-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S8L/UE3VvKmsjnUPJPrAcNJ3BnWW/5NASeV+qcfGyOuoSRoxTNcYZmOOf7t2D3lQ qm4FWFxcxVH01fZDy1UZDw== 0000950137-04-009796.txt : 20041112 0000950137-04-009796.hdr.sgml : 20041111 20041112101250 ACCESSION NUMBER: 0000950137-04-009796 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041002 FILED AS OF DATE: 20041112 DATE AS OF CHANGE: 20041112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LITTELFUSE INC /DE CENTRAL INDEX KEY: 0000889331 STANDARD INDUSTRIAL CLASSIFICATION: SWITCHGEAR & SWITCHBOARD APPARATUS [3613] IRS NUMBER: 363795742 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20388 FILM NUMBER: 041135968 BUSINESS ADDRESS: STREET 1: 800 E NORTHWEST HWY CITY: DES PLAINES STATE: IL ZIP: 60016 BUSINESS PHONE: 7088241188 MAIL ADDRESS: STREET 1: 800 E. NORTHWEST HWY CITY: DES PLAINES STATE: IL ZIP: 60016 10-Q 1 c89682e10vq.txt QUARTERLY REPORT 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 October 2, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ Commission file number 0-20388 LITTELFUSE, INC. ---------------- (Exact name of registrant as specified in its charter) DELAWARE 36-3795742 -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 800 EAST NORTHWEST HIGHWAY DES PLAINES, ILLINOIS 60016 --------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 824-1188 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] As of October 2, 2004, 22,252,982 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 October 2, 2004, and January 3, 2004 (unaudited)....... 1 Condensed Consolidated Statements of Income for the periods ended October 2, 2004, and September 27, 2003 (unaudited)................................................ 2 Condensed Consolidated Statements of Cash Flows for the periods ended October 2, 2004, and September 27, 2003 (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. Qualitative and Quantitative Disclosures about Market Risk......................................... 14 Item 4. Controls and Procedures............................................................................ 15 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................................................... 16
LITTELFUSE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, unaudited)
OCTOBER 2, January 3, 2004 2004 ---- ---- ASSETS: Cash and cash equivalents .............................. $ 27,325 $ 22,128 Receivables ............................................ 82,959 52,149 Inventories ............................................ 78,769 52,598 Other current assets ................................... 28,372 22,265 -------- -------- Total current assets ................................... 217,425 149,140 Property, plant, and equipment ......................... 296,236 252,800 Accumulated depreciation ............................... (165,990) (154,321) -------- -------- Property, plant, and equipment, net .................... 130,246 98,479 Intangible assets, net ................................. 18,797 11,943 Goodwill ............................................... 61,704 48,643 Investments ............................................ 8,819 2,543 Other assets ........................................... 786 822 -------- -------- Total assets ....................................... $437,777 $311,570 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities excluding current portion of long-term debt .................................. $102,527 $ 64,892 Current portion of long-term debt ...................... 38,403 18,496 -------- -------- Total current liabilities .............................. 140,930 83,388 Long-term debt ......................................... 1,574 10,201 Accrued post-retirement benefits ....................... 18,717 4,564 Other long-term liabilities ............................ 14,476 1,072 Minority interest ...................................... 12,309 143 Shareholders' equity ................................... 249,771 212,202 -------- -------- Total liabilities and shareholders' equity ............. $437,777 $311,570 ======== ======== Common shares issued and outstanding of 22,252,982 and 22,063,943, at October 2, 2004 and January 3, 2004, respectively
LITTELFUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data, unaudited)
For the Three Months Ended For the Nine Months Ended -------------------------- ------------------------- OCT 2, Sept 27, OCT 2, Sept 27, 2004 2003 2004 2003 ---- ---- ---- ---- Net sales ................................................ $ 135,926 $ 94,696 $ 376,103 $ 237,447 Cost of sales ............................................ 86,565 66,910 242,758 162,709 --------- --------- --------- --------- Gross profit ............................................. 49,361 27,786 133,345 74,738 Selling, general and administrative expenses ............. 26,181 18,228 70,296 49,449 Research and development expenses ........................ 4,324 2,297 11,661 6,092 Amortization of intangibles .............................. 480 192 1,289 575 --------- --------- --------- --------- Operating income ......................................... 18,376 7,069 50,099 18,622 Interest expense ......................................... 387 544 1,305 1,594 Other (income) expense ................................... 303 160 (158) (391) --------- --------- --------- --------- Income before minority interest and income taxes ......... 17,686 6,365 48,952 17,419 Minority interest ........................................ 75 - 135 - Income taxes ............................................. 6,361 2,292 17,617 6,271 --------- --------- --------- --------- Net income ............................................... $ 11,250 $ 4,073 $ 31,200 $ 11,148 ========= ========= ========= ========= Net income per share: Basic .............................................. $ 0.50 $ 0.19 $ 1.41 $ 0.51 ========= ========= ========= ========= Diluted ............................................ $ 0.49 $ 0.19 $ 1.38 $ 0.51 ========= ========= ========= ========= Weighted average shares and equivalent shares outstanding: Basic .............................................. 22,350 21,823 22,189 21,794 ========= ========= ========= ========= Diluted ............................................ 22,844 21,955 22,594 21,862 ========= ========= ========= =========
2 LITTELFUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited)
For the Three Months Ended For the Nine Months Ended -------------------------- ------------------------- OCT 2, Sept 27, OCT 2, Sept 27, 2004 2003 2004 2003 ---- ---- ---- ---- Operating activities: Net income .................................................... $ 11,250 $ 4,073 $ 31,200 $ 11,148 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ......................................... 5,828 5,223 17,644 13,857 Amortization ......................................... 480 192 1,289 575 Changes in operating assets and liabilities: Accounts receivable .................................. (598) (2,806) (14,416) (4,608) Inventories .......................................... (6,834) 4,309 (8,067) 1,588 Accounts payable and accrued expenses ................ 1,817 6,428 3,596 5,814 Prepaid expenses and other ........................... 11,683 1,125 11,442 (1,431) -------- -------- -------- -------- Net cash provided by operating activities ..................... 23,626 18,544 42,688 26,943 Cash used in investing activities: Purchases of property, plant, and equipment .......... (7,343) (9,136) (16,394) (11,712) Acquisitions, net of cash acquired ................... (2,512) (44,496) (35,319) (44,496) Sale of property, plant and equipment ................ 2,684 - 2,684 - Sale of marketable securities, net ................... - - - 8,806 -------- -------- -------- -------- Net cash used in investing activities ......................... (7,171) (53,632) (49,029) (47,402) Cash provided by (used in) financing activities: Proceeds from long-term debt ......................... 700 30,500 32,700 30,500 Payments of long-term debt ........................... (19,603) (28,550) (22,650) (29,991) Proceeds from exercise of stock options .............. 2,026 282 10,335 982 Purchase of treasury stock ........................... (5,604) - (5,604) - -------- -------- -------- -------- Net cash provided by (used in) in financing activities ........ (22,481) 2,232 14,781 1,491 Effect of exchange rate changes on cash ....................... (1,033) 1,315 (3,243) 1,956 -------- -------- -------- -------- Increase (decrease) in cash and cash equivalents .............. (7,059) (31,541) 5,197 (17,012) Cash and cash equivalents at beginning of period .............. 34,384 42,279 22,128 27,750 -------- -------- -------- -------- Cash and cash equivalents at end of period .................... $ 27,325 $ 10,738 $ 27,325 $ 10,738 ======== ======== ======== ========
3 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OCTOBER 2, 2004 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 periods ended October 2, 2004, and September 27, 2003, are not necessarily indicative of the results that may be expected for the year ending January 1, 2005. For further information, refer to the Company's consolidated financial statements and the notes thereto incorporated by reference in the Company's Annual Report on Form 10-K for the year ended January 3, 2004. 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 net income or loss. The Company also accounts for inter segment 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 where each region is measured based on its sales and operating income or loss. Revenues from no single customer amounted to 10% or more of the Company's total revenues for the quarter ended October 2, 2004. Information concerning the operations in these geographic segments for the periods ended October 2, 2004, and September 27, 2003, is as follows (in thousands):
Three Months Three months Nine Months Nine Months Ended Ended Ended Ended October 2, 2004 September 27, 2003 October 2, 2004 September 27, 2003 --------------- ------------------ --------------- ------------------ NET SALES Americas $ 57,339 $ 46,406 $ 166,147 $ 117,291 Europe 34,412 15,281 86,262 43,680 Asia-Pacific 44,175 33,009 123,694 76,476 -------------- -------------- --------------- ------------- Combined total 135,926 94,696 376,103 237,447 Corporate - - - - -------------- -------------- --------------- ------------- Consolidated total $ 135,926 $ 94,696 $ 376,103 $ 237,447 INTER SEGMENT SALES Americas $ 47,781 $ 17,845 $ 86,037 $ 53,116 Europe 13,973 12,713 44,395 38,019 Asia-Pacific 8,269 4,799 21,891 15,307 -------------- -------------- --------------- ------------- Combined total 70,023 35,357 152,323 106,442 Corporate - - - - Elimination (70,023) (35,357) (152,323) (106,442) --------------- --------------- ---------------- -------------- Consolidated total $ - $ - $ - $ -
4 INTEREST EXPENSE Americas $ 385 $ 525 $ 1,299 $ 1,533 Europe 2 - 6 4 Asia-Pacific - 19 - 57 -------------- -------------- --------------- ------------- Combined total 387 544 1,305 1,594 Corporate - - - - -------------- -------------- --------------- ------------- Consolidated total $ 387 $ 544 $ 1,305 $ 1,594 DEPRECIATION AND AMORTIZATION Americas $ 3,183 $ 4,232 $ 12,236 $ 10,726 Europe 2,139 436 4,207 1,473 Asia-Pacific 506 555 1,201 1,657 -------------- -------------- --------------- ------------- Combined total 5,828 5,223 17,644 13,856 Corporate 480 192 1,289 576 -------------- -------------- --------------- ------------- Consolidated total $ 6,308 $ 5,415 $ 18,933 $ 14,432 OTHER (INCOME) EXPENSE Americas $ 219 $ (73) $ (311) $ (467) Europe 290 (138) (145) (114) Asia-Pacific (206) 371 298 190 -------------- -------------- --------------- ------------- Combined total 303 160 (158) (391) Corporate - - - - -------------- -------------- --------------- ------------- Consolidated total $ 303 $ 160 $ (158) $ (391) INCOME TAX EXPENSE Americas $ 4,130 $ 1,069 $ 11,306 $ 3,182 Europe 832 314 2,556 441 Asia-Pacific 1,399 909 3,755 2,648 -------------- -------------- --------------- ------------- Combined total 6,361 2,292 17,617 6,271 Corporate - - - - -------------- -------------- --------------- ------------- Consolidated total $ 6,361 $ 2,292 $ 17,617 $ 6,271 NET INCOME(LOSS) Americas $ 7,239 $ 1,440 $ 20,120 $ 5,006 Europe 254 248 341 (274) Asia-Pacific 4,237 2,576 11,823 6,992 -------------- -------------- --------------- ------------- Combined total 11,730 4,265 32,284 11,724 Corporate (480) (192) (1,084) (576) -------------- -------------- --------------- ------------- Consolidated total $ 11,250 $ 4,073 $ 31,200 $ 11,148 NET SALES Electronic $ 90,312 $ 62,461 $ 248,278 $ 139,354 Automotive 27,488 23,100 85,714 72,360 Electrical 18,126 9,135 42,111 25,733 -------------- -------------- --------------- ------------- Consolidated total $ 135,926 $ 94,696 $ 376,103 $ 237,447
5 Total assets
October 2, January 3, 2004 2004 ---- ---- Americas $ 300,074 $ 356,871 Europe 193,836 33,637 Asia-Pacific 63,381 47,798 ----------- ---------- Combined total 557,291 438,306 Eliminations (119,514) (126,736) ----------- ---------- Consolidated total $ 437,777 $ 311,570 =========== ==========
3. INVENTORIES The components of inventories are as follows (in thousands):
October 2, January 3, 2004 2004 ---- ---- Raw material $ 15,899 $ 11,783 Work in process 25,981 16,224 Finished goods 36,889 24,591 ----------- ---------- Total $ 78,769 $ 52,598 =========== ==========
4. LONG-TERM OBLIGATIONS Total debt including the current portion at the end of the third quarter 2004 totaled $40.0 million and consisted of the following: (1) 6.16% private placement notes totaling $10.0 million, (2) foreign revolver borrowings totaling $7.8 million and (3) notes payable relating to mortgages totaling $0.2 million and (4) credit revolver borrowings totaling $22.0 million. Of this indebtedness, $38.4 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. No revolver principal payments are required until the agreement matures. At October 2, 2004, the Company had available $28.0 million of borrowing capability under the revolving bank credit agreement. The revolving bank credit agreement has an interest rate of prime or LIBOR plus ..875%. The Company also had $1.8 million in letters of credit outstanding at October 2, 2004. 6 5. PER SHARE DATA Net income per share amounts for the three months and nine months ended October 2, 2004, and September 27, 2003, are based on the weighted average number of common and common equivalent shares outstanding during the periods as follows (in thousands, except per share data):
Three months ended Nine months ended ------------------ ----------------- Oct 2, Sept 27, Oct 2, Sept 27, 2004 2003 2004 2003 ---- ---- ---- ---- Net income $11,250 $ 4,073 $31,200 $11,148 ======= ======= ======= ======= Average shares outstanding - Basic 22,350 21,823 22,189 21,794 Net effect of dilutive stock options and restricted shares - Diluted 494 132 405 68 ------- ------- ------- ------- Average shares outstanding - Diluted 22,844 21,955 22,594 21,862 ======= ======= ======= ======= Net income per share - Basic $ 0.50 $ 0.19 $ 1.41 $ 0.51 ======= ======= ======= ======= - Diluted $ 0.49 $ 0.19 $ 1.38 $ 0.51 ======= ======= ======= =======
Options to purchase 347,500 and 1,214,920 shares of common stock were outstanding at October 2, 2004, and September 27, 2003, respectively, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive. 6. HEINRICH ACQUISITION On May 6, 2004, the Company acquired 82% of the common stock of Heinrich Industrie AG ("Heinrich") for euro 39.5 million (approximately $47.7 million) in cash and also incurred acquisition costs of euro 2.0 million (approximately $2.4 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 $18.1 million in cash and $32.0 million of borrowings on an existing credit revolver. Subsequent to May 6, 2004, the Company purchased additional shares of Heinrich stock for approximately $2.5 million, bringing the total ownership to 87% as of October 2, 2004. Heinrich, the holding company for the Wickmann Group of circuit protection products, has three business units: electronic, automotive and electrical. Littelfuse intends to operate 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. 7 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 $ 50,750 Property, plant and equipment 36,754 Intangible assets 8,374 Goodwill 12,744 Other assets 8,955 Current liabilities (20,443) Purchase accounting liabilities (10,505) Other long-term liabilities (24,262) Minority interest (9,692) --------- $ 52,675 =========
The final purchase price allocation is subject to revision based upon receipt of the independent appraisal of the property, equipment and intangible assets acquired. Purchase accounting liabilities are estimated to be $10.5 million and are primarily for redundancy costs to be paid through 2005 related to manufacturing operations and selling, general and administrative functions. These liabilities are subject to revision as the Company implements its plan. The Company began formulating its plan to incur these costs as of the acquisition date. As of October 2, 2004, no amounts have been paid related to these liabilities. The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the acquisition had occurred on the first day of the respective periods.
Three Months Ended Nine Months Ended ------------------ ----------------- October 2,2004 September 27, 2003 October 2, 2004 September 27, 2003 (unaudited) (unaudited) (unaudited) (unaudited) in thousands Net revenues $135,926 $111,842 $426,447 $304,938 Income from operations 18,376 6,067 49,123 16,644 Net income 11,250 3,735 30,889 10,319 Diluted income per share $ 0.49 $ 0.17 $ 1.37 $ 0.47
7. DERIVATIVES AND HEDGING On June 11, 2002, the Company, entered into cross currency rate swaps, with a notional amount of $11.6 million, as a cash flow hedge of the variability of Yen cash flows attributable to the USD/JPY exchange rate risk on forecasted intercompany sales of inventory to a Japanese subsidiary. The cross currency swaps convert $11.6 million of the Company's fixed rate 6.16% U.S. dollar debt to fixed rate 3.13% Japanese Yen debt. At the inception of the hedge, both the foreign currency swap and the intercompany sales subject to the hedge were denominated in JPY. The swap agreements were accounted for as a cash flow hedge and reported at fair value. The notional amount outstanding at October 2, 2004, was $3.8 million and the fair value of the outstanding cross currency rate swap agreements was recognized as a $0.5 million liability and as a charge to accumulated other comprehensive loss in the Consolidated Balance Sheet at October 2, 2004. 8 For the period from June 1, 2004 to September 30, 2005, Heinrich Industrie AG purchased euro forward contracts with a notional amount of $6.7 million as a cash flow hedge of the variability of US dollar cash attributable to the exchange rate risk on forecasted intercompany sales to U.S. and Asian subsidiaries. These forward contracts guarantee the rate at which the US dollar cash flows will be converted to euros in the future. The forward agreements were accounted for as a cash flow hedge and reported at fair value. The notional amount outstanding at October 2, 2004, was $4.5 million and the fair value of the outstanding forward contracts was recognized as a $0.3 million asset and as a credit to comprehensive income in the Consolidated Balance Sheet at October 2, 2004. Derivative financial instruments involve, to a varying degree, elements of market and credit risk not recognized in the consolidated financial statements. The market risk associated with these instruments resulting from interest rate movements is expected to offset the market risk of the underlying transactions being hedged. The counterparties to the agreements relating to the Company's cross currency rate instruments consist of major international financial institutions with high credit ratings. The Company does not believe that there is significant risk of non-performance by these counterparties because the Company monitors the credit ratings of such counterparties, and limits the financial exposure and amount of agreements entered into with any one financial institution. While the notional amount of the derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of the Company's exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties' obligations under the contracts exceed the obligations of the Company to the counterparty. 8. PENSIONS The components of net periodic benefit cost for the three and nine months ended 2004 compared with the three and nine months ended 2003 were (in thousands):
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended ------------------ ----------------- ------------------ ----------------- U.S. Pension Benefits Foreign Plans --------------------- ------------- 2004 2003 2004 2003 2004 2003 2004 2003 ---- ---- ---- ---- ---- ---- ---- ---- Service cost $ 690 $ 667 $ 2,070 $ 2,001 $ 281 $ 249 $ 843 $ 747 Interest cost 875 888 2,625 2,664 372 315 1,116 945 Expected return on plan Assets (912) (916) (2,736) (2,748) (384) (311) (1,152) (933) Amortization of prior service cost 3 3 9 9 (3) (3) (9) (9) Amortization of transition Asset - - - - (23) (26) (69) (78) Amortization of net (gain) Loss 40 28 120 84 52 - 156 - Recognized actuarial loss - - - - - 63 - 189 -------- ------- -------- -------- ------- ------ -------- ------ Total cost of the plan 696 670 2,088 2,010 295 287 885 861 Expected plan participants' contribution - - - - (52) (52) (156) (156) -------- ------- -------- -------- -------- ------- --------- ------- Net periodic benefit cost $ 696 $ 670 $ 2,088 $ 2,010 $ 243 $ 235 $ 729 $ 705 -------- ------- -------- -------- ------- ------ -------- ------
The expected rate of return on pension assets is 8.75% and 9.00% in 2004 and 2003, respectively. 9. COMPREHENSIVE INCOME Total comprehensive income for the three months ended October 2, 2004 and September 27, 2003 was approximately $13.9 million and $5.2 million, respectively, and for the nine months ended October 2, 2004 and September 27, 2003 was $32.9 million and $14.5 million, respectively. The adjustment for comprehensive income consists of deferred gains and losses from foreign currency translation adjustments and qualified cash flow hedges for the periods ended October 2, 2004 and September 27, 2003, and additionally unrealized gains and losses on available-for-sales securities for the period ended October 2, 2004. 10. STOCK-BASED COMPENSATION 9 The following table discloses the Company's pro forma net income and diluted net income per share had the valuation methods under SFAS 123 been used for the Company's stock option grants. The table also discloses the weighted average assumptions used in estimating the fair value using the Black-Scholes option pricing model. (In thousands, except per share amounts)
Three months ended Nine months ended ------------------ ----------------- October 2, September 27, October 2, September 27, 2004 2003 2004 2003 ---- ---- ---- ---- Net income as reported $ 11,250 $ 4,073 $ 31,200 $ 11,148 Stock option compensation expense, net of tax (273) (302) (795) (816) ------------- ------------ ------------- ------------- Pro forma net income $ 10,977 $ 3,771 $ 30,405 $ 10,332 Basic net income per share As reported $ 0.50 $ 0.19 $ 1.41 $ 0.51 Pro forma $ 0.49 $ 0.17 $ 1.37 $ 0.47 Diluted net income per share As reported $ 0.49 $ 0.19 $ 1.38 $ 0.51 Pro forma $ 0.48 $ 0.17 $ 1.34 $ 0.47 Risk-free interest rate 3.39% 3.10% 3.39% 3.10% Expected dividend yield 0% 0% 0% 0% Expected stock price volatility 43.0% 50.2% 43.0% 50.2% Expected life of options 8 years 8 years 8 years 8 years
These pro forma amounts may not be representative of future disclosures because the estimated fair value of the options is amortized to expense over the vesting period and additional options may be granted in the future. 11. Subsequent Event Subsequent to October 2, 2004 the Company signed an agreement for the purchase of an additional 10.1% of shares in Heinrich Industrie AG of Witten, Germany, to increase ownership to approximately 97%. Pursuant to this agreement, the Company will purchase an additional 202,000 shares of Heinrich for approximately 4.8 million euros in a private transaction. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Sales by Market and Geography (Dollars in Millions)
THIRD QUARTER YEAR-TO-DATE -------------------------- ---------------------------- 2004 2003 % CHANGE 2004 2003 % CHANGE ---- ---- -------- ---- ---- -------- MARKET Electronics $ 79.2 $ 62.5 27% $ 230.9 $ 139.4 66% Automotive 23.4 23.1 1% 78.6 72.4 9% Electrical 9.9 9.1 9% 28.6 25.7 11% -------- ------- -- -------- -------- -- Subtotal 112.5 94.7 19% 338.1 237.5 42% Heinrich 23.4 - - 38.0 - - -------- ------- -- -------- -------- -- TOTAL $ 135.9 $ 94.7 44% $ 376.1 $ 237.5 58% ======== ======= == ======== ======== ==
THIRD QUARTER YEAR-TO-DATE ------------- ------------ 2004 2003 % CHANGE 2004 2003 % CHANGE ---- ---- -------- ---- ---- -------- GEOGRAPHY Americas $ 57.2 $ 46.4 23% $ 166.1 $ 117.3 42% Europe 34.4 15.3 125% 86.2 43.7 97% Asia Pacific 44.3 33.0 34% 123.8 76.5 62% -------- ------- ---- -------- -------- -- TOTAL $ 135.9 $ 94.7 44% $ 376.1 $ 237.5 58% ======== ======= ==== ======== ======== == Results of Operations Third Quarter, 2004
Sales increased $41.2 million or 44% to $135.9 million in the third quarter of 2004, compared to $94.7 million in the third quarter of 2003. The acquisition of Heinrich accounted for approximately $23.4 million of the increase from the prior year quarter. Excluding Heinrich, sales for the third quarter of 2004 increased approximately 19% compared to the prior year quarter. On a geographic basis, sales in the Americas increased $10.8 million or 23% in the third quarter of 2004, compared to the third quarter of last year. The electronics business was the major contributor to this growth reflecting strength in the telecom and industrial markets, while Heinrich contributed $2.0 million for the quarter. Europe sales increased $19.1 million or 125% in the third quarter of 2004 compared to the third quarter of last year. Heinrich contributed $16.2 million of this increase. Excluding Heinrich, Europe sales increased 19% compared to the third quarter of 2003 due to improved demand for electronics products and favorable currency effects. Asia sales increased $11.3 million or 34% compared to the prior year third quarter. Excluding Heinrich, which contributed $5.3 million, Asia sales increased 18% compared to the prior year third quarter. This increase was largely due to increased demand in the digital consumer electronics market. Electronic sales, excluding Heinrich, increased $16.7 million or 27% for the third quarter of 2004 compared to the prior year quarter due to continued strength across all electronic end markets. Automotive sales, excluding Heinrich increased $0.3 million or 1% for the third quarter of 2004 compared to the prior year quarter, but decreased by 2% excluding currency effects. The modest decline in automotive sales, assuming a constant currency, was due primarily to softness in the European market. Electrical sales, excluding Heinrich, increased $0.8 million or 9% in the third quarter of 2004 compared to the same quarter last year as the electrical markets benefited from increased industrial activity and the beginnings of a recovery in non-residential construction. 11 Gross profit was $49.4 million or 36.3% of sales for the third quarter of 2004, compared to $27.8 million or 29.3% in the same quarter last year. The increase in gross margin was mainly attributable to operating leverage from higher sales and cost reductions in excess of price erosion, partially offset by $1.3 million of restructuring charges related to manufacturing transfers and plant downsizing activities and the addition of lower margin Heinrich sales. Total operating expense was $31.0 million or 22.8% of sales for the third quarter of 2004 compared to $20.7 million or 21.9% of sales for the same quarter in the prior year. The increase in operating expense as a percentage of sales reflects additions to sales and engineering staffs to support the Company's solution selling strategy and professional fees associated with Sarbanes-Oxley compliance. Operating income was $18.4 million or 13.5% of sales for the third quarter of 2004 compared to $7.1 million or 7.5% of sales for the same quarter of last year reflecting the sales and margin improvements discussed above. Interest expense was $0.4 million in the third quarter of this year compared to $0.5 million in the third quarter of last year. Other expense was $0.3 million for the third quarter of 2004 compared to $0.2 million in the third quarter of last year. Income before income taxes and minority interest was $17.7 million for the third quarter 2004 compared to $6.4 million for the third quarter of 2003. Income taxes were $6.4 million with an effective tax rate of 36% for the third quarter of 2004 compared to $2.3 million with an effective tax rate of 36% in the third quarter of last year. Net income for the third quarter 2004 was $11.3 million or $0.49 per diluted share compared to $4.1 million or $0.19 per diluted share for the same quarter of last year. Nine Months, 2004 Sales for the first nine months of 2004 increased 58% to $376.1 million from $237.5 million for the first nine months of last year. The acquisition of Heinrich accounted for approximately $38.0 million of the increase. On a geographic basis, sales in the Americas increased 42% in the first nine months of 2004 compared to the prior year due primarily to Teccor, which was acquired on July 7, 2003, and strong organic growth in the electronics business. Increased sales of automotive and electrical products as well as the Heinrich acquisition also contributed to sales growth in the Americas for the first nine months of 2004. Europe sales increased 97% in the first nine months of 2004 compared to the prior year due primarily to the Heinrich acquisition. The Teccor acquisition and favorable currency effects also contributed to sales growth in Europe for the first nine months of 2004. Asia sales increased 62% in the first nine months of 2004 compared to the prior year due to the Teccor and Heinrich acquisitions and continued strength in the digital consumer end markets. Gross profit was $133.3 million or 35.5% of sales for the first nine months of 2004 compared to $74.7 million or 31.5% of sales for the first nine months of last year. Improvement in gross margin for the first nine months as compared to the prior year was primarily due to operating leverage from higher sales and cost reductions in excess of price erosion, partially offset by $2.5 million of restructuring charges related to manufacturing transfers and plant downsizing activities and the addition of lower margin Heinrich sales. Total operating expense was $83.2 million or 22.1% of sales for the first nine months of 2004 compared to $56.1 million or 23.6% last year. The increase in operating expenses was largely due to the additional expenses related to Teccor and Heinrich, but additions to sales and engineering staffs to support the Company's solution selling strategy and professional fees associated with Sarbanes Oxley compliance also contributed to the increase. Operating income for the first nine months of 2004 was $50.1 million or 13.3% of sales compared to $18.6 million or 7.8% of sales for the prior year reflecting sales and margin improvements discussed above. Interest expense was $1.3 million for the first nine months of 2004 compared to $1.6 million last year. Other income was $0.2 million for the first nine months of 2004 compared to $0.4 million for the same period last year. 12 Income before taxes and minority interest was $49.0 million for the first nine months of 2004 compared to $17.4 million the first nine months of last year. Income taxes were $17.6 million the first nine months of 2004 compared to $6.3 million for the first nine months of last year. Net income for the first nine months of 2004 increased to $31.2 million from $11.1 million for the same period last year. Earnings per share for the first nine months of 2004 increased to $1.38 per diluted share compared to $0.51 per diluted share last year. Liquidity and Capital Resources Assuming no material adverse changes in market conditions or interest rates, management expects that the Company will have sufficient cash from operations to support both its operations and its current debt obligations for the foreseeable future. Littelfuse started the 2004 year with $22.1 million of cash. Net cash provided by operations was $42.7 million for the first nine months. Net cash provided by operations includes net income of $31.2 million, depreciation of $17.6 million and amortization of $1.3 million in addition to various working capital and other items. Excluding the effects of the Heinrich acquisition, accounts receivable increased $14.4 million and inventory increased $8.1 million primarily to support the significant sales increase. Excluding the effects of the Heinrich acquisition, accounts payable, accrued expenses, prepaid expenses and other items favorably impacted net cash provided by operations by $15.0 million, mostly due to the timing of liability payments including taxes and to a lesser extent reductions in assets which were paid in prior periods. Net cash used in investing activities included $13.7 million in net purchases of property, plant and equipment and $35.3 million, net of cash acquired of $15.7 million, for the purchase of Heinrich. An allocation of the Heinrich purchase price is provided in Note 6 to the Notes to Condensed Consolidated Financial Statements (Unaudited) for the period ending October 2, 2004. In addition, net cash provided by financing activities included stock option exercises of $10.3 million along with net proceeds of long-term debt of $10.1 million and the purchase of treasury stock for $5.6 million. The effects of exchange rate changes decreased cash by $3.2 million. The net cash provided by operations, less investing and financing activities plus the effects of exchange rate changes, resulted in a $5.2 million net increase in cash. This left the Company with a cash balance of $27.3 million at October 2, 2004. The ratio of current assets to current liabilities was 1.5 to 1 at the end of the third quarter of 2004 compared to 2.0 to 1 at the third quarter 2003. The days sales in receivables was approximately 57 days at the end of the third quarter of 2004, compared to 50 days at the end 2003, and 56 days at the end of the third quarter 2003. The increase in days sales in receivables from 2003 resulted primarily from the addition of Heinrich whose days sales in receivables were higher than the rest of the Company. The days inventory outstanding was approximately 86 days at the end of the third quarter of 2004 compared to 71 days at the end of 2003 and 76 days at end of the third quarter of 2003. The increase in days inventory outstanding from 2003 resulted primarily from the addition of Heinrich whose days inventory outstanding is higher than the rest of the Company and planned increases in inventory to support upcoming manufacturing line transfers. The Company's capital expenditures, net of cash from asset sales, was $4.7 million for the third quarter of 2004 and $13.7 million for the first nine months of 2004 compared to the prior year periods of $9.1 million and $11.7 million, respectively. The increase in capital expenditures reflects the acquisitions of Teccor and Heinrich and capacity additions for electronic and automotive products. Total debt at the end of the third quarter 2004 totaled $40.0 million and consisted of the following: (1) 6.16% private placement notes totaling $10.0 million, (2) foreign revolver borrowings totaling $7.8 million and (3) notes payable relating to mortgages totaling $0.2 million and (4) credit revolver borrowings totaling $22.0 million. Of this indebtedness, $38.4 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. No revolver principal payments are required until the agreement matures. At October 2, 2004, the Company had available $28.0 million of borrowing capability under the revolving bank credit agreement. The revolving bank credit agreement has an interest rate of prime or LIBOR plus .875%. The Company also had $1.8 million in letters of credit outstanding at October 2, 2004. 13 "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995 The statements in this section, the letter to shareholders and in the other sections of this report which are not historical facts contained in this report are forward-looking statements that involve risks and uncertainties, including, but not limited to, product demand and market acceptance, the effect of economic conditions, the impact of competitive products and pricing, the integration of acquisitions, product development and patent protection, commercialization and technological difficulties, capacity and supply constraints or difficulties, exchange rate fluctuations, actual purchases under agreements, the effect of the Company's accounting policies, labor disputes, restructuring costs in excess of expectations, pension plan asset returns less than assumed, and other risks which may be detailed in the Company's Securities and Exchange Commission filings. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results and outcomes may differ materially from those indicated or implied in the forward-looking statements. This report should be read in conjunction with information provided in the financial statements appearing in the Company's Annual Report on Form 10-K for the year ended January 3, 2004. Item 3. Qualitative and Quantitative Disclosures about Market Risk The Company is exposed to market risk from changes in foreign exchange rates, commodities and, to a lesser extent, interest rates. Management believes that the Company's exposure to these risks is immaterial and not significant enough to warrant disclosure of quantitative information regarding market risk. The Company had $40.0 million of long-term debt outstanding at October 2, 2004, primarily in the form of senior notes and lines of credit. Approximately 25% of the Company's long-term debt is at fixed rates. A portion of the Company's operations consists of manufacturing and sales activities in foreign countries. The Company has foreign manufacturing facilities in Mexico, England, Ireland, Switzerland, China, Germany, Hungary and the Philippines. Substantially all sales in Europe are denominated in British pounds sterling, United States dollars and euros and substantially all sales in the Asia-Pacific region are denominated in United States dollars, Japanese yen and South Korean won. The Company's identifiable foreign exchange exposures result from the purchase and sale of products from affiliates, repayment of intercompany trade and loan amounts and translation of local currency amounts in consolidation of financial results. Changes in foreign currency exchange rates or weak economic conditions in the foreign countries in which it manufactures and distributes products could affect the Company's sales and financial results. The Company primarily utilizes netting and offsets to reduce known foreign currency exposures and, when appropriate, derivative instruments as hedges of specific foreign currency cash flows. The Company has entered into cross currency rate swaps with a notional amount of $11.6 million. The cross currency swaps convert $11.6 million of the Company's fixed rate 6.16% U.S. dollar debt to fixed rate 3.13% Japanese Yen debt. At the inception of the hedge, both the foreign currency swap and the intercompany sales subject to the hedge were denominated in JPY. The fair value of the rate swap agreements outstanding at October 2, 2004, which had a notional amount of $3.8 million, was recognized as a $0.5 million liability, and is reported in consolidated shareholders' equity as a component of other comprehensive income. For the period from June 1, 2004 to September 30, 2005, Heinrich Industrie AG purchased euro forward contracts with a notional amount of $6.7 million as a cash flow hedge of the variability of US dollar cash attributable to the exchange rate risk on forecasted intercompany sales to U.S. and Asian subsidiaries. These forward contracts guarantee the rate at which the US dollar cash flows will be converted to euros in the future. The forward agreements were accounted for as a cash flow hedge and reported at fair value. The notional amount outstanding at October 2, 2004 was $4.5 million and the fair value of the outstanding forward contracts was recognized as a $0.3 million asset and as a credit to comprehensive income in the Consolidated Balance Sheet at October 2, 2004. 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 14 Company's exposure related to such transactions is, in the aggregate, not material to the Company's financial position, results of operations and cash flows. The Company uses various metals in the production of its products, including zinc, copper and silver. The Company's earnings are exposed to fluctuations in the prices of these commodities. The Company does not currently use derivative financial instruments to mitigate this commodity price risk. Item 4. Controls and Procedures As of October 2, 2004, the Chief Executive Officer and Chief Financial Officer of the Company evaluated the effectiveness of the disclosure controls and procedures of the Company and concluded that these disclosure controls and procedures are effective to ensure that material information relating to the Company and its consolidated subsidiaries has been made known to them by the employees of the Company and its consolidated subsidiaries during the period preceding the filing of this Report. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the last day they were evaluated by the Company's Chief Executive Officer and Chief Financial Officer. 15 PART II - OTHER INFORMATION Item 2: Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities (e) The table below provides information with respect to purchases by the Company of shares of its common stock during each fiscal month of the third quarter of fiscal 2004: ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of Maximum Number Shares Purchased of Shares that May Total Number as Part of Publicly Yet Be Purchased of Shares Average Price Announced Plans Under the Plans or Period Purchased Paid per Share or Programs Programs 7/4/04 - 7/31/04 - $ - - 1,000,000 8/1/04-8/2804 - - - 1,000,000 8/29/04-10/2/04 168,400 33.28 168,400 831,600 ------- -------------- ------- --------- Total 168,400 $ 33.28 168,400 831,600 ======= ============== ======= ---======
Item 6: Exhibits and Reports on Form 8-K (a) Exhibit Description 31.1 Certification of Howard B. Witt, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Philip 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, 18 U.S.C Section 1350 (b) Reports on Form 8-K filed during the quarter ended October 2, 2004 A Current Report on Form 8-K/A (Items 2 and 7) filed on July 20, 2004. A Current Report on Form 8-K (Items 5 and 7) filed on July 29, 2004. 16 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 October 2, 2004, to be signed on its behalf by the undersigned thereunto duly authorized. LITTELFUSE, INC. Date: November 11, 2004 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) 17 EX-31.1 2 c89682exv31w1.txt 302 CERTIFICATION OF HOWARD B. WITT EXHIBIT 31.1 FORM OF SECTION 302 CERTIFICATION I, Howard B. Witt, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Littelfuse Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e))for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 11, 2004 /s/ Howard B. Witt --------------------------------- Howard B. Witt Chairman, President & CEO EX-31.2 3 c89682exv31w2.txt 302 CERTIFICATION OF PHILIP G. FRANKLIN EXHIBIT 31.2 FORM OF SECTION 302 CERTIFICATION I, Philip G. Franklin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Littelfuse Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e))for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 11, 2004 /s/ Philip G. Franklin ---------------------------------- Philip G. Franklin Vice President, Operations Support & CFO EX-32.1 4 c89682exv32w1.txt SECTION 906 CERTIFICATION EXHIBIT 32.1 Littelfuse, Inc. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of title 18, United States Code), each of the undersigned officers of Littelfuse, Inc. (the Company), does hereby certify that: The Quarterly Report of Form 10-Q for the quarter ended October 2, 2004 of the Company fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934, and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ HOWARD B. WITT /s/ PHILIP FRANKLIN ------------------------------ ------------------------------ Chairman, President and Vice President, Operations Support and Chief Executive Officer Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----