SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED June 28, 2003 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
------------ -----------
Commission file number 0-20388
LITTELFUSE, INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3795742
----------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 EAST NORTHWEST HIGHWAY
DES PLAINES, ILLINOIS 60016
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(847) 824-1188
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes X No
--- ---
As of June 28, 2003, 21,797,618 shares of common stock, $.01 par value,
of the Registrant were outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the periods ended
June 28, 2003 and June 29, 2002.....................................................................1
Condensed Consolidated Balance Sheets for the periods ended June 28, 2003
and December 28, 2002 ..............................................................................2
Condensed Consolidated Statements of Cash Flows for the periods ended
June 28, 2003 and June 29, 2002.....................................................................3
Notes to the Condensed Consolidated Financial Statements ...........................................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......................................................9
Item 3. Qualitative and Quantitative Disclosures about Market Risk ........................................12
Item 4. Controls and Procedures............................................................................13
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders ...............................................13
Item 6. Exhibits and Reports on Form 8-K ..................................................................15
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data, unaudited)
For the Three Months Ended For the Six Months Ended
------------------------------ -----------------------------
JUNE 28, June 29, JUNE 28, June 29,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales......................................... $ 72,790 $ 73,900 $ 142,752 $ 139,029
Cost of sales..................................... 48,915 49,623 95,800 94,727
------------ ------------ ------------ ------------
Gross profit...................................... 23,875 24,277 46,952 44,302
Selling, general and administrative
expenses...................................... 15,500 15,073 31,222 29,983
Research and development expenses................. 1,861 2,145 3,794 4,166
Amortization of intangibles....................... 191 192 383 384
Restructuring expense............................. - - - 3,744
------------ ------------ ------------ ------------
Operating income.................................. 6,323 6,867 11,553 6,025
Interest expense.................................. 514 727 1,050 1,442
Other income...................................... (209) (150) (551) (750)
------------- ------------- ------------- -------------
Income before income taxes........................ 6,018 6,290 11,054 5,333
Income taxes...................................... 2,167 2,265 3,979 1,920
Net income........................................ $ 3,851 $ 4,025 $ 7,075 $ 3,413
============ ============ ============ ============
Net income per share:
Basic......................................... $ 0.18 $ 0.18 $ 0.32 $ 0.16
============ ============ ============ ============
Diluted....................................... $ 0.18 $ 0.18 $ 0.32 $ 0.15
============ ============ ============ ============
Weighted average shares and equivalent
shares outstanding:
Basic......................................... 21,789 21,915 21,780 21,902
============ ============ ============ ============
Diluted ...................................... 21,856 22,062 21,838 22,059
============ ============ ============ ============
1
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
JUNE 28, 2003 December 28, 2002
-------------- -----------------
ASSETS:
Cash and cash equivalents...................................... $ 42,279 $ 27,750
Short-term investments......................................... 0 8,806
Receivables.................................................... 43,432 40,810
Inventories.................................................... 47,758 44,533
Other current assets........................................... 17,376 15,146
-------------- -----------------
Total current assets........................................... 150,845 137,045
Property, plant, and equipment, net............................ 75,759 81,122
Reorganization value, net...................................... 27,665 27,665
Other intangible assets, net................................... 27,910 28,291
Other assets................................................... 3,492 3,355
-------------- -----------------
$ 285,671 $ 277,478
============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities excluding current portion
of long-term debt.......................................... $ 39,407 $ 41,308
Current portion of long-term debt.............................. 17,599 18,994
-------------- -----------------
Total current liabilities...................................... 57,006 60,302
Long-term debt................................................. 20,222 20,252
Deferred liabilities........................................... 1,610 1,713
Accrued post-retirement benefits............................... 10,392 9,027
Other long-term liabilities.................................... 497 473
Shareholders' equity........................................... 195,944 185,711
-------------- -----------------
Shares issued and outstanding
at June 28, 2003: 21,797,618
$ 285,671 $ 277,478
============== =================
2
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
JUNE 28, June 29, JUNE 28, June 29,
2003 2002 2003 2002
---- ---- ---- ----
Operating activities:
Net income........................................ $ 3,851 $ 4,025 $ 7,075 $ 3,413
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................. 4,292 4,302 8,634 8,623
Amortization................................. 191 192 383 384
Changes in operating assets and liabilities:
Accounts receivable.......................... 533 (230) (1,802) (4,886)
Inventories.................................. (224) 1,145 (2,721) 2,341
Accounts payable and accrued
expenses.................................. (1,168) 1,846 (614) 4,653
Other, net................................... 500 461 (2,374) (427)
------------ ------------ ------------- -------------
Net cash provided by operating
activities................................... 7,975 11,741 8,581 14,101
Cash used in investing activities:
Purchases of property, plant, and equipment....... (2,162) (1,592) (4,789) (3,399)
Sale of property, plant & equipment............... - - 2,213 -
Sale (purchase) of marketable securities, net..... 10,403 (11,944) 8,806 (11,944)
------------ ------------- ------------ -------------
Net cash provided by (used in) investing
activities................................... 8,241 (13,536) 6,230 (15,343)
Cash provided by (used in) financing activities:
Proceeds from long-term debt................. 3 - - -
Payments of long-term debt................... - (124) (1,441) (1,728)
Proceeds from exercise of stock options
and warrants.............................. 317 583 952 1,271
------------ ------------- ------------ -------------
Net cash provided by (used in) financing
activities................................... 320 459 (489) (457)
Effect of exchange rate changes on cash .......... 229 (935) 207 (1,002)
------------ ------------- ------------ -------------
Increase/(decrease) in cash and cash
equivalents.................................. 16,765 (2,271) 14,529 (2,701)
Cash and cash equivalents at beginning
of period.................................... 25,514 34,097 27,750 34,527
------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period....................................... $ 42,279 $ 31,826 $ 42,279 $ 31,826
============ ============ ============ ============
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 28, 2003
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the period ended June 28, 2003, are not
necessarily indicative of the results that may be expected for the year ending
January 3, 2004. For further information, refer to the Company's consolidated
financial statements and the notes thereto incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 28, 2002.
2. BUSINESS SEGMENT INFORMATION
The Company designs, manufactures and sells circuit protection devices
throughout the world. The Company has three reportable geographic segments: The
Americas, Europe and Asia-Pacific. The circuit protection market in these
geographical segments is categorized into three major product areas: electronic,
automotive and electrical fuses.
The Company evaluates the performance of each geographic segment based on its
net income or loss. The Company also accounts for intersegment sales as if the
sales were to third parties.
The Company's reportable segments are the geographical regions where the revenue
is earned and expenses are incurred. The Company has subsidiaries in The
Americas, Europe and Asia-Pacific where each region is measured based on its
sales and operating income or loss.
Revenues from no single customer amounted to 10% or more of the Company's total
revenues for the quarter ended June 28, 2003.
Information concerning the operations in these geographic segments for the
periods ended June 28, 2003 and June 29, 2002, is as follows (in thousands):
Three Months Three months Six Months Six Months
Ended Ended Ended Ended
June 28, 2003 June 29, 2002 June 28, 2003 June 29, 2002
REVENUES
The Americas 36,190 39,880 70,886 74,213
Europe 15,058 12,338 28,399 24,587
Asia-Pacific 21,542 21,682 43,467 40,229
4
Combined Total 72,790 73,900 142,752 139,029
Corporate
- - - -
Reconciliation - - - -
Consolidated Total 72,790 73,900 142,752 139,029
INTERSEGMENT REVENUES
The Americas 17,207 18,012 35,271 32,414
Europe 13,288 13,567 25,306 23,780
Asia-Pacific 5,196 4,031 10,508 7,092
Combined Total 35,691 35,609 71,085 63,286
Corporate - - - -
Reconciliation (35,691) (35,609) (71,085) (63,286)
Consolidated Total - - - -
INTEREST EXPENSE
The Americas 495 665 1,008 1,322
Europe 3 4 4 20
Asia-Pacific 16 58 38 100
Combined Total 514 727 1,050 1,442
Corporate 0 0 0 0
Reconciliation 0 0 0 0
Consolidated Total 514 727 1,050 1,442
DEPRECIATION AND AMORTIZATION
The Americas 3,255 3,265 6,494 6,560
Europe 475 605 1,037 1,232
Asia-Pacific 562 432 1,102 831
Combined Total 4,292 4,302 8,634 8,623
Corporate 191 192 383 384
Reconciliation - - - -
Consolidated Total 4,483 4,494 9,017 9,007
OTHER INCOME (EXPENSE)
The Americas 309 321 394 310
Europe (109) (73) (24) 571
Asia-Pacific 9 (98) 181 (131)
Combined Total 209 150 551 750
Corporate - - - -
Reconciliation - - - -
Consolidated Total 209 150 551 750
INCOME TAX EXPENSE(INCOME)
The Americas 1,401 1,425 2,113 672
Europe 131 351 127 965
Asia-Pacific 635 489 1,739 283
5
Combined Total 2,167 2,265 3,979 1,920
Corporate - - - -
Reconciliation - - - -
Consolidated Total 2,167 2,265 3,979 1,920
NET INCOME(LOSS)
The Americas 2,327 1,606 3,566 2,758
Europe (328) 891 (523) 2,362
Asia-Pacific 2,044 1,720 4,416 2,421
Combined Total 4,043 4,217 7,459 7,541
Corporate (192) (192) (384) (4,128)
Reconciliation - - - -
Consolidated Total 3,851 4,025 7,075 3,413
REVENUES
Electronic 40,148 38,758 77,265 71,974
Automotive 24,265 26,127 48,889 50,265
Electrical 8,377 9,015 16,598 16,790
Consolidated Total 72,790 73,900 142,752 139,029
3. INVENTORIES
The components of inventories are as follows (in thousands):
June 28, December 28,
2003 2002
-------- -----------
Raw material $10,753 $10,084
Work in process 12,768 11,615
Finished goods 24,237 22,834
------- -------
Total $47,758 $44,533
======= =======
4. PER SHARE DATA
Net income per share amounts for the three months and six months ended June 28,
2003 and June 29, 2002 are based on the weighted average number of common and
common equivalent shares outstanding during the periods as follows (in
thousands, except per share data):
Three months ended Six months ended
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
---- ---- ---- ----
Average shares outstanding 21,789 21,915 21,780 21,902
6
Net effect of dilutive stock options,
warrants and restricted shares
- Basic - - - -
------- ------- ------- -------
- Diluted 67 147 58 157
------- ------- ------- -------
Average shares outstanding
- Basic 21,789 21,915 21,780 21,902
======= ======= ======= =======
- Diluted 21,856 22,062 21,838 22,059
======= ======= ======= =======
Net income $ 3,851 $ 4,025 $ 7,075 $ 3,413
======= ======= ======= =======
Net income per share
- Basic $ 0.18 $ 0.18 $ 0.32 $ 0.16
======= ======= ======= =======
- Diluted $ 0.18 $ 0.18 $ 0.32 $ 0.15
======= ======= ======= =======
Options to purchase 1,602,995 shares of common stock at exercise prices ranging
from $19.52 to $24.26 and options to purchase 1,073,330 shares of common stock
at exercise prices ranging from $25.25 to $35.50 were outstanding at June 28,
2003 and June 29, 2002, respectively, but were not included in the computation
of diluted earnings per share because the options' exercise prices were greater
than the average market price of the common shares and, therefore, the effect
would be antidilutive.
5. DERIVATIVES AND HEDGING
On June 11, 2002, the Company entered into cross currency rate swaps, with a
notional amount of $11.6 million, as a cash flow hedge of the variability of Yen
cash flows attributable to the exchange rate risk on forecasted intercompany
sales of inventory to a Japanese subsidiary. The cross currency rate swaps
convert a portion of the Company's US Dollar fixed rate debt to fixed rate
Japanese Yen debt. The swap agreements were accounted for as a cash flow hedge
and reported at fair value. The notional amount outstanding at June 28, 2003 was
$8.3 million and the fair value of the outstanding cross currency rate swap
agreements was recognized as a $0.2 million liability and as a charge to
comprehensive loss in the Consolidated Balance Sheet at June 28, 2003.
Derivative financial instruments involve, to a varying degree, elements of
market and credit risk not recognized in the consolidated financial statements.
The market risk associated with these instruments resulting from interest rate
movements is expected to offset the market risk of the underlying transactions
being hedged. The counterparties to the agreements relating to the Company's
cross currency rate instruments consist of major international financial
institutions with high credit ratings. The Company does not believe that there
is significant risk of non-performance by these counterparties because the
Company monitors the credit ratings of such counterparties, and limits the
financial exposure and amount of agreements entered into with any one financial
7
institution. While the notional amount of the derivative financial instruments
provide one measure of the volume of these transactions, they do not represent
the amount of the Company's exposure to credit risk. The amounts potentially
subject to credit risk (arising from the possible inability of counterparties to
meet the terms of their contracts) are generally limited to the amounts, if any,
by which the counterparties' obligations under the contracts exceed the
obligations of the Company to the counterparty.
6. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended June 28, 2003, and June
29, 2002, was approximately $5.8 million and $6.4 million, respectively, and the
six months ended June 28, 2003 and June 29, 2002 was $9.3 million and $5.3
million, respectively. The adjustment for comprehensive income consists of
deferred gains and losses from foreign currency translation adjustments and
qualified cash flow hedges and unrealized gains and losses on
available-for-sales securities.
7. STOCK-BASED COMPENSATION
On December 31, 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 148, to provide alternative methods of
transition to the fair value method of accounting for stock-based compensation.
In addition, Statement 148 amends the disclosure provisions of Statement 123 to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based
compensation on reported net income and earnings per share in annual and interim
financial statements. Statement 148 does not amend Statement 123 to require
companies to account for their employee stock-based awards using the fair value
method. However, the disclosure provisions are required for all companies with
stock-based employee compensation, regardless of whether they utilize the fair
value method of accounting described in Statement 123 or the intrinsic method
described in APB Opinion No. 25. The Company has adopted the disclosure
provisions of Statement No. 148 as of December 28, 2002 and determined that the
adoption of the Statement had no significant impact on the Company's financial
position and results of operations. The Company will continue to account for its
stock based compensation according to the provisions of APB Opinion No. 25.
The following table discloses our pro forma net income and diluted net income
per share had the valuation methods under SFAS 123 been used for our stock
option grants. The table also discloses the weighted average assumptions used in
estimating the fair value using the Black-Scholes option pricing model.
(In thousands, except per share amounts) 2003 Q2 2002 Q2
Net income as reported $ 7,075 $ 3,413
Stock option compensation expense, net of tax (282) (268)
Pro forma net income $ 6,793 $ 3,145
Basic net income per share
As reported $ 0.32 $ 0.16
Pro forma $ 0.31 $ 0.14
8
Diluted net income per share
As reported $ 0.32 $ 0.15
Pro forma $ 0.31 $ 0.14
Risk-free interest rate 4.31% 4.84%
Expected dividend yield 0% 0%
Expected stock price volatility 44.8% 39.6%
Expected life of options 8 years 8 years
These pro forma amounts may not be representative of future disclosures because
the estimated fair value of the options is amortized to expense over the vesting
period and additional options may be granted in the future.
8. SUBSEQUENT EVENT
On July 8, 2003, the Company announced the acquisition of Teccor Electronics,
Inc., a subsidiary of Invensys plc for $44 million in cash plus a future payment
of $5 million contingent on sales of Teccor products reaching $107 million for
calendar year 2005. Teccor manufactures semiconductor products for the
telecommunications and industrial market segments. Product lines include
transient voltage suppressor devices and power switching devices. The addition
of Teccor's transient voltage suppression products expands the Company's line of
overvoltage products and strengthens its position in the telecom and industrial
market segments.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Second Quarter, 2003
Sales decreased $1.1 million or 2% to $72.8 million in the second quarter of
2003, compared to $73.9 million in the second quarter of 2002. On a geographic
basis, sales in the Americas decreased 9% in the second quarter of 2003,
compared to the second quarter of last year due to weaker automotive and
electrical markets. Europe sales increased 22% reflecting favorable currency
effects due to a stronger Euro and sales of overvoltage products acquired as
part of the Semitron acquisition in July 2002. On a constant currency basis and
excluding the Semitron acquisition, Europe sales decreased 13% in the second
quarter of 2003, compared to the second quarter of last year. Asia sales
decreased 1% compared to the prior year second quarter.
Electronic sales increased $1.0 million or 3% to $39.8 million in the second
quarter of 2003 compared to $38.8 million in the same quarter of last year. The
sales increase was primarily driven by favorable currency impact from a weaker
dollar and sales of overvoltage circuit protection products acquired as part of
the Semitron acquisition. On a constant currency basis and excluding the
Semitron acquisition, electronic sales decreased 7% for the second quarter of
2003, compared to the same quarter last year.
9
Automotive sales decreased $1.5 million or 6% to $24.6 million in the second
quarter of 2003 from $26.1 million in the same quarter last year. The decrease
in automotive sales was primarily due to lower levels of vehicle builds and
increased pricing pressure.
Electrical fuse sales decreased $0.6 million or 7% to $8.4 million in the second
quarter of 2003 compared to $9.0 million in the same quarter last year. The
electrical fuse market continues to show weakness due to low levels of factory
utilization and non-residential construction.
Gross margin was $23.9 million or 32.8% of sales for the second quarter of 2003,
compared to $24.3 million or 32.9% in the same quarter last year. The decrease
in gross margin is mainly attributable to lower average sell prices and
unfavorable product mix offset by manufacturing cost reductions.
Total operating expense was $17.6 million or 24.1% of sales for the second
quarter of 2003 and was comparable to $17.4 million or 23.6% of sales for the
same quarter in the prior year.
Operating income was $6.3 million or 8.7% of sales for the second quarter of
2003 compared to $6.9 million or 9.3% of sales for the same quarter of last
year.
Interest expense was $0.5 million in the second quarter of this year compared to
$0.7 million in the second quarter of last year due to lower average debt
levels. Other income was $0.2 million for the second quarter of 2003 and the
second quarter of the prior year.
Income before income taxes was $6.0 million for the second quarter 2003 compared
to $6.3 million for the second quarter of 2002. Income taxes were $2.2 million
with an effective tax rate of 36% for the second quarter of 2003 compared to
$2.3 million with an effective tax rate of 36% in the second quarter of last
year.
Net income for the second quarter 2003 was $3.9 million or $0.18 per diluted
share compared to $4.0 million or $0.18 per diluted share for the same quarter
of last year.
Six Months, 2003
Sales for the first six months of 2003 increased 3% to $142.8 million from
$139.0 million for the first six months last year. On a geographic basis, sales
in the Americas decreased 4% in the first half of 2003 compared to the prior
year. Europe sales increased 16% and Asia sales increased 8% compared to the
prior year.
Six month electronic sales increased 7% to $76.9 million compared to $72.0
million last year primarily reflecting favorable currency effects and the
acquisition of Semitron. On a constant currency basis and excluding the Semitron
acquisition, six month electronic sales decreased 3%, compared to the prior
year. Automotive sales decreased 2% to $49.3 million compared to $50.2 million
last year. Electrical sales decreased 1% to $16.6 million from $16.8 million
last year.
Gross margin was $47.0 million or 32.9% of sales for the first six months of
2003 compared to $44.3 million or 31.9% of sales for the first six months of
last year. Improvement in gross margin for the first six months as compared to
the prior year is primarily due to continued efforts by the Company to reduce
manufacturing costs through reduction in material costs and the movement of
select production lines to facilities in Mexico and Asia.
10
Total operating expense was $35.4 million or 24.8% of sales for the first six
months of 2003 compared to $38.3 million or 27.6% last year. Total operating
expense for the first half of 2002 included $3.7 million of restructuring
charges related to the worldwide manufacturing rationalization program.
Excluding the restructuring expense, total operating expenses were $34.5 million
or 24.8% of sales in the prior year period.
Operating income for the first six months of 2003 was $11.6 million compared to
$6.0 million for the prior year. The improvement in operating income was due
primarily to improved gross margins and $3.7 million of restructuring expense in
the first half of 2002.
Interest expense was $1.1 million for the first half 2003 compared to $1.4
million last year. Other income was $0.6 million for the first six months of
2003 compared to $0.8 million for the same period last year.
Income before taxes was $11.1 million for the first half of 2003 compared to
$5.3 million the first half of last year. Income taxes were $4.0 million the
first six months 2003 compared to $1.9 million last year.
Net income for the first six months of 2003 increased to $7.1 million from $3.4
million for the same period last year. Earnings per share for the first six
months of 2003 increased to $0.32 per diluted share compared to $0.15 per
diluted share last year.
Liquidity and Capital Resources
Assuming no material adverse changes in market conditions or interest rates,
management expects that the Company will have sufficient cash from operations to
support both its operations and its current debt obligations for the foreseeable
future.
Littelfuse started the 2003 year with $27.8 million of cash. Net cash provided
by operations was $8.6 million for the first six months. Cash used in investing
activities included $4.8 million in purchases of property, plant and equipment
offset by $8.8 million in sales of marketable securities, and $2.2 million from
the sale of assets. Cash used in financing activities included net payments of
long-term debt of $1.4 million offset by warrant and stock option exercises of
$1.0 million. The effects of exchange rate changes increased cash by $0.2
million. The net cash provided by operations, less investing and financing
activities plus the effects of exchange rate changes, resulted in a $14.5
million net increase in cash. This left the Company with a cash balance of $42.3
million at June 28, 2003.
The ratio of current assets to current liabilities was 2.6 to 1 at the end of
the second quarter 2003 compared to 2.3 to 1 at second quarter 2002. The days
sales in receivables was 55 days at the end of the second quarter 2003, compared
to 58 days at the end of the second quarter 2002, and 54 days at year-end 2002.
The days inventory outstanding was approximately 88 days at the end of the
second quarter 2003 compared to 82 days at end of the second quarter 2002 and 88
days at year-end 2002.
The Company's net capital expenditures were $2.2 million for the second quarter
2003. The Company expects that net capital expenditures, consisting primarily of
new machinery, equipment, plant expansion in the Philippines and China and
capital spending related to the Teccor acquisition, will be approximately $20-
$21 million for the full year 2003.
11
Total debt at the end of the second quarter 2003 totaled $37.8 million and
consisted of the following: (1) 6.16% private placement notes totaling $30.0
million, (2) foreign revolver borrowings totaling $7.5 million and (3) notes
payable relating to mortgages totaling $0.3 million. Of this indebtedness, $17.6
million is considered to be current liabilities. The Company has a $55.0 million
revolver in the U.S., all of which was available at June 28, 2003. The bank
revolver loan notes carry an interest rate of prime or LIBOR plus 0.375%. The
Company also has an $8.0 million letter of credit facility, of which
approximately $1.9 million was being used at June 28, 2003.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
The statements in this section, the letter to shareholders and in the other
sections of this report which are not historical facts contained in this report
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, product demand and market acceptance risks, the effect of
economic conditions, the impact of competitive products and pricing, product
development and patent protection, commercialization and technological
difficulties, capacity and supply constraints or difficulties, exchange rate
fluctuations, actual purchases under agreements, the effect of the Company's
accounting policies, labor disputes, restructuring costs in excess of
expectations, pension plan asset returns less than assumed, and other risks
which may be detailed in the Company's Securities and Exchange Commission
filings. Should one or more of these risks or uncertainties materialize or
should the underlying assumptions prove incorrect, actual results and outcomes
may differ materially from those indicated or implied in the forward-looking
statements. This report should be read in conjunction with information provided
in the financial statements appearing in the Company's Annual Report on Form
10-K for the year ended December 28, 2002.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
The Company is exposed to market risk from changes in foreign exchange rates,
commodities and to a lesser extent, interest rates.
The Company had long-term debt outstanding at June 28, 2003, in the form of
senior notes and foreign lines of credit at variable interest rates. Since 79%
of the debt has fixed interest rates, the Company's interest expense is not
materially sensitive to changes in interest rate levels.
A portion of the Company's operations consists of manufacturing and sales
activities in foreign countries. The Company has manufacturing facilities in
Mexico, England, Ireland, Switzerland, China and the Philippines. Substantially
all sales in Europe are denominated in British Pounds Sterling, United States
Dollars and Euros and substantially all sales in the Asia-Pacific region are
denominated in United States Dollars, Japanese Yen and South Korean Won.
The Company's identifiable foreign exchange exposures result from the purchase
and sale of products from affiliates, repayment of intercompany trade and loan
amounts and translation of local currency amounts in consolidation of financial
results. Changes in foreign currency exchange rates or weak economic conditions
in the foreign countries in which it manufactures and distributes products could
affect the Company's sales and financial results. The Company primarily utilizes
netting and offsets
12
to reduce known foreign currency exposures and, when appropriate, derivative
instruments as hedges of specific foreign currency cash flows.
The Company has entered into cross currency rate swaps with a notional amount of
$11.6 million. The cross currency swaps convert $11.6 million of the Company's
fixed rate 6.16% U.S. Dollar debt to fixed rate 3.13% Japanese Yen debt. The
fair value of the rate swap agreements outstanding at June 28, 2003, which had a
notional amount of $8.3 million, was recognized as a $0.2 million liability, and
is reported in consolidated shareholders' equity as a component of other
comprehensive income.
A risk management policy has been implemented by the Company that describes the
procedures and controls over derivative financial instruments. Under the policy,
the Company does not use derivative financial instruments for trading purposes
and the use of such instruments is subject to the approval of senior officers.
Typically, the use of such derivative instruments is limited to hedging
activities related to specific foreign currency cash flows. The Company's
exposure related to such transactions is, in the aggregate, not material to the
Company's financial position, results of operations and cash flows.
The Company uses various metals in the production of its products, including
zinc, copper and silver. The Company's earnings are exposed to fluctuations in
the prices of these commodities. The Company does not currently use derivative
financial instruments to mitigate this commodity price risk.
Item 4. Controls and Procedures
Within 90 days prior to the filing of this Quarterly Report, the Chief Executive
Officer and Chief Financial Officer of the Company evaluated the effectiveness
of the disclosure controls and procedures of the Company and concluded that
these disclosure controls and procedures are effective to ensure that material
information relating to the Company and its consolidated subsidiaries has been
made known to them by the employees of the Company and its consolidated
subsidiaries during the period preceding the filing of this Report. There were
no significant changes in the Company's internal controls or in other factors
that could significantly affect these controls subsequent to the last day they
were evaluated by the Company's Chief Executive Officer and Chief Financial
Officer.
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of Littelfuse, Inc. was
held on May 2, 2003. The following matters were voted upon at
this annual meeting and the results of such votes are provided
below:
1. Election of five nominees to the Board of Directors to
serve terms of one year or until their successors are elected:
13
(i) Howard B. Witt
Withhold Broker
For 15,479,388 Authority 2,515,387 Abstentions ___ Nonvotes ___
(ii) John Driscoll
Withhold Broker
For 17,615,308 Authority 379,467 Abstentions ___ Nonvotes ___
(iii) Anthony Grillo
Withhold Broker
For 17,222,969 Authority 771,806 Abstentions ___ Nonvotes ___
(iv) Bruce A. Karsh
Withhold Broker
For 17,617,361 Authority 377,414 Abstentions ___ Nonvotes ___
(v) John E. Major
Withhold Broker
For 17,197,144 Authority 797,631 Abstentions ___ Nonvotes ___
(vi) Gordon Hunter
Withhold Broker
For 17,616,778 Authority 377,997 Abstentions ___ Nonvotes ___
(vii) Ronald L. Schubel
Withhold Broker
For 17,222,969 Authority 771,806 Abstentions ___ Nonvotes ___
2. Approval and ratification of the Directors' appointment
of Ernst & Young, LLP as the Company's independent auditors
for the year ending January 3, 2004
Broker
For 16,412,843 Against 1,544,737 Abstentions 37,195 Nonvotes ___
---------- --------- ------
14
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit Description
31.1 Certification of Howard B. Witt,
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Philip Franklin,
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to Section
906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C Section 1350
(b) Reports on Form 8-K filed during the quarter ended
June 28, 2003
A Current Report on Form 8-K (Items 7 and 9 pursuant
to Item 12) filed on April 24, 2003.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended June 28, 2003, to be signed on its behalf by the undersigned thereunto
duly authorized.
LITTELFUSE, INC.
Date: August 12, 2003 By /s/ Philip G. Franklin
--------------------------------
Philip G. Franklin
Vice President, Treasurer, and
Chief Financial Officer (As duly
authorized officer and as the
principal financial and
accounting officer)
16