SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO ________
Commission file number 0-20388
LITTELFUSE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3795742
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 EAST NORTHWEST HIGHWAY
DES PLAINES, ILLINOIS 60016
(Address of principal executive offices) (Zip Code)
(847)824-1188
Registrant's telephone number, including area code:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
As of April 1, 2006, 22,321,136 shares of common stock, $.01 par value, of
the Registrant were outstanding.
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of April 1, 2006 and
December 31, 2005 (unaudited).................................... 1
Condensed Consolidated Statements of Income for the periods
ended April 1, 2006 and April 2, 2005 (unaudited)................ 2
Condensed Consolidated Statements of Cash Flows for the periods
ended April 1, 2006 and April 2, 2005 (unaudited)................ 3
Notes to the Condensed Consolidated Financial Statements
(unaudited)...................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 13
Item 4. Controls and Procedures.......................................... 14
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...... 15
Item 6. Exhibits......................................................... 15
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
APRIL 1, December
2006 31, 2005
-------- --------
ASSETS:
Cash and cash equivalents..................... $ 30,450 $ 21,947
Receivables................................... 86,823 80,303
Inventories................................... 67,218 63,423
Deferred income taxes......................... 13,342 11,927
Assets held for sale (Efen)................... -- 17,633
Other current assets.......................... 9,331 7,936
-------- --------
Total current assets.......................... 207,164 203,169
Property, plant, and equipment, net........... 125,712 125,493
Intangible assets, net........................ 15,615 14,742
Goodwill...................................... 55,119 54,440
Investments................................... 5,612 5,590
Other assets.................................. 1,847 497
-------- --------
Total assets............................... $411,069 $403,931
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities, excluding current portion
of long-term debt.......................... $ 74,221 $ 66,512
Liabilities held for sale (Efen).............. -- 6,722
Current portion of long-term debt............. 15,920 26,682
-------- --------
Total current liabilities..................... 90,141 99,916
Deferred income taxes......................... 1,672 1,879
Accrued post-retirement benefits.............. 21,082 19,268
Other long-term liabilities................... 5,106 5,658
Minority interest............................. 143 144
Shareholders' equity.......................... 292,925 277,066
-------- --------
Total liabilities and shareholders' equity.... $411,069 $403,931
======== ========
Common shares issued and outstanding
of 22,321,136 and 22,229,288, at April 1,
2006, and December 31, 2005, respectively..
1
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data, unaudited)
For the Three
Months Ended
-------------------
APRIL 1, April 2,
2006 2005
-------- --------
Net sales..................................... $125,611 $113,757
Cost of sales................................. 80,811 76,536
-------- -------
Gross profit.................................. 44,800 37,221
Selling, general and administrative
expenses................................... 25,822 25,461
Research and development expenses............. 4,675 4,279
Amortization of intangibles................... 520 631
-------- -------
Operating income.............................. 13,783 6,850
Interest expense.............................. 413 473
Other income.................................. (571) (131)
-------- -------
Earnings from continuing operations before
minority interest and income taxes......... 13,941 6,508
Minority interest............................. -- 7
Income taxes.................................. 5,158 2,215
-------- -------
Earnings from continuing operations........... 8,783 4,286
Discontinued operations (net of tax).......... 588 153
Net income.................................... $ 9,371 $ 4,439
======== ========
Net income per share:
Basic:
Continuing operations...................... $ 0.39 $ 0.19
Discontinued operations.................... 0.03 0.01
-------- --------
Net Income................................. $ 0.42 $ 0.20
======== ========
Diluted:
Continuing operations...................... $ 0.39 $ 0.19
Discontinued operations.................... 0.03 0.01
-------- --------
Diluted.................................... $ 0.42 $ 0.20
======== ========
Weighted average shares and equivalent shares
outstanding:
Basic...................................... 22,257 22,484
======== =======
Diluted.................................... 22,334 22,710
======== =======
2
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
For the Three
Months Ended
-------------------
APRIL 1, April 2,
2006 2005
-------- --------
Operating activities:
Net income .............................................. $ 9,371 $ 4,439
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ......................................... 6,212 6,641
Amortization ......................................... 520 631
Stock based compensation ............................. 1,453 --
Changes in operating assets and liabilities:
Accounts receivable .................................. (3,775) (1,527)
Inventories .......................................... (3,559) 945
Accounts payable and accrued expenses ................ 2,777 (7,263)
Prepaid expenses and other ........................... 999 (3,773)
-------- -------
Net cash provided by operating activities ............... 13,998 93
Cash provided by (used in) investing activities:
Purchases of property, plant, and equipment ............. (4,603) (8,698)
Acquisitions of businesses .............................. (2,701) (28)
Sale of Efen ............................................ 9,428 --
-------- -------
Net cash provided by (used in) investing activities ..... 2,124 (8,726)
Cash provided by (used in) financing activities:
Proceeds from debt ................................... 6,358 15,056
Payments of debt ..................................... (16,374) (5,213)
Proceeds from repayment of notes receivable, common
stock ............................................. 7 3,521
Proceeds from exercise of stock options .............. 1,834 461
Purchase of treasury stock ........................... -- (3,199)
-------- -------
Net cash provided by (used in) financing activities ..... (8,175) 10,626
Effect of exchange rate changes on cash ................. 556 (1,186)
-------- -------
Increase in cash and cash equivalents ................... 8,503 807
Cash and cash equivalents at beginning of period ........ 21,947 28,583
-------- -------
Cash and cash equivalents at end of period .............. $ 30,450 $29,390
======== =======
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 1, 2006
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the period ended April 1, 2006 are not
necessarily indicative of the results that may be expected for the year ending
December 30, 2006. For further information, refer to the Company's consolidated
financial statements and the notes thereto incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 2005.
2. BUSINESS SEGMENT INFORMATION
The Company designs, manufactures and sells circuit protection devices
throughout the world. The Company has three reportable geographic segments:
Americas, Europe and Asia-Pacific. The circuit protection market in these
geographical segments is categorized into three major product areas: electronic,
automotive and electrical.
The Company evaluates the performance of each geographic segment based on its
sales and net income or loss. The Company accounts for intersegment sales as if
the sales were to third parties. The Company's reportable segments are the
geographical regions where the revenue is earned and expenses are incurred. The
Company has subsidiaries in Americas, Europe and Asia-Pacific.
Revenues from no single customer amounted to 10% or more of the Company's total
revenues for the quarter ended April 1, 2006.
Information concerning the operations in these geographic segments for the
periods ended April 1, 2006, and April 2, 2005, is as follows (in thousands):
Three Three
Months Months
Ended Ended
April 1, April 2,
2006 2005
-------- --------
NET SALES *
Americas $ 54,294 $ 48,466
Europe 28,079 32,291
Asia-Pacific 43,238 33,000
-------- --------
Consolidated total $125,611 $113,757
INTERSEGMENT SALES *
Americas $ 42,612 $ 38,693
Europe 21,769 13,020
Asia-Pacific 24,736 9,802
-------- --------
Combined total 89,117 61,515
Eliminations (89,117) (61,515)
-------- --------
Consolidated total $ -- $ --
INTEREST EXPENSE *
Americas $ 374 $ 461
Europe 30 12
Asia-Pacific 9 --
-------- --------
Consolidated total $ 413 $ 473
4
DEPRECIATION AND AMORTIZATION *
Americas $ 3,715 $ 4,466
Europe 1,797 2,291
Asia-Pacific 1,220 515
-------- --------
Consolidated total $ 6,732 $ 7,272
OTHER (INCOME) EXPENSE *
Americas $ (72) $ (88)
Europe (461) (10)
Asia-Pacific (38) (33)
-------- --------
Consolidated total $ (571) $ (131)
INCOME TAXES *
Americas $ 3,227 $ 131
Europe 811 927
Asia-Pacific 1,120 1,157
-------- --------
Consolidated total $ 5,158 $ 2,215
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS *
Americas $ 4,013 $ 245
Europe (433) 974
Asia-Pacific 5,203 3,067
-------- --------
Consolidated total $ 8,783 $ 4,286
NET INCOME*
Americas $ 4,013 $ 245
Europe 155 1,127
Asia-Pacific 5,203 3,067
-------- --------
Consolidated total $ 9,371 $ 4,439
NET SALES
Electronic $ 83,926 $ 72,819
Automotive 31,026 30,912
Electrical 10,659 10,026
-------- --------
Consolidated total $125,611 $113,757
April 1, December
2006 31, 2005
--------- ---------
IDENTIFIABLE ASSETS
Americas $ 343,477 $ 327,682
Europe 166,416 171,345
Asia-Pacific 106,011 90,304
--------- ---------
Combined total 615,904 589,331
Eliminations (204,835) (185,400)
--------- ---------
Consolidated total $ 411,069 $ 403,931
========= =========
* Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. INVENTORIES
The components of inventories are as follows (in thousands):
5
April December
1, 2006 31, 2005
------- --------
Raw material $12,909 $13,010
Work in process 18,226 18,996
Finished goods 36,083 31,417
------- -------
Total $67,218 $63,423
======= =======
4. DEBT OBLIGATIONS
Total debt, all of which is current, at the end of the first quarter 2006
totaled $15.9 million and consisted of the following: (1) credit revolver
borrowings totaling $11.0 million and (2) foreign revolver borrowings totaling
$4.9 million.
The Company has an unsecured domestic financing arrangement consisting of a
credit agreement with banks that provides a $50.0 million revolving credit
facility that expires on August 26, 2006. The revolving credit facility is
subject to a maximum indebtedness calculation and other financial covenants. At
April 1, 2006, the Company had available $39.0 million of borrowing capability
under the revolving credit facility at an interest rate of LIBOR plus 0.875%
(5.53% as of April 1, 2006). The Company intends to renew this line of credit
upon maturity. The Company also had $5.8 million in letters of credit
outstanding at April 1, 2006
The Company also has an unsecured bank line of credit that provides a Yen 0.9
billion, an equivalent of $7.7 million, revolving credit facility at an interest
rate of TIBOR plus .875% (1.0% as of April 1, 2006). The revolving line of
credit becomes due on August 14, 2006. At April 1, 2006, the Company had an
equivalent $4.9 million outstanding on the Yen facility. The Company intends to
renew this line of credit upon maturity.
5. PER SHARE DATA
Net income per share amounts for the three months ended April 1, 2006, and April
2, 2005, are based on the weighted average number of common and common
equivalent shares outstanding during the periods as follows (in thousands,
except per share data):
Three months
ended
-----------------
April April
1, 2006 2, 2005
------- -------
Net income $ 9,371 $ 4,439
======= =======
Average shares outstanding - Basic 22,257 22,484
Net effect of dilutive stock options
and restricted shares
- Diluted 77 226
------- -------
Average shares outstanding
- Diluted 22,334 22,710
======= =======
Net income per share
- Basic $ 0.42 $ 0.20
======= =======
- Diluted $ 0.42 $ 0.20
======= =======
6
Options to purchase 517,066 and 518,100 shares of common stock were outstanding
at April 1, 2006, and April 2, 2005 respectively, but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common shares and, therefore,
the effect would be anti-dilutive. The Company issued 81,130 shares of common
stock resulting from the exercise of stock options for the three months ended
April 1, 2006.
6. ACQUISITIONS
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. Littelfuse has continued to operate Heinrich's electronic and
automotive business units subsequent to the acquisition. The Heinrich
acquisition expands the Company's product offering and strengthens the Company's
position in the circuit protection industry.
The acquisition was accounted for using the purchase method of accounting and
the operations of Heinrich are included in the Company's operations from the
date of acquisition. The following table sets forth the purchase price
allocation for the acquisition of Heinrich in accordance with the purchase
method of accounting with adjustments to record the acquired assets and
liabilities of Heinrich at their estimated fair market or net realizable values.
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
primarily 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. Additions
to the Heinrich purchase accounting liability during 2005 relate to redundancy
costs recognized after 100% ownership was achieved. As of April 1, 2006, $8.9
million has been paid related to these liabilities.
A summary of the purchase accounting liability activity is as follows:
7
Purchase accounting liability (in thousands)
Balance, May 6, 2004 $ 7,281
Payments (85)
-------
Balance, January 1, 2005 $ 7,196
Additions 4,179
Payments (8,685)
-------
Balance, December 31, 2005 $ 2,690
Payments (136)
-------
Balance, April 1, 2006 $ 2,554
=======
Increases in the purchase accounting reserve pertain to additional liabilities
anticipated at the acquisition date and recognized in conjunction with the
registration of the domination agreement and related requirement to purchase
remaining shares from minority shareholders. These additional liabilities are
primarily for redundancy costs to be paid through 2006 related to manufacturing
operations and selling, general and administrative functions.
On February 3, 2006, the Company acquired SurgX Corporation for ('SurgX') $2.5
million. All of the assets of SurgX, were classified as patents in the Americas
segment with an average useful life of seven years.
7. RESTRUCTURING CHARGES
During the first quarter of 2006 the Company recorded $2.1 million related to
the downsizing of the European segment's Heinrich operations. These charges are
primarily for redundancy costs to be paid through 2007. Manufacturing related
charges of $0.9 million are recorded as part of cost of sales and
non-manufacturing related charges of $1.2 million are recorded as part of
selling, general and administrative expenses. Employees affected by this
downsizing include technical, production, administrative and support employees.
During the first quarter of 2006 no payments have been made for Heinrich
restructuring charges.
During 2005 the Company announced a downsizing of its European segment's 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. As of April 1, 2006 no payments have been
made related to this liability.
8. DISCONTINUED OPERATIONS
In February 2006, the Company sold the Efen product line 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 2006 and 2005.
Efen's operating results are summarized as follows for the periods ending April
1, 2006 and April 2, 2005 (in thousands):
2006 2005
------ ------
Net sales $3,789 $7,931
Income before taxes 773 355
Income taxes 324 202
------ ------
Net income $ 449 $ 153
------ ------
The Efen product line was sold for Euro 9.5 million (approximately $11.3
million). In connection with the sale a pretax loss of approximately $0.0
million, resulting in an after tax gain of $0.1 million after recognizing a tax
benefit on the sale of $0.1 million.
8. PENSIONS
8
The components of net periodic benefit cost for the three months ended April 1,
2006, compared with the three months ended April 2, 2005, were (in thousands):
U.S. Pension
Benefits Foreign Plans
Three Months Three Months
Ended Ended
------------- -------------
2006 2005 2006 2005
----- ----- ----- -----
Service cost $ 839 $ 815 $ 361 $ 303
Interest cost 943 916 495 493
Expected return on plan
assets (960) (932) (496) (420)
Amortization of prior
service cost 3 3 (3) (3)
Amortization of transition
asset -- -- (27) (28)
Amortization of net loss 105 102 74 43
----- ----- ----- -----
Total cost of the plan 930 904 404 388
Expected plan participants'
contribution -- -- (89) (98)
----- ----- ----- -----
Net periodic benefit cost $ 930 $ 904 $ 315 $ 290
----- ----- ----- -----
The expected rate of return on pension assets is 8.5% and 8.5% in 2006 and 2005,
respectively.
9. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended April 1, 2006, and April
2, 2005, was approximately $12.3 million and $0.9 million, respectively. The
adjustment for comprehensive income consists of deferred gains and losses from
foreign currency translation adjustments and losses on available-for-sale
securities for the three months ended April 1, 2006 and deferred gains and
losses from foreign currency translation adjustments and qualified cash flow
hedges and unrealized gains and losses on available-for-sale securities for the
three months ended April 2, 2005. Foreign currency translation adjustment
accounts for $3.1 million and $(3.7) million of the difference between other
comprehensive income and net income for the first quarter of 2006 and 2005
respectively.
10. INCOME TAXES
The effective tax rate for the first quarter of 2006 was 37% compared to an
effective tax rate of 34% in the first quarter of last year. The current quarter
effective tax rate was unfavorably impacted by charges related to the expected
repatriation of earnings from lower tax jurisdictions.
11. STOCK-BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123(R), "Share-Based Payment" ("SFAS
123(R)"). SFAS 123(R) requires public companies to recognize compensation
expense for the cost of awards of equity compensation using a fair value method.
The Company adopted SFAS 123(R) on January 1, 2006 (i.e., the first quarter of
2006) using the modified prospective method. The Company recognized the
compensation cost of all share-based awards as an expense on a straight-line
basis over the vesting period of the award. Under SFAS 123(R), benefits of tax
deductions in excess of recognized compensation expense are now reported as a
financing cash flow, rather than an operating cash flow as prescribed under the
prior accounting rules. Prior to October 1, 2005, the Company applied Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") to account for its stock-based compensation plans. Under APB 25, no
compensation expense was recognized for non-qualified stock option awards as
long as the exercise price of the awards on the date of grant was equal to the
current market price of the Company's stock. However, the Company did recognize
compensation expense in connection with the issuance of restricted stock. The
adoption of SFAS 123(R) primarily resulted in compensation expense being
recorded for stock options.
For the three months ended April 1, 2006, the Company recorded pretax
compensation expense of $1.5 million, $0.9 million after tax, related to the
expensing of the Company's non-qualified stock options. The recognition of this
expense had no impact on cash flow from operations.
9
Results for fiscal 2005 have not been restated to reflect the adoption of SFAS
123(R). The following table discloses the Company's pro forma net income and
diluted net income per share for the three months ended April 2, 2005, had the
valuation methods under SFAS 123(R) been used for the Company's stock option
grants. The table also discloses the weighted average assumptions used in
estimating the fair value using the Black-Scholes option pricing model.
(in thousands, except per share amounts)
Three
months
ended
April 2,
2005
--------
Net income as reported $ 4,439
Add: Stock based compensation for restricted
stock included in reported net income, net of
tax benefit of $54 105
Stock option compensation expense under fair
value method, net of tax (691)
--------
Pro forma net income $ 3,853
Basic net income per share:
As reported $ 0.20
Pro forma $ 0.17
Diluted net income per share:
As reported $ 0.20
Pro forma $ 0.17
Risk-free interest rate 4.35%
Expected dividend yield 0%
Expected stock price volatility 43.2%
Expected life of options 7 years
During the first quarter of 2006, options on 2,000 shares were granted with an
exercise price equal to the $28.73 market price as of the grant date. The fair
value was calculated using the Black-Scholes model to be $13.89 per award, based
on the following assumptions: Risk-free interest rate of 4.57%, volatility of
38.6%, expected life of seven years and a 0% dividend yield. Expected
volatilities are based upon historical volatility of Common Stock.
Forfeitures are estimated at a rate that would yield 10% over the life of the
awards.
A reconciliation of outstanding stock options and performance shares for the
period ending April 1, 2006, is shown below:
RECONCILIATION OF STOCK OPTIONS OUTSTANDING
Aggregate
Weighted Weighted Average Intrinsic
Shares Under Average Remaining Value
Option Exercise Price Contractual Life ($ Thousands)
------------ -------------- ---------------- -------------
Outstanding December 31, 2005 1,820,010 27.82 7.7 4,470
Granted 2,000 28.73 -- --
Forfeited (5,650) 33.19 -- --
Exercised (81,130) 21.43 -- --
Outstanding April 1, 2006 1,735,230 28.10 7.5 12,081
Exercisable April 1, 2006 825,040 26.27 6.9 6,928
10
RECONCILIATION OF PERFORMANCE SHARES OUTSTANDING
Weighted Projected Aggregate
Average Grant- Performance Intrinsic
Stock Performance Date Fair Share Value
Price Shares Value Award Ratio ($ Thousands)
----- ----------- -------------- ----------- -------------
Outstanding December 31, 2005 27.25 45,500 27.95 42.2% 523
Granted -- -- -- -- --
Forfeited -- -- -- -- --
Vested -- -- -- -- --
Outstanding April 1, 2006 34.13 45,500 27.95 42.2% 655
At April 1, 2006, the unrecognized compensation cost for options and performance
shares was $11.2 million before tax, and will be recognized over a
weighted-average period of 3.4 years. The total intrinsic value of options
exercised during the three month period ending April 1, 2006, was $0.8 million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SALES BY GEOGRAPHY AND MARKET*
FIRST QUARTER
--------------------------
2006 2005 % CHANGE
------ ------ --------
GEOGRAPHY
Americas $ 54.5 $ 50.2 8.7%
Europe 27.8 27.1 2.3%
Asia-Pacific 43.3 36.4 18.9%
------ ------ ----
TOTAL $125.6 $113.7 10.4%
====== ====== ====
FIRST QUARTER
--------------------------
2006 2005 % CHANGE
------ ------ --------
MARKET
Electronics $ 83.9 $ 72.8 15.3%
Automotive 31.0 30.9 0.4%
Electrical 10.7 10.0 6.3%
------ ------ ----
TOTAL $125.6 $113.7 10.4%
====== ====== ====
* Certain prior year amounts have been reclassified to conform to the current
year presentation. Sales by geography represent sales to customer or
distributor locations.
11
Results of Operations
First Quarter, 2006
Sales increased $11.9 million or 10% to $125.6 million in the first quarter of
2006, compared to $113.7 million in the first quarter of 2005 due to increased
sales of electronics products in all geographies.
On a geographic basis, sales in the Americas increased $4.4 million or 9% in the
first quarter of 2006, compared to the first quarter of last year. The Americas
increase was due primarily to improved electronic distributor sales across a
wide range of product lines and improved electrical sales compared to the prior
year. Telecom OEM accounts made a significant contribution to the sales
improvement in the electronics market. Electrical product sales in the Americas
increased due primarily to price realization and favorable market trends. Europe
sales increased $0.6 million or 2% in the first quarter of 2006 compared to the
first quarter of 2005 primarily due to increased sales to electronic
distributors and telecom OEM accounts. Asia-Pacific sales increased $6.9 million
or 19% compared to the prior year first quarter due primarily to strong demand
for digital consumer and telecom products in Greater China and increased
consumer electronics sales in Japan.
Gross profit was $44.8 million or 35.7% of sales for the first quarter of 2006,
compared to $37.2 million or 32.7% of sales in the same quarter last year. The
increase in gross margin was mainly attributable to improved operating leverage
from higher production rates partially offset by higher commodity prices.
Restructuring charges of $0.9 million related to the downsizing of the Heinrich
operation and $1.2 million related to the downsizing of the Ireland operation
were recorded in the first quarter of 2006 and 2005, respectively.
Total operating expense was $31.0 million or 24.7% of sales for the first
quarter of 2006 compared to $30.4 million or 26.7% of sales for the same quarter
in the prior year. The increase in operating expense reflects additional
research and development spending to support the Company's solution selling
strategy, FAS123(R) expense of $1.5 million and a restructuring charge of $1.2
million related to the downsizing of the Heinrich operation in the current year
quarter. These expense increases in the first quarter of 2006 were partially
offset by lower selling, general and administrative expenses compared to the
prior year quarter.
Operating income was $13.8 million or 11.0% of sales for the first quarter of
2006 compared to $6.9 million or 6.0% of sales for the same quarter of last year
reflecting the higher sales and improved operating leverage discussed above.
Interest expense was $0.4 million in the first quarter of this year compared to
$0.5 million in the first quarter of last year. Other income was $0.6 million
for the first quarter of 2006 compared to other income of $0.1 million in the
first quarter of last year. The increase in other income was mainly due to
higher rental income in Europe.
Earnings from continuing operations before minority interest and income taxes
was $13.9 million for the first quarter of 2006 compared to $6.5 million for the
first quarter of 2005. Income taxes were $5.2 million with an effective tax rate
of 37% for the first quarter of 2006 compared to $2.2 million with an effective
tax rate of 34% in the first quarter of last year.
Net income for the first quarter 2006 was $9.4 million or $0.42 per diluted
share compared to $4.4 million or $0.20 per diluted share for the same quarter
of last year.
Liquidity and Capital Resources
Assuming no material adverse changes in market conditions or interest rates,
management expects that the Company will have sufficient cash from operations to
support both its operations and its current debt obligations for the foreseeable
future.
The EFEN business, which is presented as a discontinued operation, did not
contribute significantly to cash from operations for the first quarter of 2006
or 2005.
Littelfuse started the 2006 year with $21.9 million of cash and cash
equivalents. Net cash provided by operations was $14.0 million for the first
three months. Net cash provided by operations includes net income of $9.4
million,
12
stock based compensation of $1.5 million, depreciation of $6.2 million and
amortization of $0.5 million in addition to various working capital and other
items. Accounts receivable increased $3.8 million due primarily to the increase
in sales during the current year quarter. Inventory increased $3.6 million to
support the higher sales. Accounts payable, accrued expenses, prepaid expenses
and other items contributed $3.8 million to cash flow, primarily due to the
recognition of restructuring liabilities partially offset by the payment of
management bonuses and restructuring charges that were previously accrued. Net
cash provided by investing activities included $9.4 million from the sale of
Efen partially offset by $4.6 million in net purchases of property, plant and
equipment and $2.7 million of acquisition activity primarily for the purchase of
SurgX. In addition, net cash used in financing activities included net
payments of debt of $10.0 million partially offset by stock option exercises of
$1.8 million. The effects of exchange rate changes increased cash by $0.6
million. The net cash provided by operations less investing and financing
activities plus the effects of exchange rate changes resulted in a $8.5 million
net increase in cash. This left the Company with a cash balance of $30.5 million
at April 1, 2006.
The ratio of current assets to current liabilities was 2.3 to 1 at the end of
the first quarter of 2006 compared to 1.8 to 1 at the end of the first quarter
of 2005. The days sales in receivables was approximately 63 days at the end of
the first quarter of 2006, compared to 63 days at the end of fiscal 2005 and 58
days at the end of the first quarter 2005. The increase in days sales in
receivables from the first quarter of the prior year was due primarily to
changes in payment terms for certain customers and the unfavorable effects of
the Delphi bankruptcy. The days inventory outstanding was approximately 76 days
at the end of the first quarter of 2006 compared to 75 days at the end of 2005
and 85 days at end of the first quarter of 2005.
The Company's capital expenditures, net of cash from asset sales, were $4.6
million for the first quarter of 2006 compared to $8.7 million for the first
quarter of 2005. Most of the spending in 2006 relates to manufacturing process
improvements, new product introductions and capacity expansion.
Total debt, including the current portion, at the end of the first quarter 2006
totaled $15.9 million and consisted of the following: (1) credit revolver
borrowings totaling $11.0 million and (2) foreign revolver borrowings totaling
$4.9 million. Of this indebtedness, $15.9 million is considered to be current
liabilities. The Company has a $50.0 million, three-year revolving bank credit
agreement that expires on August 26, 2006. The bank credit agreement is subject
to a maximum indebtedness calculation and other financial covenants. At April 1,
2006, the Company had available $39.0 million of borrowing capability under the
revolving bank credit agreement. The revolving bank credit agreement has a
floating interest rate of LIBOR plus 0.875% or prime. The Company also had $5.8
million in letters of credit outstanding at April 1, 2006.
The Company also has an unsecured bank line of credit that provides a Yen 0.9
billion, an equivalent of $7.7 million, revolving credit facility at an interest
rate of TIBOR plus .875% (1.0% as of April 1, 2006). The revolving line of
credit becomes due on August 14, 2006, the Company had an equivalent $4.9
million outstanding on the Yen facility. The Company intends to renew this line
of credit upon maturity.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
The statements in this section and in the other sections of this report which
are not historical facts contained in this report are intended to be
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, the
integration of acquisitions, product development and patent protection,
commercialization and technological difficulties, capacity and supply
constraints or difficulties, the impact of changes in commodity prices, exchange
rate fluctuations, actual purchases under agreements, the effect of the
Company's accounting policies, labor disputes, restructuring costs in excess of
expectations, costs related to former coal mining activities, pension plan asset
returns less than expected, and other risks which may be detailed in the
Company's Securities and Exchange Commission filings. Should one or more of
these risks or uncertainties materialize or should the underlying assumptions
prove incorrect, actual results and outcomes may differ materially from those
indicated or implied in the forward-looking statements. This report should be
read in conjunction with information provided in the financial statements
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 2005.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in foreign exchange rates,
commodities and, to a lesser extent, interest rates. Management believes that
the Company's exposure to foreign exchange rates and interest rates is
immaterial and not significant enough to warrant disclosure of quantitative
information regarding market risk.
13
The Company had $15.9 million of debt outstanding at April 1, 2006, primarily in
the form of lines of credit. None of the Company's debt is at fixed rates.
A portion of the Company's operations consists of manufacturing and sales
activities in foreign countries. The Company has foreign manufacturing
facilities in Mexico, England, Ireland, China, Germany and the Philippines.
Substantially all sales in Europe are denominated in Euro, U.S. Dollar and
British Pound Sterling, and substantially all sales in the Asia-Pacific region
are denominated in U.S. Dollar, Japanese Yen and South Korean Won.
The Company's identifiable foreign exchange exposures result from the purchase
and sale of products from affiliates, repayment of intercompany trade and loan
amounts and translation of local currency amounts in consolidation of financial
results. Changes in foreign currency exchange rates or weak economic conditions
in the foreign countries in which it manufactures and distributes products could
affect the Company's sales, accounts receivable values and financial results.
The Company uses netting and offsetting intercompany account management
techniques to reduce known foreign currency exposures deemed to be material. The
Company utilizes derivative instruments as hedges of specific foreign currency
cash flows when appropriate.
A risk management policy has been implemented by the Company that establishes
the procedures and controls over derivative financial instruments. Under the
policy, the Company does not use derivative financial instruments for trading
purposes and the use of such instruments is subject to the approval of senior
officers. Typically, the use of such derivative instruments is limited to
hedging activities related to specific foreign currency cash flows. The
Company's exposure related to such transactions is, in the aggregate, not
material to the Company's financial position, results of operations and cash
flows.
The Company uses various metals in the production of its products, including
zinc, copper and silver. The Company's earnings are exposed to fluctuations in
the prices of these commodities. The Company does not currently use derivative
financial instruments to mitigate this commodity price risk. A 10% increase in
the price of zinc and copper would reduce pre-tax profit by approximately $1.0
million and $1.1 million, respectively.
Outlook
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 has reached agreement with an
external party to sell this accounts receivable for approximately $2.0 million.
Item 4. Controls and Procedures
As of April 1, 2006, the Chief Executive Officer and Chief Financial Officer of
the Company evaluated the effectiveness of the disclosure controls and
procedures of the Company and concluded that these disclosure controls and
procedures are effective to ensure that material information relating to the
Company and its consolidated subsidiaries has been made known to them by the
employees of the Company and its consolidated subsidiaries during the period
preceding the filing of this Report. There were no significant changes in the
Company's internal controls during the period covered by this Report that could
materially affect these controls or could reasonably be expected to materially
affect the Company's internal control reporting, disclosures and procedures
subsequent to the last day they were evaluated by the Company's Chief Executive
Officer and Chief Financial Officer.
14
PART II - OTHER INFORMATION
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
(c) The table below provides information with respect to purchases by the
Company of shares of its common stock during each fiscal month of the
first quarter of fiscal 2006:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of Maximum Number
Shares Purchased of Shares that
as Part of May Yet Be
Total Number Average Publicly Purchased
of Shares Price Paid Announced Plans Under the Plans
Period Purchased per Share or Programs or Programs
- ------ ------------ ---------- ---------------- ---------------
January 2006 -- -- -- 643,500
February 2006 -- -- -- 643,500
March 2006 -- -- -- 643,500
Total -- -- -- 643,500
The Company's Board of Directors authorized the repurchase of up to 1,000,000
shares under a program for the period May 1, 2005 to April 30, 2006.
Item 6: Exhibits
Exhibit Description
- ------- -----------
10.1 Agreement extending exercise period for options held by Ken Audino
31.1 Certification of Gordon Hunter, Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Philip G. Franklin, Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended April 1, 2006, to be signed on its behalf by the undersigned thereunto
duly authorized.
LITTELFUSE, INC.
Date: May 11, 2006 By /s/ Philip G. Franklin
-------------------------------------
Philip G. Franklin
Vice President, Operations Support
and Chief Financial Officer
(As duly authorized officer and as
the principal financial and
accounting officer)
15