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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 September 28, 2002 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
--- ---
As of September 28, 2002, 21,907,247 shares of common stock, $.01 par
value, of the Registrant were outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the
periods ended September 28, 2002 and September 29, 2001
(unaudited)........................................................1
Condensed Consolidated Balance Sheets as of September 28, 2002
(unaudited) and December 29, 2001..................................2
Condensed Consolidated Statements of Cash Flows for the
periods ended September 28, 2002 and September 29, 2001
(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......................7
Item 3. Qualitative and Quantitative Disclosures about Market Risk .......13
Item 4. Controls and Procedures...........................................14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................14
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
For the Three Months Ended For the Nine Months Ended
SEPT. 28, Sept. 29, SEPT. 28, Sept. 29,
------------ ------------ ------------ ------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales......................................... $ 74,964 $ 66,711 $ 213,994 $ 211,297
Cost of sales..................................... 51,574 45,202 146,301 137,654
------------ ------------ ------------ ------------
Gross profit...................................... 23,390 21,509 67,693 73,643
Selling, general and administrative
expenses...................................... 15,243 14,517 45,226 47,270
Research and development expenses................. 2,121 2,142 6,288 7,125
Amortization of intangibles....................... 191 1,623 575 4,870
Restructuring expense............................. - 1,736 3,744 1,736
------------ ------------ ------------ ------------
Operating income.................................. 5,835 1,491 11,860 12,642
Interest expense.................................. 729 805 2,171 2,645
Other (income)/expense............................ (623) (56) (1,373) (744)
------------ ------------ ------------ ------------
Income before income taxes........................ 5,729 742 11,062 10,741
------------ ------------ ------------ ------------
Income taxes...................................... 2,062 268 3,982 3,867
Net income........................................ $ 3,667 $ 474 $ 7,080 $ 6,874
============ ============ ============ ============
Net income per share:
Basic......................................... $ 0.17 $ 0.02 $ 0.32 $ 0.35
============ ============ ============ ============
Diluted....................................... $ 0.17 $ 0.02 $ 0.32 $ 0.32
============ ============ ============ ============
Weighted average shares and equivalent shares outstanding:
Basic......................................... 21,926 19,958 21,896 19,872
============ ============ ============ ============
Diluted ...................................... 22,015 21,726 22,034 21,716
============ ============ ============ ============
1
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
SEPT. 28, 2002 Dec. 29, 2001
-------------- --------------
(unaudited)
ASSETS:
Cash and cash equivalents........................ $ 18,058 $ 34,527
Marketable securities............................ 8,194 -
Receivables...................................... 50,228 40,969
Inventories...................................... 44,224 46,208
Other current assets............................. 15,159 14,478
-------------- --------------
Total current assets............................. $ 135,863 $ 136,182
Property, plant, and equipment, net.............. 82,280 86,601
Reorganization value, net........................ 28,066 28,066
Other intangible assets, net..................... 28,151 20,455
Other assets..................................... 3,601 968
-------------- --------------
$ 277,961 $ 272,272
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities excluding current portion
of long-term debt............................ $ 49,874 $ 42,216
Current portion of long-term debt................ 20,149 21,026
-------------- --------------
Total current liabilities........................ $ 70,023 $ 63,242
Long-term debt................................... 20,138 30,402
Deferred liabilities............................. 875 835
Other long-term liabilities...................... 236 124
Shareholders' equity............................. 186,689 177,669
-------------- --------------
Shares issued and outstanding at
Sept. 28, 2002: 21,907,247; as of
December 29, 2001, 21,873,416 ............... $ 277,961 $ 272,272
============== ==============
2
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
For the Three Months Ended For the Nine Months Ended
------------------------------ -----------------------------
SEPT. 28, Sept. 29, SEPT. 28, Sept. 29,
------------ ------------ ------------ ------------
2002 2001 2002 2001
---- ---- ---- ----
Operating activities:
Net income........................................ $ 3,667 $ 474 $ 7,080 $ 6,874
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,610 4,548 13,233 14,148
Amortization.................................. 191 1,623 575 4,870
Changes in operating assets and liabilities:
Accounts receivable........................... (2,067) (900) (6,953) 2,333
Inventories................................... 2,678 5,438 5,019 5,271
Accounts payable and accrued
expenses................................... 829 2,583 5,481 (9,078)
Other, net.................................... 1,019 688 592 (855)
------------ ------------ ------------ -------------
Net cash provided by operating
activities.................................... $ 10,927 $ 14,454 $ 25,027 $ 23,563
Cash used in investing activities:
Purchases of property, plant, and
equipment, net............................. (1,787) (2,384) (5,185) (11,782)
Purchase of business.......................... (15,031) (168) (15,031) (168)
Sale/(purchase) of marketable
Securities, net............................ 3,750 - (8,194) -
------------ ------------ ------------- ------------
Net cash used in investing activities......... (13,068) (2,552) (28,410) (11,950)
Cash (used in) financing activities:
Proceeds from long-term debt.................. - - - 15,883
Payments of long-term debt.................... (10,138) (10,298) (11,866) (21,720)
Proceeds from exercise of stock
options and warrants....................... 276 1,225 1,546 2,578
Purchase of common stock and
warrants................................... (1,325) - (1,325) (1,256)
------------- ------------ ------------- -------------
Net cash used in financing
activities................................. (11,187) (9,073) (11,645) (4,515)
Effect of exchange rate changes on cash........... (440) (94) (1,441) 96
------------- ------------- ------------- ------------
Increase/(decrease) in cash and cash
equivalents................................... (13,768) 2,735 (16,469) 7,194
Cash and cash equivalents at beginning
of period..................................... 31,826 9,950 34,527 5,491
------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period........................................ $ 18,058 $ 12,685 $ 18,058 $ 12,685
============ ============ ============ ============
Free cash flow (operating cash flow
less purchases of PP&E, net).................. 9,140 12,070 19,842 11,781
3
LITTELFUSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 September 28, 2002, are
not necessarily indicative of the results that may be expected for the year
ending December 28, 2002. 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 29, 2001.
2. MARKETABLE SECURITIES
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
The Company has evaluated its investment policies consistent with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," and determined that all of its
investment securities are to be classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses reported in "Shareholders' Equity" as a component of
"Accumulated Other Comprehensive Income (Loss)." The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization is included in interest income. Realized gains
and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in selling, general, and
administrative expenses. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income.
The following is a summary of marketable securities classified as
"available-for-sale" securities as required by SFAS 115 (in thousands):
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
- -------------------------------------------------------------------------------
Debt/equity securities:
Cost $12,642 --
Gross unrealized losses (17) --
Sales of debt securities (4,431) --
- -------------------------------------------------------------------------------
Estimated fair value $ 8,194 --
4
3. INVENTORIES
The components of inventories are as follows (in thousands):
September 28, December 29,
2002 2001
------------- ------------
Raw material $ 9,888 $ 9,244
Work in process 12,008 11,066
Finished goods 22,328 25,898
------------- ------------
Total $ 44,224 $ 46,208
============= ----========
4. 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 exchange rate risk on forecasted intercompany
sales of inventory to a Japanese subsidiary. The cross currency rate swaps
convert a portion of the Company's US Dollar fixed rate debt to fixed rate
Japanese Yen debt. The swap agreements were accounted for as a cash flow hedge
and reported at fair value. The notional amount outstanding at September 28,
2002 was $10.8 million. The fair value of the rate swap agreements outstanding
at September 28, 2002, was recognized as a $0.1 million liability and as a
decrease to consolidated equity as a component of other comprehensive income.
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
provides 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.
5. PER SHARE DATA
Net income per share amounts for the three months and nine months ended
September 28, 2002 and September 29, 2001 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):
5
Three months ended Nine months ended
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
---- ---- ---- ----
Average shares outstanding 21,926 19,958 21,896 19,872
Net effect of dilutive stock options,
warrants and restricted shares
- Basic - - - -
------------- ------------- ------------- -------------
- Diluted 89 1,768 138 1,844
------------- ------------- ------------- -------------
Average shares outstanding
- Basic 21,926 19,958 21,896 19,872
============= ============= ============= =============
- Diluted 22,015 21,726 22,034 21,716
============= ============= ============= =============
Net income $ 3,667 $ 474 $ 7,080 $ 6,874
============= ============= ============= =============
Net income per share
- Basic $ 0.17 $ 0.02 $ 0.32 $ 0.35
============= ============= ============= =============
- Diluted $ 0.17 $ 0.02 $ 0.32 $ 0.32
============= ============= ============= =============
6. COMPREHENSIVE INCOME
In accordance with Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," total comprehensive income for the three
months ended September 28, 2002, and September 29, 2001, was approximately $3.5
million and $2.2 million, respectively, and for the nine months ended September
28, 2002, and September 29, 2001, was $8.8 million and $5.7 million,
respectively. The adjustment for comprehensive income consists of deferred gains
and losses from foreign currency translation adjustments and qualified cash flow
hedges and unrealized gains and losses on available-for-sales securities.
The components of comprehensive income were as follows (in thousands):
Three months ended Nine months ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
---------------------- ----------------------
Net income $ 3,667 $ 474 $ 7,080 $ 6,874
==================================================
Gross unrealized losses on securities (17) -- (17) --
Net change in cumulative translation adjustments (641) 1,677 1,843 (1,181)
Net change in gain/loss on derivative instruments 462 -- (87) --
--------------------------------------------------
Comprehensive income $ 3,471 $ 2,151 $ 8,819 $ 5,693
==================================================
6
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and No. 142, "Goodwill and Other Intangible Assets",
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statement. Other intangible assets will continue to be amortized over
their useful lives.
The Company first applied the new rules on accounting for goodwill and other
intangible assets in the first quarter of 2002. Application of the
non-amortization provisions of the Statement resulted in an increase in net
income of $0.6 million, or $0.03 per share for the three months ended September
28, 2002 and $1.8 million, or $0.08 per share for the nine months ended
September 28, 2002. Pro-forma net income for the three and nine months ended
September 29, 2001, adjusted for the adoption of FAS 142 was $1.1 million or
$0.05 per share and $8.7 million or $0.40 per share respectively. The Company
performed the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002 in the first quarter of 2002. The
effect of these tests did not have a significant impact on the Company's
financial position and results of operations. Additionally and unrelated to
adoption of SFAS No. 142, there was a scheduled decrease in amortization expense
related to patents resulting in increased net income of $0.3 million for the
three months ended September 28, 2002, and $1.0 million for the nine months
ended September 28, 2002.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Third Quarter, 2002
Sales for the third quarter 2002 increased 12% or $8.3 million to $75.0 million,
compared to $66.7 million in the third quarter of 2001. Sales in the Americas
increased 13% over the third quarter of 2001. Sales in Europe increased 20% in
dollars and 10% in constant currency, and in the Asia-Pacific region sales
increased 7% in dollars and 9% in constant currency. Excluding $2.0 million of
sales from Semitron Industries (acquired in July, 2002), total sales for the
third quarter increased 9% over the prior year quarter.
Electronic sales increased to $40.9 million in the third quarter of 2002 from
$35.1 million in the same quarter of last year for an increase of $5.8 million
or 16%. The increase in electronic sales was primarily driven by continued
improvement in North American distributor sales and additional sales of
overvoltage products due to the recent Semitron acquisition.
Automotive sales increased $2.1 million or 9% to $24.6 million in the third
quarter 2002 from $22.5 million in the same quarter last year. Automotive sales
increased in all geographic regions, primarily due to strength in Europe and the
Asia-Pacific region and continued higher vehicle production in North America.
7
Electrical fuse sales increased $0.4 million or 4% to $9.5 million in the third
quarter 2002 from $9.1 million in the same quarter last year. Electrical fuse
sales continue to show improvement in a weak electrical market due to market
share gains from adding new regional distributors.
Gross margin was $23.4 million or 31.2% of sales for the third quarter of 2002
compared to $21.5 million or 32.2% in the same quarter last year due to
increased price pressure in electronic markets and the addition of Semitron
which operated at breakeven for the quarter.
Operating expenses, excluding amortization and restructuring expenses, were
$17.4 million or 23.2% of sales for the third quarter of 2002 compared to $16.7
million or 25.0% of sales for the same quarter in the prior year. Amortization
of the reorganization value and other intangibles decreased to 0.3% of sales for
the third quarter of 2002, from 2.4% of sales in the third quarter of 2001.
Total operating expenses, including intangible amortization but excluding
restructuring expenses, were 23.4% of sales in the third quarter of 2002
compared to 27.4% of sales in the same quarter last year. The decrease in
amortization expense results from the combination of the adoption of SFAS No.
142 and a natural drop off of patent amortization. The adoption of SFAS No. 142
reduced amortization expense by $0.9 million for the quarter, and the natural
drop off of patent amortization provided an additional reduction of $0.5 million
for the period.
Operating income increased to $5.8 million or 7.8% of sales in the third quarter
of 2002 compared to $1.5 million or 2.2% in the prior year. The lower operating
margin in 2001 reflected $1.7 million of restructuring expense and higher
amortization expense.
Interest expense was $0.7 million in the third quarter of this year compared to
$0.8 million in the third quarter of last year due to lower average debt levels.
Other income was $0.6 million for the third quarter of 2002 compared to $0.1
million in the third quarter of the prior year.
Income before income taxes was $5.7 million for the third quarter 2002 compared
to $0.7 million for the third quarter of 2001. Income taxes were $2.1 million
with an effective tax rate of 36% for the third quarter of 2002 compared to $0.3
million with an effective tax rate of 36% in the third quarter of last year.
Net income increased to $3.7 million in the third quarter this year compared to
$0.5 million in the third quarter of last year and diluted earnings per share
increased to $0.17 in the third quarter this year compared to $0.02 per diluted
share in the same quarter last year.
Nine Months, 2002
Sales for the first nine months increased 1% to $214.0 million from $211.3
million last year. Excluding sales related to the Semitron acquisition, sales
for the first nine months were flat compared to the first nine months of 2001.
Electronics sales for the first nine months of 2002 were down 2% at $112.9
million compared to $114.6 million last year. Automotive sales for the first
nine months of 2002 were up 7% at $74.8 million compared to $70.0 million last
year due to continued higher vehicle production in North America and strength in
the Asia Pacific region. Electrical fuse sales for the first nine months of 2002
were down 1% at $26.3 million from $26.7 million last year due to continued
weakness in the electrical market.
8
Gross margin was $67.7 million or 31.6% for the first nine months of 2002
compared to $73.6 million or 34.9% for the first nine months of last year. The
decline in gross margin was due primarily to higher than normal price pressure
in the electronic market which more than offset the benefits of cost reduction
activities.
Operating expenses, excluding amortization and restructuring, were 24.1% of
sales for the first nine months of 2002 compared to 25.7% last year. The
amortization of intangibles was 0.3% of sales for the first nine months of 2002
compared to 2.3% last year. Total operating expenses, including intangibles
amortization but excluding restructuring expenses, were 24.3% of sales for the
first nine months of 2002 compared to 28.0% of sales for the first nine months
of last year. The adoption of SFAS No. 142 reduced amortization expense by $2.8
million for the first nine months of 2002, and the natural drop off of patent
amortization provided an additional reduction of $1.5 million.
Operating income for the first nine months of 2002 decreased to $11.9 million or
5.5% of sales compared to $12.6 million or 6.0% of sales for the prior year.
Interest expense was $2.2 million for the first nine months of 2002 compared to
$2.6 million last year reflecting lower average debt levels. Other income was
$1.4 million for the first nine months of 2002 compared to $0.7 million for the
same period last year due primarily to gains on asset sales in the 2002 period.
Income before taxes was $11.1 million for the first nine months of 2002 compared
to $10.7 million the first nine months of last year. Income taxes were $4.0
million the first nine months 2002 compared to $3.9 million last year.
Net income for the first nine months of 2002 increased 3% to $7.1 million from
$6.9 million for the same period last year. Diluted earnings per share for the
first nine months of 2002 were $0.32 per diluted share compared to $0.32 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 2002 year with $34.5 million of cash. Net cash provided
by operations was $25.0 million for the first nine months. Net cash used to
invest in property, plant and equipment and marketable securities was $13.4
million and the purchase of Semitron Industries was $15.0 million. In addition,
cash used to pay long-term debt was $11.9 million, cash used to repurchase stock
was $1.3 million and proceeds from stock option exercises were $1.6 million,
resulting in net cash used in financing activities of $11.6 million. The net
decrease in cash for the nine months ended September 28, 2002 was $16.5 million,
leaving the Company with a cash balance of $18.1 million at September 28, 2002.
The ratio of current assets to current liabilities was 1.9 to 1 at the end of
the third quarter 2002 compared to 2.1 to 1 at the end of the third quarter
2001. The days sales in receivables was approximately 61 days at the end of the
third quarter 2002 compared to 61 days at year-end 2001 and 68 days at third
quarter end 2001. The days inventory outstanding was approximately 78 days at
third quarter end 2002 compared to 99 days at year-end 2001 and 108 days at
third quarter end 2001.
9
The Company's capital expenditures were $1.8 million for the third quarter 2002,
and $5.2 for the first nine months of 2002. The Company expects that capital
expenditures, which are primarily for new machinery, equipment and information
systems, will be approximately $7 million for the full year 2002, net of the
approximate $2.0 million sale of the Washington, U.K. facility which is expected
to close in November, 2002.
The long-term debt at the end of the third quarter 2002 totaled $40.3 million
and consisted of the following: (1) 6.16% private placement notes totaling $30.0
million, (2) foreign revolver borrowings totaling $9.8 million, (3) notes
payable relating to mortgages totaling $0.3 million and (4) other long-term
debt, including capital leases, totaling $0.2 million. Of this indebtedness,
$20.1 million is considered to be current liabilities. The Company has a $55.0
million revolver in the U.S., all of which was available at September 28, 2002.
The bank revolver loan notes carry an interest rate of prime or LIBOR plus
0.375%. The Company also has an $8.0 million letter of credit facility, of which
approximately $2.2 million was being used at September 28, 2002.
Other Matters
Pension and Other Postretirement Benefits
The amounts recognized in the consolidated financial statements related to
pension and other postretirement benefits are determined from actuarial
valuations. Inherent in these valuations are assumptions including discount
rates, expected return on plan assets, rate of increase in future compensation
levels, mortality rates and health care cost trend rates. These assumptions are
updated annually and were disclosed in Note 5 to the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year ended
December 29, 2001. In accordance with accounting principles generally accepted
in the United States, actual results that differ from the assumptions are
accumulated and amortized over future periods and, therefore, generally affect
recognized expense and recorded obligations in future periods. While management
believes that the assumptions used are appropriate, differences in actual
experience or changes in assumptions may affect the Company's pension and other
postretirement obligations and future expense. Depending upon reduced pension
asset returns and increased pension liabilities in 2002, the Company expects to
record a charge to other comprehensive income in the fourth quarter of 2002 in
the range of $1 - $3 million.
Pre-approval of Audit and Non-Audit Services
The audit committee has pre-approved the provision of the following non-audit
services by Ernst & Young, the Company's auditors, for the last quarter of the
Company's fiscal year 2002 and for the Company's 2003 fiscal year, provided said
services are customary and performed in the normal course of business and within
the budget for the audit and non-audit services approved by the audit committee:
(i) tax preparation and compliance services; (ii) tax provision analysis
services; (iii) tax consulting services; (iv) having employees of Ernst & Young
LLP serve as secretary or in a similar capacity for some of the foreign
subsidiaries of the Company as part of their role as statutory auditors; and (v)
international transfer pricing consulting services.
10
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995.
The preceding commentary presents management's discussion and analysis of the
Company's financial condition and results of operations for the periods
presented. Certain of the statements included above, including those regarding
future financial performance or results or those that are not historical facts,
are or contain "forward-looking" information as that term is defined in the
Securities Exchange Act of 1934, as amended. The words "expect," "believe,"
"anticipate," "project," "estimate," and similar expressions are intended to
identify forward-looking statements. The Company cautions readers that any such
statements are not guarantees of future performance or events and such
statements involve risks, uncertainties and assumptions, including, but not
limited to, product demand and market acceptance risks, the effect of economic
conditions, the impact of competitive products and pricing, product development
and patent protection, commercialization and technological difficulties,
capacity and supply constraints or difficulties, actual purchases under
agreements, the effect of the Company's accounting policies, currency rate
fluctuations, labor disputes, restructuring costs in excess of expectations,
difficulties related to integrating acquisitions 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 29, 2001.
Business Segment Information
The Company designs, manufactures and sells circuit protection devices
throughout the world. The Company has three reportable geographic segments: The
Americas, Europe and Asia-Pacific. The circuit protection market in these
geographical segments is categorized into three major product areas: electronic,
automotive and power fuses.
The Company evaluates the performance of each geographic segment based on its
net income or loss. The Company also accounts for intersegment sales as if the
sales were to third parties.
The Company's reportable segments are the business units where the revenue is
earned and expenses are incurred. The Company has subsidiaries in The Americas,
Europe and Asia-Pacific where each region is measured based on its sales and
operating income or loss.
Information concerning the operations in these geographic segments for the
periods ended September 28, 2002 and September 29, 2001, is as follows (in
thousands):
- -------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------
REVENUES
- -------------------------------------------------------------------------------------------
The Americas 40,046 35,399 114,260 113,338
- -------------------------------------------------------------------------------------------
Europe 13,449 11,205 38,036 40,476
- --------------------------------------------------------------------------------------------
11
- -------------------------------------------------------------------------------------------
Asia-Pacific 21,469 20,107 61,698 57,483
- -------------------------------------------------------------------------------------------
Combined Total 74,964 66,711 213,994 211,297
- -------------------------------------------------------------------------------------------
Corporate - - - -
- -------------------------------------------------------------------------------------------
Reconciliation - - - -
- -------------------------------------------------------------------------------------------
Consolidated Total 74,964 66,711 213,994 211,297
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
INTERSEGMENT REVENUES
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Americas 14,499 12,137 46,914 42,580
- -------------------------------------------------------------------------------------------
Europe 14,890 5,327 38,670 16,075
- -------------------------------------------------------------------------------------------
Asia-Pacific 5,140 2,576 12,232 6,804
- -------------------------------------------------------------------------------------------
Combined Total 34,529 20,040 97,816 65,459
- -------------------------------------------------------------------------------------------
Corporate - - - -
- -------------------------------------------------------------------------------------------
Reconciliation (34,529) (20,040) (97,816) (65,459)
- -------------------------------------------------------------------------------------------
Consolidated Total - - - -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
INTEREST EXPENSE
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Americas 685 757 2,007 2,475
- -------------------------------------------------------------------------------------------
Europe 4 3 24 22
- -------------------------------------------------------------------------------------------
Asia-Pacific 40 45 140 148
- -------------------------------------------------------------------------------------------
Combined Total 729 805 2,171 2,645
- -------------------------------------------------------------------------------------------
Corporate 0 0 0 0
- -------------------------------------------------------------------------------------------
Reconciliation 0 0 0 0
- -------------------------------------------------------------------------------------------
Consolidated Total 729 805 2,171 2,645
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Americas 3,285 2,642 9,845 8,942
- -------------------------------------------------------------------------------------------
Europe 807 1,056 2,039 2,792
- -------------------------------------------------------------------------------------------
Asia-Pacific 518 406 1,349 1,083
- -------------------------------------------------------------------------------------------
Combined Total 4,610 4,104 13,233 12,817
- -------------------------------------------------------------------------------------------
Corporate 191 2,067 575 6,201
- -------------------------------------------------------------------------------------------
Reconciliation - - - -
- -------------------------------------------------------------------------------------------
Consolidated Total 4,801 6,171 13,808 19,018
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
OTHER INCOME (LOSS)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Americas 240 (124) 550 165
- -------------------------------------------------------------------------------------------
Europe 271 4 842 361
- -------------------------------------------------------------------------------------------
Asia-Pacific 112 176 (19) 218
- -------------------------------------------------------------------------------------------
Combined Total 623 56 1,373 744
- -------------------------------------------------------------------------------------------
Corporate - - - -
- -------------------------------------------------------------------------------------------
Reconciliation - - - -
- -------------------------------------------------------------------------------------------
Consolidated Total 623 56 1,373 744
- -------------------------------------------------------------------------------------------
12
- -------------------------------------------------------------------------------------------
INCOME TAX EXPENSE(INCOME)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Americas 1,003 (962) 1,675 (1,288)
- -------------------------------------------------------------------------------------------
Europe 664 252 1,629 2,394
- -------------------------------------------------------------------------------------------
Asia-Pacific 395 978 678 2,761
- -------------------------------------------------------------------------------------------
Combined Total 2,062 268 3,982 3,867
- -------------------------------------------------------------------------------------------
Corporate - - - -
- -------------------------------------------------------------------------------------------
Reconciliation - - - -
- -------------------------------------------------------------------------------------------
Consolidated Total 2,062 268 3,982 3,867
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET INCOME(LOSS)
- -------------------------------------------------------------------------------------------
The Americas 2,292 789 5,050 2,556
- -------------------------------------------------------------------------------------------
Europe 301 1,471 2,663 6,477
- -------------------------------------------------------------------------------------------
Asia-Pacific 1,265 2,017 3,686 5,780
- -------------------------------------------------------------------------------------------
Combined Total 3,858 4,277 11,399 14,813
- -------------------------------------------------------------------------------------------
Corporate (191) (3,803) (4,319) (7,939)
- -------------------------------------------------------------------------------------------
Reconciliation - - - -
- -------------------------------------------------------------------------------------------
Consolidated Total 3,667 474 7,080 6,874
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
REVENUES
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Electronic 40,863 35,102 112,838 114,607
- -------------------------------------------------------------------------------------------
Automotive 24,581 22,495 74,846 70,027
- -------------------------------------------------------------------------------------------
Power 9,520 9,114 26,310 26,663
- -------------------------------------------------------------------------------------------
Consolidated Total 74,964 66,711 213,994 211,297
- -------------------------------------------------------------------------------------------
Revenues from no single customer of the Company amount to 10% or more for the
quarter ended September 28, 2002.
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.
The Company had long-term debt outstanding at September 28, 2002 in the form of
Senior Notes and foreign lines of credit at variable interest rates. Since
substantially all of the debt has fixed interest rates, the Company's interest
expense is not sensitive to changes in interest rate levels.
A portion of the Company's operations consists of manufacturing and sales
activities in foreign countries. The Company has manufacturing facilities in
Mexico, England, Ireland, Switzerland, China 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
13
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. On June 11, 2002, 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. The fair value of the rate
swap agreements outstanding at September 28, 2002, which was $10.8 million, was
recognized as a $0.1 million liability, and is reported in consolidated
shareholders' equity as a component of other comprehensive income.
A risk management policy has been implemented by the Company which describes the
procedures and controls over derivative financial instruments. Under the policy,
the Company does not use derivative financial instruments for trading purposes
and the use of such instruments is subject to the approval of senior officers.
Typically, the use of such derivative instruments is limited to hedging
activities related to specific foreign currency cash flows. The Company's
exposure related to such transactions is, in the aggregate, not material to the
Company's financial position, results of operations and cash flows.
The Company uses various metals in the production of its products, including
zinc, copper and silver. The Company's earnings are exposed to fluctuations in
the prices of these commodities. The Company does not currently use derivative
financial instruments to mitigate this commodity price risk.
Item 4. Controls and Procedures
Within 90 days prior to the filing of this Quarterly Report, 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 our Chief Executive Officer and Chief Financial Officer.
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit Description
------- -----------
10.1 Stock Plan for New Directors of Littelfuse, Inc.
99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
(b) There were no reports on Form 8-K filed during the quarter
ended September 28, 2002.
14
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 September 28, 2002, to be signed on its behalf by the undersigned
thereunto duly authorized.
LITTELFUSE, INC.
Date: November 12, 2002 By /s/ Philip G. Franklin
------------------------------------
Philip G. Franklin
Vice President, Treasurer, and
Chief Financial Officer
(As duly authorized officer and
as the principal financial and
accounting officer)
15
Littelfuse, Inc.
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 quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made know to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of the quarterly report (the "Evaluation
Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, 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 in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: November 12, 2002
/s/ Howard B. Witt
---------------------------------
Howard B. Witt
Chairman, President & CEO
16
Littelfuse, Inc.
FORM OF SECTION 302 CERTIFICATION
I, Philip Franklin, Certify that:
1. I have reviewed this quarterly report on Form 10-Q of Littelfuse,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made know to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of the quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, 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 in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: November 12, 2002
/s/ Philip Franklin
------------------------------------
Philip Franklin
Vice President, Treasurer & CFO
17