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 September 27, 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 September 27, 2003, 21,868,647 shares of common stock, $.01 par
value, of the Registrant were outstanding.
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the periods ended
September 27, 2003 and September 28, 2002 (unaudited).............................. 1
Condensed Consolidated Balance Sheets as of September 27, 2003
(unaudited) and December 28, 2002.................................................. 2
Condensed Consolidated Statements of Cash Flows for the periods ended
September 27, 2003 and September 28, 2002 (unaudited).............................. 3
Notes to the Condensed Consolidated Financial Statements (unaudited)............... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................... 12
Item 3. Qualitative and Quantitative Disclosures about Market Risk ....................... 16
Item 4. Controls and Procedures........................................................... 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................... 18
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data, unaudited)
Three Months Ended Nine Months Ended
SEPT 27, Sept 28, SEPT 27, Sept 28,
2003 2002 2003 2002
------------ ------------ ---------- ----------
Net sales......................................... $ 94,696 $ 74,965 $ 237,447 $ 213,994
Cost of sales..................................... 66,910 51,574 162,709 146,301
------------ ------------ ---------- ----------
Gross profit...................................... 27,786 23,391 74,738 67,693
Selling, general and administrative
expenses...................................... 18,228 15,243 49,449 45,226
Research and development expenses................. 2,297 2,122 6,092 6,288
Amortization of intangibles....................... 192 191 575 575
Restructuring expense............................. - - - 3,744
------------ ------------ ---------- ----------
Operating income.................................. 7,069 5,835 18,622 11,860
Interest expense.................................. 544 729 1,594 2,171
Other (income) expense............................ 160 (623) (391) (1,373)
------------ ------------ ---------- ----------
Income before income taxes........................ 6,365 5,729 17,419 11,062
Income taxes...................................... 2,292 2,062 6,271 3,982
------------ ------------ ---------- ----------
Net income........................................ $ 4,073 $ 3,667 $ 11,148 $ 7,080
============ ============ ========== ==========
Net income per share:
Basic......................................... $ 0.19 $ 0.17 $ 0.51 $ 0.32
============ ============ ========== ==========
Diluted....................................... $ 0.19 $ 0.17 $ 0.51 $ 0.32
============ ============ ========== ==========
Weighted average shares and equivalent shares
outstanding:
Basic......................................... 21,823 21,926 21,794 21,896
============ ============ ========== ==========
Diluted....................................... 21,955 22,015 21,862 22,034
============ ============ ========== ==========
1
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
SEPT 27, 2003 December 28, 2002
------------- -----------------
ASSETS:
Cash and cash equivalents...................................... $ 10,738 $ 27,750
Short-term investments......................................... - 8,806
Receivables.................................................... 57,630 40,810
Inventories.................................................... 55,980 44,533
Other current assets........................................... 26,533 15,146
------------- -----------
Total current assets........................................... 150,881 137,045
Property, plant, and equipment, net............................ 103,256 81,122
Reorganization value, net...................................... 27,665 27,665
Other intangible assets, net................................... 27,736 28,291
Other assets................................................... 5,760 3,355
------------- -----------
$ 315,298 $ 277,478
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities excluding current portion
of long-term debt.......................................... $ 58,390 $ 41,308
Current portion of long-term debt.............................. 18,128 18,994
------------- -----------
Total current liabilities...................................... 76,518 60,302
Long-term debt................................................. 23,589 20,252
Deferred liabilities........................................... 1,503 1,713
Accrued post-retirement benefits............................... 11,234 9,027
Other long-term liabilities.................................... 278 473
Shareholders' equity........................................... 202,176 185,711
------------- -----------
Shares issued and outstanding
at Sept 27, 2003: 21,868,647............................... $ 315,298 $ 277,478
============= ===========
2
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Three Months Ended Nine Months Ended
SEPT 27, Sept 28, SEPT 27, Sept 28
2003 2002 2003 2002
---------- ---------- ---------- ----------
Operating activities:
Net income .......................................... $ 4,073 $ 3,667 $ 11,148 $ 7,080
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .................................... 5,223 4,610 13,857 13,233
Amortization .................................... 192 191 575 575
Changes in operating assets and liabilities:
Accounts receivable ............................ (2,806) (2,067) (4,608) (6,953)
Inventories .................................... 4,309 2,678 1,588 5,019
Accounts payable and accrued
expenses ..................................... 6,428 828 5,814 5,481
Other, net ..................................... 1,125 1,018 (1,431) 592
---------- ---------- ---------- ----------
Net cash provided by operating
activities ..................................... 18,544 10,925 26,943 25,027
Cash provided by (used in) investing activities:
Purchases of property, plant, and equipment, net .... (9,136) (1,786) (11,712) (5,185)
Acquisitions, net of cash acquired .................. (44,496) (3,087) (44,496) (15,031)
Sale (purchase) of short term investments ........... - (8,194) 8,806 (8,194)
---------- ---------- ---------- ----------
Net cash used in investing activities ............... (53,632) (13,067) (47,402) (28,410)
Cash provided by (used in) financing activities:
Proceeds from long-term debt ................... 30,500 - 30,500 -
Payments of long-term debt ..................... (28,550) (10,138) (29,991) (11,866)
Proceeds (purchases) from exercise of stock
options and warrants, net ..................... 282 (1,050) 982 221
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities ..................................... 2,232 (11,188) 1,491 (11,645)
Effect of exchange rate changes on cash
increase (decrease) ................................. 1,315 (438) 1,956 (1,440)
---------- ---------- ---------- ----------
Decrease in cash and cash
equivalents .................................... (31,541) (13,768) (17,012) (16,468)
Cash and cash equivalents at beginning
of period ...................................... 42,279 31,826 27,750 34,526
---------- ---------- ---------- ----------
Cash and cash equivalents at end of
period ......................................... $ 10,738 $ 18,058 $ 10,738 $ 18,058
========== ========== ========== ==========
3
LITTELFUSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 accounting principles generally accepted in the United
States 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 periods ended
September 27, 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.
The Company evaluates the performance of each geographic segment based on its
net income or loss. The Company also accounts for intersegment sales as if the
sales were to third parties.
The Company's reportable segments are the business units where the revenue is
earned and expenses are incurred. The Company has subsidiaries in The Americas,
Europe and Asia-Pacific where each region is measured based on its sales and
operating income or loss.
Information concerning the operations in these geographic segments for the
periods ended September 27, 2003 and September 28, 2002, is as follows (in
thousands):
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------
REVENUES
The Americas 46,406 40,047 117,291 114,260
Europe 15,281 13,449 43,680 38,036
Asia-Pacific 33,009 21,469 76,476 61,698
Combined Total 94,696 74,965 237,447 213,994
Corporate - - - -
4
Reconciliation - - - -
Consolidated Total 94,696 74,965 237,447 213,994
INTERSEGMENT REVENUES
The Americas 17,845 14,499 53,116 46,914
Europe 12,713 14,890 38,019 38,670
Asia-Pacific 4,799 5,140 15,307 12,232
Combined Total 35,357 34,529 106,442 97,816
Corporate - - - -
Reconciliation (35,357) (34,529) (106,442) (97,816)
Consolidated Total - - - -
INTEREST EXPENSE
The Americas 525 685 1,533 2,007
Europe 0 4 4 24
Asia-Pacific 19 40 57 140
Combined Total 544 729 1,594 2,171
Corporate 0 0 0 0
Reconciliation 0 0 0 0
Consolidated Total 544 729 1,594 2,171
DEPRECIATION AND AMORTIZATION
The Americas 4,232 3,285 10,725 9,845
Europe 436 807 1,473 2,039
Asia-Pacific 555 518 1,657 1,349
Combined Total 5,223 4,610 13,856 13,233
Corporate 192 191 576 575
Reconciliation - - - -
Consolidated Total 5,415 4,801 14,432 13,808
OTHER INCOME (LOSS)
The Americas 73 240 467 550
Europe 138 271 114 842
Asia-Pacific (371) 112 (190) (19)
Combined Total (160) 623 391 1,373
Corporate - - - -
Reconciliation - - - -
Consolidated Total (160) 623 391 1,373
5
INCOME TAX EXPENSE(INCOME)
The Americas 1,069 1,003 3,182 1,675
Europe 314 664 441 1,629
Asia-Pacific 909 395 2,648 678
Combined Total 2,292 2,062 6,271 3,982
Corporate - - - -
Reconciliation - - - -
Consolidated Total 2,292 2,062 6,271 3,982
NET INCOME(LOSS)
The Americas 1,440 2,292 5,006 5,050
Europe 248 301 (274) 2,663
Asia-Pacific 2,576 1,265 6,992 3,686
Combined Total 4,265 3,858 11,724 11,399
Corporate (192) (191) (576) (4,319)
Reconciliation - - - -
Consolidated Total 4,073 3,667 11,148 7,080
REVENUES
Electronic 62,461 40,864 139,354 112,838
Automotive 23,100 24,581 72,360 74,846
Electrical 9,135 9,520 25,733 26,310
Consolidated Total 94,696 74,965 237,447 213,994
Revenues from no single customer of the Company amount to 10% or more for the
quarter ended September 27, 2003.
3. INVENTORIES
The components of inventories are as follows (in thousands):
September 27, December 28,
2003 2002
------------- ------------
Raw material $ 11,346 $ 10,084
Work in process 12,580 11,615
Finished goods 32,054 22,834
-------- --------
Total $ 55,980 $ 44,533
======== ========
6
4. LONG-TERM OBLIGATIONS
On August 26, 2003, the Company entered into a new $50.0 million, three-year
revolving bank credit agreement to replace the expiring $55.0 million bank
credit agreement. The new bank credit agreement is subject to a maximum
indebtedness calculation and other financial covenants similar to the previous
credit agreement. No revolver principal payments are required until the
agreement matures on August 26, 2006. At September 27, 2003 the Company had
available $38.0 million of borrowing capability under the revolver facility. The
$12.0 million of outstanding bank revolver loan notes carry an interest rate of
prime or LIBOR plus 1.25%.
5. PER SHARE DATA
Net income per share amounts for the three months and nine months ended
September 27, 2003 and September 28, 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 Nine months ended
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Average shares outstanding 21,823 21,926 21,794 21,896
Net effect of dilutive stock options,
warrants and restricted shares
- Diluted 132 89 68 138
--------- --------- --------- ---------
Average shares outstanding
- Basic 21,823 21,926 21,794 21,896
========= ========= ========= =========
- Diluted 21,955 22,015 21,862 22,034
========= ========= ========= =========
Net income $ 4,073 $ 3,667 $ 11,148 $ 7,080
========= ========= ========= =========
Net income per share
- Basic $ 0.19 $ 0.17 $ 0.51 $ 0.32
========= ========= ========= =========
- Diluted $ 0.19 $ 0.17 $ 0.51 $ 0.32
========= ========= ========= =========
Options to purchase 1,214,920 shares of common stock at exercise prices ranging
from $23.25 to $35.50 and options to purchase 1,248,745 shares of common stock
at exercise prices ranging from $22.30 to $35.50 were outstanding at September
27, 2003 and September 28, 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,
they would have no dilutive effect.
7
6. TECCOR ACQUISITION
On July 7, 2003, the Company completed the acquisition of all of the outstanding
stock of Teccor Electronics, Inc., a subsidiary of Invensys plc ('Teccor') for
$44.5 million in cash, plus a future payment of $5.0 million contingent on sales
of Teccor products reaching $107.0 million for calendar year 2005.
Teccor manufactures semiconductor products for the telecommunications and
industrial market segments, including transient voltage suppression 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.
The acquisition was accounted for using the purchase method under SFAS Statement
141 and the operations of Teccor are included in the Company's operations from
the date of acquisition. The preliminary allocation of the purchase price
resulted in no goodwill. The final purchase price allocation is subject to
revision based upon receipt of the independent appraisal of the property,
equipment and intangible assets acquired.
The acquisition was funded with cash on hand and borrowings under the Company's
$50.0 million revolving credit facility.
Purchase price allocation, net of cash
(in thousands)
Current assets 22,668
Property, plant and equipment 23,022
Other assets 4,212
Deferred tax assets 9,370
Current liabilities (8,926)
Purchase accounting liabilities (5,175)
Other long-term liabilities (675)
------
Total purchase price, net of cash 44,496
Purchase accounting liabilities are estimated to be $5,175,000 and are primarily
for redundancy costs related to manufacturing operations and selling, general
and administrative functions. Included in this amount is $675,000 to reflect the
obligation of Teccor to remit to Invensys proceeds from the sale of land.
The following unaudited pro forma consolidated financial information for the
Company has been prepared assuming the acquisition had occurred on the first day
of the respective periods.
8
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
(unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------- -------------
Net Revenues $ 94,696 $ 95,289 $273,833 $ 266,452
Income from operations 7,069 5,970 14,632 6,087
Net income 4,073 3,753 6,977 3,385
Diluted net income per share $ 0.19 $ 0.17 $ 0.32 $ 0.15
---------- ---------- -------- -----------
The unaudited pro forma financial information above reflects the following pro
forma adjustments:
(a) Additional depreciation expense related to the estimated $9.5 million
write-up to record fixed assets at fair value
(b) Reduction of sales, general and administrative expense adjustments
based on forward-looking estimates to eliminate Invensys expense
allocations that are not expected to be incurred after the acquisition.
(c) Adjustment for additional interest expense related to the $16,000,000
borrowing under the Company's line of credit to help fund the
acquisition.
These unaudited pro forma results are presented for comparative purposes only.
The pro forma results are not necessarily indicative of what actual results
would have been had the acquisition been completed as of the beginning of the
respective periods, or of future results.
RESTRUCTURING CHARGES
In connection with the acquisition of Teccor Electronics and at the time of the
acquisition, the Company recorded purchase accounting liabilities of $5.2
million primarily for redundancy costs related to manufacturing operations and
selling, general and administrative functions. Included in
9
this amount is $0.7 million to reflect the obligation of Teccor to remit
proceeds from the sale of land acquired to the former owners. As of September
27, 2003, $0.5 million of restructuring payments related to employee severance
have been paid leaving a balance of $4.7 million in purchase accounting
liabilities at September 27, 2003. The remaining accrued liabilities are
expected to be paid by the end of the 2004 fiscal year.
7. 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 against 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 September
27, 2003 was $7.5 million and the fair value of the outstanding cross currency
rate swap agreements was recognized as a $0.8 million liability and as a charge
to comprehensive loss in the Consolidated Balance Sheet at September 27, 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
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.
8. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended September 27, 2003, and
September 28, 2002, was approximately $5.2 million and $3.5 million,
respectively, and for the nine months ended September 27, 2003 and September 28,
2002 was $14.5 million and $8.8 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-sale securities.
10
9. STOCK-BASED COMPENSATION
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 Q3 2002 Q3
Net income as reported $ 4,073 $ 3,667
Stock option compensation expense, net of tax (302) (258)
Pro forma net income $ 3,771 $ 3,409
Basic net income per share
As reported $ 0.19 $ 0.17
Pro forma $ 0.17 $ 0.16
Diluted net income per share
As reported $ 0.19 $ 0.17
Pro forma $ 0.17 $ 0.15
Risk-free interest rate 3.10% 3.69%
Expected dividend yield 0% 0%
Expected stock price volatility 50.2% 39.2%
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.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46).
FIN 46 is an interpretation of Accounting Research Bulletin (ARB) No. 51
"Consolidated Financial Statements" (ARB 51). The primary objectives of FIN 46
are to provide guidance on the identification of entities for which control is
achieved through means other than through voting rights and how to determine
when and which business enterprise should consolidate these variable interest
entities. In October 2003, the FASB delayed implementation of FIN 46 until our
fourth quarter of 2003 to allow the FASB to address certain implementation
issues. Pending any material change in guidance from the FASB, the Company does
not believe that FIN 46 will have a material impact on its consolidated
financial statements.
11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
LITTELFUSE, INC.
Sales by Market and Geography
(Dollars in millions)
THIRD QUARTER YEAR-TO-DATE
-------------------------------- --------------------------------
2003 2002 % CHANGE 2003 2002 % CHANGE
-------- -------- -------- -------- ---------- --------
MARKET
Electronics $ 42.6 $ 40.9 4% $ 119.5 $ 112.8 6%
Automotive 23.1 24.6 -6% 72.4 74.9 -3%
Electrical 9.1 9.5 -4% 25.7 26.3 -2%
-------- -------- -- -------- ---------- --
Subtotal 74.8 75.0 0% 217.6 214.0 2%
Teccor 19.9 19.9
-------- -------- -- -------- ---------- --
TOTAL $ 94.7 $ 75.0 26% $ 237.5 $ 214.0 11%
======== ======== == ======== ========== ==
THIRD QUARTER YEAR-TO-DATE
------------------------------ ------------------------------
2003 2002 % CHANGE 2003 2002 % CHANGE
-------- -------- -------- ------- --------- --------
GEOGRAPHY
Americas $ 46.4 $ 40.1 16% $ 117.3 $ 114.3 3%
Europe 15.3 12.9 19% 43.7 37.5 17%
Asia Pacific 33.0 22.0 50% 76.5 62.2 23%
-------- -------- -- ------- --------- --
TOTAL $ 94.7 $ 75.0 26% $ 237.5 $ 214.0 11%
======== ======== == ======= ========= ==
Results of Operations
Third Quarter, 2003
On July 7, 2003, the Company completed the acquisition of all of the outstanding
stock of Teccor Electronics, Inc., a subsidiary of Invensys plc (`Teccor') for
$44.5 million in cash, plus a future payment of $5.0 million contingent on sales
of Teccor products reaching $107.0 million for calendar year 2005.
Teccor manufactures semiconductor products for the telecommunications and
industrial market segments, including transient voltage suppression 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.
12
Sales for the third quarter 2003 increased 26% or $19.7 million to $94.7
million, compared to $75.0 million in the third quarter of 2002. The increase
was driven by sales of $19.9 million from Teccor , which was acquired in July of
2003. Excluding Teccor, sales for the third quarter 2003 were flat at $74.8
million compared to the third quarter of 2002.
On a geographic basis, sales in the Americas increased $6.4 million or 16% in
the third quarter of 2003, as Teccor added $10.5 million for the quarter.
Excluding Teccor, sales in the Americas declined $4.1 million or 10%, due to
weaker automotive, electronic and electrical markets compared to last year.
Europe sales increased $2.4 million or 19% in the third quarter of 2003,
primarily due to favorable currency effects of $1.9 million. Asia sales
increased $11.0 million or 50% compared to the prior year third quarter, due to
$7.6 million of sales from Teccor and strengthening Asian demand.
Electronic sales increased $21.6 million or 53% to $62.5 million in the third
quarter of 2003 from $40.9 million in the same quarter of last year. The
increase in electronic sales was primarily driven by the addition of Teccor.
Teccor contributed $19.9 million in sales for the quarter. Excluding Teccor,
electronic sales increased $1.7 million or 4% to $42.6 million compared to $40.9
million in the prior year quarter. Electronic sales increased in the Asia region
due to increased demand for consumer electronics, notebook computers and
handheld products. The electronic markets in North America and Europe remain
soft.
Automotive sales decreased $1.5 million or 6% to $23.1 million in the third
quarter of 2003 compared to $24.6 million in the same quarter last year.
Automotive sales decreased in both North America and Europe primarily due to
lower vehicle builds and continued pricing pressure.
Electrical fuse sales decreased $0.4 million or 4% to $9.1 million in the third
quarter 2003 from $9.5 million in the same quarter last year. The electrical
fuse market continues to show weakness due to low levels of non-residential
construction and factory utilization.
Gross margin was $27.8 million or 29.3% of sales for the third quarter of 2003
compared to $23.4 million or 31.2% in the same quarter last year. The decrease
in gross margin as a percent of sales was primarily due to the addition of
Teccor at a lower gross margin. Teccor had a 5.8 percentage point negative
impact on gross margin for the quarter, due in part to a $1.7 million pre-tax
charge for accounting policy changes related to inventory valuation and
expensing of certain short-lived assets which had previously been capitalized.
Gross margins in the base business improved due to cost reduction initiatives,
improved volume, favorable product mix and favorable currency effects.
Total operating expenses were $20.7 million or 21.9% of sales for the third
quarter of 2003 compared to $17.6 million or 23.4% of sales for the same quarter
last year. The reduction in operating expenses as a percent of sales was due
primarily to the addition of Teccor which has a lower operating expense ratio.
Operating income increased to $7.1 million or 7.5% of sales in the third quarter
of 2003 compared to $5.8 million or 7.8% in the prior year. Operating income
increased primarily due to the higher gross margin in the base business. Teccor
had a $1.7 million negative impact on operating income for the quarter due
entirely to the $1.7 million charge for accounting policy changes.
13
Interest expense was $0.5 million in the third quarter of this year compared to
$0.7 million in the third quarter of last year due to a lower average interest
rate. Other expense was $0.2 million for the third quarter of 2003 compared to
other income of $0.6 million in the third quarter of the prior year, primarily
due to gains on asset sales in the third quarter of 2002.
Income before income taxes was $6.4 million for the third quarter 2003 compared
to $5.7 million for the third quarter of 2002. Income taxes were $2.3 million
with an effective tax rate of 36% for the third quarter of 2003 compared to $2.1
million with an effective tax rate of 36% in the third quarter of last year.
Net income increased to $4.1 million in the third quarter this year compared to
$3.7 million in the third quarter of last year and diluted earnings per share
increased to $0.19 in the third quarter this year compared to $0.17 per diluted
share in the same quarter last year.
Nine Months, 2003
Sales for the first nine months increased $23.5 million or 11% to $237.5 million
from $214.0 million last year. Excluding $19.9 million of sales related to the
Teccor acquisition, sales for the first nine months increased $3.6 million or 2%
to $217.6 million. On a geographic basis, sales in the Americas increased $3.0
million or 3% to $117.3 million for the first nine months of 2003, compared to
$114.3 million in the prior year, primarily due to the acquisition of Teccor.
Excluding $10.5 million from Teccor, sales in the Americas decreased $7.5
million or 7% to $106.8 million for the first nine months, compared to the prior
year period due to lower sales in all three of our markets: electronic,
automotive and electrical. Europe sales increased $6.2 million or 17% to $43.7
million, compared to $37.5 million in the prior year. Excluding currency effects
of $6.9 million and Teccor sales of $1.8 million, Europe sales decreased $2.6
million or 7% to $34.9 million reflecting weakness in the European electronic
and automotive markets. Asia sales increased $14.3 million or 23% compared to
the prior year due to the addition of Teccor, improving electronic demand and
favorable currency effects. Excluding $7.6 million from Teccor and $1.8 million
of favorable currency effects, Asia sales increased $4.9 million or 8% compared
to the prior year period due to strong demand for consumer electronics, notebook
computers and handheld products.
Electronic sales for the first nine months of 2003 were up $27.5 million or 24%
at $140.3 million compared to $112.8 million last year. Excluding $19.9 million
from Teccor, electronic sales increased $7.6 million or 7% to $120.4 million,
compared to the first nine months of 2002.
Automotive sales for the first nine months of 2003 were down 3% at $72.4 million
compared to $74.9 million last year primarily due to lower vehicle builds and
continued pricing pressure.
Electrical fuse sales for the first nine months of 2003 were down 2% at $25.7
million from $26.3 million last year due to continued weakness in the electrical
fuse market.
Gross margin was $74.7 million or 31.5% for the first nine months of 2002
compared to $67.7 million or 31.6% for the first nine months of last year. The
decline in gross margin as a percent to sales was due primarily to a lower
Teccor gross margin that offset the benefits of cost reduction activities,
improved volume, favorable product mix and favorable currency effects.
14
Total operating expenses were 23.6% of sales for the first nine months of 2003
compared to 24.3% last year. Operating income for the first nine months of 2003
increased to $18.6 million or 7.8% of sales compared to $11.9 million or 5.5% of
sales for the prior year. Interest expense was $1.6 million for the first nine
months of 2003 compared to $2.2 million last year reflecting a lower average
interest rate. Other income was $0.4 million for the first nine months of 2003
compared to $1.4 million for the same period last year, due primarily to gains
on asset sales in the 2002 period. Income before taxes was $17.4 million for the
first nine months of 2003 compared to $11.1 million the first nine months of
last year. Income taxes were $6.3 million the first nine months 2003 compared to
$4.0 million last year.
Net income for the first nine months of 2003 increased to $11.1 million from
$7.1 million for the same period last year. Diluted earnings per share for the
first nine months of 2003 were $0.51 per diluted share compared to $0.32 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 $26.9 million for the first nine months. Net cash used in
investing activities included $11.7 million in purchases of property, plant and
equipment and $44.5 million, net of cash, for the purchase of Teccor, partially
offset by $8.8 million in sales of marketable securities. In addition, net cash
provided by financing activities included net proceeds from long-term debt of
$0.5 million and net proceeds from stock option exercises of $1.0 million. The
effects of exchange rate changes increased cash by $2.0 million. The net cash
provided by operations and financing activities, less investing activities plus
the effects of exchange rate changes, resulted in a $17.0 million net decrease
in cash. This left the Company with a cash balance of $10.8 million at September
27, 2003.
The ratio of current assets to current liabilities was 2.0 to 1 at the end of
the third quarter 2003 compared to 1.9 to 1 at the end of the third quarter
2002. The days sales in receivables was approximately 56 days at the end of the
third quarter 2003, compared to 61 days at third quarter end 2002 and 54 days at
year-end 2002. The days inventory outstanding was approximately 76 days at third
quarter end 2003, compared to 78 days at third quarter end 2002 and 88 days at
year-end 2002.
The Company's net capital expenditures were $9.1 million for the third quarter
2002, and $11.7 for the first nine months of 2003. The Company expects that net
capital expenditures, consisting primarily of new machinery and equipment, plant
expansion in China and capital spending related to the Teccor acquisition will
be approximately $20 million for the full year 2003.
Total debt at the end of the third quarter 2003 totaled $41.7 million and
consisted of the following: (1) 6.16% private placement notes totaling $20.0
million, (2) U.S. LIBOR revolver borrowings totaling $12.0 million, (3) foreign
revolver borrowings totaling $8.0 million, (4) notes payable
15
relating to mortgages totaling $0.3 million and (5) other long-term debt,
including capital leases, totaling $1.4 million. Of this indebtedness, $18.1
million is considered to be current liabilities. The Company has a $50.0 million
revolver in the U.S., of which $38 million was available at September 27, 2003.
The bank revolver loan notes carry an interest rate of prime or LIBOR plus
1.25%. The Company also had $2.2 million in letters of credit outstanding at
September 27, 2003.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
The statements in this section 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 September 27, 2003 in the form of
fixed rate private placement notes, a U. S. variable rate revolving line of
credit and foreign lines of credit at variable interest rates. Approximately 48%
of the Company's long-term debt is at fixed rates and primarily consists of bank
loans and mortgages. The Company does not enter into derivative transactions
(i.e., interest rate swaps) with respect to its long-term debt, as the current
interest expense on this debt is not deemed material to operations.
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
16
products could affect the Company's sales and financial results. The Company
primarily utilizes netting and offsets 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 September 27, 2003, which
had a notional amount of $7.5 million, was recognized as a $0.8 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
As of September 27, 2003, 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 our Chief
Executive Officer and Chief Financial Officer.
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit Description
4.1 Bank credit agreement among Littelfuse, Inc., as
borrower, the lenders named therein and Bank of
America N.A., as agent, dated as of August 26, 2003
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10.1 Employment Agreement dated as of August 8, 2003
between Littelfuse, Inc. and Howard B. Witt
10.2 Change of Control Employment Agreement dated as of
August 8, 2003 between Littelfuse, Inc. and Howard
B. Witt
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 September
27, 2003
A Current Report on Form 8-K (Items 7 and 9 pursuant to Item
12) filed on July 23, 2003
A Current Report on Form 8-K/A (Items 2 and 7) filed on
September 22, 2003.
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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 September 27, 2003, to be signed on its behalf by the undersigned
thereunto duly authorized.
LITTELFUSE, INC.
Date: November 12, 2003 By /s/ Philip G. Franklin
--------------------------------
Philip G. Franklin
Vice President, Operations Support
and Chief Financial Officer
(As duly authorized officer
and as the principal
financial and accounting officer)
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