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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 April 3, 2004 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____TO ______
Commission file number 0-20388
LITTELFUSE, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3795742
-------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 EAST NORTHWEST HIGHWAY
DES PLAINES, ILLINOIS 60016
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(847) 824-1188
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
As of April 3, 2004, 22,063,943 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
April 3, 2004 and March 29, 2003 (unaudited)................................................ 1
Condensed Consolidated Balance Sheets as of April 3, 2004
and March 29, 2003 (unaudited).............................................................. 2
Condensed Consolidated Statements of Cash Flows for the periods ended
April 3, 2004 and March 29, 2003
(unaudited)................................................................................. 3
Notes to the Condensed Consolidated Financial Statements (unaudited)........................ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................... 12
Item 3. Qualitative and Quantitative Disclosures about Market Risk ................................. 16
Item 4. Controls and Procedures..................................................................... 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................ 18
2
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
APRIL 3, 2004 January 3, 2004
------------- ---------------
ASSETS:
Cash and cash equivalents...................................... $ 23,895 $ 22,128
Receivables, net............................................... 60,282 52,149
Inventories, net............................................... 54,430 52,598
Other current assets........................................... 25,166 22,265
-------------- ------------
Total current assets........................................... 163,773 149,140
Property, plant, and equipment, net............................ 94,140 98,479
Intangible assets, net......................................... 11,604 11,943
Goodwill....................................................... 48,643 48,643
Other assets................................................... 2,945 3,365
-------------- ------------
$ 321,105 $ 311,570
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities excluding current portion
of long-term debt.......................................... $ 62,372 $ 64,892
Current portion of long-term debt.............................. 18,685 18,496
-------------- ------------
Total current liabilities...................................... 81,057 83,388
Long-term debt................................................. 10,155 10,201
Accrued post-retirement benefits............................... 5,301 4,564
Other long-term liabilities.................................... 1,233 1,215
Shareholders' equity........................................... 223,359 212,202
-------------- ------------
Shares issued and outstanding of 22,063,943 and 22,002,119
at April 3, 2004 and January 3, 2004, respectively......... $ 321,105 $ 311,570
============== ============
3
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
For the Three Months Ended
------------------------------------------------
APRIL 3, March 29,
2004 2003
-------------- ------------
Net sales....................................................... $ 111,418 69,962
Cost of sales................................................... 71,613 46,884
-------------- ------------
Gross profit.................................................... 39,805 23,078
Selling, general and administrative expenses.................... 20,543 15,721
Research and development expenses............................... 3,181 1,934
Amortization of intangibles..................................... 339 192
-------------- ------------
Operating income................................................ 15,742 5,231
Interest expense................................................ 426 537
Other (income)/expense.......................................... 307 (342)
-------------- ------------
Income before income taxes...................................... 15,009 5,036
Income taxes ................................................... 5,403 1,813
-------------- ------------
Net income ..................................................... $ 9,606 $ 3,223
============== ============
Net income per share:
Basic....................................................... $ 0.44 $ 0.15
============== ============
Diluted..................................................... $ 0.43 $ 0.15
============== ============
Weighted average shares and equivalent shares outstanding:
Basic....................................................... 22,032 21,771
============== ============
Diluted .................................................... 22,388 21,821
============== ============
4
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
For the Three Months Ended
----------------------------------
APRIL 3, March 29,
2004 2003
----------- ------------
Operating activities:
Net income................................................................. $ 9,606 $ 3,223
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.......................................................... 5,639 4,342
Amortization ......................................................... 339 192
Changes in operating assets and liabilities:
Accounts receivable................................................... (8,221) (2,335)
Inventories ......................................................... (2,370) (2,497)
Accounts payable and accrued expenses................................. (410) 553
Prepaid expenses and other............................................ (1,648) (2,872)
----------- ------------
Net cash provided by operating activities.................................. 2,935 606
Cash used in investing activities:
Purchases of property, plant, and equipment........................... (2,992) (2,627)
Sale of property, plant, and equipment................................ - 2,213
Sale of short term investments....................................... - (1,597)
----------- ------------
Net cash used in investing activities................................. (2,992) (2,011)
Cash provided by (used in) financing activities:
Payments of long-term debt............................................ (39) (1,444)
Proceeds from exercise of stock options and warrants.................. 1,884 636
----------- ------------
Net cash provided by (used in) financing activities................... 1,845 (808)
Effect of exchange rate changes on cash.................................... (21) (23)
----------- ------------
Increase (decrease) in cash and cash equivalents........................... 1,767 (2,236)
Cash and cash equivalents at beginning of period........................... 22,128 27,750
----------- ------------
Cash and cash equivalents at end of period................................. $ 23,895 $ 25,514
=========== ============
5
LITTELFUSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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 accounting principles generally accepted in the United
States 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 3, 2004, are not necessarily indicative of the results that may be
expected for the year ending January 1, 2005. For further information, refer to
the Company's consolidated financial statements and the notes thereto
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended January 3, 2004.
2. BUSINESS SEGMENT INFORMATION
The Company designs, manufactures and sells circuit protection devices
throughout the world. The Company has three reportable geographic segments: The
Americas, Europe and Asia-Pacific. The circuit protection market in these
geographical segments is categorized into three major product areas: electronic,
automotive and electrical.
The Company evaluates the performance of each geographic segment based on its
net income or loss. The Company also accounts for 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 April 3, 2004, and March 29, 2003, is as follows (in thousands):
Three Months Three Months
Ended April 3, Ended March 29,
2004 2003
- ---------------------------------------------------------------------
REVENUES
The Americas 53,177 34,696
Europe 20,903 13,341
Asia-Pacific 37,338 21,925
Combined Total 111,418 69,962
Corporate - -
Consolidated Total 111,418 69,962
6
INTERSEGMENT REVENUES
The Americas 15,568 18,064
Europe 15,639 12,018
Asia-Pacific 6,202 5,312
Combined Total 37,409 35,394
Corporate - -
Elimination (37,409) (35,394)
Consolidated Total - -
INTEREST EXPENSE
The Americas 417 513
Europe 2 1
Asia-Pacific 7 23
Combined Total 426 537
Corporate - -
Consolidated Total 426 537
DEPRECIATION AND AMORTIZATION
The Americas 5,143 3,240
Europe 152 562
Asia-Pacific 344 540
Combined Total 5,639 4,342
Corporate 339 192
Consolidated Total 5,978 4,534
OTHER (INCOME) EXPENSE
The Americas 289 (85)
Europe (268) (85)
Asia-Pacific 286 (172)
Combined Total 307 (342)
Corporate - -
Consolidated Total 307 (342)
INCOME TAX EXPENSE (INCOME)
The Americas 3,611 713
Europe 757 (4)
Asia-Pacific 1,035 1,104
Combined Total 5,403 1,813
Corporate - -
Consolidated Total 5,403 1,813
7
NET INCOME (LOSS)
The Americas 7,126 1,238
Europe 113 (194)
Asia-Pacific 2,971 2,371
Combined Total 10,210 3,415
Corporate (604) (192)
Consolidated Total 9,606 3,223
REVENUES
Electronic 74,527 37,117
Automotive 28,188 24,624
Electrical 8,703 8,221
Consolidated Total 111,418 69,962
Revenues from no single customer of the Company amount to 10% or more for the
quarter ended April 3, 2004.
3. INVENTORIES
The components of inventories are as follows (in thousands):
April 3, January 3,
2004 2004
-------- -------
Raw material $11,747 $11,783
Work in process 19,975 16,224
Finished goods 22,708 24,591
------- -------
Total $54,430 $52,598
======= =======
4. LONG-TERM OBLIGATIONS
Total debt at the end of the first quarter 2004 totaled $28.8 million and
consisted of the following: (1) 6.16% private placement notes totaling $20.0
million, (2) foreign revolver borrowings totaling $8.5 million, and (3) notes
payable relating to mortgages totaling $0.3 million. Of this indebtedness, $18.7
million is considered to be current liabilities. The Company has a $50.0
million, three-year revolving bank credit agreement that expires on August 26,
2006. The bank credit agreement is subject to a maximum indebtedness calculation
and other financial covenants. No revolver principal payments are required until
the agreement matures. At April 3, 2004, the Company had available $50.0 million
of borrowing capability under the revolving bank credit agreement. The revolving
bank credit agreement has an interest rate of prime or LIBOR plus 0.875%.
8
5. PER SHARE DATA
Net income per share amounts for the three months ended April 3, 2004, and March
29, 2003, are based on the weighted average number of common and common
equivalent shares outstanding during the periods as follows (in thousands,
except per share data):
Three months ended
April 3, March 29,
2004 2003
------- --------
Average shares outstanding 22,032 21,771
Net effect of dilutive stock options
and restricted shares
- Diluted 356 50
------- -------
Average shares outstanding
- Basic 22,032 21,771
======= =======
- Diluted 22,388 21,821
======= =======
Net income $ 9,606 $ 3,223
======= =======
Net income per share
- Basic $ 0.44 $ 0.15
======= =======
- Diluted $ 0.43 $ 0.15
======= =======
Options to purchase 252,204 shares of common stock at exercise prices ranging
from $34.13 to $35.50 and options to purchase 1,692,105 shares of common stock
at exercise prices ranging from $17.82 to $35.50 were outstanding at April 3,
2004, and March 29, 2003, respectively, but were not included in the computation
of diluted earnings per share because the options' exercise prices were greater
than the average market price of the common shares and, therefore, the options
would have no dilutive effect.
6. TECCOR ACQUISITION
On July 7, 2003, the Company completed the acquisition of all of the outstanding
stock of Teccor Electronics, Inc., a subsidiary of Invensys plc (`Teccor') for
$44.6 million in cash, plus a future payment of $5.0 million contingent on sales
of Teccor products reaching $107.0 million for calendar year 2005.
Teccor manufactures semiconductor products for the telecommunications and
industrial market segments, including transient voltage suppression devices and
power switching devices. The addition of Teccor's transient voltage suppression
products expands the Company's line of overvoltage products and strengthens its
position in the telecom and industrial market segments.
The acquisition was accounted for using the purchase method and the operations
of Teccor are included in the Company's operations from the date of acquisition.
The allocation of the purchase price resulted in no goodwill.
9
The acquisition was funded with cash on hand and borrowings under the Company's
$50.0 million revolving credit facility.
Purchase price allocation, net of cash
(in thousands)
Current assets $27,508
Property, plant and equipment 21,550
Intangible asset 6,100
Deferred tax assets 6,703
Current liabilities (9,985)
Purchase accounting liabilities (6,900)
Other long-term liabilities (386)
-------
Total purchase price, net of cash $44,590
=======
In connection with the acquisition of Teccor Electronics and at the time of the
acquisition, the Company recorded purchase accounting liabilities of $6.9
million primarily for redundancy costs related to manufacturing operations and
selling, general and administrative functions. Included in this amount is $0.7
million to reflect the obligation of Teccor to remit proceeds from the sale of
land to the former owners. As of April 3, 2004, changes to the purchase
accounting liability include a $4.4 million payment related to employee
severance, a $1.6 million reserve adjustment and a $0.7 million payment to remit
proceeds from the sale of land to the former owners, leaving a purchase
accounting restructuring liability balance of $0.2 million at April 3, 2004. The
remaining accrued liabilities are expected to be paid by the end of the 2004
fiscal year. The following unaudited pro forma consolidated financial
information for the Company has been prepared assuming the acquisition had
occurred on the first day of the respective period.
(in thousands, except for share data)
Three Months
Ended
March 29,
2003
(unaudited)
--------
Net sales $ 87,405
Operating loss (75)
Net loss (849)
Diluted net loss per share $ (0.04)
--------
10
The unaudited pro forma financial information above reflects the following pro
forma adjustments:
(a) Additional depreciation expense related to the $19.3 million write-up to
record fixed assets at fair value;
(b) Reduction of sales, general and administrative expense adjustments based
on forward-looking estimates to eliminate Invensys expense allocations
that are not expected to be incurred after the acquisition; and
(c) Adjustment for additional interest expense related to the $16,000,000
borrowing under the Company's line of credit to help fund the
acquisition.
These unaudited pro forma results are presented for comparative purposes only.
The pro forma results are not necessarily indicative of what actual results
would have been had the acquisition been completed as of the beginning of the
respective period, or of future results.
7. DERIVATIVES AND HEDGING
On June 11, 2002, the Company entered into cross currency rate swaps, with a
notional amount of $11.6 million, as a cash flow hedge against 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 April 3,
2004, was $6.0 million and the fair value of the outstanding cross currency rate
swap agreements was recognized as a $1.1 million liability and as a charge to
comprehensive loss in the Consolidated Balance Sheet at April 3, 2004.
Derivative financial instruments involve, to a varying degree, elements of
market and credit risk not recognized in the consolidated financial statements.
The market risk associated with these instruments resulting from interest rate
movements is expected to offset the market risk of the underlying transactions
being hedged. The counterparties to the agreements relating to the Company's
cross currency rate instruments consist of major international financial
institutions with high credit ratings. The Company does not believe that there
is significant risk of non-performance by these counterparties because the
Company monitors the credit ratings of such counterparties, and limits the
financial exposure and amount of agreements entered into with any one financial
institution. While the notional amount of the derivative financial instruments
provide one measure of the volume of these transactions, they do not represent
the amount of the Company's exposure to credit risk. The amounts potentially
subject to credit risk (arising from the possible inability of counterparties to
meet the terms of their contracts) are generally limited to the amounts, if any,
by which the counterparties' obligations under the contracts exceed the
obligations of the Company to the counterparty.
11
8. PENSIONS
The components of net periodic benefit cost for the first quarter of 2004 as
compared with the first quarter of 2003 were:
U.S. Pension Benefits Foreign Plans
---------------------- ----------------
2004 2003 2004 2003
----- ------ ---- ----
Service cost $ 737 $ 667 $ 281 $ 249
Interest cost 882 888 372 315
Expected return on plan assets (907) (916) (384) (311)
Amortization of prior service cost 3 3 (3) (3)
Amortization of transition asset - - (23) (26)
Amortization of net (gain) loss 48 28 52 -
Recognized actuarial loss - - - 63
------------------------------------------------
Total cost of the plan 763 670 295 287
Expected plan participants' contribution - - - (52)
------------------------------------------------
Net periodic benefit cost $ 763 $ 670 $ 295 $ 235
------------------------------------------------
The expected rate of return on pension plan assets is 8.75% in 2004 and 2003.
9. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended April 3, 2004, and
March 29, 2003, was approximately $9.3 and $3.5 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-sale securities.
10. STOCK-BASED COMPENSATION
The following table discloses our pro forma net income and diluted net income
per share had the valuation methods under SFAS 123 been used for our stock
option grants. The table also discloses the weighted average assumptions used in
estimating the fair value using the Black-Scholes option pricing model. Amounts
for the first quarter of 2004 as compared with the first quarter of 2003 were:
(In thousands, except per share amounts) 2004 2003
--------- ------
Net income as reported $ 9,606 $3,223
Stock option compensation expense, net of tax (284) (262)
--------- ------
Pro forma net income $ 9,321 $2,961
Basic net income per share
As reported $ 0.44 $ 0.15
Pro forma $ 0.42 $ 0.14
Diluted net income per share
As reported $ 0.43 $ 0.15
Pro forma $ 0.42 $ 0.14
12
Risk-free interest rate 3.55% 3.72%
Expected dividend yield 0% 0%
Expected stock price volatility 49.6% 45.7%
Expected life of options 8 years 8 years
These pro forma amounts may not be representative of future disclosures because
the estimated fair value of the options is amortized to expense over the vesting
period and additional options may be granted in the future.
11. NEW ACCOUNTING STANDARDS
In December 2003, the FASB issued revised Statement No. 132 (SFAS 132).
"Employers' Disclosures about Pensions and Other Postretirement Benefits." The
revised SFAS 132 requires additional disclosures about the plan obligations and
components of net periodic benefit cost recognized during interim periods. This
Statement is effective for financial statements with fiscal years ending after
December 15, 2003 and interim periods beginning after December 15, 2003. The
Company adopted the interim disclosure requirements effective January 1, 2004.
The adoption did not have any impact on the Company's financial position or
results of operations.
12. SUBSEQUENT EVENT
On May 6, 2004, the Company entered into a definitive agreement to acquire an
82% stake in Heinrich Industrie AG for (euro)39.5 million (approximately $47.2
million) in cash. Pursuant to this agreement, the Company purchased the
controlling interest in Heinrich Industrie from the company's two largest
shareholders. The Company also intends to promptly initiate a tender offer for
the remaining shares of this publicly held company. The transaction will be
financed through cash on hand and use of the Company's existing credit facility.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Sales by Market and Geography
(Dollars in millions)
FIRST QUARTER
------------------------------------
2004 2003 % CHANGE
-------- -------- --------
MARKET
Electronics $ 50.1 $ 37.2 35%
Automotive 28.2 24.6 15%
Electrical 8.7 8.2 6%
-------- -------- --
Subtotal 87.0 70.0 24%
Teccor 24.4 - -
-------- -------- --
TOTAL $ 111.4 $ 70.0 59%
======== ======== ==
FIRST QUARTER
------------------------------------
2004 2003 % CHANGE
-------- -------- --------
GEOGRAPHY
Americas $ 53.2 $ 34.7 53%
Europe 20.9 13.3 57%
Asia Pacific 37.3 22.0 70%
-------- -------- --
TOTAL $ 111.4 $ 70.0 59%
======== ======== ==
RESULTS OF OPERATIONS
First Quarter, 2004
Sales for the first quarter 2004 increased 59% or $41.4 million to $111.4
million, compared to $70.0 million in the first quarter of 2003. The increase
was driven by sales of $24.4 million from Teccor, which was acquired July 7,
2003. Excluding Teccor, sales for the first quarter 2004 increased 24% compared
to the first quarter of 2003.
On a geographic basis, sales in the Americas increased $18.5 million or 53% in
the first quarter of 2004, as Teccor added $11.6 million for the quarter.
Excluding Teccor, sales in the Americas increased $6.9 million or 19.9%, due to
strengthening automotive, electronic and electrical markets compared to last
year. Europe sales increased $7.6 million or 57% in the first quarter of 2004 as
Teccor added $4.3 million and favorable currency added $2.3 million. Asia sales
increased $15.3 million or 70% compared to the prior year first quarter, due to
$8.5 million of sales from Teccor, favorable currency effects of $0.9 million
and strengthening Asian demand for digital consumer products.
14
Electronic sales increased $37.3 million or 100% to $74.5 million in the first
quarter of 2004 from $37.2 million in the same quarter of last year with $24.4
million of the increase due to Teccor. Excluding Teccor, electronic sales
increased $12.9 million or 35% to $50.1 million compared to $37.2 million in the
prior year quarter. Electronic sales increased in the Asia region, primarily due
to increased demand for consumer electronics, notebook computers and handheld
products. The electronic markets in North America and Europe also improved
compared to the same period in the prior year due primarily to recoveries in the
telecom and industrial markets.
Automotive sales increased $3.6 million or 15% to $28.2 million in the first
quarter of 2004 compared to $24.6 million in the same quarter last year. North
America automotive sales were favorably impacted by product sold to a large OEM
customer in support of a recall program and Europe automotive sales benefited
from favorable currency effects.
Electrical fuse sales increased $0.5 million or 6% to $8.7 million in the first
quarter 2004 from $8.2 million in the same quarter last year. The electrical
fuse market has begun to show signs of improvement as industrial markets begin
to recover. The other key market, non-residential construction, remains weak.
Gross margin was $39.8 million or 35.7% of sales for the first quarter of 2004
compared to $23.1 million or 33.0% in the same quarter last year. The increase
in gross margin as a percent of sales was due to progress related to the Teccor
integration, operating leverage resulting from higher sales, cost reductions in
excess of price erosion and favorable currency effects.
Total operating expenses were $24.1 million or 21.6% of sales for the first
quarter of 2004 compared to $17.8 million or 25.5% of sales for the same quarter
last year. The reduction in operating expenses as a percent of sales reflects
improved expense leverage resulting from the Teccor acquisition.
Operating income increased to $15.7 million or 14.1% of sales in the first
quarter of 2004 compared to $5.2 million or 7.5% in the prior year. Operating
income increased due to higher sales, increased gross margin and reduced
operating expenses as a percent of sales as explained 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 due to lower debt levels. Other
expense was $0.3 million for the first quarter of 2004 compared to other income
of $0.3 million in the first quarter of the prior year. The prior year includes
a $0.2 million gain related to the sale of a Korean manufacturing site.
Income before income taxes was $15.0 million for the first quarter 2004 compared
to $5.0 million for the first quarter of 2003. Income taxes were $5.4 million
with an effective tax rate of 36% for the first quarter of 2004 compared to $1.8
million with an effective tax rate of 36% in the first quarter of last year.
Net income increased to $9.6 million in the first quarter this year compared to
$3.2 million in the first quarter of last year and diluted earnings per share
increased to $0.43 in the first quarter this year compared to $0.15 per diluted
share in the same quarter last year.
15
LIQUIDITY AND CAPITAL RESOURCES
Assuming no material adverse changes in market conditions , management expects
that the Company will have sufficient cash from operations to support both its
operations and its current debt obligations for the foreseeable future.
Littelfuse started the 2004 year with $22.1 million of cash. Net cash provided
by operations was $2.9 million for the first three months. Net cash used in
investing activities included $3.0 million in purchases of property, plant and
equipment. In addition, net cash provided by financing activities included stock
option exercises of $1.9 million. The net cash provided by operations, less
investing and financing activities, resulted in a $1.8 million net increase in
cash. This left the Company with a cash balance of $23.9 million at April 3,
2004.
The ratio of current assets to current liabilities was 2.0 to 1 at the end of
the first quarter 2004 compared to 1.8 to 1 at year-end 2003 and 2.4 to 1 at the
end of the first quarter 2003. The days sales in receivables was approximately
49 days at the end of the first quarter 2004, compared to 50 days at year-end
2003, and 56 days at the end of the first quarter 2003. The days inventory
outstanding was approximately 69 days at the end of the first quarter 2004
compared to 71 days at year-end 2003 and 91 days at end of the first quarter
2003.
The Company's net capital expenditures were $3.0 million for the first quarter
2004. Included in this amount were expenditures for plant expansions in China
and equipment related to capacity increases and cost reduction.
Total debt at the end of the first quarter 2004 totaled $28.8 million and
consisted of the following: (1) 6.16% private placement notes totaling $20.0
million, (2) foreign revolver borrowings totaling $8.5 million, and (3) notes
payable relating to mortgages totaling $0.3 million. Of this indebtedness, $18.7
million is considered to be current liabilities. The Company has a $50.0 million
in the U.S., of which $50.0 million was available at April 3, 2004. The
revolving bank credit agreement has an interest rate of prime or LIBOR plus
0.875%. The Company also had $1.9 million in letters of credit outstanding at
April 3, 2004.
OUTLOOK
Sales in 2004 are expected to improve slightly in the automotive and electrical
markets. Sales in the electronics market are expected to show steady growth,
particularly in Asian markets. As these markets improve, the Company believes
its long-term growth strategy, which emphasizes development of new circuit
protection products and providing customers with solutions and technical support
in all major regions of the world, will drive sales growth in all of its
markets.
The Company will initiate a new series of projects in 2004 to consolidate and
reduce costs in its global manufacturing and distribution operations. These
programs are expected to generate sufficient cost savings to more than offset
price erosion in 2004. The Company also plans to increase research and
development spending to accelerate new product development in order to help
drive future sales growth. The benefits of incremental volume improvements and
cost savings are expected to continue to have a favorable impact on earnings in
2004.
16
The Company is working to expand its market share in the overvoltage circuit
protection market with the addition of products and technology through the
Semitron Industries, Harris Suppression Products, Teccor and Heinrich Industrie
AG acquisitions and the ability to offer customers total circuit protection
solutions. The Company remains committed to investing in new product development
and technical resources to provide customers with overcurrent and overvoltage
circuit protection solutions and expertise.
"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 forward-looking statements
that involve risks and uncertainties, including, but not limited to, product
demand and market acceptance risks, the effect of economic conditions, the
impact of competitive products and pricing, product development and patent
protection, commercialization and technological difficulties, capacity and
supply constraints or difficulties, exchange rate fluctuations, actual purchases
under agreements, the effect of the Company's accounting policies, labor
disputes, restructuring costs in excess of expectations, pension plan asset
returns less than assumed, and other risks which may be detailed in the
Company's Securities and Exchange Commission filings. Should one or more of
these risks or uncertainties materialize or should the underlying assumptions
prove incorrect, actual results and outcomes may differ materially from those
indicated or implied in the forward-looking statements. This report should be
read in conjunction with information provided in the financial statements
appearing in the Company's Annual Report on Form 10-K for the year ended January
3, 2004.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign exchange rates,
commodities and to a lesser extent, interest rates.
The Company had long-term debt outstanding at April 3, 2004, in the form of
fixed rate private placement notes, a U. S. variable rate revolving line of
credit and foreign lines of credit at variable interest rates. Approximately 69%
of the Company's long-term debt is at fixed rates and primarily consists of bank
loans and mortgages. The Company does not enter into derivative transactions
(i.e., interest rate swaps) with respect to its long-term debt, as the current
interest expense on this debt is not deemed material to operations.
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 products could
affect the Company's sales and financial results. The Company primarily utilizes
17
netting and offsets to reduce known foreign currency exposures and, when
appropriate, derivative instruments as hedges of specific foreign currency cash
flows.
The Company has entered into cross currency rate swaps with a notional amount of
$11.6 million. The cross currency swaps convert $11.6 million of the Company's
fixed rate 6.16% U.S. Dollar debt to fixed rate 3.13% Japanese Yen debt. The
fair value of the rate swap agreements outstanding at April 3, 2004, which had a
notional amount of $6.0 million, was recognized as a $1.1 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 that 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
As of April 3, 2004, the Chief Executive Officer and Chief Financial Officer of
the Company evaluated the effectiveness of the disclosure controls and
procedures of the Company and concluded that these disclosure controls and
procedures are effective to ensure that material information relating to the
Company and its consolidated subsidiaries has been made known to them by the
employees of the Company and its consolidated subsidiaries during the period
preceding the filing of this Report. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the last day they were evaluated by our Chief
Executive Officer and Chief Financial Officer.
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit Description
31.1 Certification of Howard B. Witt, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Philip Franklin, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
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32.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C Section 1350
(b) Reports on Form 8-K filed during the quarter ended April 3, 2004
A Current Report on Form 8-K (Items 7 and 9) filed on
February 3, 2004.
A Current Report on Form 8-K (Items 5 and 7) filed on March 5, 2004.
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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 3, 2004, to be signed on its behalf by the undersigned thereunto
duly authorized.
LITTELFUSE, INC.
Date: May 10, 2004 By /s/ Philip G. Franklin
---------------------------------
Philip G. Franklin
Vice President, Operations Support
and Chief Financial Officer
(As duly authorized officer and
as the principal financial and
accounting officer)
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