EXHIBIT 13.1
Littelfuse
2005 Annual Report
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is designed to provide the reader with
information that will assist in understanding our consolidated financial
statements, the changes in certain key items in those financial statements from
year to year, and the primary factors that accounted for those changes, as well
as how certain accounting principles affect our consolidated financial
statements. The discussion also provides information about the financial results
of the various segments of our business to provide a better understanding of how
those segments and their results affect the financial condition and results of
operations of Littelfuse as a whole.
FORWARD LOOKING INFORMATION
This MD&A should be read in conjunction with our accompanying consolidated
financial statements and related notes. See "Cautionary Statement Regarding
Forward-Looking Statements" on page 10 of this report for a description of
important factors that could cause actual results to differ from expected
results. See also Item 1, Business, "Risk Factors," in our Annual Report on Form
10-K for the fiscal year ended December 31, 2005.
The following is a summary of sales by geography and market:
FISCAL YEAR*
-------------------------------------------
2005 2004 2003
-------- ------- -------
GEOGRAPHY**
Americas $ 199.9 $ 216.5 $ 167.4
Europe 98.3 98.3 61.1
Asia Pacific 168.9 162.0 110.9
-------- ------- -------
TOTAL $ 467.1 $ 476.8 $ 339.4
======= ======== ========
FISCAL YEAR*
------------------------------------------
2005 2004 2003
-------- ------- -------
MARKET
Electronics $ 305.9 $ 325.6 $ 206.5
Automotive 118.6 113.7 98.3
Electrical 42.6 37.5 34.6
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TOTAL $ 467.1 $ 476.8 $ 339.4
======= ======== ========
* Amounts exclude Efen Gmbh (`Efen') for 2005 and 2004 since the date of the
Heinrich acquisition.
** Sales are defined based upon shipped to destination. Segment reporting
reflects sales based upon origination.
The following discussion provides an analysis of the information contained in
the consolidated financial statements and accompanying notes beginning on page
14 for the three fiscal years ended December 31, 2005, January 1, 2005, and
January 3, 2004.
Results of Operations-- 2005 Compared with 2004
Sales decreased 2.0% to $467.1 million in 2005 from $476.8 million in 2004. The
decrease in sales was primarily in the Americas and Europe, with the decrease in
European sales being largely offset by a full year of sales from the Heinrich
Industrie AG ("Heinrich") acquisition included in 2005 sales. Stronger sales in
Asia partially offset lower sales in the Americas and Europe. Within the
Americas, lower electronic sales, mainly due to lower telecom demand, were
partially offset by increased sales of electrical products. European sales were
also lower than the prior year primarily due to lower demand for electronics
products. Sales in Asia were up from the prior year mainly due to increased
demand for electronics products. Electronic sales decreased $19.7 million or 6%
to $305.9 million in 2005 compared to $325.6 million in 2004 primarily due to
decreased demand in the
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Americas and Europe for telecom product that was partially offset by increased
demand in Asia. Automotive sales increased $4.9 million or 4% to $118.6 million
in 2005 compared to $113.7 million in 2004 primarily due to a full year of sales
from the Heinrich acquisition. Electrical sales increased $5.1 million or 14% to
$42.6 million in 2005 compared to $37.5 million in 2004 due to improvements in
industrial activity and the commercial construction market. International sales
were $279.3 million or 59.8% of net sales in 2005 compared to $278.7 million or
58.5% of net sales in 2004, with sales being increased by $2.9 million of
favorable currency effects in 2005.
Gross profit was $144.6 million or 30.9% of sales in 2005 compared to $173.8
million or 36.4% of sales in 2004. The gross profit margin decrease resulted
from unfavorable leveraging of plant overhead due to lower production volumes,
higher commodity prices and the recognition of $4.9 million of Ireland
restructuring charges in 2005.
Selling, general and administrative expenses increased $2.4 million to $98.5
million in 2005 from $96.1 million in 2004, primarily due to a full year of
Heinrich expenses that were partially offset by lower administrative costs due
to staff reductions of 83 associates during 2005. As a percentage of sales,
selling, general and administrative expenses increased to 21.1% in 2005 from
20.2% in 2004, primarily due to lower sales. Research and development costs
increased $0.6 million to $16.7 million, representing 3.6% of sales in 2005 as
compared to 3.4% of sales in 2004, reflecting increased investment in new
product development. Total operating expenses, including intangible amortization
and impairments of long-term investments, were 25.2% of sales in 2005, compared
to 24.5% of sales in 2004.
Operating income in 2005 decreased 52.7% to $27.0 million or 5.8% of sales
compared to $57.0 million or 12.0% of sales in the prior year. The decreases in
operating income and operating margin were due to the factors affecting gross
profit margin and operating expenses described above.
Interest expense was $2.1 million in 2005 compared to $1.5 million in 2004 due
to a higher weighted average interest rate in 2005. Other expense (income), net,
consisting of interest income, royalties, gains and losses on investments,
non-operating income and foreign currency items was income, net, of $3.1 million
compared to expense, net, of $0.1 million in the prior year, primarily due to
the recognition of a $1.4 million gain on the sale of the Company's interest in
a wafer fabrication facility in the U.K. in 2005 and Heinrich rental income.
Earnings from continuing operations before minority interest and income taxes
were $27.9 million in 2005 compared to $55.5 million in 2004. Minority interest
income was $0.1 million in 2005, reflecting the minority share ownership in
Heinrich. Income tax expense was $11.4 million in 2005 compared to $19.0 million
in the prior year. Earnings from continuing operations were $16.6 million in
2005 compared to $36.4 million in 2004.
In the fourth quarter of 2005, the Company entered into a contract to sell the
Efen business acquired as part of the Heinrich acquisition in May 2004.
Therefore, the Efen business is accounted for as a discontinued operation that
reported income, net of taxes, of $1.1 million in 2005 compared to a loss, net
of taxes, of $0.3 million in 2004. Net income in the current year was $17.7
million, compared to $36.0 million in the prior year.
The Company's effective tax rate increased to 41.1% in 2005 from 34.1% in 2004,
reflecting the limited tax shield on restructuring charges and repatriation of
earnings from lower tax jurisdictions. Diluted earnings per share were $0.78 in
2005 compared to $1.59 in 2004. The decreases in net income and earnings per
share reflect the lower margins and a higher effective tax rate.
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Results of Operations-- 2004 Compared with 2003
Sales increased 40.5% to $476.8 million in 2004 from $339.4 million in 2003. The
increase in sales was primarily in the Americas and Asia, driven by increased
demand for electronic products in the Asia region, sales from the Heinrich
Industrie, AG ("Heinrich") acquisition from May 2004 through the end of the
fiscal year and a full year of the Teccor Electronics, Inc. ("Teccor")
acquisition. Electronic sales increased $119.1 million or 58% to $325.6 million
in 2004 compared to $206.5 million in 2003. Excluding sales of Heinrich
products, electronic sales increased $92.8 million or 45% to $299.3 million in
2004 compared to $206.5 million in 2003, primarily due to increased demand in
Asia and a full year of the Teccor acquisition. Automotive sales increased $15.4
million or 16% to $113.7 million in 2004 compared to $98.3 million in 2003
largely due to sales from Heinrich in 2004. Automotive sales excluding Heinrich
increased $5.0 million or 5% to $103.3 million in 2004 compared to $98.3 million
in 2003. Electrical sales increased $2.9 million or 8% to $37.5 million in 2004
compared to $34.6 million in 2003, primarily due to modest improvements in
commercial construction and industrial activity in the North American market.
International sales increased 47.0% to $278.7 million or 58.5% of net sales in
2004 from $189.6 million or 55.9% of net sales in 2003. The increase in
international sales was primarily due to strong demand for electronic products
in Asia, the addition of Heinrich, a full year of Teccor and favorable currency
effects, which contributed four percentage points to the overall sales growth.
Gross profit was $173.8 million or 36.4% of sales in 2004 compared to $104.4
million or 30.8% of sales in 2003. The gross profit margin increase resulted
from cost savings initiatives in manufacturing and purchasing, fixed expense
leverage due to increased plant throughput and the recognition of $3.2 million
of Ireland restructuring charges in 2003.
Selling, general and administrative expenses increased $27.5 million to $96.1
million in 2004 from $68.6 million in 2003, primarily due to the addition of
Heinrich, a full year of Teccor, increased costs related to complying with the
Sarbanes-Oxley Act and higher selling related costs due to the increase in
sales. As a percentage of sales, selling, general and administrative expenses
were unchanged in 2004 from 20.2% in 2003. Research and development costs
increased $7.4 million to $16.1 million, representing 3.4% of sales in 2004 as
compared to 2.6% of sales in 2003 reflecting increased investment in new product
development. Impairment of investments reflects the recognition of a non
tax-deductible charge of $2.2 million to impair a portion of the Semitron
investment acquired in 2002. Total operating expenses, including intangible
amortization and impairment of investments, was 24.5% of sales in 2004, compared
to 23.1% of sales in 2003. Total operating expenses, including intangible
amortization but excluding impairment of investments, was 24.0% of sales in
2004, compared to 23.1% of sales in 2003.
Operating income in 2004 increased 118.6% to $57.0 million or 12.0% of sales
compared to $26.1 million or 7.7% of sales in the prior year. The improvements
in operating income and operating margin were primarily due to higher sales and
the associated operating leverage partially offset by the impairment of a
portion of the Semitron investment acquired in 2002.
Interest expense was $1.5 million in 2004 compared to $2.0 million in 2003 due
to a lower weighted average interest rate in 2004. Other expense, net,
consisting of interest income, royalties and foreign currency items was
unchanged at $0.1 million from 2003 to 2004.
Earnings from continuing operations before minority interest and income taxes
were $55.5 million in 2004 compared to $24.0 million in 2003. Minority interest
was $0.1 million in 2004 reflecting the minority share ownership in Heinrich.
Income tax expense was $19.0 million in 2004 compared to $8.6 million in the
prior year. Earnings from continuing operations in the current year were $36.4
million, compared to $15.3 million in the prior year.
The Company's effective tax rate dropped from 36.0% in 2003 to 34.3% in 2004,
reflecting the reduction of reserves related to prior tax years and tax
structuring related to the Heinrich acquisition. Discontinued operations, net of
tax, were a loss of $0.3 million in 2004. Net income in 2004 was $36.0 million,
compared to $15.3 million in the prior year. Diluted earnings per share
increased to $1.59 in 2004 compared to $0.70 in 2003. The increases in net
income and earnings per share reflect the higher 2004 sales, margins and a lower
2004 effective tax rate.
3
Liquidity and Capital Resources
The Company has historically financed capital expenditures through cash flows
from operations. Management expects that cash flows from operations and
available lines of credit will be sufficient to support both its operations and
its debt obligations for the foreseeable future.
The Company has a domestic unsecured revolving credit line of $50.0 million. The
revolving line of credit balance becomes due within the next year. At December
31, 2005, the Company had $21.0 million in borrowings against this credit line.
The Company's subsidiary in Japan also has an unsecured credit line of Yen 0.9
billion or an equivalent of $7.6 million. The Yen-based revolving line of credit
balance also becomes due within the next year. At December 31, 2005, the Company
had an equivalent of $3.8 million in borrowings against the Yen facility. The
Company intends to renew these lines of credit upon maturity.
The Company's bank credit agreement requires maintenance of certain financial
ratios and a minimum net worth level. At December 31, 2005, the Company was in
compliance with these covenants. If the Company were to default on any of the
bank agreement debt covenants and were unable to obtain a waiver from the
lenders, the debt would be callable by the lenders. The Company believes that
default of any of the debt covenants is unlikely for the foreseeable future
since it expects the results of operations to be within the minimum levels to
continue to be in compliance with the debt covenants.
The Company started 2005 with $28.6 million of cash. Net cash provided by
operations was $38.1 million in the year. Cash used in investing activities
included $27.2 million in net purchases of property, plant and equipment and
$3.7 million for the acquisition of the remaining Heinrich shares partially
offset by $0.6 million from sales of an investment in LC Fab. Cash provided by
financing activities included net proceeds of notes receivable of $3.5 million
and cash proceeds from the exercise of stock options of $3.8 million partially
offset by net payments of long-term debt of $6.8 million and the repurchase of
$12.8 million of the Company's common stock. The effect of exchange rate changes
decreased cash by $2.2 million. The net cash provided by operations and
financing activities, less investing activities plus the effect of exchange
rates, resulted in a $6.6 million net decrease in cash. This left the Company
with a cash balance of $21.9 million at the end of 2005.
Increases in net working capital consumed $9.7 million of cash flow in 2005. The
major factors contributing to higher working capital were an increase in
accounts receivable of $11.2 million, a decrease in accounts payable and accrued
expenses of $1.1 million and an increase in prepaid expenses and other of $4.0
million, partially offset by a decrease in inventory of $6.6 million. Net
working capital (working capital less cash, assets held for sale, liabilities
held for sale and the current portion of long-term debt) as a percent of sales
was 20.8% at year-end 2005 compared to 19.0% at year-end 2004 and 18.3% at
year-end 2003. Days sales outstanding in accounts receivable increased to 63
days at year-end 2005 compared to 60 days at year-end 2004 and 50 days at
year-end 2003. The increase was due to longer payment terms for certain
automotive customers, the addition of Heinrich, which has a longer accounts
receivable collection cycle than the base Littelfuse business and the Delphi
bankruptcy in 2005. Days inventory outstanding was 75 days at year-end 2005
compared to 88 days at year-end 2004 and 71 days at year-end 2003. The reduction
in days inventory outstanding in 2005 was due primarily to improved inventory
management.
The ratio of current assets to current liabilities was 2.0 to 1 at year-end 2005
compared to 1.8 to 1 at year-end 2004 and 1.8 to 1 at year-end 2003. The ratio
of long-term debt to equity was 0.0 to 1 at year-end 2005 compared to 0.1 to 1
at year-end 2004 and 0.0 to 1 at year-end 2003.
The Efen business, which is presented as a discontinued operation, did not
contribute significantly to cash from operations in either 2004 or 2005.
The Company started 2004 with $22.1 million of cash. Net cash provided by
operations was $53.0 million in the year. Cash used in investing activities
included $22.0 million in net purchases of property, plant and equipment and
$41.7 million for the acquisition of Heinrich. Cash provided by financing
activities included net proceeds of long-term debt of $3.8 million and cash
proceeds from the exercise of stock options of $16.5 million, partially offset
by the repurchase of $5.6 million of the Company's common stock. The effect of
exchange rate changes increased cash by $2.5 million. The net cash provided by
operations and financing activities, less investing activities plus the effect
of exchange rates, resulted in a $6.5 million net increase in cash. This left
the Company with a cash balance of $28.6 million at the end of 2004.
Increases in net working capital consumed $15.1 million of cash flow in 2004.
Excluding the impact of working capital from the Heinrich acquisition, the major
factors contributing to higher working capital were an increase in accounts
receivable of $6.6 million, an increase in inventory of $4.3 million and a
decrease in accounts payable and accrued expenses of $7.7 million partially
offset by a decrease in prepaid expenses and other of $3.5 million. The 2004
working capital increase was partly due to slower sales near the end of fiscal
year 2004 and severance payments related to the Teccor acquisition. Net working
capital (working capital less cash, assets held for sale, liabilities held for
sale and the current portion of long-term debt) as a percent of sales was 19.0%
at year-end 2004 compared to 18.3% at year-end 2003 and 20.9% at year-end 2002.
The days sales outstanding in accounts receivable increased to 60 days at
year-end 2004 compared to 50 days at year-end 2003 and 54 days at year-end 2002.
The increase was partly due to the addition of Heinrich, which has a longer
accounts receivable collection cycle than the base Littelfuse business. Days
inventory outstanding was 88 days at year-end 2004 compared to 71 days at
year-end 2003 and 88 days at year-end 2002.
The Company's capital expenditures were $27.2 million in 2005, $22.1 million in
2004, and $14.0 million in 2003. The Company expects that capital expenditures
in 2006 will be approximately $25 million. The primary purposes for capital
expenditures in 2006 will be related to new product introductions, capacity
expansion, manufacturing transfers and other cost reduction projects. As in
2005, the Company expects to finance capital expenditures in 2006 through cash
flow from operations.
The Company decreased total debt by $6.8 million in 2005 after increasing debt
by $3.8 million in 2004 and $11.5 million in 2003. The Company repaid $10.0
million of its Senior Notes in 2005 with cash from operations. The Company's
Board of Directors has
4
authorized the Company to repurchase shares of its common stock, from time to
time, depending on market conditions. The Company repurchased 458,000 common
shares for $12.8 million in 2005, 168,400 common shares for $5.6 million in 2004
and did not repurchase any common shares in 2003.
Off-Balance Sheet Arrangements
In accordance with the definition under SEC rules, the following qualify as
off-balance sheet arrangements:
o any obligation under certain guarantees or contracts;
o a retained or contingent interest in assets transferred to an
unconsolidated entity or similar entity or similar arrangement that serves
as credit, liquidity or market risk support to that entity for such assets;
o any obligation under certain derivative instruments; and
o any obligation under a material variable interest held by the registrant in
an unconsolidated entity that provides financing, liquidity, market risk or
credit risk support to the registrant, or engages in leasing, hedging or
research and development services with the registrant.
The following discussion addresses each of the above items for the Company.
On December 31, 2005, the Company was not liable for guarantees of indebtedness
owed by third parties.
As of December 31, 2005, the Company was not directly liable for the debt of any
unconsolidated entity, and the Company does not have any retained or contingent
interest in assets as defined above.
As of December 31, 2005, the Company does not hold any derivative financial
instruments, as defined by FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended.
As part of the Company's ongoing business, the Company does not participate in
transactions that generate relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance
or special purpose entities ("SPEs"), which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes. As of December 31, 2005 and 2004, the Company is not
involved in any unconsolidated SPE transactions.
Contractual Obligations
Achieving optimal returns on cash often involves making long-term commitments.
SEC regulations require that the Company present its contractual obligations,
and the Company has done so in the table that follows. However, the Company's
future cash flow prospects cannot reasonably be assessed based on such
obligations, as the most significant factor affecting its future cash flows is
its ability to earn and collect cash from its customers. Future cash outflows,
whether they are contractual obligations or not, will vary based on the
Company's future needs. Further, normal operations involve significant
expenditures that are not based on "commitments." Examples of such expenditures
include amounts paid for income taxes or for salaries and benefits.
The following table summarizes contractual obligations and commitments, as of
December 31, 2005 (in thousands):
Payment Due By Period
- ------------------------------------------------------------------------------------------------------------------
Less than More than
Contractual Obligations Total 1 year 1 - 3 years 3 - 5 years 5 years
- ------------------------------------------------------------------------------------------------------------------
Long-term debt obligations $26,682 $26,682 $ -- $ -- $ --
Interest payments 816 816 -- -- --
Supplemental Executive Retirement Plan 1,899 -- 160 -- 1,739
Operating lease payments 16,610 4,891 4,283 2,514 4,922
- ------------------------------------------------------------------------------------------------------------------
Total $46,007 $32,389 $ 4,443 $ 2,514 $ 6,661
- ------------------------------------------------------------------------------------------------------------------
Recent Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 151, "Inventory Costs - An
Amendment of Accounting Research Bulletin No. 43, Chapter 4." SFAS 151 clarifies
that abnormal amounts of idle facility expense, freight, handling costs and
spoilage should be expensed as incurred and not included as overhead. SFAS 151
also requires that the allocation of fixed production overhead to conversion
costs be based on normal capacity of the production facilities. SFAS 151 must be
applied prospectively beginning January 1, 2006. The adoption of SFAS 151 is not
expected to have a material impact on the Company's consolidated financial
statements.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment,"
replacing SFAS No. 123 and superseding Accounting Principles Board (APB) Opinion
No. 25.
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SFAS 123R requires public companies to recognize compensation expense for the
cost of awards of equity compensation effective July 1, 2005. In March 2005, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 107,
"Share-Based Payment," which expresses the views of the Staff regarding the
adoption of SFAS No. 123R. In April 2005, the effective date to apply the
provisions of the pronouncement was postponed for public entities to fiscal
years beginning after June 15, 2005. The company will adopt SFAS 123R effective
January 1, 2006. The Company estimates that the compensation cost for fiscal
2006 will range between $3.9 million and $4.5 million on a before-tax basis. The
Company's assessment of the estimated compensation charge is affected by the
Company's stock price as well as assumptions regarding a number of complex and
subjective variables and the related tax impact. Those variables include, but
are not limited to, the Company's stock price volatility and employee stock
option exercise behaviors. The Company will recognize the compensation cost for
the stock-based awards issued on or after January 1, 2006, using the
straight-line attribution method over the vesting period for the entire award.
The Company will adopt SFAS No. 123R using the modified prospective application
method.
6
Critical Accounting Policies
Certain of the accounting policies as discussed below require the application of
significant judgment by management in selecting the appropriate estimates and
assumptions for calculating amounts to record in the financial statements.
Actual results could differ from those estimates and assumptions, impacting the
reported results of operations and financial position. Significant accounting
policies are more fully described in the notes to the consolidated financial
statements included elsewhere in this Annual Report. Certain accounting
policies, however, are considered to be critical in that they are most important
to the depiction of the Company's financial condition and results of operations
and their application requires management's subjective judgment in making
estimates about the effect of matters that are inherently uncertain. The Company
believes the following accounting policies are the most critical to aid in fully
understanding and evaluating its reported financial results, as they require
management's most difficult, subjective or complex judgments, resulting from the
need to make estimates about the effect of matters that are inherently
uncertain. The Company has reviewed these critical accounting policies and
related disclosures with the Audit Committee of its Board of Directors.
Allowance for Doubtful Accounts: The Company evaluates the collectibility of its
trade receivables based on a combination of factors. The Company regularly
analyzes its significant customer accounts and, when the Company becomes aware
of a specific customer's inability to meet its financial obligations, the
Company records a specific reserve for bad debt to reduce the related receivable
to the amount the Company reasonably believes is collectible. The Company also
records allowances for all other customers based on a variety of factors
including the length of time the receivables are past due, the financial health
of the customer, macroeconomic considerations and historical experience.
Historically, the allowance for doubtful accounts has been adequate to cover bad
debts. If circumstances related to specific customers change, the estimates of
the recoverability of receivables could be further adjusted. However, due to the
Company's diverse customer base and lack of credit concentration, the Company
does not believe its estimates would be materially impacted by changes in its
assumptions.
Credit Memos: The Company evaluates sales activity for credits to be issued on
sales recorded prior to the end of the fiscal year. These credits relate to the
return of inventory, pricing adjustments and credits issued to a customer based
upon achieving prearranged sales volumes. Volume based incentives offered to
customers are based upon the estimated cost of the program and are recognized as
a reduction to revenue as products are sold. However, due to the Company's
customer base, the Company does not believe its estimates would be materially
impacted by changes in its assumptions.
Inventory: The Company performs a detailed assessment of inventory, which
includes a review of, among other factors, demand requirements, product life
cycle and development plans, component cost trends, product pricing and quality
issues. Based on the analysis, the Company records adjustments to inventory for
excessiveness, obsolescence or impairment when appropriate to reflect inventory
at net realizable value. Historically, inventory reserves have been adequate to
reflect inventory at net realizable values. Revisions to inventory adjustments
may be required if actual demand, component costs or product life cycles differ
from estimates. However, due to the Company's diverse product lines and end user
markets, the Company does not believe its estimates would be materially impacted
by changes in its assumptions.
Goodwill and Other Intangibles: The Company determined the fair value of each of
its reporting units by using a guideline company method to estimate market
value. A valuation multiple is derived for each business segment from
transactions involving companies similar to the Company. That multiple is
applied to an EBITDA of each segment to estimate the market value of that
segment. In making these estimates, the Company considered the markets it was
addressing, the competitive environment and its advantages. The Company
determined that the fair value of each of the reporting units exceeded their
carrying amounts and, therefore, no goodwill impairment existed. The Company
will continue to perform a goodwill impairment test on an annual basis and on an
interim basis, if certain conditions exist. Factors the Company considers
important, which could result in changes to its estimates, include
underperformance relative to historical or projected future operating results
and declines in acquisition and trading multiples. Due to the diverse end user
base and non-discretionary product demand, the Company does not believe its
future operating results will vary significantly relative to its historical and
projected future operating results.
Long-Lived Assets: The Company evaluates long-lived assets on an ongoing basis.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the related asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future undiscounted cash flows
expected to be generated by the asset. If the asset is determined to be
impaired, the impairment recognized is measured by the amount by which the
carrying value of the asset exceeds its fair value. The Company's estimates of
future cash flows from such assets could be impacted if it underperforms
relative to historical or projected future operating results. However, due to
the Company's diverse product lines and end user markets, the Company does not
believe its estimates would be materially impacted by changes in its
assumptions.
Pension and Supplemental Executive Retirement Plan: Accounting for pensions
requires estimating the future benefit cost and recognizing the cost over the
employee's expected period of employment with the Company. Certain assumptions
are required in the calculation of pension costs and obligations. These
assumptions include the discount rate, salary scales and the expected long-term
rate of return on plan assets. The discount rate is intended to represent the
rate at which pension benefit obligations could be settled by purchase of an
annuity contract. These assumptions are subject to change based on stock and
bond market returns and other economic factors. Actual results that differ from
the Company's assumptions are accumulated and amortized over future periods and
therefore generally affect its recognized expense and accrued liability in such
future periods. While the Company believes that its assumptions are appropriate
given current economic conditions and its actual experience, significant
differences in results or significant changes in the Company's assumptions may
materially affect its pension obligations and related future expense.
7
Environmental Liabilities: Environmental liabilities are accrued based on
estimates of the probability of potential future environmental exposure and are
discounted based upon certain assumptions. Expenses related to on-going
maintenance of environmental sites are expensed as incurred. If actual or
estimated probable future losses exceed the Company's recorded liability for
such claims, it would record additional charges as other expense during the
period in which the actual loss or change in estimate occurred.
Other Contingencies: In the ordinary course of business, the Company is involved
in legal proceedings involving contractual and employment relations, product
liability claims, trademark rights and a variety of other matters. The Company
records contingent liabilities resulting from claims against it when it is
probable that a liability has been incurred and the amount of the loss is
reasonably estimable. The Company discloses contingent liabilities when there is
a reasonable possibility that the ultimate loss will exceed the recorded
liability. Estimating probable losses requires analysis of multiple factors, in
some cases including judgments about the potential actions of third party
claimants and courts. Therefore, actual losses in any future period are
inherently uncertain. Currently, the Company does not believe that any of its
pending legal proceedings or claims will have a material impact on its financial
position or results of operations. However, if actual or estimated probable
future losses exceed the Company's recorded liability for such claims, it would
record additional charges as other expense during the period in which the actual
loss or change in estimate occurred.
8
Market Risk
The Company is exposed to market risk from changes in interest rates, foreign
exchange rates, customer solvency and commodities.
The Company had debt outstanding at December 31, 2005, in the form of a domestic
revolving credit facility and a foreign line of credit at variable rates. While
100% of this debt has variable interest rates, the Company's interest expense is
not materially sensitive to changes in interest rate levels since debt levels
and potential interest expense increases are small relative to earnings.
A portion of the Company's operations consists of manufacturing and sales
activities in foreign countries. The Company has manufacturing facilities in
Mexico, the U.K., Ireland, Germany, China and the Philippines. During 2005,
sales exported from the United States or manufactured abroad accounted for 59.8%
of total sales. 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. As international sales were more than half of total sales, a
significant portion of the resulting accounts receivable are denominated in
foreign currencies. 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 where possible
and also, from time to time, utilizes derivative instruments to hedge certain
foreign currency exposures deemed to be material.
Delphi Corporation, a significant customer of the Company, filed bankruptcy on
October 8, 2005. Delphi accounts receivable affected by the bankruptcy are
approximately $3.0 million. The Company recorded a $1.0 million reserve against
this balance in the third quarter of 2005 and is actively monitoring this
situation and assessing any further financial impact this may have.
The Company granted a license covering the MINI(R) fuse technology to Pacific
Engineering Company, Ltd., a Japanese manufacturer that produces and distributes
the Company's patented automotive fuses to Asian-based automotive OEMs and wire
harness manufacturers. The license provides the Company with royalties of 2.5%
of the licensee's revenues from the sale of the licensed products, with an
annual minimum of $50,000. This license expires on April 16, 2006.
The Company uses various metals in the production of its products, including
zinc and copper. 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. A 10% increase in
the price of zinc and copper would reduce pre-tax profit by approximately $0.7
million and $0.7 million, respectively.
The Company does not believe it has significant exposure to market risk from
changes in interest rates and foreign exchange rates.
9
Outlook
The Company believes its long-term growth strategy, which emphasizes development
of new circuit protection products and providing customers with solutions and
technical support in all major regions of the world, will drive sales growth in
each of its segments. In addition, the fundamentals for both the electronics and
electrical markets appear to be positive for 2006. Therefore, the Company
expects moderate revenue growth in 2006 with all business segments and regions
contributing. The Company initiated a series of projects in 2004 and 2005 to
reduce costs in its global manufacturing and distribution operations. These
programs, along with the integration and consolidation of Heinrich, are expected
to generate cost savings to more than offset price erosion in 2006. The benefits
of these programs are expected to have a favorable impact on earnings in 2006.
The Company also plans to continue to increase research and development spending
on new product development in order to help drive future sales growth.
The Company is working to expand its share of the circuit protection market by
leveraging new products that it has recently acquired or developed as well as
improved solution selling capabilities. In the future, the Company will look for
opportunities to add to its product portfolio and technical expertise so that it
can provide customers with the most complete circuit protection solutions
available in the marketplace.
Cautionary Statement Regarding Forward-Looking Statements 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 and in our
Annual Report on Form 10-K, which are not historical facts are intended to
constitute "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, integration of
acquisitions, and other risks which may be detailed in the Company's Securities
and Exchange Commission filings.
10
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Littelfuse is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in
Exchange Act Rules 13a-15(f). Littelfuse's internal control system was designed
to provide reasonable assurance to its management and the Board of Directors
regarding the preparation and fair presentation of published financial
statements.
All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation.
An internal control significant deficiency is a control deficiency, or
combination of control deficiencies, that adversely affects the Company's
ability to initiate, authorize, record, process, or report external financial
data reliably in accordance with generally accepted accounting principles such
that there is more than a remote likelihood that a misstatement of the Company's
annual or interim financial statements that is more than inconsequential will
not be prevented or detected. An internal control material weakness is a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected.
Littelfuse's management assessed the effectiveness of the Company's internal
control over financial reporting as of December 31, 2005, based upon the
framework in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this
assessment, the Company's management concluded that, as of December 31, 2005,
the Company's internal control over financial reporting is effective.
Littelfuse's independent registered public accounting firm, Ernst & Young LLP,
has audited management's assessment of the Company's internal control over
financial reporting. Their report appears on page 13.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no change in the Company's internal control over financial reporting
that occurred during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF LITTELFUSE, INC.
We have audited the accompanying consolidated balance sheets of Littelfuse, Inc.
and subsidiaries as of December 31, 2005, and January 1, 2005, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2005. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Littelfuse, Inc.
and subsidiaries at December 31, 2005, and January 1, 2005, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2005, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Littelfuse,
Inc.'s internal control over financial reporting as of December 31, 2005, based
on criteria established in Internal Control -- Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 13, 2006 expressed an unqualified opinion thereon.
Ernst & Young LLP
Chicago, Illinois
March 13, 2006
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF LITTELFUSE, INC.
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that
Littelfuse, Inc. maintained effective internal control over financial reporting
as of December 31, 2005, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Littelfuse's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Littelfuse, Inc. maintained
effective internal controls over financial reporting as of December 31, 2005, is
fairly stated, in all material respects, based on the COSO control criteria.
Also, in our opinion, Littelfuse, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005,
based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the 2005 consolidated financial
statements of Littelfuse, Inc. and our report dated March 13, 2006 expressed an
unqualified opinion thereon.
Ernst & Young LLP
Chicago, Illinois
March 13, 2006
13
Consolidated Balance Sheets
(In thousands) December 31, 2005 January 1, 2005
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 21,947 $ 28,583
Accounts receivable, less allowances (2005 - $11,903; 2004 - $10,019) 80,303 74,400
Inventories 63,423 71,766
Deferred income taxes 11,927 17,056
Assets held for sale (Efen) 17,633 23,308
Prepaid expenses and other current assets 7,936 5,709
- ------------------------------------------------------------------------------------------------------------------
Total current assets 203,169 220,822
Property, plant, and equipment:
Land 13,370 13,617
Buildings 48,277 47,824
Equipment 254,829 233,481
- ------------------------------------------------------------------------------------------------------------------
316,476 294,922
Accumulated depreciation (190,983) (166,786)
- ------------------------------------------------------------------------------------------------------------------
125,493 128,136
Intangible assets, net of amortization:
Patents, licenses and software 2,891 2,416
Distribution network 6,508 8,750
Trademarks and tradenames 5,343 7,169
Goodwill 54,440 53,220
- ------------------------------------------------------------------------------------------------------------------
69,182 71,555
Investments 5,590 4,886
Other assets 497 370
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 403,931 $ 425,769
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,457 $ 18,832
Accrued payroll 20,128 22,065
Accrued expenses 8,141 13,941
Accrued severance 7,866 8,722
Accrued income taxes 9,920 14,820
Liabilities held for sale (Efen) 6,722 7,757
Current portion of long-term debt 26,682 32,958
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 99,916 119,095
Long-term debt, less current portion -- 1,364
Deferred income taxes 1,879 7,355
Accrued post-retirement benefits 19,268 18,644
Other long-term liabilities 5,658 7,081
Minority Interest 144 2,146
Shareholders' equity:
Preferred stock, par value $0.01 per share: 1,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, par value $0.01 per share: 34,000,000 shares authorized;
shares issued and outstanding, 2005 - 22,229,288; 2004 - 22,549,595 222 225
Additional paid-in capital 99,078 96,008
Notes receivable from officers - common stock (17) (3,550)
Accumulated other comprehensive income (loss) (2,426) 3,673
Retained earnings 180,209 173,728
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 277,066 270,084
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 403,931 $ 425,769
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes.
14
Consolidated Statements of Income
(In thousands, except per share amounts)
Year Ended December 31, 2005 January 1, 2005 January 3, 2004
- ---------------------------------------------------------------------------------------------------------------------
Net sales $467,089 $476,833 $339,410
Cost of sales 322,537 303,036 234,984
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 144,552 173,797 104,426
Selling, general and administrative expenses 98,536 96,102 68,579
Research and development expenses 16,672 16,079 8,694
Impairment of long-term investment -- 2,277 --
Amortization of intangibles 2,378 2,336 1,072
- ---------------------------------------------------------------------------------------------------------------------
Operating income 26,966 57,003 26,081
Interest expense 2,098 1,475 2,045
Other expense (income), net (3,068) 47 68
- ---------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
minority interest and income taxes 27,936 55,481 23,968
Minority interest (86) 143 --
Income taxes 11,440 18,977 8,629
- ---------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 16,582 36,361 15,339
Discontinued operations (net of tax expense of $645
and $252 in 2005 and 2004, respectively) 1,128 (333) --
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 17,710 $ 36,028 $ 15,339
- ---------------------------------------------------------------------------------------------------------------------
Net income per share:
Basic:
Continuing operations $ 0.74 $ 1.64 $ 0.70
Discontinued operations 0.05 (0.02) --
-------- -------- --------
Net Income $ 0.79 $ 1.62 $ 0.70
======== ======== ========
Diluted:
- ---------------------------------------------------------------------------------------------------------------------
Continuing operations $ 0.73 $ 1.61 $ 0.70
Discontinued operations 0.05 (0.02) --
-------- -------- --------
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 0.78 $ 1.59 $ 0.70
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
Weighted-average shares and equivalent shares outstanding:
Basic 22,413 22,239 21,881
Diluted 22,582 22,604 22,004
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes.
15
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31, 2005 January 1, 2005 January 3, 2004
- -------------------------------------------------------------------------------------------------------------------
Operating activities
Net income $ 17,710 $ 36,028 $ 15,339
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 28,738 23,859 20,029
Amortization of intangibles 2,495 2,441 1,072
Impairment of long-term investment -- 2,277 --
Provision for bad debts 1,884 802 50
Gain on sale of LC Fab (1,400) -- --
Deferred income taxes (1,564) 3,281 (6,458)
Changes in operating assets and liabilities:
Accounts receivable (11,185) (6,582) 387
Inventories 6,594 (4,277) 5,865
Accounts payable and accrued expenses (1,134) (7,709) 12,584
Prepaid expenses and other (3,996) 2,864 1,085
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 38,142 52,984 49,953
Investing activities
Purchases of property, plant and equipment (27,239) (22,079) (14,041)
Purchase of businesses, net of cash acquired (3,658) (41,661) (44,590)
Purchase of marketable securities -- -- (1,598)
Sale of LC Fab 600 -- --
Sale of marketable securities -- -- 10,404
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (30,297) (63,740) (49,825)
Financing activities
Proceeds from debt 48,819 42,200 30,500
Payments of debt (55,616) (38,402) (41,996)
Proceeds from exercise of stock options 3,844 16,520 4,291
Notes receivable, common stock 3,533 -- --
Purchases of common stock (12,832) (5,604) --
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (12,252) 14,714 (7,205)
Effect of exchange rate changes on cash (2,229) 2,497 1,455
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (6,636) 6,455 (5,622)
Cash and cash equivalents at beginning of year 28,583 22,128 27,750
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 21,947 $ 28,583 $ 22,128
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes.
16
Consolidated Statements of Shareholders' Equity
(In thousands) Notes Accumulated
Additional Receivable- Other
Common Paid-In Common Comprehensive Retained
Stock Capital Stock Income (Loss) Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 28, 2002 $ 218 $ 71,918 $ (3,900) $ (9,901) $ 127,376 $ 185,711
Comprehensive income:
Net income for the year -- -- -- -- 15,339 15,339
Change in net unrealized loss on derivatives -- -- -- (770) -- (770)
Minimum pension liability adjustment* -- -- -- 3,216 -- 3,216
Foreign currency translation adjustment -- -- -- 4,413 -- 4,413
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 22,198
Payments on notes receivable -- -- 350 -- -- 350
Stock options exercised, including tax benefit
of $357* 2 3,941 -- -- -- 3,943
- ------------------------------------------------------------------------------------------------------------------------------
Balance at January 3, 2004 $ 220 $ 75,859 $ (3,550) $ (3,042) $ 142,715 $ 212,202
Comprehensive income:
Net income for the year -- -- -- -- 36,028 36,028
Change in net unrealized loss on derivatives -- -- -- 824 -- 824
Minimum pension liability adjustment* -- -- -- (458) -- (458)
Unrealized loss on marketable securities* -- -- -- (1,095) -- (1,095)
Foreign currency translation adjustment -- -- -- 7,444 -- 7,444
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 42,743
Payments on notes receivable -- -- -- -- -- --
Purchase of 168,400 shares of common stock (2) (587) -- -- (5,015) (5,604)
Stock options exercised, including tax benefit
of $3,946* 7 20,736 -- -- -- 20,743
- ------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2005 $ 225 $ 96,008 $ (3,550) $ 3,673 $ 173,728 $ 270,084
Comprehensive income:
Net income for the year -- -- -- -- 17,710 17,710
Change in net unrealized loss on derivatives -- -- -- 177 -- 177
Minimum pension liability adjustment* -- -- -- (1,111) -- (1,111)
Unrealized gain on marketable securities* -- -- -- 999 -- 999
Foreign currency translation adjustment -- -- -- (6,164) -- (6,164)
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 11,611
Payments on notes receivable -- -- 3,533 -- -- 3,533
Purchase of 458,000 shares of common stock (5) (1,598) -- -- (11,229) (12,832)
Stock options exercised, including tax benefit
of $443* 2 4,668 -- -- -- 4,670
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2005 $ 222 $ 99,078 $ (17) $ (2,426) $ 180,209 $ 277,066
- ------------------------------------------------------------------------------------------------------------------------------
*Including related tax impact.
See accompanying notes.
17
Notes to Consolidated Financial Statements
December 31, 2005 and January 1, 2005
1. Summary of Significant Accounting Policies and Other Information
Nature of Operations: Littelfuse, Inc. and its subsidiaries (the Company)
design, manufacture, and sell circuit protection devices for use in the
automotive, electronic and electrical markets throughout the world.
Fiscal Year: The Company's fiscal years ended December 31, 2005, January 1,
2005, and January 3, 2004, and contained 52, 53 and 52 weeks, respectively.
Basis of Presentation: The consolidated financial statements include the
accounts of Littelfuse, Inc. and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated. The consolidated financial
statements of Littelfuse, Inc. and its subsidiaries were prepared in accordance
with generally accepted accounting principles in the United States of America
and include the assets, liabilities, revenues, and expenses of all wholly-owned
subsidiaries and majority-owned subsidiaries over which the Company exercises
control. Certain amounts reported in previous years have been reclassified to
conform to the 2005 presentation.
Cash Equivalents: All highly liquid investments, with a maturity of three months
or less when purchased, are considered to be cash equivalents.
Investments: The Company has determined that all of its investment securities
are to be classified as available-for-sale. Available-for-sale securities are
carried at fair value with the unrealized gains and losses reported in
"Shareholders' Equity" as a component of "Accumulated Other Comprehensive Income
(Loss)." The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in other
income or expense. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income.
Fair Value of Financial Instruments: The Company's financial instruments include
cash and cash equivalents, accounts receivable, investments and long-term debt.
The carrying values of such financial instruments approximate their estimated
fair values.
Accounts Receivable: The Company performs credit evaluations of customers'
financial condition and generally does not require collateral. Credit losses are
provided for in the financial statements based upon specific knowledge of a
customer's inability to meet its financial obligations to the Company.
Historically, credit losses have consistently been within management's
expectations and have not been a material amount. The Company also maintains
allowances against accounts receivable for the settlement of rebates and sales
discounts to customers. These allowances are based upon specific customer sales
and sales discounts as well as actual historical experience.
Inventories: Inventories are stated at the lower of cost or market (first in,
first out method), which approximates current replacement cost. The Company
maintains excess and obsolete allowances against inventory to reduce the
carrying value to the expected net realizable value. These allowances are based
upon a combination of factors including historical sales volume, market
conditions, lower of cost or market analysis and expected realizable value of
the inventory.
Property, Plant and Equipment: Land, buildings, and equipment are carried at
cost. Depreciation is calculated using the straight-line method with useful
lives of 21 years for buildings, seven to nine years for equipment, seven years
for furniture and fixtures, five years for tooling and three years for computer
equipment. Prior to 2004, depreciation was calculated under accelerated methods
with useful lives of 21 years for buildings, seven to nine years for equipment,
and seven years for furniture and fixtures. The impact of this prospective
change in depreciating new asset purchases was not material for 2005 or 2004.
Intangible Assets: Trademarks and tradenames are amortized using the
straight-line method over estimated useful lives that have a range of five to
twenty years. Patents and licenses are amortized using the straight-line method
or an accelerated method over estimated useful lives that have a range of four
to nine years. The distribution networks are amortized on either a straight-line
or accelerated basis over estimated useful lives that have a range of nine to
twenty years.
Goodwill is subject to an annual impairment test. The Company determined the
fair value of each of its reporting units by using a guideline company method to
estimate market value. A valuation multiple is derived for each business segment
from transactions involving companies similar to the Company. That multiple is
applied to an EBITDA of each segment to estimate the market value of that
segment. In making these estimates, the Company considered the markets it was
addressing, the competitive environment and its advantages. The Company
determined that the fair value of each of the reporting units exceeded their
carrying amounts and, therefore, no goodwill impairment existed. The Company
will continue to perform a goodwill impairment test on an annual basis and on an
interim basis, if certain conditions exist. Factors the Company considers
important, which could result in changes to its estimates, include
underperformance relative to historical or projected future operating results
and declines in acquisition and trading multiples. Due to the diverse end user
base and non-discretionary product demand, the Company does not believe its
future operating results will vary significantly relative to its historical and
projected future operating results.
Pension and Other Post-retirement Benefits: Accounting for pensions requires
estimating the future benefit cost and recognizing the cost over the employee's
expected period of employment with the Company. Certain assumptions are required
in the calculation of pension costs and obligations. These assumptions include
the discount rate, salary scales and the expected long-term rate of return on
plan assets. The discount rate is intended to represent the rate at which
pension benefit obligations could be settled by
18
purchase of an annuity contract. These assumptions are subject to change based
on stock and bond market returns and other economic factors. Actual results that
differ from the Company's assumptions are accumulated and amortized over future
periods and therefore generally affect its recognized expense and accrued
liability in such future periods. While the Company believes that its
assumptions are appropriate given current economic conditions and its actual
experience, significant differences in results or significant changes in the
Company's assumptions may materially affect its pension obligations and related
future expense.
Environmental Liabilities: Environmental liabilities are accrued based on
estimates of the probability of potential future environmental exposure and are
discounted based upon certain assumptions. Expenses related to on-going
maintenance of environmental sites are expensed as incurred. If actual or
estimated probable future losses exceed the Company's recorded liability for
such claims, it would record additional charges as other expense during the
period in which the actual loss or change in estimate occurred.
Revenue Recognition: In accordance with the Staff Accounting Bulletin (SAB) No.
104, "Revenue Recognition," issued in December 2003, sales and associated costs
are recognized in accordance with customer shipping terms, which is when the
transfer of title to the customer occurs. Such revenue is recognized when
collectibility is reasonably assured. Certain distributors are allowed to return
inventory in future periods based upon meeting predetermined volume levels. The
liability associated with these returns is recognized as a reduction of revenue
in the period when the product is sold. Liabilities related to other
arrangements such as price protection with third parties are also recognized as
expense in the period when the product is sold.
Credit Memos: The Company evaluates sales activity for credits to be issued on
sales recorded prior to the end of the fiscal year. These credits relate to the
return of inventory, pricing adjustments and credits issued to a customer based
upon achieving prearranged sales volumes. Volume based incentives offered to
customers are based upon the estimated cost of the program and are recorded as
products are sold.
Advertising Costs: The Company expenses advertising costs as incurred, which
amounted to $1.8 million in 2005, $2.2 million in 2004 and $1.2 million in 2003.
Foreign Currency Translation: The Company's foreign subsidiaries use the local
currency or the U.S. dollar as their functional currency, where appropriate.
Assets and liabilities are translated using exchange rates at the balance sheet
date and revenues and expenses are translated at weighted average rates. The
amount of foreign currency conversion gain recognized in the income statement
related to currency translation was $1.0 million, $2.4 million and $0.4 million
in 2005, 2004 and 2003, respectively. Adjustments from the translation process
are recognized in shareholders' equity as a component of other comprehensive
income (loss).
Derivative Instruments: The Company recognizes derivatives as either assets or
liabilities on the Consolidated Balance Sheets and measures those instruments at
fair value. The accounting for changes in the fair value of a derivative depends
on the intended use and designation of the derivative instrument. For
derivatives designated as cash flow hedges, the effective portion of the
derivative's gain or loss is initially reported as a component of accumulated
other comprehensive loss and subsequently reclassified into earnings when the
hedged exposure affects earnings. 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 amounts 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.
Stock-based Compensation: As permitted by Statement of Financial Accounting
Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
the Company accounts for stock option grants to employees and directors in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," using the intrinsic value method. Generally, the
Company grants stock options for a fixed number of shares with an exercise price
equal to the market price of the underlying stock at the date of grant and,
accordingly, does not recognize compensation expense. On certain occasions, the
Company has granted stock options for a fixed number of shares with an exercise
price below that of the underlying stock on the date of the grant and recognizes
compensation expense accordingly. This compensation expense has not been
material. See Note 11 for additional information on 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 method.
(In thousands, except per share amounts) 2005 2004 2003
- ----------------------------------------------------------------------------------
Net income as reported $17,710 $36,028 $15,339
Stock option compensation
expense, net of tax* (3,172) (2,762) (2,520)
- ----------------------------------------------------------------------------------
Pro forma net income $14,538 $33,266 $12,819
- ----------------------------------------------------------------------------------
Basic net income per share
As reported $ 0.79 $ 1.62 $ 0.70
Pro forma $ 0.65 $ 1.50 $ 0.59
Diluted net income per share
As reported $ 0.78 $ 1.59 $ 0.70
Pro forma $ 0.64 $ 1.47 $ 0.58
Risk-free interest rate 4.27% 4.14% 3.45%
Expected dividend yield 0% 0% 0%
Expected stock price volatility 39.4% 44.0% 46.9%
Expected life of options 7 years 7 years 7 years
- ----------------------------------------------------------------------------------
*2003 expense has been increased by $1,371 from amount originally presented.
Proforma amounts were adjusted accordingly.
19
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 in
the company's first fiscal year beginning after July 1, 2005. This compensation
cost will be measured as the fair value of the award estimated using an
option-pricing model on the grant date. The Company is currently evaluating the
various transition provisions under SFAS 123R and will adopt SFAS 123R beginning
January 1, 2006. The Company estimates that the compensation cost for fiscal
2006 will range between $3.9 million and $4.5 million on a pre-tax basis.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment
of Accounting Research Bulletin No. 43, Chapter 4." SFAS 151 clarifies that
abnormal amounts of idle facility expense, freight, handling costs and spoilage
should be expensed as incurred and not included as overhead. SFAS 151 also
requires that the allocation of fixed production overhead to conversion costs be
based on normal capacity of the production facilities. SFAS 151 must be applied
prospectively beginning January 1, 2006. The adoption of SFAS 151 is not
expected to have a material impact on the Company's Consolidated Financial
Statements.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the amounts of assets and liabilities at
the date of the consolidated financial statements, and the reported amounts of
revenues and expenses and the accompanying notes. The Company evaluates and
updates its assumptions and estimates on an ongoing basis and may employ outside
experts to assist in its evaluation, as considered necessary. Actual results
could differ from those estimates.
Shipping and Handling Fees and Costs: Amounts billed to customers in a sales
transaction represent fees earned for the goods provided and, accordingly,
amounts billed related to shipping and handling should be classified as revenue.
Costs incurred for shipping and handling of $5.1 million, $4.6 million and $4.3
million in 2005, 2004 and 2003, respectively, are classified in Selling,
General, and Administrative expenses.
Restructuring Costs: The Company incurs severance charges and plant closure
expenses as part of the Company's on-going cost reduction efforts. These charges
are included in Cost of Sales or Selling, General and Administrative expense
depending on the nature of the charge.
20
2. Acquisition of Business
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 January 1, 2004. During 2005 the Company acquired the remaining outstanding
shares for approximately $3.7 million, bringing the total ownership to 100% as
of December 31, 2005.
Heinrich is the holding company for the Wickmann Group of circuit protection
products, which has three business units: electronic, automotive and electrical.
The Company has operated Heinrich in such business units subsequent to the
acquisition. The Heinrich acquisition expands the Company's product offerings
and strengthens the Company's position in the circuit protection industry.
The acquisition was accounted for using the purchase method 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.
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 15,488
Other assets 5,282
Current liabilities (30,778)
Purchase accounting liabilities (11,460)
Other long-term liabilities (16,580)
Minority interest (1,602)
----------
$ 45,319
==========
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 $11.5 million and are for
redundancy costs to be paid through 2006 related to manufacturing operations and
selling, general and administrative functions. The Company began formulating its
plan to incur these costs as of the acquisition date. Current year additions to
the Heinrich purchase accounting liability relate to redundancy costs recognized
after 100% ownership was achieved.
A summary of purchase accounting liabilities activity is shown below (in
thousands):
Heinrich
- -----------------------------------------------------
Balance at May 6, 2004 7,281
Additions --
Payments (85)
- -----------------------------------------------------
Balance at January 1, 2005 7,196
Additions 4,179
Payments (8,685)
- -----------------------------------------------------
Balance at December 31, 2005 $2,690
- -----------------------------------------------------
21
The following unaudited pro forma consolidated financial information for the
Company has been prepared assuming the Heinrich acquisition had occurred on
January 3, 2004.
(In thousands, except per share data)
For the year ended 2005 2004
- ---------------------------------------------------------------------------
Net sales $467,089 $511,252
Income from operations 26,966 56,335
Net income 17,710 36,001
Diluted net income per share $ 0.78 $ 1.59
- ---------------------------------------------------------------------------
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 periods or of future results.
22
3. Inventories
The components of inventories at December 31, 2005, and January 1, 2005 are as
follows (in thousands):
2005 2004
- -----------------------------------------------------------
Raw materials $13,010 $15,845
Work in process 18,996 20,050
Finished goods 31,417 35,871
- -----------------------------------------------------------
Total inventories $63,423 $71,766
- -----------------------------------------------------------
23
4. Intangible Assets
The Company recorded amortization expense of $2.4 million, $2.3 million and $1.1
million in 2005, 2004 and 2003, respectively. The details of intangible assets
and future amortization expense of existing intangible assets at December 31,
2005, and January 1, 2005, are as follows (in thousands):
As of December 31, 2005 As of January 1, 2005
- ------------------------------------------------------------------------------------------------------------------
Weighted Gross Weighted Gross
Average Carrying Accumulated Average Carrying Accumulated
Useful Life Value Amortization Useful Life Value Amortization
- ------------------------------------------------------------------------------------------------------------------
Patents and licenses 9.0 $27,193 $24,302 9.3 $25,775 $23,358
Distribution network 17.4 17,584 11,076 16.8 18,949 10,199
Trademarks and tradenames 14.7 10,210 4,867 14.1 11,430 4,262
- -----------------------------------------------------------------------------------------------------------------
Total $54,987 $40,245 $56,154 $37,819
Estimated amortization expense related to intangible assets with definite lives
at December 31, 2005, is as follows (in thousands):
2006 $ 2,174
2007 2,143
2008 2,074
2009 1,849
2010 1,810
Thereafter 4,692
- ---------------------------------------
$14,742
- ---------------------------------------
The amounts for goodwill and changes in the carrying value by operating segment
are as follows at December 31, 2005, and January 1, 2005 (in thousands):
Additions and Additions and
2005 other adjustments 2004 other adjustments 2003
- ------------------------------------------------------------------------------------------------------------
Americas $38,624 $3,166 $35,458 $(1,034) $36,492
Europe 15,745 (1,569) 17,314 5,611 11,703
Asia-Pacific 71 (377) 448 -- 448
- ------------------------------------------------------------------------------------------------------------
Total goodwill $54,440 $1,220 $53,220 $ 4,577 $48,643
- ------------------------------------------------------------------------------------------------------------
The net decrease in European goodwill is related to the reclassification of
goodwill from Europe to the Americas and foreign currency translation impact,
partially offset by the additional purchase accounting liabilities recorded in
2005 related to the Heinrich acquisition.
24
5. Investments
Included in investments are shares of Polytronics Technology Corporation Ltd.
("Polytronics"), a Taiwanese company, which was acquired as part of the Heinrich
acquisition. The Company's shares held represent approximately 8.9% of total
Polytronics shares outstanding during 2004 and 2005. The fair value of this
investment is $4.8 million and $4.3 million at December 31, 2005 and January 1,
2005, respectively. Included in other comprehensive income (loss) is a
cumulative loss of $0.1 million related to a decrease in the fair market value
of Polytronics. As part of other comprehensive income, an unrealized loss of
$1.1 million was recorded in 2004 and an unrealized gain of $1.0 million was
recorded in 2005 related to Polytronics.
6. Discontinued Operations
In December 2005, the Company announced its plan to sell the Efen business that
consists of production and sales facilities in Uebigau and Eltville, Germany and
Kaposvar, Hungary. The Company obtained Efen as part of its acquisition of
Heinrich in May 2004. Results of operations for Efen have been reclassified and
presented as discontinued operations for 2005 and 2004. Efen is part of the
European segment for reporting purposes. Due to the Efen sale taking place in
February 2006, the results of Efen will no longer be included in the
Consolidated Statements of Income beginning in February 2006.
Efen's results are summarized as follows for the periods ending December 31,
2005, and the period from May 6, 2004 to January 1, 2005 (in thousands):
2005 2004
- ------------------------------------------------------------
Net sales $32,988 $23,409
Income (loss) before taxes 1,773 (81)
Income taxes 645 252
- ------------------------------------------------------------
Net income (loss) $1,128 $ (333)
- ------------------------------------------------------------
Efen's significant balance sheet items are summarized as of December 31, 2005,
and January 1, 2005 (in thousands):
2005 2004
- ---------------------------------------------------------------------
Accounts receivable, net $2,867 $3,326
Inventory 5,780 7,314
Property, plant and equipment, net 5,577 8,329
Other assets 1,084 2,310
Goodwill 2,325 2,029
Current liabilities 3,407 3,816
Long term liabilities 3,315 3,941
- ---------------------------------------------------------------------
25
7. Long-term Obligations
The carrying amounts of long-term debt at December 31, 2005, and January 1, 2005
are as follows (in thousands):
2005 2004
- -----------------------------------------------------------------------------
Revolving credit facility $21,000 $17,500
6.16% Senior Notes, maturing September 1, 2005 -- 10,000
Other obligations 5,682 6,822
- -----------------------------------------------------------------------------
26,682 34,322
Less: Current maturities 26,682 32,958
- -----------------------------------------------------------------------------
$ -- $1,364
- -----------------------------------------------------------------------------
The Company has an unsecured domestic financing arrangement consisting of a
credit agreement with banks that provides a $50.0 million revolving credit
facility. The revolving line of credit balance becomes due in 2006 at which
time the Company has the option to renew the line of credit. At December 31,
2005, the Company had available $29.0 million of borrowing capability under the
revolving credit facility at an interest rate of LIBOR plus .875% (3.949% as of
December 31, 2005). The Company intends to renew this line of credit upon
maturity. The Company also had $5.8 million and $1.8 million in letters of
credit outstanding at December 31, 2005, and January 1, 2005, respectively.
The Company repaid $10.0 million of its Senior Notes in 2005.
The Company also has an unsecured bank line of credit in Japan that provides a
Yen 0.9 billion, an equivalent of $7.6 million, revolving credit facility at an
interest rate of TIBOR plus .875% (0.941% as of December 31, 2005). The
revolving line of credit balance becomes due within 2006. At December 31, 2005,
the Company had an equivalent of $3.8 million outstanding on the Yen facility.
The Company intends to renew this line of credit upon maturity.
The domestic bank credit agreement contains covenants that, among other matters,
impose limitations on the incurrence of additional indebtedness, future mergers,
sales of assets, payment of dividends, and changes in control, as defined. In
addition, the Company is required to satisfy certain financial covenants and
tests relating to, among other matters, interest coverage, working capital,
leverage and net worth. At December 31, 2005, and for the year then ended, the
Company was in compliance with these covenants.
Aggregate maturities of long-term obligations at December 31, 2005, are as
follows (in thousands):
2006 $26,682
2007 --
2008 --
2009 --
2010 --
2011 and thereafter --
- -----------------------------------------------------------------------------
$26,682
- -----------------------------------------------------------------------------
Interest paid on long-term debt approximated $2.0 million in 2005, $1.7 million
in 2004 and $2.1 million in 2003.
26
8. Coal Mining Liability
Included in other long-term liabilities is an accrued liability related to a
former coal mining operation at Heinrich for the amounts of $5.0 million and
$5.8 million in 2005 and 2004, respectively. The accrual is based on an
engineering study estimating the present value of the cost of future occurrences
related to the coal mine shafts (such as a shaft collapse) and the probability
of such occurrences. Actual amounts incurred could differ from the amount
accrued. Ongoing maintenance of coal mine areas and shaft entrances are expensed
as incurred.
27
9. 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
intercompany sales of inventory to a Japanese subsidiary. The cross-currency
rate swaps converted $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 were accounted for as a cash
flow hedge and reported at fair value. There was no notional amount outstanding
at December 31, 2005, as the cross-currency rate swap agreements expired during
2005. The Company's hedges were considered effective and the net gain or loss
from hedge ineffectiveness and from the recognition of the unrealized loss were
recognized in the consolidated statement of income and were not material.
For the period from June 1, 2004, to September 30, 2005, Heinrich Industrie AG
purchased Euro forward contracts that hedged 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 guaranteed the rate at which the
U.S. Dollar cash flows would be converted to Euro in the future. These forward
contracts expired in 2005. No forward currency contracts existed at December 31,
2005. The gains since the date of the Heinrich acquisition were recognized in
the income statement and were immaterial.
28
10. Benefit Plans
The Company has a defined-benefit pension plan covering substantially all of its
North American employees. The amount of the retirement benefit is based on years
of service and final average pay. The plan also provides post-retirement medical
benefits to retirees and their spouses if the retiree has reached age 62 and has
provided at least ten years of service prior to retirement. Such benefits
generally cease once the retiree attains age 65. The Company also has defined
benefit pension plans covering employees in the U.K., Ireland, Germany, Japan
and the Netherlands. The amount of these retirement benefits is based on years
of service and final average pay. Liabilities resulting from the plan that
covers employees in the Netherlands are settled annually through the purchase of
insurance contracts. Separate from the foreign pension data presented below, net
periodic expense for the plan covering Netherlands employees was $0.6 million,
$0.2 million and $0.3 million in 2005, 2004 and 2003, respectively.
The Company's contributions are made in amounts sufficient to satisfy legal
requirements and ensure funding to at least 90% of the ERISA Current Liability
amount. In 2006, the Company expects to make contributions to defined benefit
pension plans in the range of $1.0 million to $4.0 million.
Changes in actual return on pension plan assets are deferred and recognized over
a period of three years. The deferral of actual gains and losses affects the
calculated value of plan assets and therefore future pension expense.
Differences between total pension expense of $4.8 million, $4.3 million, and
$3.6 million in 2005, 2004 and 2003, respectively, were not material to the
overall financial performance of the Company. The increases in pension expense
in 2005 and 2004 were primarily due to lower asset investment returns than
assumed and a decrease in the discount rate. Benefit plan related information,
including EFEN, is as follows:
U.S. Foreign
- ----------------------------------------------------------------------------------------------------------------
2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 60,225 $ 55,648 $ 45,611 $ 27,479
Service cost 3,259 2,759 818 1,066
Interest cost 3,664 3,498 1,971 1,877
Plan participants' contributions -- -- 362 178
Acquisition opening balance as of 5/06/04 -- -- -- 11,771
Net actuarial loss 2,363 1,430 6,474 654
Benefits paid (3,086) (3,110) (1,811) (1,196)
Effect of exchange rate movements -- -- (6,135) 3,782
- ---------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 66,425 $ 60,225 $ 47,290 $ 45,611
- ---------------------------------------------------------------------------------------------------------------
Change in plan assets at fair value
Fair value of plan assets at beginning of year $ 47,795 $ 44,667 $ 26,586 $ 22,997
Actual return on plan assets 3,227 5,238 4,170 1,601
Employer contributions 2,500 1,000 2,184 580
Plan participant contributions -- -- 362 178
Benefits paid (3,086) (3,110) (906) (676)
Effect of exchange rate movements -- -- (3,609) 1,906
- ---------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 50,436 $ 47,795 $ 28,787 $ 26,586
- ---------------------------------------------------------------------------------------------------------------
Unfunded status $(15,989) $(12,430) $(18,503) $(19,025)
Unrecognized prior service cost (benefit) 105 114 (112) (138)
Unrecognized transition asset -- -- (1,269) (1,576)
Unrecognized net actuarial gain 8,690 6,236 9,887 7,173
- ---------------------------------------------------------------------------------------------------------------
Net amount recognized $ (7,194) $ (6,080) $ (9,997) $(13,566)
- ---------------------------------------------------------------------------------------------------------------
Amounts recognized in the Consolidated Balance Sheet consist of:
Prepaid benefit cost $ -- $ -- $ 1,554 $ 67
Accrued benefit liability (7,194) (6,080) (13,366) (14,337)
Accumulated other comprehensive income -- -- 1,815 704
- ---------------------------------------------------------------------------------------------------------------
Net amount recognized $ (7,194) $ (6,080) $ (9,997) $(13,566)
- ---------------------------------------------------------------------------------------------------------------
A reconciliation of the accrued benefit liability to the consolidated balance
sheet is as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------
Accrued benefit liability $20,560 $20,417
Less: Efen 1,292 1,773
- --------------------------------------------------------------------------------
Accrued post-retirement benefits 19,268 18,644
</Table>
29
The accumulated benefit obligation for the U.S. defined benefits plans was
$55,372 and $51,102 at December 31, 2005, and January 1, 2005, respectively. The
accumulated benefit obligation for the foreign plans was $41,917 and $40,573 at
December 31, 2005, and January 1, 2005, respectively.
U.S. Foreign
- -------------------------------------------------------------------------------------------------------------
2005 2004 2003 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------
Components of net periodic benefit cost
Service cost $ 3,259 $ 2,759 $ 2,667 $ 1,210 $ 1,269 $ 995
Interest cost 3,664 3,498 3,551 1,971 1,877 1,260
Expected return on plan assets (3,728) (3,649) (3,664) (1,681) (1,521)
(1,243)
Amortization of prior service cost 10 10 10 (13) (13) (11)
Amortization of transition asset -- -- -- (112) (90) (102)
Amortization of losses 409 158 110 173 206 253
- -------------------------------------------------------------------------------------------------------------
Total cost of the plan for the year 3,614 2,776 2,674 1,548 1,728 1,152
Expected plan participants' contribution -- -- -- (392) (203) (208)
- -------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 3,614 $ 2,776 $ 2,674 $ 1,156 $ 1,525 $ 944
- -------------------------------------------------------------------------------------------------------------
Weighted average assumptions used to determine benefit obligations at year-end
2005, 2004 and 2003:
U.S. Foreign
- -------------------------------------------------------------------------------------------------------------------
2005 2004 2003 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------
Discount rate 6.0% 6.0% 6.5% 4.3% 4.8% 5.5%
Compensation increase rate 4.5% 4.5% 4.5% 3.2% 3.4% 4.0%
Measurement dates 12/31/05 12/31/04 12/31/03 12/31/05 12/31/04 12/31/03
Weighted average assumptions used to determine net periodic benefit cost for the
years 2005, 2004 and 2003:
U.S. Foreign
- -------------------------------------------------------------------------------------------------------------------
2005 2004 2003 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------
Discount rate 6.0% 6.5% 6.8% 4.8% 5.5% 5.5%
Expected return on plan assets 8.5% 8.8% 9.0% 6.7% 6.7% 6.7%
Compensation increase rate 4.5% 4.5% 4.5% 3.2% 4.0% 4.0%
Measurement dates 1/01/05 1/01/04 1/01/03 1/01/05 1/01/04 1/01/03
Expected benefit payments to be paid to participants for the fiscal year ending
are as follows (in thousands):
U.S. Foreign
2006 $2,834 $1,664
2007 3,025 2,060
2008 3,193 1,684
2009 3,326 1,564
2010 3,512 3,360
2011-2015 20,859 12,407
Defined Benefit Plan Assets
Based upon analysis of the target asset allocation and historical returns by
type of investment, the Company has assumed that the expected long-term rate of
return will be 8.5% on domestic plan assets and 6.7% on foreign plan assets.
Assets are invested to maximize long-term return taking into consideration
timing of settlement of the retirement liabilities and liquidity needs for
benefits payments. Actual investment returns over the last three years have been
less than the assumed long-term rate of return and, should this trend continue,
net periodic benefit cost would increase. U.S. defined benefit pension assets
were invested as follows and were not materially different from the target asset
allocation:
30
U.S. Asset Allocation
- -------------------------------------------------------------------------
2005 2004
- -------------------------------------------------------------------------
Equity securities 73% 74%
Debt securities 27% 26%
- -------------------------------------------------------------------------
100% 100%
- -------------------------------------------------------------------------
Foreign Asset Allocation
- -------------------------------------------------------------------------
2005 2004
- -------------------------------------------------------------------------
Equity securities 66% 75%
Debt securities 24% 14%
Property 8% 8%
Cash 2% 3%
- -------------------------------------------------------------------------
100% 100%
- -------------------------------------------------------------------------
Defined Contribution Plans
The Company also maintains a 401(k) savings plan covering substantially all U.S.
employees. The Company matches 50% of the employee's annual contributions for
the first 4% of the employee's gross wages. Employees vest in the Company
contributions after two years of service. Company matching contributions
amounted to $0.6 million, $0.5 million and $0.5 million in 2005, 2004 and 2003,
respectively. The Company provides additional retirement benefits for certain
key executives through its unfunded defined contribution Supplemental Executive
Retirement Plan. The charge to expense for this plan amounted to $0.3 million,
$0.7 million and $0.7 million in 2005, 2004 and 2003, respectively.
31
11. Shareholders' Equity
Stock Options: The Company has stock option plans authorizing the granting of
both incentive and nonqualified options and other stock rights of up to
4,425,000 shares of common stock to employees and directors. The stock options
issued prior to 2002 vest over a five-year period and are exercisable over a
ten-year period commencing from the date of vesting. The Company changed its
policy in 2002 whereby the stock options vest over a five-year period and are
exercisable over a ten-year period commencing from the date of the grant. This
change was not made to stock options already granted.
A summary of stock option information follows:
2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- -----------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 1,660,440 $26.97 2,046,720 $23.55 1,976,605 $23.73
Options granted
Option price equals market price 386,750 28.06 363,750 38.44 361,750 22.18
Option price less than market price -- -- -- -- 20,000 7.00
- -----------------------------------------------------------------------------------------------------------------
Total options granted 386,750 28.06 363,750 38.44 381,750 21.38
Exercised (182,230) 21.09 (706,880) 22.93 (169,015) 17.29
Forfeited (45,600) 30.60 (43,150) 26.72 (142,620) 27.64
- -----------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,819,360 $27.66 1,660,440 $26.97 2,046,720 $23.55
- -----------------------------------------------------------------------------------------------------------------
Exercisable at end of year 876,410 $25.57 772,440 $23.97 1,114,028 $22.92
Available for future grant 95,530 454,030 774,870
Weighted-average fair value of options
granted during the year $13.63 $19.87 $13.71
Option price equals market price 13.63 19.87 13.25
Option price less than market price -- -- 23.89
- -----------------------------------------------------------------------------------------------------------------
As of December 31, 2005, the Company had the following outstanding options:
Weighted- Weighted-
Options Average Average Options
Exercise Price Outstanding Exercise Price Remaining Life Exercisable
- --------------------------------------------------------------------------------------------
$3.69 to $ 5.00 19,700 $ 4.63 4.76 19,660
$7.00 to $11.16 22,200 8.56 5.49 15,000
$11.63 to $16.50 35,060 13.29 3.90 33,020
$17.05 to $25.25 621,170 21.79 7.74 415,690
$26.63 to $38.80 1,121,230 32.14 8.97 393,040
- --------------------------------------------------------------------------------------------
Notes Receivable From Officers - Common Stock: In 1995, the Company established
the Executive Loan Program under which certain management employees could then
obtain interest-free loans from the Company to facilitate their exercise of
stock options and payment of the related income tax liabilities. Such loans,
limited to 90% of the exercise price plus related tax liabilities, have a
five-year maturity, subject to acceleration for termination of employment or
death of the employee. Such loans are classified as a reduction of shareholders'
equity. The Company changed its policy in 2002 such that management employees
may no longer obtain such loans.
Accumulated Other Comprehensive Income (Loss): At the end of the year the
components of accumulated other comprehensive income (loss) were as follows (in
thousands):
December 31, January 1,
2005 2005
- ------------------------------------------------------------------------------
Net unrealized loss on derivatives $ -- $ (177)
Minimum pension liability
adjustment, net of tax (1,815) (704)
Loss on marketable securities (96) (1,095)
Foreign currency translation
adjustment (515) 5,649
- ------------------------------------------------------------------------------
Total $(2,426) $ 3,673
- ------------------------------------------------------------------------------
Preferred Stock: The Board of Directors may authorize the issuance from time to
time of preferred stock in one or more series with such designations,
preferences, qualifications, limitations, restrictions, and optional or other
special rights as the Board may fix by resolution.
32
12. Income Taxes
Federal, state, and foreign income tax expense (benefit) consists of the
following (in thousands):
2005 2004 2003
- ----------------------------------------------------------------------------
Current:
Federal $ 2,735 $ 6,402 $10,346
State 41 1,196 339
Foreign 10,228 8,098 4,402
- ----------------------------------------------------------------------------
Subtotal 13,004 15,696 15,087
Deferred:
Federal and state 1,956 3,087 (6,897)
Foreign (3,520) 194 439
- ----------------------------------------------------------------------------
Subtotal (1,564) 3,281 (6,458)
- ----------------------------------------------------------------------------
Provision for income taxes $ 11,440 $18,977 $ 8,629
- ----------------------------------------------------------------------------
Domestic and foreign earnings from continuing operations before minority
interest and income taxes is as follows (in thousands):
2005 2004 2003
- ---------------------------------------------------------------------------------------
Domestic $1,484 $28,115 $6,808
Foreign 26,452 27,366 17,160
- ---------------------------------------------------------------------------------------
Earnings from continuing operations
before minority interest and income taxes $27,936 $55,481 $23,968
- ---------------------------------------------------------------------------------------
A reconciliation between income taxes computed on income before income taxes at
the federal statutory rate and the provision for income taxes is provided below
(in thousands):
2005 2004 2003
- ----------------------------------------------------------------------------------
Tax expense at statutory
rate of 35% $ 9,785 $ 19,050 $8,389
State and local taxes,
net of federal tax benefit 27 777 220
Foreign income tax
rate differential (47) (1,846) (611)
Foreign losses for which no
tax benefit is available 1,446 759 --
Valuation allowance (753) 753 --
Tax on unremitted earnings 790 91 --
Other, net 192 (607) 631
- ----------------------------------------------------------------------------------
Provision for income taxes $11,440 $ 18,977 $8,629
- ----------------------------------------------------------------------------------
Deferred income taxes are provided for the tax effects of temporary differences
between the financial reporting bases and the tax bases of the Company's assets
and liabilities. Significant components of the Company's deferred tax assets and
liabilities at December 31, 2005, and January 1, 2005, are as follows (in
thousands):
2005 2004
- -------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Tax depreciation and amortization
in excess of book $ 8,100 $ 4,765
Foreign 407 1,675
Other 768 511
- -------------------------------------------------------------------------
Total deferred tax liabilities 9,275 6,951
DEFERRED TAX ASSETS
Accrued expenses 12,097 14,475
Foreign tax credit carryforwards 4,574 2,994
AMT credit carryforwards 1,318 --
Foreign net operating loss carryforwards 2,100 5,706
- -------------------------------------------------------------------------
Gross deferred tax assets 20,089 23,175
Less: Valuation allowance (766) (6,523)
Total deferred tax assets 19,323 16,652
- -------------------------------------------------------------------------
Net deferred tax assets $ 10,048 $ 9,701
- -------------------------------------------------------------------------
The deferred tax asset valuation allowance is related to deferred tax assets
from foreign net operating losses and a reversal of a capital loss from a
non-controlled foreign investment. The foreign tax credit carryforwards begin to
expire in 2013. A deferred tax
33
asset relating to a net operating loss from an acquired group of companies has
not been recorded since the amount cannot be reasonably estimated between a
range of $0.0 to $14.0 million. The Company paid income taxes of approximately
$9.5 million, $11.2 million and $2.7 million in 2005, 2004 and 2003,
respectively. U.S. income taxes were not provided for on a cumulative total of
approximately $37.0 million of undistributed earnings for certain non-U.S.
subsidiaries as of December 31, 2005, and accordingly, no deferred tax liability
has been established relative to these earnings. The determination of the
deferred tax liability associated with the distribution of these earnings is not
practicable.
34
13. Business Segment Information
The Company designs, manufactures and sells circuit protection devices
throughout the world. The Company's reportable segments are consistent with how
it currently manages the business. The Company has three reportable geographic
segments: the Americas, Europe and Asia-Pacific. The segments are defined as
components of the company about which financial information is available and
evaluated regularly by the chief operating decision maker, or decision-making
group, in deciding how to allocate resources to an individual segment and in
assessing performance of the segment. 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 net sales and
earnings (loss) from continuing operations.
Information concerning the operations in these geographic segments for the
fiscal years ended 2005, 2004 and 2003 are as follows (in thousands):
Asia- Combined Consolidated
Americas* Europe Pacific Total Eliminations Total
- ----------------------------------------------------------------------------------------------------------------------------
Net sales 2005 $195,974 $114,943 $156,172 $467,089 $ -- $467,089
2004 234,835 105,728 136,270 476,833 -- 476,833
2003 167,417 61,098 110,895 339,410 -- 339,410
Intersegment revenues 2005 159,036 66,256 70,370 295,662 (295,662) --
2004 137,611 58,376 28,718 224,705 (224,705) --
2003 70,882 54,742 21,443 147,067 (147,067) --
Interest expense 2005 1,978 74 46 2,098 -- 2,098
2004 1,668 (191) (2) 1,475 -- 1,475
2003 2,068 (25) 2 2,045 -- 2,045
Depreciation and 2005 17,648 10,676 2,792 31,116 -- 31,116
amortization 2004 16,749 8,134 1,312 26,195 -- 26,195
2003 17,210 1,541 2,350 21,101 -- 21,101
Other expense 2005 (1,530) (1,068) (470) (3,068) -- (3,068)
(income), net 2004 (2,106) 1,424 729 47 -- 47
2003 (728) 91 705 68 -- 68
Income taxes 2005 6,031 1,882 3,527 11,440 -- 11,440
2004 11,589 2,839 4,549 18,977 -- 18,977
2003 4,326 1,022 3,281 8,629 -- 8,629
Earnings (loss) from 2005 4,193 (5,484) 17,873 16,582 -- 16,582
continuing operations 2004 21,157 (439) 15,643 36,361 -- 36,361
2003 4,538 869 9,932 15,339 -- 15,339
Net income (loss) 2005 4,193 (4,356) 17,873 17,710 -- 17,710
2004 21,157 (772) 15,643 36,028 -- 36,028
2003 4,538 869 9,932 15,339 -- 15,339
Long-lived assets 2005 148,380 124,269 18,634 291,283 (90,521) 200,762
2004 130,120 169,822 15,837 315,779 (110,832) 204,947
2003 177,518 31,732 12,839 222,089 (59,659) 162,430
Capital expenditures 2005 20,371 3,127 3,741 27,239 -- 27,239
2004 15,766 2,908 3,405 22,079 -- 22,079
2003 12,157 1,954 (70) 14,041 -- 14,041
- ----------------------------------------------------------------------------------------------------------------------------
*Corporate is included in the Americas. This was reported separately in amounts
previously presented.
35
- --------------------------------------------------------------------------------
The Company's revenues by product areas for the years ended December 31, 2005,
January 1, 2005 and January 3, 2004, are as follows (in thousands):
Revenues 2005 2004 2003
- ------------------------------------------------------------------------
Electronic $ 305,870 $ 325,617 $ 206,523
Automotive 118,595 113,690 98,327
Electrical 42,624 37,526 34,560
- ------------------------------------------------------------------------
Consolidated total $ 467,089 $ 476,833 $ 339,410
- ------------------------------------------------------------------------
No single customer accounted for more than 10% of revenue.
36
14. Lease Commitments
The Company leases certain office and warehouse space as well as certain
machinery and equipment under non-cancelable operating leases. Rental expense
under these leases was approximately $5.5 million in 2005, $4.4 million in 2004
and $3.4 million in 2003. Rent expense is recognized on a straight-line basis
over the term of the leases. The difference between straight-line basis rent and
the amount paid has been recorded as accrued lease obligations. The Company also
has leases that have lease renewal provisions. As of December 31, 2005, all
operating leases outstanding were with third parties.
Future minimum payments for all non-cancelable operating leases with initial
terms of one year or more at December 31, 2005, are as follows (in thousands):
2006 $ 4,891
2007 2,860
2008 1,423
2009 1,336
2010 1,178
2011 and thereafter 4,922
- --------------------------------------------------
Total lease commitments $16,610
- --------------------------------------------------
The Company did not have any capital leases as of December 31, 2005.
37
15. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
(In thousands, except
per share amounts) 2005 2004 2003
- --------------------------------------------------------------------------------
Numerator:
Net income $17,710 $36,028 $ 15,339
- --------------------------------------------------------------------------------
Denominator:
Denominator for basic
earnings per share -
Weighted-average shares 22,413 22,239 21,881
Effect of dilutive securities:
Employee stock options 169 365 123
- --------------------------------------------------------------------------------
Denominator for diluted
earnings per share -
Adjusted weighted-
average shares and
assumed conversions 22,582 22,604 22,004
Basic earnings per share $ 0.79 $ 1.62 $ 0.70
- --------------------------------------------------------------------------------
Diluted earnings per share $ 0.78 $ 1.59 $ 0.70
- --------------------------------------------------------------------------------
Options to purchase 712,153,362,500 and 1,376,122 shares of common stock were
outstanding at December 31, 2005, January 1, 2005, and January 3, 2004,
respectively, but were not included in the computation of diluted earnings per
share because the effect of including such options would have been
anti-dilutive.
16. Restructuring
During 2005 the Company announced a downsizing of its Ireland operation and
outsourcing of more of its varistor manufacturing to lower cost Asian
subcontractors. A liability of $4.9 million was recorded related to redundancy
costs for the manufacturing operation associated with this downsizing. This
restructuring impacts approximately 35 associates in various production and
support related roles. These costs are expected to be paid in 2006.
17. Subsequent Events
On February 3, 2006, the Company acquired SurgX Corporation for $2.5 million. On
February 22, 2006, the Company announced the acquisition of Concord
Semiconductor. The acquisition of Concord Semiconductor is expected to close in
the second quarter of 2006. During February 2006, the Company completed the sale
of the Efen business for approximately $14 million.
Selected Financial Data
(in thousands, except per share data)
Five-Year Summary
2005* 2004* 2003** 2002 2001
- -----------------------------------------------------------------------------------------------
Net sales $467,089 476,833 $339,410 $283,267 $272,149
Gross profit 144,552 173,797 104,426 88,623 85,592
Operating income 26,966 57,003 26,081 15,931 8,540
Earnings from continuing operations 16,582 36,361 15,339 9,620 4,070
Net income 17,710 36,028 15,339 9,620 4,070
Per share of common stock:
Net income from continuing operations
- Basic 0.74 1.64 0.70 0.44 0.20
- Diluted 0.73 1.61 0.70 0.44 0.19
Net working capital*** 97,077 90,551 62,120 59,181 62,486
Total assets 403,931 425,769 311,570 277,478 272,272
Long-term debt -- 1,364 10,201 20,252 30,402
- -----------------------------------------------------------------------------------------------
* Results include Heinrich. Refer to the Notes to Consolidated Financial
Statements for more information. Results reflect Efen as a discontinued
operation.
** Results include Teccor. Refer to the Notes to Consolidated Financial
Statements for more information.
*** Net working capital is defined as working capital less cash, assets held
for sale, liabilities held for sale and the current portion of long-term
debt.
38
Quarterly Results of Operations (unaudited)
2005* 2004
- -------------------------------------------------------------------------------------------------------------------
4Q 3Q** 2Q 1Q 4Q* 3Q* 2Q 1Q
- -------------------------------------------------------------------------------------------------------------------
Net sales $115,373 $122,266 $115,693 $113,757 $114,124 $127,657 $123,634 $111,418
Gross profit 37,905 34,309 35,117 37,221 39,896 48,717 45,379 39,805
Operating income 9,114 4,103 6,899 6,850 8,158 17,730 15,373 15,742
Net income 5,243 3,771 4,257 4,439 4,828 11,250 10,344 9,606
Net income per share:
Basic 0.23 0.17 0.19 0.20 0.21 0.50 0.47 0.44
Diluted 0.23 0.17 0.19 0.20 0.21 0.49 0.46 0.43
- -------------------------------------------------------------------------------------------------------------------
* Results include Heinrich. Refer to the Notes to Consolidated Financial
Statements for more information. Results reflect Efen as a discontinued
operation.
** Results have been revised for Ireland severance costs. In the Littelfuse
third quarter 2005 earnings press release, it was stated that the Company had
announced a downsizing of its Ireland operation and would be booking related
charges over the next several quarters. In addition to the $1.6 million
charge booked in the third quarter, the Company indicated it expected to book
additional charges in the fourth quarter of 2005 and the first half of 2006.
This was in accordance with SFAS 146 which requires that severance charges be
amortized over the period between employee notification and employee
termination. On further technical review by the Company, it was determined
that these charges should more appropriately have been accounted for under
SFAS 112 which requires all charges be booked at the time of notification.
The effect of this change in interpretation is that all severance costs
related to the announced Ireland downsizing (the $1.6 million previously
booked in the third quarter plus an additional $3.3 million recorded in the
fourth quarter) were pushed back to the third quarter of 2005. Previously
reported results for the 3rd quarter of 2005, excluding Efen, were:
Net sales $122,266
Gross profit 37,622
Operating income (loss) 7,416
Net income (loss) 6,326
Net income (loss) per share:
Basic 0.28
Diluted 0.28
- ----------------------------------------
Quarterly Stock Prices
2005 2004
- -------------------------------------------------------------------------------------------------------------------
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
- -------------------------------------------------------------------------------------------------------------------
High 28.85 30.97 31.16 33.59 40.19 41.48 44.05 37.81
Low 21.44 26.12 26.35 27.95 31.45 32.60 36.24 28.56
Close 27.25 28.13 27.82 28.23 34.16 35.49 42.13 37.20
- -------------------------------------------------------------------------------------------------------------------
39