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 APRIL 2, 2005
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)
(847) 824-1188
--------------
Registrant's telephone number, including area code:
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 April 2, 2005, 22,410,486 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 Balance Sheets as of April 2, 2005 and January 1,
2005 (unaudited)........................................................... 1
Condensed Consolidated Statements of Income for the periods ended
April 2, 2005 and April 3, 2004 (unaudited)................................ 2
Condensed Consolidated Statements of Cash Flows for the periods ended
April 2, 2005 and April 3, 2004 (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................................................................. 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk................. 13
Item 4. Controls and Procedures.................................................... 14
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds................. 15
Item 6. Exhibits................................................................... 15
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
APRIL 2, 2005 January 1, 2005
-------------- ---------------
ASSETS:
Cash and cash equivalents ................... $ 29,390 $ 28,583
Receivables ................................. 77,973 77,726
Inventories ................................. 76,979 79,080
Deferred income taxes ....................... 16,466 17,056
Other current assets ........................ 8,844 6,804
-------- --------
Total current assets ........................ 209,652 209,249
Property, plant, and equipment, net ......... 138,558 136,465
Intangible assets, net ...................... 18,421 19,052
Goodwill .................................... 55,266 55,249
Investments ................................. 5,466 4,886
Other assets ................................ 410 408
-------- --------
Total assets ............................ $427,773 $425,309
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities excluding current portion
of long-term debt ....................... $ 73,850 $ 82,196
Current portion of long-term debt ........... 42,630 32,958
-------- --------
Total current liabilities ................... 116,480 115,154
Long-term debt .............................. 1,232 1,364
Deferred income taxes ....................... 9,148 8,573
Accrued post-retirement benefits ............ 19,732 20,417
Other long-term liabilities ................. 6,809 7,081
Minority interest ........................... 2,645 2,636
Shareholders' equity ........................ 271,727 270,084
-------- --------
Total liabilities and shareholders' equity .. $427,773 $425,309
======== ========
Common shares issued and outstanding
of 22,410,486 and 22,549,595,
at April 2, 2005, and January 1, 2005, respectively
1
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data, unaudited)
For the Three Months Ended
---------------------------
APRIL 2, April 3,
2005 2004
----------- ---------
Net sales......................................... $ 121,688 $ 111,418
Cost of sales..................................... 81,997 71,613
----------- ---------
Gross profit...................................... 39,691 39,805
Selling, general and administrative expenses...... 27,114 20,543
Research and development expenses................. 4,738 3,181
Amortization of intangibles....................... 631 339
----------- ---------
Operating income.................................. 7,208 15,742
Interest expense.................................. 479 426
Other (income) expense............................ (134) 307
------------ ---------
Income before income taxes and minority
interest.......................................... 6,863 15,009
Minority interest................................. 7 -
Income taxes...................................... 2,417 5,403
----------- ---------
Net income........................................ $ 4,439 $ 9,606
=========== =========
Net income per share:
Basic.......................................... $ 0.20 $ 0.44
=========== =========
Diluted........................................ $ 0.20 $ 0.43
=========== =========
Weighted average shares and equivalent shares
outstanding:
Basic.......................................... 22,484 22,032
=========== =========
Diluted........................................ 22,710 22,388
=========== =========
2
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
For the Three Months Ended
---------------------------
APRIL 2, April 3,
2005 2004
-------- --------
Operating activities:
Net income ............................................. $ 4,439 $ 9,606
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation ....................................... 6,641 5,639
Amortization ....................................... 631 339
Changes in operating assets and liabilities:
Accounts receivable ................................ (1,527) (8,221)
Inventories ........................................ 945 (2,370)
Accounts payable and accrued expenses .............. (7,263) (410)
Prepaid expenses and other ......................... (3,773) (1,648)
-------- --------
Net cash provided by operating activities .............. 93 2,935
Cash used in investing activities:
Purchases of property, plant, and equipment, net .. (8,698) (2,992)
Acquisitions, net of cash acquired ................ (28) -
-------- --------
Net cash used in investing activities .................. (8,726) (2,992)
Cash provided by (used in) financing activities:
Proceeds from long-term debt ....................... 15,056 -
Payments of long-term debt ......................... (5,213) (39)
Proceeds from repayment of notes receivable, common
stock .............................................. 3,521 -
Proceeds from exercise of stock options ............ 461 1,884
Purchase of treasury stock ......................... (3,199) -
-------- --------
Net cash provided by financing activities .............. 10,626 1,845
Effect of exchange rate changes on cash ................ (1,186) (21)
-------- --------
Increase in cash and cash equivalents .................. 807 1,767
Cash and cash equivalents at beginning of period ....... 28,583 22,128
-------- --------
Cash and cash equivalents at end of period ............. $ 29,390 $ 23,895
======== ========
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 2, 2005
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 April 2, 2005 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2005. 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 January 1, 2005.
2. BUSINESS SEGMENT INFORMATION
The Company designs, manufactures and sells circuit protection devices
throughout the world. The Company has three reportable geographic segments:
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
sales and net income or loss. The Company 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 Americas, Europe and Asia-Pacific.
Revenues from no single customer amounted to 10% or more of the Company's total
revenues for the quarter ended April 2, 2005.
Information concerning the operations in these geographic segments for the
periods ended April 2, 2005, and April 3, 2004, is as follows (in thousands):
Three Months Three months
Ended Ended
April 2, 2005 April 3, 2004
--------------- ---------------
NET SALES
Americas $ 50,177 $ 53,177
Europe 34,568 20,903
Asia-Pacific 36,943 37,338
--------------- ---------------
Combined total 121,688 111,418
Corporate - -
--------------- ---------------
Consolidated total $ 121,688 $ 111,418
INTERSEGMENT SALES
Americas $ 38,693 $ 15,568
Europe 13,020 15,639
Asia-Pacific 9,802 6,202
--------------- ---------------
Combined total 61,515 37,409
Corporate - -
Eliminations (61,515) (37,409)
--------------- ---------------
Consolidated total $ - $ -
INTEREST EXPENSE
Americas $ 461 $ 417
4
Europe 18 2
Asia-Pacific - 7
--------------- ---------------
Combined total 479 426
Corporate - -
--------------- ---------------
Consolidated total $ 479 $ 426
DEPRECIATION AND AMORTIZATION
Americas $ 3,835 $ 5,143
Europe 2,291 152
Asia-Pacific 515 344
--------------- ---------------
Combined total 6,641 5,639
Corporate 631 339
--------------- ---------------
Consolidated total $ 7,272 $ 5,978
OTHER (INCOME) EXPENSE
Americas $ (88) $ 289
Europe (13) (268)
Asia-Pacific (33) 286
--------------- ---------------
Combined total (134) 307
Corporate - -
--------------- ---------------
Consolidated total $ (134) $ 307
INCOME TAXES
Americas $ 131 $ 3,611
Europe 1,129 757
Asia-Pacific 1,157 1,035
--------------- ---------------
Combined total 2,417 5,403
Corporate - -
--------------- ---------------
Consolidated total $ 2,417 $ 5,403
NET INCOME (LOSS)*
Americas $ 245 $ 6,522
Europe 1,127 113
Asia-Pacific 3,067 2,971
--------------- ---------------
Combined total 4,439 9,606
Corporate - -
--------------- ---------------
Consolidated total $ 4,439 $ 9,606
NET SALES *
Electronic $ 72,666 $ 74,901
Automotive 31,065 27,814
Electrical 17,957 8,703
--------------- ---------------
Consolidated total $ 121,688 $ 111,418
* Certain prior year amounts have been reclassified to conform to the current
year presentation.
5
IDENTIFIABLE ASSETS
April 2, January 1,
2005 2005
----------- -----------
Americas $ 313,519 $ 344,277
Europe 239,257 264,523
Asia-Pacific 71,600 64,828
----------- -----------
Combined total 624,376 673,628
Eliminations (196,603) (248,319)
----------- -----------
Consolidated total $ 427,773 $ 425,309
=========== ===========
3. INVENTORIES
The components of inventories are as follows (in thousands):
April 2, January 1,
2005 2005
------------ --------------
Raw material $ 16,572 $ 16,723
Work in process 23,641 23,783
Finished goods 36,766 38,577
------------ --------------
Total $ 76,979 $ 79,080
============ ==============
4. LONG-TERM OBLIGATIONS
Total debt, including the current portion, at the end of the first quarter 2005
totaled $43.9 million and consisted of the following: (1) 6.16% private
placement notes totaling $10.0 million, (2) foreign revolver borrowings totaling
$6.4 million and (3) credit revolver borrowings totaling $27.5 million. Of this
indebtedness, $42.6 million is considered to be current liabilities. The Company
has a $50.0 million, three-year revolving bank credit agreement that expires on
August 26, 2006. The bank credit agreement is subject to a maximum indebtedness
calculation and other financial covenants. At April 2, 2005, the Company had
available $22.5 million of borrowing capability under the revolving bank credit
agreement. The revolving bank credit agreement has an interest rate of prime or
LIBOR plus 0.875%. The Company also had $2.5 million in letters of credit
outstanding at April 2, 2005.
6
5. PER SHARE DATA
Net income per share amounts for the three months ended April 2, 2005, and
April 3, 2004, 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
------------------------
April 2, April 3,
------- -------
2005 2004
------- -------
Net income ......................... $ 4,439 $ 9,606
======= =======
Average shares outstanding - Basic . 22,484 22,032
Net effect of dilutive stock options
and restricted shares
- Diluted ................. 226 356
------- -------
Average shares outstanding - Diluted 22,710 22,388
======= =======
Net income per share
- Basic ..................... $ 0.20 $ 0.44
======= =======
- Diluted ................... $ 0.20 $ 0.43
======= =======
Options to purchase 518,100 and 252,204 shares of common stock were outstanding
at April 2, 2005, and April 3, 2004, 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 anti-dilutive.
6. HEINRICH ACQUISITION
On May 6, 2004, the Company acquired 82% of the common stock of Heinrich
Industrie AG ("Heinrich") for Euro 39.5 million (approximately $47.1 million) in
cash and acquisition costs of approximately $1.8 million. The Company purchased
the controlling interest in Heinrich from its two largest shareholders and
initiated a tender offer for the remaining shares of the publicly held company.
The Company funded the acquisition with $17.5 million in cash and $32.0 million
of borrowings on an existing revolving line of credit.
Subsequent to May 6, 2004, the Company purchased additional shares of Heinrich
stock for approximately $8.7 million, bringing the total ownership to 97.2% as
of April 2, 2005.
Heinrich is the holding company for the Wickmann Group of circuit protection
products, which has three business units: electronic, automotive and electrical.
Littelfuse has continued to operate Heinrich in such business units subsequent
to the acquisition. The Heinrich acquisition expands the Company's product
offering and strengthens the Company's position in the circuit protection
industry.
7
The acquisition was accounted for using the purchase method of accounting and
the operations of Heinrich are included in the Company's operations from the
date of acquisition. The following table sets forth the purchase price
allocation for the acquisition of Heinrich in accordance with the purchase
method of accounting with adjustments to record the acquired assets and
liabilities of Heinrich at their estimated fair market or net realizable values.
<Table>
<Caption>
Purchase price allocation (in thousands)
- ----------------------------------------
Current assets $ 39,824
Property, plant and equipment 35,826
Patents, licenses and software 3,396
Distribution network 5,135
Trademarks and tradenames 788
Goodwill 7,651
Other assets 5,282
Current liabilities (30,778)
Purchase accounting liabilities (7,281)
Other long-term liabilities (16,580)
Minority interest (1,602)
-----------
$ 41,661
===========
</Table>
All goodwill and intangible assets are recorded in the European segment.
Trademarks and tradenames have an average estimated useful life of five years.
The distribution network has an average estimated useful life of nine years.
Patents and licenses have an average estimated useful life of four years.
Software has a useful life of three years. The weighted average estimated useful
life for intangible assets is approximately seven years.
Purchase accounting liabilities are estimated to be $7.3 million and are
primarily for redundancy costs to be paid through 2006 related to manufacturing
operations and selling, general and administrative functions. These liabilities
are subject to revision as the Company implements its plan. The Company began
formulating its plan to incur these costs as of the acquisition date. As of
April 2, 2005, $1.9 million has been paid related to these liabilities.
The following unaudited pro forma consolidated financial information for the
Company has been prepared assuming the acquisition had occurred at the beginning
of fiscal 2004.
<Table>
Three Months Ended
------------------
April 3, 2004
(unaudited)
Net sales $132,467
Operating income 15,392
Net income 9,342
Diluted income per share $0.42
</Table>
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 Heinrich acquisition been completed as of the beginning
of the respective period, or of future results.
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 of the variability of Yen
cash flows attributable to the USD/JPY exchange rate risk on forecasted
8
intercompany sales of inventory to a Japanese subsidiary. 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. At the inception of the hedge, both the
foreign currency swap and the intercompany sales subject to the hedge were
denominated in Japanese Yen. The swap agreements are accounted for as a cash
flow hedge and reported at fair value. The notional amount outstanding at April
2, 2005, was $2.1 million and the fair value of the outstanding cross-currency
rate swap agreements was recognized as a $0.3 million liability in the accrued
liabilities on the consolidated balance sheet. The change in the liability has
been reflected as a charge to shareholders' equity in the consolidated balance
sheet at April 2, 2005. The Company's hedges are considered effective and the
net gain or loss from hedge ineffectiveness was not material.
For the period from June 1, 2004, to September 30, 2005, Heinrich Industrie AG
purchased Euro forward contracts that hedge the variability of U.S. Dollar cash
attributable to the exchange rate risk on forecasted intercompany sales to U.S.
and Asian subsidiaries. These forward contracts guarantee the rate at which the
U.S. Dollar cash flows will be converted to Euro in the future. The forward
agreements are reported at the fair value and recorded as an asset under Other
Assets on the consolidated balance sheet at April 2, 2005. The gains since the
date of the Heinrich acquisition were recognized in the income statement and
were immaterial.
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. PENSIONS
The components of net periodic benefit cost for the three months ended April 2,
2005, compared with the three months ended April 3, 2004, were (in thousands):
Three Months Ended Three Months Ended
------------------ ------------------
April 2, April 3, April 2, April 3,
-------- ------- -------- -------
2005 2004 2005 2004
-------- ------- -------- -------
U.S. Pension Benefits Foreign Plans
--------------------- ------------------
Service cost $ 775 $ 690 $ 329 $ 317
Interest cost 883 875 537 469
Expected return on plan
Assets (912) (912) (457) (380)
Amortization of prior
service cost 3 3 (3) (3)
Amortization of transition
Asset - - (31) (23)
Amortization of net (gain) 68 40 47 52
------- ------- ------- -------
Loss
Total cost of the plan 817 696 422 432
Expected plan participants'
Contribution - - (107) (51)
------- ------- ------- -------
Net periodic benefit cost $ 817 $ 696 $ 315 $ 381
------- ------- ------- -------
The expected rate of return on pension assets is 8.50% and 8.75% in 2005 and
2004, respectively.
9
9. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended April 2, 2005, and April
3, 2004, was approximately $0.9 million and $9.3 million, respectively. The
adjustment for comprehensive income consists of deferred gains and losses from
foreign currency translation adjustments and qualified cash flow hedges for the
periods ended April 2, 2005, and April 3, 2004, and unrealized gains and losses
on available-for-sale securities for the period ended April 2, 2005.
10. STOCK-BASED COMPENSATION
The following table discloses the Company's pro forma net income and diluted net
income per share had the valuation methods under SFAS 123 been used for the
Company's 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)
Three months ended
-----------------------------
April 2, 2005 April 3, 2004
------------- -------------
Net income as reported $ 4,439 $ 9,606
Stock option compensation expense, net of tax (740) (638)
----------- ---------
Pro forma net income $ 3,699 $ 8,968
Basic net income per share
As reported $ 0.20 $ 0.44
Pro forma $ 0.16 $ 0.41
Diluted net income per share
As reported $ 0.20 $ 0.43
Pro forma $ 0.16 $ 0.40
Risk-free interest rate 4.35% 4.14%
Expected dividend yield 0% 0%
Expected stock price volatility 43.2% 44.0%
Expected life of options 7 years 7 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.
11. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123R, "Share-Based
Payment," replacing SFAS No. 123 and superseding Accounting Principles Board
(APB) Opinion No. 25. SFAS 123R requires public companies to recognize
compensation expense for the cost of awards of equity compensation. This
compensation cost will be measured as the fair value of the award estimated
using an option-pricing model on the grant date. The provisions of SFAS No. 123R
were to become effective at the beginning of the first interim or annual period
beginning after June 15, 2005. On April 14, 2005, the Securities and Exchange
Commission adopted a staff recommendation to delay the effective date for public
companies to the first interim or annual reporting period of a registrant's
first fiscal year beginning on or after December 15, 2005.
As permitted by Statement 123, the Company currently accounts for share-based
payments to employees in accordance with APB No. 25, "Accounting for Stock
Issued to Employees", using the intrinsic value method. The Company expects to
adopt Statement 123R at the beginning of fiscal year 2006. The Company is
currently evaluating the various transition provisions under provisions under
SFAS 123R. The adoption of Statement 123R is expected to result in increased
compensation expense in future periods.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Net Sales by Geography and Market*
(in millions)
FIRST QUARTER
---------------------------------
2005 2004 % CHANGE
--------- ------- --------
GEOGRAPHY
Americas $ 50.2 $ 53.2 -6%
Europe 34.5 20.9 65%
Asia-Pacific 37.0 37.3 -1%
--------- ------- ------
TOTAL $ 121.7 $ 111.4 9%
========= ======= ======
FIRST QUARTER
---------------------------------
2005 2004 % CHANGE
--------- ------- --------
MARKET
Electronics $ 63.3 $ 74.9 -16%
Automotive 25.8 27.8 -7%
Electrical 10.0 8.7 15%
--------- ------- -------
Subtotal 99.1 111.4 -11%
Heinrich 22.6 - -
--------- ------- -------
TOTAL $ 121.7 $ 111.4 9%
========= ======= =======
* Certain prior year amounts have been reclassified to conform to the current
year presentation.
Results of Operations
First Quarter, 2005
Sales increased $10.3 million or 9% to $121.7 million in the first quarter of
2005, compared to $111.4 million in the first quarter of 2004 due to the
acquisition of Heinrich. Excluding Heinrich, sales for the first quarter of 2005
decreased approximately 11% compared to the prior year quarter primarily due to
a slowdown in the electronics business.
On a geographic basis, sales in the Americas decreased $3.0 million or 6% in the
first quarter of 2005, compared to the first quarter of last year. The
electronics business was the main contributor to this decline as sales to North
American distributors and telecom OEM accounts slowed during the current
quarter. Heinrich contributed $1.5 million in the Americas for the quarter.
Europe sales increased $13.6 million or 65% in the first quarter of 2005
compared to the first quarter of 2004. Heinrich contributed $16.8 million in
Europe for the quarter. Excluding Heinrich, Europe sales decreased $3.2 million
or 15% compared to the first quarter of 2004 due to weakened demand for
electronics products partially offset by favorable currency effects of $0.8
million. Asia sales decreased $0.3 million or 1% compared to the prior year
first quarter. Excluding Heinrich, which contributed $4.3 million, Asia sales
decreased $4.6 million or 12% compared to the first quarter of 2004. This
decrease was due to inventory correction at electronic distributors as well as
weaker demand in the China telecom market.
Electronic sales, excluding Heinrich, decreased $11.6 million or 16% for the
first quarter of 2005 compared to the prior year quarter due to distributor
inventory correction and softening in telecom end markets. Automotive sales,
excluding Heinrich, decreased $2.0 million or 7% for the first quarter of 2005
compared to the prior year quarter. Automotive sales for the first quarter of
2005 were unfavorably impacted by lower car build in North America and
11
Europe, and the prior year quarter benefited from incremental sales related to a
vehicle recall program. Electrical sales, excluding Heinrich, increased $1.3
million or 15% in the first quarter of 2005 compared to the same quarter last
year as the electrical markets benefited from increased industrial manufacturing
activity and the beginnings of a rebound in non-residential construction.
Gross profit was $39.7 million or 32.6% of sales for the first quarter of 2005,
compared to $39.8 million or 35.7% in the same quarter last year. The decrease
in gross margin was mainly attributable to reduced operating leverage from lower
sales, $1.1 million of severance charges related to reductions in force and the
addition of lower margin Heinrich sales.
Total operating expense was $32.5 million or 26.7% of sales for the first
quarter of 2005 compared to $24.1 million or 21.6% of sales for the same quarter
in the prior year. The increase in operating expense reflects the acquisition of
Heinrich, additions to sales and engineering staffs to support the Company's
solution selling strategy and $0.5 million of severance charges in the current
quarter related to staffing reductions.
Operating income was $7.2 million or 5.9% of sales for the first quarter of 2005
compared to $15.7 million or 14.1% of sales for the same quarter of last year
reflecting the lower sales and increased costs discussed above.
Interest expense was $0.5 million in the first quarter of this year compared to
$0.4 million in the first quarter of last year. Other income was $0.1 million
for the first quarter of 2005 compared to other expense of $0.3 million in the
first quarter of last year, due to current year other income of $0.1 million
from Heinrich and lower other expenses in the current year.
Income before income taxes and minority interest was $6.9 million for the first
quarter 2005 compared to $15.0 million for the first quarter of 2004. Income
taxes were $2.4 million with an effective tax rate of 35% for the first quarter
of 2005 compared to $5.4 million with an effective tax rate of 36% in the first
quarter of last year.
Net income for the first quarter 2005 was $4.4 million or $0.20 per diluted
share compared to $9.6 million or $0.43 per diluted share for the same quarter
of 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 2005 year with $28.6 million of cash and cash
equivalents. Net cash provided by operations was $0.1 million for the first
three months. Net cash provided by operations includes net income of $4.4
million, depreciation of $6.6 million and amortization of $0.6 million in
addition to various working capital and other items. Accounts receivable
increased $1.5 million and inventory decreased $0.9 million. Accounts payable,
accrued expenses, prepaid expenses and other items unfavorably impacted net cash
provided by operations by $11.0 million, primarily due to the payment of 2004
accrued bonuses of approximately $7.0 million and a $2.1 million increase in
prepaid assets. Net cash used in investing activities included $8.7 million in
net purchases of property, plant and equipment. In addition, net cash provided
by financing activities included stock option exercises of $0.5 million along
with net proceeds of long-term debt of $9.8 million, notes receivable payback of
$3.5 million and the offsetting purchase of treasury stock for $3.2 million. The
effects of exchange rate changes decreased cash by $1.2 million. The net cash
provided by operations, less investing and financing activities plus the effects
of exchange rate changes, resulted in a $0.8 million net increase. This left the
Company with a cash balance of $29.4 million at April 2, 2005.
The ratio of current assets to current liabilities was 1.8 to 1 at the end of
the first quarter of 2005 compared to 2.0 to 1 at the end of the first quarter
2004. The days sales in receivables was approximately 58 days at the end of the
first quarter of 2005, compared to 57 days at the end 2004 and 49 days at the
end of the first quarter 2004. The increase in days sales in receivables from
the first quarter of the prior year was due primarily to the elimination of
early payment discounts for certain distributors and the addition of Heinrich,
whose days sales in receivables is higher than that of Littelfuse. The days
inventory outstanding was approximately 85 days at the end of the first quarter
of 2005 compared to 91 days at the end of 2004 and 69 days at end of the first
quarter of 2004. The decrease in days
12
inventory outstanding from the end of 2004 resulted primarily from improved
inventory management. The increase in days inventory outstanding from the first
quarter of the prior year was due to the addition of Heinrich, whose days
inventory outstanding is higher than that of Littelfuse and lower sales in the
first quarter of 2005.
The Company's capital expenditures, net of cash from asset sales, were $8.7
million for the first quarter of 2005 compared to $3.0 million for the first
quarter of 2004 due to spending in the most recent quarter related to
manufacturing process improvements, new product introductions and future
capacity expansions.
Total debt, including the current portion, at the end of the first quarter 2005
totaled $43.9 million and consisted of the following: (1) 6.16% private
placement notes totaling $10.0 million, (2) foreign revolver borrowings totaling
$6.4 million and (3) credit revolver borrowings totaling $27.5 million. Of this
indebtedness, $42.6 million is considered to be current liabilities. The Company
has a $50.0 million, three-year revolving bank credit agreement that expires on
August 26, 2006. The bank credit agreement is subject to a maximum indebtedness
calculation and other financial covenants. At April 2, 2005, the Company had
available $22.5 million of borrowing capability under the revolving bank credit
agreement. The revolving bank credit agreement has an interest rate of prime or
LIBOR plus 0.875%. The Company also had $2.5 million in letters of credit
outstanding at April 2, 2005.
"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, the effect of economic conditions, the impact of
competitive products and pricing, the integration of acquisitions, 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, costs related to former coal mining activities, pension plan asset
returns less than expected, 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 January
1, 2005.
Item 3. Quantitative and Qualitative 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. Management believes that
the Company's exposure to these risks is immaterial and not significant enough
to warrant disclosure of quantitative information regarding market risk.
The Company had $43.9 million of long-term debt outstanding at April 2, 2005,
primarily in the form of senior notes and lines of credit. Approximately 23% of
the Company's long-term debt is at fixed rates.
A portion of the Company's operations consists of manufacturing and sales
activities in foreign countries. The Company has foreign manufacturing
facilities in the U.S., Mexico, England, Ireland, China, Germany and the
Philippines. Substantially all sales in Europe are denominated in Euro, U.S.
Dollar and British Pound Sterling, and substantially all sales in the
Asia-Pacific region are denominated in U.S. Dollar, 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, accounts receivable values and financial results.
The Company uses netting and offsetting intercompany account management
techniques to reduce known foreign currency exposures deemed to be material. The
Company utilizes derivative instruments as hedges of specific foreign currency
cash flows when appropriate.
13
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. At the
inception of the hedge, both the foreign currency swap and the intercompany
sales subject to the hedge were denominated in Japanese Yen. The fair value of
the rate swap agreements outstanding at April 2, 2005, which had a notional
amount of $2.1 million, was recognized as a $0.3 million liability, and is
reported in consolidated shareholders' equity as a component of other
comprehensive income.
For the period from June 1, 2004, to September 30, 2005, Heinrich Industrie AG
purchased Euro forward contracts that hedge the variability of U.S. Dollar cash
attributable to the exchange rate risk on forecasted intercompany sales to U.S.
and Asian subsidiaries. These forward contracts guarantee the rate at which the
U.S. Dollar cash flows will be converted to Euros in the future. The forward
agreements are reported at the fair value and recorded as an asset under Other
assets on the consolidated balance sheet at April 2, 2005. The gains since the
date of the Heinrich acquisition were recognized in the income statement and
were immaterial.
A risk management policy has been implemented by the Company that establishes
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 April 2, 2005, 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 during the period covered by this Report that could
materially affect these controls or could reasonably be expected to materially
affect the Company's internal control reporting, disclosures and procedures
subsequent to the last day they were evaluated by the Company's Chief Executive
Officer and Chief Financial Officer. The Company's management believes that the
material weaknesses discussed in the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 2005 relating to the approval process over
journal entries and lack of adequate controls over the accounting for foreign
currency translations have been eliminated.
14
PART II - OTHER INFORMATION
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
(e) The table below provides information with respect to purchases by
the Company of shares of its common stock during each fiscal
month of the first quarter of fiscal 2005:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of Shares Maximum Number of Shares
Purchased as Part of that May Yet Be Purchased
Total Number of Average Price Paid Publicly Announced Plans Under the Plans or
Period Shares Purchased per Share or Programs Programs
January 2005 - - - 831,600
February 2005 - - - 831,600
March 2005 101,500 $31.52 101,500 730,100
Total 101,500 $31.52 101,500 730,100
The Company's Board of Directors authorized the repurchase of up to 1,000,000
shares under a program for the period May 1, 2004 to April 30, 2005.
Item 6: Exhibits
Exhibit Description
------- -----------
10.1 Annual Salary of Chairman of the Board, President
and Chief Executive Officer
31.1 Certification of Gordon Hunter, Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Philip G. 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
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 April 2, 2005, to be signed on its behalf by the undersigned thereunto
duly authorized.
LITTELFUSE, INC.
Date: May 12, 2005 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)
16