-----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, GPHRfVNGc427WrWPKppYddrMnxxCB+Tda43FLQpycbVnRsgqwb7rhJMiwKAm5hps qabga7AZW660he+xSwv8sw== 0000950137-06-005800.txt : 20060511 0000950137-06-005800.hdr.sgml : 20060511 20060511171551 ACCESSION NUMBER: 0000950137-06-005800 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060401 FILED AS OF DATE: 20060511 DATE AS OF CHANGE: 20060511 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: 06831154 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 c05324e10vq.txt FORM 10-Q 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 EX-10.1 2 c05324exv10w1.txt CHANGE IN STOCK OPTION AGREEMENT Exhibit 10.1 ENTRY INTO MATERIAL DEFINITIVE AGREEMENTS On February 24, 2006, the Littelfuse, Inc. (the "Company") entered into a material definitive agreement with Kenneth R. Audino, Vice President, Organizational Development and Total Quality Management of the Company. Mr. Audino is retiring from the Company effective March 1, 2006, and the agreement provides that Mr. Audino will provide consulting services to the Company through December 31, 2006. In consideration of such consulting services, the Company has agreed to extend the period during which Mr. Audino may exercise his outstanding stock options. Mr. Audino holds options on 57,000 shares of common stock, granted on various dates between 200 and 2005 under the Company's 1993 Stock Plan for Employees and Directors of Littelfuse, Inc. (the "Stock Plan") at exercise prices of between $20.24 and $35.50 per share. Under the terms of the Stock Plan, all of the options will vest upon Mr. Audino's retirement, and in the absence of the agreement the options would expire 90 days after his retirement. Mr. Audino will not receive any other consideration for the consulting services. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LITTELFUSE, INC. Date: February 29, 2006 By: /s/ Philip G. Franklin ------------------------------------ Philip G. Franklin Vice President, Operations Support and Chief Financial Officer EX-31.1 3 c05324exv31w1.txt CERTIFICATION OF GORDON HUNTER, PURSUANT TO SECTION 302 EXHIBIT 31.1 SECTION 302 CERTIFICATION I, Gordon Hunter, 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))and internal control over forward reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls 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 (d) 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 (the registrant's fourth fiscal quarter in the case of an annual report) 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: May 11, 2006 /s/ Gordon Hunter ---------------------------------------- Gordon Hunter Chairman, President & CEO EX-31.2 4 c05324exv31w2.txt CERTIFICATION OF PHILLIP G. FRANKLIN, PURSUANT TO SECTION 302 EXHIBIT 31.2 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))and internal control over forward reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) 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 (registrant's fourth fiscal quarter in the case of an annual report) 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: May 11, 2006 /s/ Philip G. Franklin ---------------------------------------- Philip G. Franklin Vice President, Operations Support & CFO EX-32.1 5 c05324exv32w1.txt CERTIFICATION PURSUANT TO SECTION 906 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 to his knowledge: The Quarterly Report on Form 10-Q for the period ended April 1, 2006 of the Company fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ GORDON HUNTER /s/ PHILIP G. FRANKLIN - ------------------------------------- ---------------------------------------- Chairman, President and Vice President, Operations Support and Chief Executive Officer Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----