition.
Environmental liabilities could adversely impact our financial position.
Federal, state and local laws and regulations impose various restrictions and controls on the
discharge of materials, chemicals and gases used in our manufacturing processes or in our finished
goods. These environmental regulations have required us to expend a portion of our resources and
capital on relevant compliance programs. Under these laws and regulations, we could be held
financially responsible for remedial measures if our current or former properties are contaminated
or if we send waste to a landfill or recycling
12
facility that becomes contaminated, even if we did not cause the contamination. We may be subject to additional common law claims if we release
substances that damage or harm third parties. In addition, future changes in environmental laws or
regulations may require additional investments in capital equipment or the implementation of
additional compliance programs. Any failure to comply with new or existing environmental
laws or regulations could subject us to significant liabilities and could have material adverse
effects on our business, financial condition or results of operations.
In the conduct of our manufacturing operations, we have handled and do handle materials that are
considered hazardous, toxic or volatile under federal, state and local laws. The risk of accidental
release of such materials cannot be completely eliminated. In addition, we operate or own
facilities located on or near real property that was formerly owned and operated by others. Certain
of these properties were used in ways that involved hazardous materials. Contaminants may migrate
from, within or through these properties. These releases or migrations may give rise to claims.
Where third parties are responsible for contamination, the third parties may not have funds, or not
make funds available when needed, to pay remediation costs imposed upon us under environmental laws
and regulations.
We derive a substantial portion of our revenues from customers in the automotive, consumer
electronics and communications industries, and we are susceptible to trends and factors affecting
those industries as well as the success of our customers products.
Net sales to the automotive, consumer electronics and communications industries represent a
substantial portion of our revenues. Factors negatively affecting these industries and the demand
for products also negatively affect our business, financial condition or results of operations. Any
adverse occurrence, including industry slowdown, recession, political instability, costly or
constraining regulations, armed hostilities, terrorism, excessive inflation, prolonged disruptions
in one or more of our customers production schedules or labor disturbances, that results in
significant decline in the volume of sales in these industries, or in an overall downturn in the
business and operations of our customers in these industries, could materially adversely affect our
business, financial condition or results of operations. For example, the automotive industry as
well as the consumer electronics market is highly cyclical in nature and sensitive to changes in
general economic conditions, consumer preferences and interest rates. In addition, the global
automotive and electronic industries have overall manufacturing capacity far exceeding demand. To
the extent that demand for certain of our customers products declines, the demand for our products
may decline. Reduced demand relating to general economic conditions, consumer preferences, interest
rates or industry over-capacity may have a material adverse effect upon our business, financial
condition or results of operations.
The inability to maintain access to capital markets may adversely affect our business and
financial results.
Our ability to invest in our businesses, make strategic acquisitions and refinance maturing debt
obligations may require access to the capital markets and sufficient bank credit lines to support
short-term borrowings. If we are unable to access the capital markets or bank credit facilities, we
could experience a material adverse affect on our business, financial condition and results of
operations.
Fixed costs may reduce operating results if our sales fall below expectations.
Our expense levels are based, in part, on our expectations for future sales. Many of our expenses,
particularly those relating to capital equipment and manufacturing overhead, are relatively fixed.
We might be unable to reduce spending quickly enough to compensate for reductions in sales.
Accordingly, shortfalls in sales could materially and adversely affect our operating results.
The volatility of our stock price could affect the value of an investment in our stock and our
future financial position.
13
The market price of our stock has fluctuated widely. Between December 28, 2008 and January 2,
2010, the closing sale price of our common stock ranged between a low of $8.87 and a high of
$32.94, experiencing greater volatility over that time than the broader markets. The volatility of
our stock price may be related to any number of factors, such as general economic conditions,
industry conditions, analysts expectations concerning our results of operations, or the volatility
of our revenues as discussed above under Our Revenues May Vary Significantly from Period to
Period. The historic market price of our common stock may not be indicative of future market
prices. We may not be able to sustain or increase the value of our common stock. Declines in the
market price of our stock could adversely affect our ability to retain personnel with stock
incentives, to acquire businesses or assets in exchange for stock and/or to conduct future
financing activities with or involving our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
LITTELFUSE FACILITIES
The companys operations are located in 33 owned or leased facilities worldwide, representing an
aggregate of 2,002,468 square feet. The U.S. corporate headquarters was relocated to Chicago,
Illinois in 2009. Formerly it was located in Des Plaines, Illinois along with the companys
largest manufacturing facility, which was closed in 2009. The company also has North American
manufacturing facilities in Saskatoon, Canada, Irving, Texas Piedras Negras, Mexico and Matamoros,
Mexico. The European headquarters and primary European distribution center is in the Netherlands,
along with a manufacturing plant in Dünsen, Germany. As previously announced, the manufacturing
facilities in Irivng, Texas, Matamoros, Mexico and Dünsen, Germany are expected to close in 2010.
The Netherlands distribution center is expected to be sold in 2010. The company is currently
marketing for sale its Des Plaines, Illinois, Elk Grove Village, Illinois and Dundalk, Ireland
facilities, which closed on or before January 2, 2010. Asia-Pacific operations include sales and
distribution centers located in Singapore, Taiwan, Japan, China and Korea, with manufacturing
plants in China, Taiwan and the Philippines. The company does not believe that it will encounter
any difficulty in renewing its existing leases upon the expiration of their current terms.
Management believes that the companys facilities are adequate to meet its requirements for the
foreseeable future.
The following table provides certain information concerning the companys facilities at January 2,
2010 and the use of these facilities during fiscal 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Size |
|
|
|
Lease Expiration |
|
|
Location |
|
Use |
|
(sq. ft.) |
|
Lease/Own |
|
Date |
|
Primary Product |
Des Plaines,
Illinois
|
|
Manufacturing
|
|
|
340,000 |
|
|
Owned
|
|
|
|
|
|
Auto,
Electronics and
Electrical |
Chicago, Illinois
|
|
Administrative,
Engineering,
Research and
Testing
|
|
|
54,838 |
|
|
Leased
|
|
|
2024 |
|
|
Auto,
Electronics and
Electrical |
Elk Grove Village,
Illinois
|
|
Engineering and
Research
|
|
|
5,000 |
|
|
Leased
|
|
|
2010 |
|
|
Auto and
Electronics |
Champaign, Illinois
|
|
Research and
Development
|
|
|
13,503 |
|
|
Leased
|
|
|
2025 |
|
|
Auto and
Electronics |
Campbell, California
|
|
Engineering
|
|
|
1,710 |
|
|
Leased
|
|
|
2011 |
|
|
Electronics |
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Size |
|
|
|
Lease Expiration |
|
|
Location |
|
Use |
|
(sq. ft.) |
|
Lease/Own |
|
Date |
|
Primary Product |
Irving, Texas
|
|
Engineering,
Manufacturing,
Research and
Testing
|
|
|
101,000 |
|
|
Leased
|
|
|
2010 |
|
|
Electronics |
Birmingham, Michigan
|
|
Sales
|
|
|
2,076 |
|
|
Leased
|
|
|
2011 |
|
|
Auto |
Matamoros, Mexico
|
|
Manufacturing
|
|
|
114,558 |
|
|
Leased
|
|
|
2010 |
|
|
Electronics |
Arcola, Illinois
|
|
Administrative
|
|
|
5,000 |
|
|
Leased
|
|
|
2010 |
|
|
Electrical |
Piedras Negras,
Mexico
|
|
Administrative /
Manufacturing
|
|
|
98,822 |
|
|
Leased
|
|
|
2015 |
|
|
Auto |
Piedras Negras,
Mexico
|
|
Manufacturing
|
|
|
68,088 |
|
|
Leased
|
|
|
2012 |
|
|
Electrical |
Piedras Negras,
Mexico
|
|
Manufacturing
|
|
|
22,381 |
|
|
Leased
|
|
|
2012 |
|
|
Electrical |
Piedras Negras,
Mexico
|
|
Manufacturing
|
|
|
164,785 |
|
|
Owned
|
|
|
|
|
|
Auto |
Eagle Pass, Texas
|
|
Distribution
|
|
|
7,800 |
|
|
Leased
|
|
|
2011 |
|
|
Auto, Electronics
and Electrical |
Swindon, U.K.
|
|
Administrative,
Marketing and Sales
|
|
|
5,000 |
|
|
Leased
|
|
|
2012 |
|
|
Electronics |
Utrecht, the
Netherlands
|
|
Administrative,
Distribution and
Sales
|
|
|
34,642 |
|
|
Owned
|
|
|
|
|
|
Auto and
Electronics |
Essen, Germany
|
|
Administrative
|
|
|
8,374 |
|
|
Leased
|
|
|
2011 |
|
|
Electronics and Auto |
Essen, Germany
|
|
Leased to third
party
|
|
|
37,244 |
|
|
Owned
|
|
|
|
|
|
|
Dünsen, Germany
|
|
Manufacturing and
Sales
|
|
|
43,966 |
|
|
Owned
|
|
|
|
|
|
Auto |
Singapore
|
|
Sales and
Distribution
|
|
|
1,550 |
|
|
Leased
|
|
|
2012 |
|
|
Electronics |
Taipei, Taiwan
|
|
Sales
|
|
|
4,000 |
|
|
Leased
|
|
|
2010 |
|
|
Electronics |
Seoul, Korea
|
|
Sales
|
|
|
3,643 |
|
|
Leased
|
|
|
2010 |
|
|
Electronics and Auto |
Lipa City,
Philippines
|
|
Manufacturing
|
|
|
116,046 |
|
|
Owned
|
|
|
|
|
|
Electronics |
Lipa City,
Philippines
|
|
Manufacturing
|
|
|
22,733 |
|
|
Leased
|
|
|
2010 |
|
|
Electronics |
Dongguan, China
|
|
Manufacturing
|
|
|
124,600 |
|
|
Leased
|
|
|
2013 |
|
|
Electronics |
Suzhou, China
|
|
Manufacturing
|
|
|
143,458 |
|
|
Owned
|
|
|
|
|
|
Electronics |
Yang-Mei, Taiwan
|
|
Administrative /Manufacturing,
Sales, and
Distribution
|
|
|
40,080 |
|
|
Owned
|
|
|
|
|
|
Electronics |
Wuxi, China
|
|
Manufacturing
|
|
|
220,068 |
|
|
Owned
|
|
|
|
|
|
Electronics |
Hong Kong, China
|
|
Sales
|
|
|
2,478 |
|
|
Leased
|
|
|
2012 |
|
|
Electronics |
Yokohama, Japan
|
|
Sales
|
|
|
6,726 |
|
|
Leased
|
|
|
2010 |
|
|
Electronics |
Sao Paulo, Brazil
|
|
Sales
|
|
|
800 |
|
|
Leased
|
|
|
2010 |
|
|
Electronics and Auto |
Dundalk, Ireland
|
|
Manufacturing
|
|
|
120,000 |
|
|
Owned
|
|
|
|
|
|
Electronic and
Auto |
Saskatoon, Canada
|
|
Manufacturing
|
|
|
67,500 |
|
|
Owned
|
|
|
|
|
|
Electrical |
15
Properties with lease expirations in 2010 renew at various times throughout the year. The
company does not anticipate any material impact as a result of such expirations.
ITEM 3. LEGAL PROCEEDINGS.
The company is not a party to any legal proceedings that it believes will have a material adverse
effect upon the conduct of its business or its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the companys stockholders during the fourth quarter of fiscal
2009.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Shares of the companys common stock are traded under the symbol LFUS on the Nasdaq Global Select
Market. As of February 19, 2010, there were 136 holders of record of the companys common stock.
Stock Performance Graph
The following stock performance graph and related information shall not be deemed soliciting
material or filed with the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filings under the Securities Act of 1933 or Securities
Act of 1934, each as amended, except to the extent that the company specifically incorporates it by
reference into such filing.
The following stock performance graph compares the five-year cumulative total return on Littelfuse
common stock to the five-year cumulative total returns on the Russell 2000 Index and the Dow Jones
Electrical Components and Equipment Industry Group Index. The company believes that the Russell
2000 Index and the Dow Jones Electrical Components and Equipment Industry Group Index represent a
broad market index and peer industry group for total return performance comparison. The stock
performance shown on the graph below represents historical stock performance and is not necessarily
indicative of future stock price performance.
16
The Dow Jones Electrical Components and Equipment Industry Group Index includes the common stock of
American Superconductor Corp.; Amphenol Corp.; Anaren Microwave, Inc.; Arrow Electronics, Inc.;
Avnet, Inc.; AVX Corp.; Benchmark Electronics, Inc.; C&D Technologies, Inc.; Capstone Turbine
Corp.; Commscope, Inc.; CTS Corp.; Emerson; Fuelcell Energy, Inc.; General Cable Corp.; Hubbell
Inc. Class B; Jabil Circuit, Inc.; KEMET Corp.; Littelfuse, Inc.; Methode Electronics, Inc.; Molex,
Inc. and Molex, Inc. Class A; Park Electrochemical Corp.; Plexus Corp.; Plug Power, Inc.;
Power-One, Inc.; Powerwave Technologies, Inc.; Regal-Beloit Corp.; Sanmina Corp.; SPX Corp.;
Technitrol, Inc.; Thomas & Betts Corp.; Three-Five Systems, Inc.; Valence Technology, Inc.; Vicor
Corp.; and Vishay Intertechnology, Inc.
In the case of the Russell 2000 Index and the Dow Jones Electrical Components and Equipment
Industry Group Index, a $100 investment made on December 31, 2004 and reinvestment of all dividends
is assumed. In the case of the company, a $100 investment made on December 31, 2004 is assumed (the
company paid no dividends in 2005, 2006, 2007, 2008, or 2009). Returns are at December 31 of each
year, with the exception of 2006, 2007, 2008 and 2009 for the company, which are at December 30,
2006, December 29, 2007, December 27, 2008 and January 2, 2010, respectively, which in each case
was the last day of the companys respective fiscal year.
The company has not paid any cash dividends in its history. Future dividend policy will be
determined by the Board of Directors based upon its evaluation of earnings, cash availability and
general business prospects. Currently, there are restrictions on the payment of dividends contained
in the companys credit agreements that relate to the maintenance of a minimum net worth and
certain financial ratios.
The companys Board of Directors authorized the repurchase of up to 1,000,000 shares of the
companys common stock under a program for the period May 1, 2009 to April 30, 2010. The company
did not repurchase any shares of its common stock during the fourth quarter of fiscal 2009.
17
The table below provides information with respect to the companys quarterly stock prices during
fiscal 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
4Q |
|
3Q |
|
2Q |
|
1Q |
|
4Q |
|
3Q |
|
2Q |
|
1Q |
|
High |
|
$ |
33.19 |
|
|
$ |
28.79 |
|
|
$ |
20.74 |
|
|
$ |
18.11 |
|
|
$ |
31.98 |
|
|
$ |
37.55 |
|
|
$ |
39.21 |
|
|
$ |
34.29 |
|
Low |
|
|
24.37 |
|
|
|
19.63 |
|
|
|
10.30 |
|
|
|
8.82 |
|
|
|
11.48 |
|
|
|
29.28 |
|
|
|
32.89 |
|
|
|
26.90 |
|
Quarter close |
|
|
32.15 |
|
|
|
26.71 |
|
|
|
20.65 |
|
|
|
10.60 |
|
|
|
15.54 |
|
|
|
33.91 |
|
|
|
32.89 |
|
|
|
33.58 |
|
|
ITEM 6. SELECTED FINANCIAL DATA.
The information presented below provides selected financial data of the company during the past
five fiscal years and should be read in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes
to Consolidated Financial Statements set forth in Item 7 and Item 8, respectively, for the
respective years presented (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
2006* |
|
2005* |
|
Net sales |
|
$ |
430,147 |
|
|
$ |
530,869 |
|
|
$ |
536,144 |
|
|
$ |
534,859 |
|
|
$ |
467,089 |
|
Gross profit |
|
|
125,361 |
|
|
|
143,669 |
|
|
|
171,537 |
|
|
|
161,263 |
|
|
|
144,552 |
|
Operating income |
|
|
13,695 |
|
|
|
8,495 |
|
|
|
51,309 |
|
|
|
28,858 |
|
|
|
26,966 |
|
Income from continuing
operations |
|
|
9,411 |
|
|
|
8,016 |
|
|
|
36,835 |
|
|
|
23,236 |
|
|
|
16,582 |
|
Net income |
|
|
9,411 |
|
|
|
8,016 |
|
|
|
36,835 |
|
|
|
23,824 |
|
|
|
17,710 |
|
Per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic |
|
|
0.43 |
|
|
|
0.37 |
|
|
|
1.66 |
|
|
|
1.04 |
|
|
|
0.74 |
|
- Diluted |
|
|
0.43 |
|
|
|
0.37 |
|
|
|
1.64 |
|
|
|
1.03 |
|
|
|
0.73 |
|
Cash and cash equivalents |
|
|
70,354 |
|
|
|
70,937 |
|
|
|
64,943 |
|
|
|
56,704 |
|
|
|
21,947 |
|
Total assets |
|
|
533,127 |
|
|
|
538,928 |
|
|
|
491,365 |
|
|
|
464,966 |
|
|
|
403,931 |
|
Long-term debt, less
current portion |
|
|
49,000 |
|
|
|
72,000 |
|
|
|
1,223 |
|
|
|
1,785 |
|
|
|
|
|
|
|
|
|
* |
|
Results reflect Efen GmbH as a discontinued operation. |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Littelfuse, Inc. and its subsidiaries (the company or Littelfuse) design, manufacture, and sell
circuit protection devices for use in the electronics, automotive and electrical markets throughout
the world. The following Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) is designed to provide the reader with information that will assist in
understanding the companys Consolidated Financial Statements, the changes in certain key items in
those financial statements from year to year, and the primary factors that accounted for those
changes, as well as how certain accounting principles affect the Consolidated Financial Statements.
The discussion also provides information about the financial results of the various business
segments to provide a better understanding of how those segments and their results affect the
financial condition and results of operations of Littelfuse as a whole.
Business Segment Information
U.S. Generally Accepted Accounting Principals (GAAP) dictates annual and interim reporting
standards for an enterprises operating segments and related disclosures about its products,
services, geographic areas and major customers. Within U.S. GAAP, an operating segment is defined
as a component of an enterprise that engages in business activities from which it may earn revenues
and incur expenses, and about which separate financial
18
information is regularly evaluated by the Chief Operating Decision Maker (CODM) in deciding how
to allocate resources. The CODM is the companys President and Chief Executive Officer.
The company reports its operations by three business unit segments: Electronics; Automotive; and
Electrical. The following table is a summary of the companys operating segments net sales by
business unit and geography (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Business Unit |
|
|
|
|
|
|
|
|
|
|
|
|
Electronics |
|
$ |
263.0 |
|
|
$ |
342.5 |
|
|
$ |
348.9 |
|
Automotive |
|
|
98.5 |
|
|
|
126.9 |
|
|
|
135.1 |
|
Electrical |
|
|
68.6 |
|
|
|
61.5 |
|
|
|
52.1 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
430.1 |
|
|
$ |
530.9 |
|
|
$ |
536.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geography* |
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
166.1 |
|
|
$ |
201.8 |
|
|
$ |
204.3 |
|
Europe |
|
|
83.4 |
|
|
|
118.6 |
|
|
|
118.2 |
|
Asia-Pacific |
|
|
180.6 |
|
|
|
210.5 |
|
|
|
213.6 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
430.1 |
|
|
$ |
530.9 |
|
|
$ |
536.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Sales are defined based upon shipped to destination. |
Business unit segment information is described more fully in Note 15 of the Notes to
Consolidated Financial Statements. The following discussion provides an analysis of the information
contained in the Consolidated Financial Statements and accompanying notes beginning on page 39 at
January 2, 2010 and December 27, 2008, and for the three fiscal years ended January 2, 2010,
December 27, 2008 and December 29, 2007.
Results of Operations 2009 Compared with 2008
Net sales decreased in the current year to $430.1 million compared to $530.9 million in 2008. These
results reflected sales declines in the Automotive segment of $28.4 million or 22% to $98.5
million, along with a decrease in sales in the Electronics segment of $79.5 million or 23% to
$263.0 million, partially offset by an increase in sales in the Electrical segment of $7.1 million
or 12% to $68.6 million. The Electrical segment sales included a full year of sales ($23.7 million)
in 2009 from the acquisition of Startco Engineering Ltd. (Startco), which was acquired in the
fourth quarter of 2008.
The decrease in automotive sales was due primarily to the continued weak passenger car and truck
markets across all geographies, resulting in sharp declines in global vehicle production, as OEMs
took extended plant shutdowns. The negative impact from declines in volume was further impacted by
unfavorable currency effects of $2.6 million in 2009, mainly due to the weaker euro, which
experienced a lower annual average translation rate of 1.396 in 2009 compared to 1.475 in 2008.
The decrease in electronics sales primarily reflected continued weak demand as consumers continued
to lose confidence in the economy and cut back on spending, particularly in the consumer
electronics market. In addition, many customers in Asia, particularly contract manufacturers and
original design manufacturers, had extensive plant shutdowns, and electronics distributors reduced
inventories in response to weak demand. During the second half of 2009, demand for some consumer
electronic items began to improve resulting in increased demand for the companys products. The
negative impact from declines in volume was further impacted by net
19
unfavorable currency effects of $1.5 million largely due to the weakness of the euro and Korean
won, partially offset by the favorable impact of a stronger Japanese yen.
The increase in electrical sales was due to incremental sales recorded in 2009 of $23.7 million
from Startco, acquired at the beginning of the fourth quarter of 2008, as compared to
$3.9 million in sales recorded in 2008. The base electrical business, which excludes Startco,
declined 22% in 2009 as compared to 2008 due primarily to weakness in the non-residential
construction and MRO markets.
On a geographic basis, sales in the Americas decreased $35.7 million or 18% in 2009 compared to
2008 due to decreased automotive sales of $15.9 million and lower electronics sales of $25.9
million, partially offset by increased electrical sales of $6.1 million, which included Startco.
Automotive and electronics sales declined due to the impact of the global recession and inventory
de-stocking throughout the supply chain. The electrical sales increase was due to incremental sales
from the companys Startco acquisition.
Europe sales decreased $35.2 million or 30% in 2009 compared to 2008 due to decreased automotive
sales of $17.5 million and lower electronics sales of $17.7 million due to the impact of the global
recession and inventory de-stocking throughout the supply chain. Current year results included
unfavorable currency effects of $3.4 million reflecting a weaker euro in 2009.
Asia-Pacific sales decreased $29.9 million or 14% in 2009 compared to the prior year mainly due to
lower electronics sales of $36.0 million, which was partially offset by higher automotive sales of
$5.1 million and electrical sales $1.0 million, The weaker electronics sales reflected the impact
of the global recession and inventory de-stocking throughout the supply chain. The increase in
automotive sales reflected strong growth in the China market and gains in market share. Current
year results included unfavorable currency translation effects of $0.7 million primarily due to a
sharp decline in the Korean won partially offset by a favorable impact of a stronger Japanese Yen.
Gross profit was $125.4 million or 29.1% of sales in 2009, compared to $143.7 million or 27.1% of
sales in 2008. The increase in gross profit margin percentage in 2009 primarily resulted from cost
savings related to manufacturing plant consolidations and reductions in operating expenses. Higher
restructuring and other costs related to plant transfer activities and a pension settlement charge
of $5.7 million during 2008 also contributed to the margin improvement change in 2009.
The company recorded approximately $4.2 million of restructuring charges in cost of sales in 2009
due primarily to the reorganization of the companys European and Asian operations. The European
restructuring charges included the transfer of its manufacturing operations from Dünsen, Germany to
Piedras Negras, Mexico. The Asian restructuring included the planned closure of a manufacturing
facility in Taiwan. The 2009 restructuring charges to cost of sales were approximately $4.6 million
lower than restructuring charges to cost of sales for 2008.
The company continues to focus heavily on Research and Development (R&D) to develop new solutions
for customers and expand product offerings. During 2009, the company continued moving R&D
operations to lower cost locations closer to its customers. R&D operations are now in Canada,
China, Germany, the Philippines, and Mexico as well as the United States.
Total operating expense was $111.7 million or 26.0% of net sales for 2009 compared to $135.2
million or 25.5% of net sales for 2008. The reduction in operating expenses primarily reflects cost
savings initiatives implemented in late 2008 and early 2009 including headcount reductions,
consolidation of Asian and European sites and transfer of certain activities to low-cost Asian
locations.
20
Operating income was $13.7 million or 3.2% of net sales in 2009 compared to $8.5 million or 1.6% of
net sales in the prior year. The increase in operating income in the current year was due primarily to the
cost reductions and lower restructuring charges described above partially offset by lower sales.
Interest expense decreased to $2.4 million in 2009 compared to $3.4 million for 2008 primarily due
to a $1.1 million loss on an interest rate swap transaction recognized in 2008.
Other expense (income), net, consisting of interest income, royalties, non-operating income and
foreign currency items, was $0.5 million of expense in 2009 compared to $5.6 million of income in
2008. The decrease primarily reflected an unfavorable net change of approximately $3.8 million in
foreign currency translation effects (primarily due to the weakening of the Korean won against the
U.S. dollar) and a $1.1 million refund received in 2008 related to a recovery of Japanese output
taxes paid in 2007.
Income before income taxes was $10.8 million in 2009 compared to $10.6 million in 2008. Income tax
expense was $1.4 million in 2009 compared to $2.6 million in 2008. The 2009 effective income tax
rate was 13.2% compared to 24.5% in 2008. The decrease in the 2009 effective tax rate reflects the
mix of income earned in lower tax jurisdictions in 2009 as well as the release of $2.6 million of
contingent income tax reserves due to the lapsing of statute of limitations and the close-out of
open audit years by local tax authorities.
Results of Operations 2008 Compared with 2007
Net sales decreased slightly in 2008 to $530.9 million compared to $536.1 million in 2007. These
results reflected sales declines in the Automotive segment of $8.2 million or 6% to $126.9 million,
along with a decrease in sales in the Electronics segment of $6.4 million or 2% to $342.5 million,
largely offset by an increase in sales in the Electrical segment of $9.4 million or 18% to $61.5
million.
The decrease in automotive sales was due primarily to the weakened passenger car market across all
geographies, resulting in sharp declines in global car production, particularly in the fourth
quarter of 2008, as OEMs took extended plant shutdowns. The negative impact from declines in volume
were partially offset by favorable currency effects of $5.0 million, mainly due to the strong the
euro, which experienced a higher annual average translation rate of 1.475 in 2008 compared to 1.369
in 2007.
The decrease in electronics sales primarily reflected weaker demand as consumers continued to lose
confidence in the economy and cut back on spending, particularly in the fourth quarter of 2008. In
addition, many customers in Asia, particularly contract manufacturers and original design
manufacturers, had extensive plant shutdowns, and electronics distributors reduced inventories in
response to weak demand and the uncertain outlook for 2009. The negative impact from declines in
volume were partially offset by net favorable currency effects of $1.8 million, largely due to the
strength of the euro and to a lesser extent the yen, partially offset by the negative impact from
sales denominated in Korean won, which experienced a drop of more than 13% in the annual average
translation rate in 2008 compared to 2007.
The increase in electrical sales was due in part to new OEM business and price increases over the
prior year and improvements in the industrial market. In addition, current year sales include $3.9
million from Startco Engineering Ltd. (Startco), acquired at the beginning of the
fourth quarter of 2008, and $1.3 million from Shock Block Corporation (Shock Block), acquired
during the first quarter of 2008.
On a geographic basis, sales in the Americas decreased $2.5 million or 1% in 2008 compared to 2007
due to decreased automotive sales of $8.4 million and lower electronics sales of $3.5 million,
partially offset by increased electrical sales of $9.4 million. Automotive and electronics sales
declined sharply in the fourth quarter of 2008 as economic concerns led to a deterioration in
consumer confidence and reduced spending. As a result,
21
the automotive OEMs sharply cut production rates and shut down assembly lines for much of December and
electronics distributors reduced inventories. The electrical sales increase was due primarily to
price increases over the prior year and sales from newly-acquired companies.
Europe sales remained steady in 2008 compared to 2007, reflecting a modest increase of $0.4
million. 2008 results reflected favorable currency effects of $9.6 million offset by lower
automotive sales due to a sharp decline in fourth quarter car production, which was down 22%
year-over-year, and lower electronics sales due to decreased demand from electronics distributors.
Asia-Pacific sales decreased $3.1 million or 1% in 2008 compared to the prior year mainly due to
lower electronics sales, which reflected weakness across all major end markets, from consumer
products to IT infrastructure spending for telecom equipment. This decrease was partially offset by
higher automotive sales, which reflected continued share gain in the growing Asian markets outside
of Japan. Current year results included unfavorable currency translation effects of $3.1 million
primarily due to a sharp decline in the Korean won.
Gross profit was $143.7 million or 27.1% of sales in 2008 compared to $171.5 million or 32.0% of
sales in 2007. The decline in gross profit margin percentage in 2008 reflected a $5.7 million
non-cash charge related to settlement of the Ireland pension plan. The decrease also reflected a
$3.2 million charge related to impairment of certain manufacturing assets in China along with
higher costs for transportation, materials and utilities driven primarily by the increase in the
price of oil and commodity metals for much of 2008. Higher costs related to plant transfer
activities also contributed to the margin decline.
The company also recorded approximately $8.8 million of restructuring charges in cost of sales in
the current year, primarily due to the closure of the Matamoros, Mexico manufacturing facility,
along with severance and retention expense at the Irving, Texas, Des Plaines, Illinois and Swindon,
U.K. facilities, compared to $7.6 million of restructuring charges in the prior year primarily
related to the closure of the Des Plaines, Illinois manufacturing facility, along with severance
and retention expense in Ireland and Germany.
Total operating expense was $135.2 million or 25.5% of net sales for 2008 compared to $120.2
million or 22.4% of net sales for 2007. Fiscal year 2007 included an $8.0 million gain on the sale
of property in Ireland. In addition, selling, general and administrative expenses increased $3.9
million to $107.2 million in 2008 from $103.3 million in 2007 due primarily to currency effects.
Research and development costs increased $2.4 million to $24.1 million in 2008 compared to $21.7
million in 2007 due to increased spending on new product development for the electronics and
automotive markets.
Operating income was $8.5 million or 1.6% of net sales in 2008 compared to $51.3 million or 9.6% of
net sales in the prior year. The decrease in operating income in the current year was due primarily
to the special charges described above, reduced operating leverage and higher costs due to
transfer-related activities and higher commodity prices.
Interest expense increased to $3.4 million in 2008 compared to $1.6 million for 2007 primarily due
to a $1.1 million loss on an interest rate swap transaction recognized in 2008, as well as
increased costs due to higher long-term debt resulting from the $80.0 million term loan agreement
the company entered into on September 29, 2008. Other expense (income), net, consisting of interest
income, royalties, non-operating income and foreign currency items, was $5.6 million in 2008
compared to $1.5 million in the prior year. The increase reflected a net improvement of
approximately $3.9 million in foreign currency translation effects (primarily due to the
strengthening of the US dollar against the Korean won, Philippine peso and euro) and a $1.1 million
refund received in 2008 related to an exemption from Japanese output taxes paid in 2007, partially
offset by a
22
$2.8 million non-cash charge related to marking down the companys available-for-sale
investment in Polytronics to its lower market value, as the loss was deemed other than temporary.
Income before income taxes was $10.6 million in 2008 compared to $51.3 million in 2007. Income tax
expense was $2.6 million in 2008 compared to $14.5 million in the prior year. The 2008 effective
income tax rate was 24.5% compared to 28.2% in 2007. The decrease in the 2008 effective tax rate
reflects the mix of income earned in lower tax jurisdictions partially offset by a $1.1 million
unfavorable impact from recognizing an other-than-temporary loss on the companys
available-for-sale investment in Polytronics, for which no tax benefit is available on the capital
loss.
Liquidity and Capital Resources
The company historically has financed capital expenditures through cash flows from operations.
Despite the recent adverse changes in market conditions, management expects that cash flows from
operations and available lines of credit will be sufficient to support both the companys
operations and its debt obligations for the foreseeable future.
Term Loan
On September 29, 2008, the company entered into a Loan Agreement with various lenders that provides
the company with a five-year term loan facility of up to $80.0 million for the purposes of (i)
refinancing certain existing indebtedness; (ii) funding working capital needs; and (iii) funding
capital expenditures and other lawful corporate purposes, including permitted acquisitions. The
Loan Agreement also contains an expansion feature, pursuant to which the company may from time to
time request incremental loans in an aggregate principal amount not to exceed $40.0 million. The
company had $57.0 million outstanding at January 2, 2010. Further information regarding this
arrangement is provided in Note 6 of the Notes to Consolidated Financial Statements included in
this report.
The Loan Agreement requires the company to meet certain financial tests, including a consolidated
leverage ratio and a consolidated interest coverage ratio. The Loan Agreement also contains
additional affirmative and negative covenants which, among other things, impose certain limitations
on the companys ability to merge with other companies, create liens on its property, incur
additional indebtedness, enter into transactions with affiliates except on an arms length basis,
dispose of property, or issue dividends or make distributions. At January 2, 2010, and for the year
then ended, the company was in compliance with these covenants. The new Loan Agreement does not
impact the existing debt covenants in the revolving credit facility described below.
Revolving Credit Facilities
On January 28, 2009, the company entered into an unsecured financing arrangement with a Canadian
bank that provided a CAD 10.0 million (equivalent to approximately $9.5 million at January 2, 2010)
revolving credit facility, for capital expenditures and general working capital, which expires on
July 21, 2011. This facility consists of prime-based loans and overdrafts, bankers acceptances and
U.S. base rate loans and overdrafts, and is guaranteed by the company. At January 2, 2010, the
company had approximately CAD 6.5 million (equivalent to approximately $6.2 million) outstanding
under the revolving credit facility. As of January 2 2010, the company had approximately CAD 3.5
million (equivalent to approximately $3.3 million) available under the revolving credit facility at
an interest rate of bankers acceptance rate plus 1.62% (2.10% as of January 2, 2010).
This agreement contains covenants that, among other matters, impose limitations on future mergers,
sales of assets, and changes in control, as defined in the agreement. In addition, the company is
required to satisfy certain financial covenants and tests relating to, among other matters,
interest coverage, working capital, leverage and net worth. As of the fiscal year ended 2009, the
company was in compliance with all covenants.
23
The company has an unsecured domestic financing arrangement consisting of a credit agreement with
banks that provides a $75.0 million revolving credit facility, with a potential increase of up to
$125.0 million upon request of the company and agreement with the lenders, which expires on July
21, 2011. At January 2, 2010, the company had available the full $75.0 million of borrowing
capacity under the revolving credit facility at an interest rate of LIBOR plus 0.875% (1.11% as of
January 2, 2010).
The domestic bank credit agreement contains covenants that, among other matters, impose limitations
on the incurrence of additional indebtedness, future mergers, sales of assets, payment of
dividends, and changes in control, as defined in the agreement. In addition, the company is
required to satisfy certain financial covenants and tests relating to, among other matters,
interest coverage, working capital, leverage and net worth. At January 2, 2010, and for the year
then ended, the company was in compliance with these covenants.
Other Obligations
The company had an unsecured bank line of credit in Japan that provided a 700 million yen revolving
credit facility at an interest rate of TIBOR plus 0.625%. The revolving line of credit was due on
July 21, 2011. The line of credit was closed on July 14, 2009. The company had no outstanding
borrowings on the yen facility at the time of the closing.
The company had an unsecured bank line of credit in Taiwan that provided a 35.0 million Taiwanese
dollar revolving credit facility at an interest rate of two-years time deposit plus 0.145%. The revolving
line of credit was due on August 18, 2009. The company also had a foreign fixed rate mortgage loan
outstanding totaling approximately 32.0 million Taiwanese dollars with maturity dates through
August 2013. The company chose to repay the outstanding balances on both debt instruments in June
2008, resulting in uses of cash totaling the equivalent of $1.7 million. As a result, the line of
credit was closed on June 28, 2008.
The company also had $2.3 million available in letters of credit at January 2, 2010. No amounts
were drawn under these letters of credit at January 2, 2010.
The company started 2009 with $70.9 million of cash. Net cash provided by operating activities in
2009 was approximately $29.6 million in the year and included $9.4 million in net income and $41.1
million in non-cash adjustments (primarily $36.6 million in depreciation and amortization),
partially offset by $20.9 million of changes in operating assets and liabilities.
Changes in various operating assets and liabilities (including short-term and long-term items) that
negatively impacted cash flows in 2009 consisted of decreases in accrued payroll and severance
($9.0 million), net decreases in accounts payable and accrued expenses ($7.9 million), increases in
accounts receivable ($15.6 million), decreases in accrued taxes ($3.3 million), and increases in
prepaid expenses and other current assets ($0.6 million), partially offset by decreases in
inventory ($15.5 million). Days sales outstanding in accounts receivable increased to 61 days at
year-end 2009, compared to 53 days at year-end 2008 and 58 days at year-end 2007. DSO in 2008 was
unusually low due to the sharp drop-off in sales at the end of the year. The DSO levels for 2007
and 2009 of 59 and 61 days respectively, are more typical of what is expected going forward. Days
inventory outstanding was 62 days at year-end 2009, compared to 72 days at year-end 2008 and 58
days at year-end 2007. The decrease in days inventory outstanding in 2009 resulted from lean
initiatives and other inventory reduction efforts during 2009.
Net cash used in investing activities in 2009 was approximately $14.8 million and included $15.5
million in purchases of property, plant and equipment (primarily related to the companys plant
expansion and new facilities in the Asia-Pacific region, along with manufacturing process
improvements, new facilities and product introductions in Mexico) and a $0.9 million payment of a
holdback obligation related to the acquisition of
24
Shock Block, acquired during the first quarter of 2008, partially offset by $1.7 million in cash receipts from the
sale of property, plant and equipment and the sale of an investment.
Net cash used in financing activities in 2009 was approximately $16.2 million, which included $17.7
million in net payments of debt and $1.5 million in cash proceeds from the exercise of stock
options. The net payments from debt include $48.0 million in gross payments under the companys
term loan discussed above. Further information regarding the companys debt is provided in Note 6
of the Notes to Consolidated Financial Statements included in this report.
The effect of exchange rate changes increased cash by $0.8 million in 2009. The net cash provided
by operating activities less net cash used in financing and investing activities plus the effect of
exchange rate changes, resulted in a $0.6 million decrease in cash and cash equivalents in 2009.
This left the company with a cash balance of $70.4 million at the end of 2009.
The ratio of current assets to current liabilities was 3.2 to 1 at year-end 2009, compared to 3.1
to 1 at year-end 2008 and 2.4 to 1 at year-end 2007. The change in the current ratio at the end of
the 2009 compared to the prior year reflected increased current assets in 2009, primarily related
to higher accounts receivable balances and the reclassification of assets held for sale from
property, plant and equipment, offset by a decrease in inventory balances. The carrying amounts of
total debt decreased $16.8 million in 2009, compared to an increase of $66.7 million in 2008 and a
decrease of $12.8 million in 2007, due to the $80 million loan agreement the company executed in
2008. The ratio of long-term debt to equity was 0.13 to 1 at year-end 2009, compared to 0.22 to 1
at year-end 2008 and 0.0 to 1 at year-end 2007. Further information regarding the companys debt is
provided in Note 6 of the Notes to Consolidated Financial Statements included in this report.
The company started 2008 with $64.9 million of cash. Net cash provided by operating activities in
2008 was approximately $40.6 million in the year and included $8.0 million in net income and $44.8
million in non-cash adjustments (primarily $32.2 million in depreciation and amortization, $6.0
million related to impairment of assets / investments and $5.7 million related to the Ireland
pension settlement), partially offset by $12.2 million in changes to operating assets and
liabilities. Further information regarding the impairments is provided in Notes 5 and 11, and
information regarding the pension settlement is provided in Note 12, of the Notes to Consolidated
Financial Statements included in this report.
Changes in various operating assets and liabilities (including short-term and long-term items) that
negatively impacted cash flows in 2008 consisted of decreases in accrued payroll and severance
($15.7 million), net decreases in accrued expenses ($6.6 million), increases in inventories ($6.6
million) and increases in prepaid expenses and other current assets ($6.4 million), partially
offset by decreases in accounts receivable ($23.1 million).
The companys capital expenditures were $15.5 million in 2009, $51.3 million in 2008 and $40.5
million in 2007. Higher capital expenditures in the prior two years were primarily related to
facilities and equipment to support the manufacturing transfers to Asia and Mexico. The company
expects capital expenditures in 2010 will be approximately $16 to $19 million with the largest part
related to the completion of facility moves, capacity expansion and new product development.
The companys Board of Directors has authorized the company to repurchase up to 1 million shares of
its common stock, from time to time, depending on market conditions. The company repurchased
218,000 common shares for $6.6 million in 2008, and 500,000 common shares for $16.4 million in
2007. The company did not repurchase any common shares during 2009. As of January 2, 2010, the
company is authorized to purchase up to 1,000,000 shares of its common stock.
25
Contractual Obligations and Commitments
The following table summarizes contractual obligations and commitments as of January 2, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Total |
|
< 1 Year |
|
> 1 - < 3 Years |
|
> 3 - < 5 Years |
|
> 5 Years |
|
Term loan |
|
$ |
57,000 |
|
|
$ |
8,000 |
|
|
$ |
26,000 |
|
|
$ |
23,000 |
|
|
$ |
|
|
Revolving credit facility |
|
|
6,183 |
|
|
|
6,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments |
|
|
2,881 |
|
|
|
1,095 |
|
|
|
1,654 |
|
|
|
132 |
|
|
|
|
|
Mexican Peso forward contract |
|
|
3,263 |
|
|
|
3,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive
Retirement Plan |
|
|
2,229 |
|
|
|
31 |
|
|
|
62 |
|
|
|
62 |
|
|
|
2,074 |
|
Operating lease payments* |
|
|
41,367 |
|
|
|
6,493 |
|
|
|
9,516 |
|
|
|
4,787 |
|
|
|
20,571 |
|
Purchase obligations |
|
|
23,646 |
|
|
|
23,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
136,569 |
|
|
$ |
48,711 |
|
|
$ |
37,232 |
|
|
$ |
27,981 |
|
|
$ |
22,645 |
|
|
|
|
|
* |
|
Included in operating lease payments is future rental expense related to office space for the
companys new U.S. corporate headquarters located in Chicago, Illinois. The company relocated
during the first quarter of 2009. The lease commenced in January 2009 and expires December 2024.
Refer to Note 16 of the Notes to Consolidated Financial Statements for more information. |
Off-Balance Sheet Arrangements
As of January 2, 2010, the company did not have any off-balance sheet arrangements, as defined
under the U.S. Securities and Exchange Commission rules. Specifically, the company was not liable
for guarantees of indebtedness owed by third parties; the company was not directly liable for the
debt of any unconsolidated entity, and the company did not have any retained or contingent interest
in assets; and the company does not participate in transactions that generate relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance or special purpose entities. In 2009, the company entered into derivative financial
instruments. Further information regarding these arrangements is provided in Note 7 of the Notes to
Consolidated Financial Statements included in this report.
Recent Accounting Pronouncements
In February 2007, the FASB issued guidance titled The Fair Value Option for Financial Assets and
Financial Liabilities. The guidance permits an entity to choose to measure many financial
instruments and certain other items at fair value at specified election dates. The guidance is
expected to expand the use of fair value measurement, but does not eliminate disclosure
requirements included in other accounting standards. The guidance is effective for fiscal years
beginning after November 15, 2007. The adoption of this accounting guidance did not have a material
impact on the companys Consolidated Financial Statements.
In December 2007, the FASB issued accounting guidance titled Noncontrolling Interests in
Consolidated Financial Statements. The accounting guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier
adoption prohibited. The accounting guidance requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and separate from the
parents equity. The amount of net earnings attributable to the noncontrolling interest will be
included in consolidated net income on the face of the Consolidated Statements of Income. The
accounting guidance also amends certain other consolidation procedures and includes expanded
disclosure requirements regarding the interests of the parent and its noncontrolling interest. As a
result of the adoption of the accounting guidance, the company reclassified its immaterial
noncontrolling interest from Other long-term liabilities to Total equity as of December 27,
2008 and December 29, 2007, to conform to the presentation at January 2, 2010.
26
In December 2007, the FASB revised existing guidance with respect to accounting for business
combinations. The new business combination accounting guidance retains the underlying concepts of
previous business combination accounting guidance in that all business combinations are still
required to be accounted for at fair value under the acquisition method of accounting, but the new
business combination accounting guidance changed the method of applying the acquisition method in a number of significant aspects.
Acquisition costs generally will be expensed as incurred; noncontrolling interests will be valued
at fair value at the acquisition date; in-process research and development will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition date; restructuring costs
associated with a business combination generally will be expensed subsequent to the acquisition
date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the
acquisition date generally will affect income tax expense. The new business combination accounting
guidance is effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period subsequent to December 15,
2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired
tax contingencies. The new business combination guidance amends existing income tax accounting
guidance such that adjustments made to valuation allowances on deferred taxes and acquired tax
contingencies associated with acquisitions that closed prior to the effective date of the new
business combination accounting guidance would also apply the provisions of the new business
combination accounting guidance. The adoption of the new business combination accounting guidance
resulted in a change to the companys treatment of certain uncertain tax positions in fiscal 2009.
In March 2008, the FASB issued accounting guidance titled Disclosures about Derivative Instruments
and Hedging Activities. The new standard requires enhanced disclosure about a companys
derivatives and hedging to help investors understand their impact on a companys financial
position, financial performance and cash flows. The new accounting guidance is effective for
periods beginning after November 15, 2008. The adoption of the expanded disclosure requirements
related to the companys derivative and hedging activities resulted in additional disclosures as
reflected in Note 7.
In June 2008, the FASB issued guidance titled Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities. The guidance states that unvested
share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. Upon adoption, a company is required to
retrospectively adjust its earnings per share data presentation to conform with the guidance
provisions. The guidance is effective for fiscal years beginning after December 15, 2008. The
company adopted the new guidance on December 28, 2008, which resulted in expanded disclosures as
reflected in Note 17.
In April 2009, the FASB issued guidance titled Interim Disclosures about Fair Value of Financial
Instruments. The guidance amends existing guidance to require disclosures about fair value of
financial instruments in interim financial statements as well as in annual financial statements.
This statement also amends existing guidance to require those disclosures in all interim financial
statements. The new accounting guidance is effective for interim and annual periods ending after
June 15, 2009. The adoption of the new accounting guidance resulted in additional disclosures
included in the companys quarterly filings.
In May 2009, the FASB issued guidance titled Subsequent Events. The new accounting guidance sets
forth the period after the balance sheet date during which management of a reporting entity shall
evaluate events or transactions that may occur for potential recognition or disclosure in the
financial statements, circumstances under which an entity should recognize events or transactions
that may occur for potential recognition and disclosure in the financial statements, and
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. The adoption of the new accounting guidance resulted in additional disclosures
regarding the date through which management has evaluated subsequent events. The company
27
evaluated subsequent events through February 26, 2010, the date its financial statements were filed with the
SEC.
In June 2009, the FASB issued authoritative guidance that eliminates the qualifying special purpose
entity concept, changes the requirements for derecognizing financial assets and requires enhanced
disclosures about transfers of financial assets. The guidance also revises earlier guidance for determining whether
an entity is a variable interest entity, requires a new approach for determining who should
consolidate a variable interest entity, changes when it is necessary to reassess who should
consolidate a variable interest entity, and requires enhanced disclosures related to an
enterprises involvement in variable interest entities. The guidance is effective for the first
annual reporting period that begins after November 15, 2009. The company does not believe the
adoption of the new accounting guidance will have a material impact on its Consolidated Financial
Statements.
In June 2009, the FASB issued guidance titled The FASB Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles (the codification standard). The codification standard
is effective for fiscal years, and interim periods, ending after September 15, 2009. The
codification standard is intended to improve financial reporting by identifying the FASB Accounting
Standards Codification and rules and interpretive releases of the SEC under authority of federal
securities laws as the sole sources of authoritative accounting principles to be used in preparing
financial statements that are presented in conformity with accounting principles generally accepted
in the United States of America for SEC registrants. The company adopted the codification standard
on September 26, 2009. The adoption of the codification standard did not have a material impact on
the companys consolidated financial position or results of operations.
In October 2009, the FASB issued authoritative guidance that amends earlier guidance addressing the
accounting for contractual arrangements in which an entity provides multiple products or services
(deliverables) to a customer. The amendments address the unit of accounting for arrangements
involving multiple deliverables and how arrangement consideration should be allocated to the
separate units of accounting, when applicable, by establishing a selling price hierarchy for
determining the selling price of a deliverable. The selling price used for each deliverable will be
based on vendor-specific objective evidence if available, third-party evidence if vendor-specific
objective evidence is not available, or estimated selling price if neither vendor-specific nor
third-party evidence is available. The amendments also require that arrangement consideration be
allocated at the inception of an arrangement to all deliverables using the relative selling price
method. The guidance is effective for fiscal years beginning on or after June 15, 2010, with
earlier application permitted. The company does not believe the accounting guidance will have a
material impact on its Consolidated Financial Statements.
In October 2009, the FASB issued authoritative guidance that amends earlier guidance for revenue
arrangements that include both tangible products and software elements. Tangible products
containing software components and non-software components that function together to deliver the
tangible products essential functionality are no longer within the scope of guidance for
recognizing revenue from the sale of software, but would be accounted for in accordance with other
authoritative guidance. The guidance is effective for fiscal years beginning on or after June 15,
2010, with earlier application permitted. The company does not believe the accounting guidance will
have a material impact on its Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Certain of the accounting policies as discussed below require the application of significant
judgment by management in selecting the appropriate estimates and assumptions for calculating
amounts to record in the financial statements. Actual results could differ from those estimates and
assumptions, impacting the reported results of operations and financial position. Significant
accounting policies are more fully described in the Notes to Consolidated Financial Statements
included elsewhere in this Annual Report. Certain accounting policies,
28
however, are considered to be critical in that they are most important to the depiction of the companys financial condition
and results of operations and their application requires managements subjective judgment in making
estimates about the effect of matters that are inherently uncertain. The company believes the
following accounting policies are the most critical to aid in fully understanding and evaluating
its reported financial results, as they require managements most difficult, subjective or complex
judgments, resulting from the need to make estimates about the effect of matters that are
inherently uncertain. The company has reviewed these critical accounting policies and related disclosures with the Audit Committee of its Board of
Directors.
Net Sales
Revenue Recognition: The company recognizes revenue on product sales in the period in which the
sales process is complete. This generally occurs when products are shipped (FOB origin) to the
customer in accordance with the terms of the sale, the risk of loss has been transferred,
collectibility is reasonably assured and the pricing is fixed and determinable. At the end of each
period, for those shipments where title to the products and the risk of loss and rewards of
ownership do not transfer until the product has been received by the customer, the company adjusts
revenues and cost of sales for the delay between the time that the products are shipped and when
they are received by the customer. The companys distribution channels are primarily through direct
sales and independent third party distributors.
Revenue & Billing: The company accepts orders from customers based on long term purchasing
contracts and written sales agreements. Contract pricing and selling agreement terms are based on
market factors, costs, and competition. Pricing normally is negotiated as an adjustment (premium or
discount) from the companys published price lists. The customer is invoiced when the companys
products are shipped to them in accordance with the terms of the sales agreement.
Returns & Credits: Some of the terms of the companys sales agreements and normal business
conditions provide customers (distributors) the ability to receive price adjustments on products
previously shipped and invoiced. This practice is common in the industry and is referred to as a
ship and debit program. This program allows the distributor to debit the company for the
difference between the distributors contracted price and a lower price for specific transactions.
Under certain circumstances (usually in a competitive situation or large volume opportunity), a
distributor will request authorization to reduce its price to its buyer. If the company approves
such a reduction, the distributor is authorized to debit its account for the difference between
the contracted price and the lower approved price. The company establishes reserves for this
program based on historic activity and actual authorizations for the debit and recognizes these
debits as a reduction of revenue.
The company has a return to stock policy whereby a customer with previous authorization from
Littelfuse management can return previously purchased goods for full or partial credit. The company
establishes an estimated allowance for these returns based on historic activity. Sales revenue and
cost of sales are reduced to anticipate estimated returns.
The company properly meets all of the criteria for recognizing revenue when the right of return
exists. Specifically, the company meets those requirements because:
|
1. |
|
The companys selling price is fixed or determinable at the date of the sale. |
|
|
2. |
|
The company has policies and procedures to accept only credit worthy customers with
the ability to pay the company. |
|
|
3. |
|
The companys customers are obligated to pay the company under the contract and the
obligation is not contingent on the resale of the product. (All ship and debit and
returns to stock require specific circumstances and authorization.) |
|
|
4. |
|
The risk ownership transfers to the companys customers upon shipment and is not
changed in the event of theft, physical destruction or damage of the product. |
29
|
5. |
|
The company bills at the ship date and establishes a reserve to reduce revenue from
the in transit time until the product is delivered for FOB destination sales. |
|
|
6. |
|
The companys customers acquiring the product for resale have economic substance
apart from that provided by Littelfuse. All distributors are independent of the company. |
|
|
7. |
|
The company does not have any obligations for future performance to bring about
resale of the product by its customers. |
|
|
8. |
|
The company can reasonably estimate the amount of future returns. |
Volume Rebates: The company offers incentives to certain customers to achieve specific quarterly or
annual sales targets. If customers achieve their sales targets, they are entitled to rebates. The
company estimates the future cost of these rebates and recognizes this estimated cost as a
reduction to revenue as products are sold.
Allowance for Doubtful Accounts: The company evaluates the collectibility of its trade receivables
based on a combination of factors. The company regularly analyzes its significant customer accounts
and, when the company becomes aware of a specific customers inability to meet its financial
obligations, the company records a specific reserve for bad debt to reduce the related receivable
to the amount the company reasonably believes is collectible. The company also records allowances
for all other customers based on a variety of factors including the length of time the receivables
are past due, the financial health of the customer, macroeconomic considerations and past
experience. Historically, the allowance for doubtful accounts has been adequate to cover bad debts.
If circumstances related to specific customers change, the estimates of the recoverability of
receivables could be further adjusted.
Inventory
The company performs regular detailed assessments of inventory, which include a review of, among
other factors, demand requirements, product life cycle and development plans, component cost
trends, product pricing, shelf life and quality issues. Based on the analysis, the company records
adjustments to inventory for excess quantities, obsolescence or impairment when appropriate to
reflect inventory at net realizable value. Historically, inventory reserves have been adequate to
reflect inventory at net realizable values.
Goodwill and Other Intangible Assets
The company annually tests goodwill for impairment on the first day of its fiscal fourth quarter or
at an interim date if there is an event or change in circumstances that indicates the asset may be
impaired. Management determines the fair value of each of its business unit segments by using a
discounted cash flow model (which includes forecasted five-year income statement and working
capital projections, a market-based weighted average cost of capital and terminal values after five
years) to estimate market value. In addition, the company compares its derived enterprise value on
a consolidated basis to the companys market capitalization as of its test date to ensure its
derived value approximates the market value of the company when taken as a whole. The company has
defined its reportable segments as its reporting units for goodwill accounting.
As of the most recent annual test conducted on September 27, 2009, the company concluded the fair
value of each of the reporting units exceeded its carrying value of invested capital and therefore,
no goodwill impairment existed. Specifically, the company noted that its headroom, defined as the
excess of fair value over the carrying value of invested capital, was 35%, 30% and 38% for its
electronics, automotive and electrical reporting units, respectively, at September 27, 2009.
Certain key assumptions used in the annual test included a discount rate of 14.5% and a long-term
growth rate of 3% for all three business units.
In addition, the company performed a sensitivity test at September 27, 2009 that showed a 100 basis
point increase in its discount rate or a 100 basis point decrease in the long-term growth rate for
each reporting unit would not have changed the companys conclusion that no goodwill impairment
existed at September 27, 2009.
30
The company will continue to perform a goodwill impairment test as required on an annual basis and
on an interim basis, if certain conditions exist. Factors the company considers important, which
could result in changes to its estimates, include underperformance relative to historical or
projected future operating results and declines in acquisitions and trading multiples. Due to the
diverse end user base and non-discretionary product demand, the company does not believe its future
operating results will vary significantly relative to its historical and projected future operating
results.
Long-Lived Assets
The company evaluates long-lived asset groups on an ongoing basis. Long-lived asset groups are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the related asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the asset to future undiscounted cash flows
expected to be generated by the asset group. If it is determined to be impaired, the impairment
recognized is measured by the amount by which the carrying value of the asset exceeds its fair
value. The companys estimates of future cash flows from such assets could be impacted if it
underperforms relative to historical or projected future operating results.
Environmental Liabilities
Environmental liabilities are accrued based on estimates of the probability of potential future
environmental exposure. Expenses related to on-going maintenance of environmental sites are
expensed as incurred. If actual or estimated probable future losses exceed the companys recorded
liability for such claims, it would record additional charges as other expense during the period in
which the actual loss or change in estimate occurred.
Pension and Supplemental Executive Retirement Plan
Littelfuse has a number of company-sponsored defined benefit plans primarily in North America,
Europe and the Asia-Pacific region. The company recognizes the full unfunded status of the plan on
the balance sheet. Actuarial gains and losses and prior service costs and credits are recognized as
a component of accumulated other comprehensive income. Accounting for pensions requires estimating
the future benefit cost and recognizing the cost over the employees expected period of employment
with the company. Certain assumptions are required in the calculation of pension costs and
obligations. These assumptions include the discount rate, salary scales and the expected long-term
rate of return on plan assets. The discount rate is intended to represent the rate at which pension
benefit obligations could be settled by purchase of an annuity contract. These assumptions are
subject to change based on stock and bond market returns and other economic factors. Actual results
that differ from the companys assumptions are accumulated and amortized over future periods and
therefore, generally affect its recognized expense and accrued liability in such future periods.
While the company believes that its assumptions are appropriate given current economic conditions
and its actual experience, significant differences in results or significant changes in the
companys assumptions may materially affect its pension obligations and related future expense.
Further information regarding these plans is provided in Note 12 of the Notes to Consolidated
Financial Statements included in this report.
Stock-based Compensation
Stock-based compensation expense is recorded for stock-option grants, restricted stock and
performance-based restricted stock awards based upon the fair values of the awards. The fair value
of stock option awards is estimated at the grant date using the Black-Scholes option pricing model,
which includes assumptions for volatility, expected term, risk-free interest rate and dividend
yield. Expected volatility is based on implied volatilities from traded options on Littelfuse
stock, historical volatility of Littelfuse stock and other factors. Historical data is used to
estimate employee termination experience and the expected term of the options. The
31
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The company
has not paid any cash dividends in its history.
The performance-based restricted stock awards granted prior to 2008 vest in thirds over a
three-year period (following the three-year performance period), and are paid annually as they
vest, one half in the companys common stock and one half in cash. The performance-based restricted
stock awards granted in 2008 vest after a three-year performance period and are paid completely in
the companys common stock at the end of the performance period. The fair value of
performance-based restricted stock awards that are paid in common stock is measured at the market
price on the grant date, and the fair value of the portion paid in cash is measured at the current
market price of a share.
The number of shares issued is based on the company attaining certain financial performance goals
relating to return on net tangible assets (RONTA) for performance-based restricted stock awards
granted prior to 2008, or return on net assets (RONA) for performance-based restricted stock
granted in 2008 and 2009, as well as earnings before interest, taxes, depreciation and amortization
(EBITDA) during the three-year performance period after the grant date. Stock-based compensation
expense for performance-based restricted stock awards is based on the fair values and the companys
current estimate of the probable number of shares to be issued (based on the probable outcome at
the end of the performance period). As the companys estimate of the probable outcome changes in
future periods, stock-based compensation expense is adjusted accordingly.
Total stock-based compensation expense was $5.5 million, $5.1 million and $5.0 million in 2009,
2008, and 2007, respectively. Further information regarding this expense is provided in Note 13 of
the Notes to Consolidated Financial Statements included in this report.
Income Taxes
The company accounts for income taxes using the liability method. Deferred taxes are recognized for
the future effects of temporary differences between financial and income tax reporting using tax
rates in effect for the years in which the differences are expected to reverse. The company
recognizes deferred taxes for temporary differences, operating loss carryforwards and tax credit
carryforwards. Deferred tax assets are reduced by a valuation allowance if it is more likely than
not that some portion, or all, of the deferred tax assets will not be realized. Federal and state
income taxes are provided on the portion of foreign income that is expected to be remitted to the
U.S. and be taxable.
The company recognizes the tax benefit from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the financial statements from
such a position are measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement.
Further information regarding income taxes, including a detailed reconciliation of current year
activity, is provided in Note 14 of the Notes to Consolidated Financial Statements included in this
report.
Outlook
The companys automotive and electronics markets weakened significantly beginning in the fourth
quarter of 2008. The electrical market lagged and began to weaken in 2009. Excluding Startco,
acquired in late 2008, electrical sales were down 22% for 2009 in line with automotive and
electronics, due to the decline in non-residential construction. During the second half of 2009,
the company began to experience an up-tick in demand across all segments. Sales for the fourth
quarter of 2009 of $127.9 million represented a 10% sequential increase over the 2009 third
quarter.
32
The company also began benefiting from its plan initiated in 2005 to reduce and consolidate its
manufacturing operations to low cost locations in China, the Philippines and Mexico. This plan is
expected to be completed by the end of 2010. In addition to its plant restructuring, the company
has also executed a plan to reduce operating expenses year over year.
With the significantly improved expense profile and guarded optimistic expectations for year over
year revenue growth, pre tax operating margins should improve significantly in 2010.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The company is exposed to market risk from changes in interest rates, foreign exchange rates and
commodities.
Interest Rates
The company had $63.2 million in debt outstanding at January 2, 2010, primarily related to the term
loan, which is described above in Item 7 under Liquidity and Capital Resources. In order to reduce
interest rate risk and effectively manage its exposure to fluctuations in the adjustable interest
rate of the loan, the company entered into a one-year interest rate swap transaction with JPMorgan
Chase Bank, N.A. on October 29, 2008. The interest rate swap was for a notional amount of $65
million and allowed the company to pay a fixed annual rate of 2.85% on the notional amount and
required JPMorgan Chase Bank, N.A. to pay a floating rate tied to the one-month U.S. dollar LIBOR.
The interest rate swap expired on October 29, 2009. While the remaining portion of this debt has a
variable interest rate, the companys interest expense is not materially sensitive to changes in
interest rate levels since debt levels and potential interest expense increases are insignificant
relative to earnings.
Foreign Exchange Rates
The majority of the companys operations consist of manufacturing and sales activities in foreign
countries. The company has manufacturing facilities in Mexico, Canada, Germany, China, Taiwan and
the Philippines. During 2009, sales to customers outside the U.S. were 67.5% of total net sales.
Substantially all sales in Europe are denominated in euros and substantially all sales in the
Asia-Pacific region are denominated in U.S. dollars, Japanese yen, Korean won, Chinese yuan and
Taiwanese dollars.
The companys foreign exchange exposures result primarily from sale of products in foreign
currencies, foreign currency denominated purchases, employee-related and other costs of running
operations in foreign countries and translation of balance sheet accounts denominated in foreign
currencies. The companys most significant long exposure is to the euro, with lesser long exposures
to the Canadian dollar, Japanese yen and Korean won. The companys most significant short exposures
are to the Mexican peso, Philippine peso and Chinese yuan. Changes in foreign exchange rates could
affect the companys sales, costs, balance sheet values and earnings. The company uses netting and
offsetting intercompany account management techniques to reduce known foreign currency exposures
where possible and also, from time to time, utilizes derivative instruments to hedge certain
foreign currency exposures deemed to be material.
During 2009, the company entered into a forward contract to purchases Mexican Peso. The purpose of
the contract was to hedge approximately 60% of the companys forecasted Mexican peso exposure
included within a U.S. dollar functional currency entity. See Note 7 for additional disclosure.
Commodities
The company uses various metals in the manufacturing of its products, including copper, zinc, tin,
gold and silver. Prices of these commodities can and do fluctuate significantly, which can impact
the companys earnings. The most significant of these exposures is to copper and zinc, where at
current prices and volumes, a
33
10% price change in copper would affect pretax profit by approximately $1.4 million. A 10% change in zinc would affect pretax profit by approximately $0.5
million.
The cost of oil fluctuated dramatically over the past several years. Consequently, there is a risk
that a return to high prices for oil and electricity in 2010 could have a significant impact on the
companys transportation and utility expenses.
While the company is exposed to significant changes in certain commodity prices and foreign
currency exchange rates, the company actively monitors these exposures and takes various actions to
mitigate any negative impacts of these exposures.
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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36 |
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37 |
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Consolidated Financial Statements |
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38 |
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39 |
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40 |
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41 |
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42 |
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49 |
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51 |
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51 |
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52 |
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53 |
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55 |
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57 |
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59 |
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63 |
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63 |
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63 |
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67 |
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70 |
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73 |
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75 |
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75 |
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77 |
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35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Littelfuse, Inc.
We have audited the accompanying consolidated balance sheets of Littelfuse, Inc. and subsidiaries
(Company) as of January 2, 2010, and December 27, 2008, and the related consolidated statements of
income, equity, and cash flows for each of the three years in the period ended January 2, 2010.
Our audits also included the financial statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Littelfuse, Inc. and subsidiaries at January 2,
2010 and December 27, 2008, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended January 2, 2010, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As described in Note 1 of the notes to the consolidated financial statements, effective December
28, 2008, the Company adopted new rules regarding the accounting for noncontrolling interests. As
described in Note 17 of the notes to the consolidated financial statements, effective December 28,
2008, the Company adopted the two-class method of computing earnings per share.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Littelfuse, Inc. and subsidiaries internal control over financial reporting
as of January 2, 2010, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 26, 2010, expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 26, 2010
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Littelfuse, Inc.
We have audited Littelfuse, Inc.s internal control over financial reporting as of January 2,
2010, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Littelfuse,
Inc.s management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Form 10-K. Our responsibility is to express an opinion on the
companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Littelfuse, Inc. maintained, in all material respects, effective internal control
over financial reporting as of January 2, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Littelfuse, Inc. and subsidiaries as of
January 2, 2010, and December 27, 2008, and the related consolidated statements of income, equity,
and cash flows for each of the three years in the period ended January 2, 2010, and our report
dated February 26, 2010 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 26, 2010
37
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
(In thousands of USD) |
|
January 2, 2010 |
|
|
December 27, 2008 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
70,354 |
|
|
$ |
70,937 |
|
Accounts receivable, less allowances (2009 - $9,975; 2008 - $12,770) |
|
|
79,521 |
|
|
|
62,126 |
|
Inventories |
|
|
52,567 |
|
|
|
66,679 |
|
Deferred income taxes |
|
|
13,804 |
|
|
|
11,693 |
|
Prepaid expenses and other current assets |
|
|
18,196 |
|
|
|
17,968 |
|
Assets held for sale |
|
|
7,343 |
|
|
|
|
|
|
Total current assets |
|
|
241,785 |
|
|
|
229,403 |
|
Property, plant, and equipment: |
|
|
|
|
|
|
|
|
Land |
|
|
7,808 |
|
|
|
11,089 |
|
Buildings |
|
|
56,916 |
|
|
|
68,165 |
|
Equipment |
|
|
280,928 |
|
|
|
301,835 |
|
Accumulated depreciation |
|
|
(207,500 |
) |
|
|
(220,939 |
) |
|
Net property, plant and equipment |
|
|
138,152 |
|
|
|
160,150 |
|
Intangible assets, net of amortization: |
|
|
|
|
|
|
|
|
Patents, licenses and software |
|
|
12,451 |
|
|
|
8,077 |
|
Distribution network |
|
|
10,837 |
|
|
|
11,577 |
|
Customer lists, trademarks and tradenames |
|
|
13,363 |
|
|
|
2,954 |
|
Goodwill |
|
|
94,986 |
|
|
|
106,961 |
|
Investments |
|
|
11,742 |
|
|
|
3,436 |
|
Deferred income taxes |
|
|
8,460 |
|
|
|
15,235 |
|
Other assets |
|
|
1,351 |
|
|
|
1,135 |
|
|
Total assets |
|
$ |
533,127 |
|
|
$ |
538,928 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
23,646 |
|
|
$ |
18,854 |
|
Accrued payroll |
|
|
13,291 |
|
|
|
17,863 |
|
Accrued expenses |
|
|
8,561 |
|
|
|
17,220 |
|
Accrued severance |
|
|
11,418 |
|
|
|
8,393 |
|
Accrued income taxes |
|
|
4,525 |
|
|
|
2,570 |
|
Current portion of long-term debt |
|
|
14,183 |
|
|
|
8,000 |
|
|
Total current liabilities |
|
|
75,624 |
|
|
|
72,900 |
|
Long-term debt, less current portion |
|
|
49,000 |
|
|
|
72,000 |
|
Accrued severance |
|
|
421 |
|
|
|
7,200 |
|
Accrued post-retirement benefits |
|
|
18,271 |
|
|
|
41,637 |
|
Other long-term liabilities |
|
|
11,212 |
|
|
|
11,340 |
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share: 1,000,000 shares authorized; no shares
issued and outstanding |
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share: 34,000,000 shares authorized; shares issued
and outstanding, 2009 21,792,241; 2008 -
21,719,734 |
|
|
218 |
|
|
|
217 |
|
Additional paid-in capital |
|
|
130,870 |
|
|
|
124,384 |
|
Accumulated other comprehensive income (loss) |
|
|
18,727 |
|
|
|
(10,123 |
) |
Retained earnings |
|
|
228,641 |
|
|
|
219,230 |
|
|
Littelfuse, Inc. shareholders equity |
|
|
378,456 |
|
|
|
333,708 |
|
|
Non-controlling interest |
|
|
143 |
|
|
|
143 |
|
|
Total equity |
|
|
378,599 |
|
|
|
333,851 |
|
|
Total liabilities and equity |
|
$ |
533,127 |
|
|
$ |
538,928 |
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
38
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
January 2, |
|
|
December 27, |
|
|
December 29, |
|
(In thousands of USD, except per share amounts) |
|
2010 |
|
|
2008 |
|
|
2007 |
|
|
Net sales |
|
$ |
430,147 |
|
|
$ |
530,869 |
|
|
$ |
536,144 |
|
Cost of sales |
|
|
304,786 |
|
|
|
387,200 |
|
|
|
364,607 |
|
|
Gross profit |
|
|
125,361 |
|
|
|
143,669 |
|
|
|
171,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
88,506 |
|
|
|
107,239 |
|
|
|
103,258 |
|
Research and development expenses |
|
|
18,134 |
|
|
|
24,069 |
|
|
|
21,700 |
|
Gain on sale of Ireland property |
|
|
|
|
|
|
|
|
|
|
(8,037 |
) |
Amortization of intangibles |
|
|
5,026 |
|
|
|
3,866 |
|
|
|
3,307 |
|
|
Total operating expenses |
|
|
111,666 |
|
|
|
135,174 |
|
|
|
120,228 |
|
|
Operating income |
|
|
13,695 |
|
|
|
8,495 |
|
|
|
51,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
2,377 |
|
|
|
3,440 |
|
|
|
1,557 |
|
Other expense (income), net |
|
|
481 |
|
|
|
(5,568 |
) |
|
|
(1,536 |
) |
|
Income before income taxes |
|
|
10,837 |
|
|
|
10,623 |
|
|
|
51,288 |
|
Income taxes |
|
|
1,426 |
|
|
|
2,607 |
|
|
|
14,453 |
|
|
Net income |
|
$ |
9,411 |
|
|
$ |
8,016 |
|
|
$ |
36,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.43 |
|
|
$ |
0.37 |
|
|
$ |
1.66 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.43 |
|
|
$ |
0.37 |
|
|
$ |
1.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares and equivalent
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
21,743 |
|
|
|
21,722 |
|
|
|
22,231 |
|
Diluted |
|
|
21,812 |
|
|
|
21,826 |
|
|
|
22,394 |
|
|
See accompanying notes.
39
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
(In thousands of USD) |
|
January 2, 2010 |
|
|
December 27, 2008 |
|
|
December 29, 2007 |
|
| | | |
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,411 |
|
|
$ |
8,016 |
|
|
$ |
36,835 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
31,596 |
|
|
|
28,333 |
|
|
|
25,429 |
|
Impairment of assets |
|
|
829 |
|
|
|
3,169 |
|
|
|
767 |
|
Impairment of investments |
|
|
|
|
|
|
2,787 |
|
|
|
|
|
Amortization of intangibles |
|
|
5,026 |
|
|
|
3,866 |
|
|
|
3,307 |
|
Provision for bad debts |
|
|
319 |
|
|
|
286 |
|
|
|
31 |
|
Loss (gain) on sale of property, plant and |
|
|
|
|
|
|
|
|
|
|
|
|
equipment |
|
|
703 |
|
|
|
(511 |
) |
|
|
(8,037 |
) |
Stock-based compensation |
|
|
5,503 |
|
|
|
5,058 |
|
|
|
4,957 |
|
Deferred income taxes |
|
|
(2,905 |
) |
|
|
(3,947 |
) |
|
|
2,151 |
|
Pension settlement expenses |
|
|
|
|
|
|
5,725 |
|
|
|
1,506 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(15,569 |
) |
|
|
23,080 |
|
|
|
(280 |
) |
Inventories |
|
|
15,549 |
|
|
|
(6,593 |
) |
|
|
9,112 |
|
Accounts payable and accrued expenses |
|
|
(7,934 |
) |
|
|
(3,129 |
) |
|
|
(5,307 |
) |
Accrued payroll and severance |
|
|
(9,018 |
) |
|
|
(15,705 |
) |
|
|
(3,046 |
) |
Accrued taxes |
|
|
(3,322 |
) |
|
|
(3,462 |
) |
|
|
(3,071 |
) |
Prepaid expenses and other |
|
|
(577 |
) |
|
|
(6,398 |
) |
|
|
(4,414 |
) |
|
Net cash provided by operating activities |
|
|
29,611 |
|
|
|
40,575 |
|
|
|
59,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(15,536 |
) |
|
|
(51,288 |
) |
|
|
(40,501 |
) |
Purchase of businesses, net of cash acquired |
|
|
(920 |
) |
|
|
(47,465 |
) |
|
|
(4,507 |
) |
Proceeds from sale of investment |
|
|
133 |
|
|
|
|
|
|
|
|
|
Proceeds from sale of property, plant and
equipment |
|
|
1,558 |
|
|
|
4,479 |
|
|
|
|
|
Proceeds from sale of Ireland property |
|
|
|
|
|
|
|
|
|
|
8,593 |
|
Deposit on sale of building |
|
|
|
|
|
|
|
|
|
|
1,607 |
|
|
Net cash used in investing activities |
|
|
(14,765 |
) |
|
|
(94,274 |
) |
|
|
(34,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt |
|
|
32,374 |
|
|
|
190,500 |
|
|
|
89,200 |
|
Payments of debt |
|
|
(50,076 |
) |
|
|
(123,912 |
) |
|
|
(101,991 |
) |
Proceeds from exercise of stock options |
|
|
1,505 |
|
|
|
1,857 |
|
|
|
6,316 |
|
Notes receivable, common stock |
|
|
|
|
|
|
5 |
|
|
|
5 |
|
Excess tax benefit on share-based compensation |
|
|
15 |
|
|
|
172 |
|
|
|
610 |
|
Purchases of common stock |
|
|
|
|
|
|
(6,623 |
) |
|
|
(16,433 |
) |
|
Net cash (used in) provided by financing
activities |
|
|
(16,182 |
) |
|
|
61,999 |
|
|
|
(22,293 |
) |
Effect of exchange rate changes on cash and
cash equivalents |
|
|
753 |
|
|
|
(2,306 |
) |
|
|
5,400 |
|
|
(Decrease) increase in cash and cash equivalents |
|
|
(583 |
) |
|
|
5,994 |
|
|
|
8,239 |
|
Cash and cash equivalents at beginning of year |
|
|
70,937 |
|
|
|
64,943 |
|
|
|
56,704 |
|
|
Cash and cash equivalents at end of year |
|
$ |
70,354 |
|
|
$ |
70,937 |
|
|
$ |
64,943 |
|
|
See accompanying notes.
40
CONSOLIDATED STATEMENTS OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Littelfuse, Inc. Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Addl. Paid in |
|
|
Notes Rec. Common |
|
|
Accum. Other Comp. |
|
|
|
|
|
|
Non-controlling |
|
|
|
|
(In thousands of USD) |
|
Common Stock |
|
|
Capital |
|
|
Stock |
|
|
Inc. (Loss) |
|
|
Retained Earnings |
|
|
Interest |
|
|
Total |
|
|
Balance at December 31, 2006 |
|
$ |
221 |
|
|
$ |
108,543 |
|
|
$ |
(10 |
) |
|
$ |
(11 |
) |
|
$ |
194,922 |
|
|
$ |
143 |
|
|
$ |
303,808 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,835 |
|
|
|
|
|
|
|
36,835 |
|
Min. pension liability adj.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,123 |
|
|
|
|
|
|
|
|
|
|
|
4,123 |
|
Unrealized gain on invest.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
668 |
|
Foreign currency trans. adj. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,581 |
|
|
|
|
|
|
|
|
|
|
|
12,581 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,207 |
|
Payments on notes receivable |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Stock-based compensation |
|
|
|
|
|
|
4,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,957 |
|
Purchase of 500,000 shares of
common stock |
|
|
(5 |
) |
|
|
(1,745 |
) |
|
|
|
|
|
|
|
|
|
|
(14,683 |
) |
|
|
|
|
|
|
(16,433 |
) |
Stock options exercised,
including tax impact of $728 |
|
|
3 |
|
|
|
7,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,013 |
|
|
Balance at December 29, 2007 |
|
$ |
219 |
|
|
$ |
118,765 |
|
|
$ |
(5 |
) |
|
$ |
17,361 |
|
|
$ |
217,074 |
|
|
$ |
143 |
|
|
$ |
353,557 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,016 |
|
|
|
|
|
|
|
8,016 |
|
Change in net unrealized
gain on derivatives* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(403 |
) |
|
|
|
|
|
|
|
|
|
|
(403 |
) |
Min. pension liability adj. * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,653 |
) |
|
|
|
|
|
|
|
|
|
|
(11,653 |
) |
Unrealized loss on invest.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,892 |
) |
|
|
|
|
|
|
|
|
|
|
(2,892 |
) |
Transfer of investment loss
to income* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,787 |
|
|
|
|
|
|
|
|
|
|
|
2,787 |
|
Foreign currency trans. adj. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,323 |
) |
|
|
|
|
|
|
|
|
|
|
(15,323 |
) |
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,468 |
) |
Payments on notes receivable |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Stock-based compensation |
|
|
|
|
|
|
5,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,058 |
|
Purchase of 218,000 shares of
common stock |
|
|
(2 |
) |
|
|
(761 |
) |
|
|
|
|
|
|
|
|
|
|
(5,860 |
) |
|
|
|
|
|
|
(6,623 |
) |
Stock options exercised,
including tax impact of ($361) |
|
|
|
|
|
|
1,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,322 |
|
Balance at December 27, 2008 |
|
$ |
217 |
|
|
$ |
124,384 |
|
|
$ |
|
|
|
$ |
(10,123 |
) |
|
$ |
219,230 |
|
|
$ |
143 |
|
|
$ |
333,851 |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,411 |
|
|
|
|
|
|
|
9,411 |
|
Change in net unrealized gain on derivatives* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311 |
|
|
|
|
|
|
|
|
|
|
|
311 |
|
Min. pension liability adj. * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,657 |
|
|
|
|
|
|
|
|
|
|
|
11,657 |
|
Unrealized gain on invest.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,648 |
|
|
|
|
|
|
|
|
|
|
|
8,648 |
|
Foreign currency trans. adj. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,234 |
|
|
|
|
|
|
|
|
|
|
|
8,234 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,261 |
|
Stock-based compensation |
|
|
|
|
|
|
5,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,503 |
|
Stock options exercised,
including tax impact of ($521) |
|
|
1 |
|
|
|
983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
984 |
|
|
Balance at January 2, 2010 |
|
$ |
218 |
|
|
$ |
130,870 |
|
|
$ |
|
|
|
$ |
18,727 |
|
|
$ |
228,641 |
|
|
$ |
143 |
|
|
$ |
378,599 |
|
|
|
|
|
* |
|
Including related tax impact. |
See accompanying notes.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information
Nature of Operations: Littelfuse, Inc. and its subsidiaries (the company) design, manufacture,
and sell circuit protection devices for use in the automotive, electronic and electrical markets
throughout the world.
Fiscal Year: The companys fiscal year ended January 2, 2010 contained 53 weeks and fiscal years
ended December 27, 2008, and December 29, 2007 contained 52 weeks each.
Basis of Presentation: The Consolidated Financial Statements include the accounts of Littelfuse,
Inc. and its subsidiaries. All significant intercompany accounts and transactions have been
eliminated. The companys Consolidated Financial Statements were prepared in accordance with
generally accepted accounting principles in the United States of America and include the assets,
liabilities, revenues and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries
over which the company exercises control.
Use of Estimates: The process of preparing financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and assumptions that affect
the amounts of assets and liabilities at the date of the Consolidated Financial Statements, and the
reported amounts of revenues and expenses and the accompanying notes. The company evaluates and
updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist
in its evaluation, as considered necessary. Actual results could differ from those estimates.
Cash Equivalents: All highly liquid investments, with a maturity of three months or less when
purchased, are considered to be cash equivalents.
Investments: The company has determined that all of its investment securities are to be classified
as available-for-sale. Available-for-sale securities are carried at fair value with the unrealized
gains and losses reported as a component of Accumulated Other Comprehensive Income (Loss).
Realized gains and losses and declines in unrealized value judged to be other-than-temporary on
available-for-sale securities are included in other expense (income), net. The cost of securities
sold is based on the specific identification method. Interest and dividends on securities
classified as available-for-sale are included in interest income.
Fair Value of Financial Instruments: The companys financial instruments include cash and cash
equivalents, accounts receivable, investments, derivative instruments and long-term debt. The
carrying values of such financial instruments approximate their estimated fair values.
Accounts Receivable: The company performs credit evaluations of customers financial condition and
generally does not require collateral. Credit losses are provided for in the financial statements
based upon specific knowledge of a customers inability to meet its financial obligations to the
company. Historically, credit losses have consistently been within managements expectations and
have not been a material amount. A receivable is considered past due if payments have not been
received within agreed upon invoice terms. Write-offs are recorded at the time a customer
receivable is deemed uncollectible.
The company also maintains allowances against accounts receivable for the settlement of rebates and
sales discounts to customers. These allowances are based upon specific customer sales and sales
discounts as well as actual historical experience.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
Inventories: Inventories are stated at the lower of cost or market (first in, first out method),
which approximates current replacement cost. The company maintains excess and obsolete allowances
against inventory to reduce the carrying value to the expected net realizable value. These
allowances are based upon a combination of factors including historical sales volume, market
conditions, lower of cost or market analysis and expected realizable value of the inventory.
Property, Plant and Equipment: Land, buildings, and equipment are carried at cost. Depreciation is
calculated using the straight-line method with useful lives of 21 years for buildings, seven to
nine years for equipment, seven years for furniture and fixtures, five years for tooling and three
years for computer equipment.
Goodwill: The company annually tests goodwill for impairment on the first day of its fiscal fourth
quarter or at an interim date if there is an event or change in circumstances that indicates the
asset may be impaired. Management determines the fair value of each of its business unit segments
by using a discounted cash flow model (which includes forecasted five-year income statement and
working capital projections, a market-based weighted average cost of capital and terminal values
after five years) to estimate market value. In addition, the company compares its derived
enterprise value on a consolidated basis to the companys market capitalization as of its test date
to ensure its derived value approximates the market value of the company when taken as a whole.
The company has defined its reportable segments as its reporting units for goodwill accounting.
As of the most recent annual test conducted on September 27, 2009, the company concluded the fair
value of each of the reporting units exceeded its carrying value of invested capital and therefore,
no goodwill impairment existed. Specifically, the company noted that its headroom, defined as the
excess of fair value over the carrying value of invested capital, was 35%, 30% and 38% for its
electronics, automotive and electrical reporting units, respectively, at September 27, 2009.
Certain key assumptions used in the annual test included a discount rate of 14.5% and a long-term
growth rate of 3% for all three business units.
In addition, the company performed a sensitivity test at September 27, 2009 that showed a 100 basis
point increase in its discount rate or a 100 basis point decrease in the long-term growth rate for
each reporting unit would not have changed the companys conclusion that no goodwill impairment
existed at September 27, 2009.
The company will continue to perform a goodwill impairment test as required on an annual basis and
on an interim basis, if certain conditions exist. Factors the company considers important, which
could result in changes to its estimates, include underperformance relative to historical or
projected future operating results and declines in acquisitions and trading multiples. Due to the
diverse end user base and non-discretionary product demand, the company does not believe its future
operating results will vary significantly relative to its historical and projected future operating
results.
Other Intangible Assets: Trademarks and tradenames are amortized using the straight-line method
over estimated useful lives that have a range of five to 20 years. Patents, licenses and software
are amortized using the straight-line method or an accelerated method over estimated useful lives
that have a range of four to 12 years. The distribution networks are amortized on either a
straight-line or accelerated basis over estimated useful lives that have a range of four to 20
years. Other intangible assets are also tested for impairment when there is a significant event
that may cause the asset to be impaired.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
Environmental Liabilities: Environmental liabilities are accrued based on engineering studies
estimating the cost of remediating sites. Expenses related to on-going maintenance of environmental
sites are expensed as incurred. If actual or estimated probable future losses exceed the companys
recorded liability for such claims, the company would record additional charges during the period
in which the actual loss or change in estimate occurred.
Pension and Other Post-retirement Benefits: Accounting for pensions requires estimating the future
benefit cost and recognizing the cost over the employees expected period of employment with the
company. Certain assumptions are required in the calculation of pension costs and obligations.
These assumptions include the discount rate, salary scales and the expected long-term rate of
return on plan assets. The discount rate is intended to represent the rate at which pension benefit
obligations could be settled by purchase of an annuity contract. These assumptions are subject to
change based on stock and bond market returns and other economic factors. Actual results that
differ from the companys assumptions are accumulated and amortized over future periods and
therefore generally affect its recognized expense and accrued liability in such future periods.
While the company believes that its assumptions are appropriate given current economic conditions
and its actual experience, significant differences in results or significant changes in the
companys assumptions may materially affect its pension obligations and related future expense. On
April 1, 2009, the company elected to freeze its U.S. benefit plan. As a result of the freeze
decision, the company remeasured its pension plan assets and obligations which resulted in a
decrease in the net obligation at that date. See Note 12 for additional information.
Reclassifications: Certain items in the 2008 and 2007 financial statements have been reclassified
to conform to the 2009 presentation.
Revenue Recognition: The company recognizes revenue on product sales in the period in which the
sales process is complete. This generally occurs when products are shipped (FOB origin) to the
customer in accordance with the terms of the sale, the risk of loss has been transferred,
collectibility is reasonably assured and the pricing is fixed and determinable. At the end of each
period, for those shipments where title to the products and the risk of loss and rewards of
ownership do not transfer until the product has been received by the customer, the company adjusts
revenues and cost of sales for the delay between the time that the products are shipped and when
they are received by the customer. The companys distribution channels are primarily through direct
sales and independent third party distributors.
Revenue & Billing: The company accepts orders from customers based on long term purchasing
contracts and written sales agreements. Contract pricing and selling agreement terms are based on
market factors, costs, and competition. Pricing normally is negotiated as an adjustment (premium or
discount) from the companys published price lists. The customer is invoiced when the companys
products are shipped to them in accordance with the terms of the sales agreement.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
Returns & Credits: Some of the terms of the companys sales agreements and normal business
conditions provide customers (distributors) the ability to receive price adjustments on products
previously shipped and invoiced. This practice is common in the industry and is referred to as a
ship and debit program. This program allows the distributor to debit the company for the
difference between the distributors contracted price and a lower price for specific transactions.
Under certain circumstances (usually in a competitive situation or large volume opportunity), a
distributor will request authorization to reduce its price to its buyer. If the company approves
such a reduction, the distributor is authorized to debit its account for the difference between
the contracted price and the lower approved price. The company establishes reserves for this
program based on historic activity and actual authorizations for the debit and recognizes these
debits as a reduction of revenue.
The company has a return to stock policy whereby a customer with prior authorization from
Littelfuse management can return previously purchased goods for full or partial credit. The company
establishes an estimated allowance for these returns based on historic activity. Sales revenue and
cost of sales are reduced to anticipate estimated returns.
The company properly meets all of the criteria for recognizing revenue when the right of return
exists. Specifically, the company meets those requirements because:
|
1. |
|
The companys selling price is fixed or determinable at the date of the sale. |
|
|
2. |
|
The company has policies and procedures to accept only credit worthy customers with
the ability to pay the company. |
|
|
3. |
|
The companys customers are obligated to pay the company under the contract and the
obligation is not contingent on the resale of the product. (All ship and debit and
returns to stock require specific circumstances and authorization.) |
|
|
4. |
|
The risk ownership transfers to the companys customers upon shipment and is not
changed in the event of theft, physical destruction or damage of the product. |
|
|
5. |
|
The company bills at the ship date and establishes a reserve to reduce revenue from
the in transit time until the product is delivered for FOB destination sales. |
|
|
6. |
|
The companys customers acquiring the product for resale have economic substance
apart from that provided by Littelfuse, and all distributors are independent of the
company. |
|
|
7. |
|
The company does not have any obligations for future performance to bring about
resale of the product by its customers. |
|
|
8. |
|
The company can reasonably estimate the amount of future returns. |
Volume Rebates: The company offers incentives to certain customers to achieve specific quarterly or
annual sales targets. If customers achieve their sales targets, they are entitled to rebates. The
company estimates the future cost of these rebates and recognizes this estimated cost as a
reduction to revenue as products are sold.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
Allowance for Doubtful Accounts: The company evaluates the collectibility of its trade receivables
based on a combination of factors. The company regularly analyzes its significant customer accounts
and, when the company becomes aware of a specific customers inability to meet its financial
obligations, the company records a specific reserve for bad debt to reduce the related receivable
to the amount the company reasonably believes is collectible. The company also records allowances
for all other customers based on a variety of factors including the length of time the receivables
are past due, the financial health of the customer,macroeconomic considerations and past experience. Historically, the allowance for doubtful accounts
has been adequate to cover bad debts. If circumstances related to specific customers change, the
estimates of the recoverability of receivables could be further adjusted. However, due to the
companys diverse customer base and lack of credit concentration, the company does not believe its
estimates would be materially impacted by changes in its assumptions.
Advertising Costs: The company expenses advertising costs as incurred, which amounted to $1.1
million in 2009, $2.3 million in 2008, and $1.8 million in 2007, and are included as a component of
selling, general and administrative expenses.
Shipping and Handling Fees and Costs: Amounts billed to customers related to shipping and handling
are classified as revenue. Costs incurred for shipping and handling of $5.0 million, $6.5 million,
and $5.7 million in 2009, 2008, and 2007, respectively, are classified in selling, general and
administrative expenses.
Restructuring Costs: The company incurred severance charges and plant closure expenses as part of
the companys on-going cost reduction efforts. These charges are included in cost of sales,
selling, general and administrative expenses, or research and development expenses depending on the
personnel being included in the charge. See Note 9 for additional information on restructuring
costs.
Foreign Currency Translation: The companys foreign subsidiaries use the local currency or the U.S.
dollar as their functional currency, as appropriate. Assets and liabilities are translated using
exchange rates at the balance sheet date, and revenues and expenses are translated at weighted
average rates. The amount of foreign currency conversion recognized in the income statement related
to currency translation was $0.4 million of loss in 2009 and $2.3 million and $2.9 million of gains
in 2008 and 2007, respectively and is included as a component of other expense (income), net.
Adjustments from the translation process are recognized in Shareholders Equity as a component of
Accumulated Other Comprehensive Income (Loss).
Stock-based Compensation: The company recognizes compensation expense for the cost of awards of
equity compensation using a fair value method. Benefits of tax deductions in excess of recognized
compensation expense are reported as a financing cash flow.
On certain occasions, the company has granted stock options for a fixed number of shares with an
exercise price below that of the underlying stock on the date of the grant and recognizes
compensation expense accordingly. This compensation expense has not been material. See Note 13 for
additional information on stock-based compensation.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
Income Taxes: The company accounts for income taxes using the liability method. Deferred taxes are
recognized for the future effects of temporary differences between financial and income tax
reporting using tax rates in effect for the years in which the differences are expected to reverse.
The company recognizes deferred taxes for temporary differences, operating loss carryforwards and
tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is more
likely than not that some portion, or all, of the deferred tax assets will not be realized. Federal
and state income taxes are provided on the portion of foreign income that is expected to be
remitted to the U.S. and be taxable.
Accounting Pronouncements: In February 2007, the FASB issued guidance titled The Fair Value Option
for Financial Assets and Financial Liabilities. The guidance permits an entity to choose to
measure many financial instruments and certain other items at fair value at specified election
dates. The guidance is expected to expand the use of fair value measurement, but does not eliminate
disclosure requirements included in other accounting standards. The guidance is effective for
fiscal years beginning after November 15, 2007. The adoption of this accounting guidance did not
have a material impact on the companys Consolidated Financial Statements.
In December 2007, the FASB issued accounting guidance titled Noncontrolling Interests in
Consolidated Financial Statements. The accounting guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier
adoption prohibited. The accounting guidance requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and separate from the
parents equity. The amount of net earnings attributable to the noncontrolling interest will be
included in consolidated net income on the face of the Consolidated Statements of Income. The
accounting guidance also amends certain other consolidation procedures and includes expanded
disclosure requirements regarding the interests of the parent and its noncontrolling interest. As a
result of the adoption of the accounting guidance, the company reclassified its immaterial
noncontrolling interest from Other long-term liabilities to Total equity as of December 27,
2008 and December 29, 2007 to conform to the presentation at January 2, 2010.
In December 2007, the FASB revised existing guidance with respect to accounting for business
combinations. The new business combination accounting guidance retains the underlying concepts of
previous business combination accounting guidance in that all business combinations are still
required to be accounted for at fair value under the acquisition method of accounting, but the new
business combination accounting guidance changed the method of applying the acquisition method in a
number of significant aspects. Acquisition costs generally will be expensed as incurred;
noncontrolling interests will be valued at fair value at the acquisition date; in-process research
and development will be recorded at fair value as an indefinite-lived intangible asset at the
acquisition date; restructuring costs associated with a business combination generally will be
expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances
and income tax uncertainties after the acquisition date generally will affect income tax expense.
The new business combination accounting guidance is effective on a prospective basis for all
business combinations for which the acquisition date is on or after the beginning of the first
annual period subsequent to December 15, 2008, with the exception of the accounting for valuation
allowances on deferred taxes and acquired tax contingencies. The new business combination guidance
amends existing income tax accounting guidance such that adjustments made to valuation allowances
on deferred taxes and acquired tax contingencies associated with acquisitions that closed
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
prior to the effective date of the new business combination accounting guidance would also apply
the provisions of the new business combination accounting guidance. The adoption of the new
business combination accounting guidance resulted in a change to the companys treatment of
certain uncertain tax positions in fiscal 2009.
In March 2008, the FASB issued accounting guidance titled Disclosures about Derivative Instruments
and Hedging Activities. The new standard requires enhanced disclosure about a companys
derivatives and hedging to help investors understand their impact on a companys financial
position, financial performance and cash flows. The new accounting guidance is effective for
periods beginning after November 15, 2008. The adoption of the expanded disclosure requirements
related to the companys derivative and hedging activities resulted in additional disclosures as
reflected in Note 7.
In June 2008, the FASB issued guidance titled Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities. The guidance states that unvested
share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. Upon adoption, a company is required to
retrospectively adjust its earnings per share data presentation to conform with the guidance
provisions. The guidance is effective for fiscal years beginning after December 15, 2008. The
company adopted the new guidance on December 28, 2008, which resulted in expanded disclosures as
reflected in Note 17.
In April 2009, the FASB issued guidance titled Interim Disclosures about Fair Value of Financial
Instruments. The guidance amends existing guidance to require disclosures about fair value of
financial instruments in interim financial statements as well as in annual financial statements.
This statement also amends existing guidance to require those disclosures in all interim financial
statements. The new accounting guidance is effective for interim and annual periods ending after
June 15, 2009. The adoption of the new accounting guidance resulted in additional disclosures
included in the companys quarterly filings.
In May 2009, the FASB issued guidance titled Subsequent Events. The new accounting guidance
sets forth the period after the balance sheet date during which management of a reporting entity
shall evaluate events or transactions that may occur for potential recognition or disclosure in the
financial statements, circumstances under which an entity should recognize events or transactions
that may occur for potential recognition and disclosure in the financial statements, and
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. The adoption of the new accounting guidance resulted in additional disclosures
regarding the date through which management has evaluated subsequent events. The company evaluated
subsequent events through February 26, 2010, the date its financial statements were filed with the
SEC.
In June 2009, the FASB issued authoritative guidance that eliminates the qualifying special purpose
entity concept, changes the requirements for derecognizing financial assets and requires enhanced
disclosures about transfers of financial assets. The guidance also revises earlier guidance for
determining whether an entity is a variable interest entity, requires a new approach for
determining who should consolidate a variable interest entity, changes when it is necessary to
reassess who should consolidate a variable interest entity, and requires enhanced disclosures
related to an enterprises involvement in variable interest entities. The guidance is effective for
the first annual reporting period that begins after November 15, 2009. The company does not
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
believe the adoption of the new accounting guidance will have a material impact on its Consolidated
Financial Statements.
In June 2009, the FASB issued guidance titled The FASB Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles (the codification standard). The codification standard
is effective for fiscal years, and interim periods, ending after September 15, 2009. The
codification standard is intended to improve financial reporting by identifying the FASB Accounting
Standards Codification and rules and interpretive releases of the SEC under authority of federal
securities laws as the sole sources of authoritative accounting principles to be used in preparing
financial statements that are presented in conformity with accounting principles generally accepted
in the United States of America for SEC registrants. The company adopted the codification standard
on September 26, 2009. The adoption of the codification standard did not have a material impact on
the companys consolidated financial position or results of operations.
In October 2009, the FASB issued authoritative guidance that amends earlier guidance addressing the
accounting for contractual arrangements in which an entity provides multiple products or services
(deliverables) to a customer. The amendments address the unit of accounting for arrangements
involving multiple deliverables and how arrangement consideration should be allocated to the
separate units of accounting, when applicable, by establishing a selling price hierarchy for
determining the selling price of a deliverable. The selling price used for each deliverable will be
based on vendor-specific objective evidence if available, third-party evidence if vendor-specific
objective evidence is not available, or estimated selling price if neither vendor-specific nor
third-party evidence is available. The amendments also require that arrangement consideration be
allocated at the inception of an arrangement to all deliverables using the relative selling price
method. The guidance is effective for fiscal years beginning on or after June 15, 2010, with
earlier application permitted. The company does not believe the accounting guidance will have a
material impact on its Consolidated Financial Statements.
In October 2009, the FASB issued authoritative guidance that amends earlier guidance for revenue
arrangements that include both tangible products and software elements. Tangible products
containing software components and nonsoftware components that function together to deliver the
tangible products essential functionality are no longer within the scope of guidance for
recognizing revenue from the sale of software, but would be accounted for in accordance with other
authoritative guidance. The guidance is effective for fiscal years beginning on or after June 15,
2010, with earlier application permitted. The company does not believe the accounting guidance will
have a material impact on its Consolidated Financial Statements.
2. Acquisition of Business
On February 29, 2008, the company acquired Shock Block Corporation (Shock Block), a leading
manufacturer in ground fault technology located in Dallas, Texas, for $9.2 million less a holdback
of $0.9 million subject to the fulfillment of certain contractual obligations by the seller. From
February 29, 2008 and thereafter, the results of operations of Shock Block are included in the
companys Consolidated Statements of Income. The company primarily acquired customer lists and
intellectual property rights, including trademarks and tradenames. The customer lists were assigned
a useful life of seven years. The company funded the acquisition with cash and has continued to
operate Shock Blocks electrical business subsequent to the acquisition. The Shock Block
acquisition expands the companys portfolio of protection products for commercial and industrial
applications and strengthens the companys position in the circuit protection industry.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition of Business, continued
The acquisition was accounted for using the purchase method of accounting and the operations of
Shock Block are included in the companys consolidated results from the date of the acquisition.
The following table sets forth the preliminary purchase price allocations for Shock Blocks net
assets in accordance with the purchase method of accounting with adjustments to record the acquired
net assets at their estimated fair market or net realizable values.
|
|
|
|
|
Shock Block purchase price allocation (in thousands): |
|
|
|
|
Goodwill |
|
$ |
7,595 |
|
Customer lists |
|
|
2,442 |
|
Other assets, net |
|
|
91 |
|
Deferred tax liability |
|
|
(928 |
) |
|
|
|
|
|
|
$ |
9,200 |
|
|
|
|
|
All Shock Block goodwill and other assets are recorded in the Electrical business unit segment
and reflected in the Americas geographical area. Pro forma financial information is not presented
due to amounts not being materially different than actual results. Goodwill for the above
acquisition is not expected to be deductible for tax purposes.
On September 17, 2008, the company announced that it had signed a definitive agreement to acquire
the stock of Startco Engineering Ltd. (Startco), a leading manufacturer in ground-fault
protection products and custom-power distribution centers located in Saskatchewan, Canada. On
September 30, 2008, the company completed the purchase of Startco for approximately $37.7 million.
From September 30, 2008 and thereafter, the results of operations of Startco are included in the
companys Consolidated Statements of Income. The company funded the acquisition with proceeds from
the Loan Agreement discussed in Note 6.
The Startco acquisition strengthens the companys position in the industrial ground-fault
protection business and provides industrial power distribution design and manufacturing
capabilities that strengthen the companys position within the growing mining industry. The
acquisition was accounted for using the purchase method of accounting and the operations of Startco
are included in the companys consolidated results from the date of the acquisition.
The following table sets forth the purchase price allocation for Startcos net assets in accordance
with the purchase method of accounting with adjustments to record the acquired net assets at their
estimated fair market or net realizable values.
|
|
|
|
|
Startco purchase price allocation (in thousands): |
|
|
|
|
Cash |
|
$ |
701 |
|
Accounts receivable, net |
|
|
3,488 |
|
Inventories |
|
|
2,950 |
|
Property, plant and equipment |
|
|
5,000 |
|
Intangible Assets |
|
|
18,025 |
|
Goodwill |
|
|
16,719 |
|
Other Assets |
|
|
32 |
|
Current liabilities |
|
|
(5,610 |
) |
Deferred tax liability |
|
|
(3,647 |
) |
|
|
|
|
|
|
$ |
37,658 |
|
|
|
|
|
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition of Business, continued
All Startco goodwill and other assets and liabilities were recorded in the Electrical business unit
segment and reflected in the Americas geographical area. These estimates were subject to revision
after the company completed its fair value analysis, which occurred during the first quarter of
2009 and resulted in an allocation of $18.0 million to identifiable intangible assets, including
$5.3 million in patents and product designs, $5.5 million in trademarks and tradenames and $7.2
million in customer lists and backlog. The patents and product designs are both being amortized
over 12 years. Customer lists are being amortized over 15 years. Backlog is being amortized over 3
years. Trademarks and tradenames have indefinite lives and are not being amortized. Goodwill for
the above acquisition is not expected to be deductible for tax purposes.
Pro forma financial information is not presented for Startco or in the aggregate for the
aforementioned acquisitions due to amounts not being materially different than actual results.
3. Inventories
The components of inventories at January 2, 2010 and December 27, 2008 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Raw materials |
|
$ |
20,065 |
|
|
$ |
22,642 |
|
Work in process |
|
|
9,111 |
|
|
|
11,524 |
|
Finished goods |
|
|
23,391 |
|
|
|
32,513 |
|
|
|
|
|
|
|
|
Total |
|
$ |
52,567 |
|
|
$ |
66,679 |
|
|
|
|
|
|
|
|
4. Goodwill and Other Intangible Assets
The amounts for goodwill and changes in the carrying value by operating segment are as follows at
January 2, 2010 and December 27, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
Additions(a) |
|
Adjust.(b) |
|
2008 |
|
Addition(c) |
|
Adjust.(b) |
|
2007 |
|
Electronics |
|
$ |
35,083 |
|
|
$ |
|
|
|
$ |
(588 |
) |
|
$ |
35,671 |
|
|
$ |
66 |
|
|
$ |
(707 |
) |
|
$ |
36,312 |
|
Automotive |
|
|
24,685 |
|
|
|
|
|
|
|
292 |
|
|
|
24,393 |
|
|
|
|
|
|
|
(771 |
) |
|
|
25,164 |
|
Electrical |
|
|
35,218 |
|
|
|
(13,915 |
) |
|
|
2,236 |
|
|
|
46,897 |
|
|
|
40,079 |
|
|
|
(5,168 |
) |
|
|
11,986 |
|
|
Total |
|
$ |
94,986 |
|
|
$ |
(13,915 |
) |
|
$ |
1,940 |
|
|
$ |
106,961 |
|
|
$ |
40,145 |
|
|
$ |
(6,646 |
) |
|
$ |
73,462 |
|
|
|
|
|
(a) |
|
Electrical reductions in 2009 of $14.0 million related to the finalization of the
Startco purchase price allocation. |
|
(b) |
|
Adjustments reflect the impact of changes in exchange rates as well as the partial reversal of
an unrecognized tax benefit in 2008. |
|
(c) |
|
Electrical additions in 2008 include $32.3 million related to the Startco acquisition and $7.6
million related to the Shock Block acquisition. |
The company recorded amortization expense of $5.0 million, $3.9 million, and $3.3 million in
2009, 2008, and 2007, respectively. The details of other intangible assets and related future
amortization expense of existing intangible assets at January 2, 2010 and December 27, 2008 are as
follows:
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Goodwill and Other Intangible Assets, continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 2, 2010 |
|
As of December 27, 2008 |
|
|
Weighted |
|
Gross |
|
|
|
|
|
Weighted |
|
Gross |
|
|
|
|
Average |
|
Carrying |
|
Accumulated |
|
Average |
|
Carrying |
|
Accumulated |
(in thousands) |
|
Useful Life |
|
Value |
|
Amortization |
|
Useful Life |
|
Value |
|
Amortization |
|
Patents, licenses and
software(a) |
|
|
11.9 |
|
|
$ |
40,205 |
|
|
$ |
27,754 |
|
|
|
11.9 |
|
|
$ |
34,121 |
|
|
$ |
26,044 |
|
Distribution network(a) |
|
|
14.6 |
|
|
|
30,546 |
|
|
|
19,709 |
|
|
|
15.3 |
|
|
|
28,622 |
|
|
|
17,045 |
|
Customer lists, trademarks and
tradenames(a) |
|
|
14.7 |
|
|
|
14,103 |
|
|
|
6,299 |
|
|
|
14.9 |
|
|
|
8,142 |
|
|
|
5,188 |
|
Tradenames(a) (b) |
|
|
|
|
|
|
5,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
90,413 |
|
|
$ |
53,762 |
|
|
|
|
|
|
$ |
70,885 |
|
|
$ |
48,277 |
|
|
|
|
|
(a) |
|
Increase to gross carrying value for patents, licenses and software and customer lists,
trademarks and tradenames in 2009 are related to the Startco acquisition purchase price allocation
discussed in Note 2. Other changes are primarily due to the impact of changes in exchange rates. |
|
(b) |
|
Tradenames with indefinite lives. |
Estimated amortization expense related to intangible assets with definite lives at January 2,
2010 is as follows (in thousands):
|
|
|
|
|
2010 |
|
|
5,091 |
|
2011 |
|
|
5,033 |
|
2012 |
|
|
3,570 |
|
2013 |
|
|
3,267 |
|
2014 |
|
|
2,607 |
|
2015 and thereafter |
|
|
11,524 |
|
|
|
|
|
|
|
$ |
31,092 |
|
|
|
|
|
5. Investments
Included in investments are shares of Polytronics Technology Corporation Ltd. (Polytronics), a
Taiwanese company. In addition, the company had an immaterial investment in Sumi Motherson, an
Indian company, that was sold during the quarter ended September 26, 2009 for 0.1 million
(approximately $0.2 million). Both of these investments were acquired as part of the Littelfuse
GmbH (formerly known as Heinrich Industries, AG) acquisition. The companys Polytronics shares
held at the end of fiscal 2009 and 2008 represent approximately 8.0% of total Polytronics shares
outstanding for both years. The fair value of the Polytronics investment was 8.2 million
(approximately $11.7 million) at January 2, 2010 and 2.1 million (approximately $2.9 million) at
December 27, 2008. Included in 2009 other comprehensive income was an unrealized gain of $8.7
million, due to the increase in fair market value of the Polytronics investment. The remaining
movement year over year was due to the impact of changes in exchange rates.
The investment in Polytronics stock had traded significantly below its acquisition cost of 4.1
million (approximately $4.3 million) from June 2008 through December 27, 2008 and had not traded
above cost during that time period. As such, management concluded as of December 27, 2008 that it
was more likely than not the loss was other than temporary. The cost basis of the security was
adjusted down to the fair value as of the measurement date with a resulting charge to earnings.
Consequently, the company recorded a realized loss on investment of 2.0 million (approximately
$2.8 million) to other expense (income), net for the fiscal year ended December 27, 2008.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Debt
The carrying amounts of long-term debt at January 2, 2010 and December 27, 2008 are as follows:
|
|
|
|
|
|
|
|
|
In thousands |
|
2009 |
|
|
2008 |
|
Term loan |
|
$ |
57,000 |
|
|
$ |
80,000 |
|
Revolving credit facility |
|
|
6,183 |
|
|
|
|
|
Other obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,183 |
|
|
|
80,000 |
|
Less: Current maturities |
|
|
14,183 |
|
|
|
8,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
49,000 |
|
|
$ |
72,000 |
|
|
|
|
|
|
|
|
Term Loan
On September 29, 2008, the company entered into a Loan Agreement with various lenders that provides
the company with a five-year term loan facility of up to $80.0 million for the purposes of (i)
refinancing certain existing indebtedness; (ii) funding working capital needs; and (iii) funding
capital expenditures and other lawful corporate purposes, including permitted acquisitions. The
Loan Agreement also contains an expansion feature, pursuant to which the company may from time to
time request incremental loans in an aggregate principal amount not to exceed $40.0 million. The
company had $57.0 million outstanding on the term loan at January 2, 2010.
At the companys option, any loan under the Loan Agreement bears interest at a rate equal to the
applicable rate, as determined in accordance with the pricing grid set forth in the Loan Agreement,
plus one of the following indexes: (i) LIBOR or (ii) the Base Rate (defined as the higher of (a)
the prime rate publicly announced from time to time by the Agent under the Loan Agreement and (b)
the federal funds rate plus 0.50%). Overdue amounts bear a fee of 2.0% per annum above the
applicable rate. The actual interest rate paid on the term loan was approximately 2.2% at January
2, 2010.
The Loan Agreement requires the company to meet certain financial tests, including a consolidated
leverage ratio and a consolidated interest coverage ratio. The Loan Agreement also contains
additional affirmative and negative covenants which, among other things, impose certain limitations
on the companys ability to merge with other companies, create liens on its property, incur
additional indebtedness, enter into transactions with affiliates except on an arms length basis,
dispose of property, or issue dividends or make distributions. At January 2, 2010, and for the year
then ended, the company was in compliance with these covenants. The new Loan Agreement does not
impact the existing debt covenants in the revolving credit facility described below.
Revolving Credit Facility
On January 28, 2009, the company entered into an unsecured financing arrangement with a Canadian
bank that provided a CAD 10.0 million (equivalent to approximately $9.5 million at January 2, 2010)
revolving credit facility, for capital expenditures and general working capital, which expires on
July 21, 2011. This facility consists of prime-based loans and overdrafts, bankers acceptances and
U.S. base rate loans and overdrafts, and is guaranteed by the company. At January 2, 2010, the
company had approximately CAD 6.5 million (equivalent to approximately $6.2 million) outstanding
under the revolving credit facility. At January 2, 2010, the company had approximately CAD 3.5
million (equivalent to approximately $3.3 million) available under the revolving credit facility at
an interest rate of bankers acceptance rate plus 1.62% (2.10% as of January 2, 2010).This agreement
contains covenants that, among other matters, impose limitations on future mergers, sales of
assets, and
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Debt, continued
changes in control, as defined in the agreement. In addition, the company is required to satisfy
certain financial covenants and tests relating to, among other matters, interest coverage, working
capital, leverage and net worth. At January 2, 2010, the company was in compliance with all
covenants
The company has an unsecured domestic financing arrangement consisting of a credit agreement with
banks that provides a $75.0 million revolving credit facility, with a potential increase of up to
$125.0 million upon request of the company and agreement with the lenders, which expires on July
21, 2011. At January 2, 2010, the company had available the full $75.0 million of borrowing
capacity under the revolving credit facility at an interest rate of LIBOR plus 0.875% (1.11% as of
January 2, 2010). The company also had $2.3 million and $2.8 million available in letters of credit
at January 2, 2010 and December 27, 2008, respectively. No amounts were outstanding under these
letters of credit at fiscal year end 2009 and 2008.
The domestic bank credit agreement contains covenants that, among other matters, impose limitations
on the incurrence of additional indebtedness, future mergers, sales of assets, payment of
dividends, and changes in control, as defined in the agreement. In addition, the company is
required to satisfy certain financial covenants and tests relating to, among other matters,
interest coverage, working capital, leverage and net worth. At January 2, 2010, and for the year
then ended, the company was in compliance with these covenants.
Other Obligations
The company had an unsecured bank line of credit in Japan that provided a 700 million yen revolving
credit facility at an interest rate of TIBOR plus 0.625%. The revolving line of credit was due on
July 21, 2011. The line of credit was closed on July 14, 2009. The company had no outstanding
borrowings on the yen facility at the time of the closing.
The company had an unsecured bank line of credit in Taiwan that provided a 35.0 million Taiwanese
dollar revolving credit facility at an interest rate of two-years time deposit plus 0.145%. The
revolving line of credit was due on August 18, 2009. The company also had a foreign fixed rate
mortgage loan outstanding totaling approximately 32.0 million Taiwanese dollars with maturity dates
through August 2013. The company chose to repay the outstanding balances on both debt instruments
in June 2008, resulting in uses of cash totaling the equivalent of $1.7 million. As a result, the
line of credit was closed on June 28, 2008.
Interest paid on debt was approximately $2.3 million in 2009, $3.4 million in 2008, and $1.4
million in 2007. Aggregate maturities of obligations at January 2, 2010, are as follows (in
thousands):
|
|
|
|
|
2010 |
|
$ |
14,183 |
|
2011 |
|
|
8,000 |
|
2012 |
|
|
18,000 |
|
2013 |
|
|
23,000 |
|
2014 |
|
|
|
|
2015 and thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
63,183 |
|
|
|
|
|
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Financial Instruments and Risk Management
Occasionally, the company uses financial instruments to manage its exposures to movements in
commodity prices, foreign exchange and interest rates. The use of these financial instruments
modifies the companys exposure to these risks with the goal of reducing the risk or cost to the
company. The company does not use derivatives for trading purposes and is not a party to leveraged
derivative contracts.
The company recognizes all derivative instruments as either assets or liabilities at fair value in
the Consolidated Balance Sheets. The fair value is based upon either market quotes for actively
traded instruments or independent bids for non-exchange traded instruments. The company formally
documents its hedge relationships, including identifying the hedging instruments and the hedged
items, as well as its risk management objectives and strategies for undertaking the hedge
transaction. This process includes linking derivatives that are designated as hedges of specific
assets, liabilities, firm commitments or forecasted transactions to the hedged risk. On the date
the derivative is entered into, the company designates the derivative as a fair value hedge, cash
flow hedge or a net investment hedge, and accounts for the derivative in accordance with its
designation. The company also formally assesses, both at inception and at least quarterly
thereafter, whether the derivatives are highly effective in offsetting changes in either the fair
value or cash flows of the hedged item. If it is determined that a derivative ceases to be a highly
effective hedge, or if the anticipated transaction is no longer likely to occur, the company
discontinues hedge accounting, and any deferred gains or losses are recorded in the respective
measurement period. The company currently does not have any fair value or net investment hedge
instruments.
The company is exposed to credit-related losses in the event of nonperformance by counterparties to
derivative financial instruments, but it does not expect any counterparties to fail to meet their
obligations given their high credit ratings.
Cash Flow Hedges
A hedge of a forecasted transaction or of the variability of cash flows to be received or paid
related to a recognized asset or liability is designated as a cash flow hedge. The effective
portion of the change in the fair value of a derivative that is designated as a cash flow hedge is
recorded in other comprehensive income (loss). When the impact of the hedged item is recognized in the income statement, the gain or loss included
in other comprehensive income (loss) is reported on the same line in the Consolidated Statements of
Income as the hedged item. The company did not discontinue any cash flow hedges during for the
year-ended January 2, 2010.
Cash Flow Hedge Commodity Risk Management
In June 2008, the company entered into an immaterial one-year swap agreement to manage its exposure
to fluctuations in the cost of zinc, which is used extensively in the manufacturing process of
certain products. Amounts included in other comprehensive income (loss) are reclassified into cost
of sales in the period in which the hedged transaction is recognized in earnings. The companys
zinc swap agreement expired in June 2009.
Cash Flow Hedge Currency Risk Management
In January 2009, the company entered into a series of weekly forward contracts to buy Mexican pesos
to manage its exposure to fluctuations in the cost of this currency through December 28, 2009. The
company uses Mexican pesos to fund payroll and operating expenses at one of the companys Mexico
manufacturing facilities. The operations of the Mexico facility are accounted for within an entity
where the U.S. dollar is the functional
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Financial Instruments and Risk Management, continued
currency. In September 2009, the company extended the arrangement through June 28, 2010. Amounts
included in other comprehensive income (loss) are reclassified into cost of sales in the period in
which the hedged transaction is recognized in earnings. As of January 2, 2010, the notional amount
of the companys peso forward contracts was approximately $3.3 million.
Non-Hedge Derivatives
Interest Rate Swap Transaction
On October 29, 2008, the company entered into a one-year interest rate swap transaction with
JPMorgan Chase Bank, N.A. to manage its exposure to fluctuations in the adjustable interest rate of
the Loan Agreement. The swap agreement is for a notional amount of $65.0 million and requires the
company to pay a fixed annual rate of 2.85% and JPMorgan Chase Bank, to pay a floating rate tied to
the one-month U.S. dollar LIBOR. Upon inception of the transaction, the company did not elect hedge
accounting treatment as the interest rate swap was short-term in nature and was not deemed a
material transaction. All changes in fair value were reflected immediately in the Consolidated
Statements of Income. The companys interest rate swap agreement expired in October 2009.
Fair Value of Derivative Instruments
The fair values of derivative financial instruments recognized in the Consolidated Balance Sheets
of the company are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Description |
|
Balance Sheet Item |
|
|
January 2, 2010 |
|
|
December 27, 2008 |
|
Derivative Liabilities Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges |
|
Accrued expenses |
|
$ |
|
|
|
$ |
650 |
|
Derivative Liabilities Non-Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap |
|
Accrued expenses |
|
|
|
|
|
|
1,056 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Liabilities |
|
|
|
|
|
$ |
|
|
|
$ |
1,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges |
|
Prepaid expenses and other current assets |
|
$ |
179 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Assets |
|
|
|
|
|
$ |
179 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Derivative Gain or Loss
The effect of cash flow hedge derivative instruments on the Consolidated Statements of Income and
Other Comprehensive Income (Loss) is as follows (in thousands):
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Financial Instruments and Risk Management, continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Reclassified |
|
|
Amount of Gain (Loss) Reclassified |
|
|
|
Amount of Gain (Loss) Recognized |
|
|
from Other |
|
|
from Other Comprehensive Income |
|
|
|
in Other Comprehensive Income (Loss) |
|
|
Comprehensive |
|
|
(Loss) into Income (Effective |
|
|
|
(Effective Portion) |
|
|
Income (Loss) |
|
|
Portion) |
|
|
|
Twelve Months Ended |
|
|
into Income |
|
|
Twelve Months Ended |
|
|
|
January 2, 2010 |
|
|
December 27, 2008 |
|
|
(Effective Portion) |
|
|
January 2, 2010 |
|
|
December 27, 2008 |
|
Commodity contracts |
|
$ |
422 |
|
|
$ |
(403 |
) |
|
Cost of Sales |
|
$ |
(593 |
) |
|
$ |
(30 |
) |
Foreign exchange
contracts |
|
|
(111 |
) |
|
|
|
|
|
Cost of Sales |
|
|
358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
311 |
|
|
$ |
(403 |
) |
|
|
|
|
|
$ |
(235 |
) |
|
$ |
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Transactions
At January 2, 2010 and December 27, 2008, accumulated other comprehensive income (loss) included
$0.1 million and $0.4 million in unrealized losses, respectively, for derivatives, net of income
taxes.
8. Fair Value of Financial Assets and Liabilities
In determining fair value, the company uses various valuation approaches within the fair value
measurement framework. Fair value measurements are determined based on the assumptions that market
participants would use in pricing an asset or liability.
Applicable accounting literature establishes a hierarchy for inputs used in measuring fair value
that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Applicable accounting literature
defines levels within the hierarchy based on the reliability of inputs as follows:
Level 1Valuations based on unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2Valuations based on quoted prices for similar assets or liabilities or identical assets or liabilities in less active markets, such as dealer or broker markets; and
Level 3Valuations derived from valuation techniques in which one or more significant inputs or significant
value drivers are unobservable, such as pricing models, discounted cash flow models and similar techniques not based on market, exchange, dealer or broker-traded transactions.
Following is a description of the valuation methodologies used for instruments measured at fair
value and their classification in the valuation hierarchy.
Available-for-sale securities
Equity securities listed on a national market or exchange are valued at the last sales price. Such
securities are classified within Level 1 of the valuation hierarchy.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Fair Value of Financial Assets and Liabilities, continued
Derivative instruments
The fair value of commodity derivatives are valued based on quoted futures prices for the
underlying commodity and are categorized as Level 2. The fair values of interest rate and foreign
exchange rate derivatives are determined based on inputs that are readily available in public
markets or can be derived from information available in publicly quoted markets and are categorized
as Level 2.
The company does not have any financial assets or liabilities measured at fair value on a recurring
basis categorized as Level 3, and there were no transfers in or out of Level 3 during the year
ended January 2, 2010. There were no changes during the year ended January 2, 2010, to the
companys valuation techniques used to measure asset and liability fair values on a recurring
basis. As of January 2, 2010, the company held no non-financial assets or liabilities that are
required to be measured at fair value on a recurring basis.
The following table presents assets and (liabilities) measured at fair value by classification
within the fair value hierarchy as of January 2, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
Available-for-sale securities |
|
$ |
11,742 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11,742 |
|
Currency derivative contracts |
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,742 |
|
|
$ |
179 |
|
|
$ |
|
|
|
$ |
11,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents assets and (liabilities) measured at fair value by classification
within the fair value hierarchy as of December 27, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
Available-for-sale securities |
|
$ |
3,436 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,436 |
|
Commodity derivative contracts |
|
|
|
|
|
|
(650 |
) |
|
|
|
|
|
|
(650 |
) |
Interest rate derivative contracts |
|
|
|
|
|
|
(1,056 |
) |
|
|
|
|
|
|
(1,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,436 |
|
|
$ |
(1,706 |
) |
|
$ |
|
|
|
$ |
1,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Fair Value of Financial Assets and Liabilities, continued
The companys other financial instruments include cash and cash equivalents, accounts receivable
and long-term debt. Due to their short-term maturity, the carrying amounts of cash and cash
equivalents and accounts receivable approximate their fair values. The companys long-term debt
fair value approximates book value at January 2, 2010 and December 27, 2008, respectively, as the
long-term debt variable interest rates fluctuate along with market interest rates.
9. Restructuring
During 2006, the company announced the closing of its Ireland facility, resulting in restructuring
charges of $17.1 million consisting of $20.0 million of accrued severance less a statutory rebate
of $2.9 million recorded as a current asset, which were recorded as part of cost of sales. This
restructuring, which impacted approximately 131 associates, is part of the companys strategy to
expand operations in Asia-Pacific region in order to be closer to current and potential customers
and take advantage of lower manufacturing costs. The restructuring charges were based upon each
associates salary and length of service with the company. The additions in 2008 and 2009 primarily
relate to retention costs that were incurred during the transition period. These costs will be paid
through 2010. All charges related to the closure of the Ireland facility were recorded in Other
Operating Income (Loss) for business unit segment reporting purposes. The remaining $0.2 million
are expected to be paid in 2010. The total costs expected to be incurred was $26.1 million. The
company has incurred $26.1 million through January 2, 2010. A summary of activity of this liability
is as follows:
|
|
|
|
|
Ireland restructuring (in thousands) |
|
|
|
|
|
Balance at December 29, 2007 |
|
$ |
21,761 |
|
Additions |
|
|
200 |
|
Payments |
|
|
(20,657 |
) |
Exchange rate impact |
|
|
347 |
|
|
Balance at December 27, 2008 |
|
|
1,651 |
|
Additions |
|
|
11 |
|
Payments |
|
|
(1,454 |
) |
Exchange rate impact |
|
|
(25 |
) |
|
Balance at January 2, 2010 |
|
$ |
183 |
|
|
During December 2006, the company announced the closure of its Irving, Texas facility and the
transfer of its semiconductor wafer manufacturing from Irving, Texas to Wuxi, China in a phased
transition from 2007 to 2010. A liability of $1.9 million was recorded related to redundancy costs
for the manufacturing operation associated with this downsizing. This charge was recorded as part
of cost of sales and included in Other Operating Income (Loss) for business unit segment
reporting purposes. The additions in 2008 and 2009 primarily relate to retention costs that were
incurred during the transition period. This restructuring impacted approximately 180 associates in
various production and support related roles and will be paid over the period 2007 to 2010. The
total cost expected to be incurred is $8.6 million. The company has incurred $7.9 million through
January 2, 2010. A summary of activity of this liability is as follows:
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Restructuring, continued
|
|
|
|
|
Irving restructuring (in thousands) |
|
|
|
|
|
Balance at December 29, 2007 |
|
$ |
2,974 |
|
Additions |
|
|
2,176 |
|
Payments |
|
|
(600 |
) |
|
Balance at December 27, 2008 |
|
|
4,550 |
|
Additions |
|
|
2,363 |
|
Payments |
|
|
(3,146 |
) |
|
Balance at January 2, 2010 |
|
$ |
3,767 |
|
|
During March 2007, the company announced the closure of its Des Plaines and Elk Grove,
Illinois facilities and the transfer of its manufacturing from Des Plaines, Illinois to the
Philippines and Mexico in a phased transition from 2007 to 2009. A liability of $3.5 million was
recorded related to redundancy costs for the manufacturing and distribution operations associated
with this restructuring. Manufacturing related charges of $3.0 million were recorded as part of
cost of sales and non-manufacturing related charges of $0.5 million were recorded as part of
selling, general and administrative expenses. All charges related to this downsizing were recorded
in Other Operating Income (Loss) for business unit segment reporting purposes. The additions in
2008 and 2009 primarily relate to retention costs that were incurred during the transition period.
This restructuring impacted approximately 307 associates in various production and support related
roles and the costs relating to the restructuring was paid over the period 2007 to 2009.
During December 2008, the company announced a reduction in workforce at its Des Plaines, Illinois
corporate headquarters in a phased transition from 2008 to 2009. A liability of $0.9 million was
recorded associated with this downsizing. Manufacturing related charges of $0.3 million were
recorded as part of cost of sales and non-manufacturing related charges of $0.6 million were
recorded as part of selling, general and administrative expenses. All charges related to this
downsizing were recorded in Other Operating Income (Loss) for business unit segment reporting
purposes. During the second quarter of 2009, an additional $1.1 million liability was recorded
related to severance and retention costs at the Des Plaines facility. The remaining additions in
2009 primarily relate to retention costs that will be incurred over the remaining closure period.
This restructuring impacted 39 associates in various production and support related roles and the
costs relating to the restructuring was paid in 2009.
The total cost expected to be incurred for both the Des Plaines and Elk Grove, Illinois related
restructuring programs is $10.5 million. The company has incurred $10.1 million through January 2,
2010. A summary of activity of this liability is as follows:
|
|
|
|
|
Des Plaines and Elk Grove restructuring (in thousands) |
|
|
|
|
|
Balance at December 29, 2007 |
|
$ |
4,710 |
|
Additions |
|
|
3,435 |
|
Payments |
|
|
(3,087 |
) |
|
Balance at December 27, 2008 |
|
|
5,058 |
|
Additions |
|
|
1,614 |
|
Payments |
|
|
(5,847 |
) |
|
Balance at January 2, 2010 |
|
$ |
825 |
|
|
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Restructuring, continued
During March 2008, the company announced the closure of its Matamoros, Mexico facility and the
transfer of its semiconductor assembly and test operation from Matamoros, Mexico to its Wuxi, China
facility and various subcontractors in the Asia-Pacific region in a phased transition over two
years. A total liability of $4.4 million was recorded related to redundancy costs for the
manufacturing operations associated with this downsizing, of which $0.4 million related to
associates located at the companys Irving, Texas facility and which are reflected in corresponding
restructuring liability above. This charge was recorded as part of cost of sales and included in
Other Operating Income (Loss) for business unit segment reporting purposes. The total cost
expected to be incurred was $4.9 million. The total cost incurred through 2009 was $4.9 million.
The additions in 2008 and 2009 primarily relate to retention costs that were incurred during the
transition period. This restructuring impacts approximately 950 associates in various production
and support related roles and will be paid through 2010.
A summary of activity of this liability is as follows:
|
|
|
|
|
Matamoros restructuring (in thousands) |
|
|
|
|
|
Balance at December 29, 2007 |
|
$ |
|
|
Additions |
|
|
4,520 |
|
Payments |
|
|
(650 |
) |
Exchange rate impact |
|
|
(759 |
) |
|
Balance at December 27, 2008 |
|
|
3,111 |
|
Additions |
|
|
404 |
|
Payments |
|
|
(1,749 |
) |
Exchange rate impact |
|
|
(25 |
) |
|
Balance at January 2, 2010 |
|
$ |
1,741 |
|
|
During September 2008, the company announced the closure of its Swindon, U.K. facility,
resulting in restructuring charges of $0.8 million, consisting of $0.3 million that was recorded as
part of cost of sales and $0.5 million that was recorded as part of research and development
expenses. These charges, which impact 10 associates, were primarily for redundancy costs and will
be paid through 2010. Restructuring charges are based upon each associates current salary and
length of service with the company. All charges related to the closure of the Swindon facility were
recorded in Other Operating Income (Loss) for business unit segment reporting purposes. The total
cost expected to be incurred through 2009 is $1.3 million. The company has incurred $1.3 million
through January 2, 2010. A summary of activity of this liability is as follows:
|
|
|
|
|
Swindon, U.K. restructuring (in thousands) |
|
|
|
|
|
Balance at December 29, 2007 |
|
$ |
|
|
Additions |
|
|
992 |
|
Payments |
|
|
(158 |
) |
|
Balance at December 27, 2008 |
|
|
834 |
|
Additions |
|
|
299 |
|
Payments |
|
|
(1,048 |
) |
|
Balance at January 2, 2010 |
|
$ |
85 |
|
|
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Restructuring, continued
During May 2009, the company announced the restructuring of its European organization. The
restructuring included the transfer of its manufacturing operations from Dünsen, Germany to
Piedras, Mexico and the closure of its distribution facility in Utrecht, Netherlands. The Dünsen
closure will impact approximately 58 production employees. The Utrecht closure will impact
approximately 37 employees primarily in customer service and administrative roles. The announced
restructuring for both of the locations is expected to be completed by the first quarter of 2010.
The charges recorded for severance and retention and asset impairments were approximately $2.3
million in Utrecht, Netherlands (reflected in selling, general and administrative expenses) and
approximately $3.2 million in Dünsen, Germany (reflected within cost of sales). All charges related
to the closure of the Dünsen and Utrecht facilities were recorded in Other Operating Income
(Loss) for business unit segment reporting purposes. The remaining additions in 2009 primarily
relate to retention costs that were incurred during the transition period.
During the third quarter of 2009, the company received a purchase quotation for the Utrecht asset
group that was below managements previous fair value estimate of the Utrecht asset group. As a
result, the company performed a long-lived asset impairment test for the Utrecht asset group during
the third quarter of 2009, noting that the future undiscounted cash flows of the Utrecht asset
group did not exceed book value. Management then compared the Utrecht asset group fair value to the
Utrecht asset group book value, noting book value exceeded fair value. Therefore, management
concluded that an impairment charge of $0.8 million to selling, general and administrative expenses
was required in the third quarter of 2009, to reduce the Utrecht asset group book value to fair
value.
The total cost related to the European restructuring program expected to be incurred through fiscal
year 2010 is $5.5 million. The company has incurred $5.5 million in costs, including asset
impairment charges, through January 2, 2010. A summary of the activity of this liability is as
follows:
|
|
|
|
|
European restructuring (in thousands) |
|
|
|
|
|
Balance at December 27, 2008 |
|
$ |
|
|
Additions |
|
|
5,453 |
|
Payments |
|
|
(686 |
) |
Exchange rate impact |
|
|
87 |
|
|
Balance at January 2, 2010 |
|
$ |
4,854 |
|
|
During May 2009, the company also announced a restructuring of its Asian operations. The
restructuring includes closure of a manufacturing facility in Taiwan and a consolidation of its
Asian sales offices. The closure of the Taiwan facility and Asian sales offices will impact
approximately 184 employees. The announced restructuring for both of the locations is expected to
be completed by the first quarter of 2011. The charge recorded for this restructuring totaled $0.9
million and were related to severance and retention costs with $0.4 million and $0.5 million
included within cost of sales and selling, general and administrative expenses, respectively. All
charges related to the closure and the consolidation of the Asian facilities were recorded in
Other Operating Income (Loss) for business unit segment reporting purposes. The remaining
additions in 2009 primarily relate to retention costs that were incurred during the transition
period. The total cost expected to be incurred through 2011 is $1.5 million. The company has
incurred $1.5 million through January 2, 2010 related to the Asian restructuring program. A summary
of activity of this liability is as follows:
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Restructuring, continued
|
|
|
|
|
Asian restructuring (in thousands) |
|
|
|
|
|
Balance at December 27, 2008 |
|
$ |
|
|
Additions |
|
|
1,456 |
|
Payments |
|
|
(291 |
) |
Exchange rate impact |
|
|
38 |
|
|
Balance at January 2, 2010 |
|
$ |
1,203 |
|
|
10. Coal Mine Liability
Included in other long-term liabilities is an accrual related to a former coal mining operation at
Littelfuse GmbH (formerly known as Heinrich Industries, AG) for the amounts of 3.8 million ($5.4
million) and 3.7 million ($5.2 million) at January 2, 2010 and December 27, 2008, respectively.
The accrual, which is not discounted, is based on an engineering study estimating the cost of
remediating the dangers (such as a shaft collapse) of abandoned coal mine shafts in Germany.
11. Asset Impairments
During 2009, the company recorded a charge of approximately $0.8 million within general and
administrative expenses related to asset impairments. The impairment charge was associated with the
closure of the companys distribution facility located in Utrecht, Netherlands. The charge was
recognized as an other charge for segment reporting purposes. During 2008, the company recorded a
charge of approximately $3.2 million within cost of sales related to asset impairments incurred
primarily in China. The charge was associated mainly with the discontinuation of equipment used to
manufacture gas discharge tubes as the company had determined to utilize a third party manufacturer
for its production beginning in 2009. The charge was recognized in the Electronics reporting
segment. During 2007, the company recorded a charge of approximately $0.8 million within cost of
sales related to asset impairments incurred primarily in China and Germany.
12. Benefit Plans
The company has a company-sponsored defined benefit pension plan covering substantially all of its
North American employees. The amount of the retirement benefit is based on years of service and
final average pay. The plan also provides post-retirement medical benefits to retirees and their
spouses if the retiree has reached age 62 and has provided at least ten years of service prior to
retirement. Such benefits generally cease once the retiree attains age 65. The company also has
company-sponsored defined benefit pension plans covering employees in the U.K., Germany, Japan,
Taiwan and the Netherlands. The amount of the retirement benefits provided under the plans is based
on years of service and final average pay. Liabilities resulting from the plan that covers
employees in the Netherlands are settled annually through the purchase of insurance contracts.
Separate from the foreign pension data presented below, net periodic expense for the plan covering
the Netherlands employees was $0.2 million, $0.2 million, and $0.1 million in 2009, 2008, and 2007,
respectively.
The companys contributions are made in amounts sufficient to satisfy legal requirements. The
company is not required to make a minimum funding contribution in accordance with the Employee
Retirement Income Securities Act of 1974 (ERISA) for fiscal year 2010.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans, continued
Total pension expense was $1.4 million, $9.8 million, and $6.7 million in 2009, 2008, and 2007,
respectively. The decrease in pension expense for 2009 was due to the amendment and resulting
freeze to the U.S. pension plan as noted below the following table. The increase in pension expense
in 2008 was primarily due to the settlement of the Ireland plan and the resulting settlement loss.
Benefit plan related information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
(In thousands) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$ |
69,235 |
|
|
$ |
12,369 |
|
|
$ |
81,604 |
|
|
$ |
67,867 |
|
|
$ |
48,955 |
|
|
$ |
116,822 |
|
Service cost
|
|
|
866 |
|
|
|
323 |
|
|
|
1,189 |
|
|
|
3,241 |
|
|
|
848 |
|
|
|
4,089 |
|
Interest cost
|
|
|
4,076 |
|
|
|
735 |
|
|
|
4,811 |
|
|
|
4,294 |
|
|
|
2,150 |
|
|
|
6,444 |
|
Plan participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126 |
|
|
|
126 |
|
Curtailment loss (gain)
|
|
|
(3,977 |
) |
|
|
(397 |
) |
|
|
(4,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Settlement loss (gain)
|
|
|
|
|
|
|
(1,199 |
) |
|
|
(1,199 |
) |
|
|
|
|
|
|
(37,233 |
) |
|
|
(37,233 |
) |
Net actuarial gain
|
|
|
(7,202 |
) |
|
|
1,430 |
|
|
|
(5,772 |
) |
|
|
(2,644 |
) |
|
|
(517 |
) |
|
|
(3,161 |
) |
Benefits paid from the trust
|
|
|
(4,224 |
) |
|
|
(104 |
) |
|
|
(4,328 |
) |
|
|
(3,523 |
) |
|
|
(979 |
) |
|
|
(4,502 |
) |
Benefits paid directly by company
|
|
|
|
|
|
|
(899 |
) |
|
|
(899 |
) |
|
|
|
|
|
|
(922 |
) |
|
|
(922 |
) |
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
852 |
|
|
|
852 |
|
Effect of exchange rate movements
|
|
|
|
|
|
|
412 |
|
|
|
412 |
|
|
|
|
|
|
|
(911 |
) |
|
|
(911 |
) |
|
Benefit obligation at end of year
|
|
$ |
58,774 |
|
|
$ |
12,670 |
|
|
$ |
71,444 |
|
|
$ |
69,235 |
|
|
$ |
12,369 |
|
|
$ |
81,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning
of year
|
|
$ |
38,315 |
|
|
$ |
2,017 |
|
|
$ |
40,332 |
|
|
$ |
61,324 |
|
|
$ |
40,077 |
|
|
$ |
101,401 |
|
Actual return on plan assets
|
|
|
10,784 |
|
|
|
139 |
|
|
|
10,923 |
|
|
|
(19,420 |
) |
|
|
133 |
|
|
|
(19,287 |
) |
Employer contributions
|
|
|
7,770 |
|
|
|
|
|
|
|
7,770 |
|
|
|
|
|
|
|
178 |
|
|
|
178 |
|
Plan participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126 |
|
|
|
126 |
|
Benefits paid
|
|
|
(4,224 |
) |
|
|
(104 |
) |
|
|
(4,328 |
) |
|
|
(3,523 |
) |
|
|
(979 |
) |
|
|
(4,502 |
) |
Settlement loss (gain)
|
|
|
|
|
|
|
(1,199 |
) |
|
|
(1,199 |
) |
|
|
|
|
|
|
(37,233 |
) |
|
|
(37,233 |
) |
Effect of exchange rate movements
|
|
|
|
|
|
|
121 |
|
|
|
121 |
|
|
|
|
|
|
|
(285 |
) |
|
|
(285 |
) |
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
|
|
|
|
|
|
(66 |
) |
|
Fair value of plan assets at end of year
|
|
|
52,645 |
|
|
|
974 |
|
|
|
53,619 |
|
|
|
38,315 |
|
|
|
2,017 |
|
|
|
40,332 |
|
|
Net amount recognized/unfunded status
|
|
$ |
(6,129 |
) |
|
$ |
(11,696 |
) |
|
$ |
(17,825 |
) |
|
$ |
(30,920 |
) |
|
$ |
(10,352 |
) |
|
$ |
(41,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated
Balance Sheet consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
$ |
|
|
|
$ |
446 |
|
|
$ |
446 |
|
|
$ |
|
|
|
$ |
365 |
|
|
$ |
365 |
|
Accrued benefit liability
|
|
|
(6,129 |
) |
|
|
(12,142 |
) |
|
|
(18,271 |
) |
|
|
(30,920 |
) |
|
|
(10,717 |
) |
|
|
(41,637 |
) |
|
Net liability recognized
|
|
$ |
(6,129 |
) |
|
$ |
(11,696 |
) |
|
$ |
(17,825 |
) |
|
$ |
(30,920 |
) |
|
$ |
(10,352 |
) |
|
$ |
(41,272 |
) |
|
Accumulated other comprehensive loss (income)
|
|
$ |
5,984 |
|
|
$ |
(385 |
) |
|
$ |
5,599 |
|
|
$ |
23,680 |
|
|
$ |
(1,693 |
) |
|
$ |
21,987 |
|
|
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans, continued
On March 26, 2009, the company amended its U.S.-based Amended and Restated Littelfuse, Inc.
Retirement Plan (the Pension Plan), freezing benefit accruals effective April 1, 2009. The
amendment provides that participants in the Pension Plan will not receive credit, other than for
vesting purposes, for eligible earnings paid or for any months of service worked after the
effective date. All accrued benefits under the Pension Plan as of the effective date will remain
intact, and service credits for vesting and retirement eligibility will continue in accordance with
the terms of the Pension Plan. As a result of the formal decision to freeze the Pension Plan
benefit accruals, the company re-measured its Pension Plan assets and obligations at April 1, 2009,
which resulted in a decrease of the Pension Plan obligation of $10.5 million, with a corresponding
adjustment to other comprehensive income (loss), net of income taxes, on that date.
Amounts recognized in accumulated other comprehensive income (loss), pre-tax consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
(In thousands) |
|
U.S. |
|
|
Foreign |
|
|
Total |
|
|
U.S. |
|
|
Foreign |
|
|
Total |
|
|
Net actuarial loss (gain) |
|
$ |
5,984 |
|
|
$ |
(363 |
) |
|
$ |
5,621 |
|
|
$ |
23,604 |
|
|
$ |
(1,597 |
) |
|
$ |
22,007 |
|
Prior service (cost)
credit |
|
|
|
|
|
|
(22 |
) |
|
|
(22 |
) |
|
|
76 |
|
|
|
(96 |
) |
|
|
(20 |
) |
Net transition obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized /
occurring, pre-tax |
|
$ |
5,984 |
|
|
$ |
(385 |
) |
|
$ |
5,599 |
|
|
$ |
23,680 |
|
|
$ |
(1,693 |
) |
|
$ |
21,987 |
|
|
The estimated net actuarial loss (gain) which will be amortized from accumulated other
comprehensive income (loss) into benefit cost in 2010 is less than $0.1 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
866 |
|
|
$ |
3,241 |
|
|
$ |
3,329 |
|
|
$ |
323 |
|
|
$ |
848 |
|
|
$ |
1,170 |
|
Interest cost |
|
|
4,076 |
|
|
|
4,294 |
|
|
|
4,069 |
|
|
|
735 |
|
|
|
2,150 |
|
|
|
2,371 |
|
Expected return on plan assets |
|
|
(4,343 |
) |
|
|
(5,053 |
) |
|
|
(4,697 |
) |
|
|
(72 |
) |
|
|
(1,353 |
) |
|
|
(1,513 |
) |
Amortization of prior service cost |
|
|
2 |
|
|
|
10 |
|
|
|
10 |
|
|
|
(12 |
) |
|
|
(13 |
) |
|
|
(14 |
) |
Amortization of transition asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75 |
) |
|
|
(92 |
) |
Amortization of losses |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
13 |
|
|
|
63 |
|
|
|
522 |
|
|
Total cost of the plan for the year |
|
|
601 |
|
|
|
2,492 |
|
|
|
2,725 |
|
|
|
987 |
|
|
|
1,620 |
|
|
|
2,444 |
|
Expected plan participants
contrib. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
601 |
|
|
|
2,492 |
|
|
|
2,725 |
|
|
|
987 |
|
|
|
1,620 |
|
|
|
2,444 |
|
Settlement loss (curtailment gain) |
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
(345 |
) |
|
|
5,725 |
|
|
|
1,506 |
|
|
Total expense for the year |
|
$ |
675 |
|
|
$ |
2,492 |
|
|
$ |
2,725 |
|
|
$ |
642 |
|
|
$ |
7,345 |
|
|
$ |
3,950 |
|
|
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans, continued
Weighted average assumptions used to determine net periodic benefit cost for the years 2009, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Discount rate |
|
|
6.4/7.5 |
%* |
|
|
6.5 |
% |
|
|
6.0 |
% |
|
|
6.6 |
% |
|
|
5.2 |
% |
|
|
4.5 |
% |
Expected return on plan assets |
|
|
8.5 |
% |
|
|
8.5 |
% |
|
|
8.5 |
% |
|
|
3.6 |
% |
|
|
4.2 |
% |
|
|
4.0 |
% |
Compensation increase rate |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.0 |
% |
|
|
3.5 |
% |
|
|
3.5 |
% |
Measurement dates |
|
|
1/01/09 |
|
|
|
1/01/08 |
|
|
|
1/01/07 |
|
|
|
1/01/09 |
|
|
|
1/01/08 |
|
|
|
1/01/07 |
|
|
|
|
|
* |
|
Denotes discount rate of 6.4% used through April 1, 2009, with an interest rate of 7.5% used thereafter. |
The accumulated benefit obligation for the U.S. defined benefits plans was $58.8 million and
$63.0 million at January 2, 2010 and December 27, 2008, respectively. The accumulated benefit
obligation for the foreign plan was $11.5 million and $12.9 million at January 2, 2010 and December
27, 2008, respectively.
Weighted average assumptions used to determine benefit obligations at year-end 2009, 2008 and 2007
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
Foreign |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Discount rate |
|
|
7.0 |
% |
|
|
6.4 |
% |
|
|
6.5 |
% |
|
|
5.6 |
% |
|
|
6.6 |
% |
|
|
5.2 |
% |
Compensation increase rate |
|
|
|
|
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.8 |
% |
|
|
4.0 |
% |
|
|
3.5 |
% |
Measurement dates |
|
|
12/31/09 |
|
|
|
12/31/08 |
|
|
|
12/31/07 |
|
|
|
12/31/09 |
|
|
|
12/31/08 |
|
|
|
12/31/07 |
|
Expected benefit payments to be paid to participants for the fiscal year ending are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
Year |
|
U.S. |
|
Foreign |
2010
|
|
$ |
4,125 |
|
|
$ |
996 |
|
2011
|
|
|
3,849 |
|
|
|
957 |
|
2012
|
|
|
3,815 |
|
|
|
1,398 |
|
2013
|
|
|
3,849 |
|
|
|
1,157 |
|
2014
|
|
|
3,973 |
|
|
|
946 |
|
Defined Benefit Plan Assets
Based upon analysis of the target asset allocation and historical returns by type of investment,
the company has assumed that the expected long-term rate of return will be 8.5% on domestic plan
assets and 3.6% on foreign plan assets. Assets are invested to maximize long-term return taking
into consideration timing of settlement of the retirement liabilities and liquidity needs for
benefits payments. Pension plan assets were invested as follows, and were not materially different
from the target asset allocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Asset Allocation |
|
|
Foreign Asset Allocation |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Equity securities |
|
|
73 |
% |
|
|
68 |
% |
|
|
24 |
% |
|
|
33 |
% |
Debt securities |
|
|
27 |
% |
|
|
32 |
% |
|
|
28 |
% |
|
|
32 |
% |
Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
% |
Cash |
|
|
|
|
|
|
|
|
|
|
48 |
% |
|
|
30 |
% |
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans, continued
The following table presents the companys U.S. pension plan assets measured at fair value by
classification within the fair value hierarchy as of January 2, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
Equities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. large cap growth funds |
|
$ |
6,945 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,945 |
|
U.S. large cap value funds |
|
|
7,132 |
|
|
|
|
|
|
|
|
|
|
|
7,132 |
|
U.S. large cap core funds |
|
|
6,591 |
|
|
|
|
|
|
|
|
|
|
|
6,591 |
|
U.S. mid-cap core funds |
|
|
7,442 |
|
|
|
|
|
|
|
|
|
|
|
7,442 |
|
U.S. small cap core funds |
|
|
3,023 |
|
|
|
|
|
|
|
|
|
|
|
3,023 |
|
International funds |
|
|
6,939 |
|
|
|
|
|
|
|
|
|
|
|
6,939 |
|
Fixed income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade corporate bond
funds |
|
|
8,572 |
|
|
|
|
|
|
|
|
|
|
|
8,572 |
|
High yield corporate bond funds |
|
|
|
|
|
|
5,492 |
|
|
|
|
|
|
|
5,492 |
|
Cash and equivalents |
|
|
509 |
|
|
|
|
|
|
|
|
|
|
|
509 |
|
|
Total pension plan assets |
|
$ |
47,153 |
|
|
$ |
5,492 |
|
|
$ |
|
|
|
$ |
52,645 |
|
|
Defined Contribution Plans
The company also maintains a 401(k) savings plan covering substantially all U.S. employees. The
company matches 50% of the employees annual contributions for the first 4% of the employees gross
wages. Employees vest in the company contributions after two years of service. Company matching
contributions amounted to $0.4 million, $0.6 million and $0.6 million in each of the years 2009,
2008 and 2007, respectively.
On January 1, 2010, the company adopted a non-qualified Supplemental Retirement and Savings Plan.
The company will provide additional retirement benefits for certain management employees and named
executive officers by allowing participants to contribute up to 90% of their annual compensation
with matching contributions of 4% and 5% of the participants annual compensation in excess of the
IRS compensation limits.
The company previously provided additional retirement benefits for certain key executives through
its unfunded defined contribution Supplemental Executive Retirement Plan (SERP). The company
amended the SERP during 2009 to freeze contributions and set the annual interest rate credited to
the accounts until distributed at the 5-year Treasury constant maturity rate. The charge to expense
for the SERP plan amounted to $0.3 million, $0.4 million and $0.3 million in each of the years
2009, 2008 and 2007, respectively.
13. Shareholders Equity
Equity Plans: The company has equity-based compensation plans authorizing the granting of stock
options, restricted shares, restricted share units, performance shares, and other stock rights of
up to 5,925,000 shares of common stock to employees and directors.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Shareholders Equity, continued
Stock options granted prior to 2002 vest over a five-year period and are exercisable over a
ten-year period commencing from the date of vesting. The stock options granted in 2002 through
February 2005 vest over a five-year period and are exercisable over a ten-year period commencing
from the date of the grant. Stock options granted after February 2005 vest over a three, four or
five-year period and are exercisable over either a
seven or ten-year period commencing from the date of the grant. Restricted shares and share units
granted by the company vest over three to four years.
The company also has performance share agreements under its equity-based compensation plans
pursuant to which a target amount of performance share awards have been granted based on the
company attaining certain financial performance goals relating to return on net tangible assets
(for performance shares granted prior to 2008) or return on net assets (for performance shares
granted in 2008 and 2009) and earnings before interest, taxes, depreciation and amortization over a
three-year performance period. The performance-based restricted stock awards granted prior to 2008
vest in thirds over a three-year period (following the three-year performance period). When vested,
half of the stock awards is paid in cash and half will be settled through the issuance of the
companys common stock. The performance-based restricted stock awards granted in 2008 and 2009 vest
after a three-year performance period and are satisfied completely by the issuance of the companys
common stock at the end of the performance period. The fair value of the performance-based
restricted stock awards that are settled in common stock is measured at the market price on the
grant date, and the fair value of the portion paid in cash is measured at the current market price
of a share.
The following table provides a reconciliation of outstanding stock options for the fiscal year
ended January 2, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wtd. Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Contract |
|
|
Aggregate Intrinsic |
|
|
|
Shares Under Option |
|
|
Wtd. Average Price |
|
|
Life (Years) |
|
|
Value (000s) |
|
|
Outstanding December 27,
2008 |
|
|
2,091,198 |
|
|
$ |
31.47 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
282,238 |
|
|
|
14.82 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(57,750 |
) |
|
|
21.87 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(197,421 |
) |
|
|
32.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 2, 2010 |
|
|
2,118,265 |
|
|
|
29.46 |
|
|
|
4.5 |
|
|
$ |
10,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable January 2, 2010 |
|
|
1,373,483 |
|
|
|
30.85 |
|
|
|
4.0 |
|
|
|
4,785 |
|
|
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Shareholders Equity, continued
The following table provides a reconciliation of nonvested restricted share and share unit awards
for the twelve month period ending January 2, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WeightedAverage |
|
|
|
Shares |
|
|
Grant-Date Fair Value |
|
|
Nonvested December 27, 2008 |
|
|
32,482 |
|
|
$ |
37.06 |
|
Granted |
|
|
160,772 |
|
|
|
17.25 |
|
Vested |
|
|
(11,320 |
) |
|
|
37.38 |
|
Forfeited |
|
|
(400 |
) |
|
|
24.25 |
|
|
|
|
|
|
|
|
|
Nonvested January 2, 2010 |
|
|
181,534 |
|
|
|
19.52 |
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during 2009, 2008, and 2007 was $0.2 million, $0.5
million, and $2.9 million, respectively.
The following table provides a reconciliation of nonvested performance share awards (including only
awards to be settled by the issuance of the companys common stock) for the twelve month period
ending January 2, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Shares |
|
|
Grant-Date Fair Value |
|
|
Nonvested December 27, 2008 |
|
|
65,383 |
|
|
$ |
33.60 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(4,333 |
) |
|
|
28.69 |
|
Forfeited |
|
|
(20,500 |
) |
|
|
41.22 |
|
|
|
|
|
|
|
|
|
Nonvested January 2, 2010 |
|
|
40,550 |
|
|
|
30.27 |
|
|
|
|
|
|
|
|
|
The company recognizes compensation cost of all share-based awards as an expense on a straight-line
basis over the vesting period of the awards. At January 2, 2010, the unrecognized compensation cost
for options, restricted shares and performance shares was $7.4 million before tax, and will be
recognized over a weighted-average period of 2.3 years. Compensation cost included as a component
of selling, general and administrative expense for all equity compensation plans discussed above
was $5.5 million, $5.1 million and $5.0 million for 2009, 2008 and 2007, respectively. The total
income tax benefit recognized in the Consolidated Statements of Income was $2.1 million, $2.1
million and $1.9 million for 2009, 2008 and 2007, respectively.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Shareholders Equity, continued
The company uses the Black-Scholes option valuation model to determine the fair value of awards
granted. The weighted average fair value of and related assumptions for options granted are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Weighted average fair value of
options granted |
|
$ |
5.72 |
|
|
$ |
11.65 |
|
|
$ |
14.05 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
2.19 |
% |
|
|
3.31 |
% |
|
|
4.46 |
% |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected stock price volatility |
|
|
43.5 |
% |
|
|
34.8 |
% |
|
|
35.7 |
% |
Expected life of options |
|
4.7 years |
|
4.7 years |
|
4.7 years |
Expected volatilities are based on the historical volatility of the companys stock price. The
expected life of options is based on historical data for options granted by the company and the SEC
simplified method. The risk-free rates are based on yields available at the time of grant on U.S.
Treasury bonds with maturities consistent with the expected life assumption.
Accumulated Other Comprehensive Income (Loss): The components of accumulated other comprehensive
income (loss) at the end of the fiscal years 2009, 2008 and 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Minimum pension liability adjustment* |
|
$ |
(3,831 |
) |
|
$ |
(15,488 |
) |
|
$ |
(3,835 |
) |
Gain (loss) on investments** |
|
|
8,648 |
|
|
|
|
|
|
|
105 |
|
Gain (loss) on derivative instruments*** |
|
|
(92 |
) |
|
|
(403 |
) |
|
|
|
|
Foreign currency translation adjustment |
|
|
14,002 |
|
|
|
5,768 |
|
|
|
21,091 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,727 |
|
|
$ |
(10,123 |
) |
|
$ |
17,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
net of tax of $1,768, $6,499 and $2,323 for 2009, 2008 and 2007 respectively. |
|
** |
|
net of tax of $0, $0 and ($65) for 2009, 2008 and 2007 respectively. |
|
*** |
|
net of tax of $191 and $247 for 2009 and 2008 respectively. |
Preferred Stock: The Board of Directors may authorize the issuance of preferred stock from
time to time in one or more series with such designations, preferences, qualifications,
limitations, restrictions, and optional or other special rights as the Board may fix by resolution.
14. Income Taxes
A reconciliation of the beginning and ending amount of unrecognized tax benefits as of January 2,
2010 and December 27, 2008 is as follows (in thousands):
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income Taxes, continued
|
|
|
|
|
Balance at December 31, 2006 |
|
$ |
8,311 |
|
Additions for tax positions of prior years |
|
|
121 |
|
Settlements |
|
|
(706 |
) |
Reductions based on lapse of statue |
|
|
(3,947 |
) |
|
|
|
|
Balance at December 29, 2007 |
|
|
3,779 |
|
Settlements |
|
|
(179 |
) |
Reductions based on lapse of statute |
|
|
(845 |
) |
|
|
|
|
Balance at December 27, 2008 |
|
|
2,755 |
|
Additions for tax positions of prior years |
|
|
204 |
|
Additions for tax positions of current year |
|
|
62 |
|
Settlements |
|
|
(668 |
) |
Reductions based on lapse of statue |
|
|
(1,857 |
) |
|
|
|
|
Balance at January 2, 2010 |
|
$ |
496 |
|
|
|
|
|
The amount of unrecognized tax benefits at January 2, 2010 was approximately $0.5 million. Of
this total, approximately $0.5 million represents the amount of tax benefits that, if recognized,
would favorably affect the effective income tax rate in future periods. The company reasonably
expects an approximate $0.2 million decrease in unrecognized tax benefits in the next 12 months due
to settlements or lapse of tax statutes of limitations. None of the positions included in
unrecognized tax benefits are related to tax positions for which the ultimate deductibility is
highly certain, but for which there is uncertainty about the timing of such deductibility. The U.S.
federal statute of limitations remains open for 2006 onward. Foreign and U.S. state statute of
limitations generally range from three to six years. The company is currently under examination in
Germany for tax years 2005 through 2007 and in the U.S. for tax years 2006 through 2008. The
company does not expect to recognize a material amount of additional tax expenses as a result of
concluding either audit
The company recognizes accrued interest and penalties associated with uncertain tax positions as
part of income tax expense. As of January 2, 2010, the company had approximately $0.2 million of
accrued interest and penalties. Substantially all of this total represents the amount of interest
and penalties that, if recognized, would favorably affect the effective tax rate in future periods.
Domestic and foreign income (loss) before income taxes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Domestic |
|
$ |
(10,865 |
) |
|
$ |
(15,284 |
) |
|
$ |
2,149 |
|
Foreign |
|
|
21,702 |
|
|
|
25,907 |
|
|
|
49,139 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
10,837 |
|
|
$ |
10,623 |
|
|
$ |
51,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal, state, and foreign income tax (benefit) expense consists of the following (in thousands): |
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(2,618 |
) |
|
$ |
(215 |
) |
|
$ |
(1,871 |
) |
State |
|
|
330 |
|
|
|
268 |
|
|
|
1,146 |
|
Foreign |
|
|
6,619 |
|
|
|
6,501 |
|
|
|
13,027 |
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
4,331 |
|
|
|
6,554 |
|
|
|
12,302 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal and State |
|
|
(2,100 |
) |
|
|
(4,849 |
) |
|
|
2,033 |
|
Foreign |
|
|
(805 |
) |
|
|
902 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
(2,905 |
) |
|
|
(3,947 |
) |
|
|
2,151 |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
1,426 |
|
|
$ |
2,607 |
|
|
$ |
14,453 |
|
|
|
|
|
|
|
|
|
|
|
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income Taxes, continued
A reconciliation between income taxes computed on income before income taxes at the federal
statutory rate and the provision for income taxes is provided below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Tax expense at statutory rate of 35% |
|
$ |
3,793 |
|
|
$ |
3,718 |
|
|
$ |
17,951 |
|
State and local taxes, net of federal tax benefit |
|
|
492 |
|
|
|
(322 |
) |
|
|
483 |
|
Foreign income tax rate differential |
|
|
(1,778 |
) |
|
|
(1,168 |
) |
|
|
(962 |
) |
Foreign losses for which no tax benefit is available |
|
|
37 |
|
|
|
1,068 |
|
|
|
32 |
|
Tax on unremitted earnings |
|
|
904 |
|
|
|
(257 |
) |
|
|
(140 |
) |
Uncertain tax positions |
|
|
(2,629 |
) |
|
|
(140 |
) |
|
|
(2,783 |
) |
Other, net |
|
|
607 |
|
|
|
(292 |
) |
|
|
(128 |
) |
|
Provision for income taxes |
|
$ |
1,426 |
|
|
$ |
2,607 |
|
|
$ |
14,453 |
|
|
Deferred income taxes are provided for the tax effects of temporary differences between the
financial reporting bases and the tax bases of the companys assets and liabilities. Significant
components of the companys deferred tax assets and liabilities at January 2, 2010 and December 27,
2008 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
DEFERRED TAX ASSETS: |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
11,459 |
|
|
$ |
26,435 |
|
Foreign tax credit carryforwards |
|
|
9,817 |
|
|
|
6,962 |
|
R&D credit carryforwards |
|
|
858 |
|
|
|
518 |
|
AMT credit carryforwards |
|
|
1,318 |
|
|
|
1,318 |
|
Accrued restructuring |
|
|
3,338 |
|
|
|
3,744 |
|
Domestic and foreign net operating loss carryforwards |
|
|
9,547 |
|
|
|
3,659 |
|
Other |
|
|
|
|
|
|
391 |
|
|
Gross deferred tax assets |
|
|
36,337 |
|
|
|
43,027 |
|
Less: Valuation allowance |
|
|
(907 |
) |
|
|
(708 |
) |
|
Total deferred tax assets |
|
|
35,430 |
|
|
|
42,319 |
|
|
|
|
|
|
|
|
|
|
|
DEFERRED TAX LIABILITIES: |
|
|
|
|
|
|
|
|
Tax depreciation and amortization in excess of book |
|
|
12.329 |
|
|
|
15,391 |
|
Other |
|
|
837 |
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
13,166 |
|
|
|
15,391 |
|
|
|
|
|
|
|
|
|
|
|
|
NET DEFERRED TAX ASSETS |
|
$ |
22,264 |
|
|
$ |
26,928 |
|
|
The deferred tax asset valuation allowance is related to deferred tax assets from foreign net
operating losses and a U.S capital loss. The remaining domestic and foreign net operating losses
either have no expiration date or are expected to be utilized prior to expiration. The foreign tax
credit carryforwards begin to expire in 2015. The company paid income taxes of approximately $9.9
million, $8.8 million and $16.7 million in 2009, 2008 and 2007, respectively. U.S. income taxes
were not provided for on a cumulative total of approximately $31.0 million of undistributed
earnings for certain non-U.S. subsidiaries as of January 2, 2010, and accordingly, no deferred tax
liability has been established relative to these earnings. The determination of the deferred tax
liability associated with the distribution of these earnings is not practicable. The company has
two subsidiaries in China and one subsidiary in the Philippines on tax holidays. The tax
holidays expire in China in two years and within three years in the Philippines.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Business Unit Segment Information
An operating segment is defined as a component of an enterprise that engages in business activities
from which it may earn revenues and incur expenses, and about which separate financial information
is regularly evaluated by the Chief Operating Decision Maker (CODM) in deciding how to allocate
resources. The CODM is the companys President and Chief Executive Officer (CEO).
The company reports its operations by the following business unit segments: Electronics;
Automotive; and Electrical.
|
|
Electronics. Provides circuit protection components and expertise to
leading global manufacturers of a wide range of electronic products
including mobile phones, computers, LCD TVs, telecommunications
equipment, medical devices, lighting products and white goods. The
Electronics business segment has the broadest product offering in the
industry including fuses and protectors, positive temperature
coefficient (PTC) resettable fuses, varistors, polymer electrostatic
discharge (ESD) suppressors, discreet transient voltage suppression
(TVS) diodes, TVS diode arrays and protection thyristors, gas
discharge tubes, power switching components and fuseholders, blocks
and related accessories. |
|
|
|
Automotive. Provides circuit protection products to the worldwide
automotive original equipment manufacturers (OEM) and parts
distributors of passenger automobiles, trucks, buses and off-road
equipment. The company also sells its fuses in the automotive
replacement parts market. Products include blade fuses, high current
fuses, battery cable protectors and varistors. |
|
|
|
Electrical. Provides circuit protection products and hazard
assessments for industrial and commercial customers. Products include
power fuses and other circuit protection devices that are used in
commercial and industrial buildings and large equipment such as HVAC
systems, elevators and machine tools. |
Each of the operating segments is directly responsible for sales, marketing and research and
development. Manufacturing, purchasing, logistics, customer service, finance, information
technology and human resources are shared functions that are allocated back to the three operating
segments. The CEO allocates resources to and assesses the performance of each operating segment
using information about its revenue and operating income (loss), but does not evaluate the
operating segments using discrete asset information.
Sales, marketing and research and development expenses are charged directly into each operating
segment. All other functions are shared by the operating segments and expenses for these shared
functions are allocated to the operating segments and included in the operating results reported
below. The company does not report inter-segment revenue because the operating segments do not
record it. The company does not allocate interest and other income, interest expense, or taxes to
operating segments. Although the CEO uses operating income to evaluate the segments, operating
costs included in one segment may benefit other segments. Except as discussed above, the accounting
policies for segment reporting are the same as for the company as a whole.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Business Unit Segment Information, continued
The company has provided this business unit segment information for all comparable prior periods.
Segment information is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
Electronics |
|
$ |
262,984 |
|
|
$ |
342,489 |
|
|
$ |
348,957 |
|
Automotive |
|
|
98,530 |
|
|
|
126,867 |
|
|
|
135,109 |
|
Electrical |
|
|
68,633 |
|
|
|
61,513 |
|
|
|
52,078 |
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
430,147 |
|
|
$ |
530,869 |
|
|
$ |
536,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Electronics |
|
$ |
(171 |
) |
|
$ |
1,745 |
|
|
$ |
19,814 |
|
Automotive |
|
|
6,165 |
|
|
|
2,216 |
|
|
|
18,900 |
|
Electrical |
|
|
16,103 |
|
|
|
15,471 |
|
|
|
11,989 |
|
Other* |
|
|
(8,402 |
) |
|
|
(10,937 |
) |
|
|
606 |
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
|
13,695 |
|
|
|
8,495 |
|
|
|
51,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
2,377 |
|
|
|
3,440 |
|
|
|
1,557 |
|
Other expense (income), net |
|
|
481 |
|
|
|
(5,568 |
) |
|
|
(1,536 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
10,837 |
|
|
$ |
10,623 |
|
|
$ |
51,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Included in Other Operating income (loss) for 2009 are severance and
asset impairment charges related to restructuring activities in the U.S.
($1.6 million), Europe ($5.5 million) and Asia-Pacific ($1.5 million)
locations (see Note 9). Included in Other Operating income (loss) for 2008
are special items such as restructuring charges related to the closure of the
companys Matamoros, Mexico facility ($4.4 million see Note 9) and Ireland
pension settlement charge ($5.7 million see Note 12). Included in Other
Operating income (loss) for 2007 is the gain on sale of property in Ireland
($8.0 million), partially offset by restructuring charges related to the
closure of the companys Des Plaines, Illinois facility ($3.5 million see
Note 9) and related write-down of manufacturing assets ($1.9 million). |
The companys revenues and long-lived assets (total net property, plant and equipment,
intangible assets, goodwill and investments) by geographical area for the fiscal years ended 2009,
2008 and 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
166,137 |
|
|
$ |
201,771 |
|
|
$ |
204,305 |
|
Europe |
|
|
83,449 |
|
|
|
118,559 |
|
|
|
118,265 |
|
Asia-Pacific |
|
|
180,561 |
|
|
|
210,539 |
|
|
|
213,574 |
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
430,147 |
|
|
$ |
530,869 |
|
|
$ |
536,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
143,111 |
|
|
$ |
159,543 |
|
|
$ |
117,612 |
|
Europe |
|
|
50,225 |
|
|
|
46,361 |
|
|
|
59,453 |
|
Asia-Pacific |
|
|
88,195 |
|
|
|
87,250 |
|
|
|
71,748 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
281,531 |
|
|
$ |
293,154 |
|
|
$ |
248,813 |
|
|
|
|
|
|
|
|
|
|
|
For the year ended January 2, 2010, approximately 67.5% of the companys net sales were to
customers outside the United States (exports and foreign operations) including 20.3% in Hong Kong.
No single customer accounted for more than 10% of net sales during the last three years.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Lease Commitments
The company leases certain office and warehouse space as well as certain machinery and equipment
under non-cancellable operating leases. Rent expense under these leases was approximately $7.1
million in 2009, $6.0 million in 2008, and $4.4 million in 2007.
Rent expense is recognized on a straight-line basis over the term of the leases. The difference
between straight-line basis rent and the amount paid has been recorded as accrued lease
obligations. The company also has leases that have lease renewal provisions. As of January 2, 2010,
all operating leases outstanding were with third parties. The company did not have any capital
leases as of January 2, 2010.
In February 2008, the company entered into an agreement to lease office space for its U.S.
headquarters, which will be located in Chicago, Illinois. The lease, with a stated commencement
date of January 1, 2009, expires December 31, 2024 and contains two five-year renewal options. In
addition, the lease contains leasehold improvement incentives and rent abatement for the first year
of the lease. The company recognizes rental expense for this lease on a straight-line basis over
the term of the lease, including base rent and all considerations received. Annual rental expense
under this lease is approximately $1.4 million.
In September 2009, the company entered into an agreement to lease office space for its Technical
Center which will be located in Champaign, Illinois. The lease, with a stated commencement date of
March 1, 2010, expires February 28, 2025 and contains two five-year renewal options. The company
will recognize rental expense for this lease on a straight-line basis over the term of the lease.
Annual rental expense under this lease will be approximately $0.2 million.
Future minimum payments for all non-cancelable operating leases with initial terms of one year or
more at January 2, 2010, are as follows (in thousands):
|
|
|
|
|
2010 |
|
$ |
6,493 |
|
2011 |
|
|
5,279 |
|
2012 |
|
|
4,237 |
|
2013 |
|
|
2,403 |
|
2014 |
|
|
2,384 |
|
2015 and thereafter |
|
|
20,571 |
|
|
|
|
|
|
|
$ |
41,367 |
|
|
|
|
|
17. Earnings Per Share
In June 2008, the FASB issued authoritative guidance titled Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities. The guidance states that
unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be included in the
computation of earnings per share pursuant to the two-class method. Upon adoption, a company is
required to retrospectively adjust its earnings per share data presentation to conform with the
guidance provisions. The guidance is effective for fiscal years beginning after December 15, 2008.
The company adopted the new guidance on December 28, 2008.
The companys unvested share-based payment awards, such as certain performance shares, restricted
shares and restricted share units that contain nonforfeitable rights to dividends, meet the
criteria of a participating security as defined by the guidance. The adoption has changed the
methodology of computing the companys earnings
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Earnings Per Share continued
per share to the two-class method from the treasury stock method. This change has not affected
previously reported earnings per share, consolidated net earnings or net cash flows from
operations. Under the two-class method, earnings are allocated between common stock and
participating securities. The guidance provides that the presentation of basic and diluted earnings
per share is required only for each class of common stock and not for participating securities. As
such, the company will present basic and diluted earnings per share for its one class of common
stock.
The two-class method includes an earnings allocation formula that determines earnings per share for
each class of common stock according to dividends declared and undistributed earnings for the
period. The companys reported net earnings is reduced by the amount allocated to participating
securities to arrive at the earnings allocated to common stock shareholders for purposes of
calculating earnings per share.
The dilutive effect of participating securities is calculated using the more dilutive of the
treasury stock or the two-class method. The company has determined the two-class method to be the
more dilutive. As such, the earnings allocated to common stock shareholders in the basic earnings
per share calculation is adjusted for the reallocation of undistributed earnings to participating
securities as prescribed by the guidance to arrive at the earnings allocated to common stock
shareholders for calculating the diluted earnings per share.
The following table sets forth the computation of basic and diluted earnings per share under the
two-class method:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except per share amounts) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Net income as reported |
|
$ |
9,411 |
|
|
$ |
8,016 |
|
|
$ |
36,835 |
|
Less: Distributed earnings available to
participating securities |
|
|
|
|
|
|
|
|
|
|
|
|
Less: Undistributed earnings available
to participating securities |
|
|
(78 |
) |
|
|
(12 |
) |
|
|
(12 |
) |
|
Numerator for basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed and distributed earnings
available to common shareholders |
|
$ |
9,333 |
|
|
$ |
8,004 |
|
|
$ |
36,823 |
|
Add: Undistributed earnings allocated to
participating securities |
|
|
78 |
|
|
|
12 |
|
|
|
12 |
|
Less: Undistributed earnings reallocated
to participating securities |
|
|
(78 |
) |
|
|
(12 |
) |
|
|
(12 |
) |
|
Numerator for diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed and distributed earnings
available to common shareholders |
|
$ |
9,333 |
|
|
$ |
8,004 |
|
|
$ |
36,823 |
|
|
Denominator for basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares |
|
|
21,743 |
|
|
|
21,722 |
|
|
|
22,231 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents |
|
|
69 |
|
|
|
104 |
|
|
|
163 |
|
Denominator for diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for weighted-average shares &
assumed conversions |
|
|
21,812 |
|
|
|
21,826 |
|
|
|
22,394 |
|
|
Basic earnings per share |
|
$ |
0.43 |
|
|
$ |
0.37 |
|
|
$ |
1.66 |
|
|
Diluted earnings per share |
|
$ |
0.43 |
|
|
$ |
0.37 |
|
|
$ |
1.64 |
|
|
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Selected Quarterly Financial Data (Unaudited)
The following potential shares of common stock attributable to stock options were excluded from the
earnings per share calculation because their effect would be anti-dilutive: 1,812,414 in 2009;
1,322,540 in 2008; and 906,215 in 2007.
The quarterly periods listed in the table below for 2009 are for the 14-weeks ending January 2,
2010 and the 13-weeks ending September 26, 2009, June 27, 2009 and March 28, 2009, respectively.
The quarterly periods for 2008 are for the 13-weeks ending December 27, 2008, September 27, 2008,
June 28, 2008 and March 29, 2008, respectively.
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2009 |
|
2008 |
|
|
|
4Q |
|
|
3Qa |
|
|
2Qb |
|
|
1Q |
|
|
4Qc |
|
|
3Qd |
|
|
2Q |
|
|
1Qe |
|
|
Net sales |
|
$ |
127,928 |
|
|
$ |
116,420 |
|
|
$ |
101,396 |
|
|
$ |
84,403 |
|
|
$ |
105,887 |
|
|
$ |
141,448 |
|
|
$ |
149,826 |
|
|
$ |
133,708 |
|
Gross profit |
|
|
45,057 |
|
|
|
36,616 |
|
|
|
25,414 |
|
|
|
18,274 |
|
|
|
21,826 |
|
|
|
35,900 |
|
|
|
47,462 |
|
|
|
38,481 |
|
Operating income (loss) |
|
|
17,240 |
|
|
|
10,011 |
|
|
|
(3,456 |
) |
|
|
(10,100 |
) |
|
|
(13,108 |
) |
|
|
2,011 |
|
|
|
13,304 |
|
|
|
6,288 |
|
Net income (loss) |
|
|
11,721 |
|
|
|
8,058 |
|
|
|
(2,584 |
) |
|
|
(7,784 |
) |
|
|
(9,225 |
) |
|
|
3,988 |
|
|
|
9,141 |
|
|
|
4,112 |
|
Net income (loss)
per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.54 |
|
|
$ |
0.37 |
|
|
$ |
(0.12 |
) |
|
$ |
(0.36 |
) |
|
$ |
(0.42 |
) |
|
$ |
0.18 |
|
|
$ |
0.42 |
|
|
$ |
0.19 |
|
Diluted |
|
$ |
0.53 |
|
|
$ |
0.37 |
|
|
$ |
(0.12 |
) |
|
$ |
(0.36 |
) |
|
$ |
(0.42 |
) |
|
$ |
0.18 |
|
|
$ |
0.42 |
|
|
$ |
0.19 |
|
|
|
|
|
a |
|
In the third quarter of 2009, the company recorded a $1.7 million charge related to
severance and asset impairments in Europe and Asia. In addition, the company realized an
income tax benefit from the release of $2.6 million in contingent income tax reserves due to
the lapsing of statutes of limitations. |
|
b |
|
In the second quarter of 2009, the company recorded a $7.3 million charge related to
severance charges and asset write-offs for the U.S., Europe and Asia. |
|
c |
|
In the fourth quarter of 2008, the company recorded a $3.2 million charge related to the
write-down of manufacturing assets and a $2.8 million charge from marking down the companys
investment in Polytronics to its lower market value. |
|
d |
|
In the third quarter of 2008, the company recorded a $5.7 million non-cash charge related to
settlement of the Ireland pension plan. |
|
e |
|
In the first quarter of 2008, the company recorded a $4.4 million restructuring charge
related to the closure of its Matamoros, Mexico facility and the corresponding transfer of
manufacturing operations to its Wuxi, China facility. |
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES. |
Section 404 of the Sarbanes-Oxley Act of 2002 requires management to include in this Annual Report
on Form 10-K a report on managements assessment of the effectiveness of the companys internal
control over financial reporting, as well as an attestation report from the companys independent
registered accounting firm on the effectiveness of the companys internal control over financial
reporting.
Managements Report on Internal Control over Financial Reporting
The management of Littelfuse is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f).
Littelfuses internal control system was designed to provide reasonable assurance to its management
and the Board of Directors regarding the preparation and fair presentation of published financial
statements.
77
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Littelfuses management assessed the effectiveness of the companys internal control over financial
reporting as of January 2, 2010, based upon the framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, the companys management concluded that, as of January 2, 2010, the
companys internal control over financial reporting is effective.
Littelfuses independent registered public accounting firm, Ernst & Young LLP, has audited the
effectiveness of the companys internal control over financial reporting as of January 2, 2010.
Their report appears on page 38 hereof.
Changes in Internal Control over Financial Reporting
There was no change in the companys internal control over financial reporting that occurred during
the companys most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the companys internal control over financial reporting.
Disclosure Controls and Procedures
The company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the companys Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is accumulated and communicated to the
companys management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
As of January 2, 2010, the Chief Executive Officer and Chief Financial Officer of the company
evaluated the effectiveness of the disclosure controls and procedures of the company and concluded
that these disclosure controls and procedures were effective.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION. |
None.
78
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
Executive Officers of the Registrant
The executive officers of the company are as follows:
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Gordon Hunter
|
|
|
58 |
|
|
Chairman of the Board of Directors, President and Chief Executive Officer |
Philip G. Franklin
|
|
|
58 |
|
|
Vice President, Operations Support, Chief Financial Officer and Treasurer |
Dal Ferbert
|
|
|
56 |
|
|
Vice President and General Manager of the Electrical Business Unit |
Dieter Roeder
|
|
|
53 |
|
|
Vice President and General Manager of the Automotive Business Unit |
Chen-Ming Wang
|
|
|
47 |
|
|
Vice President and General Manager of the Electronics Business Unit |
David W. Heinzmann
|
|
|
46 |
|
|
Vice President of Global Operations |
Ryan K. Stafford
|
|
|
42 |
|
|
General Counsel and Vice President, Human Resources |
Paul Dickinson
|
|
|
38 |
|
|
Vice President and General Manager, Semiconductor Products |
Mary S. Muchoney
|
|
|
64 |
|
|
Corporate Secretary |
Officers of Littelfuse are elected by the Board of Directors and serve at the discretion of
the Board.
Gordon Hunter was elected as the Chairman of the Board of Directors of the company and President
and Chief Executive Officer effective January 1, 2005. Mr. Hunter served as Chief Operating Officer
of the company from November 2003 to January 2005. Mr. Hunter has been a member of the Board of
Directors of the company since June 2002, where he has served as Chairman of the Technology
Committee. Prior to joining Littelfuse, Mr. Hunter was employed with Intel Corporation, where he
was Vice President, Intel Communications Group, and General Manager, Optical Products Group,
responsible for managing the access and optical communications business segments, from 2002 to
2003. Mr. Hunter was CEO for Calmar Optcom during 2001. From 1997 to 2002, he also served as a Vice
President for Raychem Corporation. His experience includes 20 years with Raychem Corporation in the
United States and Europe, with responsibilities in sales, marketing, engineering and general
management.
Philip G. Franklin, Vice President, Operations Support, Chief Financial Officer and Treasurer,
joined the company in 1998 and is responsible for finance and accounting, investor relations,
mergers and acquisitions and information systems. Prior to Littelfuse, Mr.
Franklin was Vice President and Chief Financial Officer for OmniQuip International, a private
equity sponsored roll-up in the construction equipment industry, which he helped take public.
Before that, Mr. Franklin served as Chief Financial Officer for both Monarch Marking Systems, a
subsidiary of Pitney Bowes, and Hill Refrigeration, a company controlled by Sam Zell. Earlier in
his career, he worked in a variety of finance and general management positions at FMC Corporation.
Dal Ferbert, Vice President and General Manager, Electrical Business Unit, is responsible for the
management of daily operations, sales, marketing and strategic planning efforts of the Electrical
Business Unit (POWR-GARD Products). Mr. Ferbert joined the company in 1976 as a member of the
electronic distributor sales team. From 1980 to 1989 he served in the Materials Management
Department as a buyer and then Purchasing Manager. In 1990, he was promoted to National Sales
Manager of the Electrical Business Unit and then promoted to his current position in 2004.
79
Executive Officers of the Registrant, continued
Dieter Roeder, Vice President and General Manager, Automotive Business Unit, is responsible for
marketing, sales, product development and customer relationships for all automotive business units.
Mr. Roeder joined the company in 2005 leading the Automotive Business Units European sales team,
based in Germany, before he was promoted to his current position in August 2007. Prior to joining
the company, Mr. Roeder served as Director of Business Development Europe for TDS Automotive from
2002 to 2005. Before that, Mr. Roeder spent ten years with Raychem GmbH (later Tyco Electronics)
where he had various sales and marketing responsibilities within the European automotive industry.
Chen-Ming Wang, Vice President and General Manager, Electronics Business Unit, is responsible for
marketing, sales, product development and customer relationships of the Electronic Business Unit. He is
also responsible for leading the companys overall operations, strategy and new business
development in Asia. He is located in Taiwan. Mr. Wang has multinational experience in the
electronics business, including the U.S., Mexico, Malaysia, China and Taiwan. Mr. Wang joined the
management team in November 2009, prior to which he was vice president of Lite-On Technology
Corporation. Lite-On Tech Corporation, a leading Taiwanese provider of consumer electrical
products with over $7 billion in worldwide revenues, is where Mr. Wang started his career in 1991,
holding various operation, sales and business development responsibilities.
David W. Heinzmann, Vice President, Global Operations, is responsible for Littelfuses
manufacturing and supply chain groups for all three of the companys business units. Mr. Heinzmann
began his career at the company in 1985 and possesses a broad range of experience within the
organization. He has held positions as a Manufacturing Manager, Quality Manager, Plant Manager and
Product Development Manager. Mr. Heinzmann also served as Director of Global Operations of the
Electronics Business Unit from early 2000 through 2003. He served as Vice President and General
Manager, Automotive Business Unit, from 2004 through August 2007 and then was promoted to his
current position.
Ryan K. Stafford, General Counsel and Vice President, Human Resources, is responsible for the
companys legal, compliance, internal audit and human resources functions. Mr. Stafford joined the
companys management team in January 2007. Prior to joining the company, Mr. Stafford served as
Vice President of China Operations for Tyco Engineered Products & Services from 2005 to 2006 and
Vice President and General Counsel of it from 2001 to 2005. He served as Associate General Counsel
for Grinnell Corporation from 1998 to 2001. Prior to that he was with the law firm Sulloway &
Hollis P.L.L.C.
Paul Dickinson, Vice President and General Manager, Semiconductor Products, is responsible for the
marketing, sales, product development and strategic planning efforts of the companys semiconductor
products. Mr. Dickinson joined the company in 1993 and has held a broad range of positions with
responsibility for corporate and international accounting and finance. Most recently, Mr. Dickinson
served as Vice President, Corporate Development and Treasurer from 2005 through 2008, with
responsibility for corporate acquisition, strategy, treasury, tax and finance functions. Mr.
Dickinson was promoted to his current position in August 2008.
Mary S. Muchoney has served as Corporate Secretary since 1991, after joining Littelfuse in 1977.
She is responsible for providing all secretarial and administrative functions for the President and
Littelfuse Board of Directors. Ms. Muchoney is a member of the Society of Corporate Secretaries &
Governance Professionals, as well as honorary member of the Societys Silver Quill Society.
80
The information set forth under Election of Directors and Section 16(a) Beneficial Ownership
Reporting Compliance in the Proxy Statement is incorporated herein by reference. The company
maintains a code of conduct, which applies to all associates, executive officers and directors. The
companys code of conduct meets the requirements of a code of ethics as defined by Item 406 of
Regulation S-K and applies to our chief executive officer, chief financial officer and chief
accounting officer as well as all other executive officers and associates. The code of conduct is
available for public viewing on the companys web site at www.littelfuse.com under the heading
Investors Corporate Governance.
If the company makes substantive amendments to the code of conduct or grants any waiver to its
chief executive officer, chief financial officer or persons performing similar functions,
Littelfuse will disclose the nature of such amendment or waiver on its website or in a Current
Report on Form 8-K in accordance with applicable rules and regulations. The information contained
on or connected to the companys website is not incorporated by reference into this Form 10-K and
should not be considered part of this or any other report Littelfuse files or furnishes with the
SEC. There have been no material changes to the procedures by which security holders may recommend
nominees to the companys Board of Directors in 2009.
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION. |
The information set forth under Election of Directors Compensation of Directors and Executive
Compensation in the Proxy Statement is incorporated herein by reference, except the section
captioned Compensation Committee Report is hereby furnished and not filed with this Annual
Report on Form
10-K.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS. |
The information set forth under Ownership of Littelfuse, Inc. Common Stock and Compensation Plan
Information in the Proxy Statement is incorporated herein by reference.
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
The information set forth under Certain Relationships and Related Transactions and Election of
Directors in the Proxy Statement is incorporated herein by reference.
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTING FEES AND SERVICES. |
The information set forth under Audit and Non-Audit Fees in the Proxy Statement is incorporated
herein by reference.
81
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
(a) |
|
Financial Statements and Schedules |
|
(1) |
|
The following Financial Statements are filed as a part of this report: |
|
(i) |
|
Report of Independent Registered Public Accounting Firm
(pages 36-37). |
|
|
(ii) |
|
Consolidated Balance Sheets as of January 2, 2010 and December 27, 2008 (page
38). |
|
|
(iii) |
|
Consolidated Statements of Income for the years ended January 2, 2010, December
27, 2008, and December 29, 2007 (page 39). |
|
|
(iv) |
|
Consolidated Statements of Cash Flows for the years ended January 2, 2010,
December 27, 2008, and December 29, 2007 (page 40). |
|
|
(v) |
|
Consolidated Statements of Equity for the years ended January 2, 2010, December
27, 2008, and December 29, 2007 (page 41). |
|
|
(vi) |
|
Notes to Consolidated Financial Statements (pages 42-77). |
|
(2) |
|
The following Financial Statement Schedule is submitted herewith for the periods
indicated therein. |
|
(i) |
|
Schedule II Valuation and Qualifying Accounts and
Reserves (page 83). |
All other schedules for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
|
(3) |
|
Exhibits. See Exhibit Index on pages 85-87. |
82
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands of USD)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
Beginning |
|
|
Costs and |
|
|
|
|
|
|
|
|
|
|
End of |
|
Description |
|
Of Year |
|
|
Expenses (1) |
|
|
Deductions (2) |
|
|
Other (3) |
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 2, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses on
accounts receivable |
|
$ |
896 |
|
|
$ |
319 |
|
|
$ |
583 |
|
|
$ |
25 |
|
|
$ |
657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for sales
discounts and allowances |
|
$ |
11,874 |
|
|
$ |
40,512 |
|
|
$ |
43,112 |
|
|
$ |
44 |
|
|
$ |
9,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 27, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses on
accounts receivable |
|
$ |
738 |
|
|
$ |
286 |
|
|
$ |
77 |
|
|
$ |
(51 |
) |
|
$ |
896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for sales
discounts and allowances |
|
$ |
12,259 |
|
|
$ |
47,081 |
|
|
$ |
47,400 |
|
|
$ |
(66 |
) |
|
$ |
11,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 29, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses on
accounts receivable |
|
$ |
983 |
|
|
$ |
31 |
|
|
$ |
309 |
|
|
$ |
33 |
|
|
$ |
738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for sales
discounts and allowances |
|
$ |
16,520 |
|
|
$ |
45,970 |
|
|
$ |
50,424 |
|
|
$ |
193 |
|
|
$ |
12,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes provision for doubtful accounts, sales returns, and sales discounts
granted to customers. |
|
(2) |
|
Represents uncollectible accounts written off, net of recoveries and credits
issued to customers. |
|
(3) |
|
Represents translation adjustments. |
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
Littelfuse, Inc.
|
|
| By |
/s/ Gordon Hunter
|
|
| |
Gordon Hunter, |
|
| |
Chairman of the Board of Directors,
President and Chief Executive Officer |
|
|
Date: July 23, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and
in the capacities indicated
as of July 23, 2010.
|
|
|
|
|
Chairman of the Board of Directors, President and |
Gordon Hunter
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
Director |
Tzau-Jin Chung |
|
|
|
|
|
|
|
Director |
John P. Driscoll |
|
|
|
|
|
|
|
Director |
Anthony Grillo |
|
|
|
|
|
|
|
Director |
John E. Major |
|
|
|
|
|
|
|
Director |
William P. Noglows |
|
|
|
|
|
|
|
Director |
Ronald L. Schubel |
|
|
|
|
|
|
|
Vice President, Operations Support, Chief Financial
Officer and Treasurer |
Philip G. Franklin |
|
(Principal Financial and
Principal Accounting Officer) |
84
EXHIBIT INDEX
The following documents listed below that have been previously filed with the SEC (1934
Act File No. 0-20388) are incorporated herein by reference:
|
|
|
Exhibit No. |
|
Description |
3.1
|
|
Certificate of Incorporation, as amended to date (filed as
Exhibit 3(I) to the companys Form 10-K for the fiscal year
ended January 3, 1998). |
|
|
|
3.2
|
|
Certificate of Designations of Series A Preferred Stock
(filed as Exhibit 4.2 to the companys Current Report on
Form 8-K dated December 1, 1995). |
|
|
|
3.3
|
|
Bylaws, as amended to date (filed as Exhibit 3.1 to the
companys Current Report on Form 8-K dated October 26,
2007). |
|
|
|
10.1
|
|
Amendment to Non-Qualified Stock Option Agreement and
Agreement for Deferred Compensation between Littelfuse, Inc.
and Gordon Hunter (filed as Exhibit 10.27 to the companys
Form 10-K for the fiscal year ended December 31, 2005). |
|
|
|
10.2
|
|
Amended and Restated Employment Agreement dated as of
December 31, 2007, between Littelfuse, Inc. and Gordon
Hunter (filed as Exhibit 10.1 to the companys Form 10-K for
the fiscal year ended December 29, 2007). |
|
|
|
10.3
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and Gordon Hunter (filed as Exhibit
10.3 to the companys Form 10-K for the fiscal year ended
December 27, 2008). |
|
|
|
10.4
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and Philip G. Franklin (filed as
Exhibit 10.4 to the companys Form 10-K for the fiscal year
ended December 27, 2008). |
|
|
|
10.5
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and David W. Heinzmann (filed as
Exhibit 10.6 to the companys Form 10-K for the fiscal year
ended December 27, 2008). |
|
|
|
10.6
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and Hugh Dalsen Ferbert (filed as
Exhibit 10.7 to the companys Form 10-K for the fiscal year
ended December 27, 2008). |
|
|
|
10.7
|
|
Change of Control Agreement effective as of January 1, 2009,
between Littelfuse, Inc. and Ryan K. Stafford (filed as
Exhibit 10.8 to the companys Form 10-K for the fiscal year
ended December 27, 2008). |
|
|
|
10.8
|
|
Summary of Director Compensation (filed as Exhibit 10.18 to
the companys Form 10-K for the fiscal year ended December
29, 2007). |
|
|
|
10.9
|
|
Amended and restated Littelfuse, Inc. 401(k) Retirement and
Savings Plan (filed as Exhibit 10.1 to the companys Form
8-K dated October 9, 2009. |
|
|
|
10.10
|
|
1993 Stock Plan for Employees and Directors of Littelfuse,
Inc., as amended (filed as Exhibit 10.1 to the companys
Form 10-Q for the quarterly period ended July 2, 2005). |
|
|
|
10.11
|
|
Form of Non-Qualified Stock Option Agreement under the 1993
Stock Plan for Employees and Directors of Littelfuse, Inc.
for employees of the company (filed as Exhibit 99.1 to the
companys Current Report on Form 8-K dated November 8,
2004). |
85
|
|
|
Exhibit No. |
|
Description |
10.12
|
|
Form of Performance Shares Agreement under the 1993 Stock
Plan for Employees and Directors of Littelfuse, Inc. (filed
as Exhibit 10.23 to the companys Form 10-K for the fiscal
year ended January 1, 2005). |
|
|
|
10.13
|
|
Form of Non-Qualified Stock Option Agreement under the 1993
Stock Plan for Employees and Directors of Littelfuse, Inc.
for non-employee directors of the company (filed as Exhibit
10.24 to the companys Form 10-K for the fiscal year ended
January 1, 2005). |
|
|
|
10.14
|
|
Stock Plan for New Directors of Littelfuse, Inc., as amended
(filed as Exhibit 10.2 to the companys Form 10-Q for the
quarterly period ended July 2, 2005). |
|
|
|
10.15
|
|
Stock Plan for Employees and Directors of Littelfuse, Inc.,
as amended (filed as Exhibit 10.3 to the companys Form 10-Q
for the quarterly period ended July 2, 2005). |
|
|
|
10.16
|
|
Littelfuse, Inc. Equity Incentive Compensation Plan (filed
as Exhibit A to the companys Proxy Statement for Annual
Meeting of Stockholders held on May 5, 2006). |
|
|
|
10.17
|
|
First Amendment to the Littelfuse, Inc. Equity Incentive
Compensation Plan dated as of July 28, 2008 (filed as
Exhibit 10.2 to the companys Form 10-Q for the quarterly
period ended March 28, 2009). |
|
|
|
10.18
|
|
Form of Non-Qualified Stock Option Agreement under the
Littelfuse, Inc. Equity Incentive Compensation Plan (filed
as Exhibit 99.4 to the companys Current Report on Form 8-K
dated May 5, 2006). |
|
|
|
10.19
|
|
Form of Performance Shares Agreement under the Littelfuse,
Inc. Equity Incentive Compensation Plan (filed as Exhibit
99.1 to the companys Current Report on Form 8-K dated March
12, 2008). |
|
|
|
10.20
|
|
Littelfuse, Inc. Outside Directors Stock Option Plan (filed
as Exhibit B to the companys Proxy Statement for Annual
Meeting of Stockholders held on May 5, 2006). |
|
|
|
10.21
|
|
Form of Non-Qualified Stock Option Agreement under the
Littelfuse, Inc. Outside Directors Stock Option Plan (filed
as Exhibit 99.6 to the companys Current Report on Form 8-K
dated May 5, 2006). |
|
|
|
10.22
|
|
Littelfuse, Inc. Outside Directors Equity Plan (filed as
Exhibit A to the companys Proxy Statement for Annual
Meeting of Stockholders held on April 27, 2007). |
|
|
|
10.23
|
|
First Amendment to the Littelfuse, Inc. Outside Directors
Equity Plan, dated as of July 28, 2008 (filed as Exhibit
10.1 to the companys Form 10-Q for the quarterly period
ended March 28, 2009). |
|
|
|
10.24
|
|
Form of Stock Option Award Agreement under the Littelfuse,
Inc. Outside Directors Equity Plan (filed as Exhibit 99.3
to the companys Current Report on Form 8-K dated April 25,
2008). |
|
|
|
10.25
|
|
Form of Restricted Stock Unit Award Agreement under the
Littelfuse, Inc. Outside Directors Equity Plan (filed as
Exhibit 99.4 to the companys Current Report on Form 8-K
dated April 25, 2008). |
|
|
|
10.26
|
|
Amended and Restated Littelfuse, Inc. Supplemental Executive
Retirement Plan (filed as Exhibit 10.3 to the companys Form
10-K for the fiscal year ended December 29, 2007). |
|
|
|
10.27
|
|
Termination Amendment to Littelfuse, Inc. Supplemental Executive
Retirement Plan (filed as Exhibit 10.2 to the companys
Current Report on form 8-K dated October 9, 2009). |
|
10.28
|
|
Amended and Restated Littelfuse, Inc. Deferred Compensation
Plan for Non-employee Directors (filed as Exhibit 10.4 to
the companys Form 10-K for the fiscal year ended December
29, 2007). |
|
|
|
10.29
|
|
Amended and Restated Littelfuse, Inc. Retirement Plan (filed
as Exhibit 10.13 to the companys Form 10-K for the fiscal
year ended December 29, 2007). |
|
|
|
10.30
|
|
Amendment to Amended and Restated
Littelfuse, Inc. Retirement Plan (filed as Exhibit 10.30 to the
companys Form 10-K for the fiscal year ended January 2, 2010). |
|
|
|
10.31
|
|
Amended and Restated Littelfuse,
Inc. Annual Incentive Plan (filed as Exhibit 10.31 to the
companys Form 10-K for the fiscal year ended January 2, 2010). |
86
|
|
|
Exhibit No. |
|
Description |
10.32
|
|
Form of Restricted Stock Award Agreement under the
Littelfuse, Inc. Equity Incentive Compensation Plan (filed
as Exhibit 10.1 to the companys Current Report on form 8-K
dated April 28, 2009). |
|
|
|
10.33
|
|
Form of Stock Option Award Agreement under the Littelfuse,
Inc Equity Incentive Compensation Plan (filed as Exhibit
10.2 to the companys Current Report on form 8-K dated April
28, 2009). |
|
|
|
10.34
|
|
Littelfuse, Inc. Supplemental Retirement
and Savings Plan (filed as Exhibit 10.3 to the companys
Current Report on form 8-K dated October 9, 2009). |
|
|
|
10.35
|
|
Bank credit agreement among Littelfuse, Inc., as borrower,
the lenders named therein and the Bank of America N.A., as
agent, dated as of July 21, 2006 (filed as Exhibit 10.1 to
the companys Form 10-Q for the quarterly period ended
September 30, 2006). |
|
|
|
10.36
|
|
First Amendment, dated as of September 29, 2008, to that
certain Credit Agreement, dated as of July 21, 2006, among
Littelfuse, Inc., the lenders named therein and Bank of
America, N.A., as agent (filed as Exhibit 10.2 to the
companys Form 10-Q for the quarterly period ended September
27, 2008). |
|
|
|
10.37
|
|
Loan Agreement, dated as of September 29, 2008, among
Littelfuse, Inc., the lenders named therein and JPMorgan
Chase Bank, N.A., as agent (filed as Exhibit 10.1 to the
companys Form 10-Q for the quarterly period ended September
27, 2008). |
|
|
|
14.1
|
|
Code of Conduct (filed as Exhibit 14.1 to the companys
Current Report on Form 8-K dated October 24, 2008). |
|
|
|
21.1
|
|
Subsidiaries (filed as Exhibit 21.1 to
companys Form 10-K for the fiscal year ended January 2, 2010). |
|
|
|
23.1*
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
31.1*
|
|
Rule 13a-14(a)/15d-14(a) certification of Gordon Hunter. |
|
|
|
31.2*
|
|
Rule 13a-14(a)/15d-14(a) certification of Philip G. Franklin. |
|
|
|
32.1+
|
|
Section 1350 certification. |
Exhibits 10.1 through 10.34 are management contracts or compensatory plans or arrangements.
|
|
|
* |
|
Filed with this Report. |
|
+ |
|
Furnished with this Report. |
87