Positioning For Long-term Growth

Dear Shareholders,
As the global leader in circuit protection, Littelfuse is well positioned to weather the current economic downturn and to emerge from it a stronger, healthier global competitor.

We are financially strong.
We have a leading market position
and a powerful global brand.

We are being proactive in taking the steps necessary to respond to the uncertain economy and the decline in our markets.

At the same time, we are moving ahead with the strategies that position us for long-term growth. In the financial area, these include controlling costs, reducing our global footprint and lowering the break-even point for our business. On the growth side, we are developing new products, securing design wins, pursuing synergistic acquisitions and expanding into emerging markets with good future potential.

A Sudden Change in Market Dynamics
2008 started strong. Sales were up nine percent for the first half of the year and earnings were on track with our expectations. All three business units contributed to the solid performance and we were looking forward to a good year. Then the financial crisis unfolded, followed by its many ramifications.

The bottom fell out of the automotive market in September, due to the sharp decline in consumer confidence and tighter consumer credit. Global car production dropped from 18 million vehicles in each of the first two quarters of 2008 to 16 million vehicles in the third quarter and 15 million vehicles in the fourth quarter—the sharpest drop we have ever seen. The trend toward smaller, less-accessorized vehicles that require fewer circuit-protection components also contributed to the six percent decrease in Littefuse automotive sales for 2008.

Electronics sales declined two percent for the year, as the economy sharply contracted and consumer spending slowed considerably. Sales of popular products such as mobile phones, notebook computers, MP3 players, LCD TVs and many other “must have” products quickly declined, bringing an abrupt halt to the steady upward climb in consumer electronics sales that we enjoyed over the past few years. For example, industry data shows that mobile phone sales fell 12 percent in the fourth quarter of 2008 compared to the same period in 2007, and PC sales, which had been growing steadily, were relatively flat in 2008.

In contrast, the markets for our electrical business held up very well, driving an 11 percent increase in sales, excluding the fourth-quarter acquisition of Startco Engineering Ltd., and another record year. However, toward the end of 2008, this business also began to soften, due to the slowdown in non-residential construction and industrial activity.

2008 Financial Performance
Total Littelfuse sales were $530.9 million for 2008, a one percent decrease from 2007. Diluted earnings per share were $0.37 for 2008, compared to diluted earnings per share of $1.64 the year before. The 2008 results reflected the lower sales volumes, increased severance and impairment charges, and other costs related to the manufacturing transfer program. In addition, 2007 benefited from an $8.0 million gain on the sale of property in Ireland.

One overriding aspect to the year is the fact that Littelfuse remains very solid financially. Cash flow from operations was $40.6 million and capital expenditures increased to $51.3 million in 2008. We ended the year with $70.9 million in cash, and had $75.0 million of borrowing capacity available under our revolving credit facility. Our only debt is a term loan with a balance of $80.0 million at year end.

Our Response to the Global Economic Downturn
In the face of the strong economic headwinds, our immediate goal is to significantly reduce operating costs and break-even levels across the entire business.

Our actions in this area include significant workforce reductions, salary freezes, scaled-back incentive and fringe benefits and elimination of all non-critical travel. These and other cost reduction activities are expected to reduce 2009 operating expenses by more than $15 million and manufacturing costs by approximately $8 million. In addition, our global manufacturing consolidation program is expected to drive another $20 million in savings in 2009.

The initiative to simplify our cost structure began three years ago. Manufacturing is being consolidated into fewer plants located in lower-cost countries that are closer to our customers’ operations.

In 2008, we completed transfers from sites in the U.S. and Ireland into more efficient facilities in China, the Philippines and Mexico. The transition of the majority of our semiconductor operations from sites in the U.S., Mexico and Taiwan into a newly-completed site in China will be finished by mid-2010. When all of the transfers are completed, we will have reduced our number of manufacturing locations from 15 to eight and achieved a dramatic reduction in our manufacturing cost structure. We also moved our corporate headquarters to a smaller and more cost-effective location in Chicago in early 2009.

Moving Forward with Strategic Initiatives
The cost reduction activities will continue to be a top priority for us in 2009, but they are not the only ones. We also are continuing to move ahead with the strategic initiatives that will position Littelfuse for growth over the long term.

One of these initiatives is to extend the concept of lean manufacturing, which has been successfully adopted in our production processes, across the company. From back-office operations to the supply chain and new product development, Littelfuse managers in every area of the company are working to improve workflow, increase productivity and reduce costs through the lean enterprise program. We are also investing in training for associates in all locations to ensure the successful implementation of lean principles throughout Littelfuse.

We continue to pursue acquisition opportunities that are both profitable and synergistic. In 2008, we completed two acquisitions that extended our electrical business into the protection relay market.  The March acquisition of Shock-Block Corporation brought us a line of ground-fault protection devices. We further expanded this product line with the September acquisition of Startco Engineering Ltd. In addition to protection relay products, Startco also designs and manufactures custom power distribution centers for the mining industry, primarily potash mining. This is an exciting addition to our electrical business because it is a profitable, very technical and highly-engineered business with long-term customer relationships. The integration process is proceeding as planned and Startco’s fourth-quarter 2008 performance exceeded our expectations.

The majority of Startco’s sales are in Canada, providing opportunities to leverage the Littelfuse global sales and distribution network to expand into other regions, particularly the U.S. A new 65,000 square-foot plant that was under construction when we purchased Startco gives us the production capacity we need to support the higher sales volumes. With its double-digit sales growth and the two recent acquisitions, the electrical business is becoming an increasingly larger contributor to overall Littelfuse performance. Going forward, we will continue to execute on our strategies to further expand this business.

Developing the Circuit-Protection Products of the Future
New product development and securing design wins were again a major focus for us in 2008, and we made good headway in both of these important areas.

An example in our automotive business is the design-in and sales of our CABLEPRO® product for high-current applications, which is being used on Navistar’s International® MaxxPro® MRAP (Mine Resistant Ambush Protected) vehicle. We are also working with Navistar’s engineering team to design-in circuit-protection products for their new military vehicle programs.

One of the biggest wins for our MasterFuse product is with BMW. Building on our existing long-term relationship with the company, for the past five years we worked with BMW engineers to design MasterFuse into all new BMW models, including the new five- and six-series models scheduled to launch in 2010. MasterFuse, which protects multiple cables in a vehicle, is a complete subsystem that can be customized for each customer’s specific application.

The off-road, truck and bus market continues to be a growth area for us, with products including our flexible electric junction box (FLEC) and MasterFuse designed specifically for this market.

We’ve also had a number of significant wins in our electronics business. One example is an important win with Samsung, for their LCD panels used in notebook computers, PC monitors and TVs. These products use three Littelfuse circuit-protection components—TVS diodes, Thin-Film fuses and Nano²® fuses—to protect sensitive circuitry and high volumes of video transmission data.

The electrical business continues to make inroads into the OEM market. Noteworthy design wins in 2008 provide Littelfuse circuit-protection solutions for OEM products such as LED street lighting, industrial power strips for data centers, load banks for generators and power pedestals for traffic signals. Another growth area is our electrical safety services, which include power studies, electrical hazard assessments, electrical safety compliance and worker training. We also are investing in training the distributors who sell our electrical products so they are equipped to present the full range of our circuit-protection expertise.

Positioning Littelfuse for Long-Term Growth
Virtually every product that uses electrical energy needs circuit protection components. As a result, there are endless opportunities for Littelfuse to protect the constant stream of new products being brought to market.

There are a number of emerging markets that we believe have especially good growth potential for Littelfuse. One is alternative energy. We sell millions of dollars of products to this market, with sales up 50 percent in 2008. Our electrical products, including fuses, varistors, thyristors and SIDACtor® devices, are used in various end applications that help to produce solar and wind energy. Several other products developed specifically for solar applications will be launched in 2009. Smart phones, LED lighting, equipment needed to expand energy transmission grids, and infrastructure applications for highways, public transportation and government buildings are just a few of the many other opportunities on the horizon for Littelfuse.

We also are strengthening our efforts to pursue growth opportunities for our silicon products in markets including telecom and datacom equipment and consumer handheld devices. We are fortunate to have a very strong board and leadership team to guide us through 2009 and beyond.

Our board members are highly-respected leaders with broad expertise in the key areas of our business.Their knowledge and guidance help us successfully navigate through challenges, develop operational strategies and pursue long-term growth opportunities. We also have a strong executive management team, whose experience in our industries and within our company is a valuable asset in managing our day-to-day operations as well as strategizing our future. The expertise of both our board and management team is an industry-leading advantage for Littelfuse.

In summary, 2009 will be a year of challenge for Littelfuse. It will be a year where we are dedicated to making Littelfuse better—better positioned to respond to a changing global economy and better positioned to build long-term shareholder value. As always, we are grateful for the support and confidence of our shareholders, associates and suppliers.

Gordon Hunter
Chairman, President and Chief Executive Officer